We are finishing a weak week weakly.
It’s only been 4 days but we’ve done a lot of damage in the first 3 of them and today does not look like it will improve things. In earnings last night, CNXC, NFLX and SVB all missed while OZK and FFIN were in-line and PPG had a small beat. ERIC already missed this morning with RF and SLB posting small beats.
NFLX wasn’t as bad as feared so not too much damage from them (we’re long) but the first week of earnings has, on the whole, sucked. Next week, about 20% of the S&P 500 will report and we’ll have a much better idea of what’s happening under the hood of Corporate America but we’re going into the weekend “Cashy and Cautious” and very well-hedged.
In fact, our Short-Term Portfolio (STP), which hedges the longs in our other portfolios, finished the day yesterday at $3,944,630 (up 1,872% since 10/28/20) and that is up $209,175 (5.6%) from Tuesday’s review – where we made no changes.
Of course we have $3,665,978 (93%) in CASH!!! (winnings from previous cycles) so the real story is our net $69,578 in active hedges from Tuesday are now net $278,653 and that’s up $209,075 (300%) in two days on a 2.5% drop in the market. Since the upside potential of our STP is roughly $5M on a 30% sell-off, we’re right on track and this week has been an excellent test of our hedging portfolio.
As I said in Wednesday’s Webinar, now we have to find things to go long on so we can hedge our hedges but our bias at the moment is to the downside and we’ll make a lot more on a 20% drop than we would on a 20% pop. That means, if earnings don’t stay bad and economic data doesn’t stay bad – we’d better find some more longs to buy!
Last month, in our Portfolio Reviews, we made very few adjustments as we decided to wait for earnings to get better information. The S&P 500 was at 4,000 then and it’s at 3,925 now – so no harm in waiting and, as noted above, we’re very well-hedged.
We have a Watch List of 100 stocks we’d love to buy if they get cheaper and, if they don’t, we will pick up the laggards on the way up but we also have over 100 positions in our Member Portfolios and our first priority is to adjust them to take advantage of any dips because – if they are in the portfolio – we MUST like them even better than our Watch List Positions, right?
We got more aggressive with UNG in the Short-Term Portfolio because we believe, over time, that Natural Gas prices will settle around $4.50 (now $3.20) but JO, on the other hand, is the Coffee ETF and Brazil, where 40% of the World’s coffee is grown, just had huge rain like California – and they are projecting 16% better crops this year – so the data has changed since our investment and we’re going to be less bullish going forward.
It never makes sense to use up your buying power on new positions if you haven’t optimized the positions you already have, does it?
So that’s our plan for today and next week we’ll see how earnings look and we’ll also get Leading Economic Indicators on Monday, Durable Goods and GDP on Thursday along with New Home Sales and Friday it’s Non-Farm Payroll ahead of the Feb 1st Fed Meeting – fun, Fun, FUN!!!
Have a great weekend,
-
- Phil
Good Morning.
Good morning!
Nothing so terrible but nothing so great either – a perfect day to finish up our Portfolio Reviews (just finished the Butterfly).
