Shesa's NOVEMBER 2017 INVESTMENT BLOG

             Nov 26, 2017

NOVEMBER 2017 INVESTMENT BLOG

Shesa Nayak

Happy belated Thanksgiving to all my blog readers across the world. 

U.S. Stock Market Update: The stock market rally around the world continues unabated. Little over a month left for the end of this year to mark another great year of market return. If history is any evidence, statistically this is the best time to invest, since traditionally the stock market takes off just before Thanksgiving and rallies to the end of the year. The holidays are a happy time of year and that positive sentiment usually results in a healthy year-end rally. Unless something seriously goes wrong I do anticipate another 2-3% rise in stock market this year. NASDAQ has already gone up hooping 28% this year and steadily approaching towards 7,000 points, so also DOW towards 24,000. If my projection of 2-3 rally continues then the market should be able to achieve those milestones. Will it happen? We can discuss further but first let’s take a look to the stock market indexes as of date. 

U.S. Stock Market Indexes

	2017
U.S. Indexes	3-Jan-17	Friday Close	Change this Year	% Change in 2017	All Time High	Diff (Points)
DOW Jones	19762.6	23,557.99	3,795.39	19.20	23,617.80	-59.81
S&P 500	2238.83	2,602.42	363.59	16.24	2,604.21	-1.79
NASDAQ	5383.12	6,889.16	1,506.04	27.98	6,890.02	-0.86
BTK (Biotech)	3116.15	4,217.84	1,101.69	35.35	4329.04	-111.20
NBI	2828.2	3,273.35	445.15	15.74	4003.21	-729.86

Interest Rate Update

It seems Federal Reserve is all set to increase the interest rate when they meet on Dec 12 – 13. It is widely understood that a Fed rate hike in December is fully priced into the market. The question is, whether will there be more interest rate hikes in 1^st quarter of 2018? It would depend on the tax cut proposal and how GDP will grow. If they again raise rate in early part of 2018 then I guess stock market may react and possibly we can see some market correction during that time.

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

• Earnings: The earning season for Q3 is almost over. So far, 98% of the S&P 500 companies have reported earnings. Out of which, 74% have reported positive EPS surprises and 66% have reported positive sales surprises. Eight sectors have reported earnings growth, led by the Energy, IT and Materials sector.
• Earnings Guidance: For Q4 2017, 67 S&P 500 companies have issued negative EPS guidance and 35 S&P 500 companies have issued positive EPS guidance.
• Valuation: The forward 12-month P/E ratio for the S&P 500 is 18.0. This P/E ratio is above the 5-year average (15.7) and above the 10-year average (14.1).

Major economy News:

Jerome Powell nominated as Fed chairman: On November 2^nd, President Trump nominated Jerome Powell as the chairman of the Federal Reserve after current term of Janet Yellen's expires in February 2018. Yellen's term saw an uninterrupted bull market that began in March 2009 and low interest rates even as the Fed has initiated to unwind the stimulus program. Can we see the bull market continue during Jerome Powell’s tenure? Let’s hope so. Only time will tell.. I think Powell will try to continue the market rally which seems to be one of the major favorable factor of Trump’s presidency...

GDP growth gaining momentum: Based on latest quarterly IMF growth report (October 2017) estimates 3.6% global growth for 2017 and 3.7% for 2018. China is back to a 6.9% growth rate. India GDP growth expected gain the momentum and expected to 7.2% growth in 2018. The Economist shows that 41 of the 42 largest economies in the world are all in growth mode now except Venezuela.

Tax cut proposal: On November 16, 2017, the U.S. House of Representatives passed its version of the Tax Cuts. That same day, the Senate Finance Committee approved its version. Both house and senate versions are based on the Trump administration's plan presented on September 27, 2017. Both plan cuts the maximum corporate rate from 35% to 20%.  The Senate plan propose tax cut starting 2019 but House plan suggests cutting it from 2018. Both plans cut income tax rates, double the standard deduction, and eliminate personal exemptions.

