Shesa's APRIL 2018 INVESTMENT BLOG
April 22, 2018
APRIL 2018 INVESTMENT BLOG
Shesa Nayak
U.S. Stock Market Update: Next couple of weeks will be marathon race for technology companies as they come out with first quarter earnings. I would term it as super bowl week for tech companies. Moreover, last few weeks have been enormously eventful for the stock market as it generated lot of volatility. This month, I will discuss the factors making this market so volatile. Under such volatility what should an investor do? Is it worth taking profits and run away? remain invested? Is the earning season going to bring stability and momentum in the stock market? What would be the impact of current Geopolitical situation after bombing in Syria? How about the tariff war between U.S. and China? Corporate earnings are the impetus for stock market. Would the tax cut help the earnings now and rest of 2018? So many questions come to mind. Do I know answers to all the questions above? The answer is “no”. However, I have done some extensive research and I will try to put my analysis. But before I do that, let’s first take a look at the stock market indexes.
U.S STOCK MARKET INDEX
Indexes
|
1/2/18
|
Friday Close (4/20/18)
|
Change in 2018
|
% Change in 2018
|
All Time High
|
DOW Jones
|
24,719.22
|
24,462.94
|
-256.28
|
-1.04
|
26,616.71
|
S&P 500
|
2,673.61
|
2,670.14
|
-3.47
|
-0.13
|
2,872.87
|
NASDAQ
|
6,903.39
|
7,146.13
|
242.74
|
3.52
|
7,637.27
|
BTK (Biotech)
|
4,222.21
|
4,565.86
|
343.65
|
8.14
|
4989.66
|
NBI
|
3,356.61
|
3,300.34
|
-56.27
|
-1.68
|
4165.86
|
Key Economy news
Interest Rate: The Federal Reserve raised its key interest rate by 0.25% and kept its forecast for three hikes in 2018.The current federal funds rate is 1.75%. It was the sixth increase since December 2015, when Fed started tightening monetary policy for the first time after the financial crisis. They also indicated that future rate hikes could be "slightly steeper" over the next few years than previously thought but projected that inflation will be modest.
U.S GDP Growth:Federal Reserve expects growth of 2.7%this year, up from its earlier forecast of 2.5%, and projected 2.4%in 2019, up from its prior 2.1% estimate. These are obviously much better figure than 2.2% average growth during the nearly 9-year recovery since financial crisis. First quarter GDP will be declared this Friday, which is expected to be 2.0%.
China declared that first quarter GDP grew at 6.8%.
India GDP Growth was revised from 6.6% to 7.4%for new fiscal year.
For more U.S. Economic news and data please look at here: http://www.marketwatch.com/economy-politics/calendars/economic
Source: Marketwatch.com
Q1 Earnings in motion:
The banks and financial institutions like JP Morgan, Bank of America. Citi group, Wells Fargo, Morgan Stanley, Goldman Sachs came with great earning last week beating their top and bottom line.
Nest week will be the Super Bowl week(s) for Tech Companies Earnings. We will see flood of earnings from the great technology companies of the world. Google kicks-off on Monday after the market close, followed by the other giants like Facebook, Microsoft, Amazon, Intel, Apple, Nvidia and so on. This is the time, we all investors keep waiting to see what is in store and where to invest, re-invest, take profit, add more etc. For Q1 2018, the earnings growth rate for the S&P 500 is 18.3% so far. If the pace continues for the whole quarter than it will mark the highest earnings growth since Q1 2011 which came in 19.5%. As far as S&P 500 valuation is concerned, the forward 12-month P/E ratio is 16.6 comparing to 5-year average 16.1 and above the 10-year average 14.3. So, I do not think that market is overvalued particularly when we see 5 years average visualizing the tax cut and future earnings growth.
Why does the stock market continue to be volatile?
In our last investment meet, I exclusively discussed about it. However, I would like to elaborate here for the benefit of all my blog readers:
- Stock market correction started on Friday, FEB 2, after Apple’s Q4 2017 earnings. Dow dropped 640 points followed next week with another around 1500 points. The market reaction was that Economy is too strong& Fed will raise Interest Rate more than required.
