(New York)

We guarantee that we have a great recession signal in hand that you have not been paying attention to: RV sales. Yes, you read that right, RV (recreation vehicle) sales. Elkhart, Indiana is the epicenter of motorhome production, and their product has proven to be a reliable recession indicator. “The RV industry is better at calling recessions than economists are”, says one economics professor at Ball State University. The big worry is that shipments of RVs are down 20% this year, a big drop.

FINSUM: This seems like a classic consumer discretionary spending leading indicator. And it is not looking good right now.

Published in Eq: Total Market
Tuesday, 20 August 2019 13:11

Why You Should Stay Miles Away from WeWork

(New York)

Anyone who has even glanced at WeWork’s disclosures prior to its forthcoming IPO should be worried. The company’s obfuscation and highly suspect share and governance structure look worrying. But here is an even more tangible reason to stay away—the company is overvalued by about 20x. Unlike other big tech IPOs recently, WeWork has existing publicly traded competitors, so there are comparables. Check out IWG (formerly known as Regus which is likely a more familiar name). It has $1.6 bn of revenue and $64m of profit. Its market cap is $4.45 bn. The company went public in 2000 and was called a disruptor back then. The company struggled during the recession and its US unit filed for bankruptcy.

FINSUM: There is not much new about WeWork other than branding and hype. The prospects for this IPO and WeWork’s future returns are dimming.

Published in Eq: Tech

(New York)

There are a handful of safe haven stock sectors that investors tend to rely on during market downturns. Healthcare, utilities, and REITs come to mind. Lately, some have been saying bank shares may also prove a good defense. However, investors should be very wary of two of those just mentioned: healthcare and banks. While on the surface healthcare stocks look very good for a recession—it is not as if people stop getting sick—the reality is that there has never been more regulatory pressure on the sector (from both sides of the aisle), which means it is far from safe. Additionally, the idea that banks have become safe, utility-like dividend machines is flawed, as bank earnings are very exposed to the economic cycle, and thus will likely see big moves in both price and yield.

FINSUM: We agree with this assessment entirely. Healthcare is more vulnerable than it has been in memory and banks are a long way from being dependable utilities (excellent PR job by Wall Street though!).

Published in Eq: Dividends

(New York)

Retail and recession have a complicated relationship. On the one hand, a downturn in the economy will almost always hammer consumer spending, which means the sector is broadly exposed. However, such economic challenges often create huge victors in the space as it becomes a winner-take-all environment. With that in mind, here are some stocks to own, and some not to. In the last recession, it was cost-conscious retailers, like Dollar Tree and Dollar General that surged. High-priced, discretionary merchandise, like Williams-Sonoma and Restoration Hardware, did the worst. This seems likely to play out again, so take a look at Aaron’s, Dollar General, Five Below, National Vision, and Ollie’s Bargain Outlet. 

FINSUM: Hard to argue with this logic, but we would not be surprised if the coming (potential) recession offered some surprises in terms of consumer behavior.


Published in Eq: Utilities
Friday, 16 August 2019 12:23

The Best ETFs to Beat the Yield Curve

(New York)

The inverted yield curve has investors feeling down on their luck at the moment. What is the best way to play the turmoil and volatility? The answer may be in two seemingly unlikely places. The first is in energy ETFs, especially oil. Energy stocks have traditionally done very well during inverted yield curves, so an ETF like XLE seems like a good bet right now. Additionally, tech ETFs such as Vanguard’s VGT could be a good play, according to Bloomberg. Tech has often done well during inversions in the past.

FINSUM: Recommending a tech ETF right now is the height of contrarianism. Tech is basically caught in the middle of the trade war, and frankly, seems like a bad buy.

Published in Bonds: Treasuries
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