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The Fed “Knows When to Hold’ em” as we build our contender list

The Fed “Knows When to Hold’ em” as we build our contender list

We know this may sound a bit like “the dog ate our homework” excuse as we are getting this week’s Tematica Investing out later than usual, but we wanted to address what the Fed had to say, or more like what they didn’t do.

That’s right, we dig into the outcome of the Fed’s March FOMC meeting that left interest unchanged, but led to a revision in expectations that means the Fed is increasingly less likely to boost interest rates in the coming months. In other words, as we’ve been saying for a while now, slower growth and currency headwinds will continue to restrain growth in the coming months. As such, we will continue to look for disruptive technologies, pain points and other tectonic shifts that fuel our thematic investing lens as well as smartly priced dividend payers that are also benefiting from our thematic tailwinds.

  • Also this week we add another two companies to the Tematica Contender List, both are a part of our Connected Society investing theme and stand to benefit form the increasing amount of time people are spending on Digital media. We also share the latest edition of Thematic Signals, otherwise known as Ripped from the Headlines confirmation of our investing themes unfolding around us in the world we live in.
  • While the Fed left interest rates unchanged coming out of its March FOMC meeting, it revised its GDP and inflation forecast for the US economy modestly lower vs. December expectations.
  • Regal Entertainment ([stock_quote symbol=”RGC”]) continues to benefit from a robust box office and indications point to more of the same ahead. We are reviewing our price target on RGC shares with an upward bias.
  • We are removing Philip Morris International ([stock_quote symbol=”PM”]) shares from the Tematica Select List and issuing a Sell rating at current levels
  • We are adding ComScore ([stock_quote symbol=”SCOR”]) and Nielsen NV ([stock_quote symbol=”NLSN”]) to the Tematica Contender List as part of our Connected Society investing theme given the continued shift in advertising spend to Digital platforms from TV, Radio and other legacy media.
  • More confirmation for our thematic investing lens is found in this week’s edition of Thematic Signals

downalod-pdf

Closing out a Cashless Consumption Position in PYPL

Closing out a Cashless Consumption Position in PYPL

Actions for this Week

The following are the changes in ratings or strategy we are making as of Friday February 26, 2016:

  • Following the sharp rebound in the stock market this week, and weakening economic and market fundamentals, we’re rating ProShares Short S&P 500 ETF ([stock_quote symbol=”SH”]) shares as a “Buy”.
  • Following PayPal /American Express rumors, we’re updating our PayPal ([stock_quote symbol=”PYPL”]) rating to “Sell”.

During the last few weeks, the stock market, as measured by the S&P 500, has undergone a powerful rally. As of last night, that market had climbed 8.6% from its Feb. 11 close. While we are enjoying the market’s move higher, the economic data has continued to point to a slower domestic and global economy. Examples include the following:

  • China’s official Purchasing Managers’ Index fell to 49.0 in February, marking the lowest reading since November 2011.
  • The Caixin/Markit Manufacturing PMI February reading for China dropped to 48.0, contracting for the 12th straight month.
  • China’s services sector continued to expand in February, but at its slowest pace since late 2008.
  • Euro-zone factory activity expanded at its weakest pace during the last year in February, with its manufacturing PMI falling to 51.2 from 52.3 in January.
  • Japan’s February PMI hit at 50.1 in February, down from 52.3 in January.
  • While a tad better than last week’s Flash February reading of 51.0, the final February manufacturing PMI reading for the United States fell to 51.3 from 52.4 in January. This marked the slowest increase in 28 months.
  • The ISM manufacturing perked up to a reading of 49.5, from 48.2 in January, but February was the fifth consecutive month with a reading in contraction territory. We’d note the last time this happened was during the 2009 financial crisis.
  • The domestic services economy edged down in February per the Institute for Supply Management and even the Fed’s Beige Book reported a “marginally weaker tone” in February than January.
  • Total U.S. carload traffic for January and February fell 13.5% year over year, according to data from the Association of American Railroads.

Taking all those data points together, along with those from January, tells us that the velocity of the global manufacturing economy slowed further in February. Quarter to date, the global economy appears to be hitting another speed bump. My concern is the increased probability of a repeat of what happened coming into 2016 — slow or weakening economic data, currency headwinds and cuts to earnings expectations.

