January 22, 2017
by Todd Shaver | Jan 22, 2017 | Weekly Newsletter 7pm Sunday
The Week Ahead
This week will be a thriller. President Trump and his cabinet of business leaders will be laying out action plans for a new governing structure for America. Carl Icahn said we haven’t seen a structural reform like this in government in a generation. In this newsletter, we provide some insights on our latest thinking for Bristol-Myers Squibb, Splunk, Kinder Morgan, VMware, Visa, Home Depot, Invesco Municipal Trust, Under Armour, Tesla and Netflix.
Highlights From The Past Week
Trump releases formal agenda. According to a statement posted on the White House website, President Trump’s economic plan will create 25 million new jobs in the next decade, return to 4% annual economic growth, lower rates for Americans in every tax bracket, simplify the tax code, and reduce the U.S. corporate tax rate. We’ll see how Congress will modify these lofty goals.
A few ways the markets could be surprised, according Credit Suisse. The S&P 500 hits 2,500 before falling back to 2,000, versus the consensus view of the index going to 2,300 and leveling off. The Euro falls to $0.90 then strengthens sharply to $1.20, versus consensus outlook for moderate drift to $1.00. Chinese GDP growth slows to 5%, versus consensus of 6.8%. Trump’s policies don’t work, as inflation expectations rise and protectionist policies disrupt world trade. Oil prices hit $75 by year end, versus consensus outlook of $62.
Wake up call. Yes, American politics is not great. But at least we aren’t Brazil. The death of Brazilian Supreme Court Justice Teori Zavascki who had presided over the sprawling "Carwash" corruption scandal, and who died yesterday in a freak airplane crash Thursday has sent shockwaves both around the globe and in Brazil, because while few in polite company will discuss it, it has opened the possibility of political assassinations as a means of "quieting" legal proceedings.
BMR Companies and Commentary
Bristol-Myers Squibb (BMY: $49, -12% for the week)
Bristol-Myers announced that it has decided not to pursue an accelerated regulatory pathway for the combination of Opdivo plus Yervoy in first-line lung cancer in the United States based on a review of data available at this time. In order to protect the integrity of ongoing studies, the company will not be providing additional details. This news sent the stock price tumbling this week.
The situation is just very unfortunate. As Citi’s analyst put it, “We never believed Bristol-Myers had an accelerated pathway to market for Opdivo and Yervoy in front line lung cancer.” This was just totally botched communication by management. As the Citi’s analyst went on to put it, “On a fundamental basis, in our view, nothing has really changed aside from credibility in the guidance.”
What happened? Some people in the investment community started speculating Bristol-Myers could take the accelerated regulatory pathway to catch up to Merck on developing imuno-oncology. The company never stated this. Bristol should have been more vocal that this strategy was not in the cards. They needed to be more pro-active.
The reality is unfortunate for us shareholders having to stomach the near-term volatility. But we should not be worried about the long term picture. As the company put it, “Our vision for the future of cancer care is focused on researching and developing transformational Immuno-Oncology (I-O) medicines that will raise survival expectations in hard-to-treat cancers and will change the way patients live with cancer.”
BMR Take: Bristol is still going to do great things over the long term in cancer and healthcare. We are excited about it. If you aren’t involved in Bristol yet, lucky you. If you have some shares and you have some additional cash to put into this company, we would do it. The shares under $50 are a screaming value. This is an $82 billion market cap behemoth in Healthcare we are talking about; not some pre-revenue biotech moonshot.
Splunk (SPLK: $54, -5%)
Splunk recently hosted its analyst day setting the stage for the stock to rock and roll. Specifically, management laid out monster guidance. Management spoke of the path for Splunk, which is expected to end 2016 at nearly $1 billion in revenue, to hit $2 billion in revenue and $2.3 billion in billings in 2019. This path is driven by accelerating customer growth (with Splunk ending 2019 with 20,000 customers, up from 12,700 in 3Q16; growing deals over $1 million (reaching 300 such deals in 2019, up from 140 in 2016), and the license average selling price growing from $55,000 in 2017 to $80,000 in 2019. This guidance suggests a 3-year revenue growth rate of 29% annually.
On top of the revenue picture, management said that at $2 billion in revenue, Splunk is expected to more than double its operating margin from 5.5% (the midpoint of 2016 guidance) to 12-14% in 2019, mostly through sales and marketing leverage. Wow!
BMR Take: We like Splunk because: 1) it is the leader in operational intelligence software that helps enterprises make sense of machine data; 2) it addresses a large and expanding market; 3) its model is becoming more predictable as the revenue base grows; 4) the company has a long runway to sustain 30%+ growth; and 5) we believe its strong business momentum will continue.
Kinder Morgan (KMI: $22.50, flat)
Kinder Morgan reported earnings of $0.08 per share, which was better than the $0.32 loss reported a year ago, but not as good as consensus analyst expectations for $0.18. There were minor disappointments causing some weakness in the stock after the announcement, but expectations were and remain low and overall you should walk away from the quarterly results feeling that operations are in a stable to improving place.
The company plans to invest $3.2 billion in growth projects during 2017, which it says will be funded with internally generated cash flow without the need to access equity markets. We are encouraged to hear the word “growth” being discussed in the Energy market nowadays.
Even though Kinder Morgan's balance sheet remains of a concern for us, the company did significantly enhance its credit profile by reducing debt by over $3 billion during 2016. You have to give them some credit. In fact, they finished ahead of plan for 2016 year-end leverage, and are progressing toward reaching the targeted leverage level of around 5 times debt to earnings, which will position them to return substantial value to shareholders through some combination of dividend increases, share repurchases, additional attractive growth projects or further debt reduction.
BMR Take: We remain bullish on the rebound for Kinder Morgan along with the rest of the MLP sector. Kinder Morgan has an unparalleled asset footprint spanning the breadth of the United States with leading North American industry positions in each of its five business segments – Natural Gas Pipelines, CO2, Products Pipelines, Terminals, and Kinder Morgan Canada. They really have a great franchise here.
VMware (VMW: $83, +1%)
We are excited to now be involved in VMware. The company’s server virtualization technology helped spark the cloud computing phenomenon. VMware has nearly doubled revenues in the last five years, growing from $3.8 billion in 2011 to $6.6 billion last year. We think there is more room for this bull to run.
Sanjay Poonen is chief operating officer at VMware. He joined VMware in 2013 from SAP, where he was responsible to “build bridges” between the data center and the public cloud, and to the end user through better mobile tools. Serving enterprise mobile users is an effort SAP began in earnest in 2014, with the acquisition of mobile device management company AirWatch. Now VMware has Poonen working on building a similar strategy for shareholders.
VMware sees the hybrid-cloud model as an extension of VMware’s original mission. In a hyper-cloud setup, storage, computing and networking capabilities are integrated and handled largely by software, rather than hardware. The “single box” can save companies from having to buy separate components to integrate manually. Managing a unified system through software also lets technology executives to make changes, such as adding storage space, more easily and less expensively than performing the same changes on individual pieces of hardware and software. It better technology for users. It’s cheaper for users. It’s a major win.
BMR Take: Hybrid-cloud is changing the economics of enterprise IT. VMware is going to win a good chunk of the opportunity. Partnerships are already in place with Amazon and IBM.
Visa (V: $82, +1%)
Walmart reached an agreement to continue accepting Visa credit cards across Canada, ending the retailer’s threat to bar the world’s largest payments network from its 410 stores in the country.
Walmart’s Canadian unit threatened to expel Visa from all of its stores nationwide unless the network agreed to lower the amount it charges for credit-card transactions. Walmart Canada, which has said it pays more than $76 million annually on credit-card transaction fees, called the amount Visa charges “unacceptably high.”
BMR Take: What a battle royal. Visa versus MasterCard. Not quite as good as Ali vs. Frazier. The bad news is that they had to cut their fees. The good news is that Visa didn’t lose the battle and will reap huge revenues from the largest retailed in the land.
Home Depot (HD: $136, flat)
Home Depot has fallen right in the middle of a big debate. The Republican border-adjustment proposal aimed at taxing imports may pressure retailers’ earnings by driving up the cost of their inventory.
However, gauging the plan’s exact impact on retailers including Home Depot is difficult because the companies do not break out what percentage of their inventory is imported, and many goods produced in the United States rely on imported material.
Trade associations for large retailers have been voicing opposition to the proposal, with the National Retail Federation saying it is a “scary proposal with a lot of unknowns.”
One analyst’s research that suggests the tax bills of six large retailers may jump about $15 billion to a total of $28 billion under the current House plan, though some advocates say currency adjustments will offset the tax changes and mute retailers’ objections.
BMR Take: Trump’s first 100 days will be loaded with market moving events. We will be closely watching the border-adjusted tax situation. Trump is already backing away from the proposal saying it is too complicated. So the outlook is all clear for the moment.
Invesco Municipal Trust (VKQ: $12.51, flat)
The recent blow-up of the Dallas Police and Fire Pension System was entirely predictable. While it is tempting to blame unusual circumstances for the recent lock-up of redemptions and substantial reductions to pensions for those still in the fund, many other American pension funds are heading down the same road.
The combination of overpriced financial markets, inadequate contributions and overly generous pension promises mean dozens of US local and state government pension plans will end up in the same situation. The simple math and political factors at play mean what happened at GM, Chrysler, Detroit and now Dallas will happen nationwide in the coming decade.
Pew Charitable Trusts research estimates a $1.5 trillion pension funding gap for the states alone, with Kentucky, New Jersey, Illinois, Pennsylvania and California going backwards at a rapid rate. Using a wider range of fiscal health measures the Mercatus Center has the five worst states as Kentucky, Illinois, New Jersey, Massachusetts and Connecticut. The five state pension plans in Illinois have an average funded ratio of just 38%.
