Shesa's MAY 2015 INVESTMENT BLOG

            17 May 2015

MAY 2015 Investment Blog

Shesa Nayak  

U.S. Stock Market Commentary

Hello friends. Welcome to my monthly investment blog. Let’s take a quick look to the U.S. Stock Market Indexes.

The DOW Jones Industrial closed last Friday at 18,272.56, S&P 500 closed at 2122.73 and NASDAQ closed at 5048.29 points. S&P 500 again closed with a record high but marginally. There were some pullback in the stock market but it bounced back again. Now that earnings season is over I think there could be some pullback in the stock market. However, I would anticipate no major correction until  July-Sept timeframe.

Important Economy News

• On Sunday, 5/10, The People's Bank of China announced a cut in its benchmark lending rate and one-year deposit rates by 25 basis points, effective on May 11. This is the third time in six months China cut interest rate by 0.25%
• On 5/6, Federal Reserve Chairwoman Janet Yellen warned of potential pitfalls for investors, referring to stock values as quite high. Market took a beating after that statement
• During April, U.S. created 169,000 private-sector jobs after a downwardly revised 175,000 jobs that were created in March. This was well below the consensus estimate
• U.S. productivity in the first quarter fell by a 1.9% annual pace, resulting in the first back-to-back drop since 2006

What to expect from U.S. Stock Market?

As I said, in my earlier blog(s), this is the election year wherein stock market tends to do well, if History is any evidence. But my concern is, were the S&P 500 earnings last quarter that just concluded? I do not think so.. Let’s take a quick look of the Q1 earnings to analyze what may be in store for future. According to factset.com:

• Out of the 447 companies that have reported earnings, 71% reported earnings above the mean estimate and 45% reported sales above the mean estimate
• Earnings growth rate is merely 0.1%, it is expected to be the lowest earnings growth for a quarter since Q3 2012
• 57 companies have issued negative EPS guidance and 25 companies have issued positive EPS guidance
• Current 12 months forward P/E ratio is 16.8. This P/E ratio is above the 5-year average of 13.8) and the 10-year average of 14.1. 

What does the above data mean to us and what should be the Investment strategy? The above data shows that the earnings were not very exciting. It also shows that S&P 500 companies are now more expensive comparing to previous years. Many of the companies were hit hard due to strong U.S. dollars. Many companies have been buying their own shares as they can borrow cheap money and show better Earnings Per Share (EPS) rather than sales increase. The current year GDP is estimated to be around 2-2.5%.  Hence, my investment strategy would be more inclined towards allocating maximum funds to the best performing asset classes such as China, Biotech, India, Health Care providers, Pharmaceuticals selected technology and consumer discretionary. It can be noted that, too much over-diversification into different asset class could only eat the profit of the return from performing asset class. Hence, we must be very careful. As an investor, there are three important parameters that determine its success. Those are when to buy, what to buy and when to sell.

This month, all the companies in the Blog Portfolio reported their earnings. So let’s take a quick look to those.

Earnings update for Blog Portfolio

Apple Inc. (AAPL): This was actually the best March quarter in the company's history. Comparing to Q2 2014, Revenue increased 25% to $58.01 billion beating consensus estimate of $56.06 billion. Over the same period, net income jumped 33% to $13.6 billion, or $2.33 per share beating Analyst’s expectation of $2.16 earnings per share. Please note that this is also the fifth quarter in a row that Apple increased earnings. Apple is still a good long-term investment (BUY).

Alnylam Pharmaceuticals (ALNY): The Company reported a loss of $50.8 million, 62 cents per share basis in its first quarter that beat Analyst estimates of 65 cents loss. It also posted revenue of $18.5 million beating Analyst estimate of 18 million. (BUY).

Vipshop Holdings Limited (VIPS): The Company reported a very strong quarter. Revenue doubled from a year ago to $1.4 billion that blew past the $1.31 billion consensus estimate. It reported earnings of 13 cents a share, above analysts' estimates of 10 cents a share. For the second quarter it guided $1.4 billion to $1.43 billion against estimates of $1.45 billion. (STRONG BUY).

Tesla Motors (TSLA): Tesla declared its first-quarter earnings that were slightly better than the Street's estimates. It reported EPS loss of $0.36 for the quarter on revenue of $1.10 billion against the Analyst estimated loss of $0.50 on revenue of $1.04 billion. Recently, the company launched a $250/kWh industrial Powerpack and a $350/kWh residential Powerwall. It expects to start high volume production of these products by the third quarter of 2015 in its Fremont, California factory.

Gilead Sciences (GILD): Reported its first-quarter results Thursday after the markets closed. The biotech giant had $2.94 in earnings per share (EPS) on $7.59 billion in revenue, versus Analyst estimates of $2.32 in EPS on $6.92 billion in revenue. (BUY).

Kandi Technologies (KNDI): Reported its Q1 earnings on 5/11/15. Revenue increased 9% from the previous year quarter to $43.8 million and net income of 7 cents per share, up 108%. The stock has taken a plunge in last few days. I have been holding this with patience but finally I have decided to SELL.  << SOLD >>

Amazon (AMZN): On 4/23, Amazon reported 1^st quarter revenue of $22.72 billion, up 15% year over year, and a loss of 12 cents per share against Analyst estimate of $22.4 billion in revenue and loss of 12 cents a share.  For the next quarter, it expects revenue between $20.6 billion and $22.8 billion and a loss of $500 million to profit of $50 million. Analysts are expecting a loss of 16 cents and $22.22 billion in revenue.  The stock zoomed up about $58 after the earnings. (BUY)

MasterCard (MA): On April 29, the company announced financial results for the first quarter of 2015. It reported net income of $1.0 billion, an increase of 17% or 24% adjusted for currency, and earnings of $0.89, up 22% or 29% adjusted for currency. (BUY)

Facebook (FB): The Company reported earnings of 42 cents per share on revenue of $3.54 billion. Analysts had expected Facebook to report earnings of 40 cents per share on $3.56 billion in revenue, according to a consensus estimate. (HOLD).

