Shesa's OCTOBER 2016 INVESTMENT BLOG
9 October 2016
OCTOBER 2016 INVESTMENT BLOG
U.S. Stock Market Commentary: As predicted, there was no hike in interest rate. The stock market is now eyeing for U.S. presidential election scheduled on November 8. It’s just about a month away. We will see who becomes the president and how the stock market reacts to the election. I will provide my personal opinion about possible economy situation and market direction depending on whether Hilary Clinton (Democrat) or Donald Trump (Republican) becomes president of U.S.A.
Let’s first take a look to the U.S Stock Market Indexes.
U.S. Indexes | 4-Jan 2016 | Friday Close | Year-to-date change | YTD % Change | 52 Week High | Change from 52 Week High (%) |
DOW | 17425.03 | 18,240.49 | 815.46 | 4.68 | 18,722.60 | -2.58 |
S&P 500 | 2043.94 | 2,153.74 | 109.80 | 5.37 | 2,193.81 | -1.83 |
NASDAQ | 5007.41 | 5,292.40 | 284.99 | 5.69 | 5,342.88 | -0.94 |
Economic Reports and Interest Rate
- Private-sector employment slowed a bit in September, employers added 154,000 private-sector jobs last month, down from 175,000 in August.
- In September, overall the economy added 156,000 jobs against expected 176,000. The unemployment rate ticked up to 5% from 4.9%. Possibly, that's a sign that people are coming back into the job market, and it seems was the case in September. This is a key component being watched by Federal Reserve for interest rate.
- The Institute for Supply Management (ISM) manufacturing services index shot up to 57.1% in September from 51.4% in August, which is a good sign for the economy.
Source: Marketwatch.com.
Interest rate
As expected, Federal Reserve did not raise interest rate in their FOMC meeting on Sept 22-23. Next FOMC meeting is scheduled for Nov 1-2. Since November 8 is the election date, I do not think we can see interest rate hike in the next meeting. However, if the economy continues to do as the data are pointing at present then we may possibly see 0.25% rate hike in December. In my view, there is a 50-50 probability. It may depend upon corporate earnings, future economic data and Geo-political situation.
Earnings Season kicks-off next week
The corporate earnings announcement season for Q3 kicks off on Wall Street next week, which coincides with the intense U.S. presidential campaign. As usual, these corporate earnings will decide the market direction till the end of the year. However, there could also be market fluctuation due to uncertainty of election. From valuation perspective, S&P 500's forward price-to-earnings ratio sits at 17, above its long-term average of 15. It means stocks are little over-valued. Unless, corporate world comes with better earnings, it may be difficult to keep the uptrend in stock market. So, a cautious approach may be advisable. According to Factset, the estimated earnings decline for S&P 500 is anticipated to be -2.1% in Q3. If that becomes true, it will mark six consecutive quarters of year-over decline in earnings since 2008. The Sales/Revenue growth is estimated to be 2.6%.
Democrat or Republican will be better for U.S. Economy?
This is a huge debate and political in nature. I do not want to politicize the blog. Readers can find those reports CNN, CNBC, Bloomberg etc. Moreover, if past is any evidence, market has always done better whenever there is a democratic government. Based on my study, under all of the U.S presidents since World War II, from Harry Truman to Barack Obama, GDP growth under Democrats were robust 4.33%, against a much lower 2.54% under Republicans. Also, I believe Bill Clinton’s tenure particularly before 2000 was the golden age of America. The major factors to me are economic growth, health care, terrorism, education, gun control and so on. Looking to the current situation it’s more likely that democrat would possibly win the race. Wall street likes democratic presidency. Irrespective of the fact, which government comes to power, there could be some market correction after the new government is inducted. Well, let’s wait and watch!
What about GOLD – Risk or Opportunity?
As we could see gold, particularly the gold miners and ETFs are hit hard. Gold dropped from around $1330 to $1249. This did put dent in the investors psychology. There were rumors that ECB is looking seriously at raising interest rate. That was a big rumor “from stimulus to rate hike!!”. In addition, the economy data pointing towards interest rate increase by Fed in December, making USD to rise. Personally, I feel that raising interest rate by ECB is an absolute rumor and looks funny to me. I simply can’t imagine that they would raise interest rate! Do they know what will be the consequences of BrExit? It has not even started…Anyway, all these factors contributed to major drop in gold prices and heavy selling of gold miners and ETFs. The earnings for gold miners will start coming in later part of this month. I anticipate the earnings should be better. For rest of the year, particularly after the election there could be some downturn. Gold could be short term negative but longer term I think it would go higher.
