Sunday, May 1, 2016

Barrons weekend summary

Barrons weekend summary; Positive on FFIV, JCP, HON; Negative on TWTR, SUNE 
Cover story: Barrons expects the Islamic State to see its power and territory greatly diminished by the end of next year following a string of territorial losses, including key cities in Iraq and Syria;

Tech Trader: Traditional tech companies such as WDC and STX are likely to continue to suffer because of the growth of cloud computing, which is displacing sales of traditional equipment and software; 

Trader: The energy sector should be less of a drag on earnings in the future, says John Amato of Neuberger Berman, but investors shouldnt chase the market at current levels until theres greater clarity on earnings; Positive FFIV: Shares of the tech company look cheap, but with favorable long-term prospects, they could rise 30% within 24 months; Positive on JCP: Struggling retailer has made big progress during the past year and remains below the markets radar, though it isnt out of the woods yet; 

Profile: Matt McLennan and Kimball Brooker of First Eagle Global Fund look for companies with hard-to-replicate businesses or assets, trading for less than what a buyer would pay for the business (top 10 holdings: gold bullion, ORCL, Comcast, MSFT, KDDI, OMC, WY, Secom, AXP, HeidelbergCement); 

Interview: Sam Isaly, chief executive of OrbiMed Advisors, talks about last summers biotech bust and M&A in the healthcare sector (picks: BMY, Ono Pharmaceutical, VRTX, LLY, ISRG, HCA); 

1) The Barrons 500 ranking of the largest publicly traded companies measured by reported sales in the latest fiscal year is topped by ABC, GILD, MO, MAR, RAI; 
2) The performance of spinoffs has begun to decline, though MSG, FRGI, and ENR are still attractive and should see gains of at least 15% during the next year; 
3) A list of the cheapest stocks in the Barrons 500, topped by GNW, SC, GM, UAL, and AAL, some of which should have upside in the coming year; 

Small Caps: Positive on HCHC: Company run by hedge-fund mogul Phil Falcone is less known than some of his bigger plays, but with a market value of just $135M it has great potential; 

Follow-Up: Negative on TWTR: Company is the poster child for tech firms that want massive stock compensation to be excluded from profit analysis; Positive on HON: As company improves its operations and profitability, investors will likely reward it with a higher price/earnings ratio; Negative on SUNE: Solar companys shareholders will likely walk away with very little following its bankruptcy reorganization, which gives creditors most of the shares of the restructured business; 

European Trader: Positive Hermes: Shares of the maker of Kelly and Birkin bags is seeing improved earnings and cash-flow growth, which could drive its shares even higher; A

sian Trader: Chinas commodities futures markets are looking like its stock markets a year ago, when hordes of investors bet huge sums, setting the stage for a painful crash; 

Emerging Markets: Russian stocks are in the midst of a rebound, but the case for the country rests on its stoic endurance in the face of the global oil crash and Western sanctions, and investors must be prepared to bail if the rally sags; 

Commodities: The coal market has been strong lately, but investors shouldnt expect the rally to last too long; 

Streetwise: U.S. investors shouldnt put too much faith in Chinas turnaround story, and the nation seems to be drowning in too much debt.

Friday, April 29, 2016

Spring Cleaning Weekly Market Update: Spring Cleaning
Fri, 29 Apr 2016 16:42 PM EST

The last groans of the dismal first quarter were heard this week, as economic data and corporate earnings showed just how weak things were in the first three months of the year. Meanwhile, both the Fed and Bank of Japan held policy meetings that delivered zero new measures and very little in the way of color on the institutions' views of the malaise. Stocks sank through the week's end, while the dollar softened notably and oil and precious metals soared. However, the prevailing view in some quarters is one of good riddance to bad rubbish, as the decks are cleared for a nice move higher as the cold spring heats up. A hint of things to come were seen in the much improved European first quarter GDP data. US Treasury prices stabilized helping yields back off of recent 5 week highs, largely on the currents coming from the equity selling pressure. For the week, the DJIA lost 1.3%, the S&P500 dropped 1.3%, and the tech laden Nasdaq slumped 2.7%.

Annualized US GDP growth in the first quarter skidded to a two-year low of +0.5%, surprising nobody as Q1 showed seasonal weakness for the third year in a row. Business investment fell sharply, which did surprise many observers. On the positive side, residential investment and personal consumption saw much stronger-than-expected gains. In any case, the weak overall number was widely expected.

The mildly more hawkish notes in the FOMC statement seemed to leave the door open for a rate hike at the June meeting, although the preponderance of its very cautious language largely remained in place. The committee removed from the statement a warning about risks from "global economic and financial developments," saying that it was now monitoring such developments. For the third time in a row, Fed officials refrained from providing guidance on the balance of risks. The statement provided a mixed picture of the economy. It emphasized the improving labor market and noting that "strong job gains" likely herald a further pickup but acknowledged that economic growth "appears to have slowed." Fed Funds futures saw the odds of a June hike fall to 12% following the GDP report from around 21% after the end of the Fed policy meeting the day earlier.

The yen's big move higher in the last week of March and the first week of April saw USD/JPY break below the key level of 110, inspiring talk that either the government or the Bank of Japan would have to do something to bolster the economy and cool off the currency. Neither side has budged this month, with the BoJ resorting to verbal intervention and the government merely hinting that the sales tax might be hiked slightly less than planned (and only then because of the Kumamoto earthquake). The yen had come off its 18-month highs in the middle of April, thanks mostly to rumors that more BoJ easing could not be avoided, with talk of the bank authorizing more asset purchases or even lending to banks at negative rates. The BoJ authorized neither at Thursday's policy meeting and kept its policy stance unchanged. Markets reacted swiftly: the yen jumped and the Nikkei index slumped. By Friday, USD/JPY was at fresh 18-month lows around 107. There was ominous economic data out this week: March Core CPI fell by 0.3% y/y, the biggest drop since the BoJ launched its easing campaign three years ago.

Inaction from both the Fed and the BoJ has reinforced the weaker dollar trend and sent the Dollar Index lower every day this week. By Friday, the index was around 93, the lowest level since last June. Also on Friday, China's PBoC set the yuan at its strongest level since the beginning of April, and the daily fixing moved up by the biggest margin since July 2005. The weaker dollar helped propel commodity prices higher, with crude pressing on to fresh six-month highs. Brent rose to $48 and WTI was above $46. Gold prices rose 4% on the week to fresh 15-month highs, while silver hit 12-month highs. Note that certain industrial metals were hammered by new regulations implemented by the Chinese to curb speculation. Iron ore prices in China fell more than 10% after China's Dalian Commodity Exchange raised trading charges, vowing a clampdown on what it termed "excessive speculation."

Europe saw contrasting, perplexing data reports on Friday. The Eurozone slipped back into deflation in April, with prices dropping 0.2% y/y (core CPI was +0.8% y/y). Germany's EU harmonized CPI figure was -0.1% y/y. Meanwhile, the first reading of Eurozone Q1 GDP was +1.6%, a bit ahead of expectations. Advance GDP readings for Q1 were also very robust in France and Spain. The euro remained strong this week, but did not manage to top the 1.1450 level seen in mid-April.

Nearly 60% of the S&P500 component companies have reported first quarter results as of Friday, and the focus has been on lower profits and slower global growth. Overall earnings for the S&P500 are expected to decline more than 6% y/y in the quarter, and are still expected to decline even when energy companies are excluded from calculations. Notable exemption from this trend with earnings out this week included tech giants Facebook and Amazon, both of which crushed expectations on excellent rates of growth. In addition, consumer goods names Ford and Whirlpool both did strikingly well, even given the broader weakness in the manufacturing space. Apple was a story all its own: Cupertino saw its first q/q decline in revenue since 2003, thanks to lagging iPhone sales in China.

Troubled pharmaceuticals firm Valeant named a new CEO, tapping former Perrigo chief Joseph Papa to replace the embattled J. Michael Pearson. The choice is somewhat odd, given that Papa and Perrigo have recently faced their own challenges since Papa helped fend off a hostile takeover by Mylan last year. At his Senate committee hearing, outgoing CEO Pearson admitted that Valeant had been too aggressive in raising prices on certain drugs. In addition, Valeant filed its long-delayed 10K and replaced most of its board. Shares of PRGO closed out the week down 20% on the week on its CEO departure and on poor preliminary Q1 guidance.

