Menu

Category Archives: Tematica Investing

The Markets (and the World) react to a Trump victory

The Markets (and the World) react to a Trump victory

downalod-pdfDOWNLOAD THIS WEEK’S ISSUE
The full content of Tematica Investing is below; however downloading the full issue provides detailed performance tables and charts. Click here to download.

Markets are in tumult today because the degree of confidence in estimating the difference between candidate Trump and President Trump is larger than for any other presidential candidate in modern history.

You would have to have been stuck under a very large rock if you’re just getting the news that Candidate Donald Trump has become President-Elect Trump.

Late into the night, as the pundits analyzed and poured over election results that showed Trump pulling ahead of Secretary Clinton, we quickly saw domestic futures fall, the Mexican peso drop and international markets crumble on the realization that Trump was poised to upset polls and other expectations to win the 2016 election. At one point in the wee early hours of the morning, when it became clear that Clinton would have to sweep all seven outstanding states to get to the 270 electoral votes, Dow Jones Futures were down more than 800 points with the S&P 500 futures off more than 4.5 percent.

Since that point, as Hillary Clinton conceded the election, President-elect Trump gave an acceptance speech that included: “We have a great economic plan. We will double our growth and have the strongest economy anywhere in the world. At the same time, we will get along with all other nations willing to get along with us. We will be. We will have great relationships. We expect to have great, great relationships.”

Those comments combined with his conciliatory tone towards his Hillary Clinton, commenting on how the United States owes her a debt of gratitude, and his request that those who did not support him now offer him their advice, helped calm the market as Dow Futures “recovered” to be down “just” 345 points around 7:30 AM with S&P futures down 2 percent and Nasdaq futures down 2.4 percent.

As I shared with Larry King on RT’s election coverage last night, the market had expected Secretary Clinton to win the election and the aftermarket sell-off last night and still this morning reflects the uncertainty over exactly what a Trump White House will mean on a number of fronts. Pretty much, “Holy cow! Trump did it. Now what?”

Looking at the electoral map, one has to think that after 10 years of stagnant jobs, wages and economic growth amid crushing debt, Americans decided to take a chance on the outsider . . . try something different.

In all fairness, this is also a return to the norm we’ve seen in American elections whereby a president who terms-out is replaced by the opposing party’s candidate and that opposing candidate often gets more House and Senate seats. Despite all the commentary to the contrary, American still appears to swing back and forth across the center.

As we all know the stock market and the economy abhor uncertainty, and at least for now the Trump win is going to raise more questions than provide answers concerning policy, trade, healthcare reform, tax rates and the like. Like a deer in the headlights that is unsure if that approaching car will swerve or not, so too is the market looking to see just how much Candidate Trump and President Trump differ.

Whenever the market is faced with such an unknown, and this is a fairly big one that will chart the course over the next four years, it defaults to shoot first and ask questions later. More often than not, and with hindsight being 20/20, turmoil such as this tends to result in a buying opportunity, especially for patient investors. We saw this following the Brexit vote, which was also very much unexpected.

What this calls for is calmer heads, and that’s exactly what we aim to be this morning and over the coming weeks as more details emerge from President-elect Trump on what his policies will be, who will fill out his cabinet, and just what his relationship will be with the Federal Reserve, given his attacks on Chairwoman Janet Yellen. As those details emerge, odds are the market will start to recover. This should give us some opportunity to scale into well-positioned companies, as well as add new ones at better prices than we’ve seen over the last several weeks.
Will it be smooth sailing? Not likely.

Until Trump spells out his policies in detail and even then, there is bound to be some indigestion. That will require some patience. Markets are in tumult today because the degree of confidence in estimating the difference between candidate Trump and President Trump is larger than for any other presidential candidate in modern history. The markets reaction hasn’t been because the consensus view is that Trump will be bad for the economy and for stocks, but rather because uncertainty mean companies postpone investments until they have a clearer view into the future.

With that, let us take a look at the likely impact of candidate Trump.

  • Pharmaceutical stocks will breathe a sigh of relief after the shellacking they have taken under candidate Clinton and Sanders. Overnight shares of Mylan (MYL) and Pfizer (PFE), two of the largest drugmakers in the US rose more than 6 percent in pre-market trading. Even overseas drug companies such asGlaxoSmithKline (GSK) and Sanofi (SNY) were up around 3 percent on the news of a Trump victory.
  • Hospital stocks will likely get hit, as the combination of a Trump presidency and a full Republican sweep of Congress means the Affordable Care Act has little chance of survival. This will likely be bullish for pharma, but bearish for hospitals.
  • In pre-market trading gunmakers Sturm Ruger & Company (RGR) rose 5.6 percent and Smith and Wesson (SWHC) gained just under 7 percent.
  • The Mexican Peso fell to record lows, suffering its worst fall since the Tequila Crisis of 1994. The jury is still out on that wall.
  • Non-American industrial/manufacturing companies are getting hit hard as are global transports such as shipping giant AP Moller-Maersk based on candidate Trump’s promise for protectionist policy-making. Auto manufacturers such as Daimler (DDAIY), BMW (BMWYY), Volkswagen (VLKAY), Toyota (TM) and Mazda (MZDAF) were down between 3 percent and 9 percent earlier this morning.
  • Global banking is taking a hit as well. Given the US accounts for around one-quarter of world GDP, a move towards protectionist policies could further dampen already weak global trade, which would further weaken a weak global economy, putting further strain on banks that are struggling to cope with the level of non-performing loans.
  • Oil companies are likely to have a much friendlier White House and Congress, but with today’s depressed prices, that isn’t likely to have a major impact immediately as the price of oil isn’t exactly supply-constrained at the moment.
  • Green energy stocks like SunPower Corp. (SPWR) are likely to take some hits as a Trump presidency is not nearly as green-friendly as candidate Clinton.
  • Defense-sector companies, such as Lockheed Martin (LMT) and Northrop Grumman (NOC), will likely see a serious boost as candidate Trump campaigned for 90,000 new soldiers and 75 new ships.
  • Infrastructure spending is likely to get a boost from fiscal stimulus, which is a tailwind for companies such as Caterpillar (CAT), Terex Corp. (TEX) and Granite Construction (GVA), but the impact on those companies’ bottom line isn’t exactly straightforward when we combine that impact with the potential for trade wars given candidate Trump’s protectionist promises.
  • Emerging markets, which are all near recent highs, will likely take hits if candidate Trump was representative of President Trump’s protectionist policies.
  • Gold and the safety trades are likely to do well as investors flee risk assets until the dust settles and we get a better grasp on just who President Trump will be.

Finally, if President Trump is anything like candidate Trump when it comes to speak first, clarify later, increased volatility is here for the duration.
One of the questions that is bound to jump into the limelight is what does the Trump win mean for the likelihood the Fed raises interest rates come December? 