BMR Take: All the above is not good and is unsustainable. It’s weighing on Invesco Municipal Trust. But honestly, it is not as bad as it sounds. One needs to be more specific and not paint everything with the same brush. Take for instance the Dallas Texas credit in the portfolio. They are getting crushed on this pension news story. But the reality is Dallas is one of the most vibrant cities in the America. You can pick-up some of the general obligation bonds of the city at a 4% yield right now compared to the benchmark curve at just 2%. They are rated AA too!
Upcoming Economic News
TUESDAY, JANUARY 24
Existing Home Sales – December
Time: 10:00 am
Forecast: 5.50 million
December existing home sales are forecast to decline after rising a 9-year high in November. The Pending Home Sales Index fell to the 10-month low in November, a warning that existing home sales have lost some momentum. Yet some buyers are looking to move before mortgage rates potentially rise further, as the moving 4-week average of mortgage applications for home purchases recently rose to the highest level since last June.
THURSDAY, JANUARY 26
New Home Sales – December
Time: 10:00 am
Forecast: 585,000
New home sales may have dipped in December after reaching a 4-month high in November. But the long-term sales trend has been stellar, with sales of new homes rising 20% year-over-year in the quarter ending November. And sales still have much more room to grow to get back to historically normal levels relative to the size of the population. The most recent monthly new home sales pace trails the average of the past 20 years by 19%.
Leading Economic Indicators Index – December
Time: 10:00 am
Forecast: 0.5%
Spikes in stock prices and consumer confidence can power the Leading Economic Index in December to the largest gain in five months. The policies of the incoming administration will determine if this burst in optimism can translate into a sustained upturn in growth. Yet quickening wage growth gives a clear signal that consumers now have more resources to increase spending.
FRIDAY, JANUARY 27 GDP
Fourth Quarter (Advance Estimate)
Time: 8:30 am
Forecast: 2.1%
A widening trade gap is expected to lead slower GDP growth in the fourth quarter after reaching the fastest rate in two years in the previous quarter. The future effects of trade on US output are rife with uncertainty with regard to the evolution of policy and the value of the dollar. But the underlying pace of consumer spending is holding firm, getting a lift from the recent upside surprise in auto sales.
Durable Goods Orders – December
Time: 8:30 am
Forecast: 2.2% overall, 0.4% ex transportation
Solid recent indicators for industrial demand hint that Durable Goods orders can rise for the fourth straight month in December. The new orders reading from the ISM Manufacturing Index jumped to the two-year high of 60.2 last month, raising expectations for near-term industrial output. Core durable goods orders have also shown similar vigor of late, rising at the 2-year high rate of 5% annualized in the three months ending November.
University of Michigan Consumer Sentiment – January
Final Time: 10:00 am
Forecast: 98.0
The final reading on sentiment in the January Michigan survey is forecast to show only a mild decline from December’s multi-year high. Significant increases in consumer inflation expectations in the initial January survey signal that prices are poised to accelerate a bit.
A Word from Gary Jefferson
Jefferson Financial Group
First Vice-President, Investments
UBS Financial Services
Earnings season will continue this week. Fourth quarter results for several of the largest banks were announced last week - JPMorgan Chase, Bank of America, Wells Fargo and PNC – and they were generally quite strong.
Remember – earnings for 3Q16 were up 3.1%, which broke the back of the preceding 6-quarter earnings recession. According to Thomson Reuters, earnings for the S&P 500 are expected to increase by 6.1% in the fourth quarter. Last year still didn't see 3% GDP growth, but expectations are for that plus more this year. UBS's pre-Trump forecast was for earnings growth of 5.9% in 2017, and that figure is expected to be revised higher based on the implementation of Trump economic policies.
The biggest question marks for 2017 may not come from economic data alone, but instead, from changes in political leadership. As everyone knows, stocks have already rallied on hopes that President-elect Trump will reduce regulation and taxes while increasing infrastructure investment. However, no one knows for sure what actual changes could be on the horizon - or how Trump's policies will affect trade. Or how Congress may bottle up his potential policies. Trump will lay out an economic "game plan" which could ease some of the market uncertainty that still swirls around the dramatic change in Washington politics. One thing we are concerned about is the formula of “Hope + Uncertainty = ?” In our experience, the answer to that equation is most often "volatility".
Meanwhile, the market still functions on basic fundamentals [and as noted above there are lots of economic reports coming out this week.] And, investors will be watching oil prices, along with gold, the dollar and interest rates. That's because the investment landscape has changed from the expectation of lower interest rates and slower growth for longer periods of time to the possibility of moderately stronger growth and a stronger dollar with higher interest rates due to potentially higher future domestic inflation.
• Oil Prices - Oil began the new year higher as U.S. Crude rose to $54 a barrel.
• Gold - Gold has recovered a bit to start the year, closing at $1210 an ounce on Friday.
• U.S. Dollar - The U.S. dollar index continued to show strength.
• U.S. Treasury Rates - The yield on the benchmark 10-year Treasury settled at 2.47%.
Tesla Motors (TSLA; $245, up 3%) Tesla continues higher. From a low of $181 in early December, the stock is up 35% reaching $39 billion in market cap and stretching for the all-time high of $275 in the summers of 2014 and 2015. What will this summer bring? Good question, but we will tell you that this summer the firm will be a lot closer to delivering the new exciting Model 3 that they are holding 400,000 $1000 deposits on. That’s $400 million in cash that the firm can use for corporate purposes.
Tesla saw some upgrades on Wall Street recently. Morgan Stanley raised their Target to $305 from $242. Goldman is stuck at $190. Wake up Goldman! Robert Baird is looking at $338 and Guggenheim has a $280 target in place. There are six Sell Ratings, 11 Hold Ratings and 12 Buy Ratings. We maintain our Target Price of $290.
Under Armour (UA: $25.16; UAA: $29.02) Two things here. First, the stock. The Class A shares trade under the symbol UA, and the Class C shares trade under the symbol UAA. They both have close to 200 million shares outstanding and the average volume for both is around 3 million a day. But, the company has changed the voting rights of each class of stock. The UAA shares have one vote per share. The UA shares have none. Many other companies have done this, primarily so the founders can maintain control. Google has done it – GOOG has no voting rights, GOOGL has one vote – same story as Under Armour. And there is a class B share in both companies that actually have 10 times the voting rights of the Class A shares. Guess who owns the Class B shares? Kevin Plank, the founder.
BMR Take: Both classes of stock are fine for us, the small investor. Ultimately the UA shares will have more liquidity as the UAA shares are retired, so go with the UA shares if you are buying new positions.
Secondly, the company. What can we say? The company had a bad year and the stock has been hammered. We believe that over the course of the next five years the firm will grow and prosper dramatically. With the stock this low (trading at the same level as 2014), we see tremendous value here. The all-time high is $50 set in the summer of 2015 and we see no reason why it won’t hit this level again. Yes, that’s right – a double from here.
Look at revenues: $2.3 billion in 2013, $3.1 billion in 2014 and $4.0 billion in 2015. We think they could hit $5 billion in 2016 when they report 4th quarter earnings on January 31st. We think they will hit $6 billion in 2017. Long story short – we think this is a huge growth story – the kind of company we would love to own for the coming decade.
Netflix killed last quarter. Netflix (NFLX; $139, up 4% to a new all-time high)
The bad news: The DVD service shed 160,000 subscribers during the final three months of last year to end December with 4.1 million customers. That’s an 11-year low. But the business hangs on and is VERY profitable.
The good news: The streaming service now boasts 94 million subscribers in 190 countries, after adding another 1.9 million in the U.S. and 5.1 million in overseas markets during the final three months of last year. One firm predicts Netflix will have 160 million streaming subscribers by 2020. The company is coming off its biggest quarter of customer growth yet.
The financial quarter for Netflix was huge. The company reported revenues of $2.48 billion, up 36% from $1.8 billion. Earnings were $66 million, up 55%. Cash flow – up 125%. These are huge numbers. One small problem, their earnings equate to only 15 cents a share. They need to beef this up in the coming quarters and years. We think they can and they will.
The stock has blown through our Target of $133. We still like the stock and think it is going much higher over the coming decade. We hereby raise our Target to $165 and raise our Sell Price to $125.
We had a question from a reader about our new Invesco Municipal Trust recommendation (VKQ: $12.49)
From: Bob Valentine
Sent: Thursday, January 19, 2017 2:59 PM
To: info@bullmarket.com – The Bull Market Report
1. Just because bonds can be called, why do you think they will be called over the next couple of years?
2. Your research report says 25% of the fund’s assets will or could either mature or be called over the next two years. Can you send me your calculation as I do not come close to this.
3. Why do you think bonds that are maturing will be invested at higher rates than what they are already invested at? it appears possible that they will have to be invested at lower rates based on my review.
Here is our response:
Hi Bob –
1. Bonds tend to be called when debtors can get a lower interest rate. This may still be possible for municipalities if they call shorter-term bonds and issue longer-term ones or if their credit quality improves. In a rising interest rate environment, there’s good reason to call short-term bonds and issue new long-term bonds to lock in lower interest rates. Of course in a falling interest rate environment (which is extremely unlikely right now) you call bonds and issue new ones to cut down your interest costs.
2. The article does not say 25% of the fund’s assets - it says 25% of the bonds. That’s an important difference. Look at all of the portfolio here:
http://hosted.rightprospectus.com/Invesco/Fund.aspx?cu=46131J103&dt=AR&ss=ce
You’ll see that 20 holdings expire in 2017 and 32 expire in 2018. There are a bit over 200 bonds in the portfolio total, meaning nearly a quarter of its bonds will either be called or redeemed by the end of 2018.
