Shesa's JUNE 2022 Investment Blog
JUNE 2022 - INVESTMENT BLOG
By Shesa Nayak
Welcome to my blog!
U.S. Stock Market Commentary
After several months of doom and gloom in the stock market, finally we saw some relief rallies before the Memorial Day, a sigh of relief for the investors. All three major indexes had big gains in the past week, each rising higher than 6%. Both the S&P 500 and Nasdaq Composite broke a seven-week losing streak, while it had been eight weeks of losses for the DOW. Nasdaq had come down as low as -32% and S&P 500 went to bear market territory (-20%) for a brief period. But again, the stock market started moving south last week. Nasdaq is still down -26% from its all-time high. The GDP growth for first quarter came at -1.5% worse than 1.3% projected. The stock continues to struggle with these critical macro and micro economic factors - higher inflation, Fed raising rates at faster pace, geopolitical situation, supply chain constraints and China lockdown – though China is getting better. It’s really an unprecedented moment for the market as it saw first invasion in Europe after 75 years, highest inflation in 40 years and of course we did see an endemic COVID which was never seen before..
There are also some encouraging signs for the market. Consumer confidence have come down, but consumers are still pending. We might have seen the peak of inflation as it was down to 8.3% from 8.5% and going forward we should see it receding gradually. China is gradually reopening from COVID lockdown, real estate market is cooling down a little bit. The employment remains robust and U.S has been adding hundreds of thousands of jobs every month, unemployment remains low.
We have Fed meeting in June and July where Fed is expected to raise 0.50% interest rate in each of these meeting. So, we may still see lot of volatility and that may provide opportunity to trade. The market is still surrounded with more bad news then good news. I will share my views on the current market environment, but before that let’s take a quick look at the stock market indexes.
| Indexes | 1/31/2021 (Close) | Close FRI 6/3 | Change in 2022 | % Change in 2022 | All Time High | From All Time High | % from All Time High |
| DOW | 36,338.30 | 32,899.70 | -3,438.60 | -9.46 | 36,952.65 | -4,052.95 | -10.97% |
| S&P 500 | 4,766.18 | 4,108.54 | -657.64 | -13.80 | 4,818.62 | -710.08 | -14.74% |
| NASDAQ | 15,644.97 | 12,012.73 | -3,632.24 | -23.22 | 16,212.23 | -4,199.50 | -25.90% |
| BTK | 5,518.45 | 4,609.17 | -909.28 | -16.48 | 6,376.77 | -1,767.60 | -27.72% |
| NBI | 4,728.94 | 3,701.63 | -1,027.31 | -21.72 | 5,517.77 | -1,816.14 | -32.91% |
S&P 500 Earnings
Earnings: For Q1 2022, 99% of the S&P 500 companies have reported earnings, 77% companies reported positive earnings surprise and 74% companies reported positive revenue surprises.
Earnings Growth: Q1 earnings growth is 9.2% better than expected 7.1%. This is lowest earnings growth rate reported by the index since Q4 2020 which was 3.8%. Revenue growth came at 13.6%.
Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.5% which is below the 5-year average of 18.6 and above the 10-year average of 16.9.
Source: Factset.com
Economy News
Fed Minutes
The Federal Reserve’s minutes for the May 3-4 meeting minutes was published a few days ago. The FED members indicated that job market remains strong despite economic activity slipping into negative territory during the first quarter. Meanwhile, they remain hyper-focused on bringing down inflation, which sits near 40-year highs. It suggests that Fed may be willing to raise rates further than the market expects, if inflation remains elevated, but they will remain data-dependent.
US Economy view by Congressional Budget Office (CBO)
The CBO released an optimistic view for the U.S. economy through 2024.
Real GDP expected: 3.1% in 2022, 2.2% in 2023, and 1.5% in 2024.
Inflation: 4.7% in 2022, 2.7% in 2023 and 2.3% in 2024.
Unemployment rate: 3.7% in 2022, 3.6% in 2023 and 3.8% in 2024.
Federal funds rate: 1.9% in 2022, and 2.6% in 2023.
Interest Rate: 1%, expect another 0.5% rate hike on Jun and July.
GDP: U.S economy contracted -1.5% in the first quarter of 2022.
US Total GDP/Economy: 20.937 trillion, 21.433T in March.
U.S COVID Cases: 84.6 million, Death: 1 million
COVID Vaccination: 221.4 million or 67.2% of the U.S population are fully vaccinated
Retail Sales: April retail sales was up 0.9%, May numbers are awaited
Unemployment rate: 3.6% in March 2022, lowest since Feb 2020
Inflation rate: 8.3 in April, 8.5% in March.
Consumer Confidence: 58.4% in May, 65.2 in April.
Business Confidence: 56.1% in May vs. 55.4% in April.
