Daniel Cullinane CPA
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The tumble in Turkey's currency on Friday signaled deepening pessimism about the country's economy after months of market declines.
The lira fell as low as 6.75 to the dollar, down a whopping 14 percent on the day and 41 percent since the start of the year as investors worry about the country's economic policies and a dispute with the United States that has led to sanctions and new tariffs.
Here is a look at the situation — what caused the plunge and what impact it might have.
Q: Why is Turkey's currency so weak?
A: Turkey's economy has grown strongly in recent years, but that has required a lot of foreign investment and the country imports more than it exports. Together, that can weigh on the currency.
As the currency weakens, it can make foreign investors pull their money out of Turkish stocks and bonds as their lira investments lose value. To do that, they have to sell lira — worsening the rout.
The lira's fall has been made worse by President Recep Tayyip Erdogan's statements on economic policy. He has urged the central bank to not raise interest rates. Rate increases are the central bank's main tool to support the currency and fight inflation. The central bank, officially independent, appears to have heeded Erdogan and has not raised rates when many — including the International Monetary Fund — said it should have. That drained investor confidence in the central bank, leading to a further sell-off of the currency.
Erdogan's decision to name his son-in-law as finance minister also made people wonder about the direction of the country's economic policy.
Q: What about the dispute with the U.S.?
A: Turkey's decision to jail a Protestant pastor from the U.S. has led to the U.S. imposing sanctions on two Turkish government ministers. Conservative evangelical Protestants are a key constituency at home for U.S. President Donald Trump.
The mere fact that the U.S. would impose sanctions on Turkey — a stalwart NATO ally for decades during the Cold War — has increased uncertainty about the future in Turkey.
Trump raised the stakes on Friday when he said that his administration would double its tariffs on Turkish steel and aluminum. That caused a further drop in the lira. The U.S. was Turkey's biggest export market for steel last year, though exports have fallen since.
Q: How is the fall in the lira a problem?
A: It is a problem for Turkish businesses and banks that get revenues in lira and owe money in dollars or euros. The lira has fallen about 40 percent against the dollar this year. That makes a loan in dollars that much more expensive to repay. So the sudden fall raises the possibility of corporate bankruptcies or bank failures that could hurt the economy.
The currency drop will also increase the cost of living for people in Turkey by making imports more expensive. Prices are already up 16 percent since last year and this week's drop will make that worse.
Q: What impact could the turmoil have outside Turkey?
A: There are some concerns about whether European banks would suffer losses on loans in Turkey. The euro currency dropped to a 13-month low on Friday, and bank shares fell.
Europe is also dependent on Turkey to restrain the flow of migrants from conflict in the Middle East in return for aid. Some 4 million displaced people, most them from Syria, are currently living in Turkey. Any resumption of serious migrant flows from Turkey would be a big political issue in Europe, where opposition to immigration has fueled the rise of right-wing parties such as Itay's League and the Alternative for Germany.
But Carsten Hesse, analyst at Berenberg bank in London, says that an economic downturn in Turkey would have limited impact on Europe or other major economies. A 20 percent fall in exports would only reduce GDP by 0.1 percentage point or less per year in the 19 countries that use the euro currency. Hesse said that European banks could suffer losses if they loaned money in Turkey or owned Turkish banks but that the possible losses were not large enough to trigger a eurozone banking crisis.
Q: What is Erdogan proposing to do?
A: Erdogan gave a speech Friday that mainly blamed foreigners for trying to destabilize the country. He equated the financial turmoil to the 2016 coup attempt that sought to depose him.
He told supporters to "change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a domestic and national struggle."
His finance minister later promised that the central bank would remain independent and that inflation would come down. With little by way of detail, the promises failed to soothe markets
Stocks were indicated to open marginally higher after a weaker producer price index report calmed some inflation fears. Earnings season has been quite strong, with more than 70% of the companies exceeding expectations and 80% of the S&P 500 having reported, and the S&P 500 is quite close to all-time highs again. Still, the volatility in 2018 has created less rewarding trades by buying the dips, which had been so reliable in prior years. Many investors are also trying to decide how they want their investments positioned ahead of the midterm elections and with international trade concerns.
