Post by Admin/YBB on Nov 13, 2021 9:48:04 GMT -6
Pg 12-13.
REVIEW. Among the top 100 ZIP CODES by pricey real estate, the states with most were CA (37), NY (17); cities with most were San Francisco (7), NYC (6), LA (6). The top was Atherton 94027 (median price cool $7.5 million), then Boston 02199 (median price $5.5 million). NYC didn’t have any Zip Codes in the top 10 this year (vs 6 last year).
PREVIEW. INFRASTRUCTURE stocks popped up after the $1.2 trillion infrastructure-capex stimulus (for roads/highways, bridges, water, rails, EVs, power grid, Internet) was signed. But remember that this spending will be over several years, and about half of it would have been spent anyway on necessary infrastructure maintenance/repair.
DATA THIS WEEK. Housing market index, retail sales, capacity utilization, industrial production on TUESDAY; housing starts on WEDNESDAY; LEI on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. GE (CEO CULP has been restructuring GE since 10/2018 and the latest is a 3-way split into GE Aviation (with Culp), GE Healthcare (2023), GE Power and Renewables (2024); investors cheered but then worried about the slow pace of the split; some businesses may even merge with others by the time the details of split are finalized; pg 15);
Pfizer (PFE; fwd P/E 12; strong R&D; Covid-19 twin successes with vaccine AND oral antiviral pill; sold off-patent drug division; risks include several drugs coming off patents in the next few years; pg 16);
small-caps (SC remain cheap vs LC; improving fundamentals; good technicals, 70% are above 50-dMA; benefit from good seasonality, Nov 1-April 30; SC do well in the early stages of economic expansion and would benefit from yield-curve steepening; lots of M&A activity; most SC won’t be affected by the proposed minimum tax for larger companies; ETFs SP-MC600 IJR, R2000 IWM (not good, not selective), SC-quality XSHQ; pg 18).
BEARISH. See other stories.
Pg 14: FOLLOWUP. High ENERGY prices are affecting the INFLATION data (PPI, CPI) and it is not even Winter yet. Energy industry is benefiting from high energy prices, but most other INDUSTRIES are negatively impacted (and then there are higher TRANSPORTATION costs too). Only some companies can pass on the higher costs to consumers. CONSUMERS are feeling the effects of higher costs for driving, home heating and most consumer products.
Pg 25: FUNDS. Justin WHITE of all-cap PRWAX (ER 0.77%) has an opportunistic mix of stocks, e.g., AMZN and GE are among the top 10. He looks for quality companies where there is a mismatch between his and analysts’ outlooks, and then uses the GARP approach. Fund changed its name and benchmark in March to better reflect what he had been doing.
Pg 26: FUNDS. A lawsuit has been filed against American Century that its ACTIVE value TWVLX (active score 69; typical range 60-100 for active funds) is just a CLOSET INDEX fund that is charging a high ER. There have been similar cases with mixed results in Sweden (2014), Norway (2016), Canada (2019), but this is the first case in the US. American Century is defending its fund saying that in this environment when most active funds are underperforming their benchmarks, its fund is at least keeping up with its benchmark although it would like it to do better.
Pg 27: INCOME. Both DIVIDENDS and BUYBACKS are rising and should set new records for 2021. So, the SHAREHOLDER YIELD (sum of dividend yield and buyback yield) is also rising. Dividends may grow at +10% to +15% annually over the next 3-5 years and one can find stocks with 2% to 4% current yields, so that is a nice long-term total return (note GORDON Equation) (spoiler may be the change in the P/D ratio).
(Exact equation: %TR = %Dividend_yield + %Dividend_growth + %Change_in_P/D)
Pg 27: ECONOMY. While the FED says inflation is transitory, there have been 5 months with CPI above +5% y-o-y. Moreover, taking out +1.5% for transitory inflation components, the STICKY remainder of core-CPI is still well above the Fed +2% average inflation target. The NY Fed sticky inflation (UIG) is at +4.3%; in fact, UIG was under +2% only for 3 brief periods, 03/2012-04/2014, 12/2014-11/2016, 02/2020-02/2021. Would the Fed drop its pretense on transitory inflation and accelerate its QE-taper and move up its rate hike plans? If the Fed has to catchup with aggressive rate hikes, the YIELD-CURVE may invert and there may be a recession in 2024. DEBT in the economy is quite high and rate hikes, when they come, will cause problems. Some think that the Fed inaction now is due to the coming reappointment/nonappointment of the Fed Chair POWELL (his current term expires in 02/2022).
