Dow Jones Futures: Stock Market Rally Retreats; ‘Monster’ Apple In Buy Area
Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally retreated Wednesday, closing at session lows. Crude oil prices jumped, and Treasury yields pulled back from 34-month highs.
X
Apple stock and Tesla (TSLA) extended their winning streaks to seven sessions, though both came off intraday highs. Apple (AAPL) is in range from a trendline entry and not far from an official buy point. Tesla stock is a long way from its buy point. Both could use a pause, especially Tesla, to make their chart patterns more enticing.
Meanwhile, J.B. Hunt Transport Services (JBHT) and Costco Wholesale (COST) are pulling back within their buy zones, while CVS Health (CVS) and Builders FirstSource (BLDR) are working on possible handles.
Tesla and JBHT stock are on IBD Leaderboard, while COST stock is on the Leaderboard watchlist. J.B. Hunt, Costco and CVS stock are on SwingTrader. TSLA, J.B. Hunt and BLDR stock are on the IBD 50.
Dow Jones Futures Today
Dow Jones futures edged higher vs. fair value. S&P 500 futures climbed 0.1%. Nasdaq 100 futures rose 0.1%.
Crude oil prices rose 1%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally suffered its biggest loss since March 14. The Dow Jones Industrial Average fell 1.3% in Wednesday’s stock market trading. The S&P 500 index lost 1.2%. The Nasdaq composite slid 1.3%. The small-cap Russell 2000 slumped 1.8%.
U.S. crude oil prices jumped 5.2% to $114.93 a barrel.
The 10-year Treasury yield retreated 5 basis points to 2.32% after hitting its highest levels since May 2019.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) closed just above break-even. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) both skidded 2.5%.
SPDR S&P Metals & Mining ETF (XME) rose 1.8% while the Global X U.S. Infrastructure Development ETF (PAVE) sank 0.9%. U.S. Global Jets ETF (JETS) descended 1.4%. SPDR S&P Homebuilders ETF (XHB) tumbled 3.9%. The Energy Select SPDR ETF (XLE) climbed 1.7% and the Financial Select SPDR ETF (XLF) gave up 1.85%. The Health Care Select Sector SPDR Fund (XLV) lost 1.8%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 1.9% and ARK Genomics ETF (ARKG) sank 2.4%, after both flirted with their 50-day lines intraday. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs.
Five Best Chinese Stocks To Watch Now
Apple Stock
Apple stock rose 0.8% to 170.21 on Wednesday, though off the intraday high of 172.64. After Tuesday’s close right on a trendline, shares are now above that early entry while still close to the 50-day line. It’s not far from a 176.75 double-bottom base buy point, according to MarketSmith analysis.
The relative strength line, the blue line in the charts provided, is back near record highs, reflecting Apple stock’s strong performance vs. the S&P 500 index.
Investors could buy AAPL stock right here. But after rising seven straight sessions, the iPhone giant could use a break. Ideally, Apple stock would pause here, at least for a few days, and then move higher. Of course, it doesn’t have to take a break anytime soon.
JPMorgan analyst Samik Chatterjee said iPhone sales are “robust” while Apple is set up for a “monster growth cycle” over the next 18 months.
Tesla Stock
Tesla stock ran up Wednesday morning to as high as 1,040.70. Shares pulled back, briefly turning negative, before eking out a 0.5% gain at 999.11. After running up for six sessions, including Tuesday’s 7.9% spike, the EV giant is now well extended from its 50-day and 200-day lines. But TSLA stock is still well below the cup-base buy point of 1,208.10, as well as a trendline entry around 1,150.
Ideally, Tesla stock would pause around current levels, forming a handle and a new, lower official buy point.
JBHT Stock
J.B. Hunt stock fell 1.7% to 210.18, its fifth straight decline but still holding above the 208.97 flat-base buy point. J.B. Hunt shot up 9.6% on March 16 in huge volume as the trucking firm forged an alliance with BNSF Railway, owned by Warren Buffett’s Berkshire Hathaway (BRKB). The glacial pullback toward the buy point offers a chance to start or add to a position, either now or after JBHT stock rebounds somewhat.
COST Stock
Costco stock dipped 1% to 554.02, still holding above a 545.39 buy point from a cup-with-handle base. The RS line for COST stock is holding right around record highs.
BLDR Stock
Builders FirstSource stock slumped 3.7% to 73.49, still above its 50-day line. BLDR stock has an 86.58 cup-base buy point, but could be working on a handle, which would create a lower entry.
One concern for Builders FirstSource is that many housing-related plays, including homebuilders and retailers are selling off as interest rates rise and new-home sales pull back.
CVS Stock
CVS stock retreated 1% to 106.20. That’s still close to a 111.35 flat-base buy point. It’s also around an early entry from around the 50-day line and the March 7 short-term high. Monday’s intraday high of 109.69 also could serve as another early entry.
Market Rally Analysis
The stock market rally suffered solid losses Wednesday, even with Apple masking the weakness in the big-cap indexes. The S&P 500 retreated below its 200-day line. The Dow Jones undercut its 50-day line.
The Nasdaq composite and Russell 2000 remain above their 50-day lines.
While down days aren’t fun, a brief market rally pause could be beneficial. That would let stocks such as Apple and Tesla take a breather, perhaps form handles. Meanwhile, stocks that continued to climb would see their RS lines rise significantly.
Energy stocks were leaders Wednesday, reflecting strong crude oil prices. Steel, mining and fertilizer plays also did well.
Software and housing-related stocks were losers. Medical stocks, from biotechs to health insurers, had a tough session.
Time The Market With IBD’s ETF Market Strategy
What To Do Now
Wednesday’s retreat wasn’t alarming given the strong recent gains for the market rally. But this is why investors should gradually build up exposure, to avoid jumping in right at a top, short term or otherwise. It’s also why you never want to buy an extended stock.
If the stock market rally struggles significantly, with the Nasdaq and S&P 500 breaking decisively below their 50-day moving averages, investors should probably trim or exit some recent positions.
This is a time to be flexible. Don’t get locked into a bullish or bearish mindset. Listen to the market, and act on that.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MAY ALSO LIKE:
Best Growth Stocks To Buy And Watch
IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
Down Over 55%, 2 Monster Growth Stocks to Buy Right Now
In 2021, consumers worldwide spent $4.9 trillion shopping online, according to eMarketer. That figure is expected to grow at 10.6% per year to reach $7.4 trillion by 2025. But even then, e-commerce sales will account for less than 24% of total retail sales, leaving a long runway for growth.
Businesses like Global-e Online ( GLBE -1.66% ) and Shopify ( SHOP -3.22% ) are well positioned to benefit from that trend. And with both of those stocks down over 55%, now looks like a good time to buy a few shares of each.
Here’s what you should know.
Image source: Getty Images.
