Post by Admin/YBB on Aug 13, 2022 9:11:09 GMT -6
Pg 8-9. FOMC Minutes on WEDNESDAY.
REVIEW. CORPORATE TAXES are going up. The Inflation Reduction Act will impose 15% minimum tax on large corporations (80% already pay more than that) and 1% tax on buybacks (with some exceptions). The overall impact of these taxes should be minor except in some sectors (techs, utilities).
PREVIEW. Tesla/TSLA will SPLIT 3-for-1 on 8/24/22. In theory, stock splits shouldn’t matter but the reality is different. Investors consider splits bullish. Splits also increase participation by retail investors. (Reverse splits are definitely bad news)
DATA THIS WEEK: Housing market index, NY Fed Empire State manufacturing survey on MONDAY; housing starts, capacity utilization, business inventories on TUESDAY; retail sales on WEDNESDAY; LEI (4th decline?), existing home sales on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Small-cap American Eagle Outfitters (AEO; yield 5.6%; fwd P/E 9.4; buybacks; reduced debt; tough Q1 and lowered guidance for 2022; strong brands and good future potential; built own logistics systems that also handle other clients/retailers; online sales growing; pg 12);
Weight-loss drugs (new incretins from NVO, LLY, etc are game changers beyond the traditional diets, workouts, supplements, and surgery in extreme cases; injectable incretins (combos and oral tablets under development) are very expensive ($1.0K-1.5K/mo) and were developed for diabetes/DM2 but their weight loss results have been impressive; the FDA approval is pending for obesity/weight-loss; health insurers are considering coverage that is very restricted now; companies are expanding trials to show benefits other than DM2 and weight-loss; pg 18).
BEARISH. See other stories.
Pg 11: Several companies are facing LIQUIDITY SQUEEZES (RCL, BBBY, PRTY, RAD, WWW, CAL, EXPR); retailers are more vulnerable if their vendors start demanding immediate/advance payments or revolver credit facilities reduced/withdrawn. They have short-term obligations (debt service, rents/leases) much higher than cash on hand and must refi or issue debt (even equity) in the rising rate and tightened credit environment. Buybacks have been unwise for some of these. HY issuance is down, and the amount of distressed debt is rising. Recession or a long slowdown will only make things worse.
Pg 13, FOLLOW UP. The stock market has humbled SoftBank/SFTBY Cofounder/CEO “Masa” SON. The stock peaked in 02/2021; the company reported astounding losses of double-digit billions. Its Vision Funds have done very poorly. It always sold at discount to the NAV but that has just grown (50% now). Barron’s prior bullish pieces didn’t help. Masa may take it private, or just wait for the IPO market to come back.
Pg 21: ETFs. Now there are (expensive) single-stock ETFs (TSLL, TSLQ for TSLA, etc) to allow leveraged bets – long or short (without margin accounts or worrying about borrowing stock to short). Typical warnings about leveraged ETFs apply.
Pg 22, TECH TRADER. SEMI CHIPS stocks are very cheap and attractive: RMBS, QRVO, MCHP, NXPI, ADI, AVGO; semi-equipment LRCX, AMAT, KLAC. The Chips & Science Act will help the US chips industry. (Problems of NVDA, MU, INTC, AMD are discussed but they are not on the recommended lists)
Pg 23, ECONOMY. INFLATION will be higher for longer. STICKY inflation will be from “rents” (OERs) and services; prices of goods, commodities and energy may moderate but that influence will be lesser. (PPI > CPI means that wholesale inflation will trickle down later to retail inflation) The FED cannot control the triple causes of the current inflation – shortages in labor (more openings than unemployed), energy (SPR releases are temporary) and trust (inversely proportional to inflation). If the Fed quits too early, inflation may be stuck around 5%. The Fed is front-loading the rate hikes, but it may not be done soon.
Pg 24: Virginie MAISONNEUVE, Allianz Global. An interview focused on China (VM has followed China since the age of 5, has degree in Mandarin, has worked in China, specializes in China ESG). China-Taiwan conflict is not in anybody’s interest. The US-China trade war was misplaced by the US concerns. Treat China as a separate asset class, not just a part of the EMs. China is often out of sync with the others, so that provides important diversification benefit. China offers opportunities in innovative/disruptive techs, biotech, digitization. Chinese equities are volatile but attractive on earnings and valuations. Her big themes include quality-value (i.e. not deep-value), quality-growth, high-impact global themes (energy, food, water, AI, cybersecurity), risk control with ESG (her “new normal” despite temporary criticisms/doubts now).
Pg 54, OTHER VOICES. Hunter LEWIS, Own Firm and formerly, Cambridge Associates. INDEX funds’ spectacular run (total $8.5 trillion in 2022/Q1) may fade. The bear market has put a dent into investors’ love for index funds. Over 10-30 years, index funds have remained in the top quartile of performance. Most are CAP-WEIGHTED and diversified (LC growth is an exception now). Cap-weighting is a form of MOMENTUM investing. Big get bigger and 20% of SP500 now is in just 5 stocks – AAPL, MSFT, AMZN, TSLA, GOOG/GOOGL. SP500 isn’t a purely market-cap weighted index as there is an index committee that make the initial selection (based on factors such a profitability, stock prices, etc). Companies using financial engineering (buybacks, options-based compensation/incentives, creative accounting/non-GAAP) dominate the indexes. Some benefits of indexing reverse in a bear market. So, watch out.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
REVIEW. CORPORATE TAXES are going up. The Inflation Reduction Act will impose 15% minimum tax on large corporations (80% already pay more than that) and 1% tax on buybacks (with some exceptions). The overall impact of these taxes should be minor except in some sectors (techs, utilities).
