Equity Trade Ideas for September 2016
September 7, 2016
“Our goal in this post is to provide our readers with fabulous and profitable Equity Trade Ideas and to start a high level training for some of our readers. A young person from a foreign country asked about the U.S stock market. This gave us the idea of providing some educational words. “Investing is about knowledge, and about hard work. It is a life-long learning process. There is no other secret to successful investing.”
We have created a table of our Trade Ideas, which were given in our post-called “Equity Trade Ideas February 2016” . We would like to show you the names and prices of these equities and their performance.
This post provides an overview of the different sectors in the U.S. stock market with Equity Trade Ideas in some of those sectors. The U.S stock market and the global markets are affected by many market-moving events. What are some of these economic gauges that as an investors/traders we should be watchful for? We have given a list of these events and their current status. We like Stocks/Options in the Cloud, Chip, and the gaming sector. The Retail Sector has been a disaster to say the least.
A lot of attention is given to human beings and what drugs are available to them and at what cost. Drug cost and the U.S. Presidential elections are linked, thus we like to avoid it for now! We like to take a different view and focus on Animals and their health. Who is the world ‘s largest producer of medicine and vaccinations for pets and livestock in Unites States?
We have a seven-year-old bull market in the U.S.A. With the market at record highs there may a pause due to high valuations. The Stock Market is very volatile. Central banks are always keeping an eye over the market, watching it like a hawk! Central banks have assured us that they are an independent entity and not interlinked to the political world.
We wish the Fed and Central banks would keep quiet and not make comments or share their views that would make traders‘ job in making money very difficult if not imposable. Ms. Yellen stated that the case for increasing the fed funds rate has strengthened, but that monetary policy is not on a preset course. As such, Chair Yellen failed to offer a timetable for a rate hike despite her upbeat read on the U.S. economy.
“The BOJ’s policy has become a ‘cloudy cocktail’—nontransparent and difficult to understand,” said Nobuyuki Nakahara, a former BOJ board member who advises Mr. Abe. It is part of a larger unease in the central banking world, where years of easy monetary policy have failed to achieve goals in Europe as well as Japan, and the U.S. Federal Reserve is struggling with how and when to follow through on a long-advertised tightening. BOJ is running out of bonds to buy.“ WSJ
U.S. economic data shows tepid economic growth. Market moving events that effect the markets are: The Consumer Price Index, Durable Goods Orders, Employment Situation, Existing Home Sales, Fed Chair Press Conference, FMOC Forecasts, FMOC Meeting Announcement, FMOC Minutes, GDP, Housing Starts, Industrial Production, International Trade, International Trade in Goods, ISM Manufacturing Index, Jobless Claims, New Home Sales, Personal Income and Outlays, Philadelphia Fed Business Outlook Survey, PPI-FD and Retail Sales are economical data and/or market moving events that are watched closely by investors/traders and the Fed. As investors/trader we need to keep track of this information and be aware of how it effects our investments. We provide a brief status of some of these economic gauges towards the end of this post.
Other factors such as the Oil market, the Bond market and the Currency market can have an effect the stock market. “Overseas influences have been major drivers of the U.S bond market. Their quantitative easing –Bond purchases by the trainload -has pushed down the long-term yield around the globe.” Barron’s
IAEA says that oil is under pressure – International Atomic Energy Agency (IAEA) forecast a sharp cut in Asian demand – Supply is high and global demand is slowing Global oil demand growth is slowing at a faster pace than initially predicted. Supply will continue to outpace demand through beginning of next year.
A healthy economic growth translates to higher corporate profits. Corporate earnings and the economy are slowing. There is uncertainty over interest rates, global economic growth and the election. Investors are buying companies with good valuations, high dividends and strong balance sheets. It seems we have a defensively oriented market (utilities, staples and telecom).
According to Bloomberg there are eleven Sectors, which are Consumer Discretionary, Consumer Stable, Energy, Financials, Health Care, Industrials, Health Care, Information Technology, Materials, Telecommunications Services and Utilities.
In the U.S Stock Market: The following table shows the performance of each sector.
Going forward we like the Information Technology Sector, Consumer Discretionary Sector, and the Telecommunication Sector. The Ned Davis Research has an Overweight Rating on Information Technology, Consumer Discretionary, and Telecommunications Sector.
