Shesa's MAY 2019 INVESTMENT BLOG
MAY
2019 - INVESTMENT BLOG
By Shesa Nayak
U.S. Stock Market Update
The U.S and China
trade deal negotiations took a U-turn when Trump
administration raised tariffs on $200 billion worth of Chinese goods from 10%
to 25% on May 10, 2019. In retaliation of this Beijing imposed
tariffs on $60 billions of American exports. It
was stated that both countries were at the door step to reach an agreement and
sign the deal. A couple of days ago, China’s Commerce Ministry
spokesperson stated that negotiations would not continue until the U.S.
“adjusts its wrong actions”, probably referring to Trump’s executive order on
Huawei ban. The US – China trade negotiations is looking very dicey and I am
not very optimistic that it will be achievable in foreseeable future. Possibly,
it may get much worse before it gets better. Because both the countries are now
derailed off the track! Evidently, this is
not a good sign for the stock market. If news is
to be believed, China has backed out at the last moment. Keeping in view of
this, I have reduced some exposure to Chinese stock. I will keep watching further
developments in this regard, but at this time trade deal looks like a forgotten
story unless there is any significant new development. As a matter of fact, the
stock markets are falling and possibly it may fall further. Meanwhile, the best
6 months of the stock market have passed, so should we sell now and go to the
sidelines? I will try to analyze all these and share my thoughts but let’s
first see the stock market indexes.
| Indexes | Close (12/31/18) | Close FRI (5/24/19) | Change in 2019 | % Change in 2019 | All Time High | All Time High | Diff % |
| DOW | 23,327.46 | 25,585.69 | 2,258.23 | 9.68 | 26,951.81 | -1,366.12 | -5.07% |
| S&P 500 | 2,506.85 | 2,826.06 | 319.21 | 12.73 | 2,954.13 | -128.07 | -4.34% |
| NASDAQ | 6,635.28 | 7,637.01 | 1,001.73 | 15.10 | 8,176.80 | -539.79 | -6.60% |
| BTK | 4,220.85 | 4,507.99 | 287.14 | 6.80 | 5425.4 | -917.41 | -16.91% |
| NBI | 3,251.08 | 3,274.81 | 23.73 | 0.73 | 4165.86 | -891.05 | -21.39% |
Major Economy
News
US consumer sentiment surges to highest level in 15 years
University of Michigan’s consumer sentiment
index rose to 102.4, up from 97.2 in April and well ahead of economist expectations.
Consumer sentiment is the consumer confidence level. If there is better consumer
confidence, then the consumer tends to spend more which is immensely critical
for economy growth. Consumer spending contributes almost 70% of economy growth.
US housing
starts rose more than expected in April
The commerce department said that housing
starts rose 5.7% to 1.235 million units last month, driven by gains in the
construction of both single- and multi-family housing units.
U.S GDP Growth
The U.S economy grew at 3.2% in the first quarter, but it’s expected to slowdown
in Second-quarter GDP are expected to be less than 2% annualized rate.
U.S Capital Good
order fell about 1% in April: Last Friday, the Commerce Department said
on Friday orders for non-defense capital goods excluding aircraft, dropped 0.9%
last month as demand weakened almost across the board.
US
retail sales dropped
0.2% vs. analyst expectation of up 0.2%. in April following an upwardly
revised 1.7% growth in March. I think this was a temporary phenomenon
and retails sale still remain strong in my view.
Where does the
market go from here?
We could see that the market has gone down in last few weeks,
particularly since my last blog. The question is whether it’s the fact that “sell
in May and go away?” or it’s something else? There is no doubt that some of
the money managers tend to sell during May and they remain on the sidelines.
However, there are other key factors, particularly due to continued uncertainty
of trade deal. During the current market pull back the Chinese stocks and other
companies who export to China are getting hammered. The failure of trade
negotiation is certainly not a good sign for the stock market and there will be
repercussions across the globe. Keeping in view of this, I think that
volatility will continue till there are some resolutions on trade war front.
