Post by Admin/YBB on Apr 2, 2022 12:08:48 GMT -6
Pg 10-11. FOMC Minutes on WEDNESDAY.
REVIEW. After a big Oscar night for STREAMING (bad for movie theaters), theater chain and meme stock AMC started to rally on its unusual moves that spooked its bond investors – acquiring a stake in gold-miner Hycroft/HYMC; accepting cryptos; playing with NFTs; expanding popcorn sales outside of theaters, etc. It expects losses through 2023. It did tap into the meme craze by issuing more stock.
PREVIEW. DEFENSE stocks fell on disappointing defense budget proposal for FY 2023. Defense stocks did well in 2021 and have benefitted from Russia-Ukraine war. The sector fwd P/E has expanded to 18 but the sector remains attractive (HII, RTX, GD, LMT, NOC, etc).
DATA THIS WEEK. Factory orders, durable goods orders on MONDAY; auto sales, international trade balance on TUESDAY; weekly initial jobless claims, consumer credit on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Biotechs (stick with ETFs IBB (market-cap weighted), XBI (equal-weighted) as individual biotechs are too risky; the pandemic-runup in biotechs (BNTX, MRNA, etc) may not be repeated; things have been ugly since 2/8/21 but now may be time for rebound, especially for small/mid-cap biotechs (more of these in XBI); regulatory picture has been muddy since the controversial FDA approval of Biogen’s/BIIB potentially ineffective Alzheimer drug; pg 13);
Air Products and Chemicals (APD; produces hydrogen (25% of sales now and growing fast) and other gases; production of hydrogen is tricky and is either from natural gas (“gray” hydrogen, “blue” hydrogen) or water (“green” hydrogen); hydrogen can be transported through pipelines and in liquified form (the 1st ever shipment was in February 2022 from Australia to Japan); its European margins are hurt by high natural gas prices there; beneficiary of global clean energy initiatives; pg 14);
Small-cap telecom Starry (STRY; public via 3/29/22 SPAC-merger with FirstMark Horizon; may raise more funds via debt; investors include Tiger Global and Fidelity; CEO KANOJIA has control via super-voting stock; 2020- chart shown is not relevant; its home broadband services use an exclusive high-frequency 24-37 GHz wireless spectrum (mmWave) that bypasses phone and cable company networks; integrated design, manufacturing, installation operations; no digging of trenches required and the service is delivered through buildings’ existing wiring; T and VZ offer competing broadband services via their 5G bands but their speeds may suffer due to band sharing with mobile phones; pg 15);
Oil/gas royalty Texas Pacific Land (TPL; fortunes boosted by Russia-Ukraine war; revenues from royalties paid by XOM, CVX, etc (70%) and fracking operations (30%); the land trust originated from 1988 railroad bankruptcy, it converted to corporate structure in 2021, and activists are pushing for governance changes; pg 21).
BEARISH.
Pg 12: ECONOMY. SOFT LANDING may be possible (prior, mid-1960s, early-1980s, early-1990s). NEGATIVES for economy include aggressive Fed, flattening yield-curve, war, high inflation. But POSITIVES include strong job market and consumers in good shape. Fragile post-pandemic economic recovery can be in either column. Prior 8 out of 11 Fed tightening cycles caused recessions. The Fed waited too long to act this time and faster tightening now to catch up increases the risk of recession. Russia-Ukraine war is an external factor that developed suddenly. Things look in balance now for soft landing but that may change quickly.
Pg 22, FUNDS. The number of actively managed ETFs (846 now) has grown significantly after the SEC rule changes in 09/2019 (Rule 6c-11 for SEMITRANSPARENT ETFs). Yet, the largest active ETFs are still small by AUMs (DFAC, ARKK, DFAT, DFAX, DFAS). The ETF clones of active mutual funds remain tiny: FMAG/FMAGX, etc. But several restrictions (intermarket exchange trading, etc) are hampering the growth of these active ETFs for funds that may hold foreign stocks, bonds (even though most active ETFs before the rule change were active bond ETFs), preferreds, etc. Their ERs are also high. American Funds and Harbor Funds have introduced self-standing active ETFs that don’t pretend to be clones of existing mutual funds.
Pg 23, INCOME. SP500 stocks with good dividends and high shareholder yields (%dividend yield + %buyback): HPQ, MPC, STX, SYF, BK, WHR, LNC, MET, ZION, MS.
There is confusion about Tesla’s/TSLA stock split and possible future stock dividends.
