Shesa's OCTOBER 2017 INVESTMENT BLOG

            Oct 22, 2017

OCTOBER 2017 INVESTMENT BLOG

Shesa Nayak

First of all, thanks to my investment group members for attending the investment meet and sharing their thoughts. It was a big success. You can scroll down to see some photos.

U.S. Stock Market Update: Dow has gone past 23000 points. All the U.S. stock market indexes continue to climb higher and higher persistently. The stock market added 4 trillion dollars after the U.S. election. Many trillion dollars are sitting on the sidelines. There is a gargantuan hope on tax reform which continues to fuel the market rally. It’s not only U.S but most of the stock market across the world are making new highs. The talk in the town is about tax cut, Obamacare replacement, North Korea issue and Donald Trump’s policies. President Donald Trump keeps zigging and zagging his talk, tweet, and decision; making it difficult to believe on his agenda and action! Irrespective of all these, stock market keeps making record high. Is it something that Trump has really done for booming stock market after the election? This is a great question, I will dig deeper into this situation with an extensive and interesting analysis in a moment but first let’s take a look to the stock market indexes for this week. 

U.S. Stock Market Indexes (2017)

U.S. Indexes	1/3/17	Friday Close	Change this Year	% Change in 2017
DOW	19762.6	23,328.63	3,566.03	18.04
S&P 500	2238.8	2,575.21	336.41	15.03
NASDAQ	5383.1	6,629.05	1,245.95	23.15
BTK	3116.1	4,243.06	1,126.96	36.17
NBI	2828.2	3,472.32	644.12	22.77

Interest Rate Update

Last Sunday, Federal Reserve Chair Janet Yellen provided a bright outlook for the U.S. economy and inflation prospects in coming months. She indicated that the recent hurricanes will likely slow economic growth slightly but that would be a temporary phenomenon and should be followed by a rebound by end of the year. Most economists are forecasting that next rate hike would be taking place in December. She pointed out that, low inflation is little surprising, but it’s anticipated to start picking up in the coming months.  The "Economic activity in the U.S. has been growing moderately so far this year, and the labor market has continued to strengthen," Yellen said in her speech to a panel of central bank officials from various countries. I also believe that Fed may raise the interest rate in December visualizing current economy and stock market situation.

For more U.S. Economic news and data please look at here: http://www.marketwatch.com/economy-politics/calendars/economic   

Source: Marketwatch.com

Q3 Earnings Overview

Most of the banks like Bank of America, Citi group, JP Morgan chase, Wells Fargo etc. have declared their earnings. Except Wells Fargo all the banks have beat revenue and earnings estimates. Wells Fargo fell short of revenue estimate. A few of the tech companies who reported earnings are: IBM, eBay. Based on factset.com, so far 17% of the companies in the S&P 500 have reported results, 76% of them have reported positive EPS surprises and 72% have reported positive revenue surprises. Many of these S&P 500 companies are attributing Hurricanes and Foreign exchange (USD devaluation) has negative impact on Q3 revenue and earnings or it’s expected to have a negative impact on earnings and revenues in future quarters. A large number of companies are expected to report earnings in next couple of weeks.

Why does stock market keeps making new high time & again?

If you recall I had written about the partisan conflict index in my July blog and the political uncertainty.  There are still a lot of uncertainties remains in political and geopolitical front. Despite these negatives and higher valuation of stock market, we keep seeing new stock market high time and again, why is that? Let me analyze why is the new highs and what it could mean for the future of the stock market.

If you recall, there was a massive 900-point plunge after president Donald Trump was expected to win the U.S. election in November election. Subsequently, in May the market pulled back 2% with the fear a possible Trump impeachment. And the latest pull-back was this summer when investors pulled $30 Billion out of U.S. stock funds for 10 straight weeks which was the longest outflow since 2004. So, what was the result? Every time the market pulled back the market bounced back and hit a new high within the next few weeks. Why was that? Because all those money in the sidelines saw it as a buying opportunity and they did not want to miss those opportunities. Evidently, that’s one of the reasons money sitting on the sidelines could flood the market in weeks/months ahead.