So, I do not think there will be significant upside for the market from here unless
there is a resolution on trade deal or Fed cuts the interest rate. As a matter of fact, it may be a good idea
to trim some profitable positions and eliminate some losers and start building
up some cash position. There could be opportunities going forward where the
cash can be deployed. Having said that, I do not think this is the end of bull market
rather what I am saying is “having some cash may bring some good opportunity as
we go”. There are few facts which still support for bull market case.
Positives: Economy is still doing well. I have written about it in many of my previous
blogs so do not want to repeat it again. In nutshell, job market is good,
unemployment is low, retail sales though they were not great last month but
still robust. The earnings were
not as bad as it was expected. The Share buy backs will continue. Also,
as I wrote in my last blog in presidential 3rd year of the
first term of a U.S President, the stock market has averaged 17% return
historically since 1945. But let’s not forget that history do not
always repeat!
The negatives: There are many economy factors not favorable to the market
condition, including falling profit and revenue growth from corporate
America, not so strong housing market, but more importantly trade war.
The trade war has taken a different shape now and this is a major bottleneck
for the stock market. Add to that, we are in the worst 6 months of the stock
market, so many institutional investors and money managers may remain on
the sideline. Hence, I do not expect a significant bounce back in stock market
in the near-term.
Trading Range: Visualizing the aforesaid facts, I think the stock market may form a
trading range and traders may play around it. In order to get better return on
investment, it may not be a bad idea to do some trading, buy at the dip and
sell at bounce. However, this is very risky and need a constant watch of the
portfolio, which is difficult for working individual investors. Moreover, one
should not just buy and sit there, it’s extremely important to take some profit
whenever required. It’s imperative to keep building some cash positions because
there may be opportunities on the way. I think the next few weeks/months could
become bumpy ride (ups/downs). During this time, I feel that CBD industry should
bounce back as election keep coming closer. Thus, accumulating some good CBD
stock in small quantities over a period of time could be beneficial in longer
term.
India PM Modi decimated
the opposition with a landslide victory in India
Narendra Modi and his ruling BJP have swept back to
power. The party won 302 seats and the NDA alliance won over 353 seats of 543 seats in the Lok Sabha, the lower house of Indian parliament.
This was a stunning victory for Mr. Modi and possibly first time since 1971
where no single party had won so many seats. Most people thought Modi will be back,
but nobody imagined of such a landslide victory, probably not even Modi himself. It was just a Modi wave all across India except a couple of states
where two other regional parties won the majority.
The
election victory was a resounding endorsement of the 68-year-old Narendra Modi,
whose economic reforms have/had mixed results but did some wonderful works in
the rural India. It was the real work done during his tenure gave confidence to
1.2 billion people and re-elected him. The other parties just kept complaining against
Modi rather than focusing on doing tangible work for the people of the country.
The power greediness of coalition parties to keep Modi away destined
them to fail. It was a lesson learned for opposition parties. It seems people
are becoming more intellectual in the country which is a welcome sign! Well, I
am not going to write more on politics. But this government will have major impact
on Indian economy and so also the stock market. In the investment landscape,
Indian stock market is bouncing back though I am still not invested in Indian stock
market as of now. However, undoubtedly India is growing at
a faster pace comparing to any other emerging economies of the world. I will
re-think of investing
once I get more clarity on the policy direction of Modi government and
sustained growth in the Indian stock market.
U.S – China Trade War where is
it heading and its impact?
Trade
talks between the U.S. and China appear to have stalled. Based on the report,
China has not shown willingness to revisit past commitments it made before. Sources say scheduling discussions have not taken place
since president Trump signed an executive order for scrutiny of Chinese telecom
companies. President Trump’s new executive
order effectively barring U.S. companies from selling
semiconductors to — or buying technological equipment from Huawei. Several
under-the-radar indicators are pointing to the danger that a prolonged conflict
could put a serious dent into the economy of both nations. I have to keep
watching on the progress. Meanwhile, I have reduced exposure to some of the
Chinese companies. I sold my position on MOMO, BIDU, JD.com. However, BABA and
IQ remain major Chinese stock in my portfolio. After holding steady in the beginning of the week, the stock
market pulled back once again on macroeconomic issues. The beginning of the
European Union (EU) election played a big role in the selling, but the
U.S.-China trade war remains a major issue for the market.
