Shesa's SEPTEMBER 2017 INVESTMENT BLOG
Sept 24, 2017
SEPTEMBER
2017 INVESTMENT BLOG
Shesa
Nayak
U.S. Stock Market Update: Historically the stock market
has entered to a dead zone wherein S&P 500 drops 70% of the time during the
month of September and October. So far, stock markets have not really altered
its direction and keeps going up. Will it change its direction? Let’s discuss
it later. We have so many events starting from federal reserve’s decision to
reverse the stimulus program and further deterioration of geopolitical
situation. Meanwhile, president Donald Trump’s push to repeal and replace
Obamacare seems to have failed again after senator John McCain announced that
he would not support the measure. Trump is also pushing for tax reform and
indicated that 95% of the American’s would be able to file their tax in a
single page, middle class families and corporate America would be the recipient
of tax cuts. A group of GOP leaders are slated to release more details of the
detailed plan next week. How long will this hope and expectation keep moving
the market? We will discuss in a moment but first let’s take a glance at the stock market indexes.
U.S. Stock Market Indexes
|
Economy & Geopolitical
News impacting stock market
Interest
Rate: On September 20, Federal Reserve left
the interest rate unchanged with its current 1-1.25% rate.
Reversal
of Stimulus: Federal Reserve will begin to roll off
its $4.5 trillion balance sheet starting this October. If you recall, Fed had started the QE (Quantitative
Easing) program in late 2008 after the major real estate crisis and recession. Fed
stated that it will allow $10 billion to roll off at first, increasing
quarterly in $10 billion increments until the total hits $50 billion by October
2018.
GDP growth: Back
in June Fed expected a GDP growth of 2.1% GDP but that was revised to 2.2%
in the latest projections. However, the long-term outlook for GDP
remained unchange at 1.8%.
Inflation:
Fed reduced its outlook for inflation, cutting its expectation from 1.7 percent
this year to 1.5%, and from 2 percent to 1.9
percent in 2018.
Future
Rate Increase: Officials projected one fewer rate
hike than initially forecast by 2019.
Warren Buffett’s Prediction: The
Oracle of Omaha predicts that Dow will hit 1
million in next 100 years, by the year 2117. It
means that DOW should increase 3.9% compounded per year for 100 years. I don’t
think many folks will be there to see whether it will ever happen or not!!
Whatever may be the prediction I do not emphasize on this.
GeoPolitical News Impacting Stock Market
As usual there are lots of
firefighting between US president Donald and North Korean president Kim Jong
Un. Trump said while addressing to United Nations that the US was ready to "totally destroy"
North Korea if it was forced to defend its allies. Such warning was seen as
unprecedented for a US president delivering an address to
the world's leaders and top diplomats.
In response, North Korean foreign minister
said, they could test a powerful nuclear weapon over the Pacific Ocean in
response to US President Donald Trump's threats of military action. This could
probably mean that strongest hydrogen bomb test over the Pacific Ocean. The comment
came shortly after Kim Jong Un said that Trump would "pay dearly" for
threatening to "totally destroy" North Korea during his UN speech
last Tuesday. On Saturday, US Bombers flew of North Korea’s coast in show of
force. The grave situation continues..
On other news, based on an exit poll on Sunday evening it
showed that Angela Merkel is on track for 4th term
as German Chancellor.
How long stock market will keep going up?
I keep writing on
this topic in my blogs because we are in such a state that it’s a very
pertinent question. As said in my earlier blog, September and October are two
unfavorable months for the stock markets. Just reminding the readers that October Oct 19, 1987 was
the worst crash of the stock market history. History does not
always repeat but it’s important to be vigilant. The bull market started almost 8.5 years ago in 2009
after the housing market crash. Since
then economy has improved and corporations are coming with better results, more
employment, more consumer confidence and so on. But valuation is not cheap any
more. The
average company in the S&P 500 now
sells for 25 times earnings. That’s over 50% more than the historical
average P/E of 16. The question is does it justify such hefty valuations? Different
schools of thoughts have different views.