Turning back to the stock market… the recent and welcome market rally has pushed the NYSE McClellan Oscillator (an indicator of market breadth based on the number of advancing and declining issues on the NYSE) even higher than last week and back to levels from which we’ve seen the market correct significantly.

sc-NYOP

In addition, as of last night, the S&P Capital IQ Short-Range Oscillator shows the market is now significantly overbought — two times overbought to be precise.

Conditions warrant staying cautious near-term

What this tells me is we once again are back in cautious territory and that means that not only are the ProShares Short S&P 500 ETF ([stock_quote symbol=”SH”]) shares a buy at current levels, but we need to be cautious when adding new positions in the short-term as well. Our current thematically driven and dividend-heavy portfolio has served us well in 2016, allowing us to easily outperform the market indices.

Given the increasing probability that growth and earnings expectations will need to be revised lower yet again, amid the current overbought nature of the market, my plan is to keep these more defensive positions in Aging of the Population play Physicians Realty Trust ([stock_quote symbol=”DOC”]), Connected Society play AT&T ([stock_quote symbol=”T”]), Guilty Pleasure investment Philip Morris International ([stock_quote symbol=”PM”]) and Content is King holding Regal Entertainment Group ([stock_quote symbol=”RGC”]) intact. Even American Capital Agency Corp. ([stock_quote symbol=”AGNC”]), with its monthly dividend stream and annual dividend yield at better than 13%, warrants holding as things are poised to once again get a little bumpy.

Here’s the thing — we’ll once again have a chance to buy thematically well-positioned companies at better prices and more compelling risk-to-reward trade-offs. Let’s not jump the gun, but rather be patient and prudent. As an experienced carpenter would say, “measure twice and cut once.”

Closing PYPL position post PayPal/American Express Rumors

The best performer over the last week has easily been PayPal ([stock_quote symbol=”PYPL”]) shares, which rose more than 5% to $38.80. That has our PYPL shares up 16.6% since mid-September vs. less than 1.7% for the S&P 500. Fueling the recent move in PYPL shares was a rumored tie-up between PayPal and charge and credit card company American Express ([stock_quote symbol=”AXP”]). However, Wall Street was very quick to shoot that rumor down. With takeout speculation abating and concerns over the direction of the market near-term, my thought is it’s better to take profits and look to buy PYPL shares back at better prices. Long-term, I continue to like the company’s position as a standalone play for our Cashless Consumption investing theme. Therefore, we are updating our rating on  Paypal to “Sell” at this time.

Thematic tailwinds continue to be a guiding light in the market storm

Thematic tailwinds continue to be a guiding light in the market storm

Actions for this Week

The following are the changes in ratings or strategy we are making as of Friday February 26, 2016:

  • Use the recent market strength to capture profits by selling half your position in  Philip Morris International (PM), AT&T (T) and PayPal (PYPL) shares.
  • On the remaining PM position, suggest setting a stop loss at $87 and raise the recommended stop loss on PYPL shares to $33 from $31.
  • Maintain “Hold” rating Tematica Select List positions AGNC, DOC, PM, RGC, SH and T.
It’s been another up and down week for the stock market, once again shaped by the moves in oil prices. These movements can cause short-term disruptions in stock prices as evidenced by the gyrations of the last few weeks, but our thematic tailwinds continue to be a guiding light in the market storm.

Over the last few weeks we’ve recommended investors continue to sit on the sidelines preferring to keep our powder dry amid the market turbulence as we wait for more favorable risk to reward profiles in stock prices. On the dividend side of our holdings — which continues to outperform— as of the market’s close last night, our position in Philip Morris International ([stock_quote symbol=”PM”]) is up more than 15% from my initial recommendation and both AT&T ([stock_quote symbol=”T”]) and PayPal ([stock_quote symbol=”PYPL”]) shares are up more than 10% including dividends.

