Post by Admin/YBB on Oct 15, 2022 10:09:20 GMT -6
Pg 10-11.
REVIEW. University ENDOWMENT funds lost -7.8% in FY22 (to 6/30/22) vs SP500 -10%; Yale +0.80%, Harvard -1.8%. Many endowment funds are heavy in alternatives (private-equity, venture-capital, hedge-funds, etc) and some may not have yet marked-to-market their positions (many alternatives are not priced daily).
PREVIEW. Companies may easily beat already lowered Q3 EARNINGS expectations; SP500 Q3 earnings est is $55.56. Pay more attention to 2023 guidance; the SP500 2023 earnings est $239. Strong DOLLAR is headwind for US companies with overseas exposure.
DATA THIS WEEK. NY Fed Empire State manufacturing index on MONDAY; industrial production, capacity utilization, housing market index (see pg 34 feature below) on TUESDAY; Fed beige book on economic conditions in 12 regional districts, housing starts on WEDNESDAY; LEI, existing home sales, Philly Fed manufacturing index on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Mining stocks (diversified NGLOY, BHP, GLNCY, RIO; copper FCX; gold GOLD, NEM; aluminum AA; they have low valuations, low debt, good profits, strong balance sheets, reasonable capex, and pay dividend (may be variable or special); risks are geopolitical, global economic slowdown/recession; pg 12);
Deckers Outdoor (DECK; fwd P/E 16.5; footwear brands Uggs, Hoka, Teva, Sanuk; pg 14).
BEARISH. See other stories.
Pg 18: TECH TRADER. Oracle/ORCL is attractive (CEO Safra CATZ). Its CLOUD business is growing with OCI Gen 2, etc. Deal to buy electronic healthcare records company Cerner in late-2021 spooked many investors but ORCL will pay for it in 2 years with its free cash flow. Strong DOLLAR is hurting overseas earnings. BUYBACKS continue; Larry ELLISON (78) owns 42%.
Pg 22: With the tech slump, SILICON VALLEY, CA companies may not flee like in 2020-21 (PLTR, ORCL, HPE, TSLA, etc). Silicon Valley offers a concentrated pool of resources (talent, R&D, venture capital, etc) but there are negatives of high costs, poor transportation, natural disasters, state government regulations (privacy, worker benefits, taxes to subsidize EVs, ESG, etc). But Silicon Valley remains a dominant force in tech.
Pg 23: BIG MONEY POLL. With 3 quarters of simultaneous declines in stocks and bonds, most of the pain may be over. Outlook is bearish near term, bullish long term. The Fed is blamed for the immediate cause of pain; the pace of rate hikes has been the fastest in history although the rate levels are not unusual; a fear is that the Fed may stop only when something breaks somewhere. Even with the risks of being too early, or too late, long-term investors should plan buys; in the meantime, cash isn’t trash with T-Bills at 4.4% risk-free. Survey results follow.
SP500 12-mo Outlook: Not bottomed by 84%; bullish 40%, bearish 30%; overvalued 40%, undervalues 22%; earnings $217.37 (2022), $224.05 (2023).
SP500 Range: 3,363-4,206 by 6/30/22
US GDP: -1% to +1% in 2022 by 72%, 0% to +2% in 2023 by 60%
Inflation (CPI yoy): +4% in 2022 by 35%, +6% to +8% in 2023 by 80%
Terminal/Peak Fed Fund Rate for this Cycle: 4.00% to 4.75% by 75%
2-Yr Treasury Yield: 3.00% to 4.50% in 1 yr by 78%
10-Yr Treasury Yield: 3.25% to 4.50% in 1 yr by 74%
Dollar Index DXY in 12 Mo: Strengthen by 32%, weaken 50%
Oil: $89.36 in 1 yr
Gold: $1,791 in 1 yr
Bitcoin: $18,455 in 1 yr
Attractive Equity Sectors: Energy by 20%, healthcare 18%, IT 15%
Attractive Fixed-Income Sectors: Treasuries 39%, inv-grade corporates 20%, munis 15%
Risks: Rates 18%, recession 20%, disappointing earnings 15%
Issues for Congress: Inflation 40%, immigration 26%, fiscal 11%
Post-Midterm Elections: Republicans control Senate by 86%, Democrats control House 52%
Pg 30: Brian JONES and Steve SHIGEKAWA comanage real estate NREAX (4*, Neutral by M*; ER 1.21%); fund is concentrated (35-40 holdings). Inflation affects real estate strangely – higher rates are negative (for valuation and cap rates) but rents rise. They look for durable but growing cash flows; FFO, P/FFO are more relevant than E, P/E. They use a combo of P/FFO, yield and ESG for evaluation. Real estate has several subsectors within that offer growth and/or income.