- On March 21, Federal Reserve hiked interest rate. Initially market bounced back and then tumbled again.
- Then came Tariff: $60B declared by U.S. China retaliated with $3B followed by another $50B of tariff on U.S goods.
- On Thu, April 5, Trump announced another $100B of Tariff. The question is, is Tariff Bad? Yes. But Trump has a point. There should be mutual reciprocation for trade. A $500B trade deficit with China is obviously not a fair trade.
- Along the way came Facebook where 87 million users got compromised.
- Trump’s war against AMAZON indicating that U.S postal service is losing money on every delivery that it makes.
- Google’s bad earnings in Q4 and death of a pedestrian in Arizona being hit by a self-driving car brought down both Google & Nvidia.
- The latest Job report was below expectation 103,000 vs. expected 183,000. Please note that sever cold storm in North east had a major impact on job. So, I guess next month’s job report should be fine.
- Mark Zuckerberg was called to testify in front of Congress about the users.
- On Friday, 4/14 U.S, UK and France bombarded Syria’s chemical weapon sites.
- Lackluster earnings by IBM.
- Computerized Algorithm based Trading is another factor which I wrote in my blog a couple of months ago.
All these above factors contributed to market volatility. Please note that S&P has tested its FEB 8 lows several times. But NASDAQ is yet to test its low. But the good sign is that volume has been low, meaning that not too many people are getting scared and selling.
In my view, volatile is and will be the name of the game going forward. One day, we may feel happy that portfolio went up 2% and after a day/two, we may see it goes down. Hence, investors should be equipped to deal with such volatility. Otherwise, it may become harder to get suitable return on investment (ROI).
My strategy for volatile stock market: Everybody can have their own strategy but here is my strategy. All these may not be necessarily be exclusively for volatile stock market, but I try to follow these as far as possible:
- Take profit when time is good. When others are chasing, generate some CASH to take advantage of market corrections.
- Buy in a phased manner when others are running away, keep accumulating, but know when to STOP making Dollar Cost Average.
- Try to do some diligent research/analysis before buying any equity.
- Have an EXIT strategy and follow it. Whether you use trailing stop or whatever means you use.
- If stock market prospects are looking good then go Aggressive. If Future is looking uncertain or risky then go Conservative.
- If you can’t spend time reviewing your portfolio regularly it’s better to go Conservative/Dividend Paying/ETF/Index Fund/ MF.
- Have an account where you have free stock trading facilities. Saving trading fees provides better ROI and flexibility to trade stock.
- Do NOT panic and take wrong decision, but sometime quick decision is helpful for better return.
- After doing due diligence, if you know that certain equity is good and looking for anentry point then do not keep changing your mind always. Put a limit order based on your comfort level but don’t bother for few cents here and there. Otherwise, you may miss the boat.
- It’s Easy to buy and difficult to Sale. If you know your objective and control your emotion, selling is not a hard job.
- Nobody wins every time so do not get too emotional, but don’t forget the lessons leaned. Grid & Fear always dominates…
- Know the difference between Trading and Investing.
- Take loss from Trading account and buy in IRA, ROTH, SEP-IRA (if legally possible). If you have profit, it’s better to sale from non-trading account as it’s not taxable.
- Take suggestion(s) but ultimately it should be your OWN decision what to do.
- Do some hedging in down market, not too much though!
- If you are comfortable, it’s better to have a little bit of Call Options.
- Diversify but restrict over diversification.
- Follow the sectors which are doing well but keep an eye on bargain in other sectors.
Why do I think Market should have a good run for next few weeks?
I spoke at length about my bullishness on the current stock market. However, it does not mean that bullish run may continue on a straight line up. I think once Q1 earning season is over we may see bumpier ride ahead. In other words, we may see more volatility and possibly correction in coming months. But why I am bullish on this market for next few weeks? The key driver of the stock markets are EARNINGS. And I will provide some facts on why the earnings can be better in next few quarters, many of this is being contributed by Trump’s tax cut. I have discussed at length about the strong economy, job growth, consumer confidence, retail sales, stock buyback, merger & acquisitions, dividend increase etc. Based on the economic data from TrimTabs,corporate America dedicated $305 billion to stock buybacks and cash takeovers compared with $131 billion in pretax wage growth. In other words, employer spent only about one third of the money in employment generation. Irrespective of the fact, this is good for stock market. These are contributing to the sales and earnings growth for corporates. Now let’s take a look at the projected earning for next few quarters:
2018 Projected Revenue and Earnings Growth for S&P 500.
Revenue Growth
|
Earnings Growth
| |
First Quarter (current)
|
7.2%
|
17.3%
|
Second Quarter
|
7.5%
|
18.2%
|
Third Quarter
|
6.2%
|
21.7%
|
Fourth Quarter
|
5.4%
|
18.1%
|
Note: There were 15% earnings growth in 4th Quarter 2017.
The important thing is, it’s not just U.S economy is growing rather the world economy is improving. Let’s take a look at other countries:
· INDIA GDP Growth was revised by RBI, India from 6.6% to 7.4% for new fiscal year.
· China declared that first quarter GDP grew at 6.8% better than expectation.
· Germany had GDP growth of 2.4%.
· G7 countries had GDP growth of 2.3%.
· Canada had GDP growth of 2.2%.
· France had GDP growth of 2.1%.
In addition, I do not think FED is any more a barrier. We can expect possibly another 2-3 interest rate hikes. Also, I view stock market’s performance is president Trump’s performance,so I don’t think his government will do anything that does not bode well for the stock market.
Above are the factors contributing to my bullishness though market detect its own term and I may be proven wrong. Having said that, there are many other risksthat investors should be aware of and strategize their investment accordingly. So, what are the risks?
What can derail the market rally?
- Please note that we are in the best 6 months of the year for stock market which comes to an end on April 30. However, there are more earnings news to come including Apple, Google. Microsoft, Facebook and many other big tech companies. Once major earnings reports are over the big fish will try to take advantage and bring some or other news which may scare individual investors. I will not be surprised if there will be further coordinated effort by the financial institutions the way it happened in FEB 1stweek of this year. Their objective is to sell high and buy low. So, I will keep an eye on that aspect. As a strategy, it would be good to take some profit during the earnings seasons and have some cash available. I think there will be ample opportunity in future to deploy those cash. I will not forget my first principle “take some profit” when others are chasing.
- Sooner or later the experts will make noise about market valuation that markets are overvalued, earnings are factored in and blah..blah..
- Trade deficit could be another headwind for the continued bull market. Trade deficits have been increasing which is not a good sign. These are additional debt of a country which should be repaid.
- Interest rate hike: There could be hue and cry about inflation, higher gas prices and that FED may increase more than required and so on…
- Geopolitical uncertainties another factor after bombing in Syria. Russia may create some fuss and try to create some tensions. Or any other geopolitical news could have adverse impact on the market.
- These may be other unprecedented factors which can bring stock market down for a few weeks/months. Hence, it would be a good idea to have some cash available to take advantage of such situations.
As I always say, I am not a fortune tellerand do not know what will happen in future. But these are the probable factors which could impact the stock market direction/correction for some period of time.
Should we Sell in May and Go away?
As there is a saying that have been there for decades, there is an element of truth to the "sell in May". This year, the old axiom may or may not prove true, given the age of the current bull cycle and the rise in volatility we've seen this year. But these are speculation, not strategy. Assuming that "sell in May and go away" were a reliable rule, what's the proof which tells you when it's time to get back in? And what happens if the market falls in April? Should we still be fully invested thinking that we are still in best 6 months of the year and keep taking losses? I don’t think so.. If you recall, if somebody sold with the “Sell in May” principle in 2016 then we would have missed out on some remarkable runs of the stock market. The Nasdaq had some roller coaster action over the next several weeks and closed higher in May and then began to soar in late June. From the end of June 2016 through Jan. 26, 2018, the Nasdaq rose around 55%. Hence, we should not strategize based on speculation or axiom irrespective of what the any pundits or proverbs or TV or media say they "should" do.
This month’s Blog Portfolio.