“Overweight as part of a three-tiered rating system, along with “underweight” and “equal weight”, is used by financial analysts to indicate a particular stock’s attractiveness. If a stock is recommended to be “overweight“, the analyst opines that the stock is better value for money than others.”
“The energy sector is the most highly valued, trading above 109% of fair value. The financial-services sector was the most undervalued, trading at less than 95% of fair value.” Morningstar “Consumer spending on Tech software categories has remained particularly strong. Computer Software & Accessories and Games, Toys & Hobbies categories are growing near 20% (real, quarterly annualized rate), confirming our mid-year outlook favoring Tech names leveraged to consumer markets, including Home Entertainment Software”.
We like Activision Blizzard, Inc (ATVI) who is a developer and publisher of online, personal computer (PC), video game console, handheld, mobile and tablet games. The Company operates through Activision Publishing, Inc. (Activision) and its subsidiaries, Blizzard Entertainment, Inc. (Blizzard) and its subsidiaries, and Other segments. The Company also develops products spanning other genres, including first-person action, action/adventure, role-playing, simulation and strategy. It distributes interactive entertainment hardware and software products in Europe through its European distribution subsidiaries: Centresoft in the United Kingdom and NBG in Germany. It offers games that operate on the Microsoft Corporation (Microsoft) Xbox One (Xbox One) and Xbox 360 (Xbox 360), Nintendo Co. Ltd. (Nintendo) Wii U (Wii U) and Wii (Wii), and Sony Computer Entertainment Inc. (Sony) PlayStation 4 (PS4) and PlayStation 3 (PS3) console systems.
Activision Blizzard (ATVI) said on 9/27/2016 that its Blizzard Entertainment unit extended its existing collaboration with NetEase (NTES) for launching Blizzard-made video games in mainland China to Jan. 2020.
Another great gaming company is NetEase, Inc.. (NetEase) is a technology company. The Company operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet media, e-mail, e-commerce and other businesses. The Company operates through three segments: Online Game Services; Advertising Services, and E-mail, E-commerce and Others. Its online games business primarily focuses on offering personal computer (PC)-client massively multi-player online role-playing games (PC-client MMORPGs), as well as mobile games to the Chinese market. The NetEase Websites provide Internet users with Chinese language online services centered over three core service categories, which include content, community and communication. Its online advertising offerings include banner advertising, direct e-mail, sponsored special events, games, contests and other activities. It offers free and fee-based premium e-mail services to its individual users and corporate users.
Many investors think an interest rate hike may be bad for the stocks and the U.S. economy. You have to remember that the Fed would raise rates only if the economy would be healthy. A healthy economy helps bring a healthy corporate profit. Higher rates tend to lead to higher profits for banks. Some banks that stand out are: Charles Schwab (SCHW), Bank of America (BAC), Capital One Financial (COF) , American Express (AXP) and JPMorgan Chase (JPM). Janet Yellen said: “Banks are generally well capitalized and have delivered improved profitability since the depths of the financial crisis.” We continue to like Visa(V) and Master Card (MA).
Utilities and consumer stables trade at big premiums and it is getting harder to find reasonably valued dividend paying stocks. Even though overall market valuation has increased, the market itself remains segmented and the valuations remain reasonably distributed among three style of investing: value, blend and growth.
Tobacco maker Philip Morris International Inc. (PM) has emerged as a favorable pick following its recent upgrade. It provides annual dividend rate of above 4%. The company has seen its stock price surge 20.3% over the past one year and nearly 12.4% on a year-to-date basis. Long-term earnings growth of Philip Morris is 8.9% and it has a low beta score of 0.97, which implies that the share price fluctuates very little and provides stability amid a volatile market. Philip Morris has been posting higher year-over-year earnings and sales for the past few quarters on a constant-currency basis, driven by the company’s continuous product innovation and pricing power.
Management raised its GAAP earnings projection for 2016 during its second-quarter 2016 earnings conference call. The company now expects GAAP earnings in the range of $4.45–$4.55 as against $4.40–$4.50 anticipated previously. The company reported earnings of $4.42 per share in 2015. The company estimates currency impact of 40 cents per share. Excluding the currency impact and one-time restructuring charges, earnings are likely to increase approximately 10–12%.
