#5things: Before The Bell
Trump trade unwind, potash stocks pop, Scotiabank upgraded
Daylight savings time. For most it means an extra hour of sleep. For parents, it means you somehow lose an hour of sleep but also gain three hours during the day. Few understand this.
On second thought: Investors are walking back bets Donald Trump will be President. The Trump trade has been sell treasuries and clean energy, buy Trump Media. This morning Trump Media is down, treasuries and clean energy stocks are bid. The betting markets saw Harris get a bump in odds to win over the last couple of days. Futures are stoic in the face of the election tomorrow. The Fed makes its rate decision on Thursday (normally its Wednesdays). Will we know who is President by then? Regardless the Fed is widely expected to cut interest rates by 25 basis points. I’ll watch for how unanimous the decision is and of course what they say about the path forward considering strong economic data.
Quite a rainy day fund: Warren Buffett’s cash pile has now reached a record $325.2 billion and he was also a net seller of stocks. Berkshire also trimmed its stake in Apple once again. This comes as the S&P 500 has been on a tremendous ride. “In the 12 months ending October,” says Bespoke Investment Group, “the S&P 500’s total return of 38% ranks 92nd percentile relative to all other periods and is more than triple the long-term average of 11.9%.” Some fear that Buffett’s cash is a signal he thinks a crash is coming. But others say the cash pile isn’t a tell for the markets. “Last time Warren Buffett had this high % of cash in his Berkshire portfolio,” JC Parets of All Star Charts wrote, “The stock market immediately went on to have the greatest 52-weeks in American history. The time before that, the bull market in stocks lasted for 3 more years.”
No life without soil: Watch the fertilizer stocks this morning, they are all higher in the pre-market. Eleven years ago potash markets were roiled when the Belarus and Russian marketing cartels that coordinated production and thus prices broke up. Well, it looks like the band might be getting back together. Specifically, Belarus President Lukashenko stated to the new CEO of Belaruskali, “Maybe we should talk to the Russians, consult and reduce the production of potash fertilizers by 10%, maybe 11%”. Together they control about 30% of global shipments, according to Ben Isaacson at Scotia who is my go-to in the sector. Shares of Nutrien and Mosaic are up between 5-7% right now on the news. Isaacson says this is positive for the sector and says investors may expect similar moves from the Canadian cartel (Canpotex).
Going south for the winter: BCE is making its first major foray into the US with a $5 billion acquisition of fibre network company Ziply. The company will fund the deal using the proceeds from the sale of its stake in MLSE. The deal gives them a footprint in the US by adding 1.3 million fibre optic locations in Washington, Oregon, Montana, and Idaho. BCE is also pausing dividend growth. I will watch how investors react at the open. They may flinch at the pause in dividend growth but the CEO is selling the deal as a growth opportunity. “The US lags Canada in terms of homes that have access to fibre,” BCE CEO Mirko Bibic said in a statement, “There’s a big growth opportunity.”
Notable calls: Even though Air Canada is up 40% from the August lows, Stifel is upgrading the airline to Buy. The analyst said recent results are better than feared and even with that rally the stock is cheap. Noting it only trades at around 3x earnings which is below it’s pre-pandemic average and well below US peers. TD is upgrading Scotiabank this morning. Of all the Canadian banks, TD’s Mario Mendonca believes Scotia has the best return on equity improvement potential and that should drive the stock higher. Another analyst at TD is upgrading construction company Aecon. This one is interesting because Aecon is trading at the highest level since the 1990s and the stock has already doubled this year. Still, the analyst says the valuation is compelling. I’m no technician, but that is a 30-year base. I’m reminded of that old refrain “the longer the base, the higher in space.”
Correction: An earlier version incorrectly stated BCE was boosting its dividend and pausing increases in the future. It is maintaining its dividend and pausing any increases. I regret the error.