• Astronomical amount of money sitting on the sideline: According to some investment firms it’s estimated that the wealthy investors could have as much as 35% of their portfolio in cash. It’s also estimated that there are about $70 trillion sitting on the sidelines, yes that’s TRILLION! Even if some percentage of those money poured into the market then it could be huge! But why would those money come to the stock market? First of all, no one wants to miss out the buying opportunity and no one wants to bet against this market’s powerful run! If we recall, a lot of people pulled their money during the 2008-09 market down-turn and they never got back in. They just keep looking for the opportunity to get in. The fear of missing out is obviously one major reason.
• Big hope on tax reform: Republican party unveiled a tax reform plan that has big tax cuts for both individuals (?) and corporations. This has fueled stock market expectation causing it to make new highs. I still doubt how it would really benefit individual!
• Unemployment remains below is merely 4.2% as of September.
• GDP grew at 3.1% in the second quarter. It’s not great but reasonable.
• Household income is up for the second year in a row.
• Strong results from corporate America – revenue and profit growth in Q2 and expected to continue in Q3. Continued good earning by corporate America could boost the stock market.
• U.S corporates have about $2.6 Trillion in oversees. Apple alone has about $240 billion followed by Microsoft, Cisco, Google etc.
• Central Bankers are the major buyer of stock: The Federal Reserve has printed several trillions of dollars still there is no inflation and USD has strengthened significantly. According to Bloomberg, The Bank of Japan is on track to be the #1 buyer of Japanese stocks. If they continue to do so, possibly they could buy all the stock from the stock market! In fact, China's Central bank is now a top 10 shareholders in the biggest and well-known stocks in Shanghai. In U.S, Fed Chair, Janet Yellen says, "there could be benefits to allowing the central bank to buy stocks.". These are behemoth who has trillions of dollars on their disposal and can change the entire market scenario. It had never happened before. But the question is why should the central banks buy stock?  As I understand, they do so to prop up their stock market in an effort to create a wealth effect, hoping it would induce consumers to feel better and keep spending money which in-turn would propel the economy forward.
• We are entering the seasonally strong time of year for stocks (NOV – APR)

Despite all the above it’s better to control the emotions and exuberance. Because there are also many negative factors surrounding the market (please refer last month’s blog). The S&P 500 forward 12-Month P/E Ratio is 18.0 for first Time in 15 Years. Let’s take a look to the current P/E and 20 years average P/E for S&P 500.

Time	S&P 500	IT	Health Care	Fin.	Energy	Utility	Consumer Disc.	Industrial
10/11/17	18	18.8	16.8	14.6	29.1	18.1	19.7	18.4
20 Yr. Avg.	16	20.8	17.6	12.9	17.5	14.1	18	16.3

Source FactSet.com

From above table the stock market seems to be little expensive based on historical standard. Bio-tech and IT looks better to me. Finance too could be good.

Updates:

KITE Pharma: As I wrote in my blog last month KITE pharma got acquired by Gilead Sciences (GILD) for $180 a share, $11.9 billion. In the latest news, on Wednesday, 10/18, FDA approved the CAR-T cancer drug for which it bought KITE pharma. Gilead Sciences published the drug to cost $375,000.

Intrexon (XON): Where is the company heading?

On July 2016, I included this stock in the blog portfolio. After that the price went up but overall it has been a disappointment so far, falling around 25% while the S&P 500 has advanced around 15%. The company's business model is to make research and development deals with various partners to create biotech products in healthcare, energy, food, environmental services and so on. Though the company is doing everything, but large revenue is yet to materialize. It has only $157 million in cash on hand and that may not last too long unless the company successfully commercialize more of its product. On Oct 17, the company announced that it will have access to up to $100 million of new capital through a deal with an affiliate company controlled by its founder and chairman. I also feel that the company could be bought out. It’s a little speculative stock but I would like to hold it with patience. Currently it has more than 30 collaborations underway and many more in the works. Next few months or year would be extremely significant. I have added some more call options.

Exelixis (EXEL): On October 16, the company said that it has won FDA approval priority review status for its supplemental New Drug Application for a treatment for advanced renal cell carcinoma a type of liver cancer. The company also said, FDA granted Cabometyx priority review as a first treatment for patients with advanced kidney cancer. Shares of EXEL did shot up around 30% to $32 after the news. However, again it has come down to $27.17.  I think this is being played by Financial institutions who wants to sell high and then buy by scaring individual investors like us.  I keep accumulating stock/option when opportunity arises. I always prefer to take some profit when opportunity arises.