The
stock markets are at all-time high. This year the stock markets are up
significantly (see U.S. Stock market Index) on my 1st page. Not only
U.S market, European
equities, up 20%; developing markets, up 31%. The projected U.S GDP
growth is mere 2.2%. In comparison China
is growing at 6.7%. India is growing at a 7.1%
rate. As you know GDP is size of the economy. In other words, it’s the total
value of goods and services produced in a country. So, more the GDP growth
business will experience rapid profit growth and so also the earnings potential
of the people. Commodity prices are rebounding. Copper, zinc, aluminum,
palladium, silver and gold are all up by double digits and that’s helping the
emerging markets. Add to that, they are also benefited due to weaker dollar
which is down almost 10% this year. Weaker dollar helps because
dollar-denominated debts become cheaper and easier to pay back. It’s like low
interest rate payment. In my view once
stock market starts falling consumer confidence, employment, jobless claims,
housing market, industrial production etc.
will all deteriorate.
Portfolio Management: The market can tank anytime
and it’s better to be prepared or at least have a thought in mind. If it
happens then what next? There can be few scenarios for an investor:
- Run to 100% cash may not be right solution. The problem with going 100% to cash is that the market may continue going up not just for weeks or months or years. And the longer you're out, the higher the market may go.
- Stay on the sidelines long enough, stocks may never come back to where you cashed out. And if you jump back in, you risk being in for the correction after missing the rally. It’s difficult to predict when market may come down and when it bounces back.
- Remain invested: It may be judicious but if there is a bear market then there could be more than 20% market correction. On an average, portfolio loses more than 32% in a bear market. Are we comfortable doing that? I don’t think so.
- A right
mix of remain invested, taking some profit by trimming the portfolio and
having some cash on hand to deploy when required may be a right strategy. Appropriate
asset allocation and using tight trailing stop are two other
critical factors which I did not include in my previous blog. I suggest my readers to revisit
my August 2017 blog for more details on this topic.
Important Update on KITE, JUNO, EXEL and AAPL
KITE
Pharma (KITE): On 8/28, I
sent an email to my investment group members that KITE pharma got acquired by Gilead Sciences (GILD) for $180 a share,
$11.9 billion.
I included this stock in my blog portfolio on 4/16/2017 when the stock was
trading at $82.25. In 4.5 months, it was acquired at a price tag of $180, about
120% returns on investment. Such
opportunity comes very rarely!
JUNO
Therapeutics (JUNO): After
the news, another stock in my blog portfolio JUNO who is a competitor of KITE
has gone up more than 40% in last few weeks.
This is very encouraging news for the shareholders. Just to remind the reader
that, JUNO is also in the same business
of CAR-T cancer therapy. I will not be surprised if JUNO gets acquired in
the coming days/months. On September 21, JUNO announced a proposal for $250 million follow-on
public offering of 6.1 million shares of common stock at $41 per share. The
offering, subject to customary closing conditions, is expected to close on Sep
26, 2017. The stock went down about 7% after the news but bounced back 8.5% on
Friday. I have taken some profit and will add more with any further dip. Keep
an eye on this company. It could also be a hot candidate to be acquired.
Exelixis (EXEL):
Last Friday EXEL was down
about 13%. There was no serious news. An analyst downgraded the company to
Market Perform. Also, it was heard that some top
management officials sold about $11 million worth of company stock. Probably,
those investors who had expectation of a buyout could have thought that the
executives would not be selling if there is to be a buyout in the short term. Most
likely, all these news contributed to downward direction of the share
price. I feel this was just a reaction from some traders. This Monday,
September 25, the company CEO Michael Morrissey will be presenting in a health
care conference. Let’s see if there is any better news! In concise, I do feel
that this is a buying opportunity for long term investors. I have added
some more shares since my last blog.
