Stocks on the Dip you Need to Consider: GWW, CHK

Kennouth Investments                                                                                                         7/6/14

Stocks on the Dip You Need to Consider: GWW, CHK

                With the market making all-time highs seemingly at least once a week so far this year, how is anyone supposed to find any value?  Momentum stocks aren’t anymore settling, with stocks like TSLA, SUNE, NFLX, and AMZN also at or near all-time highs, and the TTM p/e ratio of the Russell 2000, as of June, 27, is 84.41!  I’m not saying there isn’t any multiple expansion, but a typical contrarian could argue, quite easily, that the path of least resistance is on the sell side.  Remarkably, there are a couple select stocks that are still well below their 52-week highs.

W.W. Grainger (GWW)

p/e ratio: 22.08x 

Dividend: 2.99%

It’s well known that markets over react.  Such was the case when W.W. Grainger released their latest sales results.  Nearly every region Grainger operates in reported decent to good numbers for the month of May, except for Canada, which sent the stock tumbling 3.3% in one day and an additional 3.4% since.  In order to find out the reasoning behind this move down, let’s look at some other numbers:

§  6%  increase in sales for May YoY, exceeding 5% growth from last year.

§  8% rise in U.S. daily sales.

§  10 – 40 basis point expectation of expansion in operating margin,

§  $115 million is expected to be spent this year, DOWN $15 million dollars from last year.

Along with the growth Grainger experienced last year, the company hired 180 new sales representatives, and two weeks ago they purchased 96 acres in New Jersey to build a new distribution center.  The headwinds faced in Canada were mainly due to circumstances outside of Grainger’s control.  The Canadian economy weakness is due to lower commodity prices and a reduction of Canadian exports, and the decline in sales in that region was accentuated by a 2% decline from currency translation.  Since the decline in the share price, Zacks.com upgraded the stock to a Hold from Sell; citing investors should wait for a better entry point for accumulation.  Considering the stock is down another percent since the upgrade, now might be a good time to be buying.  If it can maintain earnings growth of five percent, and the share price moves three times earnings, that means the stock should see a rise of about twelve to fifteen percent by year end, especially since GWW is essentially unchanged year to date.1

 

Chesapeake Energy (CHK)

p/e ratio: 24.63x

Dividend: 1.20%

            Chesapeake Energy is one of the country’s largest exploration and production companies of natural gas and oil.2   And while the whole energy sector has taken a hit over the past two weeks, as reflected by the 2.7% decline in the SPDR oil and gas ETF, XOP, since June 23, there’s one reason in particular why you should be looking at CHK above the others in its peer group: Seventy Seven Energy (SSE).  What CHK has done with Seventy Seven Energy is one of the most favored actions investors and traders alike look for in their search for outperforming stocks.  On July 2, Chesapeake split its gas and oilfield services into two separate companies, with Chesapeake retaining control over natural gas operations, and Seventy Seven taking over the oilfield services.

For those who are new to investing, here’s why this is important.  Companies start spin-off companies in the expectation of having a better ability to focus on one particular direction for both the parent and child companies, it reduces costs and debts, thereby increasing margins and profits, and it increases the market value of the company’s assets.3   For every fourteen shares Chesapeake Energy shareholders own, they will now receive one share of SSE.  Win, win, win.  Furthermore, with the Obama administration allowing only Pioneer Natural Resources Company (PXD) and Enterprise Products LP (EPD) to export the ultralight oil known as condensate,4 Chesapeake Energy should take less of a hit as money managers and retail investors move their money from the other energy stocks to these two companies, PXD and EPD.  This active legislation on permitting oil exports once again is a secular trend investors must put their money towards; especially to the point, the growth in alternative energy in the utility and transportation industries will only naturally take America off of its dependence on oil.  These are not only trends we have to recognize, but trends from which to make a profit.                           This isn’t the first time in recognizing this trend, because Chesapeake Energy has as well.  Two years ago, the company announced a new initiative, called “A Declaration of Energy Independence.”  The plan’s primary objective, as reported by WyoFile and the Rural West Initiative at the Bill Lane Center for the American West, is to drive America toward energy independence, and back in 2011, declared the country’s “’$400 billion a year’ in foreign oil imports is ‘fiscally insane.’”5 Since then, America hasn’t made much, but some, progress in bringing that number down 5% to about $380 billion as of 2013.6   Lastly, Chesapeake Energy, as a part of this initiative, invested $1 billion to establish a fund in the aims of converting transportation fleets from gasoline to compressed natural gas.  This is just one example of when free market capitalism is superior to every other method of state-owned economic policy; the market is able to move, react, or in this case (which is the best case), be proactive faster than the state against any policies which might stand in its way.   CHK stock currently stands at $29.50/share, which is only 1.4% below its recent high. Taken into more consideration, that’s still significantly lower than its 5-year high of $32.34, while in that duration has been forming a healthy cup-and-handle formation.  CHK needs to experience a %118 increase before it reaches its all-time high of $64.42.  If you still need more assurance, I don’t think seventy-five thousand shares would have been bought in insider trading during the most recent quarter if the insiders didn’t have a good feeling about where the stock was going, which is exactly where you need to be looking: up.7

