Daniel Cullinane CPA

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MBA Taxation

Daniel Cullinane CPA

2500 Plaza 5 25th fl  Jersey City NJ 07311                                                          phone 732-516-1648  fax 732-516-9778

                 MBA TAXATION                                                                                                         

Copyright ©​ Daniel Cullinane CPA.

​RECOMMENDATIONS

The futures traded much lower Friday morning as investors digested another wild and woolly week on Wall Street. The positive January employment numbers should help to backstop the end of the week trading. All-time highs have come back into focus, as China lowered tariffs on $75 billion worth of U.S. goods. The coronavirus cases keep rising (over 28,250 cases and 565 deaths in China), but there is some growing hope that a vaccine or treatment may be available in a few months.

With global gross domestic product weighed on by China weakness, there is still much uncertainty and many ongoing and unresolved developments that investors have to digest in 2020. Many investors still have not made some of their normal portfolio changes this year either.

24/7 Wall St. reviews dozens of analyst research reports each day of the week with a goal of finding new ideas for traders and long-term investors alike. Some of the daily analyst calls cover stocks to buy, while some calls cover stocks to sell or to avoid.

We have provided these analyst calls in a quick-hit summary for easy reading, and additional comments and trading data have been added on many of the calls. The consensus analyst price targets and other valuation metrics are from the Refinitiv sell-side research service.

These were the top analyst upgrades, downgrades and initiations seen for Friday, February 7, 2020.

AmerisourceBergen Inc. (NYSE: ABC) was raised to Outperform at Baird, where the analysts have a $112 price target. That compares with the Wall Street consensus target of $96.27. The stock closed trading om Thursday at $92.48.

Artisan Partners Asset Management Inc. (NYSE: APAM) was named as the Bull of the Day at Zacks, which said that, with the market pushing up to new heights, asset managers have been living on easy street. Shares most recently closed at $36.20 with a consensus price target of $34.33.

Becton Dickinson and Co. (NYSE: BDX) was downgraded to Outperform from Strong Buy at Raymond James, where the analysts have set a $283 price objective. That compares with a consensus target that is right in line at $284.36. The stock closed Thursday at $252.25, down almost 12% on the day despite topping analysts’ estimates.

Cabot Corp. (NYSE: CBT) was upgraded to a Buy rating from Neutral at UBS, which also raised the price target to the $52 level. That compares to the consensus target of $50.63. The stock was last seen trading at $42.34.

Cardinal Health Inc. (NYSE: CAH) was raised to Outperform from Neutral with a $68 price objective at Baird. That compares with the $54.93consensus target. The shares closed Thursday at $58.26, up almost 11% on the day on strong earnings and revenue growth. The shares were up another 1% in Friday’s premarket.

Domino’s Pizza Inc. (NYSE: DPZ) was upgraded to Buy from Neutral at Goldman Sachs, which raised the price target for the pizza restaurant giant to $320. The consensus target is $298.86, and the stock ended Thursday at $279.41.

FedEx Corp. (NYSE: FDX) was named as the Zacks Bear of the Day stock. The firm said trade war headwinds have given way to a new scapegoat, the coronavirus. Shares last closed at $148.63 and have a consensus price target of $170.72.

Ford Motor Co. (NYSE: F) was downgraded to Neutral from Outperform with a $9 target at Credit Suisse. Also, DZ Bank lowered it from Buy all the way to Sell. Shares for the automotive giant closed Thursday at $8.25.

Funko Inc. (NASDAQ: FNKO) was downgraded to Hold from Buy with a $10 price target at Stifel. The consensus target is much higher $15.88. Shares ended trading Thursday at $9.29.

General Electric Co. (NYSE: GE) was raised to a Hold rating at Gordon Haskett. The 52-week trading range of the beleaguered but seemingly on the path back industrial giant is $7.65 to $13.00. The consensus price target is $12.49. The stock closed at $12.95 on Thursday.


​Grubhub Inc. (NASDAQ: GRUB) was downgraded to Underperform from Neutral at D.A. Davidson, which has set a $33 price target. The consensus target is much higher at $49.48, and the closing share price on Thursday was $54.62.