Update Gold: Gold has been hovering between $1270 to $1315 in the last one month. Currently, it’s trading at $1280.70 as I write. Nothing much has changed but the gold mining sector looks like a good buy. However, there has been lower demand in India this year due to change in tax rule. It seems like people are buying more gold from Dubai rather than India.

Update on Oil: OPEC said in its monthly report that "increasing evidence that the oil market is heading toward rebalancing". In last few weeks higher demand coupled with OPEC production cuts has created hopes for a supposed rebalancing of the global oil supply and a potential increase in oil price. A couple of weeks ago, the oil price went as high as $53.44, its highest value since July of 2015. The OPEC raised its forecasts for global oil demand due to the improving outlook for economic growth, which increases thirst for crude and other sources of energy.

This month I am including something new in my blog portfolio, known a Bitcoin Investment Trust.

Bitcoin Investment Trust (GBTC)

Bitcoin Investment Trust is an open-ended investment fund located in 636 Avenue Of The Americas, New York, NY 10011, USA. It enables investors to gain access to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins. Grayscale Investments, LLC, the sponsor of the Bitcoin Investment Trust (GBTC).

Not a long ago, in 2009 the Bitcoin came into existence. There was not much interest in the beginning for last few months have really ignited to momentum. I provided some insight into Bitcoin in my last month’s blog. Bitcoin went past $6000 last Friday but trading around $5900 as I write this blog.

Why do I like GBTC?

Bitcoin seems to me like the days of initial .com frenzy. GBTC has gone from $89 to $1064.95 this year, I still think that it’s in its initial state of growth. Since bitcoin is fairly new there is not much information to do research on GBTC. But as far as I know, GBTC is one of the fund which has been in existence since May 2015. It provides the convenience of buying bitcoin like a Stock. It has a market Cap of $971.9 million as of Friday, 10/20/17.  It’s reasonably large and stable fund in this area. In future, every country may have their own Bitcoin, the same way they have currencies for their own country. For example, we have USD, so also dollars from many other countries but why do people prefer USD over others? Because, it’s most widely accepted/used, stable and renowned. I do believe bitcoin works in similar fashion. Despite the fact that, there are several hundreds of crypto currencies Bitcoin is the first to the market and well known. I prefer stability rather than speculation.

There have been many negative and positive news with regards to crypto currencies. Here are some of the positive developments in this space:

• IMF Managing Director told CNBC that “IMF could at some point develop its own cryptocurrency. She pointed to the IMF's Special Drawing Right (SDR), a currency the IMF created to serve as an international reserve asset, that could incorporate technology similar to cryptocurrencies. Meaning that IMF is also showing interest in this space.
• Japan's Financial Services Agency officially recognized 11 companies as registered cryptocurrency exchange operators. This decision in Japan shows its support for digital currency. In April, it passed a law recognizing bitcoin as legal tender.
• Blockchain technology is the backbone of the crypto currency market. It is estimated to worth more than $150 billion, and up more than 800% since the beginning of the year.
• It’s also anticipated that the $96-billion crowdfunding market may fund Blockchain in future.
• Global Blockchain Technologies Corp just announced trading of Canada’s first blockchain-based investment company which allows people to invest in Blockchain now. It can be bought through the brokerages.

There is not much fundamental analysis for GBTC but let’s see some basic details.

Current Price	$702.51
Market Cap	971.9 Million
52 Week Range	$89 – $1064.95
1 Year Change	689.3%
P/E Ratio	4.16
EPS	169.07

Source: Barrons.com

My thoughts: There are so many micro stocks in cryptocurrency market. In fact, there are hundreds of crypto currencies, but it’s better to go with an established one. Rather than buying Bitcoin itself, this is a better way to invest in Bitcoin at this fairly early stage. I feel more comfortable of buying the fund which invests in Bitcoin rather than directly buying Bitcoin. It does not mean that I won’t buy in future. I already bought some GBTC. I can make dollar cost average or take some profit depending on the situation.