3. Interest rates have gone up for all municipal bond indices over the last year, see here:
https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
Thanks you for writing, Bob.
Todd Shaver and Michael Foster
The Bull Market Report
The High Yield Corner
By Michael Foster
Special to The Bull Market Report
The biggest news for markets and the world was the inauguration of President Trump. The markets’ response to this news was muted. at the start of the new President’s speech, stocks dipped but by the end of Friday, all of the major indices had recovered to pre-speech levels.
The excitement that gripped political pundits and policy junkies has been a non-starter for us more economically- and financially-minded types. You can see this by tracking the changes in asset classes around the election according to retail investor interest. More esoteric asset classes like junk bonds and market volatility were relatively unmoved. The SPDR Barclays High Yield Bond ETF (JNK: $37) stayed pretty much flat before and after, and ended the week flat. We also saw trading volumes below average for this ETF and for the asset class as a whole.
This observation leads us to a much more pressing issue: The market is losing steam. If you look at the S&P 500’s performance since the election, you see a hockey stick jump after the slight pre-results dip. That bull run peaked on December 13th and the index has not recovered from that level since. But it hasn’t crashed either (we’re less than 1% down from the all-time high). Instead, we’ve seen a tight range of around 2% movement from top to bottom in the last month - and the bottom was at the end of December, where tax-loss harvesting is to be expected. The market quickly recovered, but has stayed flat since the start of 2017 excluding the recovery on January 3rd.
What does this mean? It means the bull run has either stopped or is taking a pause. It may come back before turning into a bear trend. This will ultimately depend on upcoming economic data over the next few weeks, especially unemployment, CPI trends, and GDP estimates. None of these are expected to be weak, so a slight miss probably won’t cause a huge decline.
But markets are fickle. One bad note, however minor, can lead to a panic. We remember the start of 2014 when weak manufacturing data from China led to a huge market correction; investors were terrified that this single data point was the canary in the coal mine, and a broad global slowdown was in the works. This didn’t happen and the markets recovered, but this kind of irrational response to one data point is always possible after a long-term bull run loses steam. This bears watching right now.
For these reasons there is good reason to be cautious in the short term and keep some dry powder available to buy heavily discounted assets. When it comes to high yield, we remain constructive on all of our recommendations but the possibility of a major price correction in these assets in the short term is greater than it has been since last summer. Investors should keep this in mind.
Alongside junk bonds, most high yield asset classes showed little signs of life this week, staying mostly flat. One exception was The SPDR Dow Jones REIT ETF (RWR: $93, up 1%) as REITs continue their recovery from the summer sell-off that extended after Trump’s victory.
We’ve remained positive on selected REITs, and our picks once again outperformed the sector. Digital Realty Trust (DLR: $106, up 2%), Omega Healthcare Investors (OHI: $32, up 3%), Kimco Realty (KIM: $25, up 2%), Government Properties Trust (GOV: $19.80, up 2%), and Care Capital Properties (CCP: $25, up 1%) all saw higher price growth this week, and once again it’s interesting to note that the more volatile picks in our REIT portfolio did not go up significantly more than the lower-volatility ones. This is often a sign of complacency, but it seems a bit early to come to that conclusion for REITs. It does however suggest that one may want to wait for a correction before adding more in these assets, and instead look for alternatives in the high yield space.
For alternatives, The AllianzGI Equity and Convertible Income Fund (NIE: $18.80, down -1%) offers a yield as strong as REITs without leverage despite the fund’s strong holdings in high quality firms in various sectors. The fund’s discount is now over 12%, slightly lower than its historical average but not significantly so. There is a chance, but not a certainty, that a major market correction would lower this fund’s NAV and cause the discount to widen, bringing its price lower, which would make it a great buy. How low can it go? Assuming a 5% market correction and a premium widening to 17%, which is at the extreme end of the fund’s historical trend, we could see the stock fall to around $16.90. That’s a full 10% lower than its current level, so there is a lot of downside potential here. With that in mind, an investor who wants to invest cash now might be wise to buy some NIE, wait and track the markets for the next month, and buy more if the market falls by around 5%.
Keep in mind that these short-term market timing strategies are not for the faint of heart and involve some level of risk. Nonetheless, a post-bull run flat market like this very frequently results in a short-term correction. Making some liquid assets available for such an opportunity can often result in higher long-term returns and, most crucial for the high yield investor, provide opportunities to buy high quality assets and get a high dividend yield.
Good Investing,
Todd Shaver, Founder, CEO and Editor in Chief
The Bull Market Report
December 18, 2016
by Todd Shaver | Dec 18, 2016 | Weekly Newsletter 7pm Sunday
The Week Ahead
The stock market is trading at all-time highs on a price basis, a price to sales basis, and a price to book basis. Price to earnings ranks in the top decile of historical valuations. The optimism/pessimism index is now over the 70 level on the optimistic side, but which has never been sustained for very long. Times are good. We don’t see the weeks ahead with the holidays disrupting the market’s current feeling. But prices are starting to bake in high expectations. We are going to need to see some real tangible progress from the economy starting off the year in 2017.
This week we provide some insights on our latest thinking for Annaly Capital Management, Apple, Bristol-Myers Squibb, Eli Lilly, Home Depot, and Netflix.
Highlights From The Past Week
China-US Relations. China must have access to US consumer markets, and President Elect Donald Trump knows it. The US is not dependent upon China for any strategically important commodities or products and the US has significant extra capacity in many of its manufacturing sectors. Data and opinions are pouring in about a potential US-China trade war. Sorry to break it to some of these folks, but trade has and will always be a war. Donald Trump is just way more outspoken about negotiation tactics. There is nothing new under the sun here. Get ready for some near term negative consequences from US-China relations stemming from US leadership turnover, but keep your head up, the trade deficit with China is so bad for the US it is hard to see how Donald Trump can do any worse. Trump named Iowa Governor Branstad the Ambassador to China and billionaire Wilbur Ross Secretary of Commerce - these guys are seriously qualified and talented and accomplished, although there are many that will fight them in Congress. What else is new?
Technology Sector Visits Trump Tower. Many of the companies we cover had their CEOs invited to Trump Tower to meet with the President Elect. The gathering included Jeff Bezos of Amazon; Elon Musk of Tesla; Tim Cook of Apple; Sheryl Sandberg of Facebook; Larry Page and Eric Schmidt of Alphabet, Google’s parent company; and Satya Nadella of Microsoft, among others. Trump told the crowd, “There is nobody like you in the world;” “I am here to help you;” and “We want you all to do really well.” Microsoft CEO Satya Nadella brought up perhaps the most thorny issue, immigration, saying how the government can help Tech with things like H-1B visas to keep and bring in more talent. Alphabet Executive Chairman Eric Schmidt, who briefly noted that he pondered what he would do if he were president, then made the point that governmental information technology programs were antiquated and unsafe, and needed to be upgraded. How exciting is this - to see our greatest leaders finally all sitting around the table discussing and solving problems!
Interest Rate Outlook. We have to keep an eye on the interest rate situation. The 10-year US treasury is now at 2.60%, up from 1.70% before the election. On the one hand, the stock market has been STRONG in the face of this rate risk, the exact opposite situation many were inferring would happen whereby stocks go down when rates go up. However, we are not yet out of the woods. Fed Chairwoman Yellen suggested that three rate hikes likely in 2017, up from two. Goldman Sachs claims that at the current pace of interest rate hikes, the yield curve will finally start to offer decent returns by the end of 2017. This means we could see some investors who have been sticking around the stock market due to the terrible bond rates start to finally reallocate their money into the bond market. This is a trend that could develop and would not be great for the stock market. Interest rates have risen at one of the fastest rates in history. We would love to see a breather here in order for all markets to assimilate this big move. And we are talking the US stock market as well as overseas markets. The latter needs to assimilate the much stronger dollar as well as the higher rates.
BMR Companies and Commentary
Annaly Capital Management (NLY: $10.20, -3%) Interest rates have been on the rise and are likely to continue moving higher. The market assumes that rising rates hurt Annaly. This is actually not so. Yes, the company can be impacted in the short term. But in the long term the company receives a much higher return from their investments and is more profitable for the firm. Book value was $11.69 at the end of the third quarter. Analyst estimates call for book to decrease by 9% to $10.62 in the fourth quarter. But in this case numbers don’t tell the whole story.
Let’s revisit how Annaly makes money. Annaly invests in US Government MBS (Mortgage Backed Securities). Recall, Agency MBS is simply all the good residential loans made to the qualified deserving buyers who meet minimum standards (such as income, debt to income, loan to value, etc.) as set by the government agencies (Fannie Mae, Freddie Mac, and so on). The government agencies buy all these loans from banks and other lenders, then package them up into huge pools, and sell them through MBS to investors like Annaly.
Annaly’s portfolio of Agency MBS declines in value as interest rates rise, just like a bond. The company hedges to help dampen the impact. Analyst estimates say that in the fourth quarter the net decline in book value was $1.26.
BMR Take: Rising rates is a tough backdrop for Annaly but what people forget is that Annaly is laddered. They have notes maturing every month of the year. And guess what? They get to invest that at the higher interest rates that prevail at that time. So yes, book will be down in the short term, but soon enough book will pop right back up again as the company continues to roll over lower interest rate vehicles and invests in the new higher rates. This is what we love so much about Annaly.
Apple (AAPL: $116, +2%) The Apple train keeps rolling. One of the top Wall Street analysts who started following the company at $2 per share wrote his last note, as he is moving on to start a venture capital fund. He told everyone to stick with the stock as the train is heading toward $150.