Pg 24, TECH TRADER. Micron is attractive (MU; -16% YTD; fwd P/S 2; fwd P/E 6.5). It makes memory chips – volatile/temporary/random-memory DRAMs and nonvolatile/flash-memory NANDs. MU chips are used in PCs, autos, EVs, driver-assist technologies, etc. Chip prices have risen due to supply-chain disruptions, including for neon gas from Ukraine. But MU report last week was above expectations and its guidance was good. Competitors are Samsung Electronics, SK Hynix, WDC-Kioxia joint-venture.
Pg 25: ECONOMY. The JOBS report was solid but be aware of risks ahead. The jobs report may be a lagging indicator and job growth is slowing. The ISM manufacturing and service surveys have weakened. Job-cut announcements are rising. Prices are rising faster than wages. Real disposable income is declining. Savings rates and savings are falling. High inflation may cause demand destruction (a phenomenon well-known for oil). Cleveland Fed has a new survey to measure inflation-expectations and that is at 6.5% and rising (vs a lower PCE that the Fed is expecting to fall). Factors affecting cautious outlook include WAR and high CURRENT inflation. Probability of recession in 2023 has risen.
Pg 26: Sarah KETTERER, Cofounder of Causeway Capital (2001- ). A value investor with international orientation and quantitative risk controls, she is the daughter of John HOTCHKIS, founder of the value manager Hotchkis & Wiley. The flagship fund is international value CIVVX (2001- ). Times have been tough for value but there is now some rotation from growth to value. Value investors do better in tough times. Cycle bottoms always feel horrible. Market sometimes prices stocks as if the current bad situation they face would last forever. Pandemic and war are unexpected major events back-to-back. There may be a quick cycle of asset inflation and asset deflation. She now likes European banks (several below 03/2020 levels), some Covid disasters (transportation, healthcare/pharma), EMs (China with watchful eyes, Taiwan, S Korea, etc). Firm’s global value fund is underweighted in the US.
Pg 62: OTHER VOICES. Carman REINHART, World Bank (and Harvard). Russia-Ukraine WAR following the PANDEMIC has added to the list of global risks – imbalances from central bank actions, variable global economic recoveries, inflation (energy, food, other), rising commodity prices, supply-chain disruptions, social unrest, etc. Add potential Russian DEFAULT (sovereign, corporate) to that. While that would have a global impact, the emerging markets would be especially affected. Many have barely recovered from the pandemic and already have debt-servicing issues (after several debt-relief programs expired in 2021). Experiences from previous Russian default (1998) and Lehman default (2008) may not be very useful. (Problems are noted but solutions, if any, are not offered)
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
REVIEW. After a big Oscar night for STREAMING (bad for movie theaters), theater chain and meme stock AMC started to rally on its unusual moves that spooked its bond investors – acquiring a stake in gold-miner Hycroft/HYMC; accepting cryptos; playing with NFTs; expanding popcorn sales outside of theaters, etc. It expects losses through 2023. It did tap into the meme craze by issuing more stock.
PREVIEW. DEFENSE stocks fell on disappointing defense budget proposal for FY 2023. Defense stocks did well in 2021 and have benefitted from Russia-Ukraine war. The sector fwd P/E has expanded to 18 but the sector remains attractive (HII, RTX, GD, LMT, NOC, etc).
DATA THIS WEEK. Factory orders, durable goods orders on MONDAY; auto sales, international trade balance on TUESDAY; weekly initial jobless claims, consumer credit on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Biotechs (stick with ETFs IBB (market-cap weighted), XBI (equal-weighted) as individual biotechs are too risky; the pandemic-runup in biotechs (BNTX, MRNA, etc) may not be repeated; things have been ugly since 2/8/21 but now may be time for rebound, especially for small/mid-cap biotechs (more of these in XBI); regulatory picture has been muddy since the controversial FDA approval of Biogen’s/BIIB potentially ineffective Alzheimer drug; pg 13);
Air Products and Chemicals (APD; produces hydrogen (25% of sales now and growing fast) and other gases; production of hydrogen is tricky and is either from natural gas (“gray” hydrogen, “blue” hydrogen) or water (“green” hydrogen); hydrogen can be transported through pipelines and in liquified form (the 1st ever shipment was in February 2022 from Australia to Japan); its European margins are hurt by high natural gas prices there; beneficiary of global clean energy initiatives; pg 14);
Small-cap telecom Starry (STRY; public via 3/29/22 SPAC-merger with FirstMark Horizon; may raise more funds via debt; investors include Tiger Global and Fidelity; CEO KANOJIA has control via super-voting stock; 2020- chart shown is not relevant; its home broadband services use an exclusive high-frequency 24-37 GHz wireless spectrum (mmWave) that bypasses phone and cable company networks; integrated design, manufacturing, installation operations; no digging of trenches required and the service is delivered through buildings’ existing wiring; T and VZ offer competing broadband services via their 5G bands but their speeds may suffer due to band sharing with mobile phones; pg 15);
Oil/gas royalty Texas Pacific Land (TPL; fortunes boosted by Russia-Ukraine war; revenues from royalties paid by XOM, CVX, etc (70%) and fracking operations (30%); the land trust originated from 1988 railroad bankruptcy, it converted to corporate structure in 2021, and activists are pushing for governance changes; pg 21).