Utilities Sector: It provides 3.6% average dividend yield. This is attractive in a low interest rate world. Brexit may provide an opportunity to pick up European utilities at a cheap price. They should not be affected by the move U.K. move out of EU. Be careful with Utility companies in United States because of overvaluation. Investors have been chasing yields and thus increasing Company Valuations.
Technology Sector: According to Morningstar “ The technology sector is slightly overvalued, and global telecom is fairly valued. A few areas present long-term value, notably in international telecom. U.S telecom is fairly valued but opportunities are plentiful in Europe and Asia. Communications services sector considered undervalued.”
We like companies who offer Cloud services and Chips used in data centers and mobile devices. CIOs are demanding a way to combine the best of the cloud with their own localized data centers.
American Airlines Group Inc., planning to move key portions of its customer website and other applications to the cloud, is assessing services from Amazon.com Inc., International Business Machines Corp. and Microsoft Corp.
Microsoft’s evolution may bring success. In the world of Cloud Computing, We like Cloud computing environment, in which there are many players and completion is fierce. Microsoft has emerged as a leader. Azure, the firm’s public Cloud Service has established itself as number two players – behind Amazon.
Looking for companies offering Cloud services. There will be a shift to cloud computing by Organization. “More large enterprises are likely to move workloads away from traditional and virtualized environments toward the cloud—at a rate and pace that is expected to be far quicker than in the past,” McKinsey said. Given that large and midsize enterprises form the majority of revenue and profits for the traditional enterprise IT industry, the rate and pace of this shift portends greater headwinds for on-premise IT vendors. At the same time, this transition means larger gains lie ahead for cloud-service providers of off-premise cloud infrastructure services.”
We see slowing in some of our favorite growth sectors (autos, airliners, and shale oil and gas production) is making even us a little worried. Some caution seems warranted. The softness may, however, merit lower rates for longer, which could cheer markets.
We like the Chips used in data centers and various devices. Broadcom (AVGO) provides chip for both data centers and mobile company. Nvidia (NVDA) has artificial intelligence technology and has seen four quarters of acceleration in earnings and revenue, Ceva (CEVA), has seen its earnings growth accelerate in the past four quarters from 83% to 250% in the most recent quarter. Estimates see 58% growth for the current fiscal year and 27% for 2017. Revenue growth has also accelerated the last four quarters, from 15% to 28%.
“Earlier this year Avago Technologies completed its $37 billion acquisition of Broadcom. It’s hard to find a more diversified chip name than Broadcom these days. The company now has a formidable presence in the wireless, wired, enterprise storage and industrial segments. Broadcom makes radios for cellphones and other consumer devices, plus chips used in networking equipment for data centers. Avago makes analog and mixed signal chips for automotive, communications and industrial applications.” IBD
Power Integrations Inc. (POWI) that specializes in energy efficiency, whether charging or powering electronic devices with faster speeds and minimal waste and renewable-energy technology. “Power Integrations, Inc. designs, develops and markets analog and mixed-signal integrated circuits (ICs) and other electronic components and circuitry used in high-voltage power conversion. The Company’s products are used in power converters that convert electricity from a high-voltage source to the type of power required for downstream use. Its alternating current (AC)-direct current (DC) power conversion products are TinySwitch, LinkSwitch and Hiper families. Its Insulated-gate bipolar transistor drivers products are the SCALE and SCALE-2 product-families. Its High-voltage DC-DC products are DPA-Switch family, which is monolithic high-voltage DC-DC power conversion IC designed for use in distributed power architectures. Its power supplies are used with electronic products, including mobile phones, computers, electronic utility meters, industrial controls and light emitting diodes lights. It sells products to original equipment manufacturers and merchant power supply manufacturers.”
According to Yahoo Finance the company has a Buy and Strong Buy rating from analysts.
