Daily Archives: December 7, 2018

Market Preview

Market Preview: Markets Take Another Beating on Trade Fears

Markets finished the first week of December on more of a Grinch footing than in a hoped for Santa Claus rally. Suffering another beating across the board, all the major indices finished in the red with the DJIA down 2.24%, the S&P 500 off 2.33%, and the Nasdaq faltering 3.05%. The arrest of Huawei CFO Meng Wanzhou, who is also the daughter of the Chinese company’s founder, threw a wrench into U.S./China trade negotiations. Ms. Meng, CFO of one of China’s largest companies, has been charged with fraud in misleading U.S. banks regarding transactions executed by them on Huawei’s behalf. The transactions were in direct violation of U.S. sanctions on Iran. The surprise arrest, as Ms. Meng changed planes in Canada, throws into turmoil yet again talks on trade tariffs between the two superpowers. It did not help markets when early Friday separate high level White House representatives, both involved in the trade talks, gave opposite views on what the 90 day freeze on tariffs means to the overall negotiations. It appears investors are in for a rocky ride into 2019 as the trade issue seems to become murkier by the day.  

Monday will bring earnings from Casey’s General Stores (CASY) and Stitch Fix (SFIX). Casey’s has missed earnings estimates 6 of the last 8 quarters, and the market is in an unforgiving mood for companies that miss estimates lately. Positive results last quarter, as reported by CEO Terry Handley, were driven by higher fuel margins, operating 105 more stores and cutting employee hours worked. As the company grows analysts will be looking for a stabilization of operating margins which have been in a steady decline since 2016. Stitch Fix will be looking to redeem itself after an early October earnings report that basically cut the stock in half over the next few trading sessions. While sales and active customer growth metrics both increased by over 20% last quarter, expectations were for much higher numbers. Though the company grew profit margins in the quarter, investors were more concerned with the active customer growth rate. Analysts will again be focusing more on customer growth than earnings when the company reports Monday.

The Labor Department will release the JOLTS numbers, which track job openings and offer rates on Monday. With somewhat weaker than expected job numbers on Friday, the JOLTS number will take on added emphasis. Scheduled for a 12:30pm release Monday is the TD Ameritrade Investor Movement Index. The index measures investor sentiment by looking at what activity retail investors are engaging in within their brokerage accounts. The report will be especially telling this time around given the extreme volatility in the market the past few weeks. Tuesday we’ll see small business optimism data, PPI, and Redbook retail data. Mortgage application data, CPI, and Atlanta Fed business inflation expectations will all be released on Wednesday. Inflation expectations, which came in at 2.2% year-over-year last month, may be falling as growth is expected to slow. Thursday investors will see the release of jobless claims, import and export prices, and the EIA natural gas report. We’ll close out the week Friday with industrial production numbers, retail sales, PMI composite flash numbers, and business inventories. Manufacturing is expected to pick up an additional .3% month-over-month.

American Eagle Outfitters (AEO), Dave and Buster’s (PLAY) and DSW, Inc. (DSW) will give us a feel for the retail market when they report earnings on Tuesday. DSW broke through support levels Friday reaching prices it has not seen since June. Wednesday Nordson Corp. (NDSN), Tailored Brands (TLRD) and Oxford Industries (OXM) will take the earnings stage. Thursday, heavy-hitters Adobe (ADBE), Costco (COST) and Cienna (CIEN) will take the center ring. Adobe has rewarded investors handsomely this year, up around 40% even after the recent pullback in the stock. Lee Enterprises (LEE) is scheduled to close out the earnings week on Friday.

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Uncategorized

Pay No Commissions When Loading Up on These 3 Stocks

I like to get a sense of what is going on in global markets to help me guide you through a path to profits.

And there is one item that caught my eye that I’m sure isn’t being reported by media outlets, such as CNBC. That is, after powering ahead of global rivals for much of the summer, the U.S. stock market has been struggling to continue outperforming since the peak in late September. The chart below illustrates that point.

Other markets, which have been beaten down, are starting to outperform. For example, in November, the Hang Seng index in Hong Kong soared by 6.1%. Such a rebound is not surprising when you consider the battering it took because of the U.S.-China trade war.

The recent relative outperformance of some foreign markets had me thinking again about those foreign stocks you can buy in the U.S. in the form of an ADR (American Depository Receipt) and how you can buy some of these through the Robinhood brokerage firm for zero commission!

Robinhood Revisited

Robinhood is still growing rapidly. It added about 3 million accounts over the past year, bringing its total number of customers to 5 million, which is more than twice the big three incumbent discount brokerage firms combined. And it remains the only venue that offers trading on stocks, options and cryptocurrencies all in one place.