Here’s some stuff not to worry about:
• Don’t bet on the Davos consensus: Davos is a lot of things: elitist, cold, kinda cabal-y. But it’s also wrong, like, all the time. The “Davos consensus” as contra-indicator: it missed the 2008 crisis, Brexit, Trump, the rise of nationalism & balkanization, and of course the pandemic. (Semafor)
• How Davos’ World Economic Forum became such a big deal: A look at why the meeting of bigwigs actually, kind of matters. (Grid)
• The Age of Free Money Is Over. But There Are Still Plenty of Opportunities: Bullish or bearish, our 10 panelists help make sense of increasingly complicated market dynamics. The optimist sees bubbles and thinks champagne. The pessimist thinks Alka-Seltzer. So it goes with investors, too, including the 10 on this year’s Barron’s Roundtable. Some consider last year’s steep losses in stocks and bonds a necessary cleansing that set the stage for renewed rallies and lofty returns. Others simply see it as the first leg down in a protracted bear market. (Barron’s)
• The Crypto Collapse and the End of the Magical Thinking That Infected Capitalism: Dogecoin. WeWork. The Metaverse. It was an era of illusory and ridiculous promises. (New York Times)
• Are Declining Interest Rates Responsible for Stock Growth? While declining interest rates have been responsible for stock growth (at least at the extremes), interest rate changes don’t always determine our investment destiny. What does though? Fundamentals:. (Of Dollars And Data) see also The Long-Term Wins: These periods do seem arbitrary but the changing of the calendar from one year to the next offers a good chance for market nerds like myself to update some long-term market data. (A Wealth of Common Sense)
• Tight Money Will Pressure Startups to Sell in 2023: Startups holding out for an IPO or Figma-scale acquisition are likely to be disappointed (Businessweek)
• Globalization Isn’t Dead. But It’s Changing. Multinational companies still want cheap and efficient markets, but they also want safety. That’s why they’re rerouting the pathways of global trade and finance. (Wall Street Journal)
• China’s Reopening Is the Boost the Flagging World Economy Needs: The easing of Covid restrictions will unleash pent-up demand for commodities, consumer goods and travel. (Businessweek)
• Crypto Is Just a ‘Hot Ball’ of Momentum-Chasing Money: This is what happens in the absence of fundamentals. (Bloomberg)
• About those inflation expectations: The fact that inflation expectations do not matter is probably because normal people on the street simply do not understand how inflation and interest rates work. (Klement On Investing)
• Shopper Rebellion Against Higher Prices Helps Slow Inflation: Companies are hitting the brakes on price increases after wary consumers limit their buying; ‘They want to save money and raising prices is not an option.’ (Wall Street Journal)
• Commodities have largely erased last year’s spike: Commodity prices got heaps of attention on the way up, but their drop hasn’t generated anywhere near as many headlines. That suggests to us that there is a lot of room for sentiment to catch up to reality on this front, boosting stocks along the way. (Fisher Investments) but see also Mapping the Death of NYC’s Cheap Slice: Inflation is ratcheting up the price of pizza in New York City. One man tracked more than 450 purchases over eight years to quantify the troubling trend. (CityLab)
• Rental Housing Is Suddenly Headed Toward a Hard Landing: While investors were focused on fears of a collapse in the homebuying industry, a crash in the apartment market has been taking shape. (Bloomberg)
• How Much Income Do You Need to Be Rich? Based on the 2019 Survey of Consumer Finances, what are the top 10%, top 5%, and top 1% of household incomes in the U.S.? We take a high level overview of how much income the highest earning households make so that you can determine for yourself what it means to be rich (Of Dollars And Data)
• Obamacare Is Everywhere in the Unlikeliest of Places: Miami. A decade after the Affordable Care Act’s federal health insurance marketplace was created, its outsize — and improbable — popularity in South Florida persists. (New York Times)
• EVs Made Up 10% of All New Cars Sold Last Year: Worldwide, sales of electric vehicles in 2022 passed 10% market share for the first time; 11% of total car sales in Europe (Plug-in hybrid vehicles were another >9%), EVs were 19% in China, and 5.8% in U.S. (up from 3.2% in 2021). (Wall Street Journal) see also 5 unintended consequences of the EV revolution: EVs are going to change our cars — and how we drive. (Vox)
• How the World’s Most Valuable Carmaker Fell Perilously Behind on Electric Vehicles: Toyota spent years treating electric cars like the enemy; Once a pioneer in green transportation, the company is now uttered in the same breath as Exxon. What happened? (Slate)
• What Exactly Is Going On With Tesla? Dana Hull: In 2022, Tesla lost 65 percent of its value. Not shocking—a lot of big tech companies also saw their shares get decimated. But when the share price is down that [much], and it happens to be a year where Elon Musk also bought Twitter, and it happens to be a year when there’s just a lot of questions about what he is doing—is he really focused on Tesla or not?—the sentiment shifts, and so you’ve seen negative sentiment creep into the market. (Slate)
• Microsoft Bets Big on the Creator of ChatGPT in Race to Dominate A.I. As a new chatbot wows the world with its conversational talents, a resurgent tech giant is poised to reap the benefits while doubling down on a relationship with the start-up OpenAI. (New York Times)
• Two research teams reverse signs of aging in mice: But doubts remain about whether cell reprogramming technique could one day help humans. (Science)
• Scenes from Tampa’s ‘dead mall,’ alive with nostalgia: At the transforming University Mall near USF, some still shop and work, while others come for the vibes. There is no imminent danger of the American shopping mall going extinct, but it’s certainly endangered, down from 2,500 at peak mall to around 600 today, according to Nick Egelanian, president of retail consultancy SiteWorks. He believes maybe 150 will survive the next decade. Some see closures as a corrective to American over-malling, spurred not so much by consumerism as by changes in tax law that made malls a low-risk cash bonanza for builders via depreciation write-offs. (Tampa Bay Times)
Phil, i am looking at BHP 2025 57.5- $67.5 bull call spread is only 5.05. The 2025 $52.5 put is 5.90. i get net credit. and if i sell shorter term calls and puts, would that be a good idea. thanks for you input
I haven’t paid attention to those guys in ages. Even in 2020, they made $8Bn and now back to $15Bn and $69 is $175Bn so all is well at about 11.7x. They have no debt with an extra $800M in the bank so that’s good too so yes, great for a long-term hold but I wouldn’t expect huge growth in the next couple of years.