Senate Plan of Tax Brackets:

Income Tax Rate		Income Levels
Current	Senate	Single	Married - Joint
10%	10%	$0-$9,524	$0-$19,049
15%	12%	$9,525-$38,699	$19,050-$77,399
25%	22.5%	$38,700-$59,999	$77,400-$119,999
25% - 28%	25%	$60,000-$169,999	$120,000-$389,999
33%	32.5%	$170,000-$199,999	$390,000-$449,999
33% - 35%	35%	$200,000-$499,999	$450,000-$999,999
39.6%	38.5%	$500,000+	$1M+

House Plan of Tax Brackets:

Income Tax Rate		Income Levels
Current	House	Single	Married - Joint
10-15%	12%	$0-$44,999	$0-$89,999
25-28%	25%	$45,000-$199,999	$90,000-$259,999
28-39.6%	35%	$200,000-$499,999	$260,000-$999,999
39.6%	39.6%	$500,000+	$1M+

Both tax plans eliminate itemized deductions except charitable contributions, mortgage interest, property taxes (max 10K – house version), and retirement savings (401K, IRA, SEP-IRA etc.). The House plan limits the deduction up to $500,000 for new mortgages. However, it can be noted that the current mortgage-holders aren't affected by either plan. 

My view: The irony is both plans eliminate the deduction for state and local taxes. That’s is not good primarily for the residents in high-tax states like California and New York. Undoubtedly the corporate sector is going to be benefited, particularly those who are paying higher tax. As far as middle class is concerned, it’s hard to determine how far it would really reduce the tax burden of the middle class! Nothing really seems very exciting to me. I think this would primarily help corporates rather than individuals.

Will the market rally continue to end of the year?

As far as stock market is concerned, it’s very difficult to predict. Moreover, visualizing the current market sentiment I think we may see a year-end rally and finish the year in a positive note. As said in my opening remark, I will not be surprised to see another 2-3% rally in the stock market before the end of the year. Some of these momentums would depend on retails sales over the current Thanksgiving weekend. If the retail sector does well, we can see further rally in the stock market. Just reminding the readers that 70% of the GDP depends on consumer spending. Consumer spending will bring better corporate results and that bode well for the last quarter (Q4) of this year. These results will be shown in the corporate earning declared in Q1 of next year. Better earnings would give further boost to the stock market rally. We can’t expect that market rally to continue forever. It has been 8 years that the market is rallying without having any major correction. The stock market is also little expensive based on valuation. Having said that, as I said in my last blog, there are trillions of dollars sitting on the sideline causing the market to bounce back after a dip. Definitely, time would come when profit taking will start, economy may tumble, and correction or recession may hit. But why keep bothering from now? Always we should have a back-up plan in case such situation arises. Until then we should keep enjoying the ride and not complaining why market keeps going up and up. I believe no investor should feel bad about making money😊. Ha..ha.. The current rally is still fairly broad-based and may be a low risk of a near-term correction. The tax reform will only extend out the rally by several quarters as earnings estimates for the S&P 500 are boosted higher. The financial physics are to "follow the money" and "don't fight the fed". Now let’s take a look of the Q3 earning of my blog portfolio holdings.

Q3 EARNINGS TABLE - Shesa's Blog Portfolio

Stock	Earnings	My Opinion
AAPL	EPS: EPS: $2.07 vs. $1.87 consensus estimate. Revenue: $52.6 billion vs. $50.7 billion consensus. iPhone Sold: 46.7 million vs. 46 million expected. Q1 revenue guidance: $84 billion to $87 billion vs. $84.9 billion consensus.	Apple seems to be a good long term buy, particularly because of new iPhone X demand. < Buy on dip >.
BABA	EPS: $1.02 vs. consensus $0.84. Revenue: increased 61% to $8.3 billion vs. consensus $7.78 Billion.	Both revenue and profit exploded. There is no stopping for this company! Alibaba’s Singles Day smashed its own record with $25 billion in sales which is 39% more comparing to last year. < Buy on dip >.
BIDU	EPS: $3.89 vs. consensus $2.04. Revenue:  $3.53 billion vs. $3.56 billion consensus.	It beat on profit but failed on Revenue. Forecast is not great.  < HOLD>.
CYBR	EPS: $0.05, $1.681 million. Revenue:  $64.818 million, 18% increase YOY. Million vs. projected 61 million.	I have added this to the portfolio for trading purpose and see how it performs. < HOLD>.
EXEL	Net Profit: $90.4 million YoY increase of 12%. Revenue: increased 145% to $ $152.5 billion YoY. vs. consensus $9.84 Billion.	EXEL seems to have lot in its pipeline. Current dip in share price looks compelling for long term.  < BUY >.
Facebook (FB)	EPS: $1.59 vs. consensus $1.28. Revenue: increased 47% to $10.3 billion vs. consensus $9.84 Billion. Monthly Active users: 2.07 billion vs. 20.06B.	Company says operating expenses will rise between 45 percent and 60%. < Buy on Dip>.
JD	EPS: 0.23 vs. 0.03 consensus estimate. Revenue: increased 39% to $12.58 billion vs. $12.25 billion consensus.	< Buy on dip >.
JUNO	EPS: Loss of -$1.12  vs. .0.566 last year. Revenue: $44.82 million vs. 20.83 million last year 115% growth YOY.	The trial of  JCR017 CAR-T seems to be going good. It may be a stock to watch for 2018. < Buy on dip >.
LUV	EPS: $0.62 vs.$0.88 consensus.  Revenue: $5.14 Billion vs. 5.17 billion consensus. Revenue declined 3.4% YOY.	< HOLD >.
MA	EPS: $1.34 a share vs. $1.23 per share consensus. Revenue: $3.4 billion vs. $3.28 billion consensus. Revenue growth was 17% YOY.	Master Card beat analyst expectation. It’s doing a great stock for long term. < Buy on dip >.
TSLA	EPS: Loss per share of $2.92 vs. $2.29 expected.  Revenue: $2.98 billion vs. $2.95 billion expected.	Company says it has some concern to meet the production target for Model 3. Buy around $290.
XON	EPS: -0.21 cents vs.-0.11 consensus.  Revenue: $57 million vs. 57 million.	Company has missed the profit and revenue forecast. The stock price has come down significantly. I am still having my faith and hoping 2018 could be a turning point. < HOLD >.