While the stock market has rebounded, there are still reasons to remain cautious. . . 
WTIC Light Crude Spot Prices

WTIC Light Crude Spot Prices

The recent rally in the stock market has been due in part to organizations like the OECD and others that are calling for more monetary stimulus. Let’s remember, we have yet to feel the full impact of the oil price drop, but the evidence is mounting:

  • Comments from the CEO of Devon Energy ([stock_quote symbol=”DVN”]) imply most US shale producers need $55-$60 oil to work
  • We’re beginning to hear about more oil related layoffs as Halliburton cut another 5,000 jobs following up on cuts of 4,000 jobs in the December quarter.
  • Wells Fargo ([stock_quote symbol=”WFC”]) has set aside $1.2 billion for potential oil and gas sector loan losses as different forecasts suggest up to 35% of public oil companies could face bankruptcy.
  • A report from Deloitte found 175 such companies are facing “a combination of high leverage and low debt service coverage ratios.” Odds are more financial institutions that just Wells Fargo will be hit should Deloitte be correct.
Meanwhile, the economy in China is expected to have contracted even further in February

February would mark the seventh consecutive monthly decline in China’s manufacturing sector. Per a poll conducted by Reuters based on 23 economists, China’s official manufacturing Purchasing Managers’ Index (PMI) is expected to dip to 49.3 in February from 49.4 a month earlier. We’re already seen the ripple effect into the Eurozone, and that along with oil related loan losses helps explain why European Central Bank chief Mario Draghi is ready to do “whatever it takes” come March.

Taken all together, these data points lead us to conclude that there is likely another shoe to drop, and that shoe will not only weigh on the market, but it will probably lead to job destruction along the way. Keep in mind, the jobs created in the oil and energy sector have been some of the better paying ones created over the last few years, compared to the those in the retail, hospitality and other sectors that have led recent job growth

All of this is likely to keep the Fed’s hand off the interest rate button in next few weeks.

$NYMOT: NYSE McClellan Oscillator

$NYMOT: NYSE McClellan Oscillator

Finally, we also have to acknowledge that short covering has helped propel the market higher over the last few days even though the fundamentals (economic growth, earnings expectations) have not changed much in the last few days. That short covering has led the NYSE McClellan Oscillator (an indicator or market breadth based on the number of advancing and declining issues on the NYSE) to rebound sharply over the last few days, past levels from which we’ve seen pullbacks in the market.

So this short selling activity is yet another reason to remain cautious near-term in my view, which means we are maintaining our “Hold” rating on ProShares Short S&P 500 ETF ([stock_quote symbol=”SH”]) shares.

Trimming back our PM, T and PYPL positions, and checking some stop losses

Rather than dawdle, we recommend using the recent strength in the market to trim back positions in Philip Morris International ([stock_quote symbol=”PM”]), AT&T ([stock_quote symbol=”T”]) and PayPal ([stock_quote symbol=”PYPL”]) by selling half of each. This move will lock in double-digit gains, while leaving some skin in the game should the market climb higher in the near-term. We are also recommending at this time that investors set a stop loss for PM shares at $87 and raising the stop loss on PYPL shares to $33 from $31.

Over the last few weeks a number of thematically well positioned companies have had their share prices retreat to more attractive levels. Examples include Netflix ([stock_quote symbol=”NFLX”]), Amazon ([stock_quote symbol=”AMZN”]), and Skyworks Solutions ([stock_quote symbol=”SWKS”]) to name a few. Should another pullback in the market come to pass as I expect, we’ll be watching these and other thematic contenders closely.

What’s playing at the box office?

Year to date the movie box office is up 1.6% year over year due to strong performances from “Deadpool”, “The Revenant”, “Kung Fu Panda 3”, and of course “Star Wars: The Force Awakens”. In just under a month “Batman v Superman: Dawn of Justice” will drop and soon after that “Captain America: Civil War” will hit in early May. Other tent pole films from Disney and other film companies have 2016 looking like a better year for bodies in seats, and we all know that drives sales of those high margin snacks and beverages.

This points to additional upside for Regal Entertainment ([stock_quote symbol=”RGC”]) shares, which closed last night up more than 6% including dividends since our initial “Buy” rating in mid-January recommendation. The next sign post for the shares will be on March 8th when the management team gives it presentation at the Raymond James Institutional Investors Conference in Orlando, FL. For investors who have already made a move on RGC shares, we recommend you continue to hold them; for those that haven’t jumped in yet you could still do so lest they pass $20, at which point we do not recommend committing fresh capital. Our RGC price target remains $24.