U.S Crude Oil: $119.72 a barrel
Nonfarm payrolls: Economy added 390,000 in March vs. market forecast of 328K
Economy Positives and Negatives
Positives
- Lowest Unemployment in 40 years stands at @3.6%
- Retail sales were up 0.9% in April slightly below analysts’ expectation of 1% and March Sales were revised from 0.7% to 1.4%
- Despite the doldrum U.S market is still the king with strong dollar
- Consumer spending increased 0.2% in April: Retail Sales + Services viz. health care, education, entertainment, transportation etc.
- Continued strong business investment despite challenging environment. But this needs to be closely watched as we have started seeing some black spots.
Negatives
- Higher Inflation: 8.3% in April, but slightly better than March. FED will keep raising interest rate Interest Rate till there is cooldown in inflation. The 30 Years Mortgage Rate rises to 5.1%
- Negative GDP growth: GDP unexpectedly declined to -1.4% in the first quarter. We will have to wait for Q2 numbers.
- Geopolitical crises – Russia and Ukraine war has created a huge uncertainty and very likely to cause global slow down
- Revenue/Earnings are decelerating, Q1 earnings were up only 9.2%.
- Global slow down due to many of the aforesaid facts. Europe is expected to he hit the hardest due to extreme high Oil and Gas prices.
Current Stack Market Situation
On 5/27: All three major indexes had big gains in the past week, each rising higher than 6%. Both the S&P 500 and Nasdaq Composite broke a seven-week losing streak, while it had been eight weeks of losses for the Dow Jones Industrial Average. It’s nice to see some bounce from the doom and gloom market condition. All other problems high inflation, interest rate hike, geopolitical situation, supply chain constraints, skyrocketing oil, gas and food prices persist. However, we might have seen the peak of inflation, 8.5% April, down to 8.3% in March. Going forward, we should see it come down gradually. China is gradually reopening from the COVID lockdown that should ease supply chain constraint, real estate market is cooling down a little bit. The employment remains robust. So, all these are some positive news. I think this may be early stage of a bounce, but we have a Fed meeting in June and July where Fed is expected to raise 0.50% interest rates in those meetings. So, we may still see lot of volatility but opportunity to trade. I will keep a very close eye on the CPI numbers which is expected this Friday, June 10. That will be an extremely important number and provide more visibility where inflation is going and how aggressive FED action will be.
I will be watching to see if hedge funds, which had been unloading holdings, start to buy in the coming week, a possible positive catalyst for the market. The Bond yields in the past week were lower and steadier. The 10-year yield was at about 2.94% as of Friday.
The present market situation seems to be another consolidation which I think part of a normal secular Bull cycle. The investors have not seen such a downturn since February 2009 when the market started picking up slowly. However, we saw some downturn which occurred in 2011, 2015, 2018 and a quick bear market in March 2020 due to COVID. All the above downturns did not last this long what we are experiencing at this time. If we see NASDAQ then the downturn cycle has started since mid-November which is more than 6 months. Of course, S&P 500 is little younger in that sense that downturn started in the last week of December. We all understand that there are many macros and micro economy issues of inflation, Federal Reserve raising interest rate, geopolitical situation, supply chain constraints, China lockdown and so on.. But I still feel that the secular Bull market has faced some bumps but it’s alive and well. Some investors fearfully sell their shares, and the rich get richer through accumulating shares at the discounted prices. As Warren Buffet says, “stock market is an instrument for transferring money from impatient to patient investors”. When there are no more shares to sell in fear, the bottom will form, the prices will begin to rise according to the Law of Supply and Demand, share price will start recovering from the regular consolidation. Economic indicators on last Friday, including manufacturing activity for May and new home sales for April, pointed to slowing economic activity. The European Central Bank's Financial Stability Review said regional asset risks have risen due to rising inflation and the increased potential for credit default.
All of us see that the technology stocks have been decimated, investors are chasing energy, fertilizer, food stocks because they think those are excellent buy with huge potential. But let’s not forget that those stocks are no cheaper. In fact, there are many other sectors where stocks are on sale. But it’s important to identify those and prepare a shopping list. The retail investors are like small fish in the ocean where big fish eats the small fish. The money manager, institutional investors, hedge funds controls billions of dollars and they can change the direction of the stock or stock market. So, we the retail investors have to be careful not to fall in their trap but there are situations where nobody can escape. Thus, we have to diligently strategize to take care of our hard earned money. One of the major factors is controlling the greed and fear, analyzing our risk, diversifying portfolio, selling the losers, identifying good stocks, investing or accumulating when time is not good, or everybody hates it and then holding with patience. This will allow the retail investors like us to get escaped from the big whales. Panic is not a strategy – most of the investors take wrong decision by being panicked. So, the bottom line is to have a strategy, have patience and invest in good stock for long term. Some of you may be thinking, "I'm not scared" or "if we're living in a fearful time, shouldn't we be greedy?". That’s true to be greedy when many good stocks have been beaten down like crazy. With that said, I am not sure if market is ripe for that as yet. It’s almost certain that Fed will increase 0.5% interest in their June 14-15 meeting, followed by possibly another 0.5% in July 26-27 meeting. If the inflation subsides to some extent then we may Fed may slowdown rate hike or give a pause and watch. That may be the time I expect market to bounce. Before that, we may continue to see major volatility. Hence, some trading strategies may be helpful to buy in small quantities when market comes down and trim when market bounces back. Let’s not forget that we are in a trying time which we did not see in last 40 years, hence better to be watchful.