BitCoin (GBTC) - Why is it riding so high?

Bitcoin further skyrocketed higher above $8,300 and GBTC has been on tear. I included the Bitcoin trust (GBTC) last month to my blog portfolio and it has gone up 53% in just one month. That’s incredible move for bitcoin and GBTC in particular. Of course, Bitcoin is highly volatile, but a small portion of the portfolio could bring great ROI in long run. But what’s the reason behind such a huge run? Bitcoin has gone up more than 700% this year. The market cap has risen to over $136 billion. So, GBTC is following the trend. Bitcoin has gained momentum since the optimism generated by CME's announcement that it plans to launch bitcoin futures soon subject to regulatory approval. CME Group is the world's leading and most diverse derivatives marketplace, handling 3 billion contracts worth approximately $1 quadrillion annually. Chicago Board of Exchange has also announced plans to launch Bitcoin futures. This would be a major step in the cryptocurrency becoming mainstream, as derivatives will provide much needed liquidity and legitimacy to the digital currency. There is apprehension by many investors to invest in Bitcoin but these derivatives will provide them a convenient way to trade. This will also bring a lot of new money, coincidentally it will also provide opportunity for the traders to short. In my view, this is very positive news for the crypto currency and I do see further potential in future.

Now let’s discuss about this month’s inclusion to my Blog Portfolio.

MOMO Inc. (MOMO)

Momo Inc. operates as a mobile-based social networking platform in China. It offers Momo mobile application that enables users to establish and expand their social relationships based on locations and interests; and live video application. The company also offers games, which are designed with various themes, cultural characteristics, and features to appeal to various segments of the game player community; paid emoticons, and mobile marketing services.

MOMO has been really growing fast at an incredible pace. Last few quarters have been exceedingly well. It has/had revenue growth of 215% and profit growth of 294%.  The company has a forward P/E of just 14. Despite the fact that the stock has gone up more than 50% this year, it still looks incredibly cheap to me. MOMO had a great earnings last quarter but still the stock came down from about $40 to $32 as I pen this. That’s very surprising. What’s the Wall Street concern? The Wall street concern was that the number of paying live-stream viewers stayed flat at 4.1 million. It’s in the business of hosting and serving videos which is cost intensive, so indications that MOMO is having trouble expanding its paying user base, along with comments from management that overall engagement was roughly flat could slow down the growth in the near future. Also, the company's operating expenses have already grown faster than sales in its last two quarters, which is causing concern.

However, paid subscriptions are not the company's only, or most important, revenue stream. Even without paid-user growth, the company's average revenue per monthly active user increased nearly 160% year over year last quarter. China is the 2^nd largest economy in the world, where millions are still joining the middle class each year. MOMO now has around 100 million active users.

Why do I like MOMO?

MOMO shares trade at forward earnings of just 14. Visualizing the kind of revenue growth, profit growth and valuation it looks very cheap. It also provides a fast-growing Chinese dating app which is very appealing to the Chinese unattached adults. MOMO is expected to report its earnings before market open on Tuesday, Nov. 28. Many of the Chinese companies have released great earnings and I believe MOMO can repeat its great performance. The key would be to show a reasonable sequential uptick in premium memberships. If that happens, then I will not be surprised to see the stock go up more than 20-25% even on a day. Hence, I feel it’s a good buying opportunity for investors who are willing weather potential volatility with the stock. The stock is currently trading at $32.14, 31% below its 52-week high. But this is a highly volatile stock, so caution is warranted. I have already bought some stock even at a little higher price. In case of any correction, I may add more. If an investor is not comfortable then it's advisable to wait till the earning is declared on 11/28. But one could miss an opportunity if the company comes with great earnings. I mostly go on a phased approach, not to invest everything once, but judiciously keep adding as the opportunity arises.