While the Fed signaled in its October FOMC statement that it would likely raise rates come December, the October Employment Report missed the mark and raised some doubts. With Trump yet to provide line by line, point by point policies, we suspect the Fed will take a pass once again come December, pushing the potential rate hike timetable out to its March 14-15, 2017 meeting. That meeting is well after Inauguration Day  (Jan. 20, 2017) and leaves a window for President Trump to share his plans. Up until last night, the market had been pricing in a December rate hike, and the realization this is likely to be once again pushed back is likely to be met with welcome arms from investors.

Now to roll up our sleeves and get back to work.

downalod-pdfDOWNLOAD THIS WEEK’S ISSUE
The full content of Tematica Investing is below; however downloading the full issue provides detailed performance tables and charts. Click here to download.

Getting Ready for Walt Disney Earnings on Thursday

As earnings season starts to slow, we still have a few laggards to report their quarterly earnings. One of those is Content is King thematic player The Walt Disney Company (DIS) and it will be doing so tomorrow (Thursday, November 10) after the market close. Consensus expectations are for Disney to deliver EPS of $1.16 on revenue of $13.5 billion for the September quarter and EPS of $1.61 on revenue of $15.75 billion for the December quarter.

Over the last several weeks, the stock has been relatively catalyst free, but that changed this past weekend when Marvel’s Dr. Strange put a whammy on the box office as the #1 film. On the earnings conference call, we expect a review and update from Disney management on its film slate for the coming quarters, which feature a number of Marvel, Pixar and Lucasfilm properties.

In the company’s earnings report, we expect ESPN to once again be a hot topic given reports that declines in subscriber numbers have picked up. Odds are Disney will counter with its participation in DirecTV Now and Hulu’s soon-to-be-launched streaming TV service, both of which are expected to include ESPN.

Even after accounting for continued ESPN-related issues vs. the company’s rich slate of films on tap in the coming months that will drive its other business units, we find the current discount on the shares to be excessive. Last night the shares closed at 15.6xexpected 2017 EPS of $6.04, which is well below its three- and five-year average multiples of 19x to 20x. Wall Street would have to cut its 2017 outlook to something like $4.85 per share for the current share price to trade in line with historic multiples, and the odds of that are rather low given the strength of Disney’s non-ESPN businesses.

Given the lack of movement in expectations for the September and December quarters over the last few weeks, we suspect analysts covering the stock are likely to revisit their forecasts to update their ESPN-related assumptions, which is likely to pressure DIS shares. Should this be the case, it’s likely we could see institutional investors return to the stock ahead of the holiday season, which includes the release of the new animated film Moana, just ahead of the next installation in the Star Wars franchise Rogue One.

We are inclined to be patient with Disney as we consider it THE Content Is Kingcompany, with its international efforts propelled by rising disposable incomes and a brand-conscious rising middle class. We also see Disney making the right investments (streaming media and turning studio content into park rides, attractions, and high margin licensed products) to drive revenue and profits.

Ahead of Thursday’s earning call, our price target on DIS shares remains $115.

 

AMN Healthcare Services (AMN) Aging of the Population

Amid a ticker symbol change snafu last week (See last week’ issue for details), AMN reported better- than-expected September-quarter earnings due to the continuing fundamental strength in demand for nurses and other health-care professionals. AMN shares came under pressure following company guidance for an increase in interest expense due to its recent debt offering (we’re not sure how analysts who cover the shares missed this) and the expiration of R&D tax credits that will drive the company’s tax rate higher.

As the market digests the re-jiggering of EPS estimates and trimming of price targets, AMN management will be at the SunTrust Financial Technology, Business & Government Services Conference on Thursday (Nov. 10) and the Stifel Healthcare Conference next week (Nov. 16). We expect the team will talk about the long-term prospects and favorable dynamics driving AMN’s business.

By 2020 the U.S. will require 1.6 million more direct-care workers than in 2010, which equates to a 48 percent increase for nursing, home-health and personal-care aides over the decade. This shortage is expected to get worse near term, as the 78 million aging baby boomers (roughly 24 percent of the domestic population) will require increasingly more health-care services.

In response to the re-cut in earnings expectations, we are trimming our price target to $43 from $47, but that still offers more than enough upside to keep a Buy on the shares. With the Trump win, healthcare related stocks are bound to get hit, as such we would recommend subscriber wait at least a day or two before using near-term weakness for long-term gains. 

 

Costco Wholesale (COST) Cash-strapped Consumer

Despite reporting last week better-than-expected net sales and same-store sales for October, Costco shares traded off modestly over the last several days. From our perspective, the pullback has put COST back in oversold territory and offers subscribers that are underweight in the shares a buying opportunity — we would be taking advantage of this opportunity ourselves if we were not already overweight relative to the overall portfolio.

The last time the stock was at these levels was last May, which turned out to be a solid buying opportunity as the company continued to take consumer wallet share.

As we head into the holiday shopping season, we see that continuing as Costco benefits from a growing number of warehouse locations. As we’ve pointed out to subscribers previously, Costco opened two new locations in October and is poised to add several others before the end of the year. In our view, these additional units bode well for membership growth and high-margin fees as well as retail sales growth.

Bolstering those fees, last month Costco increased annual membership fees by about 10 percent in three Asia locations — Taiwan, Korea and Japan — as well as in Mexico and the U.K. We see Costco gaining share in the shopping-heavy second half of the year, with potential benefits from co-branded Costco card marketing. Also, any domestic membership price hike in the coming months would aid margins in 2017.

Based on the potential upside to our $170 price target, we continue to have a Buy on COST shares.

 

 

Dycom Industries (DY) Connected Society

This earnings season there have been a number of positive data points for Dycom Industries (DY), which has come from rising network capital spending at mobile carriers and cable providers. Its top four customers, which account for 64 percent of revenue, grew their combined 3Q 2016 capex by 9 percent sequentially, which was better than consensus expectations that had called for a sequential dip.

Another leading indicator, Corning (GLW), witnessed strong demand in the fiber to the home market in North America and expects this positive trend to continue. While capital spending and related deployments can be lumpy, we see the ongoing shift toward the digital lifestyle straining network capacity, forcing incremental spending on existing networks and the deployment of newer, higher-speed ones.

On the housekeeping front, later this month (Nov. 23) Dycom will hold its annual shareholders meeting. We’ll be sure to mark our calendars amid what is likely to be the usual Thanksgiving chaos.

We rate DY shares a Buy with a $115 price target.

 

United Natural Foods (UNFI) Food with Integrity

Last week, Whole Foods Market (WFM), a key United Natural Foods (UNFI)customer, reported it’s September-quarter results. For its September quarter, Whole Foods’ revenue of $3.5 billion was in line with expectations, despite same-store comps coming in down 2.6 percent versus the comparable quarter, on consensus of a 2.1 percent drop.