Abbott Laboratories surprised markets by announcing a totally unexpected megadeal to acquire St. Jude Medical for a total of $25 billion, or $85/share in cash and stock. Analysts say the acquisition is very positive, as the deal fills an obvious lack of cardiovascular products like pacemakers and defibrillators in Abbot's lineup. The deal came as Abbott's merger pact with Alere got closer to falling apart. Last month Alere had deferred its annual 10K filing, citing some revenue recognition troubles. There was talk Alere could be facing defaults, and this week it disclosed that Abbott pressed the company to withdraw from its merger deal. For its part, Abbott said it would be perfectly capable of handling both the St. Jude acquisition and the Alere issue without problems. Shares of both ALR and ABT were down about 10% on the week.

Saturday, April 23, 2016

Barrons weekend summary

Barrons weekend summary: positive on MAR, MHK, TYL; cautious on AFSI 
Cover story: Barron's Big Money poll found that 38% of money managers are bullish or very bullish about the prospects for stocks in the coming months, down from 55% in last fall's survey and 45% last spring; most managers see only a modest rise in stock prices in the year ahead, with the potential for dramatic, if temporary, setbacks. 

1) Positive on MAR: Tie-up with HOT offers financial and strategic benefits, and could generate annual cost savings of about $250M; the deal will broaden Marriott's reach with the loyal customers who constitute 50% of its volume, and shares could rise 30% during the next 18 months; 
2) Positive on MHK: Amid a healthy housing sector, company-the top flooring business in the U.S.-should get a boost, and shares could rise 20% or more during the next year; 
3) Positive on TYL: Little-known Texas-based software firm sells to local governments and has a reliable revenue stream, and a recent pullback is a good opportunity for investors; 
4) Cautious on AFSI: Investors have largely ignored concerns about insurance company's accounting and the adequacy of its reserves, but even with a recent drop they should move carefully. 

Trader: Wall Street is still debating whether the market is overvalued or fairly valued, says Malcolm Polley of Stewart Capital Advisors, who says it's definitely not undervalued; James Paulsen of Wells Fargo Capital Management says defensive stocks have been giving way; Positive on FMC: Cyclical, short-term problems have hammered the midsize chemicals firm, but its shares now look undervalued by as much as 50%; Positive on ARRS: Shares of broadband equipment and cable-box maker are down amid skepticism about the effect of potential changes in FCC rules, but they're cheap at a recent $22. 

Interview: Ron Baron of Baron Capital, a growth investment firm with $23B in 13 funds overseen by 10 managers, seeks companies with competitive advantage and good management (picks: H, INOV, TSLA, MANU). 

Alternative Investments: Profile of Randy Swan of Swan Global Investments, who stays invested in the S&P 500 but uses long-term index put options to protect the portfolio against declines, with the biggest benefits seen during drops of 20% or more. 

Small Caps: Cautious on CKEC: Amid a shareholder dispute about the proposed AMC takeover, investors might want to book some profits but hold onto the majority of their shares on the chance of a sweetened offer; Cautious on CFX: Shares are up 60% since January, but there may not be much room for improvement during the next year, and they look ripe for profit-taking. 

Follow-Up: SHW: Paint company has excellent growth prospects, especially because of its acquisition of VAL, but shares are close to being overvalued, investors seeking access to the housing sector might be better off with MHK; Cautious on HCA: Hospital company has strong free cash flow and a good balance sheet, but amid a turbulent political landscape, "taking profits now and buying on the next dip could be the healthiest move." 

European Trader: Positive on HSBC, BCS, BNP Paribas, Societe Generale: Stocks of European banks may be risky, but their subordinated debt could be a good investment, offering yields between 5.5% and 10%. 

Asian Trader: Cautious on ATHM: Investors in the U.S.-listed Chinese company, a provider of online ad services for car makers and dealers, could take a hit if a management buyout goes through. 

Emerging Markets: With its political turmoil and ongoing battle against deadly terrorism, Pakistan may seem like a country to avoid, but it has a long-term growth story, with an economy expanding 4.5% annually. 

Commodities: Drivers this summer will find diesel to be cheaper than gasoline at the pump; each fuel has its own supply-demand picture, with divergent outlooks heading into summer. 

Streetwise: "For contrarians, knowing what other investors don't own can be just as important as knowing what they do own"; A list of "fading stars" kept by Lori Calvasina of CS includes CMG, M, WFM, and BIIB-though the latter could be on the upswing.

Friday, April 22, 2016

Focus on Fundamentals Weekly Market Update: Focus on Fundamentals
Fri, 22 Apr 2016 16:08 PM EST

The S&P500 pushed out to four-month highs intraday on Wednesday, putting them within points of all-time highs. Crude prices did not plummet after the OPEC/non-OPEC production freeze talks disappointed in Doha, helping to hold up broader indices. Interest rates in Europe and the US have quietly backed up to their highest levels in almost a month suggesting money is finding its way out of sovereign bond markets and buoying equity valuations as well. Friday saw a soft April US Markit PMI manufacturing reading weigh on sentiment, and along with renewed skittishness about global central bank policies and a round of particularly weak US earnings reports took things lower. For the week, the DJIA gained 0.6%, the S&P500 added 0.5%, while the Nasdaq fell 0.6%.

Boston Fed President Rosengren offered a fairly hawkish outlook for US policy, stating that the Fed funds rate may rise faster than markets currently expect. He noted that the March jobs data portends a higher GDP rate, with growth running slightly over potential. He also said that jobless rate would drift down and that the core inflation rate is much closer to the 2% target, noting there is a cost if US monetary policy is not aggressive enough.

The Shanghai Composite saw a steep midweek swoon on as Xinhua speculated that the PBoC could shift to a more prudent monetary policy stance this year, presumably backtracking from a "slight easing bias" that recently lifted expectations of more policy easing. On Wednesday, the Shanghai Composite dropped to a three-week low on the reports, as well as a speech by PBoC Chief Economist Ma Jun, who called on the government to restrain lending and prevent company leverage ratios from overheating.

Politics got in the way of economics at the OPEC/non-OPEC oil producers meeting last weekend in Doha. Tensions between Saudi Arabia and Iran derailed the talks and the confab failed to produce an oil output freeze. Crude prices dropped 5% ahead of the open of trade on Monday, however the losses were very short lived, and both Brent and WTI pushed out to fresh YTD highs midweek and closed out the week higher than they were ahead of Doha. WTI hit highs of $44.50 and closed the week just shy of $44, while Brent peaked above $46 and exited Friday around $45. A three-day oil worker strike in Kuwait shut that nation's output briefly, providing some support midweek, and reports circulated that there could be an emergency OPEC meeting in May, ahead of the scheduled June OPEC gathering. Another factor lending support: China's crude imports in March were the second-highest on record, up 21.6% y/y to around 7.7 million bpd, due in part to strong demand from government stockpiling.

The yen has moved strongly off the 21-month highs against the dollar seen in the first half of April as officials in Tokyo worked hard to talk down the currency. USD/JPY came into the week around 108, and by Friday the pair had pushed above 111, with a big part of that move following reports BoJ officials are considering lending to banks at negative rates. These reports stoked speculation that the bank will implement more easing measures when it meets next week and updates its projections for growth and inflation. Economic data out of Japan released this week would certainly justify a more proactive approach, as preliminary manufacturing PMI for April plunged to a three-year low, and the output, new orders, export orders, and input prices all decreased at a faster rate, implying lower global demand and persistent deflationary pressures. In addition, deadly earthquakes rocked Japan over the weekend, and initial damage estimates suggest there could be a non-trivial impact on annual GDP. The impact was enough to raise suggestions the events could justify a delay or reduction in the sales tax hike planned for next spring.