Pg 28: TECH TRADER. Zoom/ZM was a huge pandemic beneficiary. But there were other less obvious beneficiaries – companies related to CALL CENTER operations (FIVN, NICE, RNG; also, CSCO, AVYA). Companies are also integrating their call centers with digital-bots. ZM plan to buy call center software company FIVN fell through due to a sharp post-pandemic decline in ZM stock.
Pg 30: Beware of the CHINA exposure of the US companies. Many related RISKS are not yet reflected in valuations: US-China trade frictions; tariffs; slowing Chinese economy; Chinese policy shifts away from growth; US incentives for onshoring for critical technologies; lingering Covid-19; supply-chain disruptions; growing local competition and changing consumer tastes. A table of 20 SP500 companies ranked by China exposure includes WYNN, LVS, QCOM, TXN, IPGP, etc. Some companies such as Yahoo! (APO) and LinkedIn (MSFT) are pulling out of China (several such as FB, GOOGL never had meaningful presence there). ETFs with no/low Chinese exposure include small-cap CALF, mid-cap EZM, dividend SPYD.
Pg 32: David HEIKKINEN, Pickering Energy Partners. In the coming ENERGY TRANSITION, some companies with both old and new forms of energy would do well. The energy transition will take time. OLD/traditional energy companies may still go through few cycles. Due to high oil/gas prices, traditional energy companies are having good cash flows, but they are not rushing yet to increase production; instead, they are focusing on dividends (some variable), balance sheets and buybacks, and their prices have lot more room to run higher (DVN, PXD, COP, AR, EQT, CTRA, FANG). Global supply-chain issues may put a cap on energy prices. There will be huge capex related to NEW forms of energy, but many of the related companies are still private. Ideas in ALTERNATIVE energy include EVA (wood pallets to substitute for coal); ENPH, SEDG (solar energy components and subsystems); DNNGY (North Sea wind farms).
Pg 70: OTHER VOICES. Rob FAUBER, CEO and President of Moody’s. The UN COP26 has focused global attention on CLIMATE issues. The current PARIS Agreement limits the temperature rise by 2100. The NET-ZERO-carbon goal (by 2050-2070 by many countries) is a $45-trillion global opportunity. There are strong inflows into ESG related products. AUTO industry will be hugely impacted. Companies not planning for ENERGY TRANSITION may have high DEFAULT risks; watch airlines, oil/gas companies, etc. Companies within the SECTORS (construction, textile/apparel, energy E&P, utilities, etc) will be impacted differently. Moody’s has started to incorporate climate risks in its debt ratings.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
REVIEW. Among the top 100 ZIP CODES by pricey real estate, the states with most were CA (37), NY (17); cities with most were San Francisco (7), NYC (6), LA (6). The top was Atherton 94027 (median price cool $7.5 million), then Boston 02199 (median price $5.5 million). NYC didn’t have any Zip Codes in the top 10 this year (vs 6 last year).
PREVIEW. INFRASTRUCTURE stocks popped up after the $1.2 trillion infrastructure-capex stimulus (for roads/highways, bridges, water, rails, EVs, power grid, Internet) was signed. But remember that this spending will be over several years, and about half of it would have been spent anyway on necessary infrastructure maintenance/repair.
DATA THIS WEEK. Housing market index, retail sales, capacity utilization, industrial production on TUESDAY; housing starts on WEDNESDAY; LEI on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. GE (CEO CULP has been restructuring GE since 10/2018 and the latest is a 3-way split into GE Aviation (with Culp), GE Healthcare (2023), GE Power and Renewables (2024); investors cheered but then worried about the slow pace of the split; some businesses may even merge with others by the time the details of split are finalized; pg 15);
Pfizer (PFE; fwd P/E 12; strong R&D; Covid-19 twin successes with vaccine AND oral antiviral pill; sold off-patent drug division; risks include several drugs coming off patents in the next few years; pg 16);
small-caps (SC remain cheap vs LC; improving fundamentals; good technicals, 70% are above 50-dMA; benefit from good seasonality, Nov 1-April 30; SC do well in the early stages of economic expansion and would benefit from yield-curve steepening; lots of M&A activity; most SC won’t be affected by the proposed minimum tax for larger companies; ETFs SP-MC600 IJR, R2000 IWM (not good, not selective), SC-quality XSHQ; pg 18).
BEARISH. See other stories.
Pg 14: FOLLOWUP. High ENERGY prices are affecting the INFLATION data (PPI, CPI) and it is not even Winter yet. Energy industry is benefiting from high energy prices, but most other INDUSTRIES are negatively impacted (and then there are higher TRANSPORTATION costs too). Only some companies can pass on the higher costs to consumers. CONSUMERS are feeling the effects of higher costs for driving, home heating and most consumer products.