We attribute the discrepancy to Whole Foods experiencing less price deflation due to the contract nature of its organic/natural products like fish and other proteins, as well as eggs, which have seen sharp price declines over the last several months. Given the nature of UNFI’s meat and cheese products, we see this as a positive.

On the follow-up earnings conference call, the Whole Foods management team shared the following:

“if you look across the quintile data for the baskets, every single basket was moving up. And so what that says is that there’s some real stability here. And particularly in the $100 basket, it’s showing some nice growth.”

While some subscribers are likely to think that backs up Whole Foods’s nickname of “Whole Paycheck,” it tells us that underlying demand for natural and organic products remains firm — another positive for UNFI.

The larger issue for Whole Foods, in our view, remains the increasingly competitive landscape. The management team called this out on the earnings call:

“…you not only have strong conventional supermarkets like Kroger (KR) and H-E-B and Wegmans, but you’ve also now got more of the discount natural food operators, like Sprouts Farmers Market (SAFM) and Fresh Thyme and Lucky’s, and they’re all growing. And then you’ve got more delivery fresh stuff like Amazon (AMZN), and then you’ve got these meal-kit operators like Blue Apron and HelloFresh and Plated.”

We see this as confirmation of the shifting consumer preference to natural, organic and other lifestyle products. With shelf space at a premium, grocery stores are only likely to stock those items that it knows consumers prefer. And those alternatives to WFM, like Blue Apron and HelloFresh? Those are potential customers for UNFI, as is Amazon as it continues to expand its Amazon Fresh home grocery delivery service.

We’ve tried that latest service from Amazon, and we have to say we are impressed, not only with the prices but with the quality of the fruit and produce.

In our view, these are simply more positives for UNFI shares. We continue to rate the shares a Buy with a $65 price target.

 

Universal Display (OLED) Disruptive Technology

Shares of this organic light emitting diode (OLEDs) chemical and licensing company rose 7.4 percent last week, putting our position back into positive territory. Two factors were behind the upward movement last week. First, Universal Display’s (OLED)September-quarter earnings were solid on the bottom line and better than expected on the top line. As we shared in our post-earnings comments, the key takeaway from the earnings call is the continued ramp in industry OLEDs capacity as the technology gains share in existing applications, such as TVs and smartphones, and new ones emerge, like wearables, virtual and augmented reality applications and automotive lighting.

The bottom line is the quarter, much like the back half of 2016, was an expected one of transition. When we added OLED shares to the portfolio, we noted industry capacity was constrained, with existing players such as Samsung and LG as well as newer entrants adding organic light-emitting diode capacity to meet demand from the smartphone market as well as new applications that include OLED TVs, wearables, virtual reality and augmented reality, and for emerging opportunities including automotive OLED display and lighting.

While that last opportunity — automotive OLED display and lighting — is rather small today compared to demand for smarthones (OLED’s largest end market today), research firm UBI forecasts the global OLED lighting panel market is expected to rise from $114 million this year to $1.6 billion by 2020. Factor in other applications as well as new ones, including side displays to the PC market akin to Apple’s (AAPL) new Touch Bar, and it explains the confirmed plans from Samsung and LG to expand their OLED capacity. It also helps explain Taiwan’s Ministry of Economic Affairs announcing it would support the development of OLED technology in that country, pledging $3 billion of government capital in the process. At the end of September, Sharp announced its plans to invest $570 million in two OLED pilot production lines, which are expected to start operation in the second quarter of 2018.

Stepping back, this is very similar to the light-emitting diode (LED) backlighting and lighting revolution, except we are in the early innings of OLED technology replacing LED and other lighting. As the LED revolution occurred, industry capacity grew ahead of new applications coming to market, and we see that transpiring in the OLED market.

Second, Gabelli & Co. bumped up its rating on OLED shares to “Buy” from “Hold” with a $68 price target, with rationale that largely reflects our own investment thesis (iPhone’s potential adoption of OLED display; a large increase in the global OLED display capacity building in 2017 and 2018; and a mobile device market shift from LCD to OLED displays).

Any move by Apple to utilize that display technology would be a positive for its overall adoption. Other signposts we’ll be watching include OLED equipment order activity at Applied Materials (AMAT), Aixtron (AIXG) and Veeco Instruments (VECO) as well as new product announcements and OLED applications from consumer electronics companies ahead of the holiday shopping season and after at events such as CES 2017.

Our price target on OLED shares is $68, which offers potential upside of more than 20 percent.

downalod-pdfDOWNLOAD THIS WEEK’S ISSUE
The full content of Tematica Investing is below; however downloading the full issue provides detailed performance tables and charts. Click here to download.

Thematic Tailwinds and Headwinds Battling it Out this Week

Thematic Tailwinds and Headwinds Battling it Out this Week

With less than a week to go until the conclusion of the 2016 presidential contest, and having closed the books on an October that saw the S&P 500 fall just over 1.9 percent — marking its third consecutive monthly decline — the stock market is likely to tread water as the brouhaha that is the latest Clinton email scandal plays out. With just days to go, what was looking like a sure Clinton win that would result in a “more of the same” and at least a somewhat predictable environment is now all being called into question once again.We know the stock market, like most individuals, is not a fan of uncertainty. Best case, the market moves sideways until all is resolved one way or another; worst case it trades lower should the uncertainty build further ahead of next Tuesday. Potentially adding fuel to that uncertainty fire, we still have several hundred companies issuing quarterly reports this week, the outcome of the Fed’s November FOMC meeting this afternoon and the October Employment Report hitting the wires on Friday.Put it all together and it’s a recipe that calls for staying on the sidelines for the time being.While we continue to see thematic tailwinds blowing, these market headwinds are likely to restrain much of any progress in the coming days. We’ll continue to keep our “insurance” position — the ProShares Short S&P 500 ETF (SH) — on the Tematica Investing Select List until the stock market is in calmer waters.

As crazy as it may seem, we have just nine weeks until 2017. We know… so hard to believe, but as we have all learned there is no stopping the clock — if there was, where would our Fountain of Youth investing theme be? No doubt once the election has come and gone, it will be the usual sprint to the holidays and the end of 2016. If it’s like years past, it will be a blur.

With that in mind, we are going to do a little house cleaning today to make some room for newer positions in the coming weeks that will better position us for 2017. As we do this, we’re also going to trade out of our Nike (NKE) shares for a greater position in Under Armour (UA).

Here we go…

We’re trying something new this week.

After receiving much feedback, we’re including the full text of this week’s newsletter directly in this email (Just keep scrolling to view it all)

We avoided doing this in the past due to the length of the content in each issue and what we thought would be a poor experience for you, the reader to have to scroll through so much content.

But we’re always up for trying something new, so we gave it a shot this week!

The full newsletter in PDF form can be downloaded by clicking the button below just like it has always been since we launched this new format back in March.

Or, you can just keep scrolling and read it all here in the newsletter.

