So far, so good. Â
We’re past the Fed but we’re heading into the two busiest weeks of Earnings Season and next week we have Options Expirations so it should be interesting, to say the least. Though a lot of companies have been missing – traders have been in a generally forgiving mood other than, notably, the energy sector, which has seen people fleeing no matter how good the results were. Â
Although only 203 companies actually beat expectations and only 51 upgraded their guidance, 249 companies made positive moves after their earnings reports and, with almost exactly half of the S&P 500 having weighed in, it’s time for us to do a little shopping. Â
On deck this week we have a lot of big names still to go and it’s a very quiet data week as well, so all eyes will be on these earnings – especially with just the one Fed speaker (Harker) – and that’s Friday after the close. Â
Not much going on this weekend – we shot down that pesky balloon China sent us, Beyonce won more Grammies and Turkey & Syria had a huge earthquake(1,700 dead so far). None of that changes our investing premises so we’re sticking with our current plan until it stops working.
We have over 100 buying opportunities on our Watch List (Members Only) and we have another 100 long positions in our 8 Member Portfolios. First we will review our long positions and decide which ones no longer serve our purpose (based on new information) and which ones can be improved upon. THEN we will hit the Watch List and look for new stocks to add – AFTER we make sure we are adequately hedged for a downturn (see Friday’s Live Member Chat Room for that discussion).Â
We’re having a bit of a sell-off this morning but 4,120 on the S&P 500 and 12,550 on the Nasdaq are nothing to worry about (4,000 and 12,000 holding are bullish) so we’ll just have to see how the week goes as we get ready to do some shopping. Â
Good Morning
John Mauldin, a well respected economist, calling for the S&P at 3200 by years end.
Thoughts from the Frontline Its a good read if you dont follow him.
He writes for us – or he used to – I’ve lost track. I like his stuff.
i scanned through it. he quoted Jeremy Grantham as calling for 3200, but I don’t think Mauldin himself committed to that. Mauldin said he’s definitely in the ‘higher for longer’ camp and thinks the basic tightening of the Fed will cause volatility in 2023, but says vaguely we may ‘muddle through,’ whatever that means. Whichever way market goes in 2023, Mauldin could legitimately claim his letter anticipated the outcome. NOW THAT’S classic Mauldin.
really nobody knows, so we keep our balanced portfolios with some hedges.
Yep.
Good Morning.
Good morning!
The Nasdaq has been leading us higher this year, up 1,500 (13.6%) vs SPX 8.4%, RUT 12.8% and Dow maybe 1% (hardly trying). Europe is up 10.7% and Japan is up 8.2% and the Dollar down 10% since November but was already down to 104 in Jan so 103.5 is not an exciting drop for the year.
Oil is back where we started the year but Nat Gas is down about 40%.
Notes ran up (lower interest) for no reason at all and are coming back down.
By the way, if you want to know how Futures trading works, here’s me on 12/22:
That’s all there is to it, just read the news and think about what’s going to be affected.
Gold and Silver are holding up for now:
Steaks are getting expensive again:
Phil,
Did you ever find an answer to your own question, Friday – and everyone else’s – as to why The Fed only raised 1/4 pt when they knew in advance (surely) that the jobs numbers would be >500K when only 188K were forecast? …just curious and amazed.
Thanks
read my John Mauldin link. Basically he’s in the “higher for longer camp”
There’s a lot of stuff that doesn’t make sense at the moment. This rally makes no sense and I guess the Fed backed themselves into a corner letting the market think there ware about one and done for the year and, even though they said they certainly are not done – no one seems to believe them anyway.
https://pbs.twimg.com/media/Fn5mb_YWIAAZKrW?format=jpg&name=medium
The Fed is a bit more optimistic than the Economorons at the moment and they’ve all gone from “Recession is Coming” to “No Recession” in the past 3 months but below 1% growth when inflation is 6% is not really not a Recession, is it?
It’s all games. The minute you realize they have “modifiers” in their data calculations, you know it’s all BS anyway.
CMI, for example, was in-line this morning and they are up 25% since their last report – even thought the earnings are exactly what they predicted in October. Also, 2022 profit was $2.2Bn and 2023 is expected to be $2.75Bn but 2018 was $2.78Bn and 2017 was $2.3Bn and the stock was $150 back then, 40% lower.
Earnings PER SHARE, however were only $10.60 in 2017 and $13.20 in 2018 and now they are about $15. Why, because there are less shares due to buybacks.
So these companies aren’t making more money, they simply have less shares to divide the money by. That strategy works up to a point and, as a new investor, it doesn’t matter much because you get more back for each share you own. The thing is, it’s a self-defeating strategy since EPS is made in favor of R&D spending and expansion.
However, perhaps the reality is that most companies can’t grow, no matter how hard they push. If the World isn’t jumping up in population and that population is aging – where is the growth going to come from? That’s why China’s running around Africa trying to kick-start their economies – to create more customers.
Africa’s 1.2Bn people have a $3Tn GDP, $2,500 per person. The rest of the World is $96Tn/7Bn = $13,714 so, in theory, we could push Africa up the ladder (and India, same $3Tn) and that would expand the World Economy – but it would also be environmentally catastrophic.