That being said, the conservative spread you are setting up for a net credit is very wise.
Also Phil, CF industries should benefit from lower natural gas prices. what do you think of this company
I wouldn’t count on /NG staying low.
CF though, is a nice little company making about $3Bn and that’s up from $300M in 2019 and you can still buy the whole thing for $16.75Bn at $86, so a very good deal at under 6x.
That’s good enough we should add it to one of the portfolios, actually – good call!
some PFE 2025 puts are trading today . I sold a few $40 puts that Phil mentioned for $3.70
PFE is always good when it goes on sale.
a quiet day in here today. I noticed you could sell at the money $250 ALB 2025 calls for $65 +
thats a lot of premium considering 10% of the cars sold were EVs per article below
And ALB is generally a good company at $28Bn ($250) with $3Bn dropping to the bottom line and only $2Bn in debt (so take off $100M for more interest).
It’s 1pm and I’m up to BABA in the LTP so questions will be answered on the weekend.
LTP is done with an hour to spare!!!
I need a nap…
Looks like we decided to rally so good job people.
Wow, 3,980 on /ES.
No worries at all.
Philadelphia Fed President Patrick Harker on Friday said he expects 25 basis-point rate hikes to be appropriate going forward and anticipated that the central bank would need to raise rates a few more times this year.
Earnings week ahead: Tesla, Microsoft, AT&T and more
TSLA +4.71%
Jan. 20, 2023 12:16 PM ET
3 Comments
The first earnings season of 2023 picks up significant steam in the final full week of January. A broad sampling of companies is set to report, including high-profile representatives of the transportation, defense, consumer staples, tech, telecommunications and energy sectors.
Headliners for the week ahead include Tesla (NASDAQ:TSLA) and Microsoft (NASDAQ:MSFT). Those key reports will be joined by results from payment processors Visa (V) and Mastercard (MA), energy sector giants Baker Hughes (BKR) and Chevron (CVX), as well as semiconductor stalwarts ASML Holding (ASML), Lam Research (LRCX) and Intel (INTC).
Below is a curated list of earnings results expected in the week of January 23 through 27:
Monday, January 23
Baker Hughes (BKR)
Baker Hughes (BKR) is set to post its fourth quarter earnings update before the bell on Monday. Shares of the Houston-based energy and technology company rose sharply in 2022 and has added a double-digit gain early in 2023.
To start the year, the company announced it had won a contract to supply carbon dioxide compression equipment to Petronas’ Kasawari carbon capture and storage project offshore Malaysia, projected to be the world’s largest offshore CCS facility. In other news, the company’s proposed acquisition of Altus Intervention is under scrutiny in the U.K., with the country’s Competition and Markets Authority advising that the deal could be anti-competitive.
Tuesday, January 24
Microsoft (MSFT)
Microsoft (MSFT) is expected to post its fiscal second quarter earnings results after the bell on Tuesday. Shares of the software giant fell over 20% in 2022, retreating to levels last seen in early 2021. Nonetheless, Seeking Alpha surveys reflect a Strong Buy consensus among sell-side analysts.