Regarding, the trade war, China’s
Commerce Ministry spokesperson stated that negotiations would not continue
until the U.S. “adjusts its wrong actions.” He didn’t specify exactly what
those actions were, but his comments were enough to keep stocks in their
downward spiral.
The U.S. and China are two largest
economies -- have been going back and forth for a few weeks now. The volatility
was triggered when China backpedaled on its previous promises regarding U.S.
intellectual property and technology. In retaliation, President Trump increased
tariffs on $200 billion worth of Chinese goods. Tariffs on another $300 billion
in Chinese imports is also anticipated. In retaliation, China
imposed tariff $60 billion target list for on U.S. imports.
The reason there’s a problem with the
China negotiations is because they’re dragging their feet. China doesn’t
respect patents, trademarks or intellectual property rights, which is why we’re
seeing this epic battle over 5G. It’s reported that China’s 5G company, Huawei,
has a backdoor on its 5G technology that allows it to spy on everybody. And
it’s not just the U.S. rather most of the countries of the world. China has a
plan that by 2025, it will take over certain industries that’s concerning for Trump
administration. After the tariff imposed by China, Trump
administration said that it would provide $16 billion
to farmers affected by retaliatory tariffs under a second trade-relief program.
Last Wednesday, China’s
finance minister said it will offer a five-year tax break to Chinese
semiconductor and software companies – the companies most likely to be
immediately hurt by the White House's recent measures. In addition, China's
vice minister for industry and IT said that the country would ramp up its
support and subsidies for domestic companies that rely on "foreign technologies."
All these moves by both the countries suggest that there is no
quick resolution to the turmoil in the foreseeable future despite the fact
that it’s not good for any country. It’s no more a business issue rather it has
become a political problem.
Five U.S. states are making legislative
move to legalize marijuana
Alabama is pushing
a medical marijuana legalization bill through its state legislature. The bill
has passed through the senate and is now being voted in the state house of
representatives. There is a high probability that this bill may go through. Texas and New
York state governments are working on bills that would expand their existing
medical marijuana programs. In Texas the bill has been approved in the state's
house and is expected to move to senate soon.
The Nebraska state legislature
judiciary committee approved a bill, if that is passed by the legislature than
it would legalize medical marijuana. Now the bill is being debated on
the state's senate floor.
North Dakota enacted its marijuana bill. The new law will decriminalize low-level marijuana possession of less than half an ounce. Historically, this state has been very conservative on the legalization of marijuana.
A few days ago, the U.S. bankers associations
from all 50 states sent a joint letter urging the banking Committee Chairman Mike Crapo to move the cannabis
financial services legislation forward. Earlier this month, members of the
National Association of Attorneys General, which represents the top law
enforcement officials in each state, sent a similar letter endorsing the
marijuana banking bill.
One
note to my blog readers, the legal
marijuana market in California alone is much bigger than the
Canadian market. So, obviously it will be a very attractive market for all
marijuana companies.
Major Stock
Market Performances so far in 2019
Indexes
|
52 week (% age change)
|
YTD % Change
|
DOW
|
3.4%
|
9.7%
|
S&P 500
|
3.8%
|
12.7%
|
NASDAQ
|
2.7%
|
15.1%
|
China Shanghai Index
|
-9.2%
|
14.4%
|
India BSE Sensex
|
12.9%
|
9.3%
|
Japan Nikki
|
-5.9%
|
5.5%
|
Hongkong Hang Seng
|
-10.6%
|
5.8%
|
Germany: DAX
|
-7.2%
|
13.8%
|
UK: FTSE 100
|
-5.9%
|
0.65%
|
Source:
Wall Street Journal
Sectorial
Performances since Year-to-Date (U.S Stocks)
IT
|
18.3%
|
Industrials
|
14.59%
|
Consumer Staples
|
14.57%
|
Telcom
|
15.89%
|
Energy
|
17.16%
|
Financials
|
12.68%
|
Real Estate
|
18.08%
|
Materials
|
6.45%
|
Consumer Discretionary
|
13.31%
|
Utilities
|
13.02%
|
Health Care
|
3.56%
|
Source:
CNN Business
Now
let me discuss about my current month’s inclusion to my Blog Portfolio.
