Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi analysts Tom Mulqueen and Maximilian J Layton lowered their price target for copper, zinc and nickel,
“We lean modestly bearish copper near term as net speculative positions imply the market is pricing a stronger global growth recovery than our economists expect. We revise our copper 0-3-month price forecast to $8,500 per ton (from $10,000/t) – Last month we highlighted upside in copper from short covering. However, this failed to materialise as faltering macro-sentiment relieved pressure on shorts. In a more recent note we reiterated our belief that copper is already pricing a China-led growth recovery … We expect further zinc price downside in the months ahead and abandon our previous call for price resilience in Q1 - Zinc hit our 0-3 mth pt price forecast of $3,500/t in late-January but since has retreated to as low as $3,000. In our January note, we detailed our bearish zinc price view beyond Q1′23 on the prospect of improving supply as softer European power prices and a global concentrate surplus raised the likelihood of zinc smelter restarts. We believe the market has started to price this in sooner than we expected … We move our 0-3-month price forecast to $2,900 per ton (from $3,500/t), revise our Q1′23 average forecast to $3,100/t (from $3,400/t) … Missing nickel discovery supports our bearish price view - Last week, Bloomberg reported Trafigura recorded a $577 million impairment after discovering missing nickel in cargos it had purchased (9 February, Bloomberg) as part of a repo arrangement … We reduce our 0-3-month nickel price to $24,000/t (from $26,000/t), while revising our Q1′23 average price forecast higher to $27,000/t (from $25,000/t "
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I don’t usually deal with individual company names in this daily research summary, but NVIDIA Corp., “the smartest company in the world”, is poised to gain from the spread of artificial intelligence according to BofA Securities,
“NVDA’s full-stack of accelerated silicon/systems/software/developers positions it uniquely to lead the nascent generative AI arms-race among global cloud and enterprise customers. We have constructed a new model that predicts NVDA’s sales… could grow at a 25%/34% CAGR [compound annual growth rate] to >$14/sh by CY27E [calendar year 2027] as adoption of generative AI quadruples the addressable oppty for AI accelerators. We raise our PO [price objective] to $255 from $215 based on 44x CY24 PE (vs. 37x prior), within 20x-59x historical fwd. PE range as AI adoption potentially catalyzes long-term data center growth…We forecast generative AI to drive a $62bn accelerator TAM [total addressable market] by CY27, 6x vs CY22 levels and $20bn incremental to conventional AI base case.”
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Alex Makedon, cross-asset and quant strategist also at BofA Securities argued for value investing strategies in “Valuation doesn’t matter …” despite the popularity of price momentum strategies among current portfolio managers (his quotes),
“‘Price is the best predictor of price.’ We hear this a lot, and the unwavering faith in price momentum investing is likely attributable to a liquidity-fueled decade … The average portfolio manager (~45 y.o.) has seen a financial crisis during which statistically cheap stocks were traps, followed by a decade during which value factors destroyed alpha almost every year while investing based on past price return turned in hefty alpha. The few value investors left see post-COVID shifts as a sort of come-uppance: Value (proxied by long-short EV/EBITDA) has returned 30 ppt since December 2020, whereas price return produced no alpha. And prior to the GFC, valuation was a far better signal than basing future forecasts on past price returns”
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Diversion: “How HBO’s The Last Of Us transformed Alberta into a zombie wasteland” – Maclean’s
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