Oct. 16, 2013, 3:21 PM
- It's a good year for large-cap core mutual funds, with 46% beating the S&P 500 vs. a 10-year average of just 36%, according to Goldman Sachs.
- The study finds most are overweight health care (XLV), which not coincidentally happens to be the best-performing sector this year, up 30%.
- The funds are most underweight utilities (XLU), which just happen to be the second worst-performing sector YTD, up 10%. Only telecoms have done worse.
- Chasing performance? May be, but the team finds the funds have tended to be present in the good performers for the last 12 months, and have retreated from discretionary stocks (XLY) of late despite their outperformance.
- Individual names? CVS Caremark (CVS), JPMorgan (JPM), and Cisco (CSCO) are the stocks liked the most vs. the benchmark.
- Health care ETFs: XLV, XHE, VHT, FXH, IHF, IHI, IYH, PTH, RYH, PSCH, RXL, RXD, XHS.
- Utility ETFs: IDU, PUI, XLU, VPU, RYU, FXU, PSCU, UPW, SDP, UTLT.
Oct. 9, 2013, 6:50 PM
- Scores of companies in nearly 200 public filings have cautioned investors that their businesses could suffer from the government shutdown, now in its ninth day.
- J.C. Penney (JCP), Wolverine World Wide (WWW) and Humana (HUM), for example, all warned this week of potential bottom-line consequences of federal furloughs and agency closures; corporate M&A plans also appear to be on hold as executives await a return to normal.
- Every week the government is closed trims economic output by ~$1.6B, or 0.16 percentage point for the quarter, according to research firm IHS, and "if the shutdown drags on, the effects will start to add up."
- The last fight, in 1995-96, impacted consumer confidence; with the year-end shopping season approaching, that's critical, especially for retailers.
- ETFs: RTH, PMR, XRT, RETL, XLP, VDC, FXG, IYK, PSL, RHS, PSCC, UGE, SZK, XLY, VCR, FXD, IYC, PEZ, RCD, PSCD, UCC, SCC.
Oct. 3, 2013, 2:55 AM
- The National Retail Federation expects sales during the November-December holiday shopping period to increase 3.9% to $602.1B, with growth accelerating from 3.5% last year. However, says the NRF, a prolonged government shutdown could hurt consumer sentiment and harm sales.
- Retail ETFs: RTH, PMR, XRT, RETL, XLP, VDC, FXG, IYK, PSL, RHS, PSCC, UGE, SZK, XLY, VCR, FXD, IYC, PEZ, RCD, PSCD, UCC, SCC.
- Boeing (BA) has warned that deliveries of some jets could be postponed, as the FAA officials who need to approve the planes before they're handed over to customers have been furloughed. Airbus has already delayed the delivery of an A321 to JetBlue.
- The closure is hurting small businesses that rely on federal agencies to operate or that were trying to secure government-backed loans.
- How the shutdown is affecting United Technologies and USEC.
Oct. 2, 2013, 10:25 AM
- The restaurant sector is proving to be more sensitive than most to the developments with the government shutdown and the potential impact to the U.S. economy.
- Analysts already saw restaurant traffic under pressure during Q4, but an extended government shutdown could take estimates even lower.
- Leading decliners: Brinker International (EAT) -2.4%, McDonald's (MCD) -2.0%, Cracker Barrel (CBRL) -1.9%, Yum Brands (YUM) -1.7%, Bob Evans Farms (BOBE) -1.6%.
- Related ETFs: PBJ, XLY.
Aug. 17, 2013, 9:02 AM
- The market's more richly valued than you think, writes Jack Hough in Barron's, as Q4 S&P 500 (SPY) earnings are expected to rise 10.5% on just a 0.6% increase in revenue. "Where's that margin growth going to come from," asks S&P's Howard Silverblatt. "Most of us aren't exactly napping on the job as it is."
- Avoid sectors particularly prone to estimates cuts like consumer discretionary (XLY) and telecom (IYZ), suggests Hough, but favor safer groups like tech (XLK, though Cisco last week calls "safe" into question) and health care (XLV).
- A stock screen scoring companies by free cash yield as well as ability to still boost margins yields 5 top picks:
- Pfizer (PFE) trades inline with a slow-grower like Merck (MRK) but maybe deserves a multiple closer to a fast-grower like Bristol-Myers Squibb (BMY).
- Danaher (DHR) - it trades at what seems like a pricey 18x earnings, but just 15x projected free cash.
- Lear (LEA) at 10x earnings is growing faster than the auto market as a whole as it picks up market share and electrical content in cars is rising.
- Oracle (ORCL) and Qualcomm (QCOM) have both seen earnings growing faster than their share price of late, leaving them attractively priced.
- The screen also yielded 3 to avoid:
- Tiffany (TIF) at 20x earnings is pricing in faster earnings growth in 2014. Praxair (PX) expectations are for a near-doubling in earnings growth to 13%. Lennar (LEN) with 32% projected earnings growth remains pricey even as the housing recovery appears to be slowing.