Square Inc. (SQ)
Square Inc. located in Market Street, San
Francisco, provides payment and point-of-sale solutions within U.S. and
internationally. Many of you might have seen that many small business use phone
or iPad which can be used to swipe and make a payment. Square provides eCommerce
solutions including hardware, software that offers solutions to sellers for payment
at the point-of-sale. The hardware products enable swiped transactions of magnetic
stripe cards like MasterCard, Visa and Europay. It also provides NFC (near field
communication), a technology that allows two devices like a phone and a payments terminal
like iPad to talk to each other. Square Terminal, a portable payments device that
replaces keypad terminals, which accepts various payment types, such as tap, swipe,
as well as prints receipts; and managed payments solutions.
Square
is a ten years old growth company which went public in November 2015 at an
offering price of $9. The company
has evolved from a credit card processor for the mobile devices into a complete
financial services firm, offering business loans, peer-to-peer payment options,
debit cards, and more. It has introduced Square Cash app which acts
as a mobile money transfer solution for Square and can replace credit cards and
wallets. In future we can keep seeing more and more cash less transactions. Square
Cash could be like a bank account for consumers who only carry their phones
with them, rather than a wallet. These may not have much traction at this
time but in next few years this could be significant.
Revenue
and Earnings:
The revenue for the company is increasing significantly. Quarter over quarter
the revenue is increasing about 44%. Wall
Street is anticipating that SQ’s profits will rise by 59.6% this year and 49.3%
in the next year. It’s expected to grow at 28.4% for fiscal 2020 above its projected
revenue of $4.48 billion in 2019. So, it’s purely a growth name. Although
returns have been monstrous, cyclicality; therefore, volatility is a major concern.
Obviously, SQ stock does not pay a dividend. Square cater to the need of small
business and as we know small business represents the
growth engine of the U.S. economy. Thus, Square’s
payment-processing products and services give these next-generation small companies
the ability to compete effectively. The market revolutions of e-commerce
are paying to the top and bottom line . If you recall, I had included another eCommerce
player Shopify (SHOP) which is firing on all cylinders and the stock has gone
up more than 100% in last few months. Probably SQ is not growing as fast as
SHOP, however this is another company which I think have great future potential.
Recently, Square has entered into the CBD space as federal legislation to allow
broader access to financial services for marijuana businesses is gaining
momentum in Congress. I have written in my earlier blogs that CBD industry is poised
to grow in for next several years. So, I believe SQ is taking the right steps
to cater the requirements. Last Friday, there was a news in CNBC that Global
Payments is nearing a deal to acquire its peer Total System Services which is
in the same payment processing area for about $20 billion. As such, I will not
be surprised if SQ is also being acquired by another credit card processing
company.
Stock
Performance:
Square has returned about 20% in last one year. The stock has a 52-week high of
$101.15 and it is trading at $64.66. In other words, it’s trading
at about 36% discount to its 52-week high. If its growth continues as expected,
then I won’t wander that we can see the triple digit figure in next 6 months to
one year. On May 23, SQ announced the pricing of $750 million aggregate
principal amount of convertible senior notes due 2023. If I am not mistaken
this was announce in mid-November and as a matter of fact the stock has got
gone up much since December 2018.