1. Global-e Online
Global-e is on a mission to make cross-border e-commerce easier. Its platform supports dozens of languages, currencies, payment methods, and shipping carriers, helping merchants localize their digital storefronts on a market-by-market basis. In turn, that helps them engage international buyers more effectively and boost conversion rates, often by more than 60%.
Global-e benefits from a network effect. It facilitates transactions across 200 markets, generating a tremendous amount of market-specific data in the process. The company uses that data to surface actionable insights for merchants, helping them tweak their content to better fit the tastes and preferences of international buyers. That flywheel has already been a powerful growth driver, and it should only get stronger in the years ahead.
In 2021, Global-e’s gross merchandise value soared 87% to $1.4 billion, and the average merchant spent 52% more, evidencing the stickiness of its platform. As a result, revenue rose 80% to $245.3 million, and the company generated positive free cash flow of $12.8 million. More importantly, Global-e is well positioned to maintain that furious growth rate.
Forrester Research values the cross-border e-commerce market at $736 billion by 2023, a figure that’s 500 times bigger than the $1.4 billion in sales facilitated by Global-e last year. But the company’s founder-led management team is working hard to capitalize on that opportunity.
Of particular note, Global-e has partnered with Shopify — the market-leading e-commerce software platform, according to a recent G2 Grid Report — making it the exclusive third-party provider of cross-border solutions for Shopify’s 2 million merchants. That partnership could turbocharge growth for both companies.
More broadly, Global-e clearly creates value for its clients, as evidenced by the uptick in spend per merchant. Likewise, with a price-to-sales ratio of 19, the stock doesn’t look that expensive after Global-e’s monster financial performance in 2021. That’s why I think it’s worth buying a few shares of this beaten-down growth stock.
2. Shopify
Shopify simplifies e-commerce. The company provides hardware and software to help merchants manage sales across both brick-and-mortar and digital storefronts. And it supplements those products with value-added services like payment processing (Shopify Payments) and financing (Shopify Capital). Merchants can also access over 8,000 integrations through the Shopify App Store, such as tools for marketing, payroll, and customer service.
In short, Shopify provides businesses with all the tools needed to grow their brand across a variety of channels. That differentiates it from Amazon, which pulls third-party sellers onto a common marketplace, then uses data generated by its marketplace to compete against its sellers.
Amazon still dominates the U.S. e-commerce industry, but Shopify is the second-largest player. It captured 10.3% market share in 2021, up from 5.9% in 2019.
As a result, Shopify has been a financial machine. Revenue surged 57% to $4.6 billion in 2021, and free cash flow rose 18% to $454 million. Moreover, gross payment volume accounted for 49% of gross merchandise volume last year, up from 45% in 2020, and Shopify extended $324 million in credit to its merchants in the fourth quarter, up 43% from the prior year.
That means more clients are using value-added services like Shopify Payments and Shopify Capital, making its platform even stickier. Put another way, the more a merchant relies on Shopify, the harder it is to cut ties with the company and switch to a new vendor.
Despite those impressive results, investors weren’t thrilled with the company’s guidance. Management believes revenue will grow more slowly than 57% in 2022, though it still expects to grow more quickly than the broader e-commerce industry. Personally, that information makes me more bullish. The pandemic supercharged e-commerce sales over the last two years, and some deceleration is natural.
But if Shopify can still outpace the industry, it will continue to gain market share. And with shares trading at 20 times sales — much cheaper than their three-year average of 39.5 — now looks like a good time to buy this beaten-down stock.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Technology, health care, industrials are good long-term investing bets
Ridvan_celik | E+ | Getty Images
The current stock market, highly volatile and trending lower this year, makes this a daunting time for individual investors seeking to identify companies with reasonable risk and good long-term growth potential.
Concerns about overall market performance — as of mid-March, the S&P 500 Index had had the fifth-worst start to a year since 1927 — means investors are acutely aware of various negative forces: the highest inflation in 40 years, an expected series of interest-rate increases that has already begun and Russia’s invasion of Ukraine. Thus far, these and other factors have made 2022 a year of great uncertainty.
Uncertainty muddies market waters, yet investors willing to wade in can do so more confidently with the informed vision to spot opportunities through the mud.
More from Personal Finance:
Here’s how retirees can navigate inflation
Skyrocketing inflation is taking a big bite out of your paycheck
Here’s what the Fed’s rate hike means for borrowers, savers and homeowners
Currently, three sectors — technology, health care and industrials — have relatively high concentrations of companies with low-risk characteristics, low valuations and good earnings growth projections.
Say yes to technology
There are low valuations in technology? The poster-child sector for growth stocks and the polar opposite of value investing? That is correct.
The sector’s price-earnings ratios have declined significantly with falling prices this year. As of mid-March, at least 50 stocks in the Nasdaq Composite Index were down at least 50% from their highs, putting them well into bear territory. Also pushing prices down has been the market’s anticipation of interest-rate increases, which tend to disproportionately punish growth stocks with high P/Es, a common tech characteristic.
Yet even before this year’s slide, Nasdaq 100 P/Es were in a slow decline that started in mid-2020. The cumulative effect: As of March 17, the index’s average P/E was 27, down from 35 in August 2021.
This trend has sharpened the existing contrast between quality, earnings-rich tech companies (some even pay dividends) and earnings-challenged firms that, like Icarus in Greek mythology, perilously fly close to the sun with astronomical P/Es.
For example, in late March, negative earnings of high-fliers Zscaler and Snowflake meant they had no positive P/Es and ethereal forward P/Es of 400 and 1,356, respectively. But quality tech firms with real earnings are firmly rooted in terra firma. For example, Oracle and Qualcomm, in mid-March, had forward P/Es of 8 and 15, respectively, significantly lower than the S&P 500’s forward P/E of 19.
The higher a company’s P/E, the more investors pay for earnings and the less attractive it generally is, so high P/E stocks can drag indexes down. Thus, the widening P/E gap supports the case for investing actively by buying individual stocks rather than passively by buying index funds or ETFs.
The new category of low-valuation tech is heavily populated by companies in the semi-conductor industry, hardly surprising amid the current, unprecedented demand for chips, used in everything from cars to toasters — and even toilets.
In addition to relatively low P/Es, some chip stocks — Applied Materials, KLA Corp., Lam Research and Qualcomm, among them — have other fundamental characteristics indicating low risk, as well as projected average annual earnings growth well into double-digits over the next five years, according to Factset’s average analysts’ projections.
Yet tech stocks with these characteristics aren’t limited to the chip industry. Others include: Apple, Microsoft, Oracle, Seagate Technologies, Skyworks Solutions and VMware Inc. (Class A).
Seeking health care
Health-care costs haven’t increased as much as many items in recent months, but with or without inflation, people are going to seek it, especially now that virus fears have ebbed.
The big consumer group in this sector, of course, is baby boomers, many of whom are now in their late 60s and naturally seeking more care, including elective procedures they postponed during the pandemic. The return of elective surgery bodes well for medical and surgical device companies like Medtronic, and will have a follow-on effect for other types of health-care companies as these returning patients are prescribed more tests and medications.