Helmerich & Payne Inc. (NYSE: HP) was downgraded to Neutral from Buy at B. Riley FBR, which also lowered its price target to $39. The consensus target for the drilling giant is $46.03. The last trade reported Thursday came in at $43.80.

HSBC Holdings PLC (NYSE: HSBC) is raised to Outperform from Neutral at Keefe Bruyette. The shares have traded in a 52-week range of $35.35 to $44.93, and the consensus price target for the bank is $40.68. The stock most recently closed at $37.10.

L3Harris Technologies Inc. (NYSE: LHX) was started with a Buy rating with a $280 price target at Benchmark. The consensus target is $254.80. Shares of the defense leader closed Thursday at $225.98.

Marvell Technology Group Ltd. (NASDAQ: MRVL) was downgraded to Underperform from Outperform at Cowen. The analysts also set an $18 price target, but the consensus target is much higher at $29.86. The stock closed Thursday at $25.75, but shares were under pressure in the premarket, down over 5% on disappointing results.

Peabody Energy Corp. (NYSE: BTU) was started with a Hold rating at Benchmark. The stock has traded in a stunning 52-week range of $6.35 to $32.25. The last trade on Thursday was reported at $8.95, down almost 4% on the day.

Synaptics Inc. (NASDAQ: SYNA) was raised to Neutral from Underweight at JPMorgan, which also pushed the price target to the $73 level. The posted consensus target is $67.33. The stock closed Thursday at $70.10, but the shares are up almost 14% in the premarket as the company posted strong results after Thursday’s close.

Twitter Inc. (NASDAQ: TWTR) was raised to Positive from Neutral with a $47 price target at Susquehanna, which compares to a $34.47 consensus price objective. The stock had a big move this week after posting very impressive results and user numbers. Guggenheim downgraded the shares to Neutral from Buy but kept a $36 price target. The stock closed Thursday at $38.41, up a massive 15% on the day.

Uber Technologies Inc. (NYSE: UBER) was raised to Buy from Hold at Lake Street. The ride-sharing leader has traded between $25.58 and $47.08 over the past 52 weeks. The consensus price target for the shares is $45.08. The last print Thursday came in at $37.09, but shares are up almost 6% in the premarket on positive numbers and forward forecasts.

Yum! Brands Inc. (NYSE: YUM) was downgraded to Neutral from Buy at BTIG Research. The restaurant leader’s shares have traded between $92.02 and $119.72 over the past 52 weeks, and the stock was last seen on Thursday at $103.74, down almost 3% on weakness at the Pizza Hut group.24/7 Wall St.
Why 2020 Could Be a Comeback Year for CSX Stock

Also note that Merrill Lynch has five Buy-rated tech stocks that pay large dividends.

And see why 2020 could be a comeback year for CSX stock and how long investors should be patient with Lyft stock.

Thursday’s top analyst upgrades and downgrades included AbbVie, Biogen, Boeing, Etsy, Gilead Sciences, GoPro, Micron Technology, Newmont, Peloton Interactive, Pfizer, Valero Energy, Zynga and many more.

​It has been no secret that the rapid spread of the coronavirus to nations outside of China has been a weight on financial markets, as well as many commodities that rely on healthy economies to keep their prices higher. This has definitely been the case when it comes to oil. Now West Texas Intermediate (WTI) crude has broken under $52 per barrel and is close to testing the $51 mark.

A Fitch Ratings report points out that the coronavirus outbreak could curb oil demand growth if it continues to spread. On top of lower international demand, Fitch says this could lead to an extended production surplus due to production growth in Brazil, Norway and the United States. Fitch warns that the magnitude of that surplus will depend on both how long the coronavirus outbreak lasts and the ability of OPEC and other oil-producing countries to adjust their production levels.

WTI ended 2019 at roughly $61 per barrel and broke under $60 after the first week of the new year, with very few positive days since then. Challenging the $52 mark and then the $51 mark comes with a risk on oil charts that there could be nothing but dead air down to $49 or even $48.