The campaign to keep the UK in the European Union saw a boost in support, according to polls out this week. The latest ORB poll for the Daily Telegraph reflected the overall trend this week, with the stay camp taking 52% of the vote and the leave camp with only 43%, a decrease of five points since the previous ORB poll in early April. Cable tested three-week highs as several better poll results for the stay vote were published this week, with GBP/USD popping above 1.4400 a few times over the course of the week. Various officials made dire warnings about the implications of Brexit. At the House of Lords on Tuesday, BoE Governor Carney defended his recent warnings about the costs of Brexit, saying he has a duty to comment on risks. IMF Chief Lagarde said Brexit posed a major downside risk to the European economy. Even Scottish National Party leader Salmond waded in, warning that Scotland would hold another independence vote if the UK voted to leave the EU.

There were no big surprises at Thursday's ECB decision, with rates on hold and little new from the post-decision press conference. President Draghi said the ECB can deploy more stimulus if global troubles threaten to push a modest economic recovery off the rails and further weighs on inflation. Draghi defended ECB policies from recent German criticism and noted that the ECB is tasked with setting policy for all the countries in the euro zone, not just Germany.

The preliminary US Markit manufacturing PMI index fell to its lowest level in six years, to 50.8 from 51.5 in March. Softer rates of output and new business growth along with a weaker gain in employment were the main factors weighing on the index. The big miss undermines the theme that while the first few months of the year were weak for the US manufacturing sector, spring would see stronger results.

There was mixed data out of the US housing sector. March housing starts fell more than expected and permits for future construction hit a one-year low, while March existing home sales saw a nice rebound following February's uncharacteristically large decline. Starts decreased 8.8% to their lowest level since last October, while permits dropped 7.7% the lowest level in a year. Meanwhile, closings came back in force in March as a greater number of buyers - mostly in the Northeast and Midwest - overcame depressed inventory levels and steady price growth.

Brazil President Rousseff did not survive an impeachment vote in the lower house of Parliament. The ruling party has conceded defeat, although Rousseff said she would keep fighting the decision in the courts. The impeachment process now moves to the Senate, where deliberations begin in two weeks. Rousseff will stand trial in the Senate on charges that she violated federal budget laws by using accounting maneuvers to cover up a gaping budget hole.

Earnings from both Goldman Sachs and Morgan Stanley reflected results from the other big banks, with profits beating greatly diminished expectations. Goldman's net income shrank 60% y/y, while most major business lines saw big, double-digit declines, as expected. Regional banks Fifth Third, BBT Corp and Bank of New York both turned in good growth, with profits and revenue rising firmly, and loans and deposits also seeing positive growth.

Caterpillar saw earnings drop nearly 65% y/y and General Electric's earnings were down nearly 30%, with revenue lower y/y at both industrials. Meanwhile, Honeywell saw modest growth in both profits and revenue as the aerospace industry held it together. McDonalds beat expectations, while YUM! saw its Chinese comps finally go positive, marking recovery for the firm's most important business. Coca-Cola and Pepsi saw revenue eroded by FX issues, with Coke's revenue down for the fourth quarter in a row and Pepsi's down for the sixth quarter in a row.

Both Microsoft and Alphabet faced headwinds in the quarter. Alphabet's quarterly profit rose y/y, though not at as fast a pace as analysts had expected. The Google parent saw higher traffic acquisition costs and expenses and lower aggregate cost per click. For Microsoft, the ever-shrinking PC market and FX problems conspired to shrink revenue and impede profits. Intel saw revenue at its PC group contract 14% y/y and only just met expectations in the quarter. The firm also said it would cut 11% of its workforce as demand contracts and it shifts focus to new markets like the Internet of Things.

Saturday, April 16, 2016

Barrons weekend

Barrons weekend: positive on Ford, GM, INTC, SEE, AJRD; cautious on TSLA
Cover story: Though sales are booming for GM and F, shares are "in the breakdown lane"-perhaps because of worries about economic woes in China and rising levels of buyer incentives at rivals and subprime auto loans in the U.S.-but they offer generous dividends and a potential 25% upside during the next year.

1) Positive on F: Under chief executive Mark Fields, automaker "is embracing the future with a passion" with such efforts as its Ford Smart Mobility subsidiary that will study new business opportunities and revenue streams from tech initiatives;
2) Cautious on TSLA: With the launch of its Model 3, Tesla is "walking a fine line in becoming a mass-market auto maker," given the range of delays and other problems it has faced with its earlier models;
3) Positive on INTC: "There's a risk that Intel could trim its financial guidance for this year, but also a likelihood that by year's end, it will return to sustainable growth for the first time in seven years";
4) Positive on SEE: Chief executive Jerome Peribere led the company through a restructuring and rebranding campaign, and it has become "an innovative, savvy operator";
5) Positive on AJRD: Shares of jet-propulsion-system manufacturer are down after it lost a $100M account from United Launch Alliance, but it has other potential growth streams and shares are likely worth twice their current price.

Tech Trader: Positive on FB: Search giant joins a growing crowd of rivals, including MSFT, BIDU, AAPL, AMZN, and IBM, as it seeks to leverage machine learning, wherein computer systems observe human behavior and learn how to perform human-like functions.

Trader: Liz Ann Sonders, chief investment strategist at SCHW, says investors care more about figures that are better or worse than expected than about results that are absolutely good or bad; Cautious on AXP: Card company has the resources, ability, and determination to adapt to a changing market; doing so will take time-but the case for long-term upside is better than the case for downside; "When the sell-side analyst view on a stock is monolithic, whether bullish or bearish, it's typically dead wrong."

Advisor Rankings: Barron's list of the Top 100 Financial Advisors is topped by Andy Chase, Gregory Vaughan, Brian Pfeifler, and Lyon Polk of Morgan Stanley Private Wealth Management, and Mark Curtis of Graystone Consulting at No. 5; Costs related to the newly passed fiduciary rules are likely to be expensive for the industry, and could force smaller broker-dealers to merge; Joe Montgomery of Wells Fargo Advisors discusses why retail investors should care about the management of pension funds, foundations, and other large investment pools.

Profile: Michael Weilheimer, portfolio manager, Eaton Vance Income Fund of Boston, seeks to protect against downside while finding securities that offer upside even in volatile markets (top ten holdings: EV Cash Reserves Fund, Alphabet Holding, First Data, Laureate Education, Jaguar Holding II and Pharmaceutical Product Development, XPO Logistics, Alere Convertible, Reynolds Group Issuers, T-Mobile USA, MPH Acquisition Holding).

Interview: Kristian Heugh, portfolio manager, Morgan Stanley Global Opportunity fund, works out of Hong Kong to be closer to investment opportunities in Asia (picks: XRS, Tencent, Naspers, ViroMed, Medy-Tox, Calbee, Hermes International, Burberry, FB).

Follow-Up: Cautious on SRPT: Whether pharma company's shares go up or down could depend on an FDA advisory committee decision on April 25 related to its Duchenne muscular dystrophy drug, eteplirsen.

European Trader: Positive on Publicis Groupe: Advertising major lost ground following a scuttled tie-up with OMC, but "there are signs the French company is shaping up and its stock could rebound."

Asian Trader: Tokyo wants a weaker yen to spur exports and promote growth, but the Bank of Japan may have only one remedy: buy Japanese stocks to keep quantitative easing afloat and stimulate the Abenomics government-spending program.

Emerging Markets: Based on the latest International Monetary Fund update, "the worst may be over for many emerging-market countries, but investors need to watch where they step in trying to avoid the many risks remaining."

Commodities: Natural-gas futures "might look like a classic buy-low opportunity in a market about to rebalance, but it isn't-at least for now."

Streetwise: Positive on ALK: Carrier's deal for VA makes sense in the long run, says Wolfe Research analyst Hunter Keay, because it faces growing competition from larger rivals such as DAL.