Like technology, this is a sector where passive funds may not be the best way to invest these days. Average valuations are now fairly low but share price trends have been sharply divergent recently; this is a split sector.
Morsa Images | DigitalVision | Getty Images
As of mid-February, biotech company AbbVie, pharma company Bristol-Myers Squibb and various care-provision and services companies were at three-month relative highs. Meanwhile, many life-sciences tools and services firms were at three-month relative lows — among them, instrumentation and reagent supplier Thermo Fisher Scientific, medical/industrial conglomerate Danaher and medical data science firm IQVIA Holdings. The split pricing means that, in buying health-care funds, investors could be getting a lot of priced-up shares.
The price divergence probably reflects investor confusion over the sector’s future in a generally uncertain market. This makes it all the more important to focus on fundamentals.
Health-care companies with relatively low trailing P/Es and good earnings projections include: Anthem, Cigna, CVS Health Corp., Danaher, HCA Healthcare, Humana, , Merck, Mettler-Toledo International and Vertex Pharmaceuticals.
Looking at industrials
Industrials are hardly a sexy sector, but investors are keenly aware that industries need to make a lot of stuff to meet current demand.
As industrials crank up to supply manufacturers with equipment and services, they face higher input costs. But many of these companies have pricing power in an environment where demand for many items far outstrips supply.
This sector has declined less than most in recent weeks, but it didn’t have as far to fall, as prices have been pretty flat for about a year for some companies and even longer for others. For example, in mid-March, Cummins, which manufactures commercial gasoline, diesel, and hydrogen-fuel-cell engines, was priced about where it was in 2018.
Supply chain problems remain, exacerbated by the war in Ukraine, higher energy prices and Covid lockdowns in China. Yet, as the supply chain smooths out in the coming months, growth in this sector should pick up. And to the extent that materials and parts are available in the meantime, manufacturers will pay more for them.
Companies with lower risk profiles, reasonable P/E ratios, and good projected earnings growth include: Cummins, Deere & Co., Emerson Electric, General Dynamics, Honeywell, Norfolk Southern Corp., Parker-Hannifin, W.W. Grainger and United Parcel Service.
Of course, the same market forces have resulted in good opportunities in other sectors. Yet these three sectors currently stand out for their concentrations of attractive companies with good long-term potential.
— By David Sheaff Gilreath, chief investment officer/partner with Sheaff Brock Investment Advisors and Innovative Portfolios
Source link
Oil Investor Who Made 390% Last Year Explains 3 Stock Picks
Oil and gas stocks outperformed the market in 2021, but a few energy-focused firms saw returns well above the norm.
Investments by Houston hedge fund Bison Interests rose 390% last year and have kept ripping higher in 2022. Net of fees, the fund rose 349% last year and is up 27% through February, according to a disclosure obtained from an investor in the fund.
Bison invests in small oil-and-gas stocks in the U.S. and Canada, and owns several stocks that have multiplied many times over since 2020. Chief Investment Officer Josh Young, who founded the firm, tells Barron’s that he has found success by investing in small stocks that other investors have ignored.
Bison may be outperforming its peers, but attracting capital has been a challenge. In November 2020, Bison lost its biggest investor, an endowment that Young believes pulled its money because of the environmental social and governance (ESG) movement. The endowment, which he would not name, told Bison “this was part of a divestment strategy.” Bison now has $50 million in assets under management.
Young spoke recently with Barron’s about how Bison chooses investments, and why he thinks politics has gotten in the way of smart energy policy and investing. The interview has been edited for length and clarity.
Barron’s: The ESG movement has had a big impact on oil and gas investing. From things you’ve written, you seem to think that ESG is both bad for investors, because they’re missing out on gains, and misguided societally. Can you explain your thoughts?
Josh Young: I think that there’s been a lot of misinformation. You have a starting point, which is that there were terrible environmental practices by many industries for way too long. And that’s a kernel of truth. And then that somehow gets warped. Solar, wind, et cetera, weren’t really ever replacements, at least in their current form. They’re very low EROI [energy return on investment, which measures how much energy is used to create energy infrastructure, versus how much is generated]. And somehow there’s a story that they’re going to replace everything. So you end up still burning a ton of coal and oil and natural gas to manufacture and transport and install and maintain and then decommission these things. It was just this wrong story that’s made a lot of people a lot of money, but also resulted in a material shortfall that we’ve been talking about for years and just no one cared. Or they didn’t believe it, because the price wasn’t moving.
Is this a moment of reckoning for energy policy—both from a geopolitical perspective, because so much of Europe and the world is dependent on Russian energy—and also from an environmental perspective?
I think we’re getting there, but we’re not there yet. Some participants and some policy makers have had their “aha” moment. But most are still doubling down on failing policies. The valuations of producers of oil and gas and other commodities are indicative of this kind of consensus view that this is temporary, without an understanding of what’s actually happening. We’re not there yet. I don’t think we’re even close. And I think that’s part of the opportunity.
What about the argument that climate change is an existential issue—that to drill new wells now will lead to temperatures rising more than 1½ degrees Celsius and mass casualties and displacements in 15, 20, or 30 years from now.
There have been catastrophic predictions made of this sort many times in history, and they have almost never happened. So that’s the starting point. I’m not saying that there isn’t global warming—there is good data that shows that there has been warming and it is associated with some of these activities. You look at a reasonable case for what might happen. What we’re doing right now may be substantially worse. And it’s definitely happening, versus there being a lot of model uncertainty and huge one-sided errors in that modeling so far. There have been many catastrophic predictions that have not happened, and they generally don’t get covered in the news. They just get updated and pushed 10 or 20 years further out and then renamed. So it was global cooling, global warming, climate change. The renaming often is indicative of a failure of a theory. I think energy security and available low cost energy for the incremental user is a bigger factor than climate change.
We have had the hottest years on record by far in the past decade. And there is evidence of real impacts, like the melting of glaciers in Antarctica. Is your issue about that data, or the predictions about the future?
When you back up to the models that alarmed everyone, and generated various documentaries, and billions of dollars for the people that made them and then became venture capitalists and so on. The predictions that were made in those about how much temperature would change did not happen. So yes, there’s been change, but the modeling has all been wrong, all one sided. It was similar to oil demand modeling by the EIA [U.S. Energy Information Administration]. It was all also wrong over the last 18 months, all one sided. So when that happens, that tells you there’s something else going on, besides the honest attempt to forecast something.
Whose predictions are you referring to?
Like the IPCC [Intergovernmental Panel on Climate Change] I think. I don’t remember. It’s been a minute since I went back through these models.
The price of oil is now hovering around $100. It’s come down a little, but obviously is high in historical terms. Do you see this strength continuing for a long time? Do you see it surpassing previous highs, going into the $150s?
In the short term, there’s just too much complexity to accurately forecast. I think there’s a really good case that in the medium term, let’s say in the next six to 24 months, that prices will rise to their inflation-adjusted all time high.