Risks: Bitcoin is still not regulated and it’s not an official currency like other currencies. It’s extremely volatile and speculative. Any restriction or regulations by the government or central banks could have major impact. The risks and rewards are pretty high. It’s not a bad idea to take a calculated risk, let’s say 1 or 2% of the portfolio which has the potential to give excellent return on investment (ROI). Investing a very small part of portfolio may not ruin even if it falls. As people says, only invest that much of money which you can afford to lose. As a principle, I do not buy everything at once rather go on a gradual manner, particularly when risk and volatility is high. Every investor must do their own analysis and due diligence before taking a decision.

Shesa’s Blog Portfolio (As of 10/22/17)

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View (see disclaimer)	Earnings Date
STOCK ( All prices are in USD)
AAPL	54.09	156.25	1/25/13	189%	BUY	2-Nov
BIDU	86.43	264.9	4/18/13	206%	HOLD	26-Oct
FB	47	174.98	11/13/13	272%	BUY on dip	1-Nov
TSLA	135	345.1	11/13/13	156%	HOLD	25-Oct
MA	78.06	145.38	12/12/13	86%	BUY on dip	31-Oct
AMZN	311.73	982.91	4/12/14	215%	BUY on dip	26-Oct
MO	52.03	65	9/13/15	25%	BUY on dip	26-Oct
BABA	67.28	177.32	2/21/16	164%	BUY on dip	2-Nov
JD	23.45	39	5/22/16	66%	HOLD	21-Nov
ABX	22.21	16.03	7/4/16	-28%	HOLD	25-Oct
XON	26.37	17.88	7/4/16	-32%	BUY	8-Nov
LUV	36.89	59.37	9/5/16	61%	HOLD	26-Oct
RIO	38.76	48.37	12/18/16	25%	BUY	N/A
PVH	92.82	128.31	1/22/17	38%	HOLD	8-Nov
JUNO	23.13	43.71	2/19/17	89%	BUY on dip	8-Nov
KITE	82.25	180	4/16/17	119%	Acquired	Acquired by GILD
UA	19.65	15.15	6/25/17	-23%	SOLD	Sold @15.15
CYBR	42.35	43.66	7/23/17	3%	HOLD	2-Nov
EXEL	26.33	27.17	8/20/17	3%	BUY	1-Nov
GBTC	702.51	702.51	10/21/17	0%	NEW ADD	N/A
ETF
GDX	26.88	23.23	4/1/13	-14%	BUY
INDA	31.94	34.3	3/15/15	7%	HOLD
INCO	34.46	44.01	5/15/15	28%	BUY
IHF	139.1	148.67	8/16/15	7%	HOLD
XLY	77.76	91.35	8/16/15	17%	HOLD
EEM	32.5	46.26	11/15/15	42%	BUY
IYG	112.83	123.1	3/19/16	9%	HOLD on dip
EMQQ	32.65	36.93	5/21/17	13%	BUY
MUTUAL FUND
FBIOX	117.73	227.58	3/1/13	93%	Accumulate
PRHSX *	52.48	74.92	2/2/14	43%	BUY
FSCHX *	128.91	181.89	4/12/14	41%	HOLD
FSCRX *	27.17	32.15	10/25/14	18%	HOLD
GASFX *	28.19	30.32	12/20/14	8%	HOLD
PRMTX *	61.72	95.99	12/20/14	56%	Accumulate
MINDX *	26.48	32.61	6/14/15	23%	Accumulate
MCDFX *	13.84	18.21	12/9/15	32%	Accumulate
FSRPX *	95.32	123.24	1/15/16	29%	BUY
FBSOX *	38.65	53.53	3/20/16	38%	HOLD
TGLDX	33.73	36.68	11/20/16	9%	HOLD
FSMEX	46.2	47.08	9/24/17	2%	BUY
* Indicates dividend adjusted

Positions closed since last Blog:

Sold Under Armour (UA) @15.15 and booked 22% loss. I thought it's time to get out of this under performer and put the money with other stock. 

That’s all for today. Wish you good investing! Stay tuned for my NOV 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 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. Anybody buying or selling the equities mentioned here would do it on their own risk.

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