BEARISH.
Pg 12: ECONOMY. SOFT LANDING may be possible (prior, mid-1960s, early-1980s, early-1990s). NEGATIVES for economy include aggressive Fed, flattening yield-curve, war, high inflation. But POSITIVES include strong job market and consumers in good shape. Fragile post-pandemic economic recovery can be in either column. Prior 8 out of 11 Fed tightening cycles caused recessions. The Fed waited too long to act this time and faster tightening now to catch up increases the risk of recession. Russia-Ukraine war is an external factor that developed suddenly. Things look in balance now for soft landing but that may change quickly.
Pg 22, FUNDS. The number of actively managed ETFs (846 now) has grown significantly after the SEC rule changes in 09/2019 (Rule 6c-11 for SEMITRANSPARENT ETFs). Yet, the largest active ETFs are still small by AUMs (DFAC, ARKK, DFAT, DFAX, DFAS). The ETF clones of active mutual funds remain tiny: FMAG/FMAGX, etc. But several restrictions (intermarket exchange trading, etc) are hampering the growth of these active ETFs for funds that may hold foreign stocks, bonds (even though most active ETFs before the rule change were active bond ETFs), preferreds, etc. Their ERs are also high. American Funds and Harbor Funds have introduced self-standing active ETFs that don’t pretend to be clones of existing mutual funds.
Pg 23, INCOME. SP500 stocks with good dividends and high shareholder yields (%dividend yield + %buyback): HPQ, MPC, STX, SYF, BK, WHR, LNC, MET, ZION, MS.
There is confusion about Tesla’s/TSLA stock split and possible future stock dividends.
Pg 24, TECH TRADER. Micron is attractive (MU; -16% YTD; fwd P/S 2; fwd P/E 6.5). It makes memory chips – volatile/temporary/random-memory DRAMs and nonvolatile/flash-memory NANDs. MU chips are used in PCs, autos, EVs, driver-assist technologies, etc. Chip prices have risen due to supply-chain disruptions, including for neon gas from Ukraine. But MU report last week was above expectations and its guidance was good. Competitors are Samsung Electronics, SK Hynix, WDC-Kioxia joint-venture.
Pg 25: ECONOMY. The JOBS report was solid but be aware of risks ahead. The jobs report may be a lagging indicator and job growth is slowing. The ISM manufacturing and service surveys have weakened. Job-cut announcements are rising. Prices are rising faster than wages. Real disposable income is declining. Savings rates and savings are falling. High inflation may cause demand destruction (a phenomenon well-known for oil). Cleveland Fed has a new survey to measure inflation-expectations and that is at 6.5% and rising (vs a lower PCE that the Fed is expecting to fall). Factors affecting cautious outlook include WAR and high CURRENT inflation. Probability of recession in 2023 has risen.
Pg 26: Sarah KETTERER, Cofounder of Causeway Capital (2001- ). A value investor with international orientation and quantitative risk controls, she is the daughter of John HOTCHKIS, founder of the value manager Hotchkis & Wiley. The flagship fund is international value CIVVX (2001- ). Times have been tough for value but there is now some rotation from growth to value. Value investors do better in tough times. Cycle bottoms always feel horrible. Market sometimes prices stocks as if the current bad situation they face would last forever. Pandemic and war are unexpected major events back-to-back. There may be a quick cycle of asset inflation and asset deflation. She now likes European banks (several below 03/2020 levels), some Covid disasters (transportation, healthcare/pharma), EMs (China with watchful eyes, Taiwan, S Korea, etc). Firm’s global value fund is underweighted in the US.
Pg 62: OTHER VOICES. Carman REINHART, World Bank (and Harvard). Russia-Ukraine WAR following the PANDEMIC has added to the list of global risks – imbalances from central bank actions, variable global economic recoveries, inflation (energy, food, other), rising commodity prices, supply-chain disruptions, social unrest, etc. Add potential Russian DEFAULT (sovereign, corporate) to that. While that would have a global impact, the emerging markets would be especially affected. Many have barely recovered from the pandemic and already have debt-servicing issues (after several debt-relief programs expired in 2021). Experiences from previous Russian default (1998) and Lehman default (2008) may not be very useful. (Problems are noted but solutions, if any, are not offered)
(EXTRAS from online Friday that didn’t make the weekend paper version)
None