As we move into 2017 investors will be focused on growing anticipation around iPhone 8 and a favorable long-term trajectory for Services growth. Some investors might be concerned that Apple could miss iPhone sales estimates for the first half of the year because of relatively little innovation in the iPhone 7 and buyers holding out for the next version. (We’ve heard this SO many times.) Should there be a first-half 2017 iPhone hiccup, we expect minimal downside, as investor focus narrows on the iPhone 8, which is why we started this paragraph making this point.
For those in the know, the Services business is actually a reason to be excited about 2017. Apple's Services business includes Apple Music, Apple Pay, iCloud backup and other offerings. Services accounted for 11% of Apple's total revenue in the fiscal year ended September 25, which amounted to $24.3 billion. Services revenue in fact rose 22%, where Apple's overall revenue fell 8%. Note that if Apple’s Services business were a standalone company it would rank in the Fortune 100. Look for Services revenue to clear $28 billion in 2017.
BMR Take: There is much conjecture and anticipation of the new Trump presidency and his talk about lowering taxes for repatriation of corporate cash overseas. With more than $200 billion overseas, Apple is listening and watching and so are we. We believe the Trump hype. We think it will happen. All signs point to more upside ahead for the Apple story.
Bristol-Myers Squibb (BMY: $59, +3%) Bristol is roaring back, up 20% from the recent sell-off lows. Recall that in October, Bristol announced an evolution of its operating model to drive the company’s success in the near and long term through a more focused investment in commercial opportunities, streamlined operations, and realigned manufacturing facilities. We are already seeing progress.
This week, Bristol announced investments in the (i) construction of a new R&D building at the company’s New Jersey campus that will co-locate lab-based Discovery and Translational Medicine activities, (ii) construction at its New Brunswick, New Jersey facility to support biologics development, and (iii) construction to continue expansion of its biologics campus Massachusetts.
The company also announced it intends to initiate a phased multi-year closure of its Hopewell, New Jersey site by mid-2020 and will not renew its lease in Seattle in 2019. The company confirmed previously announced plans to close its Wallingford, Connecticut site by the end of 2018, and also announced it will no longer build a Connecticut Development site. The company expects many of the roles from Wallingford, Hopewell and Seattle will transition to other U.S. locations.
BMR Take: We were so excited on the last earnings call to hear the company commit to operating expense discipline. Watching them follow through so quickly is encouraging.
Eli Lilly (LLY: $73, +8%) Lilly’s stock took a big hit last month on the failure of an experimental Alzheimer’s drug. However, this week, Lilly gave an upbeat outlook for the coming year, estimating that both sales and earnings will come in above Wall Street’s expectations.
This huge Pharmaceutical company expects adjusted earnings between $4.05 and $4.15 a share on revenue of $21.8 billion to $22.3 billion, well above analysts’ forecasts for earnings of $3.97 a share on $21.7 billion. Lilly is not a broken company just like we thought!
Lilly said the new estimates signal mid-single-digit growth from the current year, boosted by increased volume from new products. Lilly also projected an increase in gross margin despite offering discounts for its insulin brands for certain patients, as the Pharmaceutical industry has come under fire for soaring prices.
Some upgrades from the major research firms certainly helped. Morgan Stanley bumped their Target to $82. Goldman Sachs raised them to a “Conviction Buy,” whatever that means. We’ll say that is good(!) Jefferies is at $100 and Argus is at $95. All good. Our Price Target remains at a very doable $80 but we are secretly ready to raise the Target by $10. Don’t tell anyone. Having added the stock on Tuesday at $69, we are quite pleased so far. This one is big company with a $77 billion market cap. And while you wait, it is paying close to 3%. We expect good things from this company.
BMR Take: Lilly's new product growth drivers are in place, and we believe Lilly's guidance is low risk and achievable. Additionally, management has a history of providing conservative guidance, so we should see more weeks of solid stock performance ahead like this past week.
Home Depot (HD: $135, +1%) Housing starts tumbled 19% in November, which was way more than most expected, and we need to keep an eye on how higher interest rates impact household’s ability to buy new homes or spend money on their existing homes. Despite this issue , the 2017 outlook for Home Depot is encouraging.
Home Depot’s sales growth last quarter accelerated to a 6% pace from 5%, which trounced rival Lowe's 3% uptick. Professional customers are descending on the company’s stores. These shoppers spend far more than the company average -- over $900 per transaction in many cases -- so even a small increase in demand from these customers translates into significant gains. Last quarter we saw high-dollar transactions grow 11%.
The company is generating excess capital, enough to fund nearly $5 billion of stock repurchases and $2.6 billion of dividend payments annually. Home Depot is more generous with the dividend payout of 50% of earnings versus Lowe’s 35% target. We look for a similar smart use of capital to lift results in 2017.
BMR Take: We are encouraged by what is happening at Home Depot as the economy slowly churns out bigger numbers with no let-up in sight. The stock is closing in on all-time highs at $139.
Netflix (NFLX: $124, +1%) Netflix members worldwide can now download as well as stream great TV series and films at no extra cost.
While many members enjoy watching Netflix at home, the company has often heard customers also want to continue their binges while on airplanes and other places where Internet is expensive or limited. Now, customers can just click the download button for a film or TV series and can watch it later without an internet connection.
Many of people’s favorite streaming series and movies are already available for download, with more on the way, so there is plenty of content available for those times when customers are offline.
BMR Take: Aside from maybe You Tube, nobody is winning in the television and movie game as big as Netflix right now. They will spend $6 billion on content in 2017 and as we know, content is king. We see so much opportunity for the business ahead. Yes, they are taking a big step and some say a big risk, but they continue to blow away their competition by adding huge numbers of subscribers each quarter.
Athenahealth (ATHN: $115, +19%) Athena soared nearly 23% Thursday after the company reaffirmed its guidance for the fiscal year and issued an upbeat forecast for 2017.
The company, which provides cloud-based services for Healthcare, said for 2016 it expects earnings in the range of $1.65 and $1.85 per share on revenue between $1.085 billion to $1.115 billion. Analysts expected $1.79 a share on revenue of $1.10 billion.
Athena also said total annual revenue could hit as much as $1.33 billion in the new year. These are very healthy figures confirming that the company’s core services are in hot demand.
BMR Take: We like where we added the stock to our portfolio ($101 on November 11th.) And we like the prospects for the business. Now it’s time to enjoy the ride.
Upcoming Economic News
WEDNESDAY, DECEMBER 21
Existing Home Sales – November
Time: 10:00 am
Forecast: 5.5 million
As with housing starts, existing home sales in November are expected to decline following October’s 9-year high. Home sales continue to push higher, but tight inventory is limiting the pace of growth. The volume of existing homes available for sale in October is equivalent to 4.2 months at the latest sales pace, well behind the historical average of 6.1 months.
THURSDAY, DECEMBER 22
GDP – Third Quarter (Third Estimate)
Time: 8:30 am
Forecast: 3.3%
Third quarter economic output was underpinned by the firm 2.8% pace of consumer spending. Yet over the long-term, spending has shifted lower, with the yearlong advance of 2.6% to the third quarter representing the slowest pace in eight quarters. The slower pace of jobs gains and renewed monetary tightening will push against the potential growth boosts from fiscal stimulus in the year ahead.
Durable Goods Orders – November
Time: 8:30 am
Forecast: -3.8% overall, 0.4% ex transportation
A large downshift in Transportation sector orders is forecast to lead a decline in November durable goods orders after producing the sharp gain of the previous month. Core orders can show more stability in industrial demand by rising for the third straight month in November. Core capital goods orders rose 4.4% annualized in the months ending October, a promising signal for business investment after deep declines were registered in the first half of this year.
Personal Income & Spending – November
Time: 10:00 am
Forecast: 0.3% income, 0.5% spending
Personal income may only expand at a measured pace in November after a weak result for average hourly earnings growth. The 2.5% yearly advance of hourly earnings to November equals the slowest pace of the last eight months, which can prevent income growth from approaching 5% in the near future. Yet with alternative measures of wage growth showing more vigor and the labor market continuing to tighten, both hourly wages and income may skew higher in the quarters ahead.
Leading Economic Indicators Index – November
Time: 10:00 am
Forecast: 0.2%
Exceptionally few unemployment insurance claims and higher stock prices can push the Leading Economic Indicators Index up for the third straight month in November. Recent tallies of unemployment claims have produced some of the lowest counts of the past four decades. The indicator of a robust job market can feed into quicker wage growth and limited letup in the solid pace of hiring.
FRIDAY, DECEMBER 23
New Home Sales – November
Time: 10:00 am
Forecast: 575,000
Insatiable demand for new construction has new home sales positioned to rise in November. Sales rose 18% year-over-year in the quarter ending October, more than making up for the more measured gains seen earlier this year. Given how the level of homebuilding remains historically depressed, the uptrend in new home sales has some room to resist the recent rise in mortgage rates.
University of Michigan Consumer Sentiment – December
Final Time: 10:00 am
Forecast: 98.2
The final reading on consumer sentiment in the December Michigan survey can improve on the initial 2-year high result. The end of a trying election season has reduced the anxiety of many consumers.
Tesoro Petroleum (TSO: $91, flat) was upgraded recently by Wells Fargo to Outperform without putting a Price Target on it. Credit Suisse has a $100 Target, Citigroup has a $102 Target, Barclays is at $105 and Bank of America is at $109. We are in good company here. We added the stock on November 15h at $85 and we sit with our Price Target of $110. With OPEC bringing Christmas presents to the Energy markets, we’re looking for slow and steady growth from this medium-sized $11 billion market cap company, paying you a 2.4% dividend while you wait.
THE RACE
Google (GOOG: $791)
Apple (AAPL: $116 - $810 equivalent)
Amazon (AMZN: $758)
For the week:
Google was flat. (BTW, we love calling them Google, rather than…… A to Z.)