AAPL:
On September 12th
Apple launched a few products at the Steve Jobs Theater at its new
“spaceship” campus. Three key products were being introduced.
- Apple Watch Series 3: This Apple Watch will have built-in cellular capability so it doesn’t need to be connected to an iPhone to make or receive calls. That’s good. I am expecting higher demand of this watch.
- iPhone X, or iPhone 10: This is the most expensive iPhone whose price tag is $999. It features a FaceID recognition feature, which unlocks the phone and can also be used with Apple Pay and third-party apps. It has an edge-to-edge display, dual 12-megapixel cameras and stability sensors. The iPhone X begins on Oct. 27 and expected to ship on November 3rd.
- What does it mean for the shareholders? In my view, iPhone X with $999 price tag, which is almost 40% more than iPhone 8 seems little expensive! The stock price has come down from all-time high of $164.94 to about $150. I look value to add little more around this price. In fact, I added little more last Friday.
Update Gold: Continued
missile testing by North Korea with continued war of words between Donald Trump
and Kim Jong Un, Military display by US bombers, Hurricane Harvey, Irma, drop
in U.S dollar’s value (USD has lost about 10% in value this year), need for
Congress to raise the U.S. debt ceiling are bullish for gold. There are doubts that USD will maintain
upward momentum despite a hawkishly construed Fed Committee this week, which
sent gold back below $1,300 an ounce for the first time since August. Gold had
gone to as high as $1360+ a few weeks ago. Moreover, this is also seasonally favorable time for the precious
metal. I would like to be invested in
gold for some part of my portfolio, at least 5-10%. The gold mining sector has
been hit hard even though gold is trading over $1300. They are trading as if gold price is below
$1200. I feel there is opportunity in the gold mining sector. If the scenario
changes I may get out.
Update
on Oil: Oil prices have
started going north after the hurricane in Texas, followed by Florida. The
inventory has started coming down and demand is going up. In the latest meet of
OPEC members on Friday nothing much really happened. I am not too bullish on
oil but a rebalancing is happening. Crude Oil is currently trading at $50.66.
These days there
are lot of interest is being generated for Bitcoin.
I don’t have too much knowledge on Bitcoin like equity but I would like to
provide some insight into this for the benefit of my blog readers.
Some thoughts on Bitcoin
First of all, let’s talk about what is Bitcoin and how does it work? It’s a digital asset designed to work as a
digital currency. It’s also referred with various terms like digital currency,
digital cash, virtual currency, electronic currency, or cryptocurrency. So, how
does it work? When a transaction is made there
is a transfer of value between Bitcoin
wallets which gets included in the block chain. Bitcoin wallets keep a
secret piece of data called a private key which is used to sign transactions,
providing a proof that they have rightfully come from the owner of the wallet.
Bitcoin transactions are recorded and preserved by a network of computers known
as bitcoin blockchain. With bitcoin, the debits and ceredits (deposits) are
done automatically and securely with no bank needed for the transaction. It's
faster, cheaper and more secure than using traditional government-backed
currencies.
My
thoughts: A few weeks
ago, Bitcoin sold off with the many unfavorable remarks from financial
institutions, Hedge Funds and more importantly rumors that Chinese regulators would shut down
Bitcoin exchanges. In fact, some exchanges ordered to stop trading by the end
of September. These are certainly negative news for the currency and Bitcoin's
price fell from its a peak of more than $5,000 to $3,000. After that it
has recovered about 25% and currently it’s trading at $3764. Recently, several large financial
institutions and global money manager have filed for bitcoin ETFs. This is very
encouraging news for Bitcoin as investors will soon be able to buy options and
futures contracts on bitcoin. In recent past, I bought a few shares of Bitcoin
Investment Trust (GBTC) which is
currently trading at $663. It’s very speculative and risky. However, a nominal
investment can also be a jackpot once it gets wider acceptance, more awareness
is generated and transacted through ETFs. Also, there were rumors that many
retailers would start accepting Bitcoin. Anyway, one should be ready to lose
the whole if something goes seriously wrong. I do not recommend to buy/sell.