Microchip Technology (MCHP), gets a #1 ranking by IBD (Investors Business Daily)
Microchip Technology Incorporated (MCHP) is engaged in developing, manufacturing and selling specialized semiconductor products used by its customers for a range of embedded control applications. The Company operates through two segments: semiconductor products and technology licensing. In the semiconductor products segment, the Company designs, develops, manufactures and markets microcontrollers, development tools and analog, interface, mixed signal and timing products. Its functional activities include sales, marketing, manufacturing, information technology, human resources, legal and finance. Its product portfolio comprises general purpose and specialized 8-bit, 16-bit, and 32-bit microcontrollers, a spectrum of linear, mixed-signal, power management, thermal management, radio frequency (RF), timing, safety, security, wired connectivity and wireless connectivity devices, as well as serial electrically erasable programmable read-only memories (EEPROMs) and serial flash memories.
Zoetis, Inc. is the world’s largest producer of medicine and vaccinations for pets and livestock. Zoetis Inc. (ZTS): Founded in 1952 and headquartered in Florham Park, NJ.
Zoetis manufactures and markets veterinary vaccines, medicines, diagnostic products and related services for livestock and companion animals across the globe. This Zacks Rank #2 stock has a solid long-term earnings growth expectation of 12.6% and a trailing four-quarter average earnings surprise of 15.9%. Argus’ Jacob Kilstein believes Zoetis Inc has been benefiting from a “lack of generic competition in the animal drug space.”
Kilstein maintains a Buy rating on the company, while raising the price target from $54 to $58. The analyst mentioned that the company also continues to benefit from its shorter R&D and launch cycle, given that animal products can be tested more quickly than human drugs. “The company also benefits from broad diversification across product categories and customers, with a wide range of products for cattle, swine, poultry, and companion animals. This diversification has enabled Zoetis to offset weak sales in a particular segment with stronger sales in others,” Kilstein explained. Zoetis reported its Q2 results ahead of expectations, with 14 percent growth in operational earnings, driven by the companion animal business, U.S. cattle business, international expansion and new products. “Management has raised its 2016 adjusted EPS guidance to $1.86–$1.93 from $1.83–$1.90, which assumes stronger sales growth and more moderate currency headwinds,” Kilstein stated. The analyst expects Zoetis’ growth to accelerate into 2017, as issues such as inventory stockpiling and currency losses are cycled through and the restructuring benefits begin to bear fruit. “Its lead product, Apoquel, a dermatitis treatment for dogs, generated $110 million in sales in 2015 and management projects long-term peak sales of more than $300 million,” according to the Argus report. The analyst also noted Zoetis has a robust new product pipeline, and CEO Juan Alaix had noted during the Q2 call that the initial sales for the recently launched Simparica were strong. The EPS estimates for 2016 and 2017 have been raised.
In our post-called “Equity Trade Ideas February 2016” we provided some Equity Trade ideas. Lets see how they have performed? We feel good with our trade ideas. As you can see they have all either increased in price or heave held steady. Considering this volatile market, we are happy with our Equity Trade Ideas thus far this year. We feel it is a good idea to show accountability!
|Trade Ideas:||Price Feb 2016||Price Sept 7-2016||Difference|
|Altria Group Inc. (MO).||60||67||7|
|Campbell Soup (CPB)||55||57||2|
|Monster Beverages (MNST)||117||152||35|
|Coca-Cola Bottling Co. Consolidated (COKE),||160||154||-6|
|Constellation Brands (STZ)||133||166||33|
|Post Holdings (POST)||54||85||31|
|Mac Donald’s (MCD)||115||116||1|
|Panera Bread (PNRA)||184||216||32|
|Ross Stores (ROST)||52||63||11||```|
|Home Depot (HD)||113||133||20|
|Edward Life Sciences (EW).||77||116||39|
|Johnson & Johnson (JNJ)||101||120||19|
|Rite Aide (RAD)||7.75||7.75||0|
|CVS Health Corporation (CVS)||89||90||1|
|Southwest Airline (LUV)||35||38||3|
|Jet Blue (JBLU)||20||17||-3|
|Alaska Air Group (ALK)||64||71||7|
|Delta Air Lines (DAL),||40||38||-2|
|United Continental (UAL)||44||54||10|
|American Airlines (AAL)||36||39||3|
|Gold Trust ETF (GLD)||107||129||22|
|Energy Fund (XLE)||55||70||15|
The following are market-moving events and their current status:
Consumer spending: Which is the biggest source of economic growth, rose in July, matching expectations. Upbeat Consumer spending rose 0.3 percent in the month following 0.4 percent gains in the prior two months. The respectable showings for income and spending are no surprise given the strong employment report for July, strength that is the underpinning of the consumer.
