Eq: Large Cap
(Detroit)
The auto industry has been the center of an ongoing technological battle. Not only are auto companies and tech businesses battling over self-driving vehicles, but there is another competition going on over how to power them electrically. With that in mind, here are four stocks to play the electric vehicle revolution; hint, you won’t know any of them. The four names are Aumann, Constellium, Sherritt International, and Visteon. All of the companies make some key component for electric vehicles, from batteries to copper wire installations.
FINSUM: Electric vehicles are one of those revolutions where it seems best to own the component makers rather than the actual carmakers. The big question for us is the horizon for appreciation, as the exact timeline for electric vehicles becoming mainstream still seems unclear.
(New York)
One of the really worrying parts of this year’s stock market is that buybacks are booming to new records, yet share prices remain flat. US companies are on pace to buy back $800 bn of stock this year, a figure which would even eclipse 2007’s bonanza. But worryingly, 57% of the more than 350 component companies that have bought shares back this year are trailing the S&P 500’s return. That is the highest share to fall short of the index since the 2008 Crisis.
FINSUM: Aside from the worries about share prices not responding, the other concerning factor is that companies are buying their shares back at very high prices, which seems like it might portend the end of the bull market.
(New York)
We have been hearing it for a couple of months now—it is time for financial stocks to shine. Yet, financial shares are having a pretty poor year. The reason appears to be the flattened yield curve. However, a new academic study finds that it is not primarily the yield curve, but rather short-term rates alone that dictate most of financial share performance. The spread between government and corporate bonds is also a factor. Looking at historical performance of financials as compared to rates, it seems like financial shares are about 9% below their fair value.
FINSUM: As our readers will know, we are not fond of historically-driven strategies, but we do give this one credit in that it is finally a new way of looking at the situation in bank shares.
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(New York)
One of the bright spots in the stock market right now is that analysts have been revising up their earnings estimates. That is a break from usual practice and is being driven by increasingly rosy views of how tax cuts will play out for companies. But those revisions create opportunities, especially for stocks which are seeing enhanced forecasts but whose share prices have been stagnant. According to Barron’s, Intel, Marathon Petroleum, Lockheed Martin, and Michael Kors, all look likely to do well in the near-term because of this mismatch. Intel, for instance, has seen soaring revenue numbers and trades at only 13x projected earnings.
FINSUM: The logic on these picks is interesting, as it seems to be a short to medium-term value play. Interesting and diverse group of names to look at.
(New York)
Investors turned heavily towards income-producing stocks prior to Trump’s presidency. With yields so low, they offered income which was very hard to find elsewhere. More recently, though, high yielding stocks have been losing out as rates move higher. This has caused an exodus from some areas, such as telecoms, which have lost 16% over the last 18 months. However, one important thing to bear in mind as one watches yields fall on stocks is that this is often caused by rising prices. For instance, yields have fallen in six S&P 500 sectors over the last 18 months, but the market has returned 25% in that time frame—a nice pay off for losing some yield.
FINSUM: The key point of this very basic article is to remember that falling yields in equity can mean that the sector is doing very well.
(New York)
If you are nervous about markets, you aren’t alone, as tensions seem to be steadily building about the future of equities. While trade war and higher rates dog the market, there are some tangible manifestations of worry starting to appear. High net worth Americans are increasingly focusing only on short-term investments. Only 17% of US millionaires surveyed said they planned to add to their stock exposure over the next year.
FINSUM: Investors still seem to be reeling from February, which saw the fastest peak-to-trough correction since 1950. Couple that with the threat of higher rates and a tumultuous trade war and it is easy to see why everyone is nervous. On the other hand, corporate earnings continue to be strong.