Be sure to let us know what you think of this new approach — whether you love it or hate it! — by dropping us an email to CustomerService@tematicaresearch.com .

downalod-pdf


Chris Versace
Chief Investment Officer
Tematica Research, LLC

 

Closing out PetMed Express (PETS) and
Regal Entertainment Group (RGC

We’ve loved having PetMed Express (PETS) and Regal Entertainment Group (RGC) on the Tematica Select List as they’ve benefitted from their respective thematic tailwinds, but also because of their enviable dividend yields. Not to mention how we feel like we’re helping out own cause each time we hit the local Regal Theatres to catch the latest flick — complete with the large bucket of popcorn!

Alas, the time has come to move on from these dividend dynamos. With the latest economic data that is the Flash October Manufacturing PMI from Markit Economics showing a pronounced pickup in China and in the US, the odds of the Fed hiking interest rates continues to shift more to the “will do” camp for the December FOMC meeting. As this likelihood increases, so too will the headwinds for these two higher dividend yielding stocks, which means we’re inclined to pull the rip cord sooner than later.

Therefore, after you receive this email, having both delivered double-digit returns for the Tematica Select List, we will:

  • Close out our Connected Society thematic position in PetMed Express (PETS).
  • Close our our position in Content is King thematic company Regal Entertainment Group (RGC).

For those wondering, we will continue to hold shares of Physicians Realty Trust (DOC), an Aging of the Population thematic position that is also a higher dividend yielding stock given the pronounced demographic tailwind at the back of the company’s business model.

 

 

Exiting Nike (NKE) and Doubling Down on Under Armour (UA)

In addition to shedding out positions in RGC and DOC, the tea leaves are showing its time to move on from our position in Nike (NKE), which with last night’s market close was down 11 percent from when we added it this past May.

We continue to see the Rising Middle Class — the upside of our Rise & Fall of the Middle Class investing thematic — snapping up branded athletic wear and apparel; however we find Under Armour (UA) has far more room for share gains than Nike as it attacks the International, women’s, footwear and sportswear markets. As we noted last week, UA is stepping up its game to hit its $7.5 billion revenue target by 2018, and odds are high those added marketing efforts that impacted UA’s margin outlook will also hit Nike’s business and its shares. We expect Under Armour to be in the penalty box with investors, a position that takes time for a company to work itself out of. The silver lining is that while its growth rate has been reset, Under Armour is still poised to continue to grow revenue and operating income in the coming quarters as its initiatives take hold.

Between the two companies, the upside is not only far greater at Under Armour, but the odds are far better “the bad news” has been priced into UA shares over the last week vs. what could be a continued slow leak in Nike shares over the coming quarters as UA and Adidas step up their game. All of this has us:

  • Exiting the Tematica Investing Select List position in Nike (NKE) and . . . 
  • Using the proceeds from that trade as well as the ones from RGC and PETS to scale further into the Under Armour (UA) position on the Select List. 
  • We will set a protective stop loss  in all of our UA shares at $25, but we would look to scale further into the shares below $27.

Update Update Updates

 

Alphabet (GOOGL)    Connected Society

Last week, Alphabet reported better-than-expected September-quarter with shares up roughly 2 percent for the month of October. We attribute the upside in its report to the tailwinds propelling its business — specifically, the increasing shift toward a digital lifestyle that is driving incremental advertising dollars to online and mobile; streaming video consumption; and online shopping.

The core Google Site business delivered a 25 percent revenue increase, excluding the impact of foreign currency, due to continued strength in mobile search and YouTube. The Cloud business continues to gain share on overall Cloud adoption, which offers longer-term growth prospects as do newer hardware initiatives (Pixel, Google Home). We see Alphabet continuing to invest in these newer businesses in the coming quarters, which is likely to limit margin expansion. Even so, the company continues to grow more than 20 percent and the shares are trading at 19.8x consensus 2017 EPS expectations of $40.56.

We’d also note the board of directors authorized a new $7 billion share repurchase program following completion of the prior program. We suspect investors will welcome that news as it has the potential to shrink the share count by up to 8.5 million shares at the current share price.

  • Our price target on GOOGL shares remains $975.

 

Amazon.com (AMZN)    Connected Society

Last week we used the drop in Amazon’s share price post-earnings to increase our position in AMZN shares on the Tematica Investing Select List. The decline was brought on by the largely unexpected pick-up in capital-investment spending during the company’s September quarter (bleeding into October), which resulted in lower-than-expected earnings.

As we discussed, Amazon’s stepped-up investment in distribution centers shows the company is strategically adding capacity ahead of this year’s holiday season, which per Deloitte, is expected to see digital shopping rival bricks-and-mortar shopping. These new distribution centers will also benefit the company as it continues to expand offerings (Prime, Prime Now, Prime Fresh, and fashion to name a few) both in the U.S. and abroad, which should lead to improved utilization and subsequently better retail margins over the coming quarters.

Over the weekend, Amazon announced it has entered China with its Amazon Prime service, and we see this as a further step in the company expanding its global footprint, as well as one of the reasons behind Amazon’s wide guidance range that rattled investors last week — you remember, somewhere between “$0 and $1.25 billion!”

The bottom line is that from time to time, market indigestion offers a favorable entry point into a company’s shares, especially if the long-term drivers and tailwinds remain intact. We’ve seen this several times with Amazon, and believe last week’s decline was the latest example. We see no slowdown in the shift to digital commerce, streaming video consumption, and other drivers behind Amazon’s business.

  • With upside of more than 20 percent to our recently revised $975 price target, we continue to rate Amazon shares, which closed last night at $785.14, as a Buy.

 

 

AMN Healthcare Services (AMN)    Aging of the Population

Last week, the company changed its ticker symbol for the shares to “AMN” from “AHS”.  Let’s just say it was a less-than-smooth transition, considering that several stock quote sites did not register the change, but showed AHS shares as no longer trading.

Fantastic! (yes, that would be more than a bit of sarcasm there!)

Amid the confusion, the stock fell just under 4 percent last week and has continued to trend lower this week. The company will report its September-quarter results this Thursday (Nov. 3) after the market close — let’s hope at that point all of these so-called investing websites have caught up — as all Consensus expectations call for AMN to deliver EPS of $0.54 on revenue of $468.6 million for the quarter.

A recent report from the New York-based Paraprofessional Healthcare Institute showed that by 2020 the U.S. will require 1.6 million more direct-care workers than in 2010, which equates to a 48 percent increase for nursing, home-health and personal-care aides over the decade. And this shortage is expected to get worse near term, as the 78 million aging baby boomers (roughly 24 percent of the domestic population) will require increasingly more health-care services.

Next week, we’ll get the September JOLTS report, which like those in prior months, is likely to show a continuing gap between demand for health-care workers and supply.

  • We will watch this post earnings later this week as we continue to rate the shares a Buy with a $47 price target.