$GOLD some nice 2025 calls bought in the $17’s and $20’s, both at the asked price
Some happy talk:
And the rest:
This list is good, let’s check it out:
Top 10 Large-Cap Stocks with Lowest P/E Ratio Valuations
No. 10: American International Group (NYSE:AIG) P/E Ratio 3.47.
No. 9: Porche Automobil Holding SE (OTCPK:POAHY) P/E Ratio 3.45.
No. 8: Ecopetrol (EC) P/E Ratio 3.39.
No. 7: Ovintiv Inc. (OVV) P/E Ratio 3.30.
No. 6: Eni S.p.A. (E) P/E Ratio 3.24.
No. 5: Stellantis (NYSE:STLA) P/E Ratio 3.32.
No. 4: ArcelorMittal (MT) P/E Ratio 2.23.
No. 3: Petroleo Brasileiro (NYSE:PBR) P/E Ratio 1.92.
No. 2: Liberty Global (LBTYA), P/E Ratio 1.87.
AIG, of course, was a disaster in the Financial Crisis but $59 is $44Bn and they dropped $3.7Bn to the bottom line so 12x but they project $4.7Bn in 2023 and that’s under 10x – I have no idea where they get 3.47. The thing about AIG is they lost $6Bn in 2017 and $6Bn in 2020 so very volatile. They are also on this list (also worth a look):
I do like Insurance Companies with lots of reserves as higher rates give them more profits on their bonds. AIG is sitting on about $500Bn of “safe” investments so +2% is $10Bn more coming in.
They do have $53Bn in debt and we assume that’s going to hit them for $2.5Bn but, with their assets, it should more than balance out in their favor.
Earnings are on the 15th and I’d like to see them. The stock is high in the channel at $60 so no reason to rush in.
https://charts2.finviz.com/chart.ashx?t=aig%20\&p=w&s=y
Porsche we don’t have in the US or I would have bought them years ago.
EC is another South American Oil Company we never bother with – not because there’s anything wrong with them but because it’s generally unstable down there and not worth the additional risk. Oh, and you have to convert the currency – that drives me nuts. EC is Columbian so the $36Bn Columbian Pesos is “only” $7.7Bn and the company at $10.50 is $22Bn so yes, 3x earnings but the earnings aren’t at all normal. They made more like $3.5Bn in 2021 and $360M in 2020, which would make $22Bn ridiculous.
Their debt is a very real $19.6Bn and that was half in 2017 – it’s all fun and games while prices are rising but, when they start declining again, you no longer have the profits but you still have the debt so – no thanks.
OVV – More energy, I guess that’s a theme as screeners don’t know they are dealing with one-hit wonders. These guys used to be Encana (ECA) – not sure why they changed – some merger, I imagine. Kind of the same story, they were scraping by with wins and losses and now they are having a boon but projections for 2023 seem silly ($3Bn) with nat gas back at $2.40. Had the stock come down to match, I might like it but not at $45 ($11.5Bn) when their average earnings were under $1Bn prior to last year.
E – More Oil. At least they are big on LNG but they are in Europe and ECB is very serious about killing their business. Didn’t stop them from making 13Bn Euros (kind of like Dollars now) last year and they say 9.7Bn in 2023 and $29.50 is $52.5Bn but that’s not that cheap and 3Bn was their pre-war reality so not that interesting and also top of the range.
STLA is easy, we bought them.
MT we used to have but we took the money and ran when they started shutting down furnaces. They are still up in the channel and $29.33 is $25Bn and all steel companies are all over the place with earnings but last year was a nice $9.6Bn and 2023 they expect $3Bn, which still isn’t bad for $25Bn but what have they done with the excess profits? THEY PAID DOWN DEBT!! No wonder I love them… Debt is down to $4Bn from $10Bn a few years ago. So I like them and I’ll love them if they geb back to $20 – or at least under $25.
https://charts2.finviz.com/chart.ashx?t=mt%20\&p=w&s=y
PBR is another one we sometimes play. $10.83 is $70Bn and they make $34Bn but back to $20Bn they say for 2023 and that’s the same as 2021 but, before this, they were lucky to make $7Bn. Debt is $50Bn so it’s not something I’d really like to play with unless they get crazy cheap. The biggest problem they have is prices are fixed in Brazil so they are selling gas for under $1/gallon – they still make money (low costs) but how much do you think they cry that they can’t ship it out and make $100Bn like XOM?
LBTYA is a UK Telco and you don’t want to ride this pony. $2.5Bn in 2022 may have looked nice to a screener but 2023 is break-even and 2020 they lost $1.6Bn and 2019 and 2021 they made more than $11.5Bn and 2017 they lost $2.7Bn – you never know which Liberty is going to show up. $20.55 is $10Bn in market cap and they have $9.7Bn in debt (the whole company) and that’s only after paying it down from $30Bn in 2017. So yes, I like that they paid down debt and if there weren’t projecting break-even in 2023 I might but more interested but let them bottom on no earnings and then see if they still look interesting.
