Eq: Large Cap
(New York)
Since their low in 2017, retail stocks have been on a great run, rising about 35%. The question for investors is where the market goes from here. After easily outpacing the market, retail could face some headwinds, though analysts are still generally positive. Some say cost pressures are rising quickly and will hurt earnings, while others say such assumptions are overstated and that earnings should be fine.
FINSUM: Rising consumer confidence has really helped lift the sector out of its doldrums, but any economic peak could also prove the high point for retail. If you think this cycle has already peaked, then retail would seem vulnerable.
(New York)
One of the big worries in the market right now regards the idea of peak earnings. The market has been doing quite well, all underpinned by seemingly super-powered earnings. However, many see this quarter or next as the peak of the earnings boom, with the benefits of the new tax package starting to wane from here. “How will markets respond?”, many wonder. According to Barron’s, “just fine” is the answer. Historically speaking, the peak of earnings had little do with market peaks, so the two seem to have no clear correlation. In other words, there is no historical precedent that should make one worry.
FINSUM: Part of the reason this is so worrying is that the bull market is so old that people are constantly looking for something new to power it. In that regard, peak earnings do seem concerning.
(Chicago)
Small caps have been having a great run this year. Ever since Trump was elected with his America-first mantra, small caps have done well, but the trade war has pushed them ahead of their large cap peers his year. So how to find the undervalued small caps with a bright future, ones that are valuable but currently misunderstood? A team at William Blair tries to do just that. Their picks are: Ligand Pharmaceuticals, Codexis (oil industry), Varonis Systems (security software), and Boot Barn Holdings (western clothing retailer).
FINSUM: All of these names have a unique story and catalyst which should help them become much more valuable.
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(New York)
2017 was a terrible year for the retail sector. It was nothing short of an apocalypse. Thousands for stores were closing, dozens of brands going bankrupt, and big stock sell-offs. It was the first phase of the predicted meltdown to be caused by the shift to ecommerce. However, this year retail stocks have soared, with the leading retail ETF (XRT) up 35% from its low last year. That said, there are still some great buys. The sector’s overall P/E is still just 16.4, well below its historical average of 18.8. Store closings have stabilized margins and consumer confidence and spending are rising, a strong proposition for the sector. Some good names to look at are Kohl’s, Gap, and Michael Kors.
FINSUM: Retailers are starting to figure out how to navigate the new ecommerce-driven paradigm, and the sector’s future is looking much brighter than it did 18 months ago.
(New York)
One of the big problems in our growing era of algorithmic trading is herd behavior. For instance, when many trading algorithms are all geared to trade on the basis of momentum, then you tend to get a ton of it at the same time. Well, the problem might be set to get worse as UBS is debuting a new product to help active managers with trade selection using AI. UBS is launching an AI-based product which recommends trade ideas to active managers, something being referred to as the Netflix of asset management. In other words, UBS’ AI recommends a trading strategy which it thinks will suit the manager.
FINSUM: So now even active managers are trying to be enticed into using AI-recommended strategies. The problem with this is that many managers will end being recommended the same strategies, leading to more trading in the same direction.
(New York)
If you are interested in getting some strong dividends in your portfolio, and don’t mind adding a little risk, then we have a story for you. Generally, dividend stocks are seen as a steady and low-risk strategy, but this group of 7 stocks, are high risk, high reward. The dividends of all 7 look solid (no cuts seem likely in the near-term), but all have some significant risks in their long-term outlook. The stocks, with their yields, are: Ford (6%), Steelcase (3.9%), Ethan Allen Interiors (3.4%), Macerich (5.0%), Stage Stores (9.7%), ABB (3.6%), and IBM (4.3%).
FINSUM: This is a quite a mix of stocks, each with their own very particular story. Ford seems like an interesting bet.