 

CalAmp (CAMP)    Connected Society

Last week CAMP shares fell 4 percent without anything on the news front. Rather, we took comments from United Parcel Service (UPS), which is moving to phase 2 in deploying its telematics-based ORION safety and routing solution as a positive data point for CAMP. The same is true for the increase in technology spending by ServiceMaster Global (SERV) as part of its ServSmart initiative and the rollout of enhanced route management and scheduling tools at Rollins (ROL). These examples and others point to fleet management companies embracing telematics and other technology to drive productivity, which confirms our thesis on the shares. On Nov. 7, CAMP management will hold a webcast to discuss its LoJack-branded LotSmart and SureDrive applications.

  • Ahead of that event, we continue to rate CAMP a Buy with a $20 price target.

 

Dycom Industries (DY)    Connected Society

Last week, Alphabet (GOOGL) officially said it was hitting the pause button on Google Fiber in terms of entering new markets as it revisits its technology of choice from fiber to high-speed wireless. Even though this had been talked about as far back as August, the news, shared via a blogpost on Google, led to a sharp fall in DY to near $72.50 from just shy of $85.

In our special alert last Thursday, we noted customer analysis showed Google Fiber has been a modest customer, which, in our view, meant the price drop from last week was overdone. As such, we scaled into DY shares, after which the shares moved over the last few days to close last night at $76.88 — a 5.5 percent gain from last week’s scale in price.

While capital spending and related deployments can be lumpy, we see the ongoing shift toward the digital lifestyle straining network capacity, forcing incremental spending on existing networks and the deployment of newer, higher speed ones.

  • We continue to rate DY a Buy with a $115 price target.

 

United Natural Foods (UNFI)          Foods with Integrity

Recent data points to the continued weakening of restaurant traffic as consumers take advantage of food price deflation to return to grocery stores and eat in rather than out. This bodes well for United Natural’s expanding footprint as consumers continue to shift toward natural, organic and similar products.

We’ll look for confirming data on grocery traffic and volume as well as shifting consumer preferences when Kellogg (K) and key UNFI customer Whole Foods Market (WFM) report their earnings this week. Our thesis on UNFI shares has been that the winding down of the overly competitive grocery-store pricing environment, paired with internal cost-reduction efforts, should drive margin expansion in the coming quarters, particularly net margins. As such, we will be patient with UNFI shares as the company regains investor confidence after stubbing its toe during 2015. We are not forecasting any additional acquisitions even though the company has been an active acquirer.

  • Our price target on UNFI remains $65.

 

Universal Display (OLED)    Disruptive Technology

While Apple’s (AAPL) Toolbar feature on its revamped MacBook Pro models features retina display technology, over the weekend Japan’s Nikkei ran a report citing the CEO of Foxconn/Sharp, one of Apple’s key suppliers, that Apple will be “switching from LTPS (low-temperature poly-silicon) to organic light emitting diode panels” with the iPhone 8.

As we have said, any move by Apple to utilize that display technology would be a positive for its overall adoption. Other signposts we’ll be watching include OLED equipment order activity at Applied Materials (AMAT), Aixtron (AIXG) and Veeco Instruments (VECO) as well as new product announcements and OLED applications from consumer electronics companies ahead of the holiday shopping season and after at events such as CES 2017.

These and other data points should help track the expected growth in the OLED market, which is expected to grow at a 16 percent compound annual rate over the 2014-20 period to roughly $44 billion. Our price target on OLED shares is $68, which offers potential upside of more than 30 percent. Given the volatile nature of the stock, we have dipped our toe in the water with OLED shares and our strategy will be to add to the position on dips so as to improve our cost basis. As such, we are rating OLED a Buy

Later this week Universal Display will issue its September-quarter guidance and updated outlook, which we expect to be affected by Samsung’s Galaxy Note 7 issues. This has already been at least partially baked into expectations, though, with consensus EPS forecasts for 2016 falling to $0.87 from $1.08 over the last several weeks and 2017 expectations drifting lower to $1.34 from $1.53.

Our price target on OLED shares remains $68.

DOWNLOAD FULL ISSUE

downalod-pdf
Special Alert: Jumping on Amazon AMZN opportunity offered by 3Q 2016 earnings report

Special Alert: Jumping on Amazon AMZN opportunity offered by 3Q 2016 earnings report

 Jumping on Amazon AMZN opportunity offered by 3Q 2016 earnings report

  • We are using the weakness in Amazon’s (AMZN) shares resulting from disappointing earnings in the short-term to build our position for the long-term. 
  • We see no slowdown in the drivers and thematic tailwinds powering Amazon’s business and see its stronger than anticipated capital spending in the September quarter as Amazon preparing itself for future growth.
  • Our price target remains $975 for AMZN shares. 

When I made the decision earlier this year to take over the publishing of my newsletter, one of the reasons was my desire to be able to deliver to my readers the information when and how they need it — not based on a pre-set publishing calendar or an artificial 8-page content limit, but on how the market is reacting to news and developments and the details required in order for investors like you to have the information they need to make investment decisions.

Well, this week, and the unfolding events that have occurred, demonstrate exactly what I was thinking.

First, on Tuesday, we sent out the alert regarding our exiting of our Sherwin Williams (SHW) and Whirlpool Corp. (WHR) positions, as well as adjusting our target price on Under Armour (UA).  Then on Wednesday, we published our weekly  issue of Tematica Investing, but quickly followed that up on Thursday with an alert on Dycom Industries (DY) and an opportunity to scale into that position as the market was over-reacting to news about Google exiting the Fiber business.
Well, we’re now back again today with a similar scenario, this time surrounding Amazon’s (AMZN) earnings report and the market’s reaction to that . . .
Last night Amazon reported September quarter earnings of $0.52 per share that fell well short of the $0.78 per share consensus expectation for the quarter and the $0.17 per share achieved in the year-ago quarter. September quarter revenues rose 29% year over year to $32.71 billion, which was modestly ahead of the expected $32.65 billion. Also weighing on the shares was the company’s guidance for the current quarter that called for revenue to be in the range of $42-$45.5 billion, up 17 to 27 percent year over year, with operating income between $0-$1.25 billion vs. consensus expectations of $44.65 billion in revenue.

No, that’s not a typo on the operating profit guidance; once again Amazon has given such wide guidance — anywhere from $0 up to $1.25 billion — we could steer an aircraft carrier through it.

That combination led to AMZN shares falling to the $745 level before recovering to $772, down just over 5.5 percent in after-market trading, following the company’s earnings call.

As we have said previously when it comes to Amazon and quarterly earnings, the wildcard to watch out for is management’s often cryptic outlook and investment spending relative to expectations. This was exactly the case as investment spending at both the North American and International Retail businesses weighed on operating margins, leading them to fall to 1.8 percent in the 3Q 2016 quarter from 4.2 percent in 2Q 2016.