Amazon was down 1%.
Apple – Up 2%. Yea. Remember that we are reversing out the 7-1 split in 2014 so that Apple is now at the equivalent of $812. Apple is the clear winner so far! And Apple is doing it with the far bigger market cap than the other two. Apple is at $618 billion. Amazon is at $360 billion and Google is at $550 billion. It should be easier theoretically for Amazon to grow faster. But Apple just keeps chugging higher. Love this company! We can’t wait for it to set a new high at $134 and then shoot to $150. That will show all those naysayers. Yea.
A Discussion of Twilio (TWLO: $29, flat)
Twilio’s high valuation builds in a great deal of growth, and there is a lot of downside risk. The stock trades at 11 times sales while operating at a loss. The market has high expectations for the stock. Buying Twilio here at such expensive prices is a risky proposition. As richly valued as Twilio stock may be, however, it was trading at an even higher multiple of sales in October. The stock reached its 52-week high of $71 in September, and at that price we saw a multiple of nearly 25 times sales, a very high expectation.
The lock-up period is expiring on December 20th and Twilio’s largest stockholder, Bessemer Venture Partners at 25%, may sell some stock. So look for a drop this week and then the bottom will be set.
First Solar (FSLR: $35) had a good week, rising 4%. As we have mentioned many times, this is a great company that is going through tough times. We think it will take until late 2017 for them to straighten things out, but this company has a history of big revenues and strong earnings. Perhaps they will turn it around sooner. We don’t know, but we do know we wouldn’t sell the stock here. In fact, we would take some of our aggressive money and add to positions here.
The High Yield Corner
The biggest news for our High Yield portfolio came from Pimco. The special end-of-year distributions were finally announced, and as we expected, our Pimco fund had the highest special payout of all the Pimco funds. It’s important to reflect on what this means for high yield investors.
Throughout 2016, we have consistently and constantly recommended Pimco Dynamic Income Fund (PDI: $29, up 1%) even as the fund soared to our Target Price and its discount to Net Asset Value (NAV) turned into a premium. Often, investors and financial advisors sell Closed End Funds when they reach a premium to their NAV, because it looks like an opportunity to sell $1.00 of assets for more than $1.00 - every value investor’s dream. We recommended not falling for this temptation for one simple reason: The Pimco fund has been a monster in earning a strong return, building up an income reserved, and paying investors a high yield.
In fact, the yield on the fund has been so high - over 9% for most of the year and briefly over 10% - that many investors felt it had to be too good to be true. This yield is over a 4 times the premium to the 10-year U.S. Treasury, now at 2.6%, implying a massive amount of risk and danger. That, in turn, has kept unsophisticated investors out. The reality is that the Pimco fund offers a tremendous return on NAV for several reasons.
First and foremost is the mandate. The fund operates by investing in mortgage backed securities as well as other high quality high yield assets, including some well-picked junk bonds. This has made it possible for the fund to outearn its dividend since its inception.
Additionally, there is the quality of fund management. Pimco is one of the best asset managers in the world with unique access to opaque assets most investors simply cannot get their hands on. This is true of all of Pimco’s funds, and the Dynamic fund is no exception.
This means that Pimco’s closed-end funds are declaring tons of special dividends now that the calendar year is ending. Pimco Corporate & Income Opportunity Fund (PTY: $14.40) is offering the smallest special dividend of just 16 cents. Our pick is offering the most - $1.45.
This is more than we previously estimated, and brings the fund’s annualized yield to 14%. That is not a typo. That also means the fund’s annual yield is higher than Pimco High Income Fund (PHK: $9.10), which cut its payouts last year while the Dynamic fund increased payouts. The High Income fund’s price has also gone down 40% since inception, while the Dynamic fund has gone up 15%. At the same time, the High Income fund has suffered massive asset erosion while the Dynamic fund’s net asset value has gone up.
In short, The Dynamic fund has provided capital gains and the highest yield possible from Pimco. This is why we picked the fund earlier this year and why we recommended keeping it even when it had gained over 6% year-to-date. Now we get to enjoy the payoff in the form of that special dividend.
The world at large. Let’s extend our vantage point here at talk about the big picture. The FOMC* made its much-anticipated rate hike with a new Fed funds rate target 25 basis points above the previous one. That wasn’t the shocking news, but the expectation of three rate hikes in 2017, up from two expected, was the surprise. Apparently the Federal Reserve is expecting more inflation next year and a tighter monetary policy will be necessary. That caused the broader market to dip slightly, but a recovery later in the week saw equities close out flat for the week. The S&P 500 is holding on to its double-digit gains for the year, and it seems likely that it will close out the year with those gains.
*FOMC – Federal Open Market Committee, part of the Federal Reserve Board
This surge in equities means the market is now outperforming high yield assets after underperforming them for most of the year. The SPDR Barclays High Yield Bond ETF (JNK: $36) was flat this week, giving it a year-to-date return of 7% excluding dividends. Granted, those dividends bring it near S&P 500 performance, and the low beta on the fund means that junk bonds are also lower risk and lower volatility than stocks. So, in all, holding a junk bond index fund meant you outperformed the market in 2016 on a risk-adjusted basis. This should be good news for high yield investors. They can sleep soundly knowing that they are not sacrificing safety by looking for income, which was certainly the case back in 2013 and in years past.
Will this trend continue in a rising rate environment? We think so. The lack of a real correction in junk bonds after the rate announcement indicates that the market has priced in higher rates in junk as well as corporate bonds. This also is good news for rate-sensitive assets. This week we saw Main Street Capital ($37) and Digital Realty Trust (DLR: $95) resist the rate hike expectations and end the week flat. On the other hand, more rate sensitivity was felt in Omega Healthcare Investors (OHI: $30, down 1%) and Kimco Realty (KIM: $26, down 2%), although fundamental strength in funds from operations and occupancy rates keeps us invested in these REITs. More worrying is the greater weakness in Government Properties Trust (GOV: $19), which fell 5% this week. More short-term declines are likely if investors remain worried about interest rates. Government Properties is one of the more volatile REITs in the marketplace, suggesting it will fall steeply in moments of panic. Since its dividend is sustainable for a while, we do not believe its income stream is at risk. However, keeping a close eye on its price, and rebalancing your portfolio accordingly would be a prudent position in the short term.
Christmas Season is Upon Us
That’s a wrap for this week. Next week is Christmas and the markets are usually quite calm with most of Wall Street taking off for the Holidays. So we will not publish next week. BUT, if major events happen we will keep you informed via News Flash.
If you have a moment, we would love to hear from you on two fronts. What section of The Bull Market Report do you like best? And which section do you skip over every week? And as always, we are all ears for any input, suggestions, commentary, complaints or kudos. Send them our way at Info@BullMarket.com.
The Bull Market Report will be raising some angel money in January directly from our subscribers under a 506(b) offering, in order for us to grow the company to new heights. We will be raising just $100,000 from 4-5 investors and offering an equity stake in the company. If you are interested, write me directly at Todd@BullMarket.com. Include your phone number – Todd or one of our staff will call you.
Good Investing,
Todd Shaver
CEO, Founder and Editor
The Bull Market Report
November 13, 2016
by Todd Shaver | Nov 13, 2016 | Weekly Newsletter 7pm Sunday
The Week Ahead
The stock market hit fresh all-time highs on news of the Donald Trump victory. This was despite one of the larger components of the market, the Technology sector, trading lower. The rally is being fueled by the outlook for what new leadership brings to Washington and its future impact on the economy and financial markets. It is not as much Trump the markets are cheering, but rather the Republican sweep of the White House, the Senate, and the House, because for the first time in quite a while the balance of power falls with one party, meaning there finally will be an end to at some of the gridlock we all have become numb to.
That said, stocks have moved higher fast and could be pricing in too much optimism about how much change can come and how quickly. This week we provide some insights on our latest thinking for Goldman Sachs, Amazon, Home Depot, Bristol-Myers Squibb, Annaly Capital Management, and Netflix.
Highlights from the Past Week
In this edition of ‘Highlights from the Past Week’, we recap what are being discussed as the key things to watch for from new leadership in Washington.
Investors embraced the election of Donald Trump as president, snapping up stocks and selling bonds in a bet the Republican's plans for fiscal stimulus will succeed in breaking the U.S. out of a post-crisis economic funk. The Dow had its best week in five years.
The Dow Jones Industrial Average rallied on Monday and then posted its second large gain of the week Thursday, rising 257 points to 18,590, led by a rally in Financial and Healthcare firms. Meanwhile, the yield on the 10-year U.S. Treasury note surged to 2.07%, its highest level since January. Then on Friday, the Dow set another all-time high, closing up 40 points to 18,847, even though the overall market was down a shade.
Tax Reform & Budget Policy. Corporate tax reform is probably the top Republican priority. Expect lower taxes rates here and the end of double taxation on overseas earnings. Congress may target eliminating corporate deductions, but will be pressed to maintain small business tax breaks. Trump has proposed infrastructure spending programs of at least $500 billion over 5 years with an increase in the defense budget of 15%.
Trade. The White House will seek to tax imports and renegotiate proposed and existing trade deals. Extensive tariffs may quickly generate opposition from the many US firms whose supply chains stretch overseas.
Immigration. Trump’s plans to build a wall along the Mexican border and threats to deport many immigrants remain controversial. Republicans in Congress are likely to support improved border security and law enforcement but reject the more contentious issues of a wall and large-scale deportation.
Economic Policy. The administration and Congress may reach consensus to support fossil fuels and approve the energy pipeline projects that have stalled on environmental concerns. There have been proposals for a temporary moratorium on new financial and environment regulations.