Because there’s underinvestment in supply?
There’s structural underinvestment and there’s still a kind of political punishment. It’s very weird. Various governments are trying to coerce producers to magically produce more, but they’re not facilitating it from a regulatory perspective, and they’re threatening additional taxes. There’s a supply-demand imbalance. It’s evidenced by rising demand despite rising prices. And it’s evidenced by supply not responding how it has historically to rising prices.
There are various problems when you underinvest in an industry for too long. And then when you punish it from a regulatory perspective for too long, you can end up with persistent undersupply. And that’s where I think the 1970s is a good analogy. It’s different because this time, there isn’t that significant OPEC capacity there was, and they just chose to withhold it. Now, it looks like they’re out or close to out [of capacity]. And we also have been dumping our strategic petroleum reserve for political reasons and balanced budgets and stuff. And so the cushions are not there for the market.
In the U.S., analysts are saying we’re a year away from record oil production again. Do you believe that we’re still underproducing dramatically, despite the fact that we’re likely to hit a record next year? What more could be done?
If you just look at rig activity versus price, there’s just way less activity than there would be. And many of the claimed efficiency gains [in the oil market] are turned into dis-efficiencies as stacked rigs [rigs that were not being used] are coming back to market. It’s not just a supply chain issue. You fire all the lowest performing people in a down market and get your hyper-efficient staff on crews and on rigs. And then when you staff back up, you have all kinds of problems. Then there’s also inventory degradation.
Part of the problem with having a negative regulatory environment and having investment leaving a sector is you end up not investing enough in exploration. There’s not enough good new inventory being discovered.
Oil and gas were up a lot last year, but Bison was up much much more. How did your fund beat the industry? Can you give me a sense of what names really stand out and how you found them?
Sure. I’ll share two Canadian ones and one U.S. one. We’re pretty balanced between the U.S. and Canada. On the Canadian side, there’s a company called
Journey Energy
(ticker: JRNGF), which is actually one of our largest positions. There were a few things that people didn’t understand about them that allowed for extra return beyond just oil beta. One was that they had already paid off a lot of their debt and so deleveraging has been a material excess return factor. When you look at the average oil company, ones that were punished for being considered overlevered that paid off a disproportionate amount of their debt did best. So that was just a very simple factor. Another thing that’s been working is companies that discovered big fields, and also companies that have been acquirers of distressed assets have outperformed as well. So Journey had too much debt going into 2020, they restructured their debt, and were able to pay down. At this point, they’re on track to pay down potentially all of it by the end of this year. And then they did a couple of acquisitions.
What’s the other Canadian stock?
The other Canadian one, which actually has substantial U.S. assets too, is
Baytex Energy
(BTEGF). Baytex got delisted from the New York Stock Exchange because their stock went below $1 In the U.S. during the downturn. They’re still listed on the Toronto Stock Exchange, but that killed a lot of the retail interest. And you killed off a bunch of the institutional interest as the company got close to a potential insolvency event in 2020. We owned a little bit before and then bought a lot when they were already paying down a bunch of their debt. Similar to Journey, it’s a big deleveraging story. And then they had a big discovery in the [Canadian] Clearwater oil play. [The economics there] from my calculation are as good or better than the very best wells in the core of the [U.S.] Delaware Basin, where companies have much higher valuation multiples and where there’s very limited remaining inventory.
And you said you had an American name, too?
Yeah, it’s
SandRidge Energy
(SD). It’s been negative for Bison to own Sandridge and talk about them because people have so many negative associations with them. [Sandridge filed for bankruptcy protection in 2016 and emerged later that year.] Even now, after it went through its pit of despair and is flourishing, you still get funny looks. There’s still people that will post anonymously on various websites about how the company is going bankrupt.
But Sandridge is in a material net cash position. And they’ve been growing their net cash by about $1 a share per quarter. It’s a $14 stock today. Their production is flat, and they’re building $1 a share per quarter plus or minus a little bit, and they’re sitting on $4.50 or something in net cash per share and they don’t have material negative working capital. I struggled with the bankruptcy thing, but I also get excited when I hear that. If things are heated because of past management and historical problems, that often yields extra potential returns.
Is there a specific catalyst that can lift energy more now, or is it simply that we’re in a long secular bull market.
We’re in a multiyear bull market for oil. And that should translate to even better performance for oil equities, which have lagged behind.
You invest mostly in small-caps, but most investors are more familiar with the large-cap names. Larger oil stocks appear to have stalled out a bit in recent weeks. Do you think they have another leg up ahead?
Some of the large-caps might require much higher commodity prices to move higher. With the mid-caps and large-caps, there are some that are value-priced but many of them are at valuations that are well in excess of what it would cost to buy similar assets and piece them together. And my strategy is to buy assets through the public market at a large discount to their private replacement costs.
Thanks, Josh.
Write to Avi Salzman at avi.salzman@barrons.com
Source link
Dow Jones Futures: S&P 500 Reclaims Key Level As Tesla Soars; Apple Flashes Buy Signal
Dow Jones futures were little changed early Wednesday, along with S&P 500 futures and Nasdaq futures. The stock market rally had a strong session Tuesday, with techs leading the way even as Treasury yields continued to rise.
X
Tesla Berlin deliveries kicked off, sending Tesla stock sharply higher, extending a win streak to six sessions. Nvidia (NVDA) CEO Jensen Huang gave a keynote address at the annual GTC conference on Tuesday, which also was the chipmaker’s analyst day. Nvidia stock fell, but after running up ahead of the news.
Adobe (ADBE) released earnings after Tuesday’s close. Adobe earnings topped fiscal Q1 views but Q2 guidance was light. ADBE stock fell modestly after rising 2.8% in Tuesday’s session.
Apple (AAPL) rose yet again, reclaiming its 50-day moving average. Apple stock is right at a trendline buy point. Google parent Alphabet (GOOGL) and Microsoft stock flashed buy signals.
Tesla (TSLA), Microsoft (MSFT) and Nvidia stock are on IBD Leaderboard. Google stock and Microsoft are on IBD Long-Term Leaders. Tesla stock is on the IBD 50.
The video embedded in this article discussed Tuesday’s market action as well as analyzed Jackson Financial (JXN), Tesla and Apple stock.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures advanced 0.1% and Nasdaq 100 futures were flat.
The 10-year Treasury yield climbed 5 basis points to 2.42%, continuing a huge advance in March.
U.S. crude oil prices rose more than 1%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally once again built momentum during the session, closing near intraday highs.
The Dow Jones Industrial Average climbed 0.7% in Tuesday’s stock market trading. The S&P 500 index rose 1.1%, with Tesla stock the No. 1 gainer. The Nasdaq composite jumped nearly 2%. The small-cap Russell 2000 advanced 0.9%.
The 10-year Treasury yield climbed 6 basis points to 2.37%, the highest since May 2019. That’s after surging 17 basis points on Monday amid Fed chief Jerome Powell’s hawkish comments. The 10-year Treasury yield also ran up sharply in the prior two weeks.