Pg 25: FUNDS. Justin WHITE of all-cap PRWAX (ER 0.77%) has an opportunistic mix of stocks, e.g., AMZN and GE are among the top 10. He looks for quality companies where there is a mismatch between his and analysts’ outlooks, and then uses the GARP approach. Fund changed its name and benchmark in March to better reflect what he had been doing.
Pg 26: FUNDS. A lawsuit has been filed against American Century that its ACTIVE value TWVLX (active score 69; typical range 60-100 for active funds) is just a CLOSET INDEX fund that is charging a high ER. There have been similar cases with mixed results in Sweden (2014), Norway (2016), Canada (2019), but this is the first case in the US. American Century is defending its fund saying that in this environment when most active funds are underperforming their benchmarks, its fund is at least keeping up with its benchmark although it would like it to do better.
Pg 27: INCOME. Both DIVIDENDS and BUYBACKS are rising and should set new records for 2021. So, the SHAREHOLDER YIELD (sum of dividend yield and buyback yield) is also rising. Dividends may grow at +10% to +15% annually over the next 3-5 years and one can find stocks with 2% to 4% current yields, so that is a nice long-term total return (note GORDON Equation) (spoiler may be the change in the P/D ratio).
(Exact equation: %TR = %Dividend_yield + %Dividend_growth + %Change_in_P/D)
Pg 27: ECONOMY. While the FED says inflation is transitory, there have been 5 months with CPI above +5% y-o-y. Moreover, taking out +1.5% for transitory inflation components, the STICKY remainder of core-CPI is still well above the Fed +2% average inflation target. The NY Fed sticky inflation (UIG) is at +4.3%; in fact, UIG was under +2% only for 3 brief periods, 03/2012-04/2014, 12/2014-11/2016, 02/2020-02/2021. Would the Fed drop its pretense on transitory inflation and accelerate its QE-taper and move up its rate hike plans? If the Fed has to catchup with aggressive rate hikes, the YIELD-CURVE may invert and there may be a recession in 2024. DEBT in the economy is quite high and rate hikes, when they come, will cause problems. Some think that the Fed inaction now is due to the coming reappointment/nonappointment of the Fed Chair POWELL (his current term expires in 02/2022).
Pg 28: TECH TRADER. Zoom/ZM was a huge pandemic beneficiary. But there were other less obvious beneficiaries – companies related to CALL CENTER operations (FIVN, NICE, RNG; also, CSCO, AVYA). Companies are also integrating their call centers with digital-bots. ZM plan to buy call center software company FIVN fell through due to a sharp post-pandemic decline in ZM stock.
Pg 30: Beware of the CHINA exposure of the US companies. Many related RISKS are not yet reflected in valuations: US-China trade frictions; tariffs; slowing Chinese economy; Chinese policy shifts away from growth; US incentives for onshoring for critical technologies; lingering Covid-19; supply-chain disruptions; growing local competition and changing consumer tastes. A table of 20 SP500 companies ranked by China exposure includes WYNN, LVS, QCOM, TXN, IPGP, etc. Some companies such as Yahoo! (APO) and LinkedIn (MSFT) are pulling out of China (several such as FB, GOOGL never had meaningful presence there). ETFs with no/low Chinese exposure include small-cap CALF, mid-cap EZM, dividend SPYD.
Pg 32: David HEIKKINEN, Pickering Energy Partners. In the coming ENERGY TRANSITION, some companies with both old and new forms of energy would do well. The energy transition will take time. OLD/traditional energy companies may still go through few cycles. Due to high oil/gas prices, traditional energy companies are having good cash flows, but they are not rushing yet to increase production; instead, they are focusing on dividends (some variable), balance sheets and buybacks, and their prices have lot more room to run higher (DVN, PXD, COP, AR, EQT, CTRA, FANG). Global supply-chain issues may put a cap on energy prices. There will be huge capex related to NEW forms of energy, but many of the related companies are still private. Ideas in ALTERNATIVE energy include EVA (wood pallets to substitute for coal); ENPH, SEDG (solar energy components and subsystems); DNNGY (North Sea wind farms).
Pg 70: OTHER VOICES. Rob FAUBER, CEO and President of Moody’s. The UN COP26 has focused global attention on CLIMATE issues. The current PARIS Agreement limits the temperature rise by 2100. The NET-ZERO-carbon goal (by 2050-2070 by many countries) is a $45-trillion global opportunity. There are strong inflows into ESG related products. AUTO industry will be hugely impacted. Companies not planning for ENERGY TRANSITION may have high DEFAULT risks; watch airlines, oil/gas companies, etc. Companies within the SECTORS (construction, textile/apparel, energy E&P, utilities, etc) will be impacted differently. Moody’s has started to incorporate climate risks in its debt ratings.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None