Top stock picks in a surging Canadian energy sector

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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Goldman Sachs analyst Damian Courvalin jacked up his forecast for global oil prices in the research report Solving for a tight market published Sunday,

“This faster rebalancing during what was expected to be the dark days of winter will be followed by a widening deficit this spring as the ramp-up in OPEC+ production lags our above consensus demand recovery forecast. While we believe that OPEC+, Iran and shale supplies can materially increase through 2H21, all these are likely to remain highly inelastic in coming months to even higher oil prices… our conviction [is] a tight oil market this summer, when we expect OECD inventories to normalize.

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“We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs – at least in the short run – to restart upstream activity. We further believe that this additional rally will be supported by the current repositioning for a reflationary environment with investors turning to oil, buying a lagging real asset that benefits from a stimulus driven recovery and has demonstrated an unmatched ability to hedge against inflation shocks. We now forecast Brent prices will reach $70/bbl in 2Q21 and $75/bbl in 3Q ($10 above our prior forecasts).”

“@SBarlow_ROB GS: oil to US$75 in Q3” – (research excerpt) Twitter

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Scotiabank analyst Cameron Bean provides a list of top Canadian energy picks while voicing a similarly optimistic tone on the energy sector,

“OUR TAKE: Positive. [futures and] spot prices for Q1/21 have moved well above our Scotiabank GBM [forecasts], with WTI and AECO both ~25% higher and Henry Hub ~7% higher. With the recent deep freeze across North America spiking natural gas spot prices at several hubs, further upside may be in the cards for well positioned producers. Full year 2021 [spot and futures prices] are also above forecasts (~15% for WTI and AECO and ~7% for Henry Hub). .. we expect material revisions to consensus cash flow forecasts for Q1/21 and 2021 as [industry price forecasts] are updated. We … see ~40% upside to Q1/21 consensus CFPS [cash flow per share], on average, with the highest differences for NVA, AAV, and ARX . For the full year, we see ~16 per cent upside on average, with the highest differences for NVA, AAV, and KEL “

“@SBarlow_ROB Top picks in energy from Scotia” – (research excerpt) Twitter

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Two important market observations from BofA Securities U.S. quantitative strategist Savita Subramanian (my emphasis),

“Our top [U.S.] sector for 2021, Financials, remained #1 in our tactical quantitative framework for the third straight month… this time, it ranked the highest on all three metrics: relative EPS revisions, relative price momentum and relative valuation. A perfect score for a sector rarely happens … suggesting the best backdrop for the sector in history. Rising rates, potential stimulus, reopening, resumed buybacks, strong earnings, etc. all point to a strong year for Financials. Within Financials, Consumer Finance, Banks, and Capital Markets screen as Opportunities What’s priced in? $3T in stimulus … Most of our indicators suggest stocks are pricing in a lot of good news. In fact, over $3T in stimulus may already be priced in on one measure: the ratio of S&P 500 market cap to the M2 money supply. The ratio currently stands at 1.7x, the highest level since Feb 2020, and to get to the post-crisis average of 1.4x, we estimate additional $3.1T of M2 would be needed. With the market largely pricing in the $1.9T stimulus proposal, we expect a passage of it will likely be a “sell the news” event. But there will be clear winners, in our view: cyclicals and small caps that are highly GDP-sensitive, where they still trade at a steep discount.

“@SBarlow_ROB Subramanian from ‘What’s Priced In?’ – (research excerpt) Twitter

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Diversion: “The messenger RNA technology that developed successful covid-19 vaccines could transform medicine. Next up: sickle cell, HIV, and malaria” – M.I.T. Technology Review

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