NVIDIA Corporation (NASDAQ: NVDA)
Santa Clara, California based NVIDIA Corporation operates as a visual computing company worldwide. Primarily its products include processors for PC gaming, cloud-based game-streaming service; computer-aided design, video editing, special effects, cryptocurrency-specific graphics processing and processor for self-driving capabilities for car.It’s market leader in graphics processors and considered to be the best in the industry in terms of performance, power efficiency, and its brand strength among the gaming community is arguably unmatched.
Why invest in NVIDIA? The company is enjoying tremendous revenue and profit growth for last several years and getting stronger and stronger. This is undoubtedly one of the best technology stock in the chip industry. I would term it as “the best”. I remember, I bought this stock almost a decade ago under $6 pre-split and sold it by taking about 200% profit and felt very happy. But what happened after that is history. After a long pause, again I got into this stock around $150 and still keep holding this great tech company. It has been growing its revenue with rapid pace, 34% Revenue and 71% profit growth year-over-year. With tax cut in place, the company is expected to have another incredible year. The momentum continues, as it dominates the gaming, crypto and self-driving car market. A few weeks ago, it held its GPU Technology Conference, where it announced some exciting new products and partnerships in computer graphics for gaming, professional visualization applications and Artificial Intelligence.
Because of recent accident of self-driving car, wherein one pedestrian got killed which was operated by Uber, the stock got beaten. But it can be noted that, NVIDIA generate less than 5% of its revenue from the self-driving car chip market. The stock is currently trading at $228.71and had a 52-week high of $254.50, meaning about 10% discount to its high. Obviously, the stock may not be cheap from valuation perspective as it is selling in 31% of future earnings. Let’s quickly take a look to its fundamentals:
Company Fundamentals:
Market Cap
|
138.84B
|
52 Week High
|
254.50
|
Trailing PE
|
47.45
|
52 Week Low
|
100.36
|
Forward PE
|
31.55
|
Total Cash
|
9.71B
|
Price to Sales
|
14.29
|
Total Debt
|
2B
|
Revenue / Sales
|
9.71B
|
Book Value
|
12.33
|
Quarterly Revenue Growth (yoy)
|
34%
|
Beta
|
1.53
|
Profit / Earnings
|
3.05B
|
Institutional holders
|
68.69%
|
Quarterly Earnings Growth (yoy)
|
71.10%
|
Return on Equity
|
46.05%
|
EPS
|
4.82
|
Dividend Yield
|
0.25%
|
NVIDIA stock has returned about 130% over the one-year period shattering S&P 500 return of only 17.6%. The stock has gained almost about 10-fold in the past three years. Irrespective of high analyst’s projections, the company has surpassed expectations time and again. The company is expected to report its Q1 earnings on 7thMay (date may not be confirmed yet!). I do expect another blockbuster performance. It’s not only the revenue or profit growth but the stock has provided outstanding ROE of 46%. That’s incredible!
Risks:As I say, if stock market goes down so also any company, hence Nvidia is no exception. Also, the stock has/had incredible run over the past years and hence slightly expensive, we may not expect as great return as it did before.
My final thoughts:I already own this stock and keep accumulating over a period of time. Though the stock has/had marathon run in last few years, but company is growing its revenue and profit wonderfully well. I believe that, it has great fundamentals and momentum to support much better growth than many big names in the industry. I may have two portions of investment on this stock. One for long term investment and another one is for short-term trading. Because this is a stock that fits all dimensions of investor portfolio. I will not hesitate to say this is “one of the best in the business”. I am waiting to see its earnings in next couple of weeks and hope it is a blockbuster one. But I am keeping my finger crossed as of now.
Shesa’s Blog Portfolio (As of 4/22/18).
