Shesa's JUN-JULY 2018 INVESTMENT BLOG
JUN/JULY 2018 - INVESTMENT BLOG
By Shesa Nayak
Wishing all U.S. blog readers "happy and safe Independence Day".
U.S. Stock Market Update: We are in mid of the year now. The stock markets continue fluctuating due to many factors, the latest being “Trade War”. The trade war between U.S and many other countries like China, Canada, European counties countries continues. Outflows from U.S. stocks were the highest since the stock market correction in February, amounted to $24.2 billion, which is third highest since the financial crisis. Investors are concerned but not panicked yet! But in my view “trade war” is overblown by media and possibly investment community. The bottom line is that, money is not leaving the stock market, it is being reshuffled in most situations. This year stock buy-backs have risen 42% in the first quarter. Share buyback for S&P 500 hit an all-time record of $137 billion and the trend should continue in the second quarter and may get even bigger. In contrast, the stock market has not risen as much as earnings have risen this year, so price-to-earnings (PE) ratios continue to decline. Hence, valuation becomes cheaper and that entice the corporations to buy their own shares. There may be summer rally sometime in summer, but we should not expect too much! Since “trade war” is the current phenomena, I will discuss in more details 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
|
Tuesday Close (7/3/18)
|
Change in 2018
|
% Change in 2018
|
All Time High
|
DOW Jones
|
24,719.22
|
24,174.82
|
-544.40
|
-2.20
|
26,616.71
|
S&P 500
|
2,673.61
|
2,713.22
|
39.61
|
1.48
|
2,872.87
|
NASDAQ
|
6,903.39
|
7,502.67
|
599.28
|
8.68
|
7,637.27
|
BTK (Biotech)
|
4,222.21
|
4,813.33
|
591.12
|
14.00
|
4989.66
|
NBI
|
3,356.61
|
3,487.42
|
130.81
|
3.90
|
4165.86
|
Key Economy news
Interest rate:A couple of weeks before, president Trump’s top economic adviser Lawrence Kudlow said he hoped the Fed would raise rates “very slowly,” breaking a 25-year White House precedent of refraining from commenting on monetary policy. This may be an indication that Fed is not going to rush ahead and keep raising rates. This is good news for the Stock market.
Treasury yields continue to moderate, especially the 10-year Treasury bond. This will continue to take pressure from FED to raise rates further, despite robust GDP growth. I do feel that Fed may take a pause for now before raising interest rate in later part of the year.
U.S. companies Share buybacks
U.S. companies announced a record $201.3 billion in stock buybacks and cash takeovers just in May 2018.
For more U.S. Economic news and data please click on the following URL: http://www.marketwatch.com/economy-politics/calendars/economic
Source: Marketwatch.com
My perspective on why stock markets are sliding
The “trade war” is hurting the stock markets across the world, particularly China is hardest hit. It’s not desirable for any country to have trade restrictions for imports and exports. However, as I wrote in my blog before, these trade barriers are ultimately going to hurt the economy and employment for all associated countries. Trade war may hurt U.S but it could hurt more to countries like China in particular, who exported $505.6 billion worth of goods to the U.S in 2017 and imported only $129.8 billion worth of good from U.S in 2017. I may not be a Trump supporter, but it makes sense to me about his action from economy perspective. Agreed, there are lot of Chinese investments in U.S, particularly in real estates in U.S and particularly San Francisco Bay Area is one of the beneficiaries of that. So, ultimately it benefits U.S economy as a whole but it also benefits Chinese investors as they get better return on investment (ROI) from their invested capital. Trade should be two-way traffic, not one way. Being adamant is not going to make things better whether be it U.S or China or any countries for that matter. The China stock is one of the major loser in the whole process and it’s also hurting the emerging economies. China stock market is in correction territory sliding 13.9% year-to-date where in U.S stock market is still in positive territory for the year, except DOW which just turned negative.
In last few weeks, investors dumped U.S. stocks at the fastest pace since market correction February. A significant amount of money flowed into Treasury bills, the safe haven bets, not to the precious metals though! Recently Trump tweeted saying“The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one-way street!”
According to Bank of America Merrill Lynch strategists, around $30 billion came out of global stock funds in total in the past week was the second-highest ever sincethe financial crisis. The outflows from U.S. stocks were the highest since the stock market correction in February amounted to around $24.2 billion, which is third highest since the financial crisis. This nervousness could be attributed to the U.S trade war with China, Canada, European union and so on. Possibly, investors are adjusting their positions, but I don’t think they are panicking yet! We can anticipate some volatility during July earnings season, though I anticipate some good earnings from technology and energy sector. The month of August and September could get further rockier before the mid-term U.S election. The stock market Ups and Downs are Trade War story. In my view, the “trade war” has been overblown by the market and media. Under such scenario, my preferred sectors continue to be biotechand technology.