I first told you about it adding ADRs back in September. At that time, Robinhood announced it was adding about 250 ADRs from Japan, China, Germany, the U.K. and elsewhere. ADRs of companies from France will be added in the coming months. A quick definition of ADRs is that they are stocks of foreign companies that trade and settle in the U.S. market in dollars, allowing investors to avoid having to transact in a foreign currency.

Robinhood co-founder and CEO Vlad Teney told CNBC at the time, “We looked at what customers were searching for and not getting. It [adding ADRs] allows customers to get some exposure outside of the U.S.”

The company found its users wanted access to global stocks by looking at its own search data. Robinhood’s staff has access to what people are typing into the app’s search and looking to trade. Names such as Nintendo, Adidas, BMW and Heineken continued to pop up. The company used similar reasoning in February when it decided to add cryptocurrency trading after users repeatedly searched for bitcoin.

As someone that owns a good number of foreign stocks personally, this was fantastic news. This move made investing in overseas blue chip stocks easy, safe, and cost-efficient. While there are hundreds of quality foreign companies to choose from on Robinhood’s platform, let me briefly highlight for you three of them…

Nintendo

If you have children, you no doubt have heard of the Japanese gaming company Nintendo (OTC: NTDOY). It is doing well and recently announced its best quarterly results in eight years! It reported operating profits of ¥30.9 billion ($27.2 million) for the July to September quarter, up 30% on the same period a year earlier.

Its recent success has been due in large part to the popularity of its Switch console. Nintendo said that over the April to September half it had sold 5.07 million units of the Switch console, adding that it would maintain its full-year sales target of 20 million units by the end of the financial year ending March 31, 2019.

And despite a visibly slower pipeline of blockbuster titles this year, sales of Switch games reached 42 million in the April to September period, almost double what was sold in the first half of the company’s previous fiscal year. And its next blockbuster – Super Smash Bros Ultimate – is only being released on December 7. Despite this, the highest ranked title in Amazon’s list of the best-selling games of 2018 is Super Smash Bros. That suggests there have been a lot of pre-orders and that means it could be a record-breaking hit.

With the games industry tilting towards the huge Asian market – UBS expects gaming revenues in Asia to grow 9.5% annually to $200 billion in 2030 – Nintendo seems well-positioned.

Naspers

One company that many U.S. investors have never heard of is South Africa’s Naspers (OTC: NSPNY). Yet, it is perhaps the savviest venture capital investor in the world. It is best known for taking a major stake in China’s tech giant Tencent (OTC: TCEHY) back in 2001 for a mere $31 million. That stake grew in value to $175 billion earlier this year!

If there is one thing I love as an investor, it is buying something on the cheap. And Naspers is that. The entire current valuation of Naspers is valued at about $25 billion less than just its stake in Tencent! And all its other investments in technology companies around the emerging world are valued at nothing – you’re getting them all for free!

It comes down to the same old Wall Street bugaboo – its analysts are either too lazy or not smart enough to understand Naspers business. Its business is very successful, posting a 39% rise in half-year earnings. The earnings of $1.7 billion in the six months ended in September were driven by Naspers’ classifieds business becoming profitable as well as Tencent generating stronger profits. The company touts a 22% internal rate of return on non-Tencent investments since 2008, including a stake in Flipkart of India which was sold to Walmart earlier this year.

Africa’s largest company has begun to tackle the steep discount in its share price to its net asset value. As part of tackling the discount, this year Naspers announced plans to spin off its African pay-TV arm and it did raise $10 billion from selling off some of its Tencent shares, reducing its stake to 31%.

I look forward to its spinoff of its very successful pay-TV arm Multichoice, which is Africa’s Netflix and more. Its services include sports broadcasting and South Africa’s Dstv, reaches 13.5 million households on the continent and generated profits of 6.1 billion rand ($409 million) during its latest fiscal year.

Nestlé

For more conservative investors, there is the world’s largest food and beverage company, Switzerland’s Nestlé (OOTC: NSRGY), which was founded as a baby food manufacturer in the 1860s. Today, Nestlé’s four priority markets are coffee, bottled water, pet food and baby food.

I suspect that someday the company will be making some large divestitures. One of these will likely be its frozen foods business, which controls a 29.6% share of the U.S. market. Another may be its consumer nutrition and consumer healthcare division.

Already, Nestlé has said it plans to spin off or sell its skin health business. In the latest streamlining measure by CEO Mark Schneider, Nestlé said it had decided the future of Nestlé Skin Health, which analysts said could be worth as much as 7 billion Swiss francs ($7 billion), laid “increasingly outside the group’s strategic scope”.