U.S. April crude oil prices dipped 0.3% to $111.76 a barrel, paring earlier losses, on its expiration day. May crude futures fell 0.6% to $109.27.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged up 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 2.5%, with MSFT stock and Adobe key holdings. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.7%. Nvidia stock is a major SMH component.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) jumped 4.7% and ARK Genomics ETF (ARKG) 4.3%. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) dipped 0.6% and the Global X U.S. Infrastructure Development ETF (PAVE) inched up 0.1%. U.S. Global Jets ETF (JETS) ascended 2.2%. SPDR S&P Homebuilders ETF (XHB) nudged 0.1% higher. The Energy Select SPDR ETF (XLE) fell 0.7% and the Financial Select SPDR ETF (XLF) rose 1.6%. The Health Care Select Sector SPDR Fund (XLV) closed just above break-even.
Five Best Chinese Stocks To Watch Now
Nvidia Stock
Nvidia announced major updates to its Omniverse platform for metaverse applications at its GTC conference. It also unveiled new hardware and software, including a CPU for data centers.
China EV giant BYD (BYDDF) and U.S. startup Lucid Motors (LCID) will use Nvidia’s Drive AI architecture for autonomous driving purposes.
Nvidia stock dipped 0.8% to 265.24.
Shares flashed an aggressive entry late last week as they crossed above the fast-falling 50-day line and broke a steep down-sloping trendline. NVDA stock appears to be pausing around its early February highs.
Nvidia stock still needs to make more progress before MarketSmith recognizes a deep consolidation, which would have a buy point of 346.57.
Tesla Vs. BYD: Which Booming EV Giant Is The Better Buy?
Tesla Berlin Begins Deliveries
The Tesla Berlin plant officially began deliveries Tuesday, with 30 Model Ys handed over in an event with CEO Elon Musk on hand. The Berlin facility has a planned annual capacity of 500,000 vehicles. But the plant doesn’t appear to be fully finished, with batteries imported from Tesla Shanghai for the foreseeable future. So production will likely slowly ramp up.
Tesla stock leapt 7.9% to 993.98. Shares reclaimed their 200-day and 50-day lines last week. Even if investors saw those as an aggressive entry, the stock is well extended from those levels. TSLA stock has an official buy point of 1,208.10, according to MarketSmith analysis, with a shallow trendline early entry around 1,150. Perhaps shares could top the 1,000 level and form a handle.
The relative strength line for Tesla stock is well off highs, but definitely improving over the past week.
Apple Stock
Apple stock rose 2.1% to 168.82, back above its 50-day line. Like Tesla stock, the iPhone giant has rallied for six straight sessions. AAPL stock has a double-bottom base with an official 176.75 buy point. However, investors could use a trendline from the Jan. 4 peak to spot an early buy point slightly above Tuesday’s close.
The RS line, the blue line in the charts provided, is not far from a high.
Microsoft Stock
Microsoft stock rose 1.6% to 304.06, edging above its 200-day moving average after topping its 50-day line late last week. The official buy point is 349.77. Investors could buy MSFT stock as an early entry or to start a Long-Term Leader position.
Google Stock
Google stock climbed 2.8% to 2,797.36. GOOGL stock reclaimed its 200-day line, but a little more convincingly than Microsoft did. This is also an early entry or Long-Term Leader buy point. The official entry is 3,031.03 on a consolidation going back to early February, though Google stock has been moving sideways.
Market Rally Analysis
The stock market rally is showing strong action so far this week after last week’s character-changing surge.
On Monday, the major indexes pulled back but showed constructive action. They closed well off lows, holding above or right around their 50-day moving averages. On Tuesday, the stock market rally had solid gains, clearing Monday’s highs. The S&P 500 moved above its 200-day moving average. The Nasdaq reclaimed the 14,000 level.
Technology led the way, from megacaps such as Apple stock to software and chips, with even aggressive names shining despite still-rising Treasury yields. Many of Tuesday’s big winners continued to be beaten-down former leaders such as ADBE stock that are still below their 200-day lines. But Tesla is mounting a comeback while Microsoft and Google stock are flashing buy signals. Early tech buying opportunities such as Rambus (RMBS) and Arista Networks (ANET) are continuing to advance.
But gains were broad-based Tuesday. Financials were big winners. Defense names are on offense.
Energy paused as crude oil prices dipped, but they still look strong. Metals and mining firms were mixed, along with medical names, but they also are in good health, with many near buy points.
As with Apple and Tesla stock, the market rally has run up quite a bit over the past several sessions. So it wouldn’t be a surprise to see the major indexes pull back or move sideways for a time.
Time The Market With IBD’s ETF Market Strategy
What To Do Now
The market rally has flashed several bullish signals over the past six sessions, including follow-through days, reclaiming key technical levels and quality stocks flashing buy signals.
Investors should have been gradually adding exposure in recent days, taking advantage of buying opportunities. If the market rally and your holdings continue to do well, you can keep reducing your cash position.
Tech stocks are showing signs of leadership again, which is positive for growth-focused investors. But it’s a good idea to hold leading stocks from a variety of sectors. The market rally seems to be broad-based. Also, in a rising-rate environment, growth stocks face some challenges, especially those with rich valuations.
This is definitely a time to be working on your watchlists, with a close eye on stocks that are actionable or close to being so.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MAY ALSO LIKE:
Why This IBD Tool Simplifies The Search For Top Stocks
Want To Get Quick Profits And Avoid Big Losses? Try SwingTrader
Best Growth Stocks To Buy And Watch
IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
Best Energy Companies to Invest in for Portfolio Growth
After lagging the market for the past decade, energy is outperforming the market big time this past year. As a result, investors are now looking for the top energy companies to invest in as the sector gains momentum.
Except for financials, every other sector is down in 2022, while the Energy Select SPDR Fund (NYSE: XLE) is up 35%. By comparison, the S&P 500 Index (SPX) is down 6% YTD.
Nonetheless, energy companies are seeing their profit margins explode with multi-year high oil prices. Although supply chain disruptions started the run, Russia’s invasion of Ukraine ignited the energy sector.
For this reason, the U.S. and E.U. are moving to sanction Russia by banning or reducing oil imports. While the U.S. is outright banning Russian oil imports, the E.U. is more reliant on the nation’s energy.
As a result, the E.U. plans to reduce reliance by two-thirds while investing in other energy sources.
Is now the time to start looking for energy companies to invest in for long-term growth? Keep reading to learn more.
Best Renewable Energy Companies To Invest In
Investments in renewable energy are hitting all-time highs as the world looks for other sources. In fact, clean energy investments hit a record $755 billion in 2021, with wind and solar seeing the biggest benefits.
Although many renewable energy stocks are down from their highs, the sector is building momentum again. For example, the Invesco Solar ETF (NYSE: TAN) is up 38% after falling to a 52-week low of $56.08.
