The Scotiabank REIT analyst updates his top picks and details the soft landing for the sector

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

Scotiabank REIT analyst Mario Saric rounds up his top picks and details his belief that private deals will signal a soft landing for the sector,

“CAD REIT avg. FFOPU (Funds from Operations per Unit) and SSNOI (Same Store Net Operating Income) growth in Q1 year-over-year = 1.4% (Q4 = +1.6%) and 4.3%, with FFOPU +0 .4% and -0.6% compared Scotland and consensus. Our 2024E/2025E AFFOPU (adjusted funds from operations) decreased 0.4%/0.6% compared to consensus 0.7%/1.0%; IFRS FV (fair value) as a % of unit price decreased by 1% compared to 3% in Q4 and 5% in Q3 (lowest FV loss since Q3/22). For both Scotland and IFRS, NAV capitalization was +5 bps q/q, while implied capitalization decreased by 3 bps q/q. Our average REIT NAVPU (net asset value per unit) decreased 1.5% q/q. compared to growth of 2% in Q4 2023. Changes in ratings: We upgraded Sienna Senior Living to SO (higher performance in the sector), while we downgraded Dream Residential, ERE and RioCan (link) to SP. We have recently started cooperation with FirstService Corp (FSV) – link to our initiation. Our top growth picks = BAM, CAR, CSH, GRT, IIP, SVI. Most frequently selected values ​​= AP, BN, DIR. The most frequently chosen incomes = AP, BAM, CHP, CRR, CRT, SIA. We continue to point to accelerated private market transactions (end of year; Q1 = 4-year low according to Morguard) as part of the soft landing and the onset of BoC/Fed interest rate cuts as a key catalyst for CAD REIT sentiment (i.e. confirming the medium level of discount for our sector amounting to ~20% P/NAV). We still expect the sector to decline in the meantime.”

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RBC Capital Markets analyst Sam Crittenden sees a future for copper prices, but expects only a pause in the long-term rally,

“After trading in a range of around $3.75 per pound earlier in the year, the dam finally broke in mid-March when Chinese mills admitted they did not have enough concentrate and announced plans to cut production (which has not yet occurred). . . Since then, the price of copper has increased by 22% to $4.65/lb, and the Comex recently set new all-time highs above $5.00/lb. We expect prices to remain strong throughout the year and will raise our 2024 estimate to $4.39/lb from $4.25/lb (which means ~$4.70/lb for the rest of the year, with average price of USD 4.05/lb year-to-date) due to ongoing supply constraints and limited inventories; however, our view is tempered by our expectations of improving supply through 2025 and modest demand in China… We believe the energy transition, including renewable energy, electric vehicles and related grid improvements, could boost demand for copper, and data center construction could also boost a new layer of demand. This growing demand contrasts with an aging supplier base, where little new supply is foreseen after 2025 and building new mines is becoming increasingly difficult due to rising costs and social concerns. For this reason, we believe a period of higher prices is needed to stimulate investment in new copper mines, and we have increased our price estimate for 2026-2028 to $5.00/lb from $4.50/lb.”

The analyst has outperform ratings on Teck Resources, Ivanhoe Mines, Capstone Mining, Hudbay Minerals and First Quantum.

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BMO Chief Investment Strategist Brian Belski Continues to Beat the Drum for Canadian Stocks

“Despite lagging the S&P 500 to date, we believe the TSX remains poised to reverse course and begin to overtake its neighbor to the south by the end of 2024. As a reminder, we recently raised both our S&P 500 and S&P/TSX targets to 5,600 and 24,500, respectively. These new targets assume a nearly 5.5% return for the S&P 500 and a solid 9.5% return for the S&P/TSX at year-end …we believe growth in Canadian equities will be driven by strong relative value performance, improving fundamental sentiment, a return in foreign flows and overall growth in U.S. mega-cap equity performance. Moreover, when we analyze the current performance of the Canadian index, two of the three largest sectors in the TSX (energy and materials) are already significantly outperforming the TSX this year. In fact, our work shows that the TSX typically outperforms the SPX when two of the three outperform, and rarely underperforms when ALL three of the three large sectors perform.”

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Diversion: “How to Pick Stocks Like You Were Congress” – The New Yorker