Shesa's APRIL 2015 INVESTMENT BLOG

            12 April 2015

APRIL 2015 Investment Blog

Shesa Nayak  

U.S. Stock Market Commentary

Hello and Welcome to my April investment blog.

The DOW Jones closed last Friday at 18,057.65, S&P 500 closed at 2102.06 and NASDAQ closed at 4,995.98 points. Again, DOW and S&P have gone over the key milestones and NASDAQ is on the doorstep. There were many important events last few days/weeks. Federal Open Market Committee (FOMC) minutes were released last week. The Fed do not seem to have any intention of raising key interest rates as long as the dollar is strong, crude oil prices are low, employment growth is decelerating and GDP growth is slowing. That’s good news for the stock market. The aforesaid facts along with other economy news (see below) excited the investors and market bounced back in last few days.

Other Economy News

China is opening a trading link between Shanghai and Hong Kong stock exchange that spiked both Hong Kong and Shanghai stocks in last few days. Many Chinese investors are trying to diversify their investments to Hong Kong due to ongoing corruption crackdown in China. This year has also seen fastest pace for mergers and acquisitions contributing to stock market surge. But not all the pictures are so rosy. Let’s see some negatives:

On April 3^rd, job report showed the weakest American hiring in more than a year. American employers added a modest 126,000 workers to payrolls in March against the project 245,000 jobs. After the job report, DOW came down more than 100 points then bounced back more than 100+ points before closing, so also other indices.  The report eased some investors concerns that U.S. dollar would continue to strengthen and pressure the earnings of multi-national companies. Emerging-market currencies rallied, gold, oil and other commodities rose with dollar weakness. In international front, Europe, Japan and China markets have been going north and making new highs due to quantitative easing. This gives me a strong feeling that India will not be far behind cutting its interest rate as the inflation is well under control, around 5.3%. But only time can tell..

My thoughts on First Quarter (Q1) earnings

We are approaching 1^st quarter earnings season. In next few days/weeks we will see most of the S&P 500 companies reporting their earnings. What could we expect in this quarter? My feeling is that, current quarter earnings would be light particularly from the multi-national companies. Why is that? That’s mostly because of strong U.S. dollar. At least 5-10% of their profits will be evaporated due to strong dollar. Sales are expected to take a hit because the U.S. companies could get fewer dollars for their sales. Hence, we may very well see some earnings miss and tepid sales/profit forecast for next quarter. This could result into high fluctuations in the stock market. According to Yardeni Research, the forward price-to-earnings (PE) ratio of the S&P 500 is sitting at nearly 17, compared with just 10 in China, 11.7 in emerging markets and 15.5 in Japan. As a matter of fact, U.S. stock market is not cheap. Hence it may be wise to think global, beyond U.S. Stock market.

Why do I think crude oil might have stabilized?

I got some emails from friends asking me about my thoughts on oil. I can say that I am cautiously optimistic on oil. Here is why... As summer approaches, I think oil could recover to around $60-65 a barrel. Most investors thought oil prices to go down once a tentative deal is reached with Iran. In contrary, oil bounced back up to $54 and ending the week at $51.74 a barrel. On a cautionary note, if the actual deal between USA and Iran is reached in June than additional 700,000 barrels of oil is expected per day.  Last week, the EIA report showed that oil inventories reached an eighty years record-high of 471.4 million barrels. On the positive side, oil production will see the impact of sharply reduced rig counts in USA over the next couple of quarters. These in turn will slowdown oil production, resulting in less oil supply and increased prices. In spite of tepid economic performances, the global demand seen to be rebounding because of cheaper gasoline. One major concern is lack of storage for crude oil in USA. Assuming that production slowly recedes, demand increases and more crude refiners can process, the less crude will be there to put into storage. I read that U.S. refiners are on pace to refine more gasoline this year than at any time in the history. This eliminates some of the fear associated with dwindling storage capacity. Hence, I am cautiously optimistic about oil price. I do not see any significant gain in months/year time. But it could provide a trading range for investors. You can read more on my last months’ blog.