Risk and Investment approach: The stock market is becoming shaky with
continued turbulence of trade war. All growth stocks are highly volatile in
nature. So, if market goes down then SQ will not be spared. One should not
invest all the money at once rather take a phased approach and keep
accumulating over a period of time. I am already invested and still keep accumulating
in small quantities. The eCommerce market is going to grow and so also the dominance
of Square. So, this is a long-term horse but need discipline and patience
investing. If an investor can take some
bumps on the way, then it can be one growth stock to own for a long time. I have
done it and will keep doing so. The market may remain volatile so cautionary
investing is of immense significance.
Shesa’s Blog Portfolio (As of May 27, 2019 - Updated on May 30 in Blue color)
Equity
|
Suggest Price
|
Current Price
|
Suggest Date
|
% Change
|
My View
(see disclaimer) |
STOCK (All prices are in USD)
|
|||||
51.63
|
178.97
|
1/25/13
|
247%
|
HOLD
|
|
86.43
|
139.76
|
4/18/13
|
62%
|
SOLD on 5/16 at $139.76
|
|
47
|
181.06
|
11/13/13
|
285%
|
BUY below 170.
|
|
135
|
202.8
|
11/13/13
|
50%
|
SOLD on 5/20 at
$202.80
|
|
77.18
|
251.48
|
12/12/13
|
226%
|
HOLD
|
|
311.73
|
1823.28
|
4/12/14
|
485%
|
HOLD
|
|
67.28
|
186.94
|
2/21/16
|
178%
|
HOLD
|
|
26.33
|
20.36
|
8/20/17
|
-23%
|
HOLD
|
|
32.14
|
27.18
|
11/25/17
|
-15%
|
SOLD on 5/13 $27.18
|
|
206.96
|
209.99
|
3/18/18
|
1%
|
HOLD
|
|
36.53
|
25.8
|
5/28/18
|
-29%
|
BUY
|
|
14.04
|
18.16
|
7/4/18
|
29%
|
HOLD
|
|
26.13
|
18.7
|
9/18/18
|
-28%
|
BUY (Long term)
|
|
134.81
|
275.85
|
11/25/18
|
105%
|
HOLD - took profit
|
|
297.57
|
354.39
|
1/6/19
|
19%
|
HOLD
|
|
17.66
|
17.63
|
2/17/19
|
0%
|
STRONG long term BUY
|
|
45.89
|
44.42
|
3/17/19
|
-3%
|
BUY - Accumulate
|
|
9
|
8.31
|
4/18/19
|
-8%
|
BUY - Accumulate
|
|
64.66
|
64.66
|
5/26/19
|
0%
|
NEW ADDITION
|
|
ETF
|
|||||
INCO
|
34.46
|
42.3
|
5/15/15
|
23%
|
SOLD on 4/22 at $42.30
|
139.1
|
167.39
|
8/16/15
|
20%
|
HOLD - trimmed
|
|
77.76
|
113.43
|
8/16/15
|
46%
|
HOLD
|
|
EMQQ
|
32.65
|
33.67
|
5/21/17
|
3%
|
SOLD on 5/6 at $33.67
|
58.52
|
47.21
|
2/11/18
|
-19%
|
SOLD on 4/22 at $47.21
|
|
MUTUAL FUND
|
|||||
11.46
|
19.46
|
3/1/13
|
70%
|
HOLD
|
|
47.25
|
74.17
|
2/2/14
|
57%
|
HOLD
|
|
59.45
|
113.02
|
12/20/14
|
90%
|
HOLD
|
|
MCDFX
|
12.37
|
15.49
|
12/9/15
|
25%
|
HOLD (trimmed)
|
9.05
|
15.13
|
1/15/16
|
67%
|
Accumulate
|
|
37.32
|
68.89
|
3/20/16
|
85%
|
HOLD
|
|
43.66
|
52.19
|
9/24/17
|
20%
|
Accumulate
|
|
11.72
|
11.61
|
10/21/18
|
-1%
|
HOLD - trimmed
|
|
Positions
CLOSED since last Blog
BIDU, TSLA, MOMO, INCO, EMQQ, KWEB: All these equites were sold since my last bug. Please refer to my Blog
portfolio above.
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 or
you can
also join my WhatsApp group, 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. 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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