PREVIEW. Tesla/TSLA will SPLIT 3-for-1 on 8/24/22. In theory, stock splits shouldn’t matter but the reality is different. Investors consider splits bullish. Splits also increase participation by retail investors. (Reverse splits are definitely bad news)
DATA THIS WEEK: Housing market index, NY Fed Empire State manufacturing survey on MONDAY; housing starts, capacity utilization, business inventories on TUESDAY; retail sales on WEDNESDAY; LEI (4th decline?), existing home sales on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Small-cap American Eagle Outfitters (AEO; yield 5.6%; fwd P/E 9.4; buybacks; reduced debt; tough Q1 and lowered guidance for 2022; strong brands and good future potential; built own logistics systems that also handle other clients/retailers; online sales growing; pg 12);
Weight-loss drugs (new incretins from NVO, LLY, etc are game changers beyond the traditional diets, workouts, supplements, and surgery in extreme cases; injectable incretins (combos and oral tablets under development) are very expensive ($1.0K-1.5K/mo) and were developed for diabetes/DM2 but their weight loss results have been impressive; the FDA approval is pending for obesity/weight-loss; health insurers are considering coverage that is very restricted now; companies are expanding trials to show benefits other than DM2 and weight-loss; pg 18).
BEARISH. See other stories.
Pg 11: Several companies are facing LIQUIDITY SQUEEZES (RCL, BBBY, PRTY, RAD, WWW, CAL, EXPR); retailers are more vulnerable if their vendors start demanding immediate/advance payments or revolver credit facilities reduced/withdrawn. They have short-term obligations (debt service, rents/leases) much higher than cash on hand and must refi or issue debt (even equity) in the rising rate and tightened credit environment. Buybacks have been unwise for some of these. HY issuance is down, and the amount of distressed debt is rising. Recession or a long slowdown will only make things worse.
Pg 13, FOLLOW UP. The stock market has humbled SoftBank/SFTBY Cofounder/CEO “Masa” SON. The stock peaked in 02/2021; the company reported astounding losses of double-digit billions. Its Vision Funds have done very poorly. It always sold at discount to the NAV but that has just grown (50% now). Barron’s prior bullish pieces didn’t help. Masa may take it private, or just wait for the IPO market to come back.
Pg 21: ETFs. Now there are (expensive) single-stock ETFs (TSLL, TSLQ for TSLA, etc) to allow leveraged bets – long or short (without margin accounts or worrying about borrowing stock to short). Typical warnings about leveraged ETFs apply.
Pg 22, TECH TRADER. SEMI CHIPS stocks are very cheap and attractive: RMBS, QRVO, MCHP, NXPI, ADI, AVGO; semi-equipment LRCX, AMAT, KLAC. The Chips & Science Act will help the US chips industry. (Problems of NVDA, MU, INTC, AMD are discussed but they are not on the recommended lists)
Pg 23, ECONOMY. INFLATION will be higher for longer. STICKY inflation will be from “rents” (OERs) and services; prices of goods, commodities and energy may moderate but that influence will be lesser. (PPI > CPI means that wholesale inflation will trickle down later to retail inflation) The FED cannot control the triple causes of the current inflation – shortages in labor (more openings than unemployed), energy (SPR releases are temporary) and trust (inversely proportional to inflation). If the Fed quits too early, inflation may be stuck around 5%. The Fed is front-loading the rate hikes, but it may not be done soon.
Pg 24: Virginie MAISONNEUVE, Allianz Global. An interview focused on China (VM has followed China since the age of 5, has degree in Mandarin, has worked in China, specializes in China ESG). China-Taiwan conflict is not in anybody’s interest. The US-China trade war was misplaced by the US concerns. Treat China as a separate asset class, not just a part of the EMs. China is often out of sync with the others, so that provides important diversification benefit. China offers opportunities in innovative/disruptive techs, biotech, digitization. Chinese equities are volatile but attractive on earnings and valuations. Her big themes include quality-value (i.e. not deep-value), quality-growth, high-impact global themes (energy, food, water, AI, cybersecurity), risk control with ESG (her “new normal” despite temporary criticisms/doubts now).
Pg 54, OTHER VOICES. Hunter LEWIS, Own Firm and formerly, Cambridge Associates. INDEX funds’ spectacular run (total $8.5 trillion in 2022/Q1) may fade. The bear market has put a dent into investors’ love for index funds. Over 10-30 years, index funds have remained in the top quartile of performance. Most are CAP-WEIGHTED and diversified (LC growth is an exception now). Cap-weighting is a form of MOMENTUM investing. Big get bigger and 20% of SP500 now is in just 5 stocks – AAPL, MSFT, AMZN, TSLA, GOOG/GOOGL. SP500 isn’t a purely market-cap weighted index as there is an index committee that make the initial selection (based on factors such a profitability, stock prices, etc). Companies using financial engineering (buybacks, options-based compensation/incentives, creative accounting/non-GAAP) dominate the indexes. Some benefits of indexing reverse in a bear market. So, watch out.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).