With this in mind, here are a few of the best clean energy companies to invest in this year.
- Enphase Energy (Nasdaq: ENPH). Although Enphase is a tech stock, the company sells its products for solar power. The residential solar market is ripe for growth. Furthermore, Enphase is releasing its new inverter, capable of producing energy even when the grid is down. And lastly, with a strong cash position, the firm can invest in future growth or buy stock.
- Brookfield Renewable (NYSE: BEP). As one of the largest pure-play renewable energy stocks, BEP looks to play a critical role in clean energy. Brookfield is taking an active role in helping companies with their climate goals. For example, BEP is partnering with Amazon (Nasdaq: AMZN) and investing in Apple’s (Nasdaq: AAPL) China Renewable Energy Fund. Not only that, but BEP is achieving record earnings while growing its pipeline significantly.
Looking ahead, renewable energy will play a critical role in the future. Especially given today’s events, renewable energy is poised to make a comeback.
Best Oil & Gas Energy Companies To Invest In
Oil & gas companies, on the other hand, are critical in this very moment. With no outcomes so far in the war in Ukraine, oil prices are expecting to remain elevated.
Investors are making up for the lost time after abandoning oil stocks for the past several years on the promise of clean energy. As a result, oil ETFs like the SPDR S&P Oil & Gas E&P ETF (NYSE: XOP) are up over 30%.
With higher oil prices, these companies are seeing their profit margins soar, promoting free cash flow (FCF). Thus, investors see huge returns between dividends and stock buybacks.
- Exxon Mobile (NYSE: XOM). One of the largest oil companies in the world, Exxon Mobile is involved in all aspects of the industry. After streamlining its business for the past several years, Exxon is seeing the investments pay off. As a result, XOM generated $48 billion in cash flow in 2021, its highest since 2012. Furthermore, the oil giant pays a generous dividend (4.28% yield).
- Schlumberger (NYSE: SLB). As a leading global oilfield services company, Schlumberger plays an active role in supplying solutions to oil firms. So far, SLB operates in over 120 countries with a growing international presence. Despite less oil activity the past several years, drilling is picking back up as companies look to fill the supply gap. As action picks up again, an increase in spending is likely to benefit SLB.
The tension in Ukraine is causing ripple effects across global energy markets. As nations look elsewhere to cover demand, oil prices remain elevated.
Top Energy Companies To Invest In Overall
Saving the best for last, a few of the top energy companies to invest in for long-term growth.
- NextEra Energy (NYSE: NEE). Despite underperforming its peers so far in 2022, NextEra is one of the largest electric utility companies. But, NEE’s most important claim to fame is the world’s largest wind and solar energy producer. The firm’s long-term renewable contracts will likely provide cash flow the company can then return to investors. On top of this, NEE is the largest utility company in Florida, one of the fastest-growing real estate markets.
- Chevron (NYSE: CVX). Chevron is up 37% YTD as rising oil prices promote higher profits. The oil company operates upstream, downstream, and chemicals units. Furthermore, Chevron is buying Renewable Energy Group (Nasdaq: REGI) to enhance its clean energy business.
Both of these companies are using their well-established business profits to steer themselves into the future of energy.
What You Need To Know
Energy stocks have severely underperformed the market in the long term. For several years, investors have hesitated to invest in energy with a transition underway.
Even with the recent boom, energy stocks value lag earnings growth. As a result, the sector’s value is attractive compared to the market. For example, the Energy ETF (XLE) has a Price/Book of 1.89 while the Technology Select Sector SPDR ETF (NYSE: XLK) has a Price/Book of 10.88 despite being down 10% YTD.
Right now, it’s most important not to get caught up in the daily headlines. One day oil prices are up. The next, they are down. Keep in mind oil prices are still up over 77% from last year.
How long the prices remain high? The answer will largely depend on the outcome of the war. With this in mind, these are some of the top energy companies to invest in to take advantage of rising costs.
Lastly, energy is likely to continue being a hot topic this year as the world seeks new sources to meet demand. Diversifying your portfolio with energy can help boost returns over the next several years while new investments awaken the industry.
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.
Source link
Water is plentiful, but ways to invest are scarce — here’s how to make money
Thanks to climate change, the next forefront for environmental, social and governance investing could be water.
It won’t be easy. Water is a fragmented market and is highly regulated by municipalities, agricultural and environmental interests. In the U.S., land rights and water rights go together, unlike in other countries such as Australia, where investors can buy those separately.
There are few simple ways to invest. Until two years ago, there was no futures market for water, unlike other commodities such as corn, crude oil or gold. And the contract barely trades.
There’s also been little investment incentive. In North America, the cost to extract, clean and deliver water has been quite low for so long, says Matt Howard, vice president of water stewardship for The Water Council, a nonprofit organization that helps companies address water challenges.
“All we’re paying for is the embedded cost of the energy that it takes to extract it, move it around and clean it. So you kind of had this almost unrealistic expectation that water is relatively inexpensive, it’s everywhere when we need it,” he says.
Yet water may finally be getting the attention it deserves. Beyond climate change – and accompanying droughts in some areas and floods in others — there’s heightened awareness of water quality; Flint, Michigan’s lead-contaminated drinking water is a prime example. Crumbling U.S. water infrastructure may see long-term investing following the passage of last year’s infrastructure act, with $55 billion of the $1.2 trillion earmarked to improving water supply.
As a result, says Matthew Diserio, president of Water Asset Management, a water-investing firm, decades of underinvestment in water-related infrastructure may be coming to an end. For ESG investors, improving water quality benefits communities, industry, agriculture and the environment – plus improving water quality is easy to measure.
“Water as an industry, really leapfrogs a lot of the ambiguity around quote, ESG investing because of the very clear, positive metrics that are identifiable around the water,” he says.
Tuesday is World Water Day, a U.N. observation to highlight the importance of fresh water and 2022 is also the 50th anniversary of the Clean Water Act, the U.S. federal law governing water pollution.
How to tap water investments
Buying publicly traded companies is the easiest way to own water. Water companies generally fall into two market sectors: utilities, such as American Water Works
AWK,
or industrials, such as water technology company Xylem
XYL,
Utilities provide drinking water and wastewater treatment. Most are regional, such as York Water Co.
YORW,
which services cities in Pennsylvania, and California Water Service
CWT,
which operates in California, Washington and New Mexico. American Water Works is the largest publicly traded utility, operating in 46 states.
Industrial companies build pipes, pumps, irrigation equipment, sensors and other technology. Xylem and Evoqua Water Technologies
AQUA,
offers water infrastructure and wastewater treatment products, while Advanced Drainage Systems
WMS,
makes water infrastructure products.
However, there are only a handful of publicly traded companies that are directly in the business of water, says Bobby Blue, a research analyst for Morningstar, who wrote a column looking at water investing. That hasn’t stopped fund managers from flooding the market with more than 60 exchange-traded funds or mutual funds.