24/7 Wall St. reviews dozens of analyst research reports each day of the week to find new investing and trading ideas for our readers. Some analyst reports cover stocks to buy and some cover stocks to sell or to avoid.
Additional commentary has been added on most of the daily analyst reports, along with trading history. The consensus analyst price targets and other valuation metrics are from the Thomson Reuters sell-side research service.
These were the top analyst upgrades, downgrades and other research calls from Thursday, August 9, 2018.
ACADIA Pharmaceuticals Inc. (NASDAQ: ACAD) was down 1.2% at $14.02 on Wednesday and indicated down 8% at $12.85 on Thursday after reporting a loss. JMP Securities maintained its Outperform rating but slashed its price target to $27 from $50. Stifel maintained its Hold rating but lowered its target to $14 from $17.
Applied Materials Inc. (NASDAQ: AMAT) was downgraded to Equal Weight from Overweight and the target price was cut to $54 from $58 at Morgan Stanley.
Cincinnati Bell Inc. (NYSE: CBB) was raised to Outperform from Market Perform with a $13 price target at Wells Fargo. Its shares were indicated up 2.7% at $10.20 on Thursday, in a 52-week range of $9.90 to $22.20, after shares fell 22.2% to $9.95 on Wednesday after reporting a wider loss than expected.
Edgewell Personal Care (NYSE: EPC) was downgraded to Hold from Buy at Societe Generale. The stock closed up almost 5% at $56.77 on Wednesday, and it has a 52-week trading range of $39.50 to $76.76.
elf Beauty Inc. (NYSE: ELF) was up 3.2% at $14.91 on Wednesday but was last seen down over 18% at $12.10 after what looked to be a solid earnings report but that also contained a revenue warnings. D.A. Davidson downgraded it to Neutral from Buy and cut the price target to $12 from 23. Citigroup also downgraded elf Beauty to Neutral and cut its target to $16 from $24, while Stifel maintained its Hold rating but cut its target to $11 from $17. Piper Jaffray downgraded it to Underweight from Neutral, and Jefferies downgraded it to Hold from Buy.
Extreme Networks Inc. (NASDAQ: EXTR) was down 32% at $6.09 on Wednesday after revenues were weaker than expected. JMP Securities maintained its Market Perform rating and lowered its price target to $9 from $12.
Investment Technology Group Inc. (NYSE: ITG) was raised to Overweight from Neutral and the target price was raised to $25 from $24 (versus a $20.67 prior close, after a 5% drop) at JPMorgan.
Mylan N.V. (NASDAQ: MYL) was downgraded to Outperform from Strong Buy at Raymond James. Mylan closed up 1.8% at $39.23 on Wednesday but was down marginally early Thursday.
Noble Corp. (NYSE: NE) was downgraded to Underweight from Equal Weight at Barclays.24/7 Wall St.
8 Massive Summer Stock Buybacks Too Large to Ignore
The financial sector was a major part of the Great Recession, and it has been a major part of the recovery and raging bull market since then. Generally speaking, the major financial institutions in the United States are a good barometer of the current state of U.S. markets.
So when short sellers make a play against these major banks, they are effectively betting for a downturn. Conversely, when they back off they might be expecting a surge. Granted, some plays are directly against individual companies, like we saw with Wells Fargo early in 2017.
The July 31 short interest data have been compared with the previous figures, and short interest in most of these selected big bank stocks increased.
Bank of America Corp. (NYSE: BAC) saw its short interest rise to 136.63 million shares. The previous level was 110.14 million. Shares were last seen trading at $31.09, in a 52-week range of $22.75 to $33.05.
The number of JPMorgan Chase & Co. (NYSE: JPM) shares short rose to 22.99 million from the previous level of 19.66 million. Shares recently traded at $115.38, in a 52-week range of $88.08 to $119.33.
Citigroup Inc. (NYSE: C) short interest increased to 19.54 million from the previous level of 18.59 million. Shares were trading at $70.20, in a 52-week range of $64.38 to $80.70.