Equity
|
Suggested Price
|
Current Price
|
Suggested Date
|
% Change
|
My View (see disclaimer)
|
Earnings Date
|
STOCK (All prices are in USD)
| ||||||
51.63
|
165.72
|
1/25/13
|
221%
|
BUY
|
1-May
| |
86.43
|
232.5
|
4/18/13
|
169%
|
HOLD
|
25-Apr
| |
47
|
166.28
|
11/13/13
|
254%
|
BUY (updated on 4/26)
|
25-Apr
| |
135
|
290.24
|
11/13/13
|
115%
|
HOLD
|
2-May
| |
77.18
|
177.08
|
12/12/13
|
129%
|
HOLD
|
2-May
| |
311.73
|
1527.49
|
4/12/14
|
390%
|
HOLD/BUY
|
26-Apr
| |
50.05
|
57.23
|
9/13/15
|
14%
|
HOLD (trimmed)
|
26-Apr
| |
67.28
|
179.11
|
2/21/16
|
166%
|
BUY
|
4-May
| |
23.45
|
37.44
|
5/22/16
|
60%
|
HOLD
|
7-May
| |
XON
|
26.37
|
17.94
|
7/4/16
|
-32%
|
BUY
|
8-May
|
36.89
|
54.77
|
9/5/16
|
48%
|
HOLD
|
26-Apr
| |
RIO
|
36.41
|
56.6
|
12/18/16
|
55%
|
BUY on dip
|
N/A
|
PVH
|
92.82
|
159.48
|
1/22/17
|
72%
|
HOLD
|
22-May
|
26.33
|
20.87
|
8/20/17
|
-21%
|
BUY
|
2-May
| |
32.14
|
36.33
|
11/25/17
|
13%
|
BUY on dip
|
21-May
| |
104.36
|
88.95
|
1/1/18
|
-15%
|
HOLD
|
4-May
| |
206.96
|
200.13
|
3/18/18
|
-3%
|
BUY
|
N/A
| |
228.71
|
228.71
|
4/22/18
|
0%
|
NEW ADDITION
|
7-May
| |
ETF
| ||||||
26.88
|
22.71
|
4/1/13
|
-16%
|
HOLD
| ||
31.94
|
34.46
|
3/15/15
|
8%
|
HOLD
| ||
INCO
|
34.46
|
47.74
|
5/15/15
|
39%
|
Accumulate
| |
139.1
|
164.22
|
8/16/15
|
18%
|
HOLD
| ||
77.76
|
102.98
|
8/16/15
|
32%
|
HOLD
| ||
32.3
|
47.26
|
11/15/15
|
46%
|
Accumulate
| ||
112.03
|
132.42
|
3/19/16
|
18%
|
Buy on dip.
| ||
EMQQ
|
32.65
|
37.66
|
5/21/17
|
15%
|
BUY
| |
58.52
|
59.38
|
2/11/18
|
1%
|
BUY
| ||
MUTUAL FUND
| ||||||
114.64
|
215.37
|
3/1/13
|
88%
|
Accumulate
| ||
47.25
|
72.19
|
2/2/14
|
53%
|
HOLD
| ||
120.74
|
160.74
|
4/12/14
|
33%
|
Accumulate
| ||
24.3
|
29.87
|
10/25/14
|
23%
|
HOLD
| ||
59.45
|
100.8
|
12/20/14
|
70%
|
Accumulate
| ||
MINDX *
|
26
|
34.25
|
6/14/15
|
32%
|
HOLD
| |
MCDFX *
|
12.37
|
17.91
|
12/9/15
|
45%
|
HOLD
| |
90.53
|
141.07
|
1/15/16
|
56%
|
Accumulate
| ||
37.32
|
57.97
|
3/20/16
|
55%
|
Accumulate
| ||
43.66
|
46
|
9/24/17
|
5%
|
Accumulate
| ||
* Indicates dividend adjusted
| ||||||
Positions closed in April 2017: NONE
Company Updates
XON:Interxon corporation had gone less than $11 by end of December 2017. However, the stock has bounced back since then currently trading at $17.94. In March, Intrexon reported that 2017 Q4 revenue increased 67% year over year, to $77 million. The biotech also had positive adjusted EBITDA of $13.7 million. There were many positive news as its subsidiary expects to begin several clinical trials this year using CAR-T (chimeric antigen receptor T cell) therapies.
EXEL:
Exelixis has been in the down trend since the last earnings were declared. Despite the fact, I am anticipating better earnings this quarter when it comes out with its earnings on May 2nd. I still feel this company as a good buy.
That’s all for today. Wish you great investing! Stay tuned for my MAY 2018 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 WhatsAppgroup, if interested.
Disclaimer: This blog is meant to provide my opinion only. The information provided is to the best of my knowledge but may not be accurate. 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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