Coming up, earnings from Physicians Realty Trust

On Monday, our Aging of the Population play, Physician Realty Trust ([stock_quote symbol=”DOC”]), reports its quarterly earnings. Consensus expectations for the quarter are sitting at earnings per share of $0.26 on revenue of $39.2, up 18% and more than 100% year over year, respectively.  Remember, Physicians Realty has been upsizing and using its balance sheet to grow its leased property footprint to doctors, hospitals and other healthcare delivery systems. In late January the company completed a secondary offering that garnered it net proceeds of more than $320 million, and the company should shed more light on its plans to put that capital to work and grow its footprint in 2016.

Our State of Play Following December-Quarter Earnings

Our State of Play Following December-Quarter Earnings

Actions from this post

Ratings changes included in this dated post

  • Set your stop price on PayPal Holdings (PYPL) at $31.00.
  • Maintain “Hold” rating on  AGNC, DOC, PM, PYPL, RGC, SH and T.

It has been a busy week with several hundred earnings reports and a plethora of economic data that continues to point to a slowing in the domestic services economy as the domestic manufacturing economy flirts with a recession. The market continues to grapple with matching the economic reality with slower growth prospects for companies.

We’ve sat on the sidelines these last few weeks savoring the dividend side of our Tematica Select List, but I have been building our shopping list. As earnings start to wane in the coming weeks, and we get ready to act on that growing shopping list, I’ll continue to watch the economic data to avoid any pitfalls if company expectations need to be revised lower yet again.

In the last two weeks, we’ve had nearly all of our recommended companies report their December-quarter results, so I felt a recap was in order:

American Capital Agency Corp. ([stock_quote symbol=”AGNC”]) — Earlier this week, the company reported December-quarter results that fell shy of expectations and came in at $0.54 per share, a $0.03-per-share miss. Book value continued to dip and slipped to $22.59 per share at the end of the quarter, down $0.41 per share compared to the end of the September quarter. Given the deep discount to book value, AGNC repurchased $161 million, or 2.6%, of its outstanding common stock during the quarter. Management stated that if current conditions persist and the shares continue to trade at such a “significant discount,” the company would continue to actively buy back shares. While green shoots are appearing in the company’s core MBS business, the continued drop in 10-year Treasury yields has been a boon to real estate investment trusts (REITs) and other high-yielding securities. With more economic data pointing toward a dramatic slowdown, I see investors continuing to shift toward stocks such as AGNC. Given all of that and the current dividend yield of 14%, AGNC shares are a buy at current levels.

AT&T ([stock_quote symbol=”T”]) — This telecommunications company reported December-quarter results that were largely in line with expectations. I continue to see the company’s wireless offerings as very inelastic and I confirmed this with a poll among my undergraduate and graduate students now that the spring semester is underway. Nearly all of my students said they would trade eating out, buying shoes or some other purchase if it meant having enough money to pay their mobile phone bill. Should the economy continue to slow, the nature of AT&T’s business and its current 5.2% dividend yield make the shares a must-own.

Philip Morris International ([stock_quote symbol=”PM”]) — Earlier today, Philip Morris reported December-quarter earnings of $0.80 per share vs $1.03 a share in the same quarter a year ago. Excluding non-recurring items, however, earnings for the quarter were in line with expectations of $0.81 for the quarter. As expected, revenues continue to be on a slow glide lower, but the company continued to take share during the quarter as it leveraged its key brands, including Marlboro, L&M, Parliament and others. Like many domestic companies that derive a meaningful portion of their revenue from outside the United States, persisting currency headwinds will weigh on the reported results. As such, we will need to dig into the results to better understand the true health of the business. While the company’s 2016 earnings guidance of $4.25-$4.35 per share is below consensus expectations of $4.42 per share, it also forecasts $0.60 per share in expected currency headwinds. That’s a big adjustment in foreign exchange headwinds compared to the impact of $0.27 per share that the company forecasted would impact 2016 this past October. I suspect analysts’ models were not updated in the last few months to account for currency. Adjusting for that, earnings are slated to grow 10-12% in 2016, not fall as the headlines would suggest. To me, that means the odds of another dividend bump in 2016 are looking rather good. You should continue to hold your PM shares.