Next Investment Meet

Our next investment meet will be taking place on 26 April from 2-4pm at Wellness By All Means, 5500 Stewart Ave, Fremont, CA 94538. Readers are requested to make it convenient to attend.

Now let’s talk about our Blog portfolio. Last month I had included 3 ETF (ASHR, INDA and USO). I am pleased to see all those performed very well. Particularly, ASHR is on tear rising 23% in one month, followed by USO 10% and INDA 4%. It’s difficult to keep such performance but I do my due diligence to provide my readers the best possible information. So let’s see what is in store this month.

ICICI Bank Ltd. (IBN)

Indian stock markets have been doing substantially well during the tenure of Narendra Modi government. As I said earlier, India did cut interest rate a couple of months ago and I believe that it would continue to do so. Last month, I had mentioned about an Indian ETF (INDA). This month, I would like to add ICICI Bank (IBN) to the blog portfolio. ICICI bank with its subsidiaries provides banking and financial services to the corporate and retail customers. It offers commercial banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking and many other financial services. This is one of the largest private banks of India. Its ADR is traded in NASDAQ with symbol IBN. Why do I like this bank? As I said earlier, my feeling is that India would not be far behind the race of cutting interest rate as other countries are aggressively doing the same. If that happens, IBN will be one of the main beneficiaries. Whether that happens or not, I still think IBN is a good company. It is currently trading at $10.50, 21% discount to its 52 weeks high and looks cheaper to its peer HDFC Bank (HDB). It also pays a small dividend of 1.5%. I have been following IBN and HDB since a long time. My observation is that, these stocks comes down and bounces back in a few months. If we see long-term prospect then it could worth the risk at current price. Now let’s analyze the fundamentals:

Market Cap: $30.18 Billion

PE Ratio: 15.80,    Forward PE: 13.72

Revenue: $8.29B, Quarterly Revenue Growth: 13.10%

Profit: 1.91B, Quarterly Profit Growth: 13.70%

Earnings Per Share (EPS): $0.66

Total Cash: 6.52B, Dividend: 1.5%

Meanwhile, I have already bought some shares of ICICI bank and I can add with further corrections keeping in mind not to exceed 2-3% of total portfolio value.

Risks: The Indian banks are volatile and depend on the performance of Indian stock market as well as US stock market. In addition, quantitative easing is a possibility but nothing can be predicted for sure.

Chimera Investment Corporation (CIM)

This company operates as a real estate investment trust (REIT) in the United States. The company, through its subsidiaries, invests in residential mortgage-backed securities (RMBS), residential mortgage loans, commercial mortgage loans, real estate-related securities and many other asset classes. This is a pure dividend play. Currently, it has dividend yield of about 12%. For last 5 years they have average dividend of about 14%. The share is currently trading near its 52 week low. It does not fluctuate much during up or down market. Last year, the company’s book value bounced back despite most of its peers reported considerable declines in their book values.  The company had a 5-1 reverse split last Tuesday, 4/7. Let’s see company’s fundamentals:

Market Cap: $3.26 Billion

Revenue: $622.9 million

Profit: 589 million

Earnings Per Share (EPS): $0.57

PE Ratio: 5.56

Forward PE: 6.47

Institutional Holding: 68%

Return on Equity (ROE): 17%

Total Cash: 623 million

Risks: Not to forget that, there is a risk associated to the high yield dividend paying stock because they fund their dividend by issuing additional shares. In addition, we should also be aware that Fed's actions would have serious repercussions on such REIT investments. There could be further dividend cut going forward and no body knows for sure. It has history of accounting uncertainties and bigger bets on mortgage-backed security.

Irrespective of all the aforesaid risks, it may be worth considering 2-3% of the portfolio value in this stock as part of a diversified portfolio. I will not hesitate to allocate a small portion of my portfolio. I already have some and may add more with further correction.

Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)
STOCK
AAPL	56.12	127.1	1/25/13	126%	BUY
BIDU	86.43	214.79	4/18/13	149%	BUY
GOGO	14	19.86	9/1/13	42%	BUY
SLW	22	19.59	10/1/13	-11%	HOLD
FB	47	82.04	11/13/13	75%	HOLD
TSLA	135	210.9	11/13/13	56%	BUY
AGNC	18.02	21.7	12/14/13	20%	BUY
MA	78.7	88.57	12/12/13	13%	BUY
NLY	9.52	10.4	2/2/14	9%	BUY
KO	37.33	40.88	3/9/14	10%	BUY
KNDI	19.4	13.15	3/9/14	-32.2%	BUY
AMZN	311.73	382.65	4/12/14	23%	BUY
BAC	14.64	15.72	5/11/14	7%	BUY
BX	33.33	40.02	8/24/14	20%	HOLD
VIPS	22.68	30	11/23/14	32%	BUY
GILD	102.21	101.77	1/11/15	0%	BUY
ALNY	89.1	114.22	2/6/15	28%	Strong BUY below $101
IBN	10.5	10.5	4/12/15	0%	NEW - BUY
CIM	15.9	15.9	4/12/15	0%	NEW - BUY
ETF
GDX	27	19.45	4/1/13	-28%	HOLD
NUGT	27.38	11.23	9/21/14	-59%	HOLD
IYT	158.94	157.11	1/11/15	-1%	HOLD
INDA	31.94	33.33	3/15/15	4%	BUY
ASHR	36.66	45	3/15/15	23%	BUY
USO	16.8	18.41	3/15/15	10%	BUY
MUTUAL FUND
FBIOX	124	258.89	3/1/13	109%	Accumulate
PRHSX	55.17	79	2/2/14	43%	Accumulate
FSCHX	141.21	147.12	4/12/14	4%	BUY
FSCRX	27.3	30.97	10/25/14	13%	BUY
GASFX	29.71	28.73	12/20/14	-3%	BUY
PRMTX	63.52	68.77	12/20/14	8%	BUY
FHKCX	30.52	36.35	2/8/15	19%	TOP BUY
** DIV are included in suggested Price after end of the year. Hence price is adjusted.

Company News

Apple (AAPL) update: Last Friday, 4/10 Apple started taking preorders for Apple watch. The initial response seems to be good and Apple says that there is at least one-month wait for delivery. Not sure though, how many watches were ordered. Officially, the watch goes on sale online and through appointment in shops on April 24. It’s also expected to be sold in some of the fashion boutiques in Paris, London and Tokyo.

Alnylam Pharmaceuticals (ALNY)

This company has gone up 28% since I included in my Blog Portfolio. I feel that this is one of the promising biotech companies. It would be a good addition to the aggressive portfolio with high growth prospect. So I will keep adding with any pull back. I see it as a strong buy candidate below $101.

Economy News to watch next week (week 04/13/15)

Tuesday: Retail Sales, Producer Price Index (PPI) and Business Inventory

Wednesday: Industrial Production

Thursday: Initial claims for unemployment, Housing data

Friday: Consumer Price Index

Friday: Index of Leading Economic Indicators

Also you can go to the following URL for more updates:

http://www.marketwatch.com/Economy-Politics/Calendars/Economic

Source: Marketwatch.com

That’s all for today. Wish you good investing! Stay tuned for my May 2015 blog. Thanks for your time. If you want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Please feel free to send me your comments and suggestions or alert request to shesa.nayak@gmail.com

Disclaimer: This blog is meant to provide my personal opinion rather than professional recommendation to buy/sell any stock, ETF, mutual fund or any other security(s). As an investor, it’s your hard earned money and you decide what is best for you. The above are merely my own opinions. Please contact a professional money manager to buy/sell any security. I do not earn any commission by writing the blog. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow.

Note: Click on Blog archives to read all my Blogs and updates.