Stronger than expected spending during the September quarter, included initiatives to ramp up for what is expected to be a barn-burner of consumer spending on digital commerce this holiday shopping season. We’ve talked about this accelerating shift over the last several months, and consulting firm Deloitte sees digital holiday shopping rivaling brick & mortar retail spending for the first time in 2016. Against that expectation, Amazon added 18 fulfillment centers during 3Q 2016 and another five in first few weeks of October. While these will help position Amazon well for the expected spending surge over the coming months, near-term, those new centers will weigh on margins, hence the lighter than expected operating performance in the current quarter. As these newer centers mature over the coming quarters, their margins should improve, especially as the incremental capacity they bring is absorbed by Fulfilled By Amazon (FBA) and other aspects of Amazon’s fulfillment network.

While the current market environment, which is very much in a “Shoot first, ask questions later” mood, is hitting Amazon shares, in the short-term, if we step back, Amazon continues to play the long game as it expands the scope and scale of its Prime umbrella.

On the earnings call last night, Amazon mentioned the importance of grocery and consumables. We expect to see a continued emphasis in these areas going forward as consumers, especially Millennials, continue to shift their shopping habits. Exiting the September quarter, Prime Fresh was in 40 cities across seven countries, compared to 17 a year ago. Amazon Restaurant Delivery (a part of the Prime Now offering) is in 19 metropolitan cities in the US, up from two last year. Amazon looks to further expand  its fashion and apparel offering  by courting additional brands and manufacturers. Another area of investment continues to be its International expansion, especially in India. Given the favorable demographics in that market — age, internet usage, rising disposable income — we see that opportunity helping drive long-term growth for Amazon’s International efforts. The same is true with its Prime Instant Video business, for which Amazon nearly doubled its investment spending in the second half of the year as it pursues worldwide rights for programming rather than doing so country by country.

To be clear, while such capital investments can put a sour taste in our mouths in the short run and are likely to reignite long-term profitability questions, we see the 3Q 2016 investment as a temporary spike ahead of the 2016 holiday season and lays the groundwork for future revenue gains.

Could the company have telegraphed its plans better?

Probably, but Amazon has always been tight-lipped about its plans, which we chalk up to the increasingly competitive nature of the industry; transparency with investors also means revealing the strategy to competitors.

In deciphering management’s commentary on the earnings conference call last night, we recognize the company will continue to invest for the long-term, but management has clearly signaled that spending will be lumpy. Reading between the lines, spending in the September quarter was one of those larger lumps. As the investment spending returns to roughly more normal levels and as the higher margin Amazon Web Services continues to account for a greater piece of the overall business mix, we see margins rebounding from 1.8 percent in the September quarter. Revenue from its Cloud business rose 55 percent year over year and nearly doubled its operating profits to $1.0 billion, which equates to an operating margin of 31.6 percent compared to normalized operating margins in the low-to-mid single digits for the retail facing business.

We are likely to see 2016 EPS estimates get trimmed back, not only for the 3Q 2016 miss, but also to reflect the five additional fulfillment centers that were added in early October. Even so, there is a high probability that Amazons’ overall operating profit dollars will move up from the $575 million achieved in the September quarter as the overall pace of investment returns to more normalized levels in the current quarter. With regard to 2017 EPS estimates, we are likely to see those get trimmed back from the $11 per share range to roughly $10 per share or so as Wall Street factors in incremental expectations for investment India, Video and Alexa/Echo. The good news for us is our $975 price target was well below many of the other recently hiked price target that were above $1,000. Even after pairing back 2017 expectations, our price target remains intact.

The bottom line is from time to time, market indigestion offers a favorable entry point into a company’s shares, especially if the long-term drivers and tailwinds remain intact. We‘ve seen that several times over the years with Amazon shares, and we see it once again today. We see no slowdown in the shift to digital commerce, streaming video consumption, and others drivers behind Amazon’s business. 

With that in mind, we suspect many on Wall Street will give Amazon a pass on the September quarter as it remains the best-positioned company to capitalize on those tailwinds and drivers. 

  • We continue to rate AMZN share a Buy and are using this morning’s weakness as the long-term opportunity it is to scale into AMZN shares.
  • Our price target for the shares remains $975.


Chris Versace
Chief Investment Officer
Tematica Research, LLC

Special Alert: Using overreaction to Fiber to scale our DY position

Special Alert: Using overreaction to Fiber to scale our DY position

Using the Overreaction to Google Fiber to Scale our Dycom (DY) Position

Yesterday our shares of Dycom fell more than 14% following a blog post by that it would pause the expansion of its Google Fiber offering to potential fiber cities as it “refines its approach.” Alphabet (GOOGL)

We’d note this “news” from Alphabet is not exactly new information, as 2 months ago Alphabet announced it was scaling back Google Fiber with planned headcount reductions. It was also noted at the time that Google Fiber would change its name to Access and likely convert to wireless technology.

We see last night’s blog post by Alphabet as the formal announcement. This pause which pushes out any deployment in 10 potential cities does not impact planned Fiber deployments in Huntsville, Alabama; Irvine, California; San Antonio, Texas; and Louisville, Kentucky.

While this is likely to be a bump in the road for Google Fiber’s — now Access — spending on expanding existing network capacity, as well as preparation for next generation network technologies continues at Dycom’s core customers AT&T (T), Verizon (VZ), and Comcast (CMCSA). In particular, both Comcast and AT&T increased their capital spending in the low double-digits range on a year over year basis in the September quarter. In total, those three customers accounted for 54% of Dycom’s June quarter revenue and Dycom’s #3 customer, CenturyLink (CTL), is set to report its quarterly results on next week (Nov. 2nd), and we expect its spending to be up year over year as well.

Rounding out Dycom’s top six customers are Windstream Communications and Charter Communications, which when combined with the prior four customers account for roughly 79% of Dycom’s June quarter revenue. The next largest individual customer is “Unnamed Customer”, but is likely Alphabet at just 3.6 percent of June quarter revenue. We’d note this Unnamed Customer accounted for just over 6 percent of revenue over the prior 12 months.

The bottom line is that Alphabet is likely to be a relatively small customer for Dycom, and we see the drop in the share price over the last 24 hours, not to mention the larger 20 percent drop in the shares since the news of Google Fiber’s issues were first reported two months ago, to be an overreaction to what is likely to be at worst a modest reduction to Dycom’s outlook over the coming year. We attribute this overreaction in part to the current market mood this earnings season that is looking more and more like a shoot first and ask questions later one.

Given the continuing shift toward the digital lifestyle and mobile data consumption that is pressuring network capacity and resulting in next generation deployments, we continue to see a bright outlook for Dycom. Moreover, given its experience in mobile network infrastructure, we suspect that when Alphabet Access deploys its wireless solutions the odds are high Dycom will be the contractor of choice.