Funds have a lot of holdings overlap. In the two biggest U.S.-focused ETFs brimming more than $1 billion in asset under management, First Trust Water
FIW,
and Invesco Water Resources
PHO,
eight of the 10 largest holdings are identical.
Some holdings are questionable as water plays, Blue says. Many water funds own life-sciences conglomerate Danaher
DHR,
which includes a water-related business unit, but it only makes up about 10% of the firm’s revenues. Another popular name is Roper Technologies
ROP,
which makes smart-water meters for utilities, but less than half of its revenues come from its water business.
Read: Can I beat the stock market with ESG investing? How to find the right fund for you
Although water ETFs aren’t pure plays, Gavin Maguire, analyst at Briefing.com, says they can still offer individuals a different way to get industrials exposure, and have offered solid long-term performance. The First Trust Water ETF gained an annualized 15.7% over five years and 14.3% over 10 years, while the Invesco Water Resources ETF is up an annualized 15.5% over five years and annualized 11.3% over 10 years, beating the Industrial Select Sector S&P Fund’s XLI 10.7% five-year annualized return and its 12.3% 10-year annualized return.
Investors wanting pure-play water companies should stick to individual stocks and dig through 10-Ks to look at where the firms get their revenues, Blue says. Maguire agrees, pointing out another popular water fund holding, Essential Utilities
WTRG,
owns a natural-gas utility. Irrigation-system companies such as Lindsay
LNN,
and Valmont Industries
VMI,
also manufacture other equipment unrelated to water.
How liquid is water investing’s future?
Ginger Rothrock, senior director at HG Ventures, the corporate venture arm of The Heritage Group, says a number of small start-up companies are starting to address the problem of treating industrial wastewater, especially as the cost of water is likely to increase. There also could be greater monitoring of industrial water use as larger companies’ sustainability mandates demanding more transparency in their supply chain. Another part is interest in a circular economy, where resources are reused instead of disposed, she adds.
She notes a number of the small companies that have gone public have been gobbled up by bigger firms, such as DuPont
DD,
buying desalination company Desalitech in 2019 and Evoqua buying Aquapure, a Cincinnati-area water services and equipment company, in 2020.
ESG investors, instead of buying water-related plays, may put their focus on corporations’ water targets, just as they have done with carbon. But Water Council’s Howard cautions investors to look skeptically at companies’ water goals and targets under the guise of sustainability because most companies haven’t grappled with their water use. Unlike carbon where the impact a ton of carbon has a single metric, water isn’t fungible, since water supplies and demand on aquifers and water systems vary greatly.
The Water Council is working with firms to define good water stewardship, and recently launched a program called WAVE, an enterprise approach for firms to help them understand water uses and impacts.
“There’s maybe 10 to 15 corporations globally that I think truly understand water stewardship and truly have a handle on it in terms of how they operate and the goals and the targets and commitments they’ve set for themselves,” he says. Two of the best on this topic in his view are water-treatment firm Ecolab
ECL,
and food giant General Mills
GIS,
Debbie Carlson is a MarketWatch columnist. Follow her on Twitter @DebbieCarlson1.
More from MarketWatch on ESG
Earth-saving promises in ESG fund prospectuses aren’t all that green: report
‘Drill, baby, drill’ is back amid the energy crisis, and that puts ESG efforts on the back burner
Why Amazon and DigitalOcean Are the Cloud Stocks to Buy for the Long Term
The cloud is an integral part of the digital economy. It’s the mechanism by which companies are able to shift their operations online, unlocking unprecedented scale and providing new ways to work seamlessly across borders.
By some estimates, the cloud industry as a whole could be worth $483 billion this year, growing at 15.7% annually. That means by 2030, companies that offer cloud services will be fighting for a slice of a $1.5 trillion market opportunity.
Amazon ( AMZN 0.15% ) and DigitalOcean ( DOCN 0.53% ) are uniquely positioned to capture an outsized share of that growing pie. They’re tackling the cloud business from completely different angles, and together, they can offer your portfolio diverse exposure to the industry.
Image source: Getty Images.
The case for Amazon
Amazon is best known as the world’s largest e-commerce company, but it has expanded far beyond that one-dimensional business model. In 2006, the company began offering online storage solutions, which marked the birth of its market-leading cloud computing platform Amazon Web Services (AWS).
Now, whether you’re building a database, delivering high-quality video content, or even developing machine learning models, AWS provides the most comprehensive suite of cloud-based tools in the industry. Its portfolio of services truly is diverse, giving the majority of industries access to the benefits of migrating to the digital realm.
AWS is also Amazon’s profitability engine. Despite accounting for just 13% of Amazon’s $470 billion in total revenue during 2021, AWS was the source of 74% of its total operating profit. That’s because cloud computing is highly scalable with a high gross margin, whereas the e-commerce business is complex and clunky with high fixed costs.
While Amazon is certainly an investment-worthy company for its cloud and e-commerce industry dominance alone, there’s even more to this story. In the fourth quarter of 2021, the company began to report its booming advertising business as a stand-alone segment. It generated $31 billion in revenue for the year, and for context, that’s more than Alphabet‘s YouTube video platform delivered.
But Amazon is also dabbling in innovative new areas like electric vehicles, accumulating a stake in Rivian Automotive over the last few years. Put simply, buying Amazon stock for its cloud business is perfectly acceptable, but with all of these additional segments attached, it’s a surefire winner in the modern economy.
Image source: Getty Images.
The case for DigitalOcean
Amazon is a $1.6 trillion company, while DigitalOcean trades at a valuation of just over $6 billion, so it might seem crazy to mention them alongside one another. But DigitalOcean has built its cloud services brand with an intense focus on small to mid-sized businesses, competing with giants like Amazon on affordability, service, and ease of use.
Scale tends to play a major role in the price of cloud services. Larger organizations using more tools and more bandwidth usually get a discounted rate that continues to get cheaper as they grow. DigitalOcean works in a similar way, but its starting prices are a huge differentiator.
Its bandwidth prices begin at $0.01 per gigabyte, per month, which is 80% cheaper than its closest competitor. And whether you’re deploying virtual machines, managing databases, or require storage, DigitalOcean’s starting packages range from just $0 to $15 per month. Its platform also supports a range of one-click tools to make deployment simple and easy, making it perfect for start-ups or those with limited technical expertise.
While the cloud industry as a whole is expected to grow 15.7% per year, DigitalOcean estimates the smaller segment it serves (individuals and companies with less than 500 employees) could grow 26% annually to reach $145 billion by 2025. That means the company could snatch increased market share over time just by focusing on one corner of the industry: the small to mid-sized customers it’s having so much success with already.
