RBC analyst’s top pick amongst Canadian major oil and gas stocks

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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

“Canadian CPI continues to calm down after last spring’s unnerving sprint. Beyond the plunge in pump prices last month, we also saw a record monthly drop in appliances —reinforcing the point that the supply chain issues are fading as a driver. Note, though, that services prices are still up 5.6% y/y, warning of some persistence. Pulling some of the underlying strands together, the three-month trend on seasonally adjusted prices, excluding food & energy, eased to a 3.7% annualized pace.

“Favorite Canadian Major – Canadian Natural Resources Limited. Globally Distinguished. CNQ’s management committee structure and shareholder alignment are unique factors that distinguish the company globally. CNQ’s long-life, low-decline portfolio—anchored by low sustaining capital—affords the company with superior free cash flow generation throughout the cycle. Material Shareholder Returns.

“Negative consensus earnings revisions and analyst expectations for a lackluster 4Q 2022 earnings season continue the trend ofweakening corporate profitability in recent quarters. S&P 500 trailing 4-quarter return on equity declined by 29 bp to 20.6% in 3Q 2022 driven by a contraction in margins. At a sector level 7 of 11 S&P 500 sectors experienced declining ROE, with Info Tech suffering the largest drop and Energy expanding the most.

Mr. Kostin screened his universe for companies capable of improving ROE. Stocks most likely of interest to Canadian investors include Walt Disney, Nike Inc., Keurig Dr. Pepper, Becton Dickinson, Baxter International, Boston Scientific, NVIDIA Corp., Corning Inc., PayPal Holdings, and Advanced Micro Devices.

 

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