Some of the key world Stock Indexes performances?
Let’s take a quick look to some of the major stock markets of the world and their performances since the beginning of the year.
Stock Market Performances Year-to-Date till Friday, June 29.
DOW: -2.20%
S&P 500: +1.48%
NASDAQ: +8.68%
China (Shanghai): -13.9%.
India (BSE): +4.01%
Hong Kong (Hang Seng): -3.22%
Japan: (Nikkei 225): -2.02%
German (DAX): -4.73%
U.K: FTSE 100: -0.66%.
In view of the above, it’s better to watch the emerging market equities which may bring great buying opportunity.
U.S Stock Market – Sector Performances
Now let’s see sector Performances of U.S stock market as of Friday, Jun 29, 2018.
3 Months
|
YTD
|
1 Yr.
|
3 Yr.
|
5 Yr.
|
10 Yrs
| |
Energy
|
15.12%
|
5.27%
|
18.08%
|
0.76%
|
-2.94%
|
-12.37%
|
Materials
|
3.97%
|
-4.03%
|
7.05%
|
17.31%
|
50.51%
|
39.27%
|
Industrials
|
-2.20%
|
-5.60%
|
3.23%
|
26.76%
|
62.75%
|
100.75%
|
Consumer Disc
|
9.38%
|
10.81%
|
21.37%
|
40.73%
|
94.56%
|
285.69%
|
Real Estate
|
5.01%
|
-0.96%
|
0.37%
|
--
|
--
|
--
|
Health Care
|
3.23%
|
0.99%
|
4.28%
|
9.97%
|
75.22%
|
175.06%
|
Utilities
|
3.33%
|
-1.52%
|
-1.12%
|
24.05%
|
37.57%
|
30.26%
|
IT
|
9.07%
|
10.17%
|
27.09%
|
72.57%
|
149.09%
|
238.58%
|
Financials
|
-2.34%
|
-4.91%
|
8.34%
|
31.38%
|
68.34%
|
59.35%
|
Consumer Staples
|
-1.69%
|
-9.93%
|
-7.56%
|
6.34%
|
29.12%
|
93.19%
|
Telecom
|
-2.32%
|
-10.81%
|
-4.48%
|
-5.32%
|
-6.19%
|
11.97%
|
Market trend in Summer
If past history is any evidence, usually the first half of July tends to be slightly bullish and there could be a summer rally. However, one should keep in mind, that the summer rally tends to be the weakest of all seasonal rallies and lasts only for a few days or maybe week/two. In mid-term election years, the S&P 500 doesn’t get going until October. Reminding all the readers that this is mid-term election year.
Now it’s time to discuss my current month’s inclusion to my blog portfolio. So, let’s see what I have for this month.
JinkoSolar (JKS)
JinkoSolar was founded in 2006 and based in the republic of China.The company along with its subsidiaries, engages in the design, development, production, and marketing of photovoltaic products in the People's Republic of China and internationally. The company offers solar modules, silicon wafers, solar cells, recovered silicon materials etc.
Some background on solar power: To make it simple, the company produces solar power. There are so many energy sources to generate electricity, such as Hydroelectric, coal, nuclear, gas, wind and so on. However, Solar energy is getting very popular day by day and becoming much economical comparing to other energy sources. Solar power is also environment friendly – hence better known as “green energy”. The popularity of green energy is proliferating day-by-day and many corporates, industries, individual homes are being illuminated with solar power. I do also have solar panel installed on my roof a few years ago.It’s anticipated that solar will be the fastest-rising star in energy over the next decade and will probably account for 15% to 18% of total global power generation in next few years. Of course, there will be some impediments here and there during the course of the time. Crude oil, natural gas, and coal still have roles to play in generating electricity, but solar power is catching up as a source of green energy. Based on my reading of an article, it’s estimated that around $48 trillion could potentially pour into the solar energy market in the coming years alone. That’s astounding figure! Anyway, only time will tell, let’s give a pause for a moment.
Current issues surrounding the solar market: Months after President Trump hit China with tariffs on solar products, along with steel and aluminum, he is now threatening to add another $200 billion to the total. As a matter of fact, the solar sector has been thrashed.The reality is that trade war will bring some economic pain, when and how much is yet to be seen.As far as solar is concerned, for every job the tariffs may generate among U.S. panel producers, more than three American jobs are estimated to be lost in the application and installation of those panels in the U.S. market alone.