Physicians Realty Trust ([stock_quote symbol=”DOC”]) — During its December-quarter results, the company shared that it acquired 19 healthcare properties in 11 transactions, as well as three condominium units located in 11 states for an aggregate of $142.6 million. To me, this means despite the current tone of the economy or even the volatility of the stock market, Physicians Realty continues to execute on its business model. As it chewed through those transactions, the company reloaded its transaction gun with an upsized offering of 18.5 million shares that added roughly $290 million to its coffers. As the company continues to execute, we will benefit from the dividend policy associated with its REIT structure. You should continue to hold your DOC shares.

PayPal Holdings, Inc. ([stock_quote symbol=”PYPL”]) — Our Cashless Consumption play, PayPal, saw its shares soar 21% in the last two weeks following better-than-expected December-quarter results on both the bottom and top lines. More specifically, PayPal delivered earnings per share (EPS) of $0.36, $0.02 ahead of consensus expectations, on $2.56 billion in revenue (ahead of the $2.51 billion consensus expectation). While the company’s guidance is in line with Wall Street expectations for the current quarter, that performance should not go unappreciated in light of the current environment. I continue to see PayPal taking market share as payments shift online and onto mobile devices. That behind-the-scenes business powers Apple Pay, Uber and other companies that are humming. Given the company’s pure play status for my Cashless Consumption investing theme and the tailwind at its back, I’m not surprised that RBC Capital Markets reiterated its outperform rating and $42 price target on the shares and that Wedbush upgraded its view on PayPal to Outperform from Neutral with a new $40 price target. We’re up more than 11.5% in PYPL shares. Given this volatile market, let’s be prudent and set a protective stop loss at $31 with a goal of stepping it up as PYPL shares move higher.

ProShares Short S&P 500 ETF ([stock_quote symbol=”SH”]) — Over the last week, our SH shares have moved up, down and sideways in response to the moves in the S&P 500. With more data pointing toward a manufacturing recession and far slower growth in the services sector, I see further negative revisions to 2016 earnings expectations for the S&P 500 group of companies. Let’s continue to keep this insurance position in place for the time being.

Regal Entertainment Group ([stock_quote symbol=”RGC”]) — While the stock market may be turbulent, the movie box office is off to a strong start in 2016. Year to date, the box office is up 2% year over year and up double-digit percentages compared to prior years. I chalk this is up to follow-through on Star Wars: The Force Awakens, but also a strong showing for Ride Along 2, 13 Hours: The Secret Soldiers of Benghazi and Kung Fu Panda 3. It seems there is something for everyone, including us with The Big Short, which I highly recommend. With tickets up, sales of high-margin snacks and drinks are sure to follow. Regal Entertainment reports its quarterly results next Tuesday (Feb. 9) and you should hold your shares heading into that event.

I’ll have much more for you next week, when I will be trying to finalize the next issue of your newsletter. I’m already working on it and I’m including a number of data points coming out of December-quarter earnings conference calls that confirm our thematic investing perspective is identifying the right tailwinds, as well as the latest economic data that will shape the market and expectations in the coming weeks.

Market Volatility — still sticking around

Market Volatility — still sticking around

As the Northeast dug out from #Blizzard2016 earlier this past week, you could say the slowdown from the storm was a harbinger of what was to come this week in the form of more data pointing toward a slowing domestic and global economy. From my perspective, the Fed’s commentary following their monetary policy meeting this week and the likelihood of the next Fed rate hike slipping from March to May simply confirm that the economy has indeed entered a rough patch. We didn’t really need to see the dismal December Durable Orders Report or the weaker-than-expected 4Q 2015 gross domestic product (GDP) report out this morning, because much of the data in recent weeks clued us in as to what was coming. What did catch me off guard was the Bank of Japan’s move to negative interest rates early this morning, which led to a sharp move higher for the market and the S&P 500 closing up 1.2% for the week, bringing its year-to-date return to -5.6%.

