Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Robert Hope detailed strong growth for domestic natural gas and natural gas liquids infrastructure stocks.
“Keyera and AltaGas announced volume agreements that we view as highly synergetic and a win-win for both companies. Keyera has entered into a 15-year tolling agreement for 12.5 mbbl/d of day of NGLs through AltaGas’ Ridley Island Energy Export Facility (REEF). With these volumes AltaGas has reached its contracting target for REEF. Investors did have some concern on REEF contracting, so this should alleviate these. AltaGas has also entered into an 18-year agreement for 8 mbbl/d of volumes at Keyera’s fractionation facilities. There are also agreements to access Keyera’s rail and storage assets. These incremental volumes could help backstop a further expansion of Keyera’s fractionation (KFS III), which is not yet in our model. We like the outlook for natural gas / natural gas liquids (NGL) midstream growth in Western Canada, which supports our positive view on both companies. We reiterate our Sector Outperform rating on both ALA and KEY”
Keyera Corp has an indicated yield of 5.0 per cent and Altagas Ltd has a 3.6 per cent yield.
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BMO chief economist Doug Porter believes tariff threats will be with us for a while,
“There seem to be two trains of thought that have since emerged: 1) One camp would have it that the President has shown his hand, and/or was dissuaded by the sour market reaction as well as intense lobbying by affected U.S. businesses, and that the major threat is now over. 2) Another camp believes that this is just the opening salvo in what could be a months/years-long series of on-off trade threats that could still easily devolve into serious tariffs. We suspect the latter …The Bank’s own research suggested that a trade war could chop GDP growth by about 2.5 ppts this year and another 1.5 ppts in 2026, leaving growth close to nil over the two years.”
In the same weekly report, BMO Canadian rates and macro strategist Benjamin Reitzes argued that “Canada’s not Helpless” and should use the tariff threat to motivate productivity growth.
“The question Canadians should be asking policymakers is: How are you going to improve my standard of living? The focus should then be on how to drive productivity growth. That means improving incentives to invest and to work. Lower taxes are an easy starting point, though it needs to be on the business and personal side. When tax policy prompts aggressive avoidance (as it does in many cases in Canada), it’s time to look at the entire tax code … Cutting red tape and a looser regulatory environment would also be highly beneficial. One glaring issue with Canada is the national obsession with housing. This will take great courage to tackle, but we need to change the incentives around home buying/selling in order to push people toward more productive endeavours … Key Takeaway: More work, more incentive to work. Build businesses and make Canada an attractive place to grow”
“Canada-U.S. Trade: The Risk-man Cometh” – BMO Economics
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Morgan Stanley strategist Michael Zezas explains why U.S. industrial stocks might be worth following,
“Tariffs, export controls, and investment restrictions are part of a policy toolkit that has expanded considerably in recent years. They create new costs for companies trading in products and geographies deemed undesirable vis-à-vis national and economic security. It’s a major shift from the era of globalization, when companies shrank expenses by pursuing lower-cost labor and materials offshore. This transition is likely to take many years … Equity investors should consider new pressures on supply chains. There’s evidence that in recent years companies have invested in supply chain realignment to avoid rising trade and compliance costs. But there’s still much work to be done. It may be particularly challenging in sectors such as IT Hardware, Autos, and in some Consumer sectors. However, it could be a boon for the US Industrial sector, which, as my colleague Chris Snyder argues, will play a key role in facilitating the physical capital investment companies need to adjust.”
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Diversion: “Why People Act So Weirdly at Airports” – Wired (soft paywall)