CIBC’s top stock picks in Canadian technology

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

Morgan Stanley analyst Matthew Harrison provided an extraordinarily detailed outline of the risks surrounding the delta variant of COVID in Addressing the Top Delta Variant Questions,

“While we expect new cases to remain elevated due to slowing vaccine penetration and the higher transmissibility of the delta variant, we do not believe the variant will impact reopening in the US/EU. However, as we have previously indicated, countries with low vaccine penetration, especially in South East Asia, Africa and other EM economies remain at elevated risk… Coronaviruses are more stable compared to viruses with high mutation rates such as the flu. However, because of the high replication velocity globally (i.e., the significant rate of new infections across many countries), the mutation rate of SARS-CoV-2 is currently similar to the flu. Until global cases rates are lowered significantly (which we do not expect until 2H22) new variants are likely to emerge and potentially pose a risk. While many of the key mutations are likely known, novel combinations could pose a risk to vaccine efficacy … The Delta variant currently accounts for ~99% of cases that are sequenced across the UK [ref]. In the US, ~60%+ of new cases are attributed to the Delta variant, rendering it the dominant variant”

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“@SBarlow_ROB MS: everything you need to know about the Delta variant” – (research excerpt) Twitter

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Citi strategist David Lubin believes we are past peak optimism for economic and profit growth but also past peak inflation fears,

“Expectations about the global recovery are softening, especially outside the US, thanks mainly to i) a moderate slowdown in China, and ii) rapid spread of the Covid-19 delta variant… it remains the case that restrictions on mobility – either government-led or self-induced – will create downside risks for activity. Yet even as economic data is surprising to the downside, inflation continues to surprise to the upside, especially in advanced economies. Either this is loosely-defined ‘stagflation’, or the supply shocks that are helping to keep inflation high will dissipate. We think the latter is probably more accurate, and so having moved beyond ‘peak optimism’ about the recovery, we are soon likely to move beyond ‘peak anxiety’ about inflation … our coincident and leading indicators for global growth (through June and September respectively) are showing signs of topping out in the aftermath of the Q1 data.”

“@SBarlow_ROB Citi: We’re past peak market optimism, but also past peak inflation fears” – (research excerpt) Twitter

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CIBC analyst Stephanie Price published her top picks list for Canadian technology stocks,

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“EBITDA expected to be up in the low- to mid-teens year-over-year. That being said, we expect the Q2 focus to be company specific, with some companies benefiting from an easier Y/Y comparison (GIB.A, LWRK, CDAY) while others (ENGH, KXS, DCBO) are lapping very strong year-ago quarters. We expect FX to create additional headwinds for CAD reporters and a tailwind for USD reporters. In some cases, this FX impact could be material, ranging from an expected -6% (ENGH) to +7% (TIXT) within our coverage universe… With tech valuations compressing during the quarter, SaaS [ software as a service] names are now trading at only ~1x above their two-year average EV/NTM Sales [enterprise value to next 12-month sales] , while mature software names are trading 0.6x above their two-year average. Given that the pandemic has accelerated digitization plans and technology spending, we see pockets of the tech space as attractively valued at these levels, including TIXT, LWRK and CSU”

“@SBarlow_ROB CIBC’s top picks in Canadian technology” – (research excerpt) Twitter

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BMO economist Priscilla Thiagamoorthy noted a slowdown within a red-hot domestic housing market,

“New home prices climbed 11.9% in June compared to a year ago, the fastest pace since 2006. Kitchener– Cambridge–Waterloo (+27.7%), Ottawa (+26.2%), Windsor (+22.8%) and Montreal (+19.9%) led to the upside with all four regions posting record jumps. Looking at month-to-month movements, prices climbed 0.6% in June, marking the slowest pace this year. That’s still a pretty strong number, and prior to the past year, it would have been one of the fastest rises in the past 10 years. Make no mistake, the housing market remains red hot. But, signs suggest a slight moderation in price growth, as buyer fatigue sets in and more workers return to the office”

“@SBarlow_ROB BMO: Cdn housing market moderating, still red hot” – (research excerpt) Twitter

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Diversion: A Priest Was Outed by His Phone’s Location Data. Anyone Could Be Next” – Gizmodo

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