Friday, April 15, 2016

Investor Optimism Grows on Hopes China Bottomed and the Fed Will Remain Patient Weekly Market Update: Investor Optimism Grows on Hopes China Bottomed and the Fed Will Remain Patient
Fri, 15 Apr 2016 16:13 PM EST

Global equity markets have more or less filled the gap from the moves lower seen in the first two months of the year. Fears about Chinese growth and the US manufacturing industry may be slowly receding, while the Fed continues to push out rate hike expectations. The US economic data generally supported various Fed officials' calls that the prudent stance remains that the FOMC stay patient in normalizing rates. Earnings season began this week with a disappointing report from Alcoa, but some slightly better-than-expected bank earnings. The next several weeks will see whether the rest of corporate America can beat greatly diminished expectations for what everyone agrees was a crappy first quarter. US Treasury yields were ultimately little changed on the week. An early week back-up in rates gave way to buying, following particularly strong 10-year and 30-year reopenings on Wed and Thursday. For the week, the DJIA added %1.8, the S&P500 gained 1.6% and the Nasdaq rose 1.8%.

March US inflation data saw a continued deceleration in pricing trends, further complicating the outlook for Fed monetary policy. Core PPI fell for the 49th month in a row and slipped into negative territory on a m/m basis, while core CPI inflation cooled off a bit in March, with both the m/m and y/y rates lower than expected and lower than both January and February. Analysts blamed the weaker dollar in part for the lower inflation levels, and cited pricing softness in apparel, shelter, and health care. The reports suggest that the PCE data, the Fed's favored measure of inflation, will be barely positive for March. Atlanta Fed President Lockhart (a non-voter in this cycle) said that he had changed his mind and would not advocate for a rate hike in April, given the continued lag in inflation. Meanwhile, notorious Fed critic Jeffrey Gundlach said there were no good chances for rate hikes in June, September or December, and predicted there was at best one Fed hike this year

The raft of Chinese data for the month of March out on Friday indicated big improvements from the weakness in the first two months of the year. March industrial production, retail sales, fixed asset investment, and new yuan loans reports all beat estimates. Industrial production figures hit a nine-month high, urban real estate buying recovered, and construction spending YTD surged 19% y/y, and retail sales were up more than 10% y/y. China Q1 GDP perfectly met expectations at +6.7%, right in the middle of the party's guidance for 2016 and an exact match the IMF's own 2016 forecast for China.

Data out of Japan strongly suggested that the BoJ's negative interest rate policy is backfiring. The March lending report showed bank credit fell to 2.5 year lows, for the second straight month of lower lending activity. The yen entered the week around 107.75, its strongest level against the dollar in 21 months, but softened notably in the wake of the lending data, with USD/JPY moving back up toward 110 in the latter half of the week. The BoJ's Kuroda applauded the softer yen, welcoming the correction in the "excessive" yen gains, while Finance Minister Aso rattled his saber, warning the government would not hesitate to intervene in FX markets if conditions became disorderly.

The loonie pushed to a nine-month high against the dollar on Wednesday after the Bank of Canada held rates steady at a scheduled policy meeting. USD/CAD dropped to 1.2745 after the decision, but this marked the high water mark for CAD, capping three months of steady gains, as the pair turned around for the latter half of the week and backed out to 1.2890. BoC Governor Poloz offered cautious comments, calling recent CAD strength mostly an artifact of shifts in expectations for US monetary policy. The greenback dropped to its weakest level against the euro on Wednesday, with EUR/USD at 1.1465, although the pair consolidated below 1.1300 heading into week's end. The Bank of England decision was a real snooze, with no changes and not much movement in GBP/USD, which remains right in the middle of the range seen since mid-January, around 1.4200.

The halting recovery in crude prices continues to run into upside resistance. Saudi Arabia and Russia appeared to have reached a consensus this week that the oil production freeze will not depend on Iran's participation, removing the only barrier remaining to an OPEC/non-OPEC deal. Meanwhile, there was lots of talk that whatever sort of pact emerges from the freeze talks will hardly be very strict, taking the form of a gentleman's agreement rather than a binding deal. Separately, both Iran and Iraq posted surprisingly strong production figures for March, and in Iraq, crude output rose to a record high of 4.55M bpd in the month. WTI prices briefly traded above $42 at one-month highs and then moved lower, mirroring the price action seen in mid-March. Brent saw stronger gains, but did not manage to break $45. Both contracts were more or less flat on the week.

The IMF cut its global economic forecast for the fourth time in the last 12 months, further trimming 2016 and 2017 GDP forecasts. The IMF lowered its call for every major economy in its World Economic Outlook (WEO), except for China, which got a small bump higher. The IMF cut 2016 global growth from +3.4% to +3.2%, and cut its 2017 forecast from +3.6% to +3.5%. The IMF warned that a return of last year's financial market turmoil was still a big potential downside risk. The organization specifically called out Beijing, warning about the potential global impact of unwinding prior excesses in China's economy as it transitions to a more balanced growth path.

The FDIC and Federal Reserve called out five big banks for failing to submit effective plans for winding down operations in the event of a bankruptcy. The five "too big to fail" banks - BofA, JPMorgan, Bank of New York, State Street and Wells Fargo - did not submit acceptable living wills. The firms have until October to fix their plans, and the Fed and FDIC could start imposing strict prudential remedies if they are still found to be deficient at that time. If after two years they do not have a proper plan, the regulators could force the banks to divest certain assets and scale back the size of the institutions. Note that the FDIC rejected Goldman Sachs' plan, while the Fed alone found Morgan Stanley's plan deficient. Citigroup was the only big bank to have its plan approved by both regulators.

The March quarter earnings season began with a poor report from Alcoa. While ex-items earnings beat expectations slightly, sales were a miss. The company also added 1K to anticipated job cuts, lowered its FY16 aluminum demand growth outlook to +5% from +6%, and revised its three-year revenue targets lower. The banks reporting this week generally beat greatly diminished expectations, given that the analyst community has predicted the worst for banks in what is usually their best quarter of the year. Both Citigroup and JPMorgan beat top- and bottom-line expectations, although both profits and revenues were lower y/y at the two banks. Bank of America missed expectations, while Wells Fargo was the only big bank reporting this week to eke out revenue growth. Delta's profits soared 30% y/y while revenue was right in line. The airline spent one-third less on fuel than it did a year earlier, and indicated they were willing to cut capacity if profitability measures don't improve. On Friday, Japanese press reports indicated Apple plans to maintain its reduced production of iPhones into the April-June quarter, citing soft 6S and 6S Plus sales, which put pressure on the tech giant and its suppliers' shares into the end of the week.

Canada's Mitel Networks has reached a deal to buy fellow voice and telephony equipment manufacturer Polycom for about $1.96 billion in cash and stock. Polycom's holders will get $3.12 in cash and 1.31 Mitel shares for each of their shares. Canadian Pacific ended its $25 billion bid for its US counterpart Norfolk Southern, the latest giant merger deal to fall apart over recent weeks. CP began its pursuit of NSC last fall, under pressure from activist investor Bill Ackman's Pershing Square. This is the second failed deal attempt for CP, after its bid for CSX fell apart in 2015. Separately, there were press reports about growing opposition in Germany to Deutsche Borse's planned $20B merger with the London Stock Exchange, partly because of growing concern about the consequences for the merged entity should Britain leave the EU.

Saturday, April 9, 2016

Barrons weekend update

Barrons weekend update: positive on TOL, STX, AAPL 

Cover story: Pimco co-founder Bill Gross, who now runs JUCAX at Janus Capital, "doesn't think much of the central-bank policies that have repressed rates, punished savers, and failed to ignite economic growth, and says the Fed must begin to raise rates in coming years to keep the economy on track." 

1) Positive on TOL: Homebuilder's expansion into the luxury condominium sector in cities such as New York during recent years has paid off, but recent concern on Wall Street is overdone, and shares could offer 40% upside; 
2) Positive on STX: Shares of hard-drive maker are down by 38% during the past 12 months, but the growth of cloud storage should create greater demand, the dividend looks safe, and the stock could return 20%; 
3) Positive on AAPL: Slow growth, primarily tied to the iPhone, has sent shares down, but at $108 they're undervalued and could hit $150 in a year for a return of 40% because of strong recurring revenue from the company's growing services business.