So MT, STLA, AIG are the ones we agree with here and one we’ve got and MT we always buy when it’s cheap and AIG was so bad in 2008 it’s hard to love them again but maybe…
STLA is already out of the stable
STLA – What was the trade on this one?
I got the Jan 24 15/20 with a 17.5 put
Yodi, I think you can buy back the Jan 24 20 calls to match the LTP
It’s in the LTP – I just mentioned it was off to a slow start and still playable in the last review. https://www.philstockworld.com/2023/01/17/philstockworld-january-portfolio-review-4/
Still only net $5,500 and we haven’t even re-covered yet.
https://charts2.finviz.com/chart.ashx?t=stla%20\&p=w&s=y
From November 25th, when we were looking at Watch List Candidates:
The original trade was 8/18:
STLA/Jeddah – Primary revenues in Euros make them a little odd as we have to consider currency impacts differently. They are Chrysler/Dodge, Fiat, Alfa Romeo, Jeep, Maserati and, of course, the EU brands. About $170Bn in sales, $48Bn ($15/share) market cap and, like most auto makers – undervalued with $15Bn in profits so close to 3x p/e is just silly. Not only that but they have $20Bn cash net of debt so winner, winner – especially as they now have very liquid options.
We bought back the short calls when the stock dipped and we’ve been patiently waiting to cover again.
Phi STLA pays a 6.6% dividend Can you suggest a Dividend play?
—- I’m think buy shares and sell the the ’25 $15 puts ( 2.2 ) and selling 1/2 Jan ’24 $ 17.5 Calls at 1.25). Do you see something better?
If you sell the Jan25 17 or even 20 put for 3.50 5.50 you got no cash outlay and you do better than the div play
Porsche listed an adr in September, POAHY. They do pay a dividend once a year, but Schwab says the % is from other sources. Maybe its 3% but not sure. also no options, of course
Buy 1000 STLA @ 16.15, Sell 15 Jan ’25 calls for $2.5, sell the 15 puts for $2.5, drops net to 11.15.
It Increases your yield to 10% for 2 years, and get called away at 15 for a 36% return + the 20% yield (2yr cumulative) is 56%. Or you own another 1000 at 12.50, Which isn’t so bad…. and do it again, rinse wash repeat…. Like Phil say, when your worst case isn’t so bad, it’s probably worth doing.
STLA: You’re right, could go in the Dividend Portfolio, let’s remember that.
At $16.12 it’s perfect for selling options. I don’t know if I’m comfortable targeting $20 so yes, the $17.50s but I’d rather get $2 for the 2025 $17s than $1.25 for the 2024 $20s. May as well get paid up front and have more safety.
I agree with Yodi though, you can just sell the puts but there is something to be said for working the basis of a long-term dividend payer down to 0 because then you can leave it to your family and you don’t have to worry about them managing it.
That makes the net $14.12 called away at $17 and then we can talk puts. The 2025 $15 puts are $2.25 so net $12.75 seems comfortable if assigned and ($12.75 + $14.12)/2 = $13.435 so that’s a reasonable 20% below the current price.
Dividends are $1.09 so $2.18 for 2 years brings us down to net $11.25 – not bad for 2025 and up $5.74 (51%) if called away at $17 but, if not, another $4.25 + 2.18 off in 2025/6 brings us down to net $4.82 and before 2028 (5 years!), we’ll have ourselves a free stock and we can start all over again.
It’s boring but if you run another cycle, in 2033 you’ll have 2 sets of free stocks with all the money back (2x what you started with) and in 2038 4 sets and 4x cash in 2041 – not even 20 years from now, you have 8 sets of stock paying you dividend and 8x the cash you started with.
As slow as it seems, you’ll have 16x in 18 year – almost 100% average annual gain.
So, if you want a ballpark. Start by doing this with a stock where the dividend covers 10% of your salary. With STLA, paying $1.09, you need 10,000 shares ($161,200) to cover $10,900.
If all goes to plan, in 18 years you should be collecting $87,200 in dividends from 80,000 shares (and they should keep up with inflation) and you’ll have $1,289,600 in CASH!!! – unless you wisely set up some other chains with your winnings.
So is that worth putting $161,200 to work today?
Oops, you don’t actually need $161,200 – it’s net $142,120 to start.
Phil, what would be a new options strategy on UNG? Or is the earlier 100 – 10/15 2025 bull call spread with selling 50 of the 2025 10$ puts still good?
We added the 100 2025 $10/15 spread on 1/10 and now it’s at $8.50 but a little early (3 weeks) to be adjusting our 2-year trade, right? We sold the $10 puts – I don’t think that’s a stretch and the bull call spread is down $5,000 in our $3.8M STP – so not a matter of life and death.
The idea is to give things quarters to develop, not days.
If it’s a new entry, the $10s are $3.25 and the $15s are $2.40 so net 0.85 on the $5 spread is nice and cheap. The $5s are $4.80 so that spread with the $10s is $1.55. Is it worth 0.70 more to be $5 lower in strike? Probably.