 

 

 

1.      Zacks Equity Research, “Grainger Upgraded to Hold On Modest Improvement in Sales,” Zacks Analyst Blog, accessed July 2, 2014, http://www.zacks.com/stock/news/138269/grainger-upgraded-to-hold-on-modest-improvement-in-sales

2.      Glickman, S. “Chesapeake Energy Corp.” Chesapeake Energy Corp; S&P Capital IQ Mcgraw Hill Financial. Accessed July 6, 2014. https://research.ameritrade.com/grid/wwws/common/reports/report.asp?id=10072&documentTag=16516710&vtag=5S5LJP8FKTAVD0APG9R5ND9RUT

3.      Zacks Equity Research, “Chesapeake Closes Spin-off; Seventy Seven Energy Debuts,” Zacks Analyst Blog, accessed July 6, 2014, http://www.zacks.com/stock/news/138872/chesapeake-closes-spin-off-seventy-seven-energy-debuts

4.      Berthelsen, Christian and Cook, Lynn. “U.S. Ruling Loosens Four-Decade Ban On Oil Exports.” The Wall Street Journal; Markets. Accessed July 6, 2014.  http://online.wsj.com/articles/u-s-ruling-would-allow-first-shipments-of-unrefined-oil-overseas-1403644494

5.      Bleizeffer, Dustin. “Drilling to Independence; Can the West save us from foreign oil imports?” WyoFile. WyoFile and the Rural West Initiative at the Bill Lane Center for the American West. Accessed July 6, 2014.  http://wyofile.com/dustin/drilling-to-energy-independence-can-the-west-save-us-from-foreign-oil-imports/

6.      Fuel Freedom Foundation. “Oil Economics.” Fuel Freedom. Fuel Freedom Foundation. Accessed July 6, 2014. http://www.fuelfreedom.org/the-real-foreign-oil-problem/oil-economics/

7.      Thomson Reuters, Vickers Stock Research. “Chesapeake Energy Corp.-Fundamentals.” Chesapeake Energy Corp. TD Ameritrade. Accessed July 6, 2014. https://invest.ameritrade.com/grid/p/site#r=jPage/https://research.ameritrade.com/grid/wwws/stocks/fundamentals/fundamentals.asp?symbol=CHK

 

 

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments, Research, and Learning) are unaffiliated with GWW, we’re long CHK, and can't be held responsible for any losses that may occur. Invest at your own risk.

America Set to Fuel the Great Recovery

            Five years following the Great Recession, many people here in America are still uncertain about where to invest their money.  Sadly, those that have been too cautious or uncertain have missed out on the gains of the last five years.  However, the reversal in the global economic cycle is just starting, and America and its equity market are testaments to who the leader in the world’s economic recovery will be.   Behind the scenes, three key factors will be buttressing America’s growth in the near future: exposure of American technology to developing markets, a rising dollar due to the Fed monetary tightening, with the latter factor being supported by lower energy prices and lower unemployment.