A few weeks ago, the Chinese government decided to roll back domestic subsidies to solar and requirements for the purchase of solar power. The subsidies keep increasing burden on country’s budget and corruptions associated with approval of solar projects in China. So, this is not a good sign for solar sector. But now the question is, under such circumstances why to invest in JinkoSolar? Let’s discuss.
JinkoSolar (JKS) is one of the largest manufacturers of solar panel in the world. The combination of Trump’s tariff action, followed by Beijing’s action caused a collapse in solar stock across the board. JinkoSolar (JKS) lost more than one third of its stock price in a matter of weeks and lost about 60% of its valuefrom the beginning of the year, before it bounced back to the current level. The solar power is becoming cheaper, but the only problem is about storage of generated power. Tesla and lithium battery manufacturers are working to get some solution to this problem. Inthe longer term, two - five years down the road, the lower costs of renewable energy are irresistible, that’s not even counting the environmental benefits. JKS is a leader in the space and having one of the largest networks of installations.Let’s see the series of events that makes JKS exciting:
In January 2018, the company sealed a deal to supply 1.75 gigawatt(GW)of its high-efficiency solar modules, over approximately three years, to a U.S. counterparty.
In March, JinkoSolar agreed to supply 2.75 gigawatt(GW) of modules to NextEra Energy.
Recently, in June, it announced that it has entered into a 3-year agreement with sPower, an affiliate of AES Corp. to supply 13 gigawatt(GW) of high efficiency solar modules.
The company recently signed a major contract with Australia for one of the largest solar projects whereit has supplied 275.4 megawatthigh-efficiency modules. There are many other countries like China, India, Australia, U.S, European countries are making large strides towards initiatives to expand its renewable generation portfolio to reduce greenhouse gas emissions.
Keeping Donald Trump’s tariff in mind, on June 19, the company confirmed that it would move forward with plans to manufacture in Florida,USA by the fourth quarter of this year. This will benefit the company to get U.S. tariff exemption for all U.S. based activities. Secondly, it will also help avoid possible tariff because components will be coming from its facilities in Malaysia rather than China. Such deals reflect the huge demand for JinkoSolar’s modules in the United States and offer scope for more such contract wins.
Keeping all the aforesaid fact in mind, there will be some bumps coming, but JinkoSolar remains the best-positioned global provider of both high-end and next-generation solar technology. JKS is expecting several more orders to come out of this lucrative economy. And as a leading player in the solar sector, more contracts worldwide are sure to follow. Only time can tell how much! Now let’s take look to the company’s fundamentals.
Company Fundamentals:
Market Cap
|
538.61M
|
52 Week High
|
30.50
|
Trailing PE
|
20.71
|
52 Week Low
|
11.48
|
Forward PE
|
6.75
|
Total Cash
|
297.37M
|
Price to Sales
|
0.13
|
Total Debt
|
2.06B
|
Revenue / Sales
|
4.08B
|
Book Value
|
31.18
|
Quarterly Revenue Growth (yoy)
|
24%
|
Beta
|
0.96
|
Profit / Earnings
|
21.82M
|
Institutional holders
|
22.10%
|
Quarterly Earnings Growth (yoy)
|
-97.80%
|
Return on Equity
|
2.16%
|
EPS
|
0.67
|
Dividend Yield
|
N/A
|
Fundamentally, the stock looks good to me. It has $4.08 billion in revenue and growing at 24%. For such a large company it’s nice growth. Now it’s trading at $14.04, which is 54% discount form its 52-week high. It has a forward P/E of only 6.88, which seems quite cheap. Agreed, the company does not have too much of Cash and more than $2 billion in debts, but they have captured a good amount of market share and that can help them to further strengthen their position for years to come.
My final thoughts: It may take little time for JKS stocks to recover from the China blow and Trump’s action, but they will recover. Solar companies are volatile which needs patience and the ability to digest the volatility. One should take profit whenever required and keep the reaming for longer term. Solar is the future energy which has tremendous future potentialand JKS is the one of the biggest and best placed company which has tremendous future potential in longer term.
Risks: Solar sector are prone to some political risk and depends on government subsidies to certain extent. In addition, stock market volatility can also play a major role to make the stock further volatile. One should be willing to take risk to invest in solar sector and JKS in particular. There could be some short-term pain but for longer term I see the company has a huge potential. One should be able to play this with trading/investing approach. Risk averse investors should be staying away from such volatile stock. However, investors taking calculated risk with a stomach to digest volatility may be highly rewarded in long run.