The Bottomline on Dycom Industries (DY)

  • We are scaling into the Dycom (DY) position, which closed at $72.50 per share yesterday, on the Tematica Select List at current levels. 
  • The move will add to the initial DY position we took on September 14, 2016 and significantly reduces our cost basis.
  • As we do so, we will also put a $65 stop loss in place. 
  • Our price target remains $115.


Chris Versace
Chief Investment Officer
Tematica Research, LLC

As earnings shape-up as expected, we reshape the Tematica Select List

As earnings shape-up as expected, we reshape the Tematica Select List

 

We all know that on its own earnings season is as busy a time as it gets. This time around, however, things have been complicated by a wave of merger and acquisition announcements, one of which involved our position in Connected Societycompany AT&T (T). We’ll speak to why we like the transaction and see it as very positive for our AT&T shares below. Outside those merger headlines and commentary, you’ve likely read or seen that as we get further and further into the current earnings season, we are seeing a growing number of disappointments. We’d like to say we’re surprised, but as we’ve shared with you over the last several weeks we’ve been expecting something like this.

We’ve caught some cover fire ourselves, which led to our Special Alert yesterday in which we shed Sherwin Williams (SHW) and Whirlpool Corp. (WHR) — more on that move on page 5. We’ll continue to look for thematic opportunities at better prices in the days and weeks ahead. Now let’s tackle all of what’s already transpired this week…
This week’s issue of Tematica Investing includes:

  • Earnings season for the September quarter is heating up, and it’s as we expected with more than a few disappointments.
  • Over the weekend, Connected Society AT&T (T) announced it would acquire Content is King contender Time Warner (TWX). Despite what appears to be headline resistance to the deal, we like the strategic positioning and rationale that is bringing these two companies together.
  • Following disappointing results for the September quarter with more of the same signaled for the current quarter, we’ve cut both Sherwin Williams (SHW) and Whirlpool Corp. (WHR) from the Tematica Investing Select List.
  • With operating profit expectations reset at Under Armour (UA), we’ve reduced our price target on the shares to $40 from $55. After the sharp drop in the shares due to that expectation reset, our revised target offers 22 percent upside, which has us keeping it on the Tematica Investing Select List with a Buy rating.

You can click below to download the full report.
downalod-pdf

Chris Versace
Chief Investment Officer
Tematica Research, LLC

Special Alert: Removing SHW, WHR shares and adjusting UA target price

Special Alert: Removing SHW, WHR shares and adjusting UA target price

This morning was one of our less fun ones given earnings reports from Sherwin Williams (SHW), Whirlpool Corp. (WHR) and Under Armour (UA). Given those results and impact on the respective share prices, we are issuing this special alert rather than waiting until tomorrow for the next regular issue of Tematica Investing.

Quickly, here is the actions we are making, with our explanation further down:

  • After you get this alert we will close out the shares of both Sherwin Williams (SHW) and Whirlpool Corp. (WHR), removing them from the Tematica Investing Select List.
  • We are cutting our price target on UA shares to $40 from $55, but we are still keeping our Buy rating on the shares. 

 

So what did we learn this morning that is driving this action?

 

We are removing both Sherwin Williams and Whirlpool shares from the Tematica Investing Select List given the combination of weaker than expected September quarter results and downside guidance for the balance of 2016. Included in the reset outlook are weaker than expected revenue growth that will translate into reduced EPS expectations near-term. The share reaction in the shares — SHW down more than 9 percent and WHR down over 10 percent — mean the shares are likely to remain range bound if not fall further as Wall Street recasts its earnings expectations for the coming quarters.

While we could be patient with the shares, we suspect there will be other better-positioned opportunities to come rather than endure a potentially slow craw to our breakeven points with these two positions.

Turning to Under Armour, this morning Under Armour reported better than expected September quarter results and re-affirmed its 2016 revenue forecast. For the quarter UA delivered EPS of $0.29 per share on revenue of $1.47 billion vs. expectations of $0.25 per share in earnings on revenue of $1.45 billion. Ticking through the company’s earnings report reveals double-digit growth across all revenue categories (wholesale, direct to consumer, North America, International, apparel, footwear and accessories), with total revenue up 22.5% on a year-over-year basis.

So why are UA shares down? 

On the earnings conference call, UA management shared it will step up the level of investment to drive growth and it will weigh on margins and bottom line performance over the coming several quarters. Even though UA reiterated its 2018 revenue target of $7.5 billion, this increased level of investment in most aspects of the company’s business to achieve its revenue targets means resetting margin and EPS expectations.

As such, UA backed away from its 2018 operating income target of $800 million, and while it did not offer a specific revision, it painted the picture of mid-teens operating income growth over the next two years, which suggests operating income more like $580-600 million by 2018 compared to $440-$445 million this year. Compounding these investments is the likely prospect that gross margins improvement will be the continued expansion of the company’s footwear margins, which are in the low-to-mid 30% range today.

Ahead of the company’s earnings call, UA shares were up 2% on the better than expected September quarter results. During the call, however, as we and other investors digested the updated guidance the shares dropped more than 14% pre-market. What we are seeing is a major reset in expectations for both the company’s financial performance and the corresponding valuation for its shares. That reset, which paints 2018 earnings more like $0.75-$0.80 than the current $1.00 per share consensus, has us cutting our price target on UA shares to $40 from $55.

After adjusting for the sharp falloff in UA shares this morning, which is likely to be overdone in the short-term as Wall Street revises its earnings and price target expectations as we have done, our revised price target offers 23% upside. As such we will continue to keep a Buy rating on UA shares.

We expect UA will be in the penalty box with investors, a position that takes a company time to work its way out of. The silver lining is that while its growth rate has been reset, UA is still poised to continue to grow its revenue and operating income in the coming quarters as its initiatives take hold. As the shares settle out in the coming days and cool off from today’s news, and we would look to be opportunistic.

We’ll have more for you tomorrow in your regularly scheduled Tematica Investing!

Chris Versace
Chief Investment Officer
Tematica Research, LLC

Anyone else smell something?

Anyone else smell something?

The smell we’re talking about is not the market — although frankly, we are finally seeing suspicions over the state of the global economy are finally catching up with revenue and earnings expectations.

No, the smell we’re talking about comes in the form of International Flavors & Fragrances (IFF), which we are adding to the Tematica Select Investment List today. We like the company’s flavors and fragrances business, which touches so many facets of daily life in both developed economies and, increasingly, in emerging markets. We also like management’s rising dividend policy, with an annualized $2.24 per share this year, up from $1.00 per share in 2010.
This week’s issue of Tematica Investing includes:

  • We are heading into the thick of earnings season this week and as expected it’s looking rather spotty with some upside surprises and a growing number of disappointments. We’ll continue to be cautious, looking for opportunities to either scale into existing positions or add new ones.
  • We are promoting shares of International Flavors & Fragrances (IFF) to the Tematica Investing Select List with a $145 price target. We will hold off setting a protective stop loss as we move deeper into September quarter earnings, preferring to improve our cost basis should the opportunity present itself.
  • To make room for IFF shares, we are closing out our position in the Consumer Discretionary SPDR ETF (XLY).
  • Updates – We’ve got a ton of them this week, including Amazon (AMZN), Costco Wholesale (COST), Under Armour (UA), Universal Display (OLED) and several others.