            Some of us hate having to deal with our smart phones and some of simply could not live without one.  Whether you regard today’s phones as a go-to tool for everything or as a nuisance, these products will slowly become available to the billions of people scattered throughout the far corners of the world.  By 2017, 1.7 billion smart phones are expected to ship to stores across the world, averaging an expected annual growth rate of 24.9 percent from 2011-2017.  And while that’s a good number year after year, a small correction is expected for the early part of 2014. According to analysts at research firm Ovum, Android (Google; GOOG) systems are expected to lead the market, comprising almost half of market share, while Apple (AAPL) will take more than a quarter.1 Exposure to smart phone technology in these markets will have extraordinary effects.  One, these companies will make a fortune from sales and subscriptions, the latter being a positive for the phone carries; and two, these products should usher in more spending and other software based services.  As of 2011, there were more than a million mobile apps, many of which are money-making sources.  Domino’s Pizza (DPZ) is a great example of how a company can take advantage of mobile apps.  As of the middle of 2012, thirty percent of Domino’s sales were made through mobile web applications, reaching $1 billion by April of the same year.2  Also, smart phones and tablets are typically more affordable and mobile than its PC counterparts, which should also benefit emerging market economies.

            In case you never watched CNBC at any time during 2013, the Federal Reserve has been expected to cut down, or “taper,” it’s monthly premiums of $85 billion of Treasury bonds to the banks, thus restricting the amount of cash the banks hold in capital and the amount of dollars being injected into the American economy.  Now that the quantitative easing process is starting to scale back this easy money, many believe this reduction will cause emerging markets to experience hyper currency inflation.  I don’t think they’re entirely wrong.  By cutting the supply of dollars in the global market, the value of the dollar should rise, in turn decreasing the value of emerging currencies.  When this happens, it will be easier for the banks in these countries to acquire their respective currencies in relation to the dollar.  If these economies are managed carefully, accompanied by healthy corrections in interest rates to contain the expected inflation, then the Fed taper and its maturity should only boost global economic growth, especially in the credit arena.  Once American technology products and energy prices undergo further deflation overseas, interest rate fluctuations will tend to be less volatile.  Energy prices continue to drop relative to inflation and are even struggling to achieve price parity in places like Brazil.  Lower gas prices, as seen in America, also contribute to overall economic growth.  Furthermore, if the Fed continues to taper, then that means America’s labor market is improving, and one byproduct of a growing American labor market historically translates to higher exports and faster growth rates for the importing countries.

           Mentioned earlier, energy prices are just now enabling growth in the American economy.  Solar and wind power has eased demand pressure from more conventional sources of energy, and it has stabilized the price of gasoline simultaneously.  Besides alternative energy technology, another technology has emerged in recent years to leverage gasoline prices down: fracking.  Not only has the fracking technology revolution strengthened the housing market, especially in the Dakotas and Texas, but it saved the inflation of gas prices many economists were expecting not more than two years ago.  Find any one-hour news segment from April 2012, and there will be commentators predicting the price for a gallon of gas at five dollars.  Suffice it to say, that didn’t happen, because of hydraulic fracking.  Especially as long as Iranian oil is not in the market, selectively investing in American and Canadian oil companies will pay dividends.  Last week on CNBC, hedge fund manager Jamie Dinan went on to recommend two stocks outside the drilling sector that have already benefited from American and Canadian oil: Scorpio Tankers (STNG) and Costamare (CMRE).  Citing “fundamental issues in an upturn,” Dinan’s investing in these two companies in expectations the value of the ships will go up due to rates.  However, these shipping companies are the ones transporting all the moving parts that has made and will continue to grow the oil industry as well as bolster the American and European recoveries.

1.      Reisinger, Don, “Smartphone units to hit 1.7B in 2017; Android to dominate,” CNET, accessed December 22, 2013, http://news.cnet.com/8301-1035_3-57427196-94/smartphone-units-to-hit-1.7b-in-2017-android-to-dominate/.

2.      Davis, Scott, “Getting Apps Right: How Domino’s is Beating the Odds,” CMO Network, Forbes, accessed December 23, 2013, http://www.forbes.com/sites/scottdavis/2012/06/21/getting-apps-right-how-dominos-is-beating-the-odds/.

                                                                                                                              

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments) are long STNG and unaffiliated with all of the other companies that are mentioned in this article, and can't be held responsible for any losses that may occur. Invest at your own risk.

Finding Value in an Overvalued Market

Kennouth Investments                                                                                                      12/13/13

Where to Find “Blood in the Streets” in an Overvalued Market

            With so many money managers and investors saying stocks are well valued, where are the pockets of opportunity?  A few probably won’t surprise you.  IPOs like Twitter, Sprouts, and now Hilton have proven to make high returns this year, and I’m sure that trend will continue for a long time, as long as you’re selective in your stock picks.  Some stocks, like Apple, Google, Starbucks, still have a ton of room globally to expand their reach into those markets.  And there are some that have been hit especially hard since ’08 & ’09 that are just recently starting to recover their market share.  But since America is awesome at outperforming the world, we need to look outside the border to find growth similar to what the U.S. market has experienced over the past five years.