China’s inclusion to SDR
As I wrote in my last month’s blog, finally IMF included RMB in SDR basket as a fifth currency, effective Oct 1, 2016. For the first time IMF to has included a currency from emerging market economy in its SDR basket. Now IMF can use the RMB in the IMF-related transactions. In addition, RMB will become more attractive as an international currency. It will also support China in its continued efforts to reform its monetary, foreign exchange, and financial systems, fostering more liquidity financial markets. It would also help reducing the dominance of USD as an alternative currency. This may also help Chinese economy and the commodity market.
First Solar, Inc. (FSLR)
First Solar, Inc, located in Tempe, Azizona provides solar energy in U.S and internationally. It operates through two segments, Components and Systems. The Components segment designs, manufactures, and sells solar modules that convert sunlight into electricity. The Systems segment provides solar solutions, such as project development, engineering, procurement, and construction to various private, commercial and industrial companies.
First Solar (FSLR) is one of the leaders in providing solar power. Its installed capacity worldwide tops 10 gigawatts (GW). Recently, Management also raised potential booking opportunities up to 24 GW despite the challenges faced by the solar industry. Moreover, the company has 1.4 GW of bookings year-to-date and it maintained its full-year forecast for 2.9 GW to 3 GW of shipments in 2016. FSLR delivers electricity at a cost that is very competitive as it invests more in research and development comparing to its competitors. In recent times, the oil prices have been coming down; hence the incentive to switch to solar is diminishing. As a matter of fact, it’s hurting the industry’s prospects. In my view, this is partially true. It can be noted that, in the U.S., only 1% electricity is generated using oil. Remaining are generated as follows: 33% coal, 33% natural gas, 20% nuclear, 6% hydro, 7% renewables. Although, natural gas prices have also dropped significantly, yet electricity prices have hardly reduced. Do we see lower electricity? At least, I have not seen in my monthly bill…That’s because what moves the cost of electricity is the transmission and distribution infrastructure. The prices for oil and natural gas have tumbled over the past couple of years, reducing the urgency for businesses, consumers, and governments to switch to alternative energy sources. This Friday, Goldman Sachs downgraded the stock to neutral from buy shading 5.5% of stock value. I am not too concerned about the analysts’ upgrade/downgrade. I see the fundamentals and probability of ROI in the long run.
Why do I like FSLR? With many negatives surrounding, why do I still like the company? A couple of quarters ago FSLR was growing its revenue over 70% and profit over 100%. In the last quarter the company took a restructuring charge of $85 million as it decided to cease production of solar panels using TetraSun’s experimental technology. Moreover, what makes First Solar attractive is its balance sheet and ability to grow even during a period of consolidation. First Solar ended the second quarter with $1.67 billion in cash and cash equivalents compared to just $273 million in debt. It gives First Solar a lot of flexibility against its competitors. Currently, the stock is trading at $37.58, which is almost 50% of its 52-weeks high $74.29. Hence, it gives investors opportunity to pick some shares at this price. I already own some shares and buying on weakness to do dollar cost average. I feel that this is a stock to own for long term. I believe that the days of solar is not gone rather it will keep growing. If Hilary Clinton becomes the president then the future of solar would be even brighter and sunny…Now let’s look at the fundamentals:
Market Cap: 3.85 Billion
Revenue: $4 Billion
Quarterly Revenue Growth: 4.3%
Quarterly Earnings Growth: -85.4% (due to restructuring charges)
Net Profit: 697 million
Earnings Per Share (EPS): 6.79
PE Ratio: 5.53
Forward PE: 17.48, Price to Sales: 0.96
Institutional Holding: 57.2%, %Held by Insiders: 26.64%
Return on Equity (ROE): 12.86%
Total Cash: 1.67 billion
Debt: 272.85 Million, Beta: 1.75
52 Week High: 74.29, Low: 33.74
Dividend: None.
Book Value: 56.71
Risk(s): Solar companies are in consolidation phase due to low gas prices and some companies declaring bankruptcies. Stock market is at its peak so any correction could impact FSLR as well. Despite being a great company in the solar space FSLR is also no exception to market correction. Moreover, if we think of long term and invest for future than this is one of the great companies with good value and growth. I can anticipate handsome return on investment (ROI) in the years to come.