Tech Trader: Cautious on MU: Things aren't likely to improve anytime soon for maker of DRAM chips, with Samsung boosting production even as prices fall, much like the Saudis have done with oil; Micron won't decrease production as it moves to a new manufacturing technology that should bring down costs and help profits. 

Trader: "Macroeconomic factors have influenced the market over the past few weeks," says David Lefkowitz of UBS Wealth Management Americas, "but when Q1 earnings start flowing this week, there will be more stock-specific activity"; Cautious on WWE: Company is profitable, has little debt, and a 3% dividend, but it isn't growing as fast as many investors believe, and shares have a high valuation; Cautious on BHI: It's remains uncertain whether the merger with HAL will proceed, even though both companies say they will "vigorously content" the Justice Department antitrust suit seeking to halt it. 

Mutual Fund Quarterly: Story says investors should avoid "smart beta" exchange traded funds, because their strategies have grown more expensive and risk crashing if they return to historical valuations; Profile of Primecap Management, a $100B firm with six mutual funds that have beat at least 86% of their peers during the past decade; A look at how to choose the best dividend ETFs, which offer a variety of yields and returns; "In a quarter that saw one of the biggest market reversals in the history of the S&P 500, actively managed mutual funds failed to keep up with the index. Value, commodity, and emerging-markets funds did best." 

Small Caps: Positive on OI: Shares of the world's largest maker of glass bottles are down 50% from a June 2014 high, making them attractive for investors, who could see 25% upside and expanded profit margins. 

Follow-Up: Positive on DIS: Problems arising from the planned departure of chief operating officer Tom Staggs should be manageable, and are more than offset by good news elsewhere in the company; Cautious on NEM: Stock has risen 62% on a jump of more than 15% in the price of gold, but despite signs of promise, shares aren't cheap, and investors should consider taking profits now. 

European Trader: Positive on Carrefour: Shares of French retailer "have been marked down in 2016, but worries about its growth prospects may be overblown, and the stock could offer a 20% upside." 

Asian Trader: The recent influx of money into Asia, and rising share prices there, present a challenge for investors, especially bargain-hunters. 

Emerging Markets: Emerging-market corporate bonds in countries such as India and Indonesia offer 5% annual returns and little risk (Positive on MercadoLibre, Naspers, Bharti Airtel, EMB, DBLEX).

 Commodities: Despite heavy production in the U.S., Canada, and Kurdish-controlled Iraq and a weak global economy, it's likely crude supplies will tighten, driving prices higher. 

Streetwise: Companies that will benefit from the government's newly imposed fiduciary rules for advisors include firms such as SCHW and AMTD that were already profiting from low fees.

Friday, April 8, 2016

Meandering Markets Await Clearer Signals Weekly Market Update: Meandering Markets Await Clearer Signals
Fri, 08 Apr 2016 16:11 PM EST

US equity markets drifted lower this week in low-volume trading. With little weighty US or global economic data on the calendar, trading sentiment was knocked around by the vagaries of the oil market and the continuing weaker dollar trend. Traders scanned the ECB and Fed minutes in vain for more direction on the institutions' monetary policy views. Interest rates declined globally with US Treasury yields falling to one month lows. Banking stocks continued to face strong headwinds with several managements outlining the difficult environment financial institutions still face. Meanwhile, the US government worked hard to crush several high-profile merger deals. Next week looks pretty light of data as well, although the slow-moving spring quarter earnings season is rapidly approaching. For the week, the S&P500 slipped 1.2%, the DJIA lost 1.2%, and Nasdaq fell 1.3%.

The yen's big move higher - the Japanese currency edged up to 18-month highs against the dollar, with USD/JPY dropping as low as 107.75 - was a big theme this week. The end of the Japanese fiscal year in March brings plenty of yen inflows, as Japan's corporations are required by law to repatriate their overseas profits. However, the Bank of Japan continues to stay away from any big new stimulus programs, the government has refused to consider a 2016/17 extra budget frontloaded with additional stimulus spending, and PM Abe's has made it clear the sales tax will rise to 10% in April 2017 as scheduled, giving traders plenty of reasons to go long yen. Technical considerations played a role, too: the 110 level was a big magnet, as that was the key level breached when the BoJ launched its surprise QE enlargement at the end of October 2014 expanding its asset base to ¥80T. As the USD/JPY breached the 110 level, reports emerged that the BoJ might further expand the asset base at its upcoming April meeting. Government officials repeated all week that they were watching yen strength with concern, but there was no evidence of intervention, especially given Japan is hosting the G7 in May, and Japan has no desire to be seen as an FX manipulator ahead of the meeting given its

The minutes from the March 16th FOMC meeting did little to change the messaged crafted by Chair Yellen in her post-decision press conference or her speech last week: to assure the expansion stays on track, policy will respond to growth threats as much as it does to actual data. The minutes showed several members agreed that hiking rates in April would signal an unjustified sense of urgency, although a couple of hawks had advocated a March hike - in remarks later in the week, Fed Governor George said she voted for a 25 bps hike in March on concerns about creating financial imbalances. Separately, hawk Mester refrained from saying when the Fed should hike next, and also emphasized that the Fed was not behind the curve. Fed fund futures were pricing in less than a 20% chance of a June rate hike as of Friday.

Minutes from the last ECB meeting complicated the policy picture somewhat. The minutes showed the committee did not rule out more rate cuts at the March meeting and judged there was little evidence of unwelcome side effects from negative rates. Recall that during the post-meeting press conference back in March, Mario Draghi stated that he did not anticipate any more rate cuts as the ECB turned to other instruments, which helped fuel the current streak of euro strength. The minutes this week indicated that several council members were willing to consider deeper rate cuts and that future cuts remain on the table. EUR/USD spiked to fresh six-month highs ahead of the release of the minutes, trading up to around 1.4550, but the pair remained rangebound in the 1.1340-1.1420 area this week.

The two-week long slide lower in crude prices bottomed on Monday, with WTI dropping to around $35.50 and Brent to around $37.40. After some uncertainty in recent comments, the Iranians and the Russians both confirmed that Iran would attend the OPEC/non-OPEC production freeze negotiations in Doha on April 17th, although Tehran continues to insist it would only participate in the freeze after its domestic production level rises back to the pre-sanction level of 4.0M bpd. Last week, the Saudis were threatening not to participate in the freeze unless all other producers agreed to the deal. On Friday, the Russians said the deal would likely freeze production at January levels. Separately, weekly inventory reports showed that US crude stocks have started to be drawn down again after nearly two months of big builds. Those drawdowns along with the weaker greenback ushered WTI oil prices back up to just under $40/bbl by Friday afternoon.

Tesla disclosed that it had received 325K Model 3 orders in the first week after the vehicle's debut, indicating to about $14B in future sales. This is nine months ' worth of production under CEO Musk's goal of 500K unit per annum by 2020, and earlier in the week Musk had taken to Twitter to ponder whether he may have been too conservative in his outlook. Some analyst said their estimates were as high as 350K units, and on April 4th Tesla said its first quarter deliveries would only be 14,820 units, versus the 16K guidance it offered back in February. Shares of TSLA gained 10% on the week.

The US Treasury published tough new regulations aimed at tax inversions. The new rules would prevent foreign companies from acquiring multiple US firms over a short period of time, with a new three-year limit on foreign companies bulking up on US assets to avoid ownership requirements for a later inversion deal. Last fall, the Treasury made its first attempt to stop inversions, forbidding them in transactions where continuing ownership of the US parent in the deal is 60-80%. The rules were at least in part implemented to stop the Allergan/Pfizer deal. Just after the first regulations were announced last fall, Pfizer agreed to acquire 59% of Irish firm Allergan in an inversion deal. But Allergan itself was built by serial acquisitions: US firm Actavis bought Irish firm Warner Chilcott in an inversion, then it acquired Forest Labs and finally Allergan, taking the latter's name but remaining in Ireland. Pfizer abandoned the Allergan buy the day after the new rules were announced. There were concerns about Shire's acquisition of Baxalta, and shares of both firms sank on the rule change, although the companies claim the deal is not an inversion.