Revenue & Profit (2021, 2022, 2023) - updated 6/5/22.
Quarter | Earnings % | Revenue % |
FY21 | 49.2 | 15.4 |
Q122 | 9.2 | 13.6% |
Q222 (projected) | 5.4 | N.A |
Q322 (projected) | 9.2 | N.A |
Q422 (projected) | 11.6 | N.A |
FY22 (projected) | 8.6 | 9 |
FY23 (projected) | 9.9 | 8 |
N.A: Not Available
Sectorial Stock Market Performances (TOP 5 sectors for 2022)
Sector | YTD Performance in %age |
Energy | 60.13 (TOP) |
Utilities | 3.30 |
Material | -4.77 |
Consmer Staples | -4.99 |
Health Care | -8.12 |
Industrials | -10.0 |
Note: Technoloy (IT) sector is almost at the end of the list with -20.06%.
Please click below link to view complete sectorial performances:
Source: Fidelity.com
Now let me discuss this month’s inclusion to my Blog Portfolio.
ZIM Integrated Shipping Services Ltd. (ZIM)
ZIM Integrated Shipping Services Ltd., and its subsidiaries provides container shipping and related services in Israel and internationally. It provides door-to-door and port-to-port transportation services for various types of customers, end-users, consolidators, and freight forwarders. The company also offers ZIMonitor, a premium reefer cargo tracking service. As of December 31, 2021, it operated a fleet of 118 vessels, which included 110 container vessels and 8 vehicle transport vessels, of which four vessels were owned by it and 114 vessels are contracted. The company was incorporated in 1945 and is headquartered in Israel. It went public in January 2021 at $15.
As we know, Nasdaq stocks are hated by the investors at this time and money is being moved to sectors like energy, food, fertilizer and shipping companies. Though, oil, crude and gas prices may continue to rise little more; the stocks in the energy sectors have a huge run in last few months and trading almost at their all-time high. I avoid chasing such stocks. But fortunately, ZIM was brought to my attention by one of my WhatsApp investment group members. After doing my due diligence and analysis, I found this to be one of the best fundamentally superior stock with huge dividend. The current fundamental is exceptional though the future may/may not be that bright. However, this is a very good stock looking to the current market situation.
Why do I like ZIM?
ZIM is one of the best stocks with superior fundamental that suits the current market situation. As we all know, there is high inflation and one of the contributing factors is, supply chain constraints. There are lot of demands for products but there are not enough ships and containers to ship those products. As such, the companies in this space are having pricing power resulting in high revenue and profits. For 2021, the company reported exceptional results for full-year. Revenue increased from $4 billion in 2020 to $10.7 billion in 2021, increase of 267%. Profits increased from 517.96 million to $4.64 billion, more than 800%.
On May 18, the company posted Q1 earnings and reported an EPS of $14.19 and a revenue of $3.72 billion, shattering analysts’ EPS estimates by $1.06 and revenue estimates by $155.40 million. The company also declared a $2.85 per share quarterly dividend. The dividend will be paid on June 8, to shareholders of the company as of May 31, a dividend yield of whooping about 32%.
Projected Revenue and Profit for 2022 & 2023
| 2022 | 2023 |
Revenue | $13.31 billion | $9.34 billion |
Profit (EPS) | $42.93 | $15.36 |
Now let’s see company’s fundamentals
Fundamentals
Market Capitalization | $7.75B | Total Cash | $4.82B |
Trailing P/E | 1.66 | Total Debt | $4.31B |
Forward P/E | N/A | Book Value per share | $35.52 |
Price/Sales | 1.69 | 52 weeks high | 91.23 |
Revenue | $12.7B | 52 weeks low | 33.71 |
Quarterly Revenue Growth (YOY) | 113.10% | 52 weeks change | 65.97% |
Gross Profit | $6.82B | Held by Institutions | 38.61% |
Net Profit | $5.76B | Held by insiders | 33.84% |
Quarterly Earnings Growth (YOY) | 190.80 | Float | 80.28M |
EPS | $47.85 | Dividend – Trailing | 33.67% |
|
| Dividend – Forward | 16.76% |
My View and Strategy
If we see above table then we can observe that it one of the best fundamentally superior stock with excellent dividend. It has an astounding 33.67% trailing dividend. But those were past, my focus is on the future dividend which is projected to be 16.76%. One may wonder why they are reducing the dividend. The reason is the company had an amazing revenue and profits growth in 2020 and 2021 due to COVID lockdown. Now also there are supply chain constraints and shipping containers are required to export goods. However, the analysts are expecting the revenue to come down to $9.34B in 2023 from $13.31B in 2022 (see my table above). Coincidentally, EPS is expected to come down from $42.93 to $15.36. As such, the company can’t afford to give 33% dividend. But getting even 15% dividend in this market situation with further probability of equity appreciation under such extremely top market situation is exceptional. This type of stock is not for trading, rather it’s a great long terms investment for dividend and possible growth. Assuming that, we get 15% dividend then return on equity (ROE) gets doubled every 5 years. Having said that, sometime companies with huge dividends gets into trouble when their profits keep falling. But the way this company is growing its revenue and profit looks spectacular. So, I can remain invested as long as there is no major red flag on its fundamentals.