Shesa’s Blog Portfolio
Equity | Suggested Price (USD) | Current Price (USD) | Suggested Date | % Change | My Opinion (see disclaimer) |
STOCK | |||||
54.09 | 114.06 | 1/25/13 | 111% | BUY | |
86.43 | 179.8 | 4/18/13 | 108% | HOLD | |
21.8 | 22.58 | 10/1/13 | 4% | BUY | |
47 | 126.51 | 11/13/13 | 169% | HOLD | |
135 | 196.61 | 11/13/13 | 46% | HOLD | |
78.06 | 102.25 | 12/12/13 | 31% | HOLD | |
311.73 | 839.43 | 4/12/14 | 169% | BUY below $800 | |
89.1 | 69.17 | 2/6/15 | -22% | SOLD | |
52.03 | 61.92 | 9/13/15 | 19% | BUY | |
171.15 | 184.49 | 1/15/16 | 8% | HOLD | |
31.88 | 22.9 | 2/21/16 | -28% | BUY | |
67.28 | 106 | 2/21/16 | 58% | BUY | |
20.44 | 17.39 | 4/24/16 | -15% | HOLD | |
23.45 | 25.55 | 5/22/16 | 9% | BUY | |
ABX | 22.21 | 15.73 | 7/4/16 | -29% | BUY |
XON | 26.37 | 29.69 | 7/4/16 | 13% | BUY |
36.89 | 38.47 | 9/5/16 | 4% | BUY | |
37.58 | 37.58 | 10/8/16 | 0% | NEW BUY | |
ETF | |||||
26.88 | 23 | 4/1/13 | -14% | BUY | |
31.94 | 29.78 | 3/15/15 | -7% | BUY | |
ASHR* | 28.46 | 24.66 | 3/15/15 | -13% | HOLD |
INCO | 34.46 | 37.07 | 5/15/15 | 8% | BUY |
139.1 | 121.88 | 8/16/15 | -12% | HOLD | |
77.76 | 79.74 | 8/16/15 | 3% | HOLD | |
69.43 | 61.18 | 10/18/15 | -12% | HOLD | |
32.5 | 37.69 | 11/15/15 | 16% | BUY | |
MUTUAL FUND | |||||
117.73 | 186.99 | 3/1/13 | 59% | HOLD | |
55.17 | 64.07 | 2/2/14 | 16% | HOLD | |
135.91 | 142.55 | 4/12/14 | 5% | BUY | |
27.3 | 28.9 | 10/25/14 | 6% | HOLD | |
28.31 | 27.93 | 12/20/14 | -1% | HOLD | |
63.38 | 77.53 | 12/20/14 | 22% | Accumulate | |
MINDX | 26.94 | 28.52 | 6/14/15 | 6% | BUY |
MCDFX | 14.11 | 15.23 | 12/9/15 | 8% | BUY |
95.46 | 109.85 | 1/15/16 | 15% | BUY | |
38.78 | 41.26 | 3/20/16 | 6% | HOLD | |
* Indicates dividend adjusted | |||||
Positions closed in after my last blog:
Equity | Sales Price | Buy Price | Date Sold | Gain / Loss (%age) |
ALNY | 38.63 | 89.1 | 10/6/2016 | -56% |
Company Updates
JD.com (JD): Last week JD said, Walmart increased its stake on JD.com to 10.8% from 5.9%. Walmart's higher stake in the company boosts the company's efforts to gain more market share in the world's biggest online market China. This is also very good news for JD.com as it gives boost to investor’s confidence.
Alnylam Pharmaceuticals (ALNY): The company said that it stopped development of its drug revusiran to treat hereditary amyloidosis with cardiomyopathy. This drug could lead to nerve and heart damage. The study said, more patients died after receiving the drug. I have sold some of my holdings and it won't be part of my blog portfolio.
That’s all for today. Wish you good investing! Stay tuned for my NOV 2016 blog. Thanks for your time. If you want to get alert on my action then please subscribe to [email protected]. Also, feel free to send me your comments and suggestions or alert request to [email protected]
Disclaimer: This blog is meant to provide my personal opinion rather than 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 correct. Please contact a professional money manager to buy/sell any security. I do not earn any commission by writing the blog. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow.
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