Pg 32, ECONOMY. States’ stimulus (now 20 totaling $31 billion) will act counter to FED tightening and may add 0.30-0.50% to the GDP. The CPI was +8.2% y-o-y (core +6.6%) and Cleveland Fed’s sticky CPI +7%. The (wholesale) PPI remained high and that will cause problems with the CPI later.
Pg 33: INCOME. Battered REGIONAL BANKS offer attractive dividends (ETF IAT yield 4%, -22% YTD). Most regional banks have stuck with their core businesses, are in good financial shape, and have low payout ratios. Mentioned are CMA, FITB, KEY, MTB, PNC, RF.
Pg 34: Robert DIETZ, National Association of Home Builders (NAHB). Rising RATES will cool housing; the 30-yr mortgage rates (near 7%) have nearly doubled in a year. This has affected housing AFFORDABILITY and many buyers have pulled back or were denied credit; sellers are also staying put as they don’t want to trade existing low-rate mortgages for new higher rate mortgages. Inflation has raised construction COSTS. This housing RECESSION will only get worse (housing is 16% of GDP, so the impact will spread); NAHB/WFC HMI (index) has declined for 9 months now (est -10% for 2022); homebuilders’ SENTIMENT is poor. Concerns have shifted from supply-chains to DEMAND (most affected are the first-time home buyers). Turnaround may be in 2024. Beneficiaries will be the RENTAL market, MULTIFAMILY properties, home IMPROVEMENT/ remodeling. As an industry association, the NAHB hears from homebuilders and weak markets now are Boise (ID), Austin (TX), Denver (CO); better markets driven by population trends are Southeast, Midwest, NJ, etc. Based on demographic trends, there is housing DEFICIT of about 1 million that may not be made up until 2025. Other trends that need watching are town-houses (13% of new single-family homes), tear-down constructions (6% of housing starts), etc.
Pg 62: OTHER VOICES. Tim ASH, BlueBay Asset Management. WAR is not going according to PUTIN’s plans/intentions/efforts. He failed in his initial objective of a quick takeover of Ukraine. Now he is trying to hang on, and embarrassingly, even losing some annexed territories. There are 3 scenarios, and for now, all 3 depend solely on Putin. FIRST, Putin saves face with some sort of peace. SECOND, Ukraine wins, Putin is dumped in Russia. THIRD, Putin resorts to the use of tactical nuclear weapons at huge political costs that may also force the NATO to take care of him. Implications of each for global stock and commodity market are discussed (good, good, bad, respectively).
(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. University ENDOWMENT funds lost -7.8% in FY22 (to 6/30/22) vs SP500 -10%; Yale +0.80%, Harvard -1.8%. Many endowment funds are heavy in alternatives (private-equity, venture-capital, hedge-funds, etc) and some may not have yet marked-to-market their positions (many alternatives are not priced daily).
PREVIEW. Companies may easily beat already lowered Q3 EARNINGS expectations; SP500 Q3 earnings est is $55.56. Pay more attention to 2023 guidance; the SP500 2023 earnings est $239. Strong DOLLAR is headwind for US companies with overseas exposure.
DATA THIS WEEK. NY Fed Empire State manufacturing index on MONDAY; industrial production, capacity utilization, housing market index (see pg 34 feature below) on TUESDAY; Fed beige book on economic conditions in 12 regional districts, housing starts on WEDNESDAY; LEI, existing home sales, Philly Fed manufacturing index on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Mining stocks (diversified NGLOY, BHP, GLNCY, RIO; copper FCX; gold GOLD, NEM; aluminum AA; they have low valuations, low debt, good profits, strong balance sheets, reasonable capex, and pay dividend (may be variable or special); risks are geopolitical, global economic slowdown/recession; pg 12);
Deckers Outdoor (DECK; fwd P/E 16.5; footwear brands Uggs, Hoka, Teva, Sanuk; pg 14).
BEARISH. See other stories.
Pg 18: TECH TRADER. Oracle/ORCL is attractive (CEO Safra CATZ). Its CLOUD business is growing with OCI Gen 2, etc. Deal to buy electronic healthcare records company Cerner in late-2021 spooked many investors but ORCL will pay for it in 2 years with its free cash flow. Strong DOLLAR is hurting overseas earnings. BUYBACKS continue; Larry ELLISON (78) owns 42%.
Pg 22: With the tech slump, SILICON VALLEY, CA companies may not flee like in 2020-21 (PLTR, ORCL, HPE, TSLA, etc). Silicon Valley offers a concentrated pool of resources (talent, R&D, venture capital, etc) but there are negatives of high costs, poor transportation, natural disasters, state government regulations (privacy, worker benefits, taxes to subsidize EVs, ESG, etc). But Silicon Valley remains a dominant force in tech.