Separately, the Justice Department sued to stop Halliburton from acquiring rival Baker Hughes, in a deal currently valued around $34 billion that was announced in November 2014 (just as oil prices started to fall). The DoJ said it would not allow deals that enhance shareholder value at expense of competition. The BHI-HAL tie-up would combine two of the world's three leading providers of services to oil and gas companies. The companies were said to have made last-ditch efforts to save the combination, but that the DoJ was uninterested in the various remedies offered.

Saturday, April 2, 2016

Barrons weekend update

Barrons weekend update: positive on TWX, UTX; cautious on BAM 
Cover story: Though Republican leaders are pressing Ohio governor John Kasich to drop out of the race, it's unlikely he will do so-and for investors that's a good thing; "Kasich's policy prescriptions, experience, and temperament make him the GOP's best bet to reassure a nervous marketplace," and he would be better for investors than Hillary Clinton in the White House. 

1) Picks from participants in Barron's energy roundtable, featuring Barry Kupferberg of Trilogy Capital Management (Rockies Express Pipeline, Permian Resources), Robert Thummel of Tortoise Capital Advisors (EPD, SXL, LNG, PXD), Harlan Cherniak of KKR (SLCA, DYN bonds, CPN bonds) and Richard Daskin of RSD Advisors (SEP, MMP, PSXP); 
2) Positive on TWX: Shares are up following the success of Batman v Superman, which bodes well for nine more DC Entertainment movies to be released during the next five years, while the company's TV and game production is thriving; 
3) Positive on UTX: Shares have fallen 15% over the past two years, but increased cost-cutting, stronger results in its U.S. air-conditioning business, and a new commercial jet engine could send earnings up; shares could return 20% during the next year; 
4) Cautious on BAM: Company specializes in illiquid properties whose values it calculates from "unobservable inputs," such as the discount rate applied to a property's projected cash flow, a process that raises some questions for investors. 

Tech Trader: The cloud-computing sector continues to undergo a transformation, with shares of pure-play stocks such as CRM and WDAY down, while traditional software makers like ORCL and IBM have risen because of efforts to highlight the parts of their businesses that contain cloud-computing elements. 

Trader: Investors "want to see interest-rate hikes that indicate the U.S. economic engine is revving strongly to withstand higher rates," says John DeClue of the Private Client Reserve of U.S. Bank; Positive on CELG: Shares of the managed-care health provider are down as investors lose interest in the sector, but the company stands to benefit from expansion and the ACA's push to insure more people; Positive on HAIN: Slower revenue growth is partly the result of the company growing larger and struggling to maintain momentum, but it stands to benefit from growing sales in organics and efforts to reduce expenses-and insiders have increased their holdings. 

Profile: Justin Thomson, portfolio manager of the T. Rowe Price International Discovery fund, has taken advantage of weakness in foreign markets to buy (top 10 holdings: Victrex, Eurofins Scientific, Axiare Patrimonio Socimi, Playtech, Norma Group, Partners Group Holding, Nippon Seiki, Ambu, Fisher & Paykel Healthcare, MercadoLibre). 

Small Caps: Positive on MTW: Industrial crane maker, formed only a month ago as a spinoff of parent company MFS, will undergo a restructuring that will improve margins and could lead to higher profitability. 

Follow-Up: Barron's says robo advisors are legitimate competitor-at the mass-affluent level-to traditional financial-services firms, which are weighed down by legacy software code and human advisors.

European Trader: Positive on ENDP: Specialty pharma company's shares are down, but it should undergo a recovery over the next 12 to 24 months, and shares could rebound by more than 50%. 

Asian Trader: Sinagpore's recently announced budget will boost spending by 7% this year, which could bolster stocks in banking, consumer staples, healthcare, and transport. 

Emerging Markets: Some investors in Brazil are looking to put profits elsewhere, given the country's mounting problems, and are looking to China, which has projected GDP growth of 6-7% (Positive on Kweichow Moutai, JD). 

Commodities: A seasonal shortage boosted lumber prices, but slowing U.S. housing construction and a weak Canadian dollar should bring them back down again. 

Streetwise: With the markets rallying, companies may see a window of opportunity for IPOs, but it remains unclear how eagerly investors will embrace them.

Friday, April 1, 2016

March Came in Like a Bear and Went Out Like a Bull Weekly Market Update: March Came in Like a Bear and Went Out Like a Bull
Fri, 01 Apr 2016 16:07 PM EST

March arrived with panicky market participants griping about imminent recession and ended this week with those fears essentially in the rear-view mirror. The S&P500 delivered a 1.8% gain this week and a 6.8% gain in March, its best monthly advance since the current bull market began seven years ago - leaving it up a mere 1% for all of the first quarter of 2016. US and China manufacturing data has started perking up, the jobs and housing markets remain strong and there are signs that both China and Europe are starting to get a handle on their respective economic problems. Meanwhile, the recovery in crude prices appears to be over for the moment, as WTI and Brent keep failing to gain any purchase above the $40 mark and the global production freeze deal bogs down from the larger Saudi-Iran rivalry. Fed Chair Yellen negated all of last week's hawkish Fed-speak, apparently taking an April rate hike off the table, citing weak inflation even as the US economy delivered its 73rd month of strong job growth. Treasury yields declined to one month lows and Fed fund futures closed out the week projecting just a 30% chance of a rate hike occurring in June. The US Dollar suffered one its worst weeks in months stirring hopes that the weaker currency will lead to an improving Q2 corporate earnings outlook.

In her remarks, Yellen stressed the pace of rate rises would remain very gradual, largely because global developments still pose ongoing risks. She pointed to some signs inflation expectations may be drifting lower and noted that remains a concern for her. The February PCE report arrived the day before her speech, and the core PCE- the Fed's key inflation metric - sank to +0.1% from +0.3% in January, although the y/y metric remained unchanged at 1.7%. The speech took an April rate hike definitively off the table, and other Fed speak this week echoed Yellen's major themes. Fed moderate Lockhart said that even with good data, it's not mandatory that the Fed moves in April, and added that he sees scope for three rate hikes this year. The New York Fed's Dudley said he was hopeful two rate hikes would be possible in 2016. The very chatty Evans said he would like two hikes, but warned that inflation could stall out around 1.8% later this year. All Fed speakers agreed that current risks to the US outlook come from overseas, and reiterated that soft inflation was the fault of lower commodity prices, chiefly oil.

The March US jobs report was a bit stronger than expected, with the 215K gain in payrolls following a revised 245K gain in February. Average hourly earnings increased 0.3% m/m, while the jobless rate crept up to 5% as more people entered the labor force. The labor force participation rate grew for a fourth straight month, rising to 63% from 62.9% in February. Participation had fallen to a 38-year low of 62.4% last September, but has recovered gradually over the last six months. Analysts noted that in the employment sector breakdown, among the best gains were in construction (+37K jobs) while the worst losses were in manufacturing (-29K jobs).

Factory data from the US and China confirmed a marked uptrend for manufacturing in the month of March. The US ISM manufacturing report returned to expansion territory for the first time in five months, while China's official manufacturing PMI reading topped 50 for the first time in eight months. Key new orders components in both reports were even stronger, boding well for next month - the new orders reading in the ISM data rose to its highest level since 2014. Adding to the constructive production outlook, the Chicago March PMI rose a very strong six points to 53.6, with big gains in new orders, employment and production. Elsewhere in Asia, the Japan and South Korea March PMI reports clouded this rosy outlook, with both figures in contraction. The Japan report warned that total incoming work declined at the sharpest rate in nearly two years. In addition, Japan's Tankan large manufacturing index for Q1 hit its lowest level since mid-2013, with the forward-looking index coming in very weak. Major European manufacturing PMIs remained right around 50, where they've been for months.

Recent home sales data has shown that while the recovery in the US market continues apace, affordability and supply continue to give homebuyers headaches. The January S&P/Case-Shiller home price index recapped this point, showing elevated price gains in major US cities. Meanwhile, inventories are still constrained. The 20-city composite Index rose 5.7% in January, roughly twice the rate of inflation, with four to five months of supply in the market. Pending home sales were well ahead of expectations in February, with the index seeing its biggest m/m increase in a year, however it only just more than cancelled out the January drop, which was revised from -2.5% to -3.0%. Separately, homebuilder Lennar reported another strong quarter, beating top- and bottom-line expectations in its first quarter, with double-digit gains in backlog and new orders.