Bank of America (BAC) Bank of America reported a profit of 27 cents a below forecasts for 29 cents, while revenue fell 5.9% to $21.42 billion, below forecasts for $21.51. On a positive note, BAC settled pending lawsuit with European Economy commission. (BUY).

Blackstone (BX):  The company reported economic net income of $1.37 per unit, well above estimates of $1.04, with revenue also scoring a solid beat. At this point, I will put a HOLD to BX based on the share price.

Has the crude oil stabilized?

In my last month’s Blog I wrote that oil might have stabilized. We saw a good bounce from $51.74 to above $60. Currently it trades at $59.69. This is welcome news. I think it could keep fluctuating between $50-65 per barrel. At this point, I would not add any more oil Stock/ETF rather wait for some pull back before putting additional money.

Now let’s talk about this month’s inclusion to my Blog Portfolio.

EGShares India Consumer ETF (INCO)

INCO is an Exchange Traded Fund (ETF). The ETF tracks consumer goods and services firms with at least $100 million market cap. The index invests in companies engaged in automobiles and parts; beverages food production, household goods, leisure goods, personal goods, food and drug retail, media travel, tobacco etc. India market has corrected this year mostly because of higher expectation and lower earnings. Many of the leading sectors could not able to meet the higher expectation resulting in stock market correction. And I believe this is the right time to put additional money to take advantage for better ROI. The Indian Government is anticipating 7.5% GDP growth. Add to that, a possible interest rate cut is on the card. As we know, India is an emerging economy and I strongly feel that consumer sector is going to do well since middle class is rising. This ETF has about $85 million in Net Assets. The average volume of equity traded per day is only about 78,000. So, it’s thinly traded ETF. Hence I would always buy using limit order. Let’s take a look at the performance this ETF:

Year to Date Return	1.42%
1-Year Total Return	36.72%
3-Year Total Return	19.61%

Expense Ratio: 0.89%.  Dividend Yield: 0.8%.

Some of its Top Holdings of this ETF are:

Hindustan Unilever, Nestle, Mahindra & Mahindra, Godrej, Tata Motors, Bajaj Auto, Bharat Forge etc.

Currently, it’s trading at about 10% discount to its 52-week high. I already bought some and will keep accumulating as I go. If Indian stock market moves higher than this ETF would out-perform the market and its counterpart. Hence, I believe this is a good addition to my Blog portfolio.

Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)
STOCK
AAPL	56.12	128.77	1/25/13	129%	BUY
BIDU	86.43	192.98	4/18/13	123%	HOLD
GOGO	14	21.05	9/1/13	50%	BUY
SLW	22	20.47	10/1/13	-7%	HOLD
FB	47	80.42	11/13/13	71%	HOLD
TSLA	135	248.84	11/13/13	84%	HOLD
AGNC	18.02	20.74	12/14/13	15%	BUY
MA	78.7	93.22	12/12/13	18%	BUY
NLY	9.52	10.18	2/2/14	7%	BUY
KO	37.33	41.52	3/9/14	11%	HOLD
KNDI	19.4	9.24	3/9/14	-52.4%	SOLD on 5/15@9.24 < -52%>
AMZN	311.73	426	4/12/14	37%	BUY
BAC	14.64	16.35	5/11/14	12%	BUY
BX	33.33	43.39	8/24/14	30%	HOLD
VIPS	22.68	26.22	11/23/14	16%	STRONG BUY
GILD	102.21	109.3	1/11/15	7%	BUY
ALNY	89.1	119.84	2/6/15	35%	BUY
IBN	10.5	10.51	4/12/15	0%	BUY
CIM	15.9	14.63	4/12/15	-8%	BUY
ETF
GDX	27	20.72	4/1/13	-23%	HOLD
NUGT	27.38	13.24	9/21/14	-52%	HOLD
IYT	158.94	155.65	1/11/15	-2%	HOLD
INDA	31.94	30.44	3/15/15	-5%	BUY
ASHR	36.66	47.72	3/15/15	30%	BUY
USO	16.8	20.52	3/15/15	22%	HOLD
INCO	34.46	34.46	5/15/15	0%	NEW BUY (TOP)
MUTUAL FUND
FBIOX	124	255.4	3/1/13	106%	Accumulate
PRHSX	55.17	79.04	2/2/14	43%	Accumulate
FSCHX	141.21	150.29	4/12/14	6%	BUY
FSCRX	27.3	31.13	10/25/14	14%	BUY
GASFX	29.71	30.26	12/20/14	2%	BUY
PRMTX	63.52	69.15	12/20/14	9%	BUY
FHKCX	30.52	37.68	2/8/15	23%	BUY
** DIV are included in suggested Price after end of the year. Hence price is adjusted.

Major Economy News to watch next week (week 05/18/15)

Tuesday: Housing Starts, Building permit

Wednesday: FOMC minutes

Thursday: Weekly Jobless claims, existing home sales

Friday: Consumer Price Index, Core CPI

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 June 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.

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