Healthcare. Republicans and the President-elect both agree with repealing and replacing the Affordable Care Act. The new program is likely to feature market-oriented solutions, such as health savings accounts. The use of block grants to states for Medicaid spending could grant states flexibility (but may not cover all constituents.)
BMR Companies and Commentary
Goldman Sachs (GS: $204, +16% for the week)
Financials including Goldman Sachs rallied the most this past week. With rates finally rising, a steeper yield curve is good for banking and capital markets. More importantly, plans to roll back regulation are coming, which is huge for all of Financials, as they have had a bad stigma for years under the Elizabeth Warren era of denouncing Wall Street.
The regulatory discussion is currently all over the map right now about what we could see. The end of Dodd Frank? The termination of the Consumer Financial Protection Bureau? No more Volcker Rule allowing proprietary trading (again)? Some even say Glass-Steagall* could be on the table (again). Note that Trump has called for a general guideline of allowing new regulations to be implemented only if they replace two existing regulations. This all amounts to positive implications for Goldman Sachs.
*The Glass–Steagall Act describes four provisions of the U.S. Banking Act of 1933 that limited securities, activities, and affiliations within commercial banks and securities firms.
One more thing to ponder - who will Trump name as Treasury Secretary? The position once held by Alexander Hamilton is considered one of the highest honors in all of Finance for those asked to serve. Rumors are floating that Goldman’s CEO Lloyd Blankfein is possible candidate, as well as CEO Jamie Dimon of JP Morgan Chase.
BMR Take: Goldman is the #1 investment banking franchise. The investment banking business follows a boom-bust cycle. With the sharp rally recently, we are implementing a stop at $196 to protect our gains but we do not want you to miss more upside if the train keeps rolling. We added the stock at $147 in February, so we are up 39% in nine months.
Amazon (AMZN: $739, -2%)
CEO Jeff Bezos has had several past run-ins with President-Elect Donald Trump. The run-ins are now putting his shareholders in a nervous place, as the outcome of this election could have implications for the stock. Using his private funds, Bezos bought the Washington Post for $250 million in 2013. The paper (and on occasion Bezos himself) has been sharply critical in review of Trump’s campaign, something which the incoming president did not appreciate. Trump has fought back saying that “if Amazon ever had to pay fair taxes, its stock would crash and it would crumble like a paper bag”; “The Washington Post scam is saving Amazon by lobbying DC to not tax online retail”; and “I would go after him for antitrust, because he’s got a huge antitrust problem, because he’s controlling so much. Amazon is controlling so much of what they’re doing.”
BMR Take: Trump is not going to go after Amazon anytime in the near future. A big chunk of this country depends on Amazon. Amazon is improving many parts of the economy. The pullback in the stock is a strong buy opportunity.
Bristol-Myers Squibb (BMY: $56, +10.5%)
Many Healthcare investors are breathing a sigh of relief now that Trump has defeated Clinton in the presidential race. Shares of Pharmaceutical giants and big Biotech firms surged this week, largely due to hopes that a President Trump will not be as concerned about high drug prices as Clinton would have been. Trump still will fight high drug prices, but it is not a top priority of his administration, as instead his first choice in Healthcare is to repeal and replace Obamacare. (The latest news now is that he will just modify the Affordable Care Act.)
Drug and Biotech companies have been under attack on Capitol Hill for the past year due to price increases for life-saving drugs like Mylan's (MYL: $38) EpiPen, so the change in the landscape is big.
Separately, this week Bristol Myers benefited from some more specific events for the company, such as: (i) licensing a new liver drug from a Japanese company for $100 million that is believed to be a $1 billion+ drug; (ii) announcing a new pact with John’s Hopkins University to research immune-oncology; and (iii) its blockbuster drug Opdivo succeeded in a key stomach cancer study.
BMR Take: We are reassured to see signs of life out of our Bristol-Myers position. The stock had come under heavy poor sentiment, but now we have a string of good news from the recent quarter’s results that promised big stock buybacks and flat operating expenses, to a more favorable political landscape, to general good news about the core business. We think the stock is putting in a firm bottom and now is a great time to be accumulating.
Home Depot (HD: $130, +7%)
This business had been sagging with US GDP running 1-2%. With monetary policy out of gas, sentiment was turning negative that sluggish growth would re-accelerate. However, now with Trump’s idea of spending $500 billion on infrastructure over 5 years, and exciting prospects for GDP growth to return to 3-4%, means a lot better backdrop for Home Depot as the economy will be picking up, and more and more people will be employed. Home Depot will be reporting earnings this week on Tuesday. Watch for any commentary on the general economic outlook, customer traffic trends, and marketing spend - as key details aside from earnings results. Just three months ago CEO Craig Menear and his team projected that comps will rise at a 5% pace for the full fiscal year, marking a slight slowdown from 2015's 7% spike, which we hear could be on track to a recovery to high single digits, considering what’s recently changed in terms of fiscal stimulus for the economy.
BMR Take: Home Depot is a blue chip on very stable ground and we expect solid performance to continue. With only 15% market share of a $500+ billion US market opportunity, this is not a stalled-out growth story by any measure.
Annaly Capital Management (NLY: $10.09, -2%)
Interest rates moved sharply higher this past week. The 10-year Treasury note moved from 1.79% to 2.15%. We have not seen such a rapid rise since the Taper Tantrum that occurred three years ago. The stock has held up well. Why? More confidence in hedging programs? Better portfolio mix? More reasonable expectations for performance in a rising rate environment? Yes. Yes. And yes.
Rates are rising because expectations now call for fiscal stimulus to reaccelerate GDP growth from 1-2% to 3-4%, which in combination with higher headline inflation figures, will perhaps force the Fed to raise rates. The jury is still out on if the 10-year will spike to 2.75% from here, hold, or give back some of the recent move. In any event, it was very re-assuring to see Annaly’s stock hold firm around $10 this week.
BMR Take: We at The Bull Market Report actually think that rates my hold here and move lower in the next few weeks and make life even more difficult for the Fed on its decision-making about the rate rise in December. Annaly has the best long-term total return record of any Mortgage REIT. The company has paid out $14 billion in dividends since inception in the 1990s. With rates up a bit just recently, Annaly’s 10.4% dividend yield continues to look compelling.
Netflix (NFLX: $115, -6%)
Another company under fire right now is Netflix. The president-elect has tweeted his displeasure with net neutrality, but there is no formal plan in place at this time to address the issue. Everybody is in wait and see mode. As Republicans prepare to swarm Washington, the fate of net neutrality, or the policy that broadband providers do not favor traffic from one source or destination over another, is in question*. Netflix has the most to gain or lose. Without net neutrality rules in place, broadband providers would be able to charge online video services for bandwidth usage, as well as priority access (guaranteed streaming quality) and favor their own services. This could potentially crush Netflix. For instance, let's look at an example of somebody who has their home internet through Comcast. Comcast could start their own streaming service, as they are already are working on. They could then provide you with unlimited internet connection to watch their Comcast streaming service, but restrict internet access for other services like Netflix.
*Net neutrality – a very complex subject. Google it for details if you are so inclined.
BMR Take: As with Amazon, we think the fear here presents opportunity. Netflix and CEO Reed Hastings are bringing a lot of innovation and customer satisfaction to TV. We just don’t see net neutrality as a top priority for new leadership in Washington and thus we continue to hold Netflix in high regard as they continue to build their customer base and work on new content in their quest to become the next big TV network.
Upcoming Economic News
TUESDAY, NOVEMBER 15
Import Price Index* – October
Time: 8:30 am
Forecast: 0.3%
Import prices are projected to rise for the second straight month in October, bringing the index nearly even with the year-ago level. Yet in September the Import Index still trailed 2012’s cycle high by 16%, as long-term commodity cost pressures have not developed. Future movements in import prices are shrouded in doubt given the uncertain direction of the dollar and difficulties for OPEC in implementing oil supply cuts.
*The International Price Program produces Import/Export Price Indexes containing data on changes in the prices of nonmilitary goods and services traded between the U.S. and the rest of the world.
Retail Sales – October
Time: 8:30 am
Forecast: 0.6% overall, 0.5% ex-auto
Retail sales in October look to equal September’s hearty 0.6% monthly gain. Sales are supported by wage gains, with the 2.8% yearly change in average hourly earnings in October representing the fastest pace in seven years.
Business Inventories – September
Time: 10:00 am
Forecast: 0.2%
Business inventories are forecast to grow steadily in September, as the economic drag from the reduced pace of stockpiling appears to have ended. Inventories were initially estimated to have added 0.6% to real GDP growth last quarter after subtracting from output in the five previous quarters. Modest acceleration in revenues and slim inventories raise the prospects for higher corporate profits in the quarters ahead.
WEDNESDAY, NOVEMBER 16
Producer Price Index – October
Time: 8:30 am
Forecast: 0.3% overall, 0.2% core
Some uplift in fuel costs are expected to lead to a sturdy gain in the October Producer Price Index. Past deflationary trends in commodity costs are fading out as the PPI rose 0.7% yearly in September after annual declines were recorded in most of the prior 18 months. Underlying business cost trends remain weak, with the core PPI rising only 1.2% yearly through September.
Industrial Production & Capacity Utilization – October
Time: 9:15 am
Forecast: 0.2% industrial production, 75.5% capacity utilization
Industrial production can creep higher in October amid limited signs of rising industrial sector demand. The ISM Manufacturing Index reading on new orders has held in positive territory for two straight months. Monthly readings on core capital goods orders have also largely expanded in recent months.
THURSDAY, NOVEMBER 17
Housing Starts & Building Permits – October
Time: 8:30 am
Forecast: 1.16 million starts, 1.19 million permits
Housing starts are expected to leap higher in October after September’s disappointing 18-month low. Building permits hint of a turnaround in construction activity after rising 13% annualized in the third quarter. Though multi-family building is contracting, single-family home construction has expanded annually in every quarter since early 2014.