10 year truasury note

While that was happening, the yield on 10-year Treasuries fell once again, and that led many an investor back into higher-dividend-yielding stocks like the ones we’ve kept in our Tematica Select List. In particular, Physicians Realty Trust (DOC), Philip Morris International (PM), American Capital Agency (AGNC) and AT&T (T) all outperformed the S&P 500 this week from a stock price perspective. The big winner for us, however, was our PayPal (PYPL) position, as the company delivered a great quarter that popped the shares over 13% this week. That brings our return in PYPL shares to just under 8% since early September. By comparison, the S&P 500 fell 1.4% over the same time period. With more companies adopting mobile payments, and even more utilizing PayPal’s back-end services for both mobile and online payments as part of my Cashless Consumption investing theme, you should continue to hold your PYPL shares.

Next week, we have several hundred more companies reporting earnings and the usual start-of-the-month economic data will be coming in. This includes December Personal Income and Spending, which should offer some insight on consumers and their spending habits; the ISM manufacturing index; the global PMIs from Markit Economics; December factory orders and the usual assortment of job creation indicators. Based on the preponderance of January regional Fed reports and January flash PMI reports that showed the slowest expansion in the domestic services economy since December 2014 and the second-lowest reading for the manufacturing economy since October 2013, we should not expect a significant pickup to be seen in next week’s data. If this proves to be the case, I would expect to see the chatter grow over the Fed likely pushing out its rate hike from March to May, particularly if Friday’s January Employment Report disappoints.

I will continue to be vigilant during all of that next week. However, given the sheer number of companies reporting their results, there is a high probability there will be more than a few companies offering weaker-than-expected guidance, much like Apple (AAPL), Boeing (BA), Amazon (AMZN) and United Rentals (URI) did in recent days. Already I’m looking at the kinds of businesses that will weather a slower economy given their inelastic natures. For example, will people stop searching on the Internet? Will people stop eating? Are you likely to slow down your use of social media or streaming video? While we may slow down on discretionary spending, odds are those kinds of services and actions will see modest disruption at worst. I can add another — hopefully you will continue to clean both your house and yourself, just as I plan on doing.

As we exit the earnings storm, I expect calmer waters will start to emerge. At that time, we’ll be putting some cash to work, looking to take advantage of the drop in stocks to buy in at much better prices.

 

When it comes to Fitbit (FIT), is now the right time to jump in?

When it comes to Fitbit (FIT), is now the right time to jump in?

If you saw a great product on sale at the store, you would be excited, maybe even ecstatic, if it was one you had been looking at for some time. The same is true with stocks!

We all tend to get caught up in the emotional response of the market moving lower, which usually is viewed as a bad thing, rather than an OPPORTUNITY to buy shares at an even better price. When viewed through that lens, who doesn’t love it when stocks go on sale… so long as the fundamentals and business drivers remain intact.

Here’s a great example — at the Consumer Electronics Show held earlier this month, Fitbit ([stock_quote symbol=”FIT”]) announced its first smart watch, dubbed the Blaze  . . .

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Set a Protective Stop on a Winning Position to Lock in a Gain of More than 20%

Set a Protective Stop on a Winning Position to Lock in a Gain of More than 20%

Actions from this post

Ratings changes included in this dated post

  • Changing our rating on USA Technologies (USAT) to “Sell”, booking a near 30% return since our “Buy” rating was issued.
  • Updating Kraft Heinz (KHC) to a “Sell” rating, marking a hefty double-digit percentage return.
  • Closing out Disney (DIS), Under Armour (UA), Netflix (NFLX), LifeLock (LOCK), American Airlines (AAL) and Fitbit (FIT) — updated all with a “Sell” rating.
  • That leaves Physicians Reality Trust (DOC), Philip Morris (PM), American Capital Agency (AGNC), AT&T (T) and Regal Cinemas (RGC) in the Tematica Select List — all of which have dividend yields between 4.6% (Philip Morris) and 14% (American Capital Agency). Given the nature of their businesses as well as those dividend yields, those shares are apt to drum up investor interest as people look for safe havens.Let’s continue to hold these shares and “clip our dividend coupons” along the way.
  • Also, we recommend investors add some protection in the form of the ProShares Short S&P 500 ETF (SH), which trades in the opposite direction of the S&P 500.