Shesa’s Blog Portfolio (As of July 4, 2018)
Equity
|
Suggested Price
|
Current Price
|
Suggested Date
|
% Change
|
My View (see disclaimer)
|
STOCK (All prices are in USD)
| |||||
51.63
|
183.92
|
1/25/13
|
256%
|
BUY on dip
| |
86.43
|
246.43
|
4/18/13
|
185%
|
HOLD
| |
47
|
192.73
|
11/13/13
|
310%
|
BUY on dip
| |
135
|
310.86
|
11/13/13
|
130%
|
HOLD
| |
77.18
|
196.29
|
12/12/13
|
154%
|
BUY on dip
| |
311.73
|
1693.96
|
4/12/14
|
443%
|
BUY on dip
| |
67.28
|
184.75
|
2/21/16
|
175%
|
BUY on dip
| |
23.45
|
38.38
|
5/22/16
|
64%
|
BUY on dip
| |
XON
|
26.37
|
14.29
|
7/4/16
|
-46%
|
HOLD
|
36.89
|
52.86
|
9/5/16
|
43%
|
Sold @55.47 on 6/5.
| |
RIO
|
36.41
|
53.8
|
12/18/16
|
48%
|
HOLD
|
PVH
|
92.82
|
145.87
|
1/22/17
|
57%
|
HOLD (Trimmed)
|
26.33
|
21.4
|
8/20/17
|
-19%
|
BUY
| |
32.14
|
44.07
|
11/25/17
|
37%
|
BUY on dip
| |
104.36
|
78.46
|
1/1/18
|
-25%
|
Sold @78.46 on 6/19.
| |
206.96
|
186.02
|
3/18/18
|
-10%
|
HOLD
| |
228.71
|
236.84
|
4/22/18
|
4%
|
BUY on dip
| |
36.53
|
36.82
|
5/28/18
|
1%
|
BUY
| |
14.04
|
14.04
|
7/4/18
|
0%
|
NEW ADDITION
| |
ETF
| |||||
26.88
|
22.2
|
4/1/13
|
-17%
|
Sold @22.20 on 6/15.
| |
31.94
|
33.18
|
3/15/15
|
4%
|
I may sell it.
| |
INCO
|
34.46
|
46.04
|
5/15/15
|
34%
|
Accumulate
|
139.1
|
177.66
|
8/16/15
|
28%
|
HOLD
| |
77.76
|
108.9
|
8/16/15
|
40%
|
HOLD
| |
32.3
|
36.29
|
11/15/15
|
12%
|
Accumulate
| |
112.03
|
128.88
|
3/19/16
|
15%
|
HOLD
| |
EMQQ
|
32.65
|
37.37
|
5/21/17
|
14%
|
HOLD
|
58.52
|
58.96
|
2/11/18
|
1%
|
HOLD
| |
MUTUAL FUND
| |||||
114.64
|
231.37
|
3/1/13
|
102%
|
Accumulate
| |
47.25
|
76.46
|
2/2/14
|
62%
|
Accumulate
| |
120.74
|
159.28
|
4/12/14
|
32%
|
HOLD
| |
24.3
|
26.38
|
10/25/14
|
9%
|
HOLD
| |
59.45
|
105.24
|
12/20/14
|
77%
|
Accumulate
| |
MINDX *
|
26
|
32.47
|
6/14/15
|
25%
|
HOLD
|
MCDFX *
|
12.37
|
17.56
|
12/9/15
|
42%
|
Accumulate
|
9.05
|
15.35
|
1/15/16
|
70%
|
Accumulate
| |
37.32
|
61.45
|
3/20/16
|
65%
|
Accumulate
| |
43.66
|
49.83
|
9/24/17
|
14%
|
Accumulate
| |
* Indicates dividend adjusted
| |||||
Positions closed in June
Equity
|
Sales Price
|
Buy Price
|
Date Sold
|
Gain / Loss (%)
|
LUV
|
55.47
|
50.05
|
5-Jun
|
10.8%%
|
CELG
|
78.46
|
104.36
|
19-Jun
|
-24.80%
|
GDX
|
22.2
|
26.88
|
15-Jun
|
-17.40%
|
That’s all for today. Wish you great investing! Stay tuned for my next blog. Thanks for your time. If you want to get alert on my action, then please subscribe to shesagroup_invest@googlegroups.com. You an 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 charge any fees or commission by writing the blog except anything from Google AdSense. 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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