“U.S. consumer spending recovered to its peak level in two years. Overall economic output recovered to the level where it stood in late 2007, when the recession began, in three years. The U.S. replaced all the jobs lost in the wake of the recession by early 2014, more than six years after the recession began. “ WSJ 09/07/16
A surge in U.S. incomes last year delivered the first significant raise for the typical family after seven years of stagnant and declining earnings, the result of sustained job growth finally lifting a broad swath of American households.
The median household income—the level at which half are above and half are below—rose 5.2%, or $2,798, to $56,516, from a year earlier, after adjusting for inflation, the Census Bureau said Tuesday.” WSJ
Retail Sales: U.S. Retail sales fell in August 2016. WASHINGTON—U.S. retail sales declined in August, a cautious signal about consumers’ ability to remain the primary driver of economic growth this year.
Sales at retail stores, online and at restaurants fell 0.3% in August to a seasonally adjusted $456.32 billion last month, the Commerce Department said Thursday. It was the first decline in retail sales since March. WSJ
Interest Rate: The Feds preferred inflation indicator, the PCE (Personal Consumption Expenditures Price Index) that is the inflation rate, ticked up last month. the Fed uses this Gauge to determine whether to raise interest rates or not. It is up more than 1 and a ½ % in the past 12 month. The last rate hike was in December of 2015, which made the economy go from sluggish to stall speed. Will the next rate hike generate different results? Probably not! Federal Open Market Committee (FOMC), which met on September 20-21st decided not to raise the interest rate. The Fed could raise rates in December.
Jobless Claims: Jobless claims remain little changed near historic lows in further confirmation that layoffs are low and the labor market healthy. Initial claims fell 4,000 in the September 3 week to a lower-than-expected 259,000, pulling the 4-week average down 1,750 to a 261,250 level that is solidly in line with trend. The reporting week was a shortened holiday week for Labor Day and made for a number of state estimates, pointing to the risk of revision in next week’s data. Revisions or not, initial claims are very low.
Continuing claims, in lagging data for the August 27 week, fell 7,000 to 2.144 million with this 4-week average down 4,000 to 2.154 million, also in line with trend. The unemployment rate for insured workers remains at a very low 1.6 percent.
Jobless claims remain at historic lows indicating a lack of layoffs and strength in the labor market. Initial claims rose 1,000 in the September 10 week to 260,000. The 4-week average is at 260,750 which is slightly lower than the month-ago trend and a good signal for the September employment report. Continuing claims, in lagging data for the September 3 week, were little changed at 2.143 million.
ISM Manufacturing Index : It came in at 49.4, which is below expectations “What had been one of the most consistently positive indicators stumbled badly in August as the ISM non-manufacturing index fell more than 4 points to 51.4. This is the lowest rate of composite growth for this sample of the whole cycle, since February 2010. And the composite score is no fluke with new orders falling nearly 9 points to 51.4 for their lowest score since December 2013. New export orders are a particular disappointment, also down a steep 9 points and in contraction at 46.5 which is also the lowest score since December 2013. And backlog orders are also in contraction, down 1-1/2 points to 49.5 August’s lack of orders points to a weak spot ahead for other readings including business activity which has already slowed sharply, down 7-1/2 points to 51.8. Employment in the sample is still rising but only marginally, down 7 tenths to 50.7. Inventories are in contraction and prices paid are showing only modest pressure.” Barron’s
Employment: Pace if hiring has slowed in the August 2016 job report, but it is still considered a solid report. The economy added 151,000 jobs in August, which was below the estimated 181,000. Unemployment rate has held steady at 4.9%. The Fed will not raise rates in September 2016. We feel the Fed isn’t going to raise rates till December due to PCE being below 2% and the presidential election. The U.S. added 151,000 jobs in August, below views and down from gains of 275,000 in July and 271,000 in June. Meanwhile, ISM’s manufacturing index signaled its first contraction in six months. The odds of a September rate hike, already low, fell further. But markets still expect a year-end hike
MBA Mortgage Applications: Mortgage applications activity was hopping in the September 9 week, with the seasonally adjusted composite index rising 4.2 percent from a week ago and, bringing some good news for the housing market, it was purchase applications that led the way, jumping 9 percent higher on the week. Refinancing applications increased too, though by a more modest 2 percent. The increased pace pulled up the purchase index year-on-year gain by 1 percentage point to 8 percent. Very low mortgage rates were a major stimulus again, with the average interest rate for 30-year fixed-rate mortgages on conforming loans ($417,000 or less) falling by one basis point from the prior week to 3.67 percent.