Crude is seeing a second week of losses as hopes slip away for a grand bargain to freeze crude output levels. There were reports earlier this week that Iran would attend the OPEC/non-OPEC production freeze meeting on April 17th, but would not participate in any deal, as Tehran continues to insist it needs to let its production levels return to the pre-sanction level of approx. 4.0 million bpd. On Friday, Iran's arch rival Saudi Arabia said the kingdom would only freeze output if all other major producers do so - including Iran. The warning came during an interview with Crown Prince Mohammed bin Salman, who is emerging as a major Saudi political force. Meanwhile, Iraq's crude production level was at its highest level in four years. After both Brent and WTI peaked around $42 last week, Brent dropped below $39 and WTI sank below $37.

Shares of former hedge fund hotel SunEdison lost more than half their value this week as it emerged the SEC and Department of Justice launched parallel investigations of recent moves by the company. The SEC is looking into whether the company overstated its liquidity position last fall, when the stock was collapsing and management told investors it had over $1.0B in cash. The DoJ is seeking information related to acquisition of Vivint Solar and intercompany transactions with its yieldcos, TerraForm Power and Terraform Global. It's widely known that SUNE was using the two yieldcos as piggy banks to drive its rapid growth, although investors are betting that they may survive the demise of their parent, and shares of TERP are actually up more than 12% on the week.

Apple won its standoff with the US government after the DoJ said it had managed to access the information locked on the San Bernardino terrorists' iPhone. A Federal judge vacated the earlier order demanding that Apple open up the iPhone for FBI investigators, removing for now the implicit threat it would be forced to build "backdoors" into its products. It remains unclear how the phone was accessed, but speculation centers on a third-party use of an experimental technique called NAND flash mirroring.

Tesla unveiled its much-anticipated Model 3 electric car, its least-expensive vehicle to date. The Model 3's $35,000 base sticker price and decent range should expand the reach of Tesla considerably, and play a central role in helping the company meet CEO Musk's long-term objective of producing 500,000 vehicles a year. Within a day of the launch, Musk tweeted that nearly 200,000 vehicles had been pre-ordered. The first deliveries of the new mass market vehicle are scheduled to start in late 2017.

In M&A news, Foxconn finally reached a deal to discount its original acquisition offer for fallen Japanese electronics giant Sharp. Foxconn (formally named Hon Hai Precision Industry) will pay about $3.5 billion for a two-thirds stake, cutting its initial offer by nearly $900 million following the emergence of previously undisclosed liabilities at Sharp. The deal marks the largest acquisition ever by a foreign company in Japan's insular tech industry. Anbang's dramatic challenge to Marriott's standing deal to acquire Starwood fell apart in spectacular fashion. Two weeks ago, Anbang topped Marriott's cash-and-stock bid with an all-cash offer of $76, then was bid up to $82.75. However, Anbang never made its original unsolicited proposal binding and failed to adequately demonstrate there was sufficient financing in place to back up the deal. Anbang did not give Starwood the reason for dropping its offer, but Chinese financial magazine Caixin reported earlier this month that China's insurance regulator would likely reject the bid since it would put Anbang's offshore assets above a 15% threshold.

Sunday, March 27, 2016

Barrons weekend update

Barrons weekend update: positive on IPG, ZBH
Cover story: The luxury second-home market is thriving; Topping the ranking for livability and value are Austin, Texas, where there are good buying opportunities in a softening market; Lake Geneva, Wisconsin, where a long-moribund market is on the upswing; and Park City, Utah, where MTN is giving the ski business a boost; Overheated cities include Palm Beach, Florida, and Hanalei, Hawaii.

1) Positive on IPG: Advertising giant's blend of traditional and digital advertising gives it an edge over competitors, and its shares could see a 20% boost in a strong ad market;
2) Positive on ZBH: Manufacturer of hip, knee, and shoulder replacements is thriving; shares are trading at a deep discount and could see a gain of 25%.

Tech Trader: Cautious on YHOO: Time may be running out for chief Marissa Mayer's turnaround even as she embarks on a new three-year plan that includes considering bids for its core business while transforming it for a possible a spin-off; The current battle between activists and Yahoo has been a waste of time for investors, who should take their money and seek other tech opportunities.

Trader: First-quarter earnings, which are just over the horizon, will need to be better if the rally is to continue, though much of the recent earnings shortfall can be blamed on energy; Positive on CERN: Shares of healthcare infotech provider have fallen, making it appear "invitingly cheap" because of its growing bookings and robust earnings; Positive on EDGE: With its shares now at about half the IPO price, company that develops and delivers drugs for hospitals that treat life-threatening conditions offers an opportunity for investors.

Alternative Investments: Positive on Pershing Square Holdings: Fund "offers the best way for retail investors to play a possible rebound in William Ackman's fortunes, via a concentrated portfolio of stocks that includes APD, ZTS, CP, QSR, and VRX."

Interview; Ross Margolies, founder of Stelliam Investment Management, is focused on the energy and airline industries and is bullish on APC, DAL, and SPLS. Profile: Hedi Ben Miouka, manager of Duet EM Frontier fund, focuses on nascent markets such as Egypt and Nigeria that are less developed, regulated, and researched than emerging economies like Mexico and Turkey.

Small Caps: Positive on RELY, IGT: Shares of both companies continue to look like bargains; Real Alloy should benefit from increased aluminum use in cars and trucks, while International Game Technology "is a free-cash-flow-generating monster."

Follow-Up: Cautious on DECK: Investors who have ridden the rise in share price should take profits now, given potential risks facing the maker of UGG footwear.

 European Trader: Positive on Marine Harvest, Pandora: Scandinavian salmon farmer and jewelry company should both outperform this year, and each could see a 20% rise in share price during the next 12 months.

Asian Trader: India and Indonesia elected reform-minded leaders, but this year Indonesia is outpacing India for several reasons, including the fact that it has an easier time whipping up private-sector spending.

Emerging Markets: As of March 24, the best performing emerging markets were Peru, Brazil, and Colombia, while the bottom three were Greece, China, and Egypt; In Indonesia and the Philippines, low inflation is giving central banks more room to be accommodative.

Commodities: "Unfavorable weather conditions and increased global grain consumption are expected to lift prices for wheat and corn out of a slump that has lasted for years."

Streetwise: Positive on AAL: Stock is in an Evercore ISI basket that combines companies with cheap valuations, little or no gap between operating and GAAP earnings, and which have outperformed the S&P 500 during the past 10 years.

Thursday, March 24, 2016

Green Shoots or Gangrene? Weekly Market Update: Green Shoots or Gangrene?
Thu, 24 Mar 2016 17:05 PM EST

Global equity markets broke a month-long advance this week, as another leg down in energy prices and further gyrations in emerging markets impeded risk appetite. Risk was further constrained by the twin Brussels bombings, which killed scores, wounded hundreds and showed a Europe gravely exposed to Daesh terrorism. The continuing recovery in crude prices peaked again midweek as both Brent and WTI bumped up againt $43 or so and then headed lower, dragging down the energy sector and rekindling fears about bank exposure to bad energy debt. There were faint green shoots in a few March manufacturing reports, but the preponderance of economic data showed a global economy mired in slowdown. At the same time, Fed speakers continued to talk about two or three Fed rate hikes this year, causing markets to reconsider risk tolerance in the face of global monetary policy divergence. For the week, the DJIA lost 0.7%, the S&P500 dropped 0.7%, and the Nasdaq slipped 0.5%.

The flash Markit March factory PMI report showed the US manufacturing sector remains in go-slow mode. The index slightly missed expectations and remained pretty close to flat, however the new orders component was slightly elevated. Nevertheless, the Markit manufacturing PMI remained in expansion territory and greener shoots kept emerging from the regional Fed surveys: the March Richmond Fed manufacturing survey was very strong, with a big bounce back seen in the headline figure and the new orders component. This comes after last week's March Philadelphia Fed outlook index rose to its highest level since last February on a big surge in new orders and the New York Fed's Empire survey rose back into positive territory for the first time since last July.