According to Wedbush Securities, cloud growth via the firm’s Azure unit was “better than feared” in Q4 and likely to show strength into 2023. “While Azure growth has clearly decelerated in the field we believe MSFT should be able to exceed its 37% Azure growth target (constant currency) in the December quarter,” equity analyst Dan Ives said ahead of the report.
Ives added that talks to integrate OpenAI’s ChatGPT into properties like its Bing search engine could be a “gamechanger” to be unveiled in 2023. Morgan Stanley analyst Keith Weiss also lauded the reported talks between the two companies.
Meanwhile, Microsoft has been vocal about efforts to tighten its belt in 2023. In a letter to employees in the week ahead of the results, CEO Satya Nadella said the company aims to lay off 10,000 employees around the world and take a $1.2B charge related to the job cuts for the reported quarter.
Defense sector spotlight:
Raytheon Technologies (RTX) and Lockheed Martin (LMT) are both due to report on Tuesday, followed by reports from Boeing (BA) Textron (TXT), and General Dynamics (GD) on Wednesday. Northrop Grumman (NOC) and L3 Harris Technologies (LHX) are expected to report as well, rounding out the week on Friday.
The defense industry outperformed in 2022 amid geopolitical tension embodied by both the war in Ukraine and saber rattling in the South China sea. However, the deal that allowed lawmaker Kevin McCarthy to become Speaker of the House of Representatives has signaled a potential cutback in defense spending. Additionally, Goldman Sachs recently downgraded a number of defense names on both spending deceleration and valuation concerns.
Elsewhere, L3Harris (LHX) agreed to purchase Aerojet Rocketdyne (AJRD) in December. This came after Lockheed Martin’s (LMT) previous bid for the propulsive system manufacturer was terminated amid an FTC lawsuit filed on antitrust grounds.
Also reporting: General Electric (GE), Danaher (DHR), Johnson & Johnson (JNJ), 3M (MMM), Halliburton (HAL), DR Horton (DHI), Texas Instruments (TXN), Union Pacific (UNP), and Canadian National Railway (CNI)
Wednesday, January 25
Tesla (TSLA)
Tesla (TSLA) will be among the most closely watched reports of the week, with its results due out after the bell on Wednesday.
Shares of the Austin-based EV manufacturer recorded a stark decline in 2022, falling over 60% as CEO Elon Musk’s Twitter purchase proved a significant distraction and financial burden, according to analysts. While shares have roared back in the early part of 2023, rising 20% in the year’s first 20 days, the stock remains a far cry from its highs of late 2021.
So far in 2023, the automaker has moved to slash prices in both China and North America, which analysts have attributed to both tax and demand considerations. The company has also delayed the expansion of its Shanghai Gigafactory after pulling back production in China around the turn of the year.
Analysts remain broadly bullish on the stock with a consensus Buy rating reflected in Seeking Alpha surveys. However, the average price target has fallen to about $198 after a slate of target cuts to start 2023, $100 lower than the average target prior to the automaker’s October earnings release. Revenue expectations have been revised downward 17 times in the 90 days prior to the earnings release, according to Seeking Alpha data.
AT&T (NYSE:T)
AT&T (T) is due to post its fourth quarter earnings update prior to the opening bell on Wednesday, joined by Verizon (VZ). The consensus sell-side rating on T turned to Buy late in 2022, according to Seeking Alpha surveys. To start 2023, Wells Fargo named the stock a top pick.
In December, the telecom giant announced a joint venture, known as Gigapower LLC, with BlackRock (BLK) Alternatives to provide a fiber network to internet service providers and other businesses across the U.S. CFO Pascal Desroches indicated the partnership is part of the company’s planned expansion beyond its current footprint.