This is just for the awareness and readers are advised to have their own
discretions.
Now let’s discuss about my inclusion to my
Blog Portfolio. It has been almost a
year since I included any Mutual Fund, hence thought of including one of the
best performing MF in the Medical Equipment sector.
Fidelity Select Medical Equip &
Systems (FSMEX)
The
Fidelity Mutual fund normally invests at least 80% of assets in securities of companies
principally engaged in research, development, manufacture, distribution,
supply, or sale of medical equipment and devices and related
technologies. It invests primarily in common stocks.
Why do I like this fund? Biotech sector is one of the sectors, which is
expected to perform better in years to come. But medical equipment go hand in
hand with biotech. Medical equipment’s are essential for testing various
diseases, medical conditions, performing surgery and so on. If you recall, more
than a year ago I wrote in my blog that Baby Boomers, born between 1946 and
1964, are heading into retirement at about 10,000 a day. With these aging
population medical requirement becomes more imperative. It’s not only in U.S but
also across the world medical need is inevitable. Unfortunately, medical
treatment takes significance over other needs. As a matter of fact, it’s better
to invest in a sector that is anticipated to continue to perform better in
future. And I believe Mutual Fund is a better way to do that without too much
risk. The major holdings of
this fund are Medtronic, Boston Scientific, Becton, Dickinson, Intuitive Surgical,
Amgen, Allergan and few others. FXMEX is Morningstar 5-star rated mutual fund
with great return, low expenses and experienced fund manager. The current NAV of the fund is $46.20 with
52-week high of $46.83. It’s almost at its 52-week high but under current
market condition it’s a better choice. I have already invested in this fund a
few months ago and keep accumulating with some pull back. Now let’s see
the fund performance:
FSMEX performance as of 8/31/2017: (Before Tax).
1 Year
|
3 Year
|
5 Year
|
10 Year
|
Life of Fund
|
|
FSMEX
|
22.05%
|
18.21%
|
21.84%
|
13.91%
|
14.45% (Since 1998)
|
S&P 500
|
17.90%
|
9.61%
|
14.63%
|
7.18%
|
6.26%
|
If we see the return on investment
(ROI) on the above table, it has done outstandingly well in short as well as
long term. It has also crushed the return of S&P 500 more
than double since the inception of the fund despite the fact that biotech
sector is still not at its all-time high.
NAV: $46.20 (Current price).
Net
Asset: $4.06 billion.
Fund
Inception: 4/28/1998.
Morningstar Rating: ***** (5 Star).
Minimum Investment: $2500.00.
Load: No Load and No Transaction Fee in Fidelity. Other broker
may have transaction fees.
Expense Ratio: 0.76% (LOW).
Beta: 0.87. Risk: This
is little less volatile than the market move.
Fund Managers: Edward L. Yoon, Lead Manager since April 30, 2007.
Risks: The mutual fund invests
in stock primarily of the medical equipment. If there would be change in the
government policy with regards to health care or if the biotech sector goes
down then the fund will also be impacted. Under such circumstances, I would
re-visit the fund. However, keeping in view of the future, this is one great
mutual fund which can be reliably invested for long term with solid return on
investment.