Let’s see look at the fundamentals now:

Market Cap	6.33B	52 Week High	46.69
Trailing PE	25.21	52 Week Low	16.73
Forward PE	14.03	Total Cash	349.2M
Price to Sales	6.46	Total Debt	N/A
Revenue / Sales	980.6M	Book Value	4.09
Quarterly Revenue Growth	215.3%	Beta	N/A
Profit / Earnings	311.6M	Institutional holders (Float) + Insiders	43.4% 2.53%
Quarterly Earnings Growth	294.30%	Return on Equity	40.41%
EPS	4.29

Risk & Opportunity: I believe MOMO has a great growth potential. Visualizing its current revenue, profit growth and valuation it may be a good buying opportunity. The earnings will be declared in a few days, if it comes up with another great quarter and increased paid membership then the stock may explode. But if it fails to deliver then the stock may take a hit. It’s high volatile stock so caution is warranted. The company is growing with superior fundamentals so I am invested.

Shesa’s Blog Portfolio (As of 11/26/17)

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View (see disclaimer)
STOCK ( All prices are in USD)
AAPL	54.09	174.97	1/25/13	223%	BUY on dip
BIDU	86.43	249.42	4/18/13	189%	HOLD
FB	47	182.78	11/13/13	289%	BUY on dip
TSLA	135	315.55	11/13/13	134%	BUY below 295.
MA	78.06	145.38	12/12/13	86%	BUY on dip
AMZN	311.73	1186	4/12/14	280%	BUY on dip
MO	52.03	65.48	9/13/15	26%	BUY on dip
BABA	67.28	191.19	2/21/16	184%	BUY on dip
JD	23.45	39.21	5/22/16	67%	BUY on dip
ABX	22.21	14.98	7/4/16	-33%	SOLD on 10/26
XON	26.37	13.05	7/4/16	-51%	HOLD
LUV	36.89	55.14	9/5/16	49%	HOLD
RIO	38.76	49.43	12/18/16	28%	BUY on dip
PVH	92.82	135.47	1/22/17	46%	HOLD
JUNO	23.13	62.85	2/19/17	172%	BUY on dip
KITE	82.25	180	4/16/17	119%	Got Acquired
CYBR	42.35	46.93	7/23/17	11%	HOLD
EXEL	26.33	25.85	8/20/17	-2%	BUY
GBTC	702.51	1074.01	10/21/17	53%	BUY on dip
MOMO	32.14	32.14	11/25/17	0%	BUY - NEW ADD
ETF
GDX	26.88	22.83	4/1/13	-15%	HOLD
INDA	31.94	35.42	3/15/15	11%	HOLD
INCO	34.46	47.19	5/15/15	37%	Accumulate
IHF	139.1	149.21	8/16/15	7%	HOLD
XLY	77.76	94.63	8/16/15	22%	HOLD
EEM	32.5	47.71	11/15/15	47%	Accumulate
IYG	112.83	122.47	3/19/16	9%	HOLD
EMQQ	32.65	39.53	5/21/17	21%	Accumulate
MUTUAL FUND
FBIOX	117.73	216.6	3/1/13	84%	Accumulate
PRHSX *	52.48	74.34	2/2/14	42%	BUY
FSCHX *	128.91	185.63	4/12/14	44%	HOLD
FSCRX *	27.17	31.91	10/25/14	17%	HOLD
GASFX *	28.19	30.37	12/20/14	8%	HOLD -ready to Sell
PRMTX *	61.72	99.66	12/20/14	61%	Accumulate
MINDX *	26.48	33.52	6/14/15	27%	Accumulate
MCDFX *	13.84	19.04	12/9/15	38%	Accumulate
FSRPX *	95.32	130.52	1/15/16	37%	Accumulate
FBSOX *	38.65	55.62	3/20/16	44%	Accumulate
TGLDX	33.73	36.29	11/20/16	8%	HOLD
FSMEX	46.2	48.1	9/24/17	4%	BUY
* Indicates dividend adjusted

Positions closed since last Blog:

Equity	Sales Price	Buy Price	Date Sold	Gain / Loss (%)
ABX	14.98	22.21	26-Oct	-32.5%

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