Also reporting: ASML Holding (ASML), IBM (IBM), Abbott Labs (ABT), Group 1 Automotive (GPI), Kimberly Clark (KMB), Lam Research (LRCX), Wynn resorts (WYNN), Las Vegas Sands (LVS), Levi Strauss (LEVI), Hess Corporation (HES), Packaging Corporation of America (PKG), Wolfspeed (WOLF), Knight-Swift Transportation (KNX), Crown Castle (CCI), CSX Corporation (CSX), and Norfolk Southern (NSC)
Thursday, January 26
Intel (INTC)
Intel (INTC) is due to post its fourth quarter earnings results after the bell on Thursday. While shares of the California-based semiconductor company fell nearly 50% in 2022, the stock has rebounded sharply to start 2023. Since the start of the year, shares have marked a double-digit gain.
In the 90 days prior to the earnings results, EPS estimates have been revised downward 30 times while revenue expectations have been reeled in 24 times. The consensus rating on the stock among analysts remains a Hold.
In terms of corporate news, China’s antitrust regulator has reportedly put a pause on the chip company’s proposed $4.5B acquisition of Tower Semiconductor (TSEM). Intel had previously forecast the deal to close in the first quarter of 2023.
Southwest Airlines (LUV)
Southwest Airlines will headline the week’s earnings reports for the airline sector, alongside American Airlines (AAL), which pre-announced its results weeks prior to the official report.
For LUV, investors will be looking for the financial consequences of the canceled and delayed scores of flights around the Christmas holiday. The company also set to face Senate hearings and high reimbursement costs as a result. The carrier also saw an elevated level of cancellations amid recent FAA outages, according to FlightTracker. Executives indicated a number of operational changes will be pursued in 2023 following the high-profile snafu.
Bank of America analyst Andrew Didora views these changes positively, advising clients that the current share price presents a bargain. After meeting with executives, he reiterated his Buy rating on the stock about two weeks prior to the results, in line with the Street consensus.
Additionally, the airline reached a new agreement with major unions ahead of the results.
Payment processor sector spotlight
Both Mastercard (MA) and Visa (V) are expected to report prior to the opening bell on Thursday. Both stocks outperformed the broader market in 2022, seeing a boost from year-end holiday shopping and continuing positive trends into 2023. Both stocks have been favorites among analysts and hedge funds as well. Recently, Credit Suisse named Visa to its “top of the crop” list to start 2023 and Goldman Sachs data highlighted Mastercard’s (MA) prominent place in hedge fund portfolios.
On a company-specific basis, Mastercard (MA) announced a $9B buyback program to close 2022 and expanded cross-border payment capabilities. Meanwhile, Visa (V) also benefited from an update to allow cross-border remittances for the international money transfer service, Xoom. The service is a partnership backed by both Visa (V) and Paypal (PYPL).
According to the Wall Street Journal, both payment processors are the subject of an FTC probe on competition in payment processing. Bloomberg has also reported that a group of congressional lawmakers are seeking to break up the duopoly. Mastercard (MA) was ordered to provide competing networks with customer account information necessary to process debit payments by the FTC in late December.
Also reporting: Alaska Airlines (ALK), American Airlines (AAL), Comcast Corporation (CMCSA), Nucor Corporation (NUE), Archer-Daniels Midland (ADM), Dow Chemical (DOW), Tractor Supply Company (TSCO), Rockwell Automation (ROK), Nokia (NOK), and STMicroelectronics (STM)
Friday, January 27
Chevron (CVX)
Prior to the opening bell on Friday, Chevron (CVX) will post its fourth quarter earnings results. Shares of the California-based energy giant rose sharply in 2022, racking up big profits alongside much of the oil and gas industry.
Shortly before the earnings announcement, Bank of America downgraded the stock and called it “a victim of its own success”. Mizuho also downgraded CVX on similar valuation concerns. Still, even with these cautious turns, the consensus sell-side rating remains a Buy, according to Seeking Alpha surveys.
Catalyst watch: Tesla reverberations, Intel earnings, Rocket Lab launch and Macau stocks on holiday
SPY +1.66%
Jan. 20, 2023 2:30 PM ET
Welcome to Seeking Alpha’s Catalyst Watch – a breakdown of some of next week’s actionable events that stand out. Check out Saturday morning’s regular Stocks to Watch article for a full list of events planned for the week or the Seeking Alpha earnings calendar for companies due to report.
Monday – January 23
Tuesday – January 24
Wednesday – January 25
Thursday – January 26
Friday – January 27
Big finish to the week so everything is great, I guess.