Wells Fargo & Co. (NYSE: WFC) short interest dropped to 33.20 million shares from the previous reading of 35.83 million. Shares were trading at $57.88, within a 52-week range of $49.27 to $66.31.
Short interest in Goldman Sachs Group Inc. (NYSE: GS) increased to 4.60 million shares from the previous 4.01 million. The stock recently traded at $229.35, within a 52-week range of $214.64 to $275.31.
Morgan Stanley’s (NYSE: MS) short interest for this settlement date was 13.71 million shares, up from the previous 10.89 million. Shares were changing hands at $48.46 in a 52-week range of $43.84 to $59.38.
Cybersecurity has become an increasingly important issue that companies have to address as they continue to develop new platforms and mobile apps. Hackers have been able to steal credit card and personal information from major companies like Equifax, JPMorgan and Home Depot. As a result, cybersecurity has become more necessary, and instead of developing a dedicated department within a company, most opt to hire a third-party cybersecurity firm.
What is interesting here is that many investors think cybersecurity is the next area in technology that needs real consolidation.
The July 31 short interest data have been compared with the previous figures, and short interest in most of these selected cybersecurity stocks increased.
FireEye Inc. (NASDAQ: FEYE) saw its short interest increase to 17.30 million shares from the previous reading of 16.40 million. Shares were last seen trading at $15.23, in a 52-week range of $13.40 to $19.36.
Short interest at CyberArk Software Ltd. (NASDAQ: CYBR) decreased to 465,800 shares from the previous level of 975,000. Shares were trading at $69.89, within a 52-week range of $39.34 to $71.25.
Check Point Software Technologies Ltd.’s (NASDAQ: CHKP) short interest increased to 11.16 million shares from the previous 10.74 million. Shares were trading at $113.81, in a 52-week range of $93.76 to $119.20.
The number of Palo Alto Networks Inc. (NYSE: PANW) shares short was 4.29 million. The previous level was 4.07 million. Shares traded recently at $213.10, within a 52-week trading range of $126.56 to $219.38.
Fortinet Inc.’s (NASDAQ: FTNT) short interest decreased to 6.33 million shares from the previous 7.08 million. Shares were trading at $74.55. The 52-week range is $35.44 to $75.64.
There’s hope for the digital wallet. Despite 5 plus years of announcements from Google, Samsung, PayPal, Venmo, Square, Stripe, and Apple advancing the digital wallet theme, we believe less than 20% of global smartphone users actually use their phone as a wallet. Eventually, we believe that number will rise to above 80%.
Apple has several advantages to brand the iPhone as the premium digital wallet given its ability to integrate payments into both mobile and desktop operating systems, use its brand to win accepting retailers and supporting banks, and reassure users that transactions are secure and private. Separately, Apple Pay is the only digital wallet with all five payment pillars: mobile, desktop, in-app, peer to peer, and point of sale.
Apple Pay is still too small to move the overall Services business (only 1-2% of Services revenue, growing at 40%). Today, Apple often markets the iPhone around the camera and its filters (portrait, studio, stage), notably with the “Shot on iPhone” campaign. In the future, we expect the digital wallet to be a marketable iPhone feature. Adoption of Apple Pay is growing, and we believe 31% of iPhone users have used Apple Pay in the past year, compared to 25% a year ago.
On Apple’s latest earnings call they shared data points that allow us to back into updated user metrics.
Over 1 billion cumulative transactions in Jun-18, a 3x increase in transactions y/y (source: Apple).
Apple Pay now has over 4,900 bank partners (source: Apple).
We estimate that Apple Pay now has over 252 million users, which equates to 31% of the active iPhone base (source: Loup Ventures).
Adoption of Apple Pay continues to accelerate exponentially overseas compared to the U.S., with 85% of users being international vs. 15% in the US (source: Loup Ventures).
Quarterly transactions are increasing exponentially
Over the last three June quarters, Apple has reported y/y growth of 500%, 400%, and 300%, respectively, bringing the total transaction number “well over 1 billion” (Source: Apple). With the continued expansion into new markets and new partnerships with banks, we expect transaction growth of 200% over the next 12 months.