GDP is sluggish and a backward measure. We need to look forward and not back. Inflation needs to be 2%,
The rate hike for is below our target Gross Domestic Product data a little weaker than expected, the Economy is on a good track but not great (Vice Chair Stanley Fisher was a little more direct) Need proper data (The GDP shows sluggish growth, just above 1%, a little weaker, Inflation Business Investment remained soft. to backup Central bankers Ms. Yellen Full Emplyment Inflation of 2% September or December The economy in a good trend corporate profit rose Business investment remained soft.
Federal Reserve Chairwoman Janet Yellen spoke at the Central Bank’s annual policy symposium in Jackson Hole, Wyoming on the subject of the Fed’s monetary policy toolkit. Yellen noted that the U.S. economy is now nearing the Central Bank’s goals of maximum employment and price stability. Looking ahead, Yellen noted that the Federal Open Market Committee (FOMC) expects moderate GDP growth, additional strengthening in the labor market and inflation rising to 2.0% over the next few years. In light of this outlook, she believes the case for an increase in the fed funds rate “has strengthened in recent months.” She did reiterate that the FOMC’s decisions always depend on the degree to which incoming data continues to confirm its outlook, and that the FOMC continues to anticipate that gradual rate increases will be appropriate.
Ms. Yellen stated that the case for increasing the fed funds rate has strengthened, but that monetary policy is not on a preset course. As such, Chair Yellen failed to offer a timetable for a rate hike despite her upbeat read on the U.S. economy. In response, equities and Treasuries rallied in lockstep while the dollar slipped. Income picked up slightly in July and consumption slowed slightly in what was another constructive month for the consumer. Personal income rose 0.4 percent in the month with June revised 1 tenth higher to plus 0.3 percent.
CONSUMER CONFIDENCE As goes the consumer so goes the U.S. economy. And the news has been mostly good and includes a nearly 4-1/2 point jump in the consumer confidence index to a 101.1 level for August that easily exceeds Econoday’s high estimate. Both the expectations and present situation components posted gains in the month though the latter does show a sizable and unwanted 1.3 percentage point increase in those describing jobs as hard to get. But signals on jobs are mixed with other readings positive including a gain for those who see more jobs opening up in the months ahead. Another positive is a widening in those who see their incomes improving which boils down to confidence in the jobs market. Buying plans include a jump for homes in what is the latest good news for the housing sector. Weakness in inflation expectations is a concern though the reading did tick up 1 tenth to a 4.8 percent level that for this report, however, is very low. But this report in sum is definitely a positive for the economic outlook and ultimately reflects the strength of the labor market. Another positive employment report on Friday would point to extended strength for all consumer readings.
European Central Bank (ECB) downside risks will force the ECB to extend quantitative easing before the end of the year. ECB taking the hawkish tune!
“Draghi pointed to additional stimulus in the pipeline beyond the impetus already taken into account, ECB Vice President Vitor Constancio expressed confidence that inflation will rise faster than predicted, and council member Ardo Hansson said he sees upside potential to the forecasts.” Bloomberg Most economists surveyed by Bloomberg predict the ECB will need to prolong quantitative easing.
Stocks and bonds alike fell after the on Thursday September 8, 2016 after” ECB decided against adding any new stimulus measures, or expanding existing ones.
The ECB kept its main interest rate unchanged, and maintained its bond-buying program, which stands at about $90 billion a month. It said it could, if need be, extend it next year, but didn’t say so with any real conviction. During his press conference, ECB President Mario Draghi talked about all the things the bank’s officials didn’t talk about at their meeting – the prospects of “helicopter money,” or buying corporate equities. But he didn’t commit on any kinds of action.” WSJ
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