A Canadian company is among Morgan Stanley’s 45 highest conviction analyst stock picks

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

BofA Securities U.S. quantitative strategist Savita Subramanian details how much the outlook for equities has deteriorated since the beginning of 2022 and cuts her S&P 500 forecast,

“We weren’t forecasting a war, and the Russia/Ukraine conflict exacerbated commodity price inflation and also hit Europe GDP hard. The Fed (and other central banks) have shifted to a far more hawkish stance. China growth is worsening (note) and other cyclical indicators (trucking data note, news-flow note) have rolled over. This is all against a backdrop of cyclically peaked S&P 500 EPS facing secular margin pressure (de-globalization), still lofty valuations and a Fed taper still in play … But some good: post-COVID visibility, consumer resilience Our analyst survey and earnings season revealed some alleviation in labor and raw materials prices and manageable margin risks post-COVID (see survey). Better-than-expected consumption (especially in the lower income cohort) despite inflation and a big uptick in spending on services (admittedly at the expense of big ticket spend) are positive. A likely peak in rates and rates volatility could lower the S&P 500 discount rate … We shave 100pts off our S&P 500 year-end target to 4500 based on a lower trading price today netted against a reduction in our equity risk premium assumption on lower rates volatility. Note that the average peak-to-trough decline in the S&P 500 amid recessions has been ~32%. Thus, the S&P’s 10% YTD decline can be very roughly interpreted as discounting a one-third chance of a recession”

“BofA: Outlook has deteriorated a lot YTD, SPX forecast cut” – (research excerpt) Twitter

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Credit Suisse U.S. quantitative strategist Patrick Palfrey took a look at equity valuations and found that companies that outperform during periods of rising inflation are trading at a discount,

“Despite concerns around inflation, market internals do not appear to reflect such anxiety. More specifically, those companies that benefit from rising inflation are trading at a steep discount relative to their peers who benefit from falling prices, despite substantially faster expected EPS growth (13.1% vs. 8.0%).”

Mr. Palfrey listed the top 50 stocks that benefit from inflationary environments. Those that are likely to be most of interest to Canadian investors (not energy or financials) include Caterpillar Inc., General Electric Co., Under Armour Inc., Twitter Inc., Albemarle Corp., Dow Inc., SolarEdge Technologies Inc., Bath & Body Works Inc. and Mosaic Co.

“CS: Top 50 U.S. beneficiaries from inflation pressure” – (table) Twitter

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Morgan Stanley has started a new initiative, listing the highest conviction stock picks from their North American equity analysts. One Canadian company, Suncor Energy Inc., made the cut.

Others that might interest domestic investors on the 45 member list (in no particular order) include Warner Music Group Corp., Ferrari NV, Amazon.com Inc., Constellation Brands Inc., Procter & Gamble Co., Abbott Laboratories, Baxter International Inc., Thermo Fisher Scientific Inc., Eli Lilly & Co., Northrup Grumman Corp., Sunrun Inc., Palo Alto Networks Inc., Apple Inc., Salesforce Inc., and Corteva Inc.

“Morgan Stanley – 45 highest conviction analyst stock ideas” – (table) Twitter

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Diversion: “Humans Can’t Quit a Basic Myth About Dog Breeds” – The Atlantic

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