Eq: Value

Eq: Value (49)

Wednesday, 18 December 2019 09:33

Goldman Says 2020 Will Be the Year of GARP Stocks

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(New York)

So which stock will lead the way in 2020. Many are of two minds about this question. One the one hand, growth stocks look so pricey that value seems to have a good chance of taking the lead; but on the other, growth has been dominating for so long that it is hard to imagine such stocks not leading. Goldman Sachs say the middle road, or GARP (growth at a reasonable price) stocks, will be the big winners, as they have characteristics of both groups. “During periods of very strong or accelerating growth, investors embrace the risk of low valuation stocks because even lower quality stocks can successfully generate [earnings] growth in rapid GDP growth environments”, says David Kostin, chief US equity strategist at Goldman. Take Google for instance, which trades at 26x earnings, which is only in the 56th percentile for the communications sector, but has strong earnings growth characteristics. Other names to look at include Estee Lauder, MGM Resorts, and Lockheed Martin.

FINSUM: Interesting thesis and we like it in principal. Our issue is that investors just don’t seem to care about price right now.

Friday, 06 December 2019 07:54

Why It is a Good Time to Buy Nike

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(New York)

Nike is one of the retail stocks that has had a very good year, and it may be about to get even better. Goldman Sachs has just jumped on the Nike bandwagon, saying that the stock is going to keep on rising. GS upgraded Nike to a Buy from Neutral and joined 25 other analysts who say the stock is a Buy. According the GS, their change in view is due to “Evidence of building pricing power, signs of operating leverage, accelerating shift to differentiated retail, sharply scaling app ecosystem, and a constructive global athletic growth backdrop”.

FINSUM: Brands are in a better position than retailers, and Nike is on the very good side of that better group.

Monday, 02 December 2019 09:39

Here is the Stock to Play Retail

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(New York)

Retail is a hard sector to invest in right now. Generally speaking it seems better to buy into broad retailers like Walmart or Target than into clothing specialists like Gap, and discount retailers seem better than traditional, but the whole industry is a battlefield. With that in mind, here is a good stock to look at: Tanger Outlets (SKT). The REIT owns 39 discount malls across the US and has a cheap valuation that seems to have suffered simply from being in the sector. The company is not financially distressed and sports a 96% occupancy rate at its malls. It is trading at about half the valuation of some other popular REITs and sports a hefty 9%+ yield. Because it is in the outlet mall space, it faces considerably less turmoil than traditional malls.

FINSUM: You probably saw a Tanger last time you were on the interstate. The fundamentals of this stock make it look like a good investment.

Wednesday, 27 November 2019 12:43

These Retail Stocks Won’t Be Saved

Written by

(New York)

This time of year it would be easy for investors to start feeling rosier about retail stocks. After all, holiday sales are the best time of year for the stocks and it would be dangerously easy to think these shares might have turned the corner because of better holiday sales. However, the key to choosing these names is to understand “bifurcation”, according to Cowen research. That bifurcation is that broadline retailers like Target and Walmart are doing well, while apparel-driven retailers like Kohl’s, Gap, and Macy’s are not. For example, Target and Walmart are up 88% and 27% respectively this year while Macy’s and Gap are down 49% and 33% respectively.

FINSUM: Momentum seems like a friend in the the retail space. We expect this bifurcation to keep going, especially as consumer purse strings are likely to be tighter this holiday season.

Friday, 22 November 2019 14:33

Some Great Value Plays

Written by

(New York)

Value stocks have been in the doldrums forever. Growth stocks have been outcompeting for many years. One way to get some good performance is to stay away from value stocks as a whole, and instead focus on individual names. Here are some stocks that look cheap and have positive catalysts in the cards (from Bernstein Research): Hewlett Packard, Apple, Tyson Foods, UnitedHealth Group, Cigna, Anthem, Nielsen Holdings, Delta Airlines, and United Airlines.

FINSUM: Apple as a value stock seems rather questionable but we get the “mispriced because of how great its earnings are” logic. The airlines seem an interesting bet to us.

