Top picks from the utilities and high-capacity pipeline sectors, compiled by a CIBC analyst

A daily summary of research and analysis from Scott Barlow, market strategist for The Globe and Mail

CIBC Capital Markets analyst Robert Catellier updated his view on the high-revenue utilities and energy sectors,

“We continue to believe that the energy/renewable energy sector is a good value and remain constructive in this sub-segment… Both AQN and EMA can use asset sales to de-risk their balance sheets, but may miss a material multiple re-rating due to the higher payout proportions… Power: First-quarter results were better than expected for most Power stocks, helping the stock rally over the past month. Moreover, the BEP agreement with Microsoft was timely given the increase in data center/GenAI workload. From our conversations with investors, it appears that the positive momentum and gains may be stalling, although the fundamental picture continues to improve with greater growth discipline… BLX and BEP are our preferred names to play in the renewables space. Thanks to strong first-quarter results and the potential for further buybacks, TA fell to a 52-week low. We believe there is more room for TA… Mid stream/pipelines: Q1 24 results generally exceeded or were in line with expectations (7% above consensus on average; six hits and zero misses), given strong core infrastructure performance and marketing strength. LCFS saw notable growth due to higher HDRD utilization, while outperformance of ALA, ENB, KEY and PPL showed significant strength across all segments. WMB is gaining strength in the upstream and gas and NGL marketing services segments.”

Mr. Catellier holds outperformer ratings on Superior Plus Corp., Enbridge Inc., Pembina Pipeline Corp., Tidewater Renewables Ltd., AltaGas Ltd., Brookfield Infrastructure and Gibson Energy Corp.

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BMO Chief Economist Doug Porter detailed why domestic economic growth and inflation pressures are lagging so much behind the U.S.

“The contrast between Canadian and U.S. inflation trends in 2024 could not be more stark. To pick just one glaring example, markets cheered last week’s April US CPI, where the core was still up 0.3%, and we expect a mild increase in the core PCE deflator next week of 0.2%. Good news, but that’s still higher than Canada’s last result of 0.1%… Leaving aside these onerous shelter elements, Canada’s inflation is currently a minuscule 1.2%… Leaving aside these onerous shelter elements, Canada’s inflation is currently at a minuscule 1 .2%… What is driving this growing inflation gap across North America? This can broadly be linked to much weaker economic growth and spending trends north of the border, as well as a tightening U.S. labor market. Food and energy costs have not played a role as the soft Canadian dollar and carbon tax have pushed up relative energy costs (up 4.5% y/y in Canada compared to 2.6% growth in the US), while food prices remain at very low level (increase by 2.3% and 2.2% respectively). Excluding food and energy, the inflation gap increases to 0.9%, with it being 3.6% in the US and 2.7% in Canada.

“Inevitable divergence?” – BMO economics

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Nvidia’s 10-to-1 stock split announcement is a catalyst for BofA Securities’ Research Investment Committee (RIC) to implement positive stock splits in the U.S.

“Eight companies have announced stock splits this year, including Walmart in January and Chipotle in March. The surge in Big Tech shares has led to four “Magnificent 7” mega-cap stock splits starting in 2022, with Google, Amazon and Tesla providing greater stock availability. Apple split in 2020. Today, Microsoft and Meta are approaching the $500 per share threshold. S&P 500 stocks with share prices above $500 represent a market capitalization of $7.4 trillion, or about 16% of the index… We recently updated our analysis, which found that splits have tended to benefit the companies that make them… The average rate of return a year later is 25%. compared to approximately 12% for the general market. Splits appear to be conducive to growth depending on the market regime, which management teams may consider if shares seem too expensive to buy back.

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Diversion: “Toronto hotel prices for Taylor Swift’s November visit are crazy” – A Journal of Musical Things