Shesa's SEPTEMBER 2016 INVESTMENT BLOG

        5 September 2016

SEPTEMBER 2016 Investment Blog

Shesa Nayak

Wishing all the readers in USA “Happy Labor Day”. Apologize for missing my blog for August due to busy work schedule.

U.S. Stock Market Commentary: There is calm after the storm of “BrExit”. The markets have recovered since then. Almost all the U.S. stock indexes had their new all-time high a couple of weeks ago. The markets keep fluctuating, as it’s unsure of the next move by Federal Reserve on Sept 22-23. We will discuss about the economy news but let’s first take a look to the U.S Stock Market Indexes.

U.S. Indexes	4-Jan 2016	Friday Close	Year-to-date change	YTD % Change	52 Week High	Change from 52 Week High (%)
DOW	17425.03	18,491.96	1,066.93	6.12	18,722.60	-1.23
S&P 500	2043.94	2,179.98	136.04	6.66	2,193.81	-0.63
NASDAQ	5007.41	5,249.90	242.49	4.84	5,275.74	-0.49

Economic Reports and Interest Rate

On Friday, 8/26 Fed Chairwoman Janet Yellen voiced her optimism about the economy and indicated that an interest rate hikes are ahead. Yellen said in prepared remarks “the FOMC anticipates that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives”. In addition, a number of fed officials are touting of an interest rate hike but it seems these are just noise to me. I agree that economy has been doing little better than a few months earlier but I am still not convinced that there would be an interest rate increase in September. I can possibly think of rate hike around Dec/Jan timeframe provided economy keeps doing well. Why do I think so? Here are the reasons:

• The GDP growth is still very, very low 1.1%. Rate increase could deteriorate further and it may bring the economy towards negative GDP growth.
• Capital spending by corporates has come down significantly which signs that more trouble to come in future.
• Nonfarm payroll for August was also not specular. It was 151,000 against the projected 170,000. The unemployment rate went up from 4.8% to 4.9%.
• Second quarter productivity declined to -0.6%, marking the biggest decline in the number since 1979. Wages only grew at 0.1%.
• It’s too early after BrExit to know the economy consequences. U.S Presidential election is ahead. Any major impact to economy possibly can be avoided at this juncture.
• The manufacturing activity fell to 49.4 in August from 52.6 in July. A reading above 50 indicates factory activity is growing, while a reading under 50 signals contraction.
• Increase in Interest rate would result in strong dollar and that could be a major blow to emerging economies and consequently for U.S. exporters.

Agreed that there are some economy data pointing to better prospects, however, let’s see what happens when FOMC meets on Sept 22-23. We can keep an eye.

For more on economy data, please visit the following link for more economic reports:

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

Source: Marketwatch.com.

China’s inclusion to SDR

If you recall, I had written about China’s inclusion to SDR a few times last year. That reality is coming true starting October 1^st. The Chinese yuan is slated to enter the International Monetary Fund’s Special Drawing Right (SDR) basket along with other currencies, such as U.S. dollar, Euro, British pound, and Japanese yen. According to Reuters, before the yuan officially becomes an SDR currency, World Bank intends sell $2.8 billion in SDR bonds in Chinese markets which started on August 31st. China’s promotion of SDR bonds “is part of a wider push in China to boost demand for yuan and diminish reliance on the U.S. dollar in global reserves”. This is good news for China and also for commodity sector.

Indian GDP Growth

For the first quarter of this fiscal year India's gross domestic product (GDP) slowed to 7.1% for the first quarter of this fiscal year, from 7.5% in the same period of 2015-16. This mainly attributed to lower activity in farm, mining and construction sectors. However, this is still better than China 6.9% growth and other emerging economies. This year, there seemed to have better monsoon and that could be helpful in the coming months for improved GDP growth. I already have a few ETF and Mutual Funds in my blog portfolio from India and those have recovered quite well in last few months.

Correction in Gold and Silver: Is it time to bail out or buying opportunity?

Let me put my thought with some metrics that I could accumulate for the convenience and analysis for my blog readers. As we know, till January 2016 commodities were the most hated asset class. After almost 5 years of declining in gold prices, gold demand was up 18% in the first half of 2016, based on the quarterly report from the World Gold Council (WGC). One of the major reason was due to astronomical demand from the investors. The investment demands bumped up 127% for gold exchange-traded funds (ETFs) comparing to previous year.

On the negative side, demand for gold jewelry is down 17%, partly due to a jewelers' strike in India, and gold buying by central banks is down 23%, largely due to a forced sale of gold by Venezuela which is struggling on economy front. It can be noted that festival and marriage season is coming in India, add to that better monsoon could increase the demand for gold.

For the first half of 2016, gold prices rose 25% and Silver prices rose 35% in U.S. dollar terms, the strongest first-half price rise since 1980. After BrExit vote on June 23^rd gold was up 37% in terms of the British pound.  For the two major Asian gold markets, gold rose 27% in terms of the Indian rupee and Chinese yuan.

Bottom Line: If we see global economy, Europe (after BrExit), Japan, China, Australia and many other countries, there are still bond buying, quantities easing, currency devaluation are on the card. I think these lower interest rate days are here to stay for very long time with some exception now and then. U.S. economy could be on little better shape but they can’t afford to keep increasing interest rate as I wrote in the Economy News section above. There could be one or two interest rate hike but certainly I do not expect the interest rate to go up like the way it happened in the past. As a matter of fact, it provides a better platform for gold and precious metals. In addition, gold price is stable above $1300 which bodes well for the gold miners as they can look for big profit. Now that Chinese Yuen is included in SDR that would be a good news for commodities like Gold and Silver. China may have to buy more gold in future. So I think that it’s an opportunity to keep accumulating some mining stock, ETF, Mutual Funds.