What began as a bad start to 2016 only has gotten worse over the last few days. There are a number of reasons behind this move lower as II see the stock market, at best, moving sideways through earnings season, but more likely to come under additional pressure as expectations are scaled back. When I say expectations, I mean those for global growth, oil prices, corporate earnings and so on. You’ve seen me write more than a few times about the aggressive earnings expectations for the S&P 500 this year and the revisions lower that I’ve been expecting have only just begun.

In an environment like this, it tends to be shoot first and ask questions later, particularly as growth expectations get reset. While it is tempting to weather the storm, my preference is to lock in existing gains, limit losses and, above all, preserve capital at times such as this one. I know times like now, when the market seemingly goes down day after day, can be frustrating, if not confusing. I would not be surprised if you were having flashbacks to March 2008, wondering if we are heading for a repeat of what happened from May 2008 to March 2009, a period of intense pain for the stock market.

The famous phrase, “better safe than sorry,” comes to mind. For us, that means exiting the following positons:

  • Changing our rating on USA Technologies (USAT) to “Sell”, booking a near 30% return since our “Buy” rating was issued.
  • Updating Kraft Heinz (KHC) to a “Sell” rating, marking a hefty double-digit percentage return.
  • Closing out Disney (DIS), Under Armour (UA), Netflix (NFLX), LifeLock (LOCK), American Airlines (AAL) and Fitbit (FIT) — updated all with a “Sell” rating. 
  • That leaves Physicians Reality Trust (DOC), Philip Morris (PM), American Capital Agency (AGNC), AT&T (T) and Regal Cinemas (RGC) in the Tematica Select List — all of which have dividend yields between 4.6% (Philip Morris) and 14% (American Capital Agency). Given the nature of their businesses as well as those dividend yields, those shares are apt to drum up investor interest as people look for safe havens.Let’s continue to hold these shares and “clip our dividend coupons” along the way.
  • Also, we recommend investors add some protection in the form of the ProShares Short S&P 500 ETF (SH), which trades in the opposite direction of the S&P 500.

Over the next few weeks, we could get a bounce in the market here and there, but I would feel much better putting capital to work with a strong conviction that the storm has passed. As such, I will keep one eye on the market (the indicator of price) and the other on our investing themes as I look for data points that show companies whose businesses will continue to perform regardless of what’s happened in the stock market over the last month or will happen in the next month or next few months. If you were with me while I write this update, you would hear me muttering questions like some of these:

  • Has the drop in the stock market changed the outlook for cyber attacks and related threats in 2016? Safety & Security
  • Despite the unseasonably warm temperatures in the eastern United States thanks to El Niño, has the California drought situation been eradicated? Scarce Resources
  • Has the shift toward streaming and other digital content consumption slowed because the stock market has lost close to $1 trillion in value, lessening the demand for content? Connected Society
  • By some strange hocus-pocus, have people been “de-aged” so that less than 15% of the population is over 65 years old? Aging of the Population
  • As if by magic, did all of those people with little to no retirement savings suddenly land on firm financial footing? Aging of the Population
  • Over the last few days, has the costly and deadly impact of obesity and the prevalent condition of so many people being overweight been reversed? Fattening of the Consumer
  • Have retailers, both brick & mortar as well as online, shifted to only taking cash and checks as payment for goods and services? Cashless Consumption
  • Are people all of a sudden smoking less in the last few days? If anything, I would argue those who do indulge in this guilty pleasure are probably smoking more and having an extra drink or two along with it. Guilty Pleasure/Affordable Luxury
  • Has the domestic middle class started to expand dramatically in January? Rise and Fall of the Middle Class

And so on… Foods with Integrity… Asset-Lite Business Models… Economic Acceleration/Deceleration… Tooling & Retooling…

The bottom line is these investing themes of ours continue to benefit from the shifting and evolving landscape that is the intersection of the global economy, changing demographics, disruptive technologies, regulatory mandates and other tailwind drivers.

As I said earlier, the stock market is simply the indicator of price.

If you saw a great product on sale at the store, you would be excited, maybe even ecstatic, if it was one you had been looking at for some time. The same is true with stocks!

We tend to get caught up in the emotional response of the market moving lower, which usually is viewed as a bad thing, rather than an OPPORTUNITY to buy shares at an even better price. When viewed through that lens, who doesn’t love it when stocks go on sale… so long as the fundamentals and business drivers remain intact. To me, this says we’ll be able to buy back a number of the growth positions at the same or lower prices when the current market storm has cleared and things have settled down. Let’s be prudent and patient together.

