Eq: Value

Eq: Value (66)

Monday, 06 July 2020 14:49

Three Great Deep Value Stocks

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(New York)

One interesting investing strategy (admittedly always for a small minority of a portfolio) is to look at the very worst stocks in the market for a contrarian bet. Of all the thousands of publicly traded and analyst-covered stocks, just 90 have no “Buy” ratings from a single analyst. Out of that down and out basket, there are three interesting stocks to consider; shares which could do well if the economic recovery even goes just a little bit right. The stocks are: Sally Beauty Holdings (beauty supplies to consumers and salons), Michaels (the arts and crafts store), and Blackbaud (a software provider to the non-profit space).

FINSUM: Of these, Michaels is moderately interesting because they just brought in a new senior executive from Walmart, which should help improve margins and store performance, which could lead to good multiple expansion.

Wednesday, 01 July 2020 08:17

Goldman’s 31 Best Stocks for the Volatile Market

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(New York)

The market has been highly topsy turvy lately. With no real direction, stocks have been swinging back and forth based on economic and COVID news from day to day. With this kind of market looking likely for the near term, Goldman laid out some of its best picks for this kind of environment. Speaking about the market generally, the bank said “Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months.” Its stock picks included: Merck, Verizon, Philip Morris, General Motors, Comcast, Mondelez, and Coca-Cola.

FINSUM: A lot of old blue chips here whose earnings aren’t likely to be hurt too much by COVID.

Monday, 15 June 2020 12:56

Why Airlines and Hotels Look Doomed

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Airlines had a pretty good run headed into last week’s downturns. Other travel stocks did too. However, the markets really seem to have gotten ahead of themselves, because the big rallies appear to forget some fundamental changes that might be taking place under the COVID lockdown. While a knee-jerk rise in share prices alongside the lifting of lockdown orders might be logical on the surface, it ignores the fact that a great deal of domestic US travel is for business, and attitudes towards business travel have changed remarkably since March. Many companies have found remote work even more productive than office work, and no longer see the need for travel. Also, it is easier to cut travel budgets by 50% than it is to lay off more people.

FINSUM: We think there is going to be serious changes to the business travel paradigm that prevailed pre-COVID. It has now been demonstrated that similar levels of sales can be achieved by videoconference, and when you count the cost and time of travel, it is clear that companies are going to permanently cut budgets.

Monday, 08 June 2020 10:57

JP Morgan Says Value Stocks Will Shine

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(New York)

It has been a long, long, time since value stocks really had a shining moment. Growth has been outperforming value for over a decade now. However, strategists at JP Morgan say that value stocks may start to shine very soon. This underlying parts of this economy—weaker but still improving—are the exact conditions where value stocks traditionally shine. These pre-requisites for success seem likely to stay in place. There does not appear to be a second wave of infections brewing, there is ample government support for the economy, and economic data is trending more positively than negatively.

FINSUM: The typical rotation into value (such as in 2008-2009) takes over 100 days and has 18% upside. The logic here is sound, but we still wonder if value will outperform growth.

Thursday, 04 June 2020 17:16

Don’t Be Fooled by the Travel Stock Rally

Written by

(New York)

Morgan Stanley says the big gains in travel stocks are way overblown and will likely prove dangerous to investors. Carnival, Royal Caribbean, and Norwegian have all seen their shares rise in the double digits recently as investors have grown increasingly optimistic about their prospects and their cash reserves. However, Morgan Stanley threw cold water on those sentiments, saying “The cruise industry will take longer than almost any other form of travel to return to normal” as it downgraded the stocks to Underweight (two of them were already Underweight). UBS also pointed out that there will likely be no meaningful cruise activity until next year.

FINSUM: Even once cruises get running again, all it will take is one minor flourish of COVID—and the associated news cycle—for the whole sector to freeze up again. Too risky to invest in at this point.

(New York)

The stock market may be complicated right now, but some things are abundantly clear. One of those is how the retail sector, and retail stocks in general, are going to react to the crisis. The answer is that big players are going to continue to grow, largely at the expense of smaller retailers. Bigger companies, with sophisticated websites and massive free shipping operations, have been thriving as small companies falter.

FINSUM: Think Amazon and Walmart, maybe Shopify (see other story about Shopify from today), as these companies will be the ones winning orders from customers over the short and long-term.

Wednesday, 20 May 2020 10:51

A Bright Spot for the Auto Industry?

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There has been a lot of gloom for the auto industry lately. With showrooms and dealerships almost completely shut, car buying has dropped off a cliff, leaving auto companies sitting on big inventories with little demand. However, early signs from China and Europe are showing that the lockdown may have led to pent up demand for cars. In one sense, there is natural pent up demand from the closure of dealerships, but more interestingly, there seems to be more demand than usual. This is because people are growingly afraid of public transportation—in some cases governments are warning against using public transit . This means people are seeking the relative safety of traveling in their own vehicles.

FINSUM: This idea of surplus demand for private vehicles because of fear of the virus makes perfect sense. Auto stocks undervalued?

Wednesday, 13 May 2020 12:27

Boeing Predicts Big Airline Bankruptcies

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The biggest aircraft maker in the country just put out a dire prediction (although not a surprising one)—that there will be a major airline bankruptcy this year. The airline industry has been wounded as never before, with demand falling more than 90% since this time last year. Most analysts think it will take until the end of year for demand to even rise to 50% of the year prior. Credit default swaps—a proxy for the odds a company will default—are very high right now. For instance, markets are putting a 54% chance that American Airlines defaults.

FINSUM: This is an odd comment from a company that is talking about its biggest clients. It speaks volumes.

Tuesday, 05 May 2020 17:21

A Key Insider Buy at this Big Stock

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Auto stocks have been wounded badly by the COVID lockdown. Car sales have plummeted as buyers do not go to dealerships, test drive etc. The future is not looking great either, as a long recession could crimp consumer spending and hit auto companies where it hurts most—on higher margin large vehicles (like SUVs). Interestingly though, a major Ford insider, COO Jim Farley, just picked up $1m of shares in the embattled company. It was his first open market purchase since at least 2007.

FINSUM: This is a really strong signal from a guy who has been with the company for some time.

Monday, 04 May 2020 14:55

Don’t Hope for an Airline Recovery

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If you have any hope for a quick airline recovery post-coronavirus, take that idea, crumple it into a little ball and throw it away. The reality of air travel’s recovery is looking bleaker by the week. On the one hand, additional safety measures are going to be necessity for a long time—and they will be costly. Extra screening, spacing out passengers etc all have significant costs. Additionally, many airlines will have to forego middle seating to create adequate distance between passengers, cutting down on capacity. All of this will come as demand for air travel remains low in the short-term and secularly weaker in the long-term. For instance, business travel for meetings, conferences etc all looks likely to be very slow to recover because companies don’t want to put their workers in harm’s way. Videoconferencing has also proven very effective.

FINSUM: There is likely to be a big clearing out of weaker airlines and several years of losses/less profit for larger ones.

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