Not only was National Bank of Greece (NBG) hit hard by the Great Recession, but Greece has struggled to overcome its deficit issues and employment problems, comparatively more than the rest of the EU members.  In Spain, another EU country plagued by high unemployment, Banco Santander (SAN) has weathered the storm better than its parent country, and is well situated in a healthy trend line for the past year.   Lastly, Petroleo Brasileiro (PBR) has fallen 79% since the highs of ’08, but now with a developing South America and Africa, they are set to make a big profit since the a significant amount of Brazilian automobiles run on sugarcane ethanol. 

National Bank of Greece

If an investor bought $10,000 worth of shares of NBG in 2008, that $10,000 is now worth somewhere around $389.  That statistic alone turns multitudes of investors away.  But if you could ask any Rothschild, they’d say this is the best time to buy NBG since 2008.  A year ago, there were riots.  In August of this year, it had a credit rating upgrade, and its second quarter core earnings amounted to 999 million euros, an 8% improvement from the previous quarter.  It also allowed the bank to more than cover its provisions, which is the first occurrence in NINE quarters.  S&P Capital IQ reported the “Net interest income for the second consecutive quarter suggests that the downward cycle is bottoming out.”  Despite reporting a net loss for the third quarter, Fitch Ratings upgraded the mortgage covered bonds from ‘B’ to ‘B+’.  Currently, it has a P/E ratio of 12, another good indicator of an upcoming rise in the stock price.  Lastly, as the chart shows, the volume only reaffirms everything written above.1

Banco Santander
From a technical standpoint, SAN is approaching a very good buying opportunity, while reaching an oversold position at the same time.  A yearly chart for SAN looks a bit inflated, but considering the purchases SAN has carried out, it makes more sense.  In September, HSBC Holdings PLC sold its bank of Shanghai stake of 7.8% to SAN.  It also bought a stake in a Spanish retailer El Corte Ingles for $190 million.2   Along with volume, it is of my opinion that these asset purchases are being reflected in the stock’s price movement.  For the past six months, SAN has moved very nicely through its linear regression channels, and is now at a 6 month support line.  Given its recent 9% decline from October, SAN has is still up 34.5% since July.  This is a healthy move for this stock and its market and is just evidence of modest profit-taking.  In retrospect, the only negative aspect regarding SAN is the moving averages suggest further decline; somewhere around another 5% at $8.00 or $7.75.  If you’re a dividend investor, I’d be buying now.

Petroleo Brasileiro

            Interestingly, PBR might be riskier than the European bank stocks.  Faced with management issues and constraints, a weakening real, and low domestic fuel prices, it has been difficult to sustain growth.  Because PBR is a joint stock corporation with Brazil’s federal government, rising fuel prices often meets stiff opposition.  This stance by the government is enforced in the hopes of faster GDP growth for Brazil and to produce exports.  It’s not clear whether these constraints cause the gas price to be pushed down relative to the cost of crude oil, or if PBR doesn’t have the refining capabilities.  From now until 2017, PBR plans to spend $3 billion on oil infrastructure and another $8.6 billion on its downstream.  Here’s how PBR is overcoming these headwinds.  Since 2007, PBR has made multiple oil and gas discoveries, one of which includes the Tupi field, amounting to somewhere between 3 – 5 billion BOE (barrels of oil equivalent).  In 2011, 35% of its capital investment was spent on improving its downstream, and in June, the company announced a joint venture with another company to take place in Africa, expecting to bring in proceeds of $1.525 billion.  Lastly, S&P Capital IQ has a 12-month price target of $18.00.3    

          

 Chart software thanks to TDAmeritrade's thinkorswim software.

            

            1. Oja, Erik, “Nat’l Bank of Greece ADS,” S&P Capital IQ, McGraw Hill Financial, accessed December 12, 2013, https://research.scottrade.com/qnr/Stocks/GetPDF?docKey=72-63364370-6SL9QMR21IHUB43STD4LS9KRKI.