Consumer Price Index – October
Time: 8:30 am
Forecast: 0.4% overall, 0.2% core
Higher gasoline costs may lead the Consumer Price Index in October to equal the largest monthly increase of the past three years. The extended period of minimal price gains might be over after the CPI failed to grow faster than 1.5% annually in nearly two years. Higher observed price growth can help lift consumer inflation expectations, which would allow for some limited tightening of monetary policy.
FRIDAY, NOVEMBER 18
Leading Economic Indicators – October
Time: 10:00 am
Forecast: 0.1%
Encouraging labor market trends can push the Leading Economic Indicators Index higher for the second consecutive month in October. Sustained gains in the labor market participation rate among prime age workers this year is a sign that improved job prospects are resonating with previously idled individuals. That expansion of the work force boosts overall personal income growth and bolsters consumer spending.
A Word from Gary Jefferson
Jefferson Financial Group
First Vice-President, Investments
UBS Financial Services, Inc.
[Gary hinted Monday before the election not to rule out a Trump victory. Very astute prediction, Gary! These comments below are from Monday, the day before the election.]
From a longer-term perspective, and regardless of who wins, we believe the best "candidates" for potential future dividend growth (going into and out of this election) may be found in the Consumer Discretionary, Healthcare, Financials, and Information Technology sectors. It all goes back to earnings – not who is president. Companies that grow their earnings and dividends at an accelerated rate year in and year out will, as they have throughout history, offer the best potential for outperformance on an absolute and risk-adjusted basis.
The bottom line: These sectors are expected to be able to grow earnings notwithstanding any political headwinds they may face. So, while elections are extremely important to the well-being of our country, earnings are also important to the well-being of the markets and your individual portfolio. If we stay focused on earnings as opposed to elections, media "noise" and emotions, we expect good things will happen over the next four years.
[Well said, Gary.]
A Question For You
We always secretly wonder whether folks will avoid a stock like Amazon or Google because the stock price is so high. So we’d like to do an informal survey on whether you are intimidated by a high priced stock like Amazon or Google.
And here’s a second question: These two stocks are at about the same price now with Google at $753 and Amazon at $740. Which company do you think will be leading in 6-12 months? Write me directly here: Info@BullMarket.com.
The Energy Information Administration: Higher US Crude Oil Output in 2017
The Energy Information Administration (EIA)*, says this is due to the ramp-up in drilling in west Texas. They boosted their forecast of U.S. oil output this year and 2017 to average 8.8 million barrels a day this year and 8.7 million barrels a day next year, up from its prior forecasts of 8.7 million in 2016 and 8.6 million in 2017.
U.S. oil production has dropped from an average of 9.4 million barrels a day last year. But the EIA’s expectations for U.S. oil output have crept up this year as oil prices have increased.
* The U.S. Energy Information Administration (EIA) is responsible for collecting, analyzing, and disseminating energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. EIA programs cover data on coal, petroleum, natural gas, electric, renewable and nuclear energy and is part of the U.S. Department of Energy.
Listen To This: After talking cuts, OPEC members have pumped record amounts of oil
The Organization of the Petroleum Exporting Countries has ramped up production to record levels beyond 33.5 million barrels a day. Plus Russia has added about 500,000 barrels a day of oil production in the past two months, while the combined production of Libya and Nigeria brought another 500,000 barrels of new output. No wonder this increase in crude production has depressed crude, which is down 15% in the last three weeks.
The International Energy Agency said OPEC’s oil production rose to record highs in October and is expected to remain elevated this month, despite word of production cuts.
OPEC crude output rose by 230,000 barrels a day to a record high of 33.8 million barrels a day in October. Production recovered in Nigeria and Libya and flows from Iraq hit an all-time high of 4.6 million barrels a day.
OPEC is going to have big problems cutting global oil supplies since there are many producers that are not part of OPEC, such as Russia, Canada, Kazakhstan and Brazil, which are attempting to increase their own production levels.
Our prediction: Oil will stay in the 40s and might even move into the 30s in the next few weeks and months.
Tesla Update
The company announced a slew of new products including a more powerful Powerwall 2 (it stores the electricity produced from the solar array on your house), and a new Solar Roof – an AMAZING new product. We have a video for you to watch, but first, note that this is not going to happen under the auspices of Tesla, unless the merger with Solar City takes place. We think it WILL happen, due to the persuasiveness of Elon Musk but if the government decides against it, even Musk might not be able to make it work. Check out Musk explaining these new products here:
https://www.youtube.com/watch?v=0v_qqtlN8j8
Interest Rate Rise in December?
The Federal Reserve is on course to raise interest rates next month, a Reuters poll of economists showed. Before the election, many economists had said ensuing uncertainty from a Trump win might put up a roadblock. But roughly 85% of 62 respondents in a survey taken on Wednesday after the shock vote said the Fed would go ahead with a rate rise, its first in a year. But don’t forget what happened last year in December when the Fed raised. January of this year was a disaster. (BTW, the Wall Street expression “As January goes, so goes the year.” This year you can throw this one right out the window.
Gosh we hate platitudes like that one.
How about the talk that if the Fed starts raising rates, the market will go down? Well, look at December 2015 with the Fed raising rates and what happened this year. Note that historically the market rallies 1-2 years after the Fed starts raising. We think 2017 is going to be a good year.
More News on Goldman Sachs
We read a great article in The Economist about Goldman Sachs entitled Too Squid to Fail. Silly title, but good article. Write us if you wish to read the whole article: Info@BullMarket.com. Some highlights: It has the best brand name in the business. But like the rest of its industry, it has not fully recovered from the near-death experience of 2008. Even the boss of one, Credit Suisse, has described them as “not really investable”, and, sure enough, shares in many of the most prominent firms - Deutsche Bank, Citigroup, Bank of America - trade well below book value, suggesting they would be better off liquidated. Goldman’s shares trade virtually at book value. But even it is a shadow of its former self. [Since the article was written last week, the stock is up sharply, so it is trading at 110% of book. We wonder if this article had something to do with its sharp rise this week.]
Goldman is turning into an industry leader in another way: as an exemplar of the wrenching transformation banks need to undertake in order to survive and prosper.
Goldman reported its first double-digit return on equity for six quarters, and it did so by making money in its traditional trading and advisory businesses. The results seemed to vindicate those who have argued that the ever-thinner elite of global investment banks would eventually come good, as weaker rivals retrench and leave the field.
Far from it. The good quarter was a single swallow. Returns on equity and assets have not rescaled former peaks. Rather, they have fallen to a new, significantly lower, plateau. The industry remains squeezed between two secular trends that are not going to ease. One is towards the “disintermediation” of banks, a decades-long process accelerated by a technological revolution. This led Wall Street firms to seek profits as risk-takers rather than intermediaries. But that trend runs counter to the second: tighter regulation imposed in the wake of the crisis in 2008, to try to ensure it never happens again. This is eliminating whole lines of business, and, through the imposition of higher capital requirements, is making others less profitable.
An obvious response to this squeeze is the most brutal and immediate form of cost-cutting: redundancies and the elimination of any expense seen as discretionary. Buried within recent upbeat earnings reports by the banks were announcements of more job losses, including at Goldman. A more profound response, however, is to go beyond retrenchment to recognize that banks are, at their core, technology companies, whose business is to push numbers down digital pipes. Money has long been primarily an electronic construct.
Goldman is ahead of the pack in embracing the changes this recognition implies. A plethora of new initiatives seeks to turn technology into its friend and take it into entirely new lines of business. In-house, it is automating and streamlining its traditional businesses, identifying 146 steps across 45 systems that can be simplified in an initial public share offering, for instance. This month it launched a new internet operation, named Marcus, to lend to consumers. It has incubated a number of tech firms. One, Symphony, offers a messaging platform, and dreams of rivaling Bloomberg. Another, Kensho, offers a kind of real-time cyber-encyclopedia to find correlations between world events and price-sensitive assets.
Some of these Goldman initiatives may come to be seen as faddish indulgences and fail - and they are mirrored by a scramble for new ideas at its peers. But the effort puts Goldman on the right side of an embattled industry that, unable to transform its operating environment, must transform itself.
Tech Stocks Get Hammered
Nearly every major Tech stock was down on Thursday, one day after Donald Trump was elected president. Facebook, Apple, Alphabet, Microsoft, and Amazon were all down sharply, despite the overall market being up. The Dow was up more than 200 points on Thursday (1.2%), but the tech-heavy Nasdaq ended down 1.6%. Amazon was down 3.8%, Apple down 2.8%, Facebook down 1.9%, Alphabet down 2.9%, Microsoft down 2.4%, and Netflix down 5.4%. We’ve seen Tech stocks drop like this before, but never on a day when the overall market is skyrocketing.
Some analysts said Tech stocks are getting hit because people are concerned inflation might be higher under Trump. We’re not really buying this pitch. But note that Trump and the Tech industry have been sparring throughout the presidential campaign. Trump made curtailing immigration a centerpiece of his platform - a potential problem for the tech firms that employ a large number of foreign engineers. He pledged to force Apple to manufacture the iPhone in the US, which probably won’t happen, as well as to crack down on Amazon's tax practices.
BMR Take: We see a buying opportunity in Tech.
HIGH YIELD CORNER
We have a new president-elect, and the results were a shock to almost everyone. Whatever your politics, the change in office is something we need to look at carefully as market participants, because this is a clear shake-up to the stock market.