The division had sales of 2.7 billion Swiss francs last year and makes prescription items, anti-wrinkle creams and other consumer healthcare products. Nestle said it would “explore strategic options” for the business, which could include a sale, spin-off or even a stock market listing. Possible buyers could include consumer or pharmaceutical groups.

Nestlé said that the planned sale or spin-off would “sharpen its focus” on food, drinks and “nutritional health products”, led by its top brands including KitKat chocolate bars, Perrier bottled water and Purina pet food. The decision to abandon the skin health business I believe reduces still further the strategic case for Nestlé selling its 23% stake in the French cosmetics giant, L’Oreal (OTC: LRLCY).

There you go – three high-quality foreign stocks you can buy for zero commission at Robinhood.

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Dividends

7 Dividend Titans Trading Like Growth Stocks

Source: Steve Buissinne via Stock Snap

Investors are often on the lookout for a fourth-quarter swoon starting in October. Sometimes it comes to fruition and other times it does not. This year though, it most certainly has and the volatility has lasted about two months. It’s left investors fleeing growth stocks, gobbling up dividend stocks and looking for shelter.

And we may not be out of the woods yet. That’s particularly true if the trade situation with China doesn’t improve. The White house had announced a trade war cease fire after a meeting at the G-20 summit, though the exact details of the agreement are not entirely clear.

It helps that the Federal Reserve is walking back its rate-hiking outlook. Investors are feeling more comfortable that the Fed will not hike us into a recession, although skepticism remains.

Even though GDP is growing nicely, consumer spending is red hot and unemployment is low, the stocks that are outperforming are all ones we’d want to own during a recession. That’s not a great development, particularly as investors dump FANG and multiple sectors into bear market territory.

It has been an ugly showing to say the least, but can we get back on the right track? Let’s take a closer look at a few dividend stocks trading like growth stocks.

Johnson & Johnson (JNJ)

Dividend Stocks: Johnson & Johnson (JNJ)

Source: Shutterstock

Dividend Yield: 2.5%

Johnson & Johnson (NYSE:JNJ) did stumble from over $138 to $132 in early October, but it didn’t take long for investors to find comfort in this long-time dividend stalwart.

Johnson & Johnson pays out a 2.5% dividend yield, has a payout ratio below 50% and has raised its annual payout for 56 consecutive years. When the economy falls on hard times, it’s hard not to like a consistent payout like that.

With JNJ, we get a rock-solid balance sheet and a dividend we know we’ll collect. On the charts, we were buyers last week on a test of the 50-day moving average. That proved to work out well, with shares quickly bouncing from this level.

But can they work their way up and past the recent high near $148? If JNJ can’t do that, we’ll have a lower high on our hands and will have to see if uptrend support (blue line) can keep it afloat. Below $140, JNJ losses a bit of its luster.

McDonald’s (MCD)

Dividend Stocks: McDonald’s (MCD)

Source: Shutterstock

Dividend Yield: 2.5%

Some fast-food and fast-casual names have been on fire and McDonald’s (NYSE:MCD) is no exception.

Yielding a similar payout of 2.5%, McDonald’s has raised its annual payout for more than four decades. It’s another name that does well during a recession. Part of that is the dependable yield, the other is a dependable (although not necessarily healthy) burger.

Further, its stock has been dependable too. While Amazon (NASDAQ:AMZN), Netflix(NASDAQ:NFLX) and Apple (NASDAQ:AAPL) have all fallen by 20% or more from peak to trough, MCD is quietly up about 10% from the beginning of October.

It’s outperforming its peers, major market indices and most equities during the last eight weeks. This one has been on fire, clearing its previous all-time high near $175 made in January before settling back a little on the latest bout of market weakness.

The tough part with McDonald’s is, what happens if growth stocks come back to life?

So long as it’s over the 21-day moving average and uptrend support, I don’t see a reason to get too defensive. Fall below that mark though, and this play could lose some momentum. Long-term investors don’t have much to worry about, but short-term traders hiding out in this dividend stud might want to think twice if it goes below this level.

Coca-Cola (KO)

Dividend Stocks: Coca-Cola (KO)

Source: Leo Hidalgo via Flickr (Modified)

Dividend Yield: 3.2%

Coca-Cola (NYSE:KO) is another one showing signs of exhaustion. While the company has done a great job to transform itself over a multi-year effort, one has to wonder how long the show can go on.

Despite the roughly 6% rally over the last two months — tepid compared to MCD — Coca-Cola shares still yield 3.2%.

Earlier this month we suggested some covered calls for investors who are comfortable with that options strategy. As we see shares pulling back and stagnating in this upper-$40s area, that trade is playing out well.