Source: Loup Ventures
Banks adoption of Apple Pay steps up
Apple announced on their most recent earnings call that they now have over 4,900 banks partnered with Apple Pay. This is the first time that Apple has given a specific number of banks that support Apple Pay. We historically have counted the number of supporting banks listed on Apple’s Apple Pay page, which while the absolute number we found (3,149) does not match the 4900 reported number, it better illustrates the bank adoption trend. For comparative reasons, we are sticking with our previous method of counting banks. We found that since the Dec-16 quarter the total number of banks which have adopted Apple Pay has increased by 1,701. To put that into context, over that same period growth in U.S. & Canada banks increased by 926 (55%), bank adoption in Asia grew by 337 (141%), and adoption in Europe grew by 185 banks (370%).
Source: Loup Ventures
Apple Pay user base up ~24% q/q
In the last year 9 countries have been added to Apple Pay’s addressable market, which has extended its possible reach by about 400 million people, and now totals 2.7 billion. As a point of reference, the jump that occurred between the Dec-15 and Mar-16 quarters is when China (1.38 billion people) was added.
Source: Loup Ventures
International market continues Apple Pay dominance
With the addition of new countries, it makes sense that international has been the key driver to the Apple Pay story. There are currently 24 countries where Apple Pay is accepted, soon be 25 with the addition of Germany later this year. We now estimate total Apple Pay user base at about 253 million (International at 215m, US at 38m). This means the percentage of Apple Pay users in the U.S. has decreased to 15% and international has increased to 85%.
Source: Loup Ventures
Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.
NXP Semiconductor N.V. (NASDAQ: NXPI) was started with a Neutral rating and assigned a $106 price target (versus a $95.80 close) at Goldman Sachs.
ON Semiconductor Corp. (NASDAQ: ON) was downgraded to Underweight from Equal Weight and the target price was cut to $18.50 from $20.00 at Morgan Stanley.
Pacific Biosciences of California Inc. (NASDAQ: PACB) was started as Overweight and assigned a $5 target price (versus a $4.05 close) at Cantor Fitzgerald.
Roku Inc. (NASDAQ: ROKU) was last seen trading up almost 10% at $51.85 after earnings. KeyBanc Capital Markets maintained it as Overweight and raised the target to $67 from $54. Roku’s post-IPO high is still up at $58.80.
Ryanair Holdings PLC (NASDAQ: RYAAY) was downgraded to Market Perform from Outperform at Raymond James. Its American depositary shares closed at $101.06 on Wednesday, and their 52-week trading range is $98.27 to $127.61.
Seagate Technology Inc. (NASDAQ: STX) was downgraded to Sell from Neutral and the price target was cut to $44 from $50 at Goldman Sachs, noting that the fundamentals will peak in the second half of this year as the hard disk drive market remains cyclical but has secular challenges as solid state drives are set to take over.24/7 Wall St.
8 Dirt Cheap Technology Stocks at Huge Discounts to the Stock Market
Southern Co. (NYSE: SO) was downgraded to Equal Weight from Overweight at Barclays. Credit Suisse downgraded it to Underperform from Neutral with a $43 price target.
TechTarget Inc. (NASDAQ: TTGT) was downgraded to Hold from Buy with a $32 price target at Craig-Hallum.
Wright Medical Group Inc. (NASDAQ: WMGI) was raised to Buy from Neutral with a $34 price objective (versus a $26.30 close) at Merrill Lynch.
Yelp Inc. (NYSE: YELP) was last seen trading up 15% at $43.90 after beating earnings expectations. Stifel maintained it as Hold and raised the price target to $42 from $40.
Zynga Inc. (NASDAQ: ZNGA) was started as Underweight and the price target was set at $3.70 (versus a $3.95 close) at Barclays. Zynga has a 52-week range of $3.20 to $4.57, and the consensus target price was last seen at $4.89.
Wednesday’s top analyst calls included AECOM, CyberArk, Dillard’s, Hasbro, Mattel, Newell, Papa John’s, Shopify, Snap, Tesla and many more.