Pg 23: BIG MONEY POLL. With 3 quarters of simultaneous declines in stocks and bonds, most of the pain may be over. Outlook is bearish near term, bullish long term. The Fed is blamed for the immediate cause of pain; the pace of rate hikes has been the fastest in history although the rate levels are not unusual; a fear is that the Fed may stop only when something breaks somewhere. Even with the risks of being too early, or too late, long-term investors should plan buys; in the meantime, cash isn’t trash with T-Bills at 4.4% risk-free. Survey results follow.
SP500 12-mo Outlook: Not bottomed by 84%; bullish 40%, bearish 30%; overvalued 40%, undervalues 22%; earnings $217.37 (2022), $224.05 (2023).
SP500 Range: 3,363-4,206 by 6/30/22
US GDP: -1% to +1% in 2022 by 72%, 0% to +2% in 2023 by 60%
Inflation (CPI yoy): +4% in 2022 by 35%, +6% to +8% in 2023 by 80%
Terminal/Peak Fed Fund Rate for this Cycle: 4.00% to 4.75% by 75%
2-Yr Treasury Yield: 3.00% to 4.50% in 1 yr by 78%
10-Yr Treasury Yield: 3.25% to 4.50% in 1 yr by 74%
Dollar Index DXY in 12 Mo: Strengthen by 32%, weaken 50%
Oil: $89.36 in 1 yr
Gold: $1,791 in 1 yr
Bitcoin: $18,455 in 1 yr
Attractive Equity Sectors: Energy by 20%, healthcare 18%, IT 15%
Attractive Fixed-Income Sectors: Treasuries 39%, inv-grade corporates 20%, munis 15%
Risks: Rates 18%, recession 20%, disappointing earnings 15%
Issues for Congress: Inflation 40%, immigration 26%, fiscal 11%
Post-Midterm Elections: Republicans control Senate by 86%, Democrats control House 52%
Pg 30: Brian JONES and Steve SHIGEKAWA comanage real estate NREAX (4*, Neutral by M*; ER 1.21%); fund is concentrated (35-40 holdings). Inflation affects real estate strangely – higher rates are negative (for valuation and cap rates) but rents rise. They look for durable but growing cash flows; FFO, P/FFO are more relevant than E, P/E. They use a combo of P/FFO, yield and ESG for evaluation. Real estate has several subsectors within that offer growth and/or income.
Pg 32, ECONOMY. States’ stimulus (now 20 totaling $31 billion) will act counter to FED tightening and may add 0.30-0.50% to the GDP. The CPI was +8.2% y-o-y (core +6.6%) and Cleveland Fed’s sticky CPI +7%. The (wholesale) PPI remained high and that will cause problems with the CPI later.
Pg 33: INCOME. Battered REGIONAL BANKS offer attractive dividends (ETF IAT yield 4%, -22% YTD). Most regional banks have stuck with their core businesses, are in good financial shape, and have low payout ratios. Mentioned are CMA, FITB, KEY, MTB, PNC, RF.
Pg 34: Robert DIETZ, National Association of Home Builders (NAHB). Rising RATES will cool housing; the 30-yr mortgage rates (near 7%) have nearly doubled in a year. This has affected housing AFFORDABILITY and many buyers have pulled back or were denied credit; sellers are also staying put as they don’t want to trade existing low-rate mortgages for new higher rate mortgages. Inflation has raised construction COSTS. This housing RECESSION will only get worse (housing is 16% of GDP, so the impact will spread); NAHB/WFC HMI (index) has declined for 9 months now (est -10% for 2022); homebuilders’ SENTIMENT is poor. Concerns have shifted from supply-chains to DEMAND (most affected are the first-time home buyers). Turnaround may be in 2024. Beneficiaries will be the RENTAL market, MULTIFAMILY properties, home IMPROVEMENT/ remodeling. As an industry association, the NAHB hears from homebuilders and weak markets now are Boise (ID), Austin (TX), Denver (CO); better markets driven by population trends are Southeast, Midwest, NJ, etc. Based on demographic trends, there is housing DEFICIT of about 1 million that may not be made up until 2025. Other trends that need watching are town-houses (13% of new single-family homes), tear-down constructions (6% of housing starts), etc.
Pg 62: OTHER VOICES. Tim ASH, BlueBay Asset Management. WAR is not going according to PUTIN’s plans/intentions/efforts. He failed in his initial objective of a quick takeover of Ukraine. Now he is trying to hang on, and embarrassingly, even losing some annexed territories. There are 3 scenarios, and for now, all 3 depend solely on Putin. FIRST, Putin saves face with some sort of peace. SECOND, Ukraine wins, Putin is dumped in Russia. THIRD, Putin resorts to the use of tactical nuclear weapons at huge political costs that may also force the NATO to take care of him. Implications of each for global stock and commodity market are discussed (good, good, bad, respectively).
(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).