Shesa's JULY 2017 INVESTMENT BLOG
July 23 2017
JULY
2017 INVESTMENT BLOG
Shesa
Nayak
U.S. Stock Market Update: It’s
amazing to see the U.S. stock markets keeps making new highs uninterruptedly.
It reminds me those years of internet bubble during 1999 and 2000. However, in
contrast, I do not see any bubble even though S&P 500 is richly priced. The current P/E ratio for S&P is 26.16 which
is significantly higher than historical standard. However, if we see forward
P/E, which is 17.8 then stock market
is not highly overvalued. Meanwhile, the Trump administration has
completed 6 months in the office but there is nothing really material to talk
about. Rather, there are flood of resignations from his administration
surrounded by many uncertainties. Despite all these, the stock market keeps going
up and making new high. Why is it so? I have some detailed analysis on this but
let’s first look at U.S. Stock market index.
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Q2 Earnings Update
- Earnings & Sales Beat: As of date 19% of the S&P 500 companies have reported results for Q2 2017, 73% those have beat the earnings estimate and 77% of the companies have beat the mean sales estimate.
- Earnings Growth: On June 30th, it was estimated that earnings growth for Q2 2017 would be 6.6%. However, so far, the actual earnings growth this quarter is 7.2%.
If you attended my Investment group meet last
Sunday, 7/16, I discussed all these factors. For the benefits of my blog
readers let me put the facts here. If you recall, after the U.S. election, stocks
surged with an anticipation of pro-growth policies of Donald Trump such
Obamacare replacement, tax reform, trillion $ infrastructure sending and so on.
The question is, has anything materialized so far? NOTHING…So, why is the market still going up? Here are some
interesting facts that I found from my research:
(i)
Stock Market keeps going
up during Political Uncertainties
This may sound like strange but true. Based on my
research, historical analysis shows stocks tend to perform better during
periods of political uncertainty.
- When the Philadelphia Federal Reserve's Partisan Conflict Index rises above 100, the S&P 500 has risen at a 11.7% annually.
- When index is below 100, S&P rises only 5.8%.
- Currently the index stands @201.5 by end of Jun.
- One of only seven times it has been above 200.
- Gridlock in Washington keeps politicians busy and stock market don't want politicians to mess up good thing.
Now
let’s see what are the political uncertainties causing the market to surge?
- Trump-Russia headlines causing Washington gridlock
- TrumpCare ver. 3.0 is almost dead. The probability of repealing and replacing ObamaCare seems to have gone.
- New TAX REFORMS that was expected in August looks like a distant future now. It’s a big question mark WHEN it will happen!
- There is not much talk about Infrastructure Spending. The talk about private sector investment for infrastructure does not seem to be feasible.
- Trump continuous fight against press has backfired.
(ii)
Reasonably good economy
& Strong earnings
- Last quarter earnings were good, particularly financials, tech, industrial etc.
- Current (Q2) Earnings Second-quarter earnings is expected to grow at least 6.2% year-over-year. So far, the results from the financial institutions have been very good.
- Major earnings growth is expected from energy, financials and IT. IT would be the beneficiary of depreciated USD.
- Lower unemployment: Current: 4.5%, 2017: 4.3%, 2018: 4.2%.
- Inflation: 1.6%, Retail Sales: up 2.8%, Consumer Spending: up 2.5%.
However, everything is not gloomy. There are some economy
negatives factors which must be kept in mind. Let me outline those:
- Though the unemployment %age is only 4.3%, there are a lot of part-time jobs rather than full-time work.
- Most job growth is in low-paying retail and food service industries.
- Some people have been out of work for so long that they'll never be able to return to the high-paying jobs.
- GDP growth: Current: Only 1.25%, 2017: Expected 2.1-2.3%, 2018: 2.4%.
- Retail Sales fell -0.2% in Jun and -0.1% in May
This is anybody’s guess. If earnings are better
than projected, the stock market may go up another 3-4%. If earnings disappoint
then the stock market may correct once the earnings season is over. However,
these prediction is anybody’s guess and nobody knows for sure. Hence, we should
not be carried away with the news on TV or any other media. Also, not to forget
“trend is your friend”, so it’s better to follow the trend. We know our
own strengths and weaknesses, so the investment planning should be done
accordingly.
Is it good to invest in
International Equity? I do anticipate that the international stocks, particularly
Chinese big companies like BABA, JD, NTES etc. should do well. One of the
reason of their better performance can be depreciated dollar that may bump up
their profit. Here is the projected return of the emerging markets with special
focus to China and India. Let’s first see the current and projected GDP growth:
India GDP: Current: 6.1%, IMF projects: 7.2% for 2017 and 7.7% for 2018.
China GDP: Current: 6.9%, projected: 6.5-7% for
2017.
