I would first like to start off by saying my sincere condolences, thoughts, and prayers for all those out in Colorado from this past week, what a tragic event that we hope will never happen again.
The days in Oxford are flying by, already halfway through my time here, and it has been pretty good, can’t complain too much (except for the fact that I have to take a biology and Shakespeare studies class…yea) other than that, trying to get out and experience a bit.
Despite all of the earnings action we have seen this past week, the broader markets remained pretty quiet. Light volume took over once again and the S&P moved up nearly .5%. Jobless claims moved back up to prior levels before the last print on the holiday shortened week showing that unemployment is still a problem, Philly Fed had a weaker than expected print as well, continuing what I have been saying for a while now about slow growth in manufacturing.
What got my attention this week are the intraday charts on Thursday of MCD, IBM, and KO. Notice the sawtooth pattern, algo trade take place. The continuous cosine curve buy on the hour sell on the half hour. If you spotted this early, congrats on making a few bucks, but this is totally destroying our capital markets. Machines cannot make logical decisions. During the afternoon, people on twitter started to take notice, but I believe it was looked over for most of the day, volume was normal and even though these were 1% moves up and down at times, there was other news to focus on.
We also saw a big move up on continued growth from PKG which I highlighted last week, along with slowing growth of coal transportation revenue from CSX.
The big report this week will be Apple on Tuesday after market close. Reading through several reports from analysts and doing my own research, this could be another lousy quarter for Apple. iPhone sales could be the problem here as the Samsung Galaxy has been eating away market share, along with unemployment continuing to be an issue, and my theory of Google continuing to slowly take market share from their Android platform (proud Android user, never bought an Apple product). I believe that we are nearing the point where it does not matter how many new versions of the phone or tablet pc they put out, everyone will have one and will be satisfied with what they have.
This week in macro news we will look at:
-8:30 AM EST Chicago Fed National Activity Index
-Prev -0.45 Consensus -0.33 (range -0.60 to -0.10)
A lesser used gauge for economic and inflationary activity. A weighted average of 85 existing monthly indicators.
-8:58AM EST PMI Manufacturing Flash Index
Prev. 52.9 Consensus 52.6 (range 51.5 to 53.0)
Flash PMI is released a week before regular PMI to give a preliminary reading.
-10:00 AM EST FHFA House Price Index
Prev. 0.8% Consensus 0.3% (range 0.0% to 0.7%)
Transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac, using single family homes. We can see this has recovered drastically from the ’08 lows, but nowhere close to reaching the peak highs 6 years ago.
-10:00 AM EST Richmond Fed Manufacturing
Prev. -3.0 Consensus 0.0 (range -6.0 to 1.0)
With reads on this being as high as 20 earlier this year with an expected print of 0, we can see how manufacturing growth throughout the US has slowed. The last 2 reads came in well below consensus and nothing is telling me we cannot do it again. I expect a negative number out of the consensus range.
-10:00 AM EST New Home Sales
Prev 369K Consensus 370K (range 358K to 389K)
Measure of the number of newly constructed homes with a committed sale during the month. We continue to see numbers come in 25% of what they were before the housing collapse with no real pick-up in sight.
-8:30 AM EST Jobless Claims
Prev 386K Consensus 380K (range 375K to 400K)
With a consensus range all the way up toward 400K, this would be the highest reading in jobless claims since last October, more evidence that jobs still are not back on the market.
-8:30 AM EST Durable Goods
New Orders prev 1.1 % Consensus 0.6 % (range -1.4 % to 2.1 %)
Ex-transportation prev 0.4 % Consensus 0.2 % (range-0.7 % to 1.7 %)
As growth continues to slow, the Durable goods orders will slow as well, we are in danger of breaking below 0% yearly change in orders, something not seen in almost 3 years when the supposed recovery was beginning.
-10:00 AM EST Pending Home Sales Index
Prev 5.9% Consensus 0.9% (range -2.9% to 4.0%)
Leading indicator of existing home sales, specifically pending homes where the contract is signed, but not yet closed. Takes 4-6 weeks to close a contract sale.
-11:00AM EST Kansas City Fed Manufacturing Index
Prev 3 Consensus 4 (range 0 to 5)
We already saw weakened from Philly Fed as mentioned before last week, I expect this to come in below consensus and be another disappointment.
-8:30 AM EST GDP 2nd quarter 1st read
1st quarter final: 1.9% 2nd quarter 1st read consensus: 1.2% (range 0.9% to 2.4%)
We can see continued slowing of growth as we get the 1st read on Q2 GDP. Many large Investment banks continue to lower their estimates as manufacturing growth and earnings for companies are drastically slowing.
-9:55 AM EST University of Michigan Consumer Sentiment
Prev 72.0 Consensus 72.0 (range 71.0 to 75.0)
Survey of 500 households each month on their financial conditions and attitudes about the economy. In my opinion does not track economy as well as consumer confidence, levels still a bit elevated from where I would expect.