2. Ogg, Jon C., “Is Banco Santander Becoming Safe to Invest in Again?” 24/7 Wall Street, WordPress, accessed December 12, 2013, http://247wallst.com/banking-finance/2013/12/10/is-banco-santander-becoming-safe-to-invest-in-again/.

3. Kay, Michael, “Petroleo Brasileiro SA,” S&P Capital IQ, McGraw Hill Financial, accessed December 13, 2013, https://research.scottrade.com/qnr/Stocks/GetPDF?docKey=72-71654V40-1M6ATTS47N1L1IDRP7L4N7F676.

Disclaimer: Trading stocks has extremely high risks, and should not be taken lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. As of this writing, we (Kennouth Investments, Learning and Research) are long NBG and SAN, and unaffiliated with all other companies that are mentioned on this blog, and can't be held responsible for any losses that may occur. Invest at your own risk.

Kennouth Investments

Is the Gold Rush Still a Rush?  The Money-Makers, Last Week

            With the major U.S. indices down roughly 1.5% to 2% this week and the big sell-off on Thursday, it can be frustrating and difficult to be willing to hold or buy stocks.  But there are a select amount of stocks and ETFs investors or traders can buy that would’ve brought in sizeable profits over the past five sessions.  With the U.S. market still up more than 15% year-to-date, the price of gold has dropped more than 18% in the same time period, which very possibly positions gold at lucrative prices.  Given the anticipated Fed reduction of bond purchases and the recent rise in bond yields, the market could very well be saying the U.S. economy is becoming more predictable, stable, and most importantly, growing.  While the rise in bond yields typically causes more volatility in the stock market, once adjusted to more favorable economic conditions, equities should see the same type of growth as they have the previous six months.  During the short, volatility-increased adjustment process to achieve that growth, two of three circumstances must occur in conjunction with the quantitative easing pullback: further productivity and/or employment progress, a continual rise in bond rates, and a substantial rise in gold and silver prices, at worst stabilize.  Damaging as the bear advance was to the bulls this past week, they were able to find refuge in stocks like Barrick Gold (ABX) and Anglogold Ashanti (AU), as well as ETFs such as the iShares Gold Trust (IAU), iShares Silver Trust (SLV), and the ever risky Direxion Fund triple-leveraged ETF, NUGT.

It isn’t worthwhile to dwell too much time to the first two previously mentioned circumstances, however, those two factors are critical to a bull market.  But, I do prefer to compare the ‘80s market to today’s economic state; well, the time period just before that period’s bull market substantiated, that is.   Prior to that promising period, America was rehabilitating from multiple problems: the Vietnam War (global stability), Watergate (political trust and stability), and in general, the future of America’s economic, social and military credibilities, exemplified by the OPEC oil crisis, the still on-going civil rights crises, and the unfortunate Iranian hostage situation, accompanied with that country’s revolution.  These history making events, however, only supplanted the naturally bullish atmosphere of the Reagan administration.

America was in a very uncertain state.  While the Vietnam War in some ways promoted job growth and GDP growth due to America’s fertile ground for its industrial-military complex, the U.S. economy (and to an extent, the average American populace), was unable to adapt to post-Vietnam War crises.  This would explain our reactions to the late ‘60s to ‘70s volatility in the markets, which was accompanied by a fair and reasonable correction cycle to the majority of the stock indices and a rise of more than 600 basis points on the 10-Year Treasury Yield from 1969 to 1981.  So what does this mean?  Due to increased socio-economic volatility, a large amount of investors trended to transfer their portfolio exposures from stocks to fixed-income investments, like the 10-year Treasury, or bought gold and silver, both of which peaked in the early eighties, right before the Dow Jones Industrial Average grew more than 1000% in seventeen years, from 1982 to 1999.  With improving economic conditions, the beginnings of new fiscal policies of “trickle down” economics, and a sustained effort by the American government and populace to grow the economy by building the middle class, it’s only natural to reason why the bond rate dropped (but at reasonable levels), the declines in the price of gold, and the huge rise in stocks.

      But gold never fell without a fight.  Two times after its drop from the 1980 peak, gold experienced climbs of about 30%.  Now while it can be very profitable to buy gold to achieve these gains, it’s very risky, so use caution when buying gold or gold related products right now.  If 30% should be used as a reference target point for the gold ETF, IAU, for example, a 30% increase from its June low would bring it to around $15.20.  And in the short-term, IAU has broken through a major trend-line and its moving averages have been moving very bullishly as well, by bouncing off critical levels and the 9-day MA staying above the 13-day MA.  