How about the Return on Investment (ROI)? Let’s see the projected annual return and their P/E Ratio. If you see below China, Russia and India are expected
to outpace U.S. stock market significantly. So far China has been surpassing
U.S. stock market return.
China: 30.4% è PE Ratio: 17.5.
Russia:
29.4%. è I have no
investment in Russia market.
India: 16.7% è PE Ratio
20.8.
USA: - 1.4% è PE Ratio: Current: 26,
Future PE: 17.8.
Projected Future return: Source gurufocus.com.
Now let’s see sector performances (U.S) in last 3, 6 and 12 months:
Sector
|
3 months
|
6 months
|
1 Year
|
Health Care
|
10.77%
|
17.97%
|
14.22%
|
IT
|
9.65%
|
18.66%
|
31.71%
|
Financials
|
7.03%
|
7.16%
|
29.71%
|
Materials
|
5.76%
|
7.86%
|
13.77%
|
Industrials
|
4.52%
|
7.41%
|
16.10%
|
Consumer Discretionary
|
3.22%
|
8.53%
|
12.38%
|
Commodities
Oil: U.S. crude inventories fell by 4.7 million barrels
in the week of July 14 to 490.6 million barrels. That compared with analyst
expectations for a decrease of 3.2 million barrels. Over the past 15 weeks,
U.S. oil inventories have fallen 13 times. Despite all these U.S. crude oil
inventories still remain high comparing to other years. I wrote about oil in my
last blog. I feel there are some opportunities in this sector. My feeling is
that Oil could go around $55 a barrel from current price of $45.77.
Gold: Gold has started
bouncing back. As said in my last blog Jun and July are seasonally the worst
month for gold. It should start bouncing for next few months. In Asia, specifically
India and Hong Kong are the two biggest markets for “retail gold”. Demand for
gold from India ramps up starting in August, with jewelers buying gold to
fashion into jewelry. This demand tapers off around the beginning of November.
In Hong Kong a lot of people buy gold for gifts and for saving as a New Year
tradition. This demand ramps up in December and typically ends a few weeks
after Chinese New Year. India imported
$22.2 Bln worth of gold ONLY in the first half of 2017 comparing to only $23
Bln in all of 2016. This is a very good news for gold. Probably after
demonetization people had taken a pause. Anyway, I feel this may be time to
start accumulating some gold stock, ETF for some short-term gain.
Now let’s
discuss about this month’s inclusion to my blog portfolio.
CyberArk Software (CYBR)
CyberArk
is located in Israel and Newton, Mass. The company markets, and sells software-based IT
security solutions that protect organizations from cyber-attacks in the United
States and internationally. The company offers privileged account security
solution to secure, manage, and monitor account access and activities. Currently, there are several news
across the world about cyber attacks. Visualizing the current trend, cyber
security should be at the forefront of virtually every industry yet it is often
treated as an afterthought. As such, lot of company data, customers data are
compromised resulting in significant problems.
The readers may be
aware that the latest major cyber-attack was on June 27th wherein a new
cyber virus spread from Ukraine caused havoc around the globe. It crippled
thousands of computers, disrupting ports from Mumbai to Los Angeles and
spreading across many countries and shutting down businesses. It was
believed that, it originated from Ukraine where it silently infected computers
after users downloaded a popular tax accounting package or visited a local news
site and spread in a lightning speed. This is just one example but we keep
hearing many such news. As matter of fact, I see the opportunity with the
companies operating in this area. There are so many players in this filed like
Palo Alto Network, Checkpoint software, FireEye, Proofpoint software to a name
a few. But why did I include CyberArk? Let’s discuss.
On
July 17 CyberArk share plummeted nearly 18% to $42.05 as the company
pre-announced that its Q2 earnings came up short of expectations. It
blamed the Q2 miss on weakness in its business in Europe and the Middle East. The
CEO told that the primary reason for their revenue shortfall was the
performance in EMEA, where certain deals that we
anticipated would close did not close by the end of the quarter."
Now it expects second-quarter revenue in a range of $57 million to $57.5
million vs. analyst estimates of $62 million. It expects operating income in
the range of $8.5 - $8.9 million vs. earlier guidance of $11.3 million. This is
undoubtedly bad news. But for me, this is an opportunity to buy this stock at a
discounted value since the deals were not closed before the end of quarter.
Many of those deals could close in this quarter. But let’s discuss the
fundamentals before we analyze further.
