Overweight Canadian banks?

Monday, September 21st, 2009

Darko Mihelic, financial sector analyst at CIBC World Markets believes there is a viable case for investors to overweight bank stocks. All but CIBC recently beat the street, and healthily. So what do you do?

Andrew Willis, Globe and Mail columnist writes:

This situation leaves analysts with two options. Door No. 1 is to tell institutional clients that the banks stock are expensive, and likely to tumble, or at least go sideways, and should therefore be under-weighted in portfolios. Much of the Street is pitching this strategy right now. It’s not without risk: The banks make up a substantial portion of the equity benchmark, and if they continue to rally, anyone underweight banks will underperform.

Mihelic’s case is:

On Friday, Mr. Mihelic rolled out his estimates for 2011 earnings at the major Canadian banks. His crystal ball says the banks will, on average, see their profits rise 27 per cent from what they are expect to post in 2010.

…

“Valuing the bank stocks on reasonable valuation parameters, the group appears to have approximately 17 per cent total return upside from current levels, on average.”

…

“Near-term challenges could affect the stocks since the group “looks” expensive on fiscal 2010 estimates,” said Mr. Mihelic. “. However, we believe investors can go overweight with the group and use short-term noise as an opportunity.”

Read the whole article here:

The case for overweighting banks - The Globe and Mail.

Tags: Andrew Willis, Bank stocks, Banks, Benchmark, Canada, Canadian Banks, CIBC World Markets, Columnist, Crystal Ball, Earnings, Estimates, Financial Sector, Globe And Mail, Globe Mail, Institutional Clients, Investors, Parameters, Portfolios, Profits, Substantial Portion, Term Challenges, Term Noise
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“Loonie a Thoughtful Choice” (WSJ.com)

Monday, June 22nd, 2009

The Wall Street Journal suggests that Americans should think about investing in Canadian assets to take advantage of the recent interim weakness in the Loonie, as Canada’s economic outlook hinges on China and emerging markets’ demand for oil and commodities.

WSJ: While the loonie might bounce around in the next few weeks, the expected long-term trend is for Canadian vigor. Economists at TD Bank Financial Group forecast the U.S. and Canadian dollars will reach parity by year’s end, thanks to general U.S. dollar weakness and Canada’s stronger fiscal position. Canada, the world’s 10th-largest economy, has avoided bank bailouts and central-bank interventions.

The retail sales figures aren’t expected to reflect the recent rise in commodity prices that will likely buoy Canadian spending in the second half of the year. The U.S.’s neighbor to the north has long been tightly linked to the U.S., its biggest trading partner.

But the rise of the commodity demand from Asia is giving Canadians something else to watch.

Benjamin Tal, economist at CIBC World Markets, likens Canada’s exposure to the U.S.’s woes as like a secondhand smoker. Bad but not a direct hit.

And with China scooping up oil and metals that Canada produces, China is taking a bigger role in Canada’s fortunes.

Source: WSJ.com, June 19, 2009

Tags: Bank Financial Group, Canada, Canadian Assets, Canadian Dollars, CIBC World Markets, Commodities, Commodity Prices, Direct Hit, Dollar Weakness, Economic Outlook, Emerging Markets, Fiscal Position, Fortunes, Hinges, oil, Parity, Retail Sales Figures, Td Bank Financial Group, Term Trend, Vigor, Wall Street Journal, Woes, Wsj
Posted in Emerging Markets, Markets | No Comments »

Jeff Rubin: The Age of Scarcity (04/24/08)

Wednesday, April 30th, 2008

April 30, 2008 - CIBC World Markets Chief Strategist, Jeff Rubin, says that Oil will eventually reach $150/barrel in 2010 and over $200/barrel by 2012. He cites among the leading reasons, the advent of cheap cars from India and China, or rather Tatas and Cherys, that will enable millions of middle class Asians who couldn’t previously afford a car, to do so, Take these developments and place them agaisnt the backdrop of peak oil and a decline in oil exports from key suppliers, Saudi Arabia, Russia and Kuwait, and we are in the midst of a long term supply/demand imbalance. Here are couple of excerpts:

Whether we are already at the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity.

Our latest review of probable supply suggests oil production will hardly grow at all, with average daily production between now and 2012 rising by barely more than a million barrels per day (see pages 4-7). Despite the recent record jump in oil prices, the outlook suggests that oil prices will continue to rise steadily over the next five years, almost doubling from current levels.

While global oil supply is not growing, global gasoline demand is, and will continue to grow as cheap cars from Tata and Chery dramatically cut barriers to car ownership in the developing world. Millions of new households will suddenly have straws to start sucking at the world’s rapidly shrinking oil reserves.

Car purchases in Russia, for example, are exploding as US sales stagnate (Chart 2), while in India the advent of the Tata Nano, a car that will sell for as little as US$2,500 will allow millions of households in the developing world to own automobiles when they otherwise could not. It is the savings necessary to buy a car, not the price of gasoline that poses the greatest obstacle to fuel demand growth in those countries. But between rapidly rising domestic incomes and rapidly falling car prices, that obstacle is becoming more and more surmountable.

To read the complete report, click here:

StrategEcon: The Age of Scarcity, CIBC World Markets, April 24, 2008

Tags: Asia, Chart, Chery, China, CIBC, CIBC World Markets, Economy, energy, Excerpts, India, Jeff Rubin, Markets, Middle Class, oil, Oil Prices, Russia, Scarcity, Tata
Posted in Markets, Oil and Gas, Outlook | No Comments »