‘If there is no recession – which is our view – then risky asset prices are too cheap’: JP Morgan

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

Wells Fargo real assets analyst John LaForge is concerned about a looming global food crisis,

“As painful as the extra energy costs have been, higher global food prices may be the most troublesome trend. So far in 2022, corn, soybean, and wheat prices are higher by 31%, 28% and 36% respectively. These gains are unfortunately on top of similar price spikes in 2021… The United Nations Food and Agriculture World Food Price Index is up 60% since the start of 2021. And regrettably, this is as good as the food news gets. A confluence of factors in play could make it hard for food prices to drop in 2022 and 2023. We think the odds are increasing that some of the world poorest countries could soon face a food crisis ”.

Mr. LaForge sees a strong US dollar as an underrated cause of higher food prices in the developing world. He lists Egypt, where 70 per cent of the population requites food subsidies, as a potential flashpoint for social unrest.

“Wells Fargo: ‘” As painful as the extra energy costs have been, higher global food prices may be the most troublesome trend. “” – (research excerpt) Twitter


The global research team at JP Morgan released their mid-year outlook for the economy and markets with some non-consensus ideas,

“If there is no recession – which is our view – then risky asset prices are too cheap. For instance, small cap stocks in the US currently trade near the lowest valuations ever. Many equity market segments are down 60- 80%. Positioning and sentiment of investors is at multi-decade lows. So it is not that we think that the world and economies are in great shape, but just that an average investor expects an economic disaster, and if that does not materialize risky asset classes could recover most of their losses from the first half… Key Sector Calls: We continue to favor the Energy sector due to steadily improving fundamentals stronger growth prospect, improving quality, attractive valuation, and rising shareholder return… Healthcare offers earnings stability and capital return at a still favorable valuation. We expect the market to reward the sector for its defensive / secular growth at reasonable valuation… Thematic Recommendations… Long Cyclical over Defensives on increasingly attractive risk / reward given still intact business cycle, resilient fundamentals and rich Defensive valuations vs. Cyclicals ”

Recommendations to buy risky assets have been rare on Wall street lately.

“From JPM:” If there is no recession – which is our view – then risky asset prices are too cheap “- (research excerpt) Twitter


Citi US equity strategist Scott Chronert released his North America focus list of top picks,

“We refresh our highest conviction ideas with three new top ideas added to the North America Focus List. Adding to the Focus List: Buy-rated AutoZone and Thermo Fisher Scientific and Sell-rated Ionis Pharmaceuticals. Removing from the Focus List: Buy-rated Avery Dennison Corp., Dover Corporation, Ryman Hospitality Properties and United Airlines. … We have selected 14 names for the Focus List. Our criteria during the selection process include: (1) actionable stocks by excluding those with low liquidity; (2) preference for stocks that did not score poorly on Citi’s multi-factor quant model; and (3) bold stock calls that were significantly different from the Street in expected total returns, earnings forecasts or analysis. Our analysts believe that these are our high-conviction ideas that the market is perhaps overlooking. ”

I saw “North American focus list” and was hoping for a Canadian name, but it did not happen.

The top picks for long ideas are Linde PLC, Autozone Inc., Wlamart Inc., PG&E Corp., M&T Back Corp., Apellis Pharmaceuticals, Thermo Fisher Scientific Inc., Kimco Realty Corp., Jabil Inc., Lam Research Corp., Liberty SiriusXM Group, T-Mobil US and Fortinet Inc. The short idea is Ionis Pharmaceuticals Inc.

“Citi’s North American focus list of top picks” – (table) Twitter


Newsletter: “Five super-obvious signs we were in a financial bubble” – Globe Investor

Diversion: “‘The Untouchables’ With Bill Simmons and Chris Ryan” – (podcast) Spotify (open version)

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