Shesa's JANUARY 2017 INVESTMENT BLOG

            22 January 2017

JANUARY 2017 INVESTMENT BLOG

Shesa Nayak

U.S. Stock Market Commentary: Finally, Mr. Donald J Trump was sworn in as president of United States of America. As we know, there was a big Trump rally after the election. All the major stock market indexes (DOW, S&P 500 and NASDAQ) are almost near all time high. The stock market has been very optimistic about Trump. However, at this point, investors are unsure what to make of the new administration after taking office! Since mid-December the Trump rally has taken a breather and market is kind of un-decided which way to go. The question is “now what”? We will discuss about it in a little while. First let’s take a look at the Stock Market Indexes. 

Note to the readers: Google+ has changed the way the word document is presented and causing some technical problem in alignment of tables. I request the readers to bear with it and use your phone to read the blog, as it shows the right format on the phone. Sorry for the inconvenience.

U.S. Stock Market Indexes:

U.S. Indexes	3-Jan-17	Friday Close	Change this Year	YTD % Change
DOW Jones	19762.6	19,827.28	64.68	0.33
S&P 500	2238.83	2,271.31	32.48	1.45
NASDAQ	5383.12	5,555.33	172.21	3.20

Economic Reports

Please visit the following link to view the economic report:

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

Source: Marketwatch.com.

Interest rate

This time, there is not much of news to talk about interest rate. All the FED members keep saying that economy is doing well and they are looking for 3-4 interest rate hikes this year. Will that happen? I am little doubtful! Let’s see Mr. Trump’s first 50 days and we would know more.

Q4 Corporate Earnings

The Q4 earnings have kicked-off since last couple of weeks. Many financial companies have already reported their earnings and most of them have beaten earnings expectations. Some of the companies like JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs etc. have reported results that exceeded Wall Street's expectations.

We will see a lot of Tech companies and others will report earnings in next couple of weeks. According to Factset, 12% of the companies in the S&P 500 have reported their earnings, 61% of S&P 500 companies have beaten the EPS estimate and 47% of S&P 500 companies have beaten revenue estimates. This quarter S&P 500 companies are anticipated to return 3.4% earnings growth. As expected, if S&P 500 companies reports earning growth then it would be for the first time the index will see year-over-year growth for two consecutive quarters since first quarter of 2015. Let’s wait and watch the earnings as this could set the tone for the market direction.

Stock Market Trend: Trump Optimism vs. Correction

Optimism: The S&P Volatility Index (VIX) is at its lowest level in several years. This tells us that investors don’t care about any correction right now. In other words, there is lot of optimism. What it means is that, investors are still riding the “Trump Honeymoon” after election. As I wrote in my previous blogs, the market expectation is that Trump would allow business-friendly policies, reform tax laws, lower corporate and individual tax rates, fix healthcare (Obamacare), spend on infrastructure, generate millions of new jobs and so on. If he can really do what he has promised then we would see another year of healthy stock market return. As an investor, I would love to see all these things happen. However, there are also downsides to this optimism. Thus, we should not forget the negative sides of it..

Correction: Unfortunately, Trump is also a protectionist (protecting domestic industries from foreign competition). In the current era, this is not good for the economy or the stock market. He also needs to change his tune on many sensitive matters such as prosecution of Hillary and deportation of illegal immigrants. Unless things go in right direction, Trump Rally could quickly turn into the Trump Correction.

Coming back to my aforesaid word “Protectionist” – it would sound like "a good idea" to some. But it actually undermines American economic growth. The “swedeshi” – made indigenously, architecture may not work in the current era. Please note that USA is world’s third-largest exporter, selling more than $2.35 trillion of American goods and services overseas each year. Also, it’s the world's single biggest importer. Raising U.S. tariffs could potentially create recession. Because other countries may retaliate and would not import U.S goods or they may impose heavy tax on U.S goods. It could result into trade war and the world economy could potentially go into recession. There are a lot of benefits of globalization and international trade. Let’s just think for a moment, why does a flat-panel HDTV that cost more than $10,000 in 2002-2003 cost less than $500 today? Or why does a powerful multi-million supercomputer 20 years ago don’t even cost $500 today with better computing power? Think about companies able to get their high-tech workers as cheaper as $20-25 per hour. The answer to all these: Free trade and globalization give us a huge selection of high-quality products and services at a lower cost.

Emerging Market: China and India: Opportunity or Problem?

When I talk about emerging markets, mostly I talk about India and China, though there are so many other emerging markets. Chinese economy growth has been rising slowly but steadily in last few quarters. The latest GDP growth stands at 6.7%. India GDP growth stood at 7.3%. However, due to demonetization in India, the growth rate in the fist half of 2017 could come down to around 6.5%. After that, it’s expected to accelerate further. The bottom line is, S&P 500 current P/E ratio has gone up to about 24.5 and forward P/E expected to be about 17.5, which is high valuation. Coincidently, the emerging market P/E ratio is 14.3 and forward P/E of 11.8. Please note that, U.S. GDP growth is just around 3%. According to Gurufocus.com, they are projecting annual return of 30.3% for China and 16.6% for India. Growth for U.S is projected to be -0.4%. Russia stands highest projected return of 32.8% but I am apprehensive to invest in Russia due to various reasons. Overall, China and India has better chance of higher Return On Investment (ROI) comparing to U.S market. Unless, dollar goes too strong, it’s highly likely that return from emerging market would be better than U.S. stock market. We will see how far this projection will be true! Now let’s discuss about the stock for this month’s inclusion to my blog portfolio.