Some sectors are rallying. Financials in particular are doing well on the hope that Dodd-Frank will be repealed or Trump will initiate bank-friendly policies. At the very least, there is speculation that Trump will encourage inflation and thus higher interest rates, again pushing bank margins higher. This means Wells Fargo (WFC: $52) is up an eye-watering 16% in a single week. Other mainstream banks and big financial companies are up big as well. Similarly, BDCs did well with the hopes of higher interest rates and relaxed credit rules; the UBS BDC ETF (BDCS: $22) rose 5% last week.
How does this impact the high yield world?
Let’s take it one sector at a time. High yield bonds did not like the news. The SPDR High Yield Bond ETF (JNK: $35, down 2%) fell significantly for the same reason banks rose. An expectation that interest rates will rise is going to hurt corporate bond values. That doesn’t mean it’s time to sell junk bonds - but it does mean it’s a good idea to diversify and get a higher yield than you’d get from the SPDR fund (6.1%).
We recommend adding to a position in the Pimco Dynamic Income Fund (PDI: $26) on its recent weakness. Yes, the 5% decline in one week is hard to swallow - and the fund is now down year-to-date for the first time since May. We’re also now flat from our initial recommendation. But that doesn’t mean it’s time to sell - it means it is time to buy more. The fundamentals of this fund are stronger than when we first recommended it: Its undistributed net income is higher; it can match its dividend with bonds thanks to rising yields earlier this year; and the much anticipated special dividend is literally weeks away. Hold on and buy more.
What about REITs? Ironically, the REIT sector has done badly with a real estate mogul getting into the White House. It’s also doubly ironic, since Donald Trump owns several REITs. Still, the SPDR Dow Jones REIT ETF (RWR: $89) ended the week just flat after falling sharply on Wednesday and Thursday after the election results came out. Many individual REITs did much worse, but Healthcare REITs were one of the worst hit.
This is a problem for us, because Healthcare REITs are our favorite subsector in the asset class. Does this recent downturn change our positions on the two Healthcare REITs in the Bull Market Report portfolio?
Simply put: no. Irrational fears of unknown healthcare reforms to come are driving the sell-off, but there’s no justification for the worries.
Care Capital Properties (CCP: $23) had a disastrous week, falling over 7%. The stock is now down 26% year-to-date. This is extremely alarming, especially in light of a Mizuho report on the company with a new $26 price target.
They reported Funds from operations of $63 million, or 75 cents per share, in the period. Net income came in at $19 million or 23 cents, down from $36 million or 57 cents last year. Revenue hit $87 million in the period vs. $81 million last year. The company is looking for full-year funds from operations of $3 per share.
The drama around Care Capital might seem worrying at first glance, but we remain optimistic. First, the company reported a 5 cent FFO beat for the third quarter and revenues rose 6% year-over-year. The company is also expanding its skilled nursing facility (SNF) and senior housing community properties for $39 million in a sale-leaseback deal with an existing customer. This is good news, because Care Capital knows their customers and knows their financial health, so a sale-leaseback to an existing customer is a promising source of incremental cash. On top of that, Care Capital is now covering dividends with a 140% coverage ratio. Not only are payouts far from threatened, but likely to rise soon. Yet the market is pricing in risk with a 10% yield.
Part of this is fear over Medicare’s future. With President-elect Trump in a position to scrap Obamacare and replace Medicare with a voucher system, SNFs seem a prime risk. But Trump’s actual decisions regarding medical care are unknown; we don’t know if he really will scrap Obamacare, since he’s reiterated post-victory that there are parts of the plan he likes. What’s more, even if he revamps or removes Obamacare and Medicare completely, that doesn’t necessarily mean he won’t replace it with something that will benefit firms like Care Capital.
But the markets are playing it safe and punishing Care Capital as well as another Healthcare REIT favorite of ours, Omega Healthcare Investors (OHI: $28), which fell 3% in the last week. We see this as folly. As with Care Capital, Omega outearns its dividend and has strong growth potential. We recommend aggressive purchasing on these fears of a cut to Medicare hurting these firms.
What about Energy? Trump has been perceived as a champion of the Energy industry, with promises to increase coal mining in America and domestic energy production. However, domestic energy production is already booming and the real problem is the volatile and declining commodity costs that have come from higher supplies. There’s little reason to see Trump’s presidency impacting energy at all.
It’s no surprise, then, that the Alerian MLP (AMLP: $12) ended the week up over 1% - not unusual for the sector. (Alerian is a collection of energy MLPs. Since MLPs tend to trade in tandem with energy prices and they pay out 90% of income in the form of dividends, an MLP ETF is one of the highest yield ways to invest in energy.) Wednesday and Thursday were strong, with a correction on Friday, indicating there isn’t a Trump momentum here. The market is focusing much more on upcoming temperatures in gas-dependent cold climates; OPEC’s ability to strike an output freeze deal; and how a change or repeal of NAFTA will ultimately affect energy production in America. These are a lot of complicated issues with too many unknowns, so we remain on the sidelines for MLPs right now - but if there’s a serious correction that may change in the future. Volatility is likely to continue in the high yield world as investors get their bearings and prepare for rising interest rates and Trump’s still unclear economic plans. But this is a buying opportunity, as high yield investments will continue to be in demand as investors search for yield and diversify away from equities.
Michel Foster
High Yield Analyst
For The Bull Market Report
That’s all for this week. We look forward to how the market will handle the election news this coming week, a week after the fact.
Good Investing,
Todd Shaver, Founder and Editor in Chief
The Bull Market Report
November 9, 2016
by Todd Shaver | Nov 9, 2016 | Earnings Preview 6 AM
This is our last Earnings Preview of this quarter. None of our stocks report this week; there are two next week (14th); none the week of the 21st; and one the week of the 28th.
The Week of 11/14
Opko Health (OPK: $9.28)
Earnings Date: Monday, no time set
Consensus: 3Q2016
Revenues: $320 million
EPS: -$0.03
Year Ago Quarter Results
Revenues: $143 million
EPS: $0.25
Key Things to Watch For in the Quarter
Analysts on the Street expect Opko to report extraordinary growth in revenue of 125% to $320 million for the third quarter. However, they are not looking for profits yet as analysts expect a loss of $0.03 per share. But note that the firm has outperformed estimates in previous quarters. In 3Q15 consensus projected EPS of -$0.02, which Opko strongly outperformed by $0.23 per share.
A number of insider transactions have occurred in the early days of November, showing a sense of confidence from senior management. Two executives bought blocks of 10,000 shares at $9.50. The company currently trades at a PE ratio of 41, which is considered quite cheap when compared to the Healthcare industry’s PE of 65. As a firm focused on establishing leading positions in large and rapidly growing medical markets, Opko Health continues to be a bullish position for us here at The Bull Market Report.
Home Depot (HD: $125)
Earnings Date: Tuesday, Approx. 7:00 AM
Consensus: 3Q2016
Revenues: $23 billion
EPS: $1.58
Year Ago Quarter Results
Revenues: $22 billion
EPS: $1.36
Key Things to Watch For in the Quarter
Home Depot is expected to report a 16% increase in earnings per share for the third quarter of 2016. This healthy growth forecast is also represented in a consensus projected revenue increase of 4.5% to $23 billion. As the world’s largest home improvement retailer with over 2,200 stores, Home Depot shows no signs of slowing growth, especially when the number of residential building permits continues to grow at a consistent pace. In addition to dominating market share, Home Depot also provides investors with a relatively cheap entry opportunity. The stock is trading at a PE ratio of 20, which is about 50% lower than the Retail industry’s 36 PE. With strong management and a positive growth outlook, The Bull Market Report remains bullish.
The Week of 11/28
Splunk (SPLK: $60)
Earnings Date: Tuesday – Approx. 4:00 PM
Consensus: 3Q2016
Revenues: $230 million
EPS: $0.08
Year Ago Quarter Results
Revenues: $175 million
EPS: $0.05
Key Things to Watch For in the Quarter
Analysts expect significant growth from Splunk for the third quarter of 2016. Wall Street consensus projects revenue to grow by 32% to $230 million, and earnings per share to grow by 60% to $0.08. Splunk is a multinational corporation that produces software for searching, monitoring, and analyzing large amounts of machine-generated data. Its competitive advantage is enabling customers to gain real-time operational intelligence by harnessing the value of their data. Year-to-date, Splunk’s stock has remained relatively unchanged, only up $1, but has risen sharply since the lows of February when it hit $30. Strong revenues this quarter makes us feel good about this investment for the future. Profits will come in time.
November 8, 2016
by Todd Shaver | Nov 8, 2016 | 7am News Flash
The market was up big yesterday as you have already seen. It was up 371 Dow points, and 2.2% on the S&P, erasing 2/3rds of the 9-day losing streak in just one day. The FBI said there was nothing to the hundreds of thousands of Clinton emails and the market rallied big time.
You know, when you see a market like this you have to look at the stocks that did well. Because these are the stocks that will lead as the market moves higher. Amazon (AMZN: $785) was up $30 or 4%. Powerful. Alphabet (GOOG: $783) was up $21 or 2.7%. How about little old Mazor Robotics (MZOR: $23.50) - up $2 or 9%. When you see these big moves you can tell there has been a pent-up demand for these companies and the big up day gives investors fuel to buy the stocks they love.
Twilio (TWLO: $31) on the other hand was down $1 or 3%. Not good. We still believe in this company but it is getting hard to stay with it. UPS (UPS: $110) and Home Depot (HD: $124) were both up a little less than $3 or 2.6%. Fabulous moves for these two stalwarts.
Even our high yield stocks had a good day. Government Properties (GOV: $18.77) added 3% while Digital Realty Trust (DLR: $93) added 2.7%. And good old Annaly Capital Management (NLY) was steady, hardly moving an inch at $10.25, still yielding 10.4%. Love that company.
Well, that’s all for now. Have a great Election Day and may all your candidates win and all your stocks move higher.