Apple plus Facebook plus Google equals death to sector investing

Apple plus Facebook plus Google equals death to sector investing

It seems that at least once or twice per week we are asked, in some form or another, one of the following questions:

• What sectors do you rate as a buy right now?
• Do you like Financials? What about Technology?
• What is going to be the next big sector?
• What sectors do you think are best in bull markets? And which ones are best for sheltering gains in bear markets?

Our short answer to any sector questions is simple: we like NONE of them. But, at the same time, we also can say we like ALL sectors. Or more specifically, we like certain aspects of every sector, while we also dislike aspects of all sectors.

Confused? Guess it’s not so simple of an answer.

In this special edition of Tematica Insights we explain why thinking of investments from a sector perspective is out-dated at best, and fatally flawed at worst. Thinking of investments from a sector perspective is out-dated at best, and fatally flawed at worst. It’s over simplifying to identify any one or two sectors as having the most potential. In any sector, there will be some companies that seize on a new opportunity faster than others as new trends or themes emerge in today’s world.

Click the link below to share this free special report on a smarter approach over sector-based investing:

Download Monday Morning Kickoff

 

 

Companies Mentioned
  • Alphabet (GOOGL)
  • Amazon Prime (AMZN)
  • American Water Works (AWK)
  • Apple (AAPL)
  • Chipotle Mexican Grill (CMG)
  • Etsy (ETSY)
  • Exxon (XOM)
  • Facebook (FB)
  • InterDigital (IDCC)
  • McDonald’s (MCD)
  • Netflix (NFLX)
  • Qualcomm (QCOM)
  • Royal Dutch Shell (RSH.A)
  • Shopify (SHOP)
  • Tesla Motors (TSLA)
Turn off the music, close up the bar and call it a night

Turn off the music, close up the bar and call it a night

While the “bad news is good news” move in the market over the last few days is decidedly more enjoyable than those gut-wrenching market falls of late, it’s like a party that goes on for too long; at some point someone has to turn off the music, close up the bar and call it a night.
We’ve already seen some warning signs that it might be time to head out before things get awkward in the form of negative earnings pre-announcements for several companies.

 

In this week’s issue of Tematica Insights:

  • With the September ISM Manufacturing Survey out, what does it mean for inflation and any potential Fed action on rates later this year.
  • Is this a good time to jump on buying opportunities with all the negative earnings pre-announcements coming out?
  • China’s adoption of Western diet demonstrates how thematics can play-out in society.
  • Tematica Select List company Skyworks ([stock_quote symbol=”SWKS”]) makes a move, which has adds an interesting wrinkle to our Connected Society thematic.

Download Monday Morning Kickoff

 

 

Companies Mentioned
  • Alcoa (AA)
  • Amazon.com (AMZN)
  • American Airlines (AAL)
  • Apple Inc. (AAPL)
  • Bank of America (BAC)
  • Caterpillar (CAT)
  • Chegg Inc. (CHGG)
  • ConAgra (CAG)
  • Corning Inc. (GLW)
  • Dunkin’ Brands (DNKN)
  • DuPont (DD)
  • FedEx (FDX)
  • Hewlett Packard (HPQ)
  • Illumina (ILMN)
  • Immersion Corp. (IMMR)
  • Kimco Realty (KIM)
  • Lifelock (LOCK)
  • Merk & Co. (MRK)
  • Netflix (NFLX)
  • Nu Skin (NUS)
  • Palo Alto Networks (PANW)
  • PayPal (PYPL)
  • PMC-Sierra (PMCS)
  • Skyworks Solutions (SWKS)
  • Starbucks Inc. (SBUX)
  • Swift Transportation (SWFT)
  • Synaptics Inc. (SYNA)
  • Taiwan Semiconductor (TSM)
  • The Container Store (TCS)
  • U.S. Global Jets ETF (JETS)
  • United Natural Foods (UNFI)
  • Verizon Communications (VZ)
  • Wal-Mart (WMT)
  • Walt Disney (DIS)
  • Whole Foods Market (WFM) Xylem, Inc (XYL)
  • Yum! Brands (YUM)