But what do investors do now? This stock has been in a narrow trending range over the last five years. While KO did flirt with a breakout of this range, it’s still within it now. Coca-Cola has held up too well over the past two months to consider bailing on it on a whim. On a decline, look for $46 to keep big KO afloat. Above $50 and look for this one to keep on chugging.

Procter & Gamble (PG)

Dividend Stocks: Procter & Gamble (PG)

Source: Mike Mozart via Flickr (Modified)

Dividend Stocks: 3.1%

Like KO, the turnaround efforts are working for Procter & Gamble (NYSE:PG) — at least, they’re working for PG stock.

Even after accounting for a notable dip in early October, shares of Procter are still up 17% over the last eight weeks. It’s hard to complain about that kind of performance, particularly as investors continue to collect a 3.1% dividend yield.

This name has not only dished out a dividend for more than 60 years, but also raised its annual payout each year through that span. That’s incredible when you think about it.

With that said, Procter & Gamble is putting in the same lower-high look that JNJ is. Of course, that move would be negated if PG stock can soon rally to take out its highs from earlier this month. If not though, investors have to be thinking about a slight to moderate pullback.

On a decline, look to see how PG holds up near $90. This level acted as resistance back in January 2018 and December 2017. Look for it to now act as support. Further, uptrend support  is just below this mark. I wouldn’t worry too much (from a trading perspective) unless PG fell below the 50-day.

Verizon (VZ)

Dividend Stocks: Verizon (VZ)

Source: Shutterstock

Dividend Yield: 4.2%

Also a “lower high” candidate, Verizon (NYSE:VZ) is chopping around near its highs.

My gut tells me that the next few weeks could either be an acceleration higher for these dividend names or a rotation out of these stocks and back into traditional growth stocks. Which one it will be, I’m not sure. These “lower highs” show investors’ hesitation in the charts as well. Ultimately, the performance of the major indices will likely be the deciding factor.

Despite Verizon’s roughly 13% rally over the last two months, shares still yield about 4.2%. In that time, the 50-day moving average has become a pretty solid indicator of support.

Should it fail, look for a decline into the mid-$50s, down near the $56 level.

If you’re not in VZ, I would wait for this potential pullback to materialize. In the meantime, consider going long AT&T (NYSE:T). It has a much larger yield at 6.5% and has raised its dividend for 33 consecutive years (triple the length of Verizon). Plus, it just laid out a promising roadmap for its earnings and free-cash flow for 2019.

Plus, its dividend is almost never this high.

PepsiCo (PEP)

Dividend Stocks: PepsiCo (PEP)

Source: Shutterstock

Dividend Yield: 3.2%

Have I said “lower high” enough? By now I’m sure you’re getting the picture. Long-term investors shouldn’t worry about it too much, but short-term traders should consider the possible rotation ramifications here.

But as they say on Wall Street, the trend is your friend until it bends. With PepsiCo (NYSE:PEP), there has been no such bend. We were buyers during its May decline and that move has paid big dividends — no pun intended.

Holding up over the 21-day moving average and uptrend support, this 3.1% yielder has been trading incredibly well. Below these levels and we likely get a dip down to the 50-day moving average. Below that and we’ll likely see the 200-day. That said though, I don’t anticipate this chart falling apart anytime soon.

If anything, I’m looking for a breakout over this $118 to $120 range. Same with Coca-Cola? Now that’s something to ponder.

Realty Income (O)

Realty Income (O)

Dividend Yield: 4.1%

As if the first six names on this list weren’t an obvious indicator, the performance by Realty Income (NYSE:O) and other REITs is a major sign that investors are seeking high-quality income.

Why? Because even with a more hawkish Fed, investors are flocking to real estate. That’s right. The same worry that took these names down big in Q4 2017 and gave them a major hangover to start 2018 is now seemingly absent from investors’ minds.

As we worry about further rate increases, REITs like Realty Income continue to grind higher. Of course, when we zoom out it makes more sense. With rising rates comes a stronger economy and with a stronger economy comes better performance from businesses, which are the tenants to companies like O.

They don’t call O “The Monthly Dividend Company” for nothing, either. Still yielding over 4.1%, this dependable company has been depositing rising “rent” checks in investors’ pockets for more than 20 consecutive years.

Its stock price has been showing similar dependability as of late and we sure are glad we were pounding the table on this name (and two others) back in the summer. O stock is now up about 16% over the last eight weeks. Can it keep pushing?

The hope is that it can pierce through this level and hold onto at least $63 to $64 as support. Given its hot run through and with a rate hike likely looming in December, a decline down to the $60 area wouldn’t be surprising (or unhealthy).

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