     With the draw down in troops overseas (and therefore less spending by the government, in virtually all sectors) , atypical but necessary fiscal policies like quantitative easing, that policy's effect of raising (or perhaps manipulating) the return in the bond yield's interest rate to the previous two decades levels, and the decline in the unemployment rate, the similarities between today’s market and the stock market just before the ‘80s bull market are very numerous.    Because of these factors, and while we've been told for the past decade gold is the greatest safe haven, for a long-term investment, I think your money is best left in stocks. 

Chart is courtesy of TDAmeritrade’s software thinkorswim.

Sources:

http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments, Research and Learning) are unaffiliated with all of the companies that are mentioned on this blog, and can't be held responsible for any losses that may occur. Invest at your own risk.

When History can Forecast the Future

Kennouth Investments

When History can Forecast the Future

            Looking at a historical chart of the Dow Jones Industrial Average of the past century, any novice investor could observe that the economy moves in cycles.  While this is simple economics, why is there always someone out there saying, “Yes, now, this is the best time to buy stocks,” however, the smarter trader knows when to buy on the dips.  But how do those dips and crashes turn into rallies and bull markets?    

            Shown above are the mountains of money the DJIA has had to climb to get to its present state.  (I need to say the chart is dated to March 10, 2013.)  There are a few major aspects to be taken from this.  The first is the number of recessions taking place greatly diminishes as time continues.  And they don’t occur as often in the uptrends compared with correction periods or downtrends.  The second is times of war tend to be more volatile.  It isn’t until several years after major wars that we experience bull markets.  Third is a strange thought, but the recessions, especially the large ones, occur near major administration changes.  The bounces back from these dips also typically precede resistance-breaking rallies.  Lastly, it is apparent the market has grown exponentially and the next leg up should occur soon.

            Unfortunate it is that this graph ends in 2009, but knowing where it the market is now, it makes it easier to read these charts and provides the theoretical evidence upon which I trade.  Since the crash of ’29, the periods of decline have grown shorter in length and the rallies longer, a good sign for the might of the American economy.  Knowing of where the market has gone since the drafting of this chart, and according to it, the stock market has been in a bull market for just under a year now, when the Dow crossed 13,930 back in February.  Seeing as the current levels of the Dow are 15% above the previous mark, and all of the previous growth periods witnessed plus 148.92%, there’s bound to be a new frontier of economic expansion to discover.  Dow 20,000 might be closer than we all think.

Kennouth Investments

Times to Buy All-Time Highs: Dow Jones, S&P 500, Starbucks (SBUX), Celgene (CELG), KIE

            2013 has proven to be a very profitable year.  Year-to-date, the Dow Jones has soared 19%, the S&P is half a percent higher, and since the lows of 2009, more than doubled at 121% and 133%, respectively.  But three sectors have significantly outperformed those returns; consumer staples, technology and biotechnology, and financials.  From the same time of early 2009, the XLV rose 135%, well-known biotech company Celgene exploded by 284% and the sister SPDR ETF, XLF, earned a little less at plus 265%.  Along with being well led and having plenty of room for expansion, the symbols mentioned in the title can also attribute their success to achieving all-time or multi-year highs.  When this happens multiple times over several years, it’s a good indicator that your investment won’t be facing much risk, and better, should ring in high profits. 

            The last four years have been filled with volatility fodder, moving markets and gridlocking the political arena.  Looking at the indices, however, the market seems to be unaffected, maybe even better off, with political inaction.  Some regulation has been put in place, but really it’s the Federal Reserve’s monetary policies that have allowed the stock market to recover.  And the wall of fear that surrounded sequestration was sapped when quarterly earnings and jobs reports kept beating estimates this year.  This year’s bull run could also mean the stimulus programs and bailouts we all hated have actually worked.  We won’t see the full effects of Obamacare for another year now, but green energy investment, tax incentives for small businesses, and the housing recovery are just a few steps taken by the government to allow certain sectors to make more money than others.  Politics aside, returns from the past four years should bring more certainty to stock market investing, sending indices even higher.