Earnings for this week besides Apple:
Halliburton, Hasbro, VM Ware
AK Steel, Buffalo Wild Wings, Dominos Pizza, Jarden, Leximark, NetFlix, Ryder, Spirit Airways
Las Vegas Sands, ACE Limited, Panera, Weatherford
Unilever, 3M, Deckers
Chevron, First Niagara, Total S.A.
I will be observing all of these for the upcoming week, five of them more in particular I want to highlight: Halliburton, Jarden, Unilever, ACE Limited, Total S.A.
Halliburton Company is an “oilfield services company. The Company is provider of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. It serves national, and independent oil and natural gas companies worldwide and operates in two segments: Completion and Production segment and Drilling and Evaluation segment. The Company conducts business worldwide in approximately 80 countries. 55% of its revenue is from the US.” (per google) Looking at oil and natural gas prices, I remain long term bullish on the energy sector as a whole on eventual increase in demand as population increases globally and industry gets back up to ’07 levels. June 6th we had an announcement on earnings concerns for the 2nd quarter. For the first quarter profits were drastically lower than previous, almost 70% below (1.1B v 2.8B), this was due to low oil prices, and costs being up 1.5B over the previous quarter but since then we have seen oil slowly but steadily make its way toward 85-88 a barrel in the last few weeks, along with natural gas more than 50% off its lows in a short amount of time. The way I see it is that Iraqi and Middle East tensions can spark at any time and drive oil up, and nat gas continues to be in contango signaling increase in demand for the future (maybe those nat gas cars). A look at the chart below is also short term bullish as well:
We can see an inverse H&S formation with the low being put in at 26.70, now we are more than 20% off of this low. Look for further upside as the report comes out.
Next, Jarden which is a global consumer products company. The Company operates in three segments through a range of brands, including: Outdoor Solutions: Abu Garcia, Aero, Berkley, Campingaz, Coleman, ExOfficio, Fenwick, Gulp!, K2, Marker, Marmot, Mitchell, Penn, Rawlings, Shakespeare, Stearns, Stren, Trilene, Volkl and Zoot; Consumer Solutions: Bionaire, Crock-Pot, FoodSaver, Health o meter, Holmes, Mr. Coffee, Oster, Patton, Rival, Seal-a-Meal, Sunbeam, VillaWare and White Mountain, and Branded Consumables: Ball, Bee, Bernardin, Bicycle, Billy Boy, Crawford, Diamond, Dicon, Fiona, First Alert, First Essentials, Hoyle, Kerr, Lehigh, Lillo, Loew-Cornell, Mapa, NUK, Pine Mountain, Quickie, Spontex and Tigex.
All of their products are made in the US, and they have done quite well so far this year, up nearly 50% on continued income growth of their products. Even though I expect them to deliver well, watch for some profit taking as this has hit some key selling technicals, but I would be a buyer and get right back in after a couple days of profit taking.
Next, Unilever which is a maker of personal care, home care, foods and refreshments. It recovered all of its losses from’08 in less than a year and since then has been up 10% and stabilized, but has been increasing its dividend since income has continued to grow. The yield is 3.64% and it is up 3.7% in a year. Though this is not my top consumer staple in personal care items (Colgate and Clorox are doing much better in comparison) the growth and yield are still there to be long.
ACE Limited is a Swiss based global insurance company serving customers in 170 countries. They operate in nearly all lines of insurance from personal accident to professional liability. Since 2008, the company has more than doubled in value along with nearly doubling its dividend. Net income has been stable to growing from going from a net loss in Q3 ’11 to a 973M profit. Travelers its main competitor is comparable on all aspects and is slightly an outperformer in ’12 but the charts are relatively the same on a 1yr basis. Both names look good to own, but for now ACE is the one that can rally a bit on lower P/E and it being more than 10% off its all-time highs.
Last, looking at one of the most fundamentally cheap oil names out there right now is Total. The French based oil and gas company has been hit hard by the decrease in oil demand, price and the price of the Euro. With revenue growing at 15% per year and net income up 30% in a year as well, as we start to see oil recover, we will see Total recover as well. I believe that this has taken an unnecessary leg down this year and is one of the best bargains you can buy today. The stock price is at a 9 year low, but held on to key support so far this year at $40.00. With EPS projected at 6.51 on a fy basis and the price of the stock at $44 this gives us a p/e of 6 and change. Along with a near 7% dividend yield, you will get income appreciation while waiting for capital appreciation.
Above is a 1 year chart of XOM, CVX, BP and TOT (in blue) notice TOT is the underperformer by far here, but in my opinion has the biggest upside potential within the coming months. On a long term investment basis though, these are all great names to own.
I will also be reviewing anything else that comes up newsworthy on twitter @peter_eller10 so you can catch me there, have a great trading week everyone.