Security Trade Ideas (STI) June 2018
“More than 75% of Corporate Directors in the S&P 500 are white men.”
“Of Course it has to be led by a man, because it is a very challenging position.” Qatar CEO Akbar Al Baker
“Oh, “We need a woman for a board”. ‘Oh, it is like, we need a plant on the table’. “Woman are not an accessory.” Furstenberg
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“Amazon is one of the bigger sinners. Men make up 73 percent of its professional employees and 78 percent of senior executives and managers, according to data the company report to the government. Of the 10 people who report directly to Chief Executive Officer Jeff Bezos, all are white and only one Beth Galetti-the head of human resources-is a woman.”
Since our March 2018 post, we have seen small caps powered higher. One reason being that they are U.S. focused. Most companies will have reported their earnings as we publish this post. “Some have indicated earnings is as good as it is going to get.” Some companies have been buying back shares and raising dividends. President Trump withdrew the U.S. from the Iran Nuclear deal and restarted sanctions. The U.S. opened an embassy in Jerusalem. “The U.S. House approved a sweeping bipartisan bill to roll back regulations on small and midsize banks levied after the 2008 financial crisis. The Senate had passed the legislation in March. U.S. job openings outnumbered job seekers for the first time on record. Mexico retaliated against new U.S. tariffs, imposing 25 percent on American steel, pork, and bourbon among other products.” Bloomberg
S&P 500 companies that have reported earnings for the first three months of 2018 bought $158 billion of their own stock in the first quarter, according to S&P Dow Jones Indices. That is on pace for the biggest amount in any quarter, based on data going back to 1998. About 85% of S&P 500 components have reported so far.
“Cash-rich businesses are also raising dividends swiftly. S&P 500 companies are on pace to have returned almost $1 trillion to shareholders for the 12 months through March through dividends and buybacks.”
S&P 500 companies will buy back a record $800 billion of their own shares in 2018, funded by savings on tax, strong earnings and the repatriation of cash held overseas, J.P. Morgan said. That will far exceed the $530 billion in share buybacks that was recorded in 2017, analysts led by Dubravko Lakos-Bujas wrote in a note. Companies have already announced $151 billion of buybacks in the year to date.
“There is room for further upside to our buyback estimates if companies increase gross payout ratios to levels similar to late last cycle when companies returned >100% of profits to shareholders (vs. 83% now),” said the note. “Corporates tend to accelerate buyback programs during market selloffs.”
“The reason these companies are buying their stock is that they’re smart enough to know that it’s better for them than anything else,” said Charles Munger, vice chairman of Berkshire HathawayInc., at the company’s annual meeting.’
Energy groups did well as Brent crude futures hit $80 a barrel. Our trade ideas for this year, such as XLE, BP, Grub, UAA, etc. have done well. You can read our March 2018 and December 2017 post and see all our great trade ideas for the year 2018. The 10-year Treasury Yield spiked above 3.1%, widening the spread slightly vs. the still-rising two-year yield.
The issues of North Korea and tariffs (trade protectionism) are lingering on. Other issues of concern are the yield curve, geopolitical events, inflation and Fed increasing rates to fast or to slow.