Starbucks (SBUX)

            Starbucks is quite an American success story.  It’s the product of a commodity increasingly demanded by a country that wakes up earlier and stays up later every day, combined with an iconic image of the great American city of Seattle.  The coffee shop has successfully placed itself at the top of the consumer staples/fast-food list in terms of growth.  The stock has grown 820% in four and a half years.  Compared with its competitors, like McDonald’s and the Yum! Brands restaurants, Starbucks has a much lower presence in overseas markets, like Europe, China and India.  They have more than 700 stores in China, but about 12,000 in the United States, despite a population a third the size of China.  And the very first Indian Starbucks shop opened last year in New Delhi.  Stores should also expect more food sales, as they were a large factor in its outperforming earnings statement last quarter.  It has fallen below its 50 – day moving average only on two occasions in the past nine months.  SBUX closed at an all-time high today of $73.48, and I wouldn’t be surprised if it hit $95 or even $100 by years end.

Celgene (CELG)

            It’s taken me a while to take notice of biotech stocks, but when I did, I knew why Jim Cramer is always talking about them.  Featured stocks in this category of his include Celldex Therapeutics (CLDX), Gilead Sciences (GILD), and Tearlab Corporation (TEAR), all of which have doubled from twelve months ago.  Another biotech stock not talked about much is Neurocrine Biosciences (NBIX).  It too has doubled from a year ago, but since January 2010, it’s grown 428%.   Catching the attention of a lot of investors, however, is Celgene.  From this time two years ago, it’s risen 148%, two-thirds of that being since November.  Second quarter earnings reported a 17% increase in revenues from last year.  In chart technicalities, the 9-day moving average came close to crossing over and going back below the 13-day MA.  But a bullish sign of strength came six sessions ago, July 25^th (earnings), when the price had a two-day move from $135.99 to $143.94, almost six percent; this was followed by a down day that closed higher than its open, and a session threepeat sent CELG up almost five more points (3.6%) to all-time high of $148.79.  This stock doesn’t show many, if any, signs of slowing down.

Insurance

            Not many people enjoy thinking about their insurance.  It’s something no one really wants, but when it comes down to it, it’s something we all really need.  Most companies are fearful of how Obamacare will affect their balance sheets.  But in my opinion, the possible negative effects of Obamacare pale in comparison to the money to be made in life insurance over the next fifteen years.  For two years now, one group of Americans has jumpstarted the life insurance, back to life.  Those born in 1946 through 1964, the Baby Boomers, started turning 65 in droves, like ten thousand a day.  It’s been claimed by executives of Assurant Solutions (AIZ), that this generation will pass on $22 trillion of wealth to their survivors.  Companies in life insurance, annuities, and financial services, like Assurant Solutions, are determined they get the largest slice of that pie as possible.  Still not convinced life insurance is positioned for outperformance?  Of the sixteen SPDR ETFs that Kennouth Investments monitors on a daily basis, only one outperformed the insurance ETF year-to-date, KIE, and that was biotech, XBI.  In addition to being at an all-time high of $57.75, it beat XLF (financial) by five percent, which is still nearly twelve points away from its all-time high of $32.35.

            So when is it safe, or safer, to buy stocks at all-time highs?  These stocks all outperformed estimates.  They all have good business models and have a lot of market space to fill.  They all came close to or achieved double-digit rates in earnings statements and outperformed the major indices by about an additional 25% year-to-date.  Lastly, SBUX, CELG, and KIE have soared more than 250% since 2009.

Charts courtesy of TDAmeritrade’s thinkorswim software

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments, Learning and Research) are unaffiliated with all of the companies that are mentioned on this blog, and can't be held responsible for any losses that may occur. Invest at your own risk.

Kennouth Learning and Research: What's in Solar's Way

Kennouth Investments, Learning, and Research

31 July 2013

What’s in Solar’s Way?

Earlier this week, there was an article posted by the Motley Fool blog on the subject of oil not being a major setback for solar energy.  But don’t get complacent, big oil’s not going away anytime soon.  While the growth of solar companies has been outperforming the other energy sectors in many categories, its stock price for example, they will start to face increasing competition from more traditional companies.  As mentioned in the Fool piece, SolarCity has experienced incredible momentum this year.  From 2011 to 2012, revenues more than doubled from 59.5 million 128.6 million, they still reported a net loss of 91 million dollars.  However, two, Exxon Mobil and Dutch Royal Shell, of the five world’s largest companies, are oil companies.  And when you Yahoo! search “solar city,” Chevron appears on the link list before SolarCity does.