Currently, the stock is trading at $67.70. It had a 52-week high of $91.23, so it sells at a discount of 26% from its 52-week high. Though, the stock has solid fundamental but still it fluctuates a lot. So, the best strategy would be to buy gradually on the down days and keep accumulating over a period of time, and possibly hold for several years. Occasionally, it can be trimmed and again it can be added at lower price. One has to be careful not to miss the dividend distribution.
Risks
Currently, the stock market going with very uncertain time. In other words, we are in a chaotic environment. Though, ZIM is a great stock for this environment, we never know when money will start moving out of the stock. In addition, as I said above, sometime companies with huge dividends gets into trouble when their profits keep falling. Another factor is, it’s an Israel company so obviously they can’t command the premium like a U.S based company. That’s the reason, we do not see a huge percentage of institutional investors for this stock. This is a stock for those investors who are willing to take some risk and hold with patience for long term to get rewarded.
My final thoughts
Visualizing the current uncertain environment, I do strongly feel that this is a great stock to won. Because supply chain constraints are not going away for a foreseeable future. The ships and containers will be needed, and they can command price due to their shortages. It has strong fundamentals with exceptional dividends. Even if I am a growth investor, this is a stock I would love to hold in a retirement account and keep accumulating dividend with possible equity appreciations. I have already bought the stock and still keep accumulating in small quantities during the down days.
Shesa’s Blog Portfolio (As of JUNE 2022)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View |
STOCK (All prices are in USD) | |||||
12.9 | 145.38 | 1/25/13 | 1027% | HOLD | |
47 | 190.78 | 11/13/13 | 306% | HOLD | |
77.18 | 357.82 | 12/12/13 | 364% | HOLD | |
311.73 | 2447 | 4/12/14 | 685% | BUY - Long term | |
134.81 | 353.66 | 11/25/18 | 162% | HOLD | |
12 | 17.3 | 3/22/20 | 44% | SOLD | |
54.59 | 109.95 | 5/25/20 | 101% | HOLD | |
45.3 | 196.34 | 6/28/20 | 333% | Accumulate | |
27.98 | 17.9 | 4/25/21 | -36% | Accumulate | |
5.39 | 1.85 | 7/18/21 | -66% | SOLD | |
8.11 | 5.65 | 8/27/21 | -30% | HOLD | |
51.49 | 29.06 | 10/10/21 | -44% | Accumulate | |
55.21 | 18.67 | 11/21/21 | -66% | HOLD | |
118.24 | 45.31 | 1/2/22 | -62% | HOLD | |
239.49 | 187.2 | 2/13/22 | -22% | Accumulate | |
18.44 | 14.86 | 3/20/22 | -19% | Accumulate | |
870.76 | 703.55 | 5/1/22 | -19% | Accumulate | |
67.7 | 67.7 | 6/5/22 | 0% | NEW ADDITION | |
ETF | |||||
139.1 | 258.75 | 8/16/15 | 86% | HOLD | |
70.23 | 56.4 | 1/3/21 | -20% | HOLD | |
MUTUAL FUND | |||||
59.45 | 129.84 | 12/20/14 | 118% | HOLD | |
9.05 | 16.62 | 1/15/16 | 84% | HOLD | |
43.66 | 60.33 | 9/24/17 | 38% | HOLD | |
Positions CLOSED this year - 2022
Stock | Buy Price | Sold Price | Date Sold | Gain/Loss |
5.39 | 1.59 | 5/18/22 | -71% | |
12 | 12.2 | 5/25/22 | 2% |
That’s all for today. Wish you great investing! Stay tuned for my next blog. Thanks for your time!
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 on what I do. 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 put on my blog portfolio and avoid including any security that I do not own or follow. Anybody buying or selling the equities mentioned here is their own risk.
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