Market Cap
|
1.47B
|
52 Week High
|
59.28
|
Trailing PE
|
48.6
|
52 Week Low
|
41.32
|
Forward PE
|
30.9
|
Total Cash
|
287M
|
Price to Sales
|
6.4
|
Total Debt
|
N/A
|
Revenue / Sales
|
228.7M
|
Book Value
|
4.50
|
Quarterly Revenue Growth
|
25.8%
|
Beta
|
N/A
|
Profit / Earnings
|
31.3M
|
Institutional Ownership
|
N/A
|
Quarterly Earnings Growth
|
74.3%
|
Return on Equity
|
10.82%
|
EPS
|
0.87
|
If you
see revenue and profit growth then this
company is one of the best in the group. Now the stock is trading almost at
52-weeks low at $42.35, 29% discount
to its 52-weeks high. I had this stock in my portfolio before. Now, I do see
another opportunity to make 20-30% in next few months, hence again I bought it back
last week. I may not hold this stock for many years. The objective is to make
some reasonable return in next few months and possibly get out of it.
Risk: As usual if the stock market
tanks then most of the stock will tank and no exception to CYBR. Also, it would
depend on the earnings that the company finally declares on 8th
August, its future guidance, and future Cyber-attacks etc. If it was just a
missed quarter then we could see a good bounce rally in next few weeks/months.
And as said above, booking 20-30% gain and getting out is not a bad idea. If
there is no turnaround of the stock in next few months then I will get out of it.
I would put a trailing stop anywhere between 15-20%.
Shesa’s Blog
Portfolio (updated: 7/23/17)
Equity
|
Suggested Price (USD)
|
Current Price (USD)
|
Suggested Date
|
% Change
|
My View (see disclaimer).
|
STOCK
|
|||||
54.09
|
150.27
|
1/25/13
|
178%
|
HOLD
|
|
86.43
|
193.18
|
4/18/13
|
124%
|
HOLD
|
|
21.8
|
20
|
10/1/13
|
-8%
|
BUY
|
|
47
|
164.43
|
11/13/13
|
250%
|
BUY
|
|
135
|
328.4
|
11/13/13
|
143%
|
BUY
|
|
78.06
|
129.27
|
12/12/13
|
66%
|
HOLD
|
|
311.73
|
1025.67
|
4/12/14
|
229%
|
HOLD
|
|
52.03
|
73.42
|
9/13/15
|
41%
|
HOLD
|
|
67.28
|
151.89
|
2/21/16
|
126%
|
BUY
|
|
23.45
|
43.08
|
5/22/16
|
84%
|
BUY
|
|
ABX
|
22.21
|
16.19
|
7/4/16
|
-27%
|
BUY
|
XON
|
26.37
|
23.61
|
7/4/16
|
-10%
|
BUY
|
36.89
|
60.28
|
9/5/16
|
63%
|
HOLD
|
|
RIO
|
38.76
|
44.14
|
12/18/16
|
14%
|
BUY
|
PVH
|
92.82
|
116.98
|
1/22/17
|
26%
|
HOLD
|
23.13
|
29.69
|
2/19/17
|
28%
|
BUY
|
|
82.25
|
109.15
|
4/16/17
|
33%
|
BUY
|
|
19.65
|
18.84
|
6/25/17
|
-4%
|
BUY
|
|
42.35
|
42.35
|
7/23/17
|
0%
|
NEW
|
|
ETF
|
|||||
26.88
|
22.41
|
4/1/13
|
-17%
|
BUY
|
|
31.94
|
33.79
|
3/15/15
|
6%
|
HOLD
|
|
INCO
|
34.46
|
43.29
|
5/15/15
|
26%
|
BUY
|
139.1
|
150.34
|
8/16/15
|
8%
|
HOLD
|
|
77.76
|
91.13
|
8/16/15
|
17%
|
HOLD
|
|
32.5
|
43.63
|
11/15/15
|
34%
|
BUY
|
|
112.83
|
114.22
|
3/19/16
|
1%
|
HOLD
|
|
EMQQ
|
32.65
|
34.27
|
5/21/17
|
5%
|
BUY
|
MUTUAL FUND
|
|||||
117.73
|
221.84
|
3/1/13
|
88%
|
Accumulate
|
|
52.48
|
72.92
|
2/2/14
|
39%
|
BUY
|
|
128.91
|
166.24
|
4/12/14
|
29%
|
BUY
|
|
27.17
|
31.33
|
10/25/14
|
15%
|
HOLD
|
|
28.19
|
30.4
|
12/20/14
|
8%
|
HOLD
|
|
61.72
|
93.2
|
12/20/14
|
51%
|
Accumulate
|
|
MINDX *
|
26.48
|
31.98
|
6/14/15
|
21%
|
Accumulate
|
MCDFX *
|
13.84
|
16.67
|
12/9/15
|
20%
|
Accumulate
|
95.32
|
119.82
|
1/15/16
|
26%
|
HOLD
|
|
38.65
|
49.32
|
3/20/16
|
28%
|
Accumulate
|
|
33.73
|
36.89
|
11/20/16
|
9%
|
BUY
|
|
* Indicates dividend
adjusted
|
|||||
Positions closed since last Blog:
NONE.
That’s all for today.
Wish you good investing! Stay tuned for my AUG 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 only. I do not provide any 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 accurate. 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.
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