SolarCity

Kennouth Investments bought this stock in the past, made a generous amount of money, and has sold it since.  SolarCity had their IPO on December 13^th, 2012, and since its eight dollar debut, it first climbed all the way to $52.17.  After a correction, it also had a profitable run from $32.66 to $44.98, a gain of almost 38%.  At the same time, that’s a ton of volatility worth risking for.  They have been reported to have great business models and forecasts, they’re in financial agreements with powerful banks like Bank of America (BAC) and Goldman Sachs (GS), and chaired by the founder and CEO of Tesla Motors, Elon Musk.  This company does have a lot going for them, but the stock is running out of steam, hitting a cushion at best.  Since its 8% drop on July 26^th, it has struggled to stay or close above $42.50.  Technically, using Fibonacci levels on a six month low to high pattern, it needs to break above about $43.75 for it to keep growing.  Credit Suisse recently raised its 12 – month price target on SCTY from $28 to $52.  There’s a lot of moving parts with SCTY, but maybe a little too much.  They are involved with so many other companies, Walmart and Honda being a couple more.  Every headline and speculation shakes this stock.  I do believe the stock will reach above fifty dollars again, but I would like to see it hold above or bounce off around $38 before buying it.

Sunedison

            Sunedison has been on the market much longer than SolarCity has.  Since its founding ten years ago, the stock has definitely seen better days, as it did pre-2008 when it reached $96.  Now it’s recovering at more than ten bucks from an all-time low of $1.44.  And despite being at year highs, this is a stock I wish I owned.  If possible, this is one of those stocks that traders would love to buy on a big dip.  Studying the MACD, it’s of my belief that SUNE has either finished a head and shoulder pattern, or is entering a new one.   I prefer the latter, because I’m thinking it should hit at the least $12.50 and $17 at the most by year end.  Furthermore, should the stock drop from here, there’s no way the bulls will let it fall below $9.  To accentuate that belief, nine dollars is already below the middle regression line.  But I’m not willing to lose ten percent, so I would wait till Friday’s data reports before buying this one.

Cloudy, Stormy and Clear Skies for the Solar Industry

            The most probable competitor to solar is most likely coal and oil companies.  Coal supporters are fearful of whole communities going jobless due to mine shutdowns.  But realistically, the coal mining industry has been on the decline for decades, and I don’t see that stopping.  Oil is definitely going to put up a lot more defense.  With one third of US workers making less than $24,000 (as reported by CNBC), the high price of hybrid vehicles or Teslas is nowhere near economically feasible for a large amount of people.  And now in the near future, Ford will be offering F-150s that run on natural gas. 

The oil industry is also undergoing another boom with shale and fracking technologies.  These new methods and discoveries, called a “gift from God,” by Jamie Dimon, will only make the oil companies more profitable.  But if there’s a degreaser for the sludge, auto companies and the government are going to be a part of it.  That’s only going to come with cheaper and similar cars to Tesla’s models, and a government incentivizing and being able to compromise to produce effective legislation.  While President Obama’s been in office, oil production is at all-time highs, but blocking the Keystone Pipeline legislation isn’t helping the prospects for oil investors.  He has also initiated plans to make the military 20% solar dependent by 2020.  And companies like SolarCity and Tesla probably wouldn’t exist if President Obama wasn’t elected.  With the way Washington behaves and “legislates” it does now, don’t expect much more stimulus from the government.  Aside from the domestics, rebellions across the Middle East, such as the ones in Egypt and Syria give more reason not to be bullish on oil.  Solar energy is on the path to being the dominant means of electricity and power, but is it going to happen tomorrow?  No, no way.

Sources

CNBC

http://beta.fool.com/yieke/2013/07/26/us-shale-boom-will-have-minimal-impact-on-alternat/41630/?logvisit=y&source=eednaslnk0000001&published=2013-7-26

http://secfilings.nasdaq.com/edgar_conv_html%2f2013%2f03%2f27%2f0001193125-13-129655.html#D508901D10K_HTM_TOC508901_14

Charts courtesy of TDameritrade thinkorswim software.

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments, Learning and Research) are unaffiliated with all of the companies that are mentioned on this blog, and can't be held responsible for any losses that may occur. Invest at your own risk.