Aug. 15, 2013, 2:08 PM
- Merrill Lynch analyst Savita Subramanian cut consumer discretionary stocks to Underperform on her view the sector is greatly overvalued. Margins are stretched to the limit and rising interest rates are creating some savers out of spenders, she notes.
- Warnings signs of a cautious stance by U.S. consumers have been popping over the last weeks from teenage retailers to restaurants, but the unexpected strength in the automobile market has largely muted the argument. It took Wal-Mart dipping into negative comp sales growth to swing the pendulum on Wall Street in force.
- Related discretionary stocks: HD, LOW, JCI, CMCSA, MCD, PCLN, TJX, VFC.
- Related ETFs: XLY, VCR, PEZ.
Jul. 25, 2013, 2:06 PMConsumer stocks - both staples (XLP, FXG, VDC) and discretionary (XLY, VCR, PEZ) - have valuations that look stretched out, warns Ronald Thomas. The analyst exudes caution after taking a pulse on the economy and checking in on Treasury yields. To buy the sector now is a bet on 4% GDP, according to Thomas, or put another way - "the Fed's Kool-Aid does not justify valuations." | 1 Comment
Jul. 17, 2013, 9:11 AMAfter a major run and with valuations at the highest in years, is it time for consumer discretionary stocks to pull back. The XLY is up 25% YTD, 700 bps ahead of the S&P 500. "We're still positive ... (but) we have to be a lot more selective," says JPMorgan U.S. equity strategy chief Steven Rees. The sector trades at 17.5x earnings vs. a 10-year average of 16.3x and the S&P at 14.2x. "The good news has been priced in," says Jerry Braakman, CIO of First American Trust.
Jun. 26, 2013, 10:40 AM43 out of 45 global markets are oversold, according to BAML's "Breadth Buy" indicator. These extreme signals tend to be followed by a short-term 6-7% bounce, but, cautions chief investment strategist Michael Hartnett, a sustained rally would require a shift in policy behavior. What's more, the 2 markets not in oversold territory are the U.S. (SPY) and Japan (EWJ, DXJ) and they're kind of important. Most oversold: Brazil (EWZ), Turkey (TUR), South Africa (EZA), Mexico (EWW), Materials (XLB), China (FXI, CAF). Least oversold (in addition to the U.S. and Japan): Health Care (XLV, IYH), and Consumer Discretionary (XLY). | Comment!
Jun. 25, 2013, 10:43 AM
Jun. 8, 2013, 4:38 PMThe percentage of the stock market now owned by hedge funds (5%) is the highest since Q2 2008, BofA Merrill Lynch finds in its Hedge Fund Quarterly Report. Hedge funds reduced cash holdings to the Q2 2007 trough of 4.3%, and raised net equity exposure to the Q2 2007 peak of 59%. Their largest exposure is to consumer discretionary stocks (XLY) followed by IT (XLK) and financials (XLF). | 23 Comments
May 6, 2013, 7:27 AMThe S&P 500 (SPY) is fairly valued, says Goldman, but opportunity lies in cyclicals (XLY, XLE, XLI, XLB) which are more undervalued vs. defensives (XLU, XLP, XLV, XTL) than at any time in the last 15 years. "Given the 4 P/E multiple point head start, even a slight valuation normalization should translate into outperformance of cyclicals over defensives during the next 12 months." | 1 Comment
May 3, 2013, 8:00 AM"We don't want to sell in May and we continue to prefer cyclicals (XLY, XLI, XLB, XLE) ," says JPMorgan's Tom Lee, fully returned to his normal bullish stance. He notes client positioning is "dramatically different" from the heavily long stance of the last 3 years at this time. More, the downturn in gasoline prices could ad 50 bps to GDP in Q2, and the rally in high-yield suggests the economy is set to get stronger. | 1 Comment
Apr. 29, 2013, 7:23 AMConsumer spending watch: Gas prices are down 28% since February's peak and analysts see another 20% drop coming up in the next few months. A rough estimate of the impact of lower gas prices on consumer spending is that a dime drop translates into $13B back into the wallets of consumers. Companies that could see a boost from the trend include Wal-Mart (WMT), Target (TGT), and Costco (COST) - while ETFs such as Consumer Discretionary Select Sector SPDR (XLY), Vanguard Consumer Discretionary (VCR), PowerShares Dynamic Consumer Discretionary (PEZ), and Market Vectors Retail (RTH) could also benefit. | 3 Comments
Apr. 18, 2013, 3:14 PMThe bear market in a gold is a signal China, emerging markets, and commodities (DBC) in general are through leading the markets, argues BAML, which reminds the peak for the metal occurred nearly 2 years ago. "In all scenarios, it's good for the U.S. dollar (UUP)." Looking back at 9 other sharp declines in gold since 1975, the team finds equities rally, led by consumer (XLP, XLY) and energy stocks (XLE) once the metal stabilizes. | 1 Comment
Apr. 8, 2013, 2:17 PM
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