The company now serves over 609,000 businesses with 99,000 of them spending $50 or more per month. That resulted in $429 million in revenue during 2021, up 35% from the prior year. But given the size of the opportunity ahead of it, DigitalOcean stock has a long runway for growth.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Survey: Best Ways To Invest $10,000 In 2022, According To Experts
The stock market has seen a rocky kickoff to 2022, as investors turned pessimistic amid rising interest rates and the Federal Reserve removing stimulus from the economy. The S&P 500 Index has fallen by more than 10 percent from recent highs, and bonds have tumbled, too. With this volatile start and the prospect of higher rates later this year, how should investors proceed?
In a new Bankrate survey, a group of investing pros revealed where they’d recommend clients to invest in 2022 to further grow their wealth. We asked respondents in the First-Quarter Market Mavens survey: “Where, or how, would you advise a typical client to invest $10,000 right now?”
Their answers revolved around a few key themes, especially how to avoid being steamrolled by rising interest rates and falling bonds. Unsurprisingly, they made no mention of cryptocurrency, as our fourth-quarter survey revealed that many experts found it much too risky to invest.
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Market Mavens first-quarter survey:
How to invest $10,000 in 2022
The survey’s market watchers pointed to a number of strategies for thriving in 2022, with many alerting investors to the dangers of rising interest rates, as the Federal Reserve steps up its efforts to fight rising inflation.
1. Keep a balanced portfolio
The markets are expected to see significant volatility this year as the Fed raises interest rates and reduces other monetary stimulus to the financial system. Some of the survey’s respondents stressed the importance of building a balanced investment portfolio that’s resilient to volatility.
Dec Mullarkey, managing director, SLC Management, suggests investors with $10,000 invest 60 percent in U.S. stocks and 40 percent in shorter-term U.S. Treasurys that are two to five years out.
“Holding shorter-maturity debt, versus longer, leaves investors less exposed to rising rates and as those bonds quickly mature, investors can reinvest longer if higher rates materialize,” he says.
Brian Price, head of investment management at Commonwealth Financial Network, points to the benefits of diversification and especially cautions against investments that have been hot recently.
“I think it is important to focus on a diversified portfolio and not over allocate to sectors or themes that have meaningfully outperformed as of late,” he says. He points to the danger of what investors call “mean reversion,” which is the tendency of hot investments to underperform after a period of outperformance, ultimately moving closer to their long-term average return.
“Mean reversion is one of the most powerful forces in portfolio management, and I think there is merit in being a thoughtful contrarian when it comes to investing,” says Price.
One analyst recommended an even more defensive approach, given what he sees as the risks.
“I would invest 30 percent in technology growth stocks, 30 percent in the broad index, 10 percent in metals and keep 30 percent in cash until the S&P 500 completes a 20 percent correction,” says James Iuorio, managing director, TJM Institutional Services.
2. Stick with the blue chips
High-quality stocks – the so-called “blue chips” – are often a port in the storm, because they’re backed by strong companies that will continue to thrive over time. Blue chips include stocks such as Amazon, Apple and JPMorgan Chase.
Sam Stovall, chief investment strategist, CFRA Research, suggests investors put money to work in “high-quality blue chips that offer increasingly attractive yields.”
Many investors appreciate the income generated by dividend stocks, and the dividend offers some return even while the market may be volatile.
Clark A. Kendall, president and CEO, Kendall Capital Management, also thinks mid-cap and large-cap value stocks are the place to be. He recommends a strategy called “Dogs of the Dow,” which advocates investing in the highest dividend yields in the Dow Jones Industrial Average. The Dogs of the Dow strategy would invest in large-cap value stocks.
“Dogs of the Dow are a great opportunity to own nice dividend-paying stocks that will be able to increase revenue, earnings and dividends in the future as a hedge against inflation,” he says.
3. U.S. financials look like a great option
U.S. stocks are a perennial favorite because of the strong domestic business climate and generally robust growth that many see, at least over time. But even among this set, U.S. financials may be an especially good bet to thrive with rising rates.
Jeffrey Buchbinder, equity strategist, LPL Financial, says: “We would overweight U.S. stocks, well-diversified across market caps and styles with an overweight to financials and real estate.”
Financials such as banks tend to do well when interest rates are soaring. Other investors might stick with ETFs that are poised to do well when rates climb.
Buchbinder cautions about allocating too much to bonds that are highly sensitive to rising rates, such as longer-term bonds.
4. Seek out inflation-resistant bonds
The survey’s respondents were notably nervous around bonds because of the dangers of rising interest rates. That’s because bond prices decline as prevailing interest rates rise. This effect is most pronounced in longer-term bonds, which can suffer substantial declines as rates rise. In contrast, short-term bonds are less impacted, and very short-term bonds may feel almost no effect.
“Long-term U.S. Treasury and corporate bonds are the financial landmines of today’s market that investors need to stay away from,” according to Kendall.
Mullarkey notes that “yields on 5-year Treasury bonds are very close to 10-year yields, leaving little incentive to hold longer-maturity debt.”
If you need bond exposure, however, one option may be bonds that adjust for inflation. One popular option is called TIPS, or Treasury Inflation-Protected Securities. These U.S. government bonds are indexed to inflation, helping to protect investors.
That’s what Joseph Kalish, chief global macro strategist, Ned Davis Research, recommends for investors: “TIPS for inflation protection and better returns than low-yielding nominal Treasurys.”
Another option for inflation protection could be Series I savings bonds, where the payout adjusts every six months depending on the inflation rate. However, you’re limited to just a $10,000 investment every calendar year, and you’ll need to own the bonds for at least a year.
5. Value stocks may be an attractive choice
Value stocks were mentioned multiple times by survey respondents as an attractive option. Value stocks tend to perform well during periods of rising interest rates, while many investors move out of growth or momentum stocks, pushing this latter group lower.
Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray, stresses that the right portfolio depends on the client’s “objectives, time frame and comfort with volatility.”
He suggests investors should “invest globally with a tilt to value-oriented stocks.”
Value stocks have been a popular pick among our investing experts in the last few quarterly Market Mavens surveys.
If you’re investing in individual stocks, it’s important to remember that stocks may be cheap for good reasons, such as the possibility that their business is permanently impaired. So you need to carefully analyze them before you buy. However, you can buy an ETF with value stocks in it and enjoy the power of diversification to reduce your risk and time spent analyzing stocks.
Methodology
Bankrate’s first-quarter 2022 survey of stock market professionals was conducted from March 1-10 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Dec Mullarkey, managing director, SLC Management; Brad McMillan, chief investment officer, Commonwealth Financial Network; Brian Price, head of investment management, Commonwealth Financial Network; Jim Osman, chief vision officer, The Edge Group; Sean Bandazian, senior analyst, Cornerstone Wealth; Patrick J. O’Hare, chief market analyst, Briefing.com; Chris Zaccarelli, chief investment officer, Independent Advisor Alliance; Jeffrey Buchbinder, equity strategist, LPL Financial; James Iuorio, managing director, TJM Institutional Services; Robert A. Brusca, chief economist, FAO Economics; Joseph Kalish, chief global macro strategist, Ned Davis Research; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services; Clark A. Kendall, president and CEO, Kendall Capital Management; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
Source link