PVH Corp (PVH):

PVH Corp is one of the world’s largest apparel companies, selling very well-known brands through retail stores, discount outlets, wholesale channels and websites in more than 40 countries. Its brands include Calvin Klein, Tommy Hilfiger, Geoffrey Beene, Kenneth Cole New York, Izod, Arrow, Warner’s, Van Heusen etc.

Why do I like this stock?

Annual garment sales exceeds more than $1.4 trillion – are still rising as world population is growing by 75 million people a year. Income is increasing in the world’s emerging markets with younger population, who are attracted towards global brands. Fifteen years ago, company’s sales came almost exclusively from North America. Today it owns significant businesses in Europe, Latin America and Asia. Emerging markets already represent more than 20% of its annual operating income and keeps growing. The sales for PVH Corp now exceed $8 billion.

It has been handily beating analysts’ expectation in each of the last seven quarters. Revenue grew only 3.7% last quarter as dollar hit a 14-year high. As dollar becomes stronger, it becomes more expensive for foreigners to visit and spend in the U.S. However, majority of the company’s merchandise sells through department stores, discount retailers and online. PVH is expected to earn $6.85 a share this year and $7.40 in 2018. A few weeks ago, the Company announced that it currently expects its earnings per share for the fourth quarter and full year 2016 to be at least at the top end of its guidance ranges previously announced. The company selling for less than 13 times prospective earnings, it remains attractively priced and poised to move higher.

Now let’s take a look at Company fundamentals:

Market Cap: 7.36 Billion.

Revenue: $8.21 Billion.

Quarterly Revenue Growth: 3.70%.

Quarterly Earnings Growth: -43.10%.

Net Profit: 582.5 million.

Earnings Per Share (EPS): 7.15

PE Ratio: 12.99.

Forward PE: 12.58,           Price to Sales: 0.90.

Institutional Holding: 97.54%.          

Return on Equity (ROE): 12.47%.

Total Cash:  662.4 million.

Debt: 3.32 billion, Beta: 0.70.

52 Week High: 115.40, Low: 67.26.

Dividend: 0.16%, Forward: 0.16%.

Book Value: $60.33.

I have already included PVH in my portfolio over a year or so. My observation is that, usually this stock trade between $90 – 110. The stock is currently trading at $92.82, a discount of 20% from its 52-weeks high. Hence, one should not forget to take some profit, if the stock goes up about 15% or so. I may add more gradually, if price comes down. Also, as a principle, putting a 25% trailing stop would be advisable to mitigate any major loss.

Risk(s): PVH is a retail company and it all depends on consumer spending. Now consumer confidence and consumer spending are very good. In case stock market turns negative then the consumer spending is expected to come down. In addition, if U.S. dollar gets stronger then it would impact company’s bottom line. I believe it’s a good addition for retail sector at the current price.

Shesa’s Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Change	My View (see disclaimer)
STOCK
AAPL	54.09	120	1/25/13	122%	Buy below 110.
BIDU	86.43	173.44	4/18/13	101%	HOLD
SLW	21.8	21.22	10/1/13	-3%	BUY below 18.5.
FB	47	127.04	11/13/13	170%	HOLD
TSLA	135	244.73	11/13/13	81%	HOLD
MA	78.06	109.96	12/12/13	41%	BUY below $95.
AMZN	311.73	808.33	4/12/14	159%	Buy below 750.
MO	52.03	70.01	9/13/15	35%	HOLD
BABA	67.28	96.06	2/21/16	43%	BUY
JBLU	20.44	21.41	4/24/16	5%	HOLD
JD	23.45	27.6	5/22/16	18%	BUY
ABX	22.21	17.11	7/4/16	-23%	Buy below $15.
XON	26.37	23.31	7/4/16	-12%	BUY
LUV	36.89	51.09	9/5/16	38%	HOLD - Profit taking
FSLR	37.58	34.75	10/8/16	-8%	BUY below $33.
RIO	38.76	42.93	12/18/16	11%	BUY below $40.
PVH	92.82	92.82	1/22/17	0%	NEW BUY
ETF
GDX	26.88	23.12	4/1/13	-14%	BUY below $20.
INDA	31.94	27.31	3/15/15	-14%	BUY
INCO	34.46	33.55	5/15/15	-3%	BUY
IHF	139.1	129.97	8/16/15	-7%	HOLD
XLY	77.76	83.93	8/16/15	8%	HOLD
PJP	69.43	55.26	10/18/15	-20%	HOLD
EEM	32.5	36.42	11/15/15	12%	BUY
MUTUAL FUND
FBIOX	117.73	182.67	3/1/13	55%	Accumulate
PRHSX *	52.48	60.95	2/2/14	16%	HOLD
FSCHX *	128.91	152	4/12/14	18%	HOLD
FSCRX *	27.17	31.72	10/25/14	17%	HOLD
GASFX *	28.19	28.65	12/20/14	2%	HOLD
PRMTX *	61.72	77.89	12/20/14	26%	Accumulate
MINDX *	26.48	26.3	6/14/15	-1%	Accumulate
MCDFX *	13.84	14.47	12/9/15	5%	HOLD
FSRPX *	95.32	112	1/15/16	17%	Accumulate
FBSOX *	38.65	43.19	3/20/16	12%	Accumulate
TGLDX	33.73	37.51	11/20/16	11%	BUY
* Indicates dividend adjusted

Positions closed since last Blog: NONE

Company Updates

XON: Intrexon Corporation announced a special stock dividend of 53,296,710 shares of common stock of AquaBounty Technologies – a subsidiary of XON, subject to adjustment to reflect a 1:30 reverse stock split. XON shareholders would get special stock dividend. The Distribution was made on January 18, 2017. The stock has come down in last few weeks. I still think this company has a very good future for years to come. Hence, I would keep adding.

That’s all for today. Wish you good investing! Stay tuned for my FEB 2017 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.

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