‘We still think 2024 can be a good year for REITs’, Scotiabank says in providing top picks

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

Scotiabank analyst Mario Saric summarized the findings from the firm’s recent REIT conference,

“This year investor (and REIT) focus was very much on the ability to convert SSNOI [same store net operating income] growth into FFOPU [funds from operations per unit] growth … we sense investors are doing work on REITs given significant perceived trading discounts to NAV … We still think 2024 can be a good year for CAD REITs, but some patience is required… lack of investor confidence in NAVPU [net asset value per unit] as a primary metric … has increased client focus on FFOPU/AFFOPU [adjusted funds from operations per unit] growth … we think select REITs that have lagged YTD but where we see a significant acceleration in FFOPU growth could do especially well. REITs with SO ratings that align with that strategy include IIP and SVI (in particular), followed by TCN, CRR, and AP… The value divide has expanded; history suggests Value should be bought, but we think Growth should still lead the recovery… Our Top Growth Picks = BAM, GRT, HOM, IIP, SVI, TCN. Top Value Picks = AP, BN, CAR, CSH, DIR, MHC, REI. Top Income Picks = CHP, CRR, CRT.”

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Jefferies strategist Christopher Wood is bullish on equities in India,

“By historical standards, valuations for the big cap stocks are not particularly extended. It is also the case that foreign investors are not as overweight India as might be thought given that it is now consensus that India is the long-term structural growth story in Asia, not China. In this respect, a chart in Jefferies’ head of India research Mahesh Nandurkar’s presentation at last week’s Jefferies Asia Forum showed that the 30 biggest global emerging market funds, managing US$210bn, are only about 1% overweight the neutral weighting of 15%”

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Goldman Sachs analysts do not believe artificial intelligence-related stocks are in a bubble,

“[The] slate of “early winners,” including makers of semiconductors needed to build AI technology and cloud service providers with the computing infrastructure to commercialize it, returned roughly 60% through the first eight months of 2023. Even though these stocks rose, they don’t appear to be in a bubble,” Peter Oppenheimer, chief global equity strategist in Goldman Sachs Research, writes in the team’s report. “The valuations of the stocks leading the market are not as stretched as in previous periods, such as the dot-com bubble that collapsed in 2000, and the companies have unusually strong balance sheets and return on investment. These companies are already profitable and generate cash, so they can invest even in an environment of high interest rates.”

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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report is always a good – if not difficult to digest – read,

“Zeitgeist: “When Europeans & Asians worry about the future they save money; when Americans worry about the future they spend money.” … Tale of the Tape: US nominal GDP to jump 6% in ‘23, adding $1.6tn to $27tn economy. The Price is Right: nothing screams “bear market in conviction” more than Money Market Funds seeing $1tn of inflows YTD… cash goes to bonds in hard landing, stocks & credit in soft landing, stays in cash & goes to commodities in no landing … Three years on [from September 2020]: US nominal GDP has surged 40% on back of $12tn monetary & fiscal stimulus, inflation up from 1% to 9% now back to 3%, global yields up from 5000-year lows (10-year Treasury yield 0.5% to 4.3%), global equity market cap up $15tn to $105tn, and the asset winners have been crypto 140%, commodities 140%, and the Nasdaq 25%, the losers banks -22%, bonds -23%, China stocks -35%. … we say COVID + war accelerated shift from monetary to fiscal excess, from capital to labor, from globalization to isolationism, from peace to war, plus net zero climate goal”

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