Friday, 22 November 2019 14:32

A Warning Sign for the Car Industry

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The car industry has not been doing so well over the last few years. After seeing a big surge in sold vehicles leading up to 2015, sales have fallen off and the industry has been in a slump. If demographics are any sign, things aren’t going to get much better any time soon. New data shows that the average car buyer is getting older, and worse, cars are staying on the road longer, hurting companies’ all important replacement cycle. In terms of the total number of cars sold in October, the US is back in the same territory as it was in 2002.

FINSUM: There is no point denying it—a lot of car prices have risen dramatically over the last two decades (versus salaries), so it is no wonder average buyers are getting older and cars are being held longer. More than half of buyers are now over age 55!

Wednesday, 20 November 2019 12:18

Don’t Buy These “Bargain” Stocks

Written by

(New York)

Many media outlets love to publish stories about bargain stocks (us included). However, there is a group of shares being pushed as a “great value” that are definitely not such, at least according to UBS. The bank says that the wide group of retail shares that have been mauled lately, including Macy’s, JC Penney, Kohl’s, TJ Maxx, and Ross are not a good value. These stocks have been hurt badly because of weak earnings and the general decline in brick and mortar, which falsely lead some to think they are a “buy”. “We think ongoing e-commerce disruption, plus tariffs, could cause not only these, but also many other public and private retailers to close stores in 2020 and beyond” says UBS, clearly showing that they don’t think the industry is out of the woods yet.

FINSUM: Retail has some juicy yields, but you really have to understand each stocks’ specific characteristics to know which ones to choose. This is an expert’s game. The cheat sheet is to lean towards discount retailers.

Wednesday, 06 November 2019 13:03

Buy These Stocks Regardless of Who Wins the Election

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There is a currently a great deal of anxiety over the election. It is not just political either—a Democrat or Republican win would create drastically different economic environments, which will lead to very different returns. One prominent hedge fund manager commented on the whole situation, saying “I think we all wish that we could kind of go back to thinking about investing without political risks”. Despite this longing, it is clear that we will not go back to that era anytime soon. Accordingly, check out these stocks, which should thrive no matter if Trump or a far-left Democrat wins the bid. Healthcare and tech look like big risks, but interestingly, large oil companies may be a good bet. If Warren wins and bans fracking, oil prices are likely to rise, helping large integrated oil companies. Another approach is to focus on stocks that will benefit from government plans that are already happening, such as those related to state infrastructure spending, legalized sports gambling, and shipping fuel standards.

FINSUM: We are still a year out from the election, but it is certainly worth thinking about how to position the portfolio, as polls leading up to the big day will move markets a lot.

Tuesday, 05 November 2019 13:19

The Car Industry is Sinking

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The car industry is the epicenter of the current economic slowdown. The car business is both the culprit and a victim of the biggest economic downturn since the Crisis. It is not just in Germany, but also in Asia and Detroit. The industry uses so many raw materials and supplies from many adjacent industries, that the contraction in the auto sector is is dragging the whole global economy down with it. The chief executive of VW says “This trade war is really influencing the mood of the customers, and it has the chance to really disrupt the world economy … Because of the trade war, the car market [in China] is basically in a recession . . . That’s scary for us”.

FINSUM: What is curious about the car downturn is that consumers are very strong. Therefore, from our view, the weakness in the auto sector is more concerning because it could be a leading indicator.

Wednesday, 30 October 2019 12:05

How to React to Recession Worries

Written by

(New York)

There is a lot of investor anxiety about a recession right now. The big economic expansion of the last decade does have the feel of an ending coming, but even if that is true, how should one react? According to Barron’s the answer is to employ a long-term buy and hold strategy. That said, many don’t have the stomach or cash for such a strategy. A better way to think about allocation is to consider the type of recession we might have: will it be driven by a real economic downturn, a policy error, or a crisis—each have highly different return profiles? In this instance, a recession seems more likely to come from a real economic slowdown, which is good news for investors. Such recessions generally have significantly lesser falls in stock prices than the other varieties.

FINSUM: The reality is that we are likely having a “soft landing” type of recession where the economy slows gradually. That means we might not have a bear market at all.

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