Now let me discuss about the new addition to my Blog Portfolio this month:

Southwest Airlines Co. (LUV)

Southwest Airlines is the largest carrier of United Sates in terms of originating domestic passengers boarded. As of December 31, 2015, it operated 704 Boeing 737 aircraft and served 97 destinations in 40 states and 7 near-international countries. It is in its 46^th year of service.

Southwest is one of the most economical airlines and has a great record of profitability. In addition, Southwest's customer-friendly policy of "bags fly free'" has been a big plus. Travelers can check up to two bags for free. This pro-consumer stance is showing results in greater customer satisfaction good revenue. After BrExit and the fear of Zika virus was feared to slowdown air traffic seems to be priced into the stock as it’s hovering near its 52 week low. Now let’s look into the fundamentals:

Market Cap: $22.88 Billion

Revenue: $20.33 Billion

Quarterly Revenue Growth: 5.30%

Quarterly Earnings Growth: 34.90%

Net Profit: 2.45 billion

Earnings Per Share (EPS): 3.77

PE Ratio: 9.79

Forward PE: 9.46, Price to Sales: 1.13

Institutional Holding: 77.8%

Return on Equity (ROE): 32.75%

Total Cash:  3.42 billion

Debt: 3.35 billion, Beta: 1.10

52 Week High: 52.34, Low: 33.96

Forward Annual Dividend: 1.08%

My thoughts: Southwest airline is one of the most popular, cost effective and efficient airline. It has good revenue, great profitability and excellent return on equity. Currently the stock is trading at $36.89, which 28% discount to its 52- week high. It also has a small dividend. I can see a 15-25% return on this stock in next 1 year or so. I see it’s a great opportunity to buy the stock at his point. I have already some in my portfolio but I could possibly sell JBLU and add more to this stock. Most of the time, I buy stocks in a phased manner and I am thinking to add more next week.

Risk(s): If the market tanks due to any reason or Zika virus fear increases then this stock could be no exception for correction. Also, airlines stock tends to fluctuate, so it’s always advisable to take profit when opportunity arises. Overall, I think it’s worth considering this stock and it looks exciting around its current price. Also, as usual, it’s a good idea to put a 25% trailing stop to avoid any major downturn.

Shesa’s Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)
STOCK
AAPL*	54.09	107.73	1/25/13	99%	BUY
BIDU	86.43	177.78	4/18/13	106%	HOLD
SLW*	21.8	27.44	10/1/13	26%	BUY
FB	47	126.51	11/13/13	169%	HOLD
TSLA	135	197.78	11/13/13	47%	HOLD
MA*	78.06	97.89	12/12/13	25%	HOLD
AMZN	311.73	772.44	4/12/14	148%	HOLD
ALNY	89.1	69.17	2/6/15	-22%	BUY
MO*	52.03	66.88	9/13/15	29%	BUY
ILMN	171.15	167.9	1/15/16	-2%	HOLD
SKX	31.88	24.37	2/21/16	-24%	BUY
BABA	67.28	99.25	2/21/16	48%	BUY
JBLU	20.44	15.85	4/24/16	-22%	HOLD
JD	23.45	25.55	5/22/16	9%	BUY
ABX	22.21	18.16	7/4/16	-18%	BUY
XON	26.37	25.33	7/4/16	-4%	BUY
LUV	36.89	36.89	9/5/16	0%	NEW BUY
ETF
GDX*	26.88	27.35	4/1/13	2%	BUY
INDA	31.94	30.15	3/15/15	-6%	BUY
ASHR*	28.46	25.12	3/15/15	-12%	HOLD
INCO	34.46	36.4	5/15/15	6%	BUY
IHF*	139.1	123.69	8/16/15	-11%	HOLD
XLY	77.76	80.88	8/16/15	4%	HOLD
PJP	69.43	63.73	10/18/15	-8%	HOLD
EEM	32.5	37.41	11/15/15	15%	BUY
MUTUAL FUND
FBIOX	117.73	182.44	3/1/13	55%	HOLD
PRHSX	55.17	64.1	2/2/14	16%	HOLD
FSCHX*	135.91	147.15	4/12/14	8%	BUY
FSCRX	27.3	28.92	10/25/14	6%	HOLD
GASFX*	28.31	28.82	12/20/14	2%	HOLD
PRMTX*	63.38	77.48	12/20/14	22%	Accumulate
MINDX	26.94	28.85	6/14/15	7%	BUY
MCDFX	14.11	14.76	12/9/15	5%	BUY
FSRPX	95.46	109.79	1/15/16	15%	BUY
FBSOX	38.78	41.77	3/20/16	8%	HOLD
* Indicates dividend adjusted

Positions closed in after my last blog:

Equity	Sales Price	Buy Price	Date Sold	Gain / Loss (%age)
GILD	100.92	81.65	7/27/16	-19%

Company Updates

Apple: This Wednesday, 9/7, Apple is expected to iPhone 7 and iPhone 7 Plus, second-generation Apple Watch, and refreshed Beats products in San Francisco. Apple should also provide final release dates for iOS 10, macOS Sierra, tvOS 10, and watchOS 3. We will see how it goes!

That’s all for today. Wish you good investing! Stay tuned for my OCT 2016 blog. Thanks for your time. If you want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Also, 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 and some of the information provided may not be correct. 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.