You can click below to download the full report.
downalod-pdf

 

With Earnings Cracks Appearing in Market, We’ll Stay on the Sidelines

With Earnings Cracks Appearing in Market, We’ll Stay on the Sidelines

UPDATE: 11:00am Wednesday October 12, 2016

Earlier today, we sent out our weekly issue of Tematica Investing. (The original post is below).

We always love hearing from our subscribers when they tell us how much they enjoy Tematica Investing not only for its insightful investing thoughts and recommendations but because we try to keep it fun as well.

Believe it or not, we also like it when a subscriber drops us a line to point out something we missed — sometimes it’s a more than useful data point and sometimes it’s pointing out that a position was stopped out.

The latter happened today thanks to one of our loyal subscribers reminded us that AT&T (T) shares crossed through our $39 stop loss on Monday, which closed out the position with an 18 percent return. 

The bittersweet issue, however, is we were stopped out on the very day when owning the shares at the end of the day qualified us for the next $0.48 per share dividend payment on November 1.

If you didn’t set the price limit — well, then I guess it’s one of those cases like back in elementary school when you didn’t do your homework, but end up having a substitute teacher anyway. You live to see another day.

Here’s the thing…

Over the last several weeks, AT&T shares have drifted lower falling more than 10 percent in the process. We continue to like the company’s sticky and inelastic mobile business as well as its enviable dividend yield that currently sits just under 5 percent as it continues to invest in its soon to be released DirectTV Now video streaming service. In our view, that service puts AT&T in a much firmer competitive stance to battle Comcast (CMCSA) and Verizon (VZ).

Moreover, on the back of several negative earnings pre-announcements from Honeywell (HON), Dover Corp. (DOV), Illumina (ILMN) and Fortinet (FTNT) and Alcoa’s (AA) revenue shortfall and revised lower outlook, we are using the current weakness in AT&T shares to scale back into what we see as safer harbor as earnings season kicks into gear.

Our price target on the shares remains $44. We are holding off issuing a protective stop loss as we will use market volatility this earnings season to improve our cost basis should the opportunity arise.

I apologize for the confusion on this, and more importantly for the implications on returns.  But my stance is, and will always be, that we own up to our mistakes and set the record straight.

Thank you for your business, and let us know if you have any questions.

Chris Versace
Chief Investment Officer
Tematica Research, LLC

ORIGINAL POST: 10:00am Wednesday October 12, 2016

Well, how many more ways can we talk about the disparity between market valuations and earnings reality?

As is so often the case, a picture is worth 1,000 words (In our case, probably 25,000 words) and today the following image floated across our Twitter feed, which pretty much summed it all up:

beergoggles

Thanks to Danielle DiMartino Booth (@DiMartinoBooth ) for sharing it, and you can read more in her post on LinkedIn by clicking here.

 

This week’s issue of Tematica Investing includes:

  • A tough week of negative earnings pre-announcements for the stock market so far, we dig into which companies are finally coming to grips with reality and what it means for our investment themes and holdings.  Read More >>
  • With September quarter earnings just getting started, we are inclined to keep our inverse ETF positions intact to hedge against what we see as a volatile market ahead. Read More >>
  • To get ready for the earnings onslaught, we’re publishing the earnings calendar over the next few weeks for the Tematica Investing Select List to give you a heads-up as to which firms are announcing when. See Calendar >> 
  • Updates, Updates, Updates — AT&T (T), Costco Wholesale (COST), Sherwin Williams (SHW) and Universal Display (OLED)

 

You can click below to download the full report.
downalod-pdf

 

When the market presents opportunity, we take it

When the market presents opportunity, we take it

To be successful in the markets, you often have to maintain the perspective that NFL commentators and analysts talk about on Sunday afternoons:  “take what the defense is giving you.”As we’ve turned the page from September and the third quarter of the year, there are certainly ample obstacles ahead: the presidential election, OPEC production, any potential move on Fed rates, aggressive earnings expectations — just to name a few.
It means we will continue to be prudent with the Tematica Investing Select List as we see to maximize returns ahead while minimizing risk. And if there was an underlying theme to this week’s issue — not an investing theme, but a theme in its truest sense — it would be “opportunity”.  Opportunity to shore up a few things ahead of the third quarter earnings storm that comes at us in full gale next week, and opportunity to make a key addition.

This week’s issue of Tematica Investing includes:

Taking another run at this Cash-strapped Consumer thematic position

Taking another run at this Cash-strapped Consumer thematic position

Including today, there are just three trading sessions left for the week, for the month of September and for the third quarter of 2016 — that will make for a neat and tidy wrap-up to things come Friday evening!

Last week, of course, we had the Fed standing firm with interest rates, which the market gladly welcomed with open arms. Then this week, the headlines have been dominated by Monday’s presidential debate, which according to Nielsen, averaged 84 million TV viewers — the most in the history of the debates. Add in the many millions who likely watched it via live streams on the web and you get a pretty hefty number.

Who won the debate?

That’s not a call for us to make. To some extent America won with so many people at least engaged in the process. We could question the motivations of many for tuning in — and frankly if America is really winning at all with this election — but at the very least an informed electorate is a better electorate and that is a good thing.

The reality is, it is going to be a close election, which means the markets will likely continue to move sideways until after the votes are tallied in November and Wall Street and the boardrooms across the country have a better handle on what the landscape will be for the next four years.

That doesn’t mean we’re standing still. 

This week’s issue of Tematica Investing includes:

  • HEADING BACK TO THE WAREHOUSE: After being stopped out of our position in Costco (COST) earlier in the year, we’re taking another run at this Cash-strapped Consumer play, adding it back onto the Tematica Select List. Read More >>
  • THERE IS SUCH A THING AS A BAD WIN: Nike posted results last night, and while results beat EPS expectations, it wasn’t a pretty win. The market reacted immediately, both when results were posted, and then again after the company earnings call. We have a plan for what we’re going to do with our position in this Rise & Fall of the Middle-Class position. Read More >>
  • END OF THE QUARTER MEANS OUR WORKLOAD RAMPS UP: while things don’t pick-up full bore until next week, the flow of earnings announcements have already started. We’re getting prepped for CalAmp’searnings, while also covering updates on SHW, WHR, T and DY. And lastly, in the quiet before the storm, we dig into one of the names on our Contender List that could soon be coming off the bench, Universal Display (OLED). Read More >>

 

You can click below to download the full report.

downalod-pdf