Shesa’s Blog Portfolio (As of
9/24/17)
Equity
|
Suggested Price
|
Current Price
|
Suggested Date
|
% Change
|
My View (see disclaimer)
|
Comment
|
STOCK ( All prices are in USD)
|
||||||
54.09
|
151.89
|
1/25/13
|
181%
|
BUY
|
See update
|
|
86.43
|
240.57
|
4/18/13
|
178%
|
HOLD
|
||
21.8
|
20.89
|
10/1/13
|
-4%
|
SOLD
|
SOLD @20.89
|
|
47
|
170.54
|
11/13/13
|
263%
|
HOLD
|
||
135
|
351.09
|
11/13/13
|
160%
|
HOLD
|
||
78.06
|
131.14
|
12/12/13
|
68%
|
HOLD
|
||
311.73
|
955.1
|
4/12/14
|
206%
|
HOLD
|
||
52.03
|
62.49
|
9/13/15
|
20%
|
HOLD
|
||
67.28
|
178.14
|
2/21/16
|
165%
|
BUY
|
Add on dip.
|
|
23.45
|
42.37
|
5/22/16
|
81%
|
HOLD
|
||
ABX
|
22.21
|
16.36
|
7/4/16
|
-26%
|
BUY
|
|
XON
|
26.37
|
18.75
|
7/4/16
|
-29%
|
HOLD
|
|
36.89
|
54.93
|
9/5/16
|
49%
|
HOLD
|
||
RIO
|
38.76
|
47.82
|
12/18/16
|
23%
|
BUY
|
|
PVH
|
92.82
|
126.07
|
1/22/17
|
36%
|
HOLD
|
|
23.13
|
45.14
|
2/19/17
|
95%
|
ADD on dip
|
See update.
|
|
82.25
|
179.3
|
4/16/17
|
118%
|
Acquired
|
See update.
|
|
19.65
|
15.04
|
6/25/17
|
-23%
|
HOLD
|
||
42.35
|
42.85
|
7/23/17
|
1%
|
HOLD
|
Hold
|
|
26.33
|
24.47
|
8/20/17
|
-7%
|
BUY
|
See update.
|
|
ETF
|
||||||
26.88
|
23.47
|
4/1/13
|
-13%
|
BUY
|
||
31.94
|
33.48
|
3/15/15
|
5%
|
HOLD
|
I may sell.
|
|
INCO
|
34.46
|
43.12
|
5/15/15
|
25%
|
BUY
|
|
139.1
|
145.08
|
8/16/15
|
4%
|
HOLD
|
I may sell.
|
|
77.76
|
89.54
|
8/16/15
|
15%
|
HOLD
|
||
32.5
|
45.38
|
11/15/15
|
40%
|
BUY
|
||
112.83
|
118.24
|
3/19/16
|
5%
|
HOLD
|
||
EMQQ
|
32.65
|
37.12
|
5/21/17
|
14%
|
BUY
|
|
MUTUAL FUND
|
||||||
117.73
|
227.9
|
3/1/13
|
94%
|
Accumulate
|
||
52.48
|
73.33
|
2/2/14
|
40%
|
BUY
|
||
128.91
|
175.12
|
4/12/14
|
36%
|
BUY
|
||
27.17
|
30.77
|
10/25/14
|
13%
|
HOLD
|
||
28.19
|
30.25
|
12/20/14
|
7%
|
HOLD
|
I may sell.
|
|
61.72
|
94.54
|
12/20/14
|
53%
|
Accumulate
|
||
MINDX *
|
26.48
|
32.16
|
6/14/15
|
21%
|
Accumulate
|
|
MCDFX *
|
13.84
|
17.71
|
12/9/15
|
28%
|
Accumulate
|
|
95.32
|
120.37
|
1/15/16
|
26%
|
HOLD
|
||
38.65
|
51.53
|
3/20/16
|
33%
|
HOLD
|
||
33.73
|
37.66
|
11/20/16
|
12%
|
BUY
|
||
46.2
|
46.2
|
9/24/17
|
0%
|
NEW ADD
|
||
* Indicates dividend adjusted
|
||||||
Positions
closed since last Blog:
Wheaton Precious Metals Corp (WPM):
Sold at
That’s all for today. Wish you good
investing! Stay tuned for my OCT 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. You can also join my WhatsApp group, if interested.
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.
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