+34
Plus, rising foreign investment in domestic banks and how that is affecting stock valuations
This Market Factors begins with the first truly interesting idea in the real estate sector I’ve seen in a long time. Section two highlights rising foreign investment in domestic banks and how that is affecting stock valuations.
The diversion highlights a comedian’s new podcast and we have Quick Hits as always. Income investing Playing defense in REITs With borrowing costs climbing it’s rare to find a compelling investment thesis in the capital-heavy real estate sector. I think RBC Capital Markets analyst Jimmy Shan has uncovered one nonetheless. Published in a Monday research report, Mr. Shan’s investment idea is based on newly announced federal government plans to invest billions in national defence.
Plans are particularly ambitious for shipbuilding - destroyers, submarines, patrol boats and others – requiring substantial infrastructure updates and an expanded workforce. The majority of the naval investment will happen on the East Coast and two REITs are set to benefit: Killam Apartment REIT and PRO REIT .
Killam Apartment REIT generates 59 per cent of its revenue in Atlantic Canada - 33 per cent of that in Nova Scotia where defence spending will be focused. Real estate supply is already constrained in the region. In Halifax, where home prices have jumped 94 per cent since 2019, there are now a total of 14,000 rental units under construction. The city’s population increase between 2022 and 2025 was roughly equal to 10 years growth at the previous average pace.
Home ownership levels are declining due to high prices and more renting means more revenue for Killam. . PRO REIT’s holdings are also based in Halifax and the surrounding area. An industrial park in Burnside, for instance, includes 38 properties with almost three million square feet and over 400 tenants.
Rents are already rising quickly. It is very unlikely that the planned investment in defence will be reduced or even delayed. The deteriorating diplomatic relationship between Canada and the U.S., its previous vendor of defence equipment, underscores the high probability that the spending will occur. The ramp up in regional activity and employment will occur at a time when real estate supply in major Atlantic centres is already tight and higher rental costs seem entirely possible.
In Mr. Shan’s words, “The small size of the Atlantic Canada markets relative to the significant size of committed investments suggests that the impact should be meaningful and sustainable over a long period of time. ” Killam Apartment REIT has a distribution yield of 4.2 per cent as of Friday’s close. The average analyst 12-month target price is $21.11, 21.5 per cent higher than the current $17.37.
The REIT’s price to funds from operations is 8.0 times compared with a ten-year average of 14.9 times. PRO REIT has a yield of 6.9 per cent and an analyst target price of $7.42 which is 13 per cent higher than Friday’s $6.57. The average P/FFO of 7.1, based on the history from June 2024, is lower than the current 8.0 times.
The unit prices for both REITs have been weak of late, under pressure because of rising bond yields with the rest of the sector. If Mr. Shan is correct, this implies a promising entry point. Financials How foreign investment is impacting our banks Scotiabank strategist Hugo Ste-Marie argued that foreign investment is helping drive domestic bank stocks higher. The most recent data from Statistics Canada shows that international inflows into the finance and insurance sectors is at decade highs.
The extent of foreign investment has been closely correlated to the average trailing price to earnings ratio for the banking sector, particularly since late 2023. The more foreign inflows, the higher the PE. The consensus view points to roughly ten per cent profit growth for the banking sector and Scotiabank analyst Mike Rizvanovic believes more stock price upside is ahead. Strength in capital markets businesses will be the catalyst for earnings to exceed consensus estimates, according to Mr. Rizvanovic.
The analyst has “sector perform” ratings on Bank of Montreal, National Bank and Royal Bank. Mr. Ste-Marie has an overweight rating on the bank sector as a whole. Diversions Diversions headline Anthony Jeselnik’s standup comedy is so unique it frequently offends so his new podcast, Jeselnik’s Book Club, should at least be interesting. Mr. Jeselnik reads a ton of fiction on the road and he recommends books to his Instagram followers.
The book suggestions have been extremely influential, to the point Amazon.com often runs out of the hard copies of his recommendations. Jeselnik’s onstage persona features bulletproof confidence and this was on full display during his recent interview with Bill Simmons . The comedian’s demeanor borders on arrogance which I think is a bit, but I’m not sure. I think he wants people to question whether it’s a bit or not because his standup material is similarly challenging for the audience.
I have really liked a few of his suggestions including Essex Dogs by Dan Jones and Chain Gang All Stars by Nana Kwame Adjei-Brenyah. There are, apparently, prominent authors lined up to guest on the podcast, which sounds promising. I will definitely be giving it a shot. The essentials Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight?
Click here to visit our Inside the Market page. Globe Investor highlights Bonds are beckoning with higher yields. David Berman warns to be careful J.P. Morgan is predicting a re-engagement in the global AI trade following the recent pullback Investors can’t control the markets.
But Tom Bradley identifies six things they can Quick hits TD analyst Andrew Kelvin thinks the sell-off in shorter-term Canadian bonds is overdone. His most recent report argues that significantly stronger economic growth and inflation pressure will be needed to keep two-year bond yields where they are.
Mr. Kelvin notes that Bank of Canada Governor Tiff Macklem’s most recent speech on Sept. 21 in Halifax was much more balanced than the hawkish tone of the latest policy-setting meeting, and believes the bank is on hold for now. Scotiabank mining analyst Orest Wowkodaw thinks copper stocks are still attractively valued. Current stock prices reflect commodity price levels only 2.0 per cent higher than spot copper levels versus 15 per cent in 2025.
He identifies ERO Copper Corp. , First Quantum Minerals Ltd. , Lundin Mining Corp. , Hudbay Minerals Inc. and Capstone Copper as the most inexpensive stocks. Read this week’s earnings and economic calendar here
Please follow us on Google to support usMarket Factors Marketfactorsnewsletter
Canada Latest News, Canada Headlines
Similar News: You can also read news stories similar to this one that we have collected from other news sources.
Biossil raises $153-million in OpenAI-led funding to bring resuscitated drugs to marketToronto startup uses AI to save once-promising drug candidates from pharmaceutical discard pile
Read more »
You should be eating more whole grains – here’s how to do itNew study provides best evidence yet that higher intake improves several cardiometabolic risk factors
Read more »
ONDO captured 12% of the RWA market - And investors noticedONDO surged 13%, to a 10-month high of $0.6 as institutional era of tokenization gains momentum.
Read more »
Barlow’s Research Roundup: Defence spending ramp up benefits these REITsThe Globe and Mail offers the most authoritative news in Canada, featuring national and international news
Read more »