Several Fed officials offered commentary on policy this week, and the hawks and doves appeared to be in greater agreement about the direction of policy than one might expect. Bullard dismissed the Fed's dot plot and claimed the composition of the plot contributed to the sell-off earlier this year, adding that he had considered dropping out of the exercise. He said the issue with forward guidance is that markets may take the Fed's projections as a promise. Harker said he was not a "two-dot member," and claimed there was a very good case for raising rates more quickly. Harker said he expects at least three rate hikes this year. The dovish Evans said rates need to start going up because the economy is getting stronger, and said two rate hikes this year is not at all unreasonable. Moderate member Lockhart warned there could be another hike as soon as next month.

Last Friday, the PBoC had tightened the yuan reference rate to its strongest level since mid-December, at 6.4628, in response to continued dollar selling the wake of the Fed decision. Over the next four days, it dialed back the yuan rate to the softer rate seen before the FOMC meeting. The streak of post-Fed and post-ECB forex gyrations likely dictated the moves. Beijing has pledged to make monetary policy more flexible this year even as it leans more on increased fiscal spending and tax cuts to support economic growth and cushion the pain from structural reforms.

Japan's preliminary March factory PMI fell to its lowest level since early 2013, returning to contraction for the first time in a year. Markit economists warned there had been more deterioration in manufacturing conditions, citing the contraction in output and new orders. The disappointing PMI data comes amid the ongoing dispute about fiscal policy and the question of whether to postpone a second round of sales tax increases as part of the government's ongoing economic reform plan. Finance Minister Aso still wants to implement the hike next spring, and said this week he does not believe the economy needs more stimulus (in the form of withdrawing the tax hike). Meanwhile, Cabinet Secretary Suga was less resolute than last week when he ruled out a delay, stating that the government may in fact postpone the tax hike if overall tax revenues were to fall further. On Friday, Japanese long rates backed up modestly after the BOJ changed the composition of upcoming asset purchases to favor securities with shorter maturities.

Home sales in the US were mixed in February. The annualized rate of new home sales accelerated from the January reading, while the rate of existing home sales slowed somewhat m/m. Both figures were up slightly from last year. The National Association of Realtors (NAR) blamed the lull in existing home sales on delays in contract signings in January from the East Coast blizzard and the slump in the stock market. Meanwhile, new home sales were buoyed by big gains in the West, however the other three regions of the country saw flat to much lower sales. Affordability and supply continues to be a huge problem. "Finding the right property at an affordable price is burdening many potential buyers," said the NAR. Separately, KB Homes disclosed solid first quarter results, including good gains in net orders and backlogs.

Apple has launched a smaller, cheaper iPhone - called the iPhone SE - ultimately aimed at emerging markets and China. The iPhone SE - featuring a smaller 4" screen - is Apple's second attempt to offer an entry-level or mid-tier device, following the poorly received iPhone 5c, launched in 2013. Shares of Apple have rallied 10.3% over the last month as investors anticipate Cupertino has finally found a way to juice its flat lining iPhone sales trends, although AAPL was flat on the week.

Activist fund Starboard Value has committed itself to replacing the entire Yahoo board in a fight to control the company. Starboard - with a 1.7% stake in Yahoo - proposed a slate of candidates includes Jeffrey Smith, its own CEO. Starboard had previously called into question the leadership of CEO Marissa Mayer, and analysts believe that by increasing the pressure on Yahoo's board, Starboard thinks it can finally push the company to sell its core businesses.

In deal news, Marriott raised its offer to acquire Starwood Hotels to $79.53/share in stock and cash, topping Chinese insurance firm Anbang's offer of $78/share. The new total for Marriott's offer is valued around $13.6B, however Marriott's cash component is a mere $21/share, while Anbang's offer is all cash. UK financial data giant Markit has agreed to combine with its US rival IHS in a $13 billion all-stock deal, valued around $31.13/share. The combined company will be headquartered in London and would have had annual revenue of about $3.3 billion in 2015. Sherwin-Williams reached an agreement to acquire Valspar for $113/share in cash - a big 41% premium to the prior 30-day weighted average price - for a total deal value of $11.3B. Shares of Richard Branson's Virgin America shot up more than 15% on Wednesday after the airline was said to be reaching out to potential buyers about a sale of part or all of the company.

Saturday, March 19, 2016

Barrons weekend summary

Barrons weekend summary: Positive on FDX, ILMN 

Cover story: Barron's list of the 30 best chief executives includes the leaders of the tech sector's FANG group-FB, AMZN, NFLX, and GOOGL-but not AAPL chief Tim Cook, who is struggling to create the next big hit at the company; New to the list this year are Mark Parker of NKE and Brian Roberts of Comcast, while financial titans Jamie Dimon of JPM, Warren Buffett of Berkshire Hathaway, and Laurence Fink of BLK are among those returning. 

1) Fidelity tops Barron's 2016 survey of best online brokers, followed by Interactive Brokers, OptionsHouse, AMTD, and TradeStation; 
2) Positive on FDX: Fears about growing competition from AMZN are likely misplaced, as are key-customer concerns, and the share price could rise 15-20% during the next year; 
3) Positive on ILMN: Company's share took a hit amid the overall collapse of biotech and healthcare stocks, but the gene-sequencing company-which dominates its market-should rebound with solid revenue and earnings growth; 
4) Positive on Smurfit Kappa Group: Irish packaging company's shares could see a 40% boost in the next 12 months if performance continues to improve following its debut on the London Stock Exchange; 
5) Profiles of the 30 global leaders who made Barron's list of the World's Best CEOs.

Tech Trader: Cautious on TWTR: Shares are down 27% this year and 64% during the past 12 months, a sign founder Jack Dorsey's return as CEO hasn't helped; Though Twitter has a massive audience, Wall Street thinks it isn't "mainstream," but may eventually have to accept that it's best seen as a strong niche player. 

Trader: "The market's valuation, at 17 times consensus analyst earnings-per-share estimates for 2016, looks stretched again, given that easy monetary policy and rising oil prices-not earnings growth-are responsible"; Determining whether there's any value left in VRX's assets will take time, but for now "it remains an uninvestible trap with too many unknowns"; David Zion of CS says companies in the S&P 500, excluding financials, hold at least $750B in cash overseas, up from $690B a year ago-and for some firms, the money is a significant part of their market cap. Interview: Joel Tillinghast, portfolio manager, Fidelity Low-Priced Stock fund, buys only stocks priced less than $35 and looks for a highly visible discount to fair value (picks: ANTM, KEYS, BBBY). 

Profile: Anne Walsh, chief investment officer at Guggenheim and co-manager of the Guggenheim Total Return Bond fund, seeks to minimize the effects of behavioral biases (top ten holdings: asset-backed securities, non-agency MBS, U.S. Treasuries & Agencies, high-yield corporate bonds, investment grade corporate bonds, bank loans, commercial MBS, preferred securities, municipal bonds, military housing bonds). 

Follow-Up: Cautious on TSN: Company's move into prepared foods lifted shares by 66%, and there is more growth in store, but the stock's valuation is high, and investors may want to take their profits. 

European Trader: Positive on NN Group: Insurer and asset manager "could offer investors a degree of protection in today's challenging markets. Its shares look cheap despite solid fundamentals, and they could climb 20% or more in the next 12 months." 

Asian Trader: Despite criticism from abroad, the Bank of Japan's negative rates haven't stalled the yen, which has gained on the dollar, but that strength undercuts consumer confidence. 

Emerging Markets: A weak dollar might help Brazil, but it needs domestic infrastructure projects, which are unlikely to come because of the country's debt burden and political morass. 

Commodities: "Copper prices are heating up after a long downturn," but investors should be wary because the rally is being driven more by market momentum than fundamentals. 

Streetwise: GS strategist David Kostin added BMY, NKE, and SHW to his basked of strong-balance-sheet stocks; REGN, which is also on the list, has taken a hit this year, but investors should focus on its pipeline.