Unfortunately, volatility is expected to remain. Fitch’s report noted: “We expect oil prices to remain highly volatile in 2020, with geopolitical tensions and economic sentiment being other key drivers.”

Fitch’s view is more on Brent crude, noting that the prices in early January of just under $70 per barrel were down to about $56 most recently. The outlook further said:

Oil demand losses are difficult to estimate at this stage, but would come from a combination of reduced air travel, lower domestic road transportation and a longer-than-expected halt of manufacturing activities. The Chinese authorities have extended the Lunar New Year holidays and quarantined about 50 million people living in the Hubei province, which remains the hardest hit. Several other provinces have restricted inter-provincial travel and advised companies to remain closed for at least a week.

The impact on Chinese domestic oil products consumption will depend on how quickly transportation and industrial activities will return to normal levels. Demand for imported oil could take even longer to recover, as refineries, which were facing a capacity surplus before the outbreak, will need to absorb excess inventories. The WHO’s declaration of a public health emergency of international concern could dampen China’s trade activities and further reduce domestic fuel consumption, with a more tangible impact on global oil supply-demand balance.

The Fitch view hinges largely on China, but many other locales have to be considered. China was shown to account for roughly 15% of global oil consumption, but the nation is also the main driver of global demand growth, as its contribution to total global consumption growth averaged about 36% over the past five years (and should have accounted for about 40% of that total in 2020). Other Asian countries, including India, were projected to provide another 30% of that total global demand growth.

One warning about oil production versus supplies in 2020 was that the oil market already was expected to be adequately supplied in 2020. The Fitch report indicated that the U.S. Energy Information Administration expected oil supply to exceed demand by roughly 250,000 barrels per day, and newly tapped Guyana production was added to that of the nations of the United States, Brazil and Norway. Additional production cuts from OPEC+, which were already agreed to for the first quarter of 2020, may not fully offset the new higher production rates.

As for the price outlook in 2020, Fitch noted that managing production from OPEC+ and the “price sensitivity of US shale” would make a protracted dip of Brent oil prices below $50 per barrel “not very likely even in a stress-case scenario.” The bad news there is that this forecast is on Brent, and that would indicate close to another 10% drop under the scenario just mentioned.

​STOCK PRICE.

​SOLID STOCKS

​Hormel Foods Corp. (NYSE: HRL) has been a monster stock over time as the company continues to move way beyond its old Spam image into newer products that younger buyers actually want to eat. The stock did fall 1.3% to $47.26 on Friday, but it hit an all-time high of $48.01 earlier in the day.

Hormel stock managed to barely close up for the week, but its shares are still up about 5% so far in 2020. With close to a 2% dividend yield, this food company is up about 50% over the past two-and-a-half years.

Newmont Corp. (NYSE: NEM) is riding the gold train higher and is the most valuable U.S. gold player with a $37 billion market cap. Gold is back up to almost $1,600 per ounce as a safety trade against any global fears, and Newmont’s close of $45.06 was up 0.2% on Friday, with a valuation of 23 times forward earnings. It also has a 1.2% dividend yield, but many investors expect that to rise if gold remains at these levels for an extended period.

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Newmont shares are now up almost 4% so far in 2020 (and up about 35% from a year ago). Its all-in sustaining costs are projected to remain close to $900 for the next couple of years and to go even lower in the outer years.

NextEra Energy Inc. (NYSE: NEE) may have traded down 0.6% to $268.20 on Friday, but the stock also hit a new high of $270.66 on the day. The largest utility in America, with a $131 billion market cap, seemed expensive even when it was the first utility worth $100 billion, but having a larger exposure to clean and green energy is giving it more recognition through the environmental, social and governance (ESG) theme.

NextEra is up over 10% so far in 2020 (and about 50% over the last year). So what if it’s trading at 27 times forward earnings.24/7 Wall St.
Has the Coronavirus Already Impacted 1 Million iPhone Sales?

Quest Diagnostics Inc. (NYSE: DGX) did sell down by about 1.2% to $110.67 on Friday, but the shares had been up at the start of the day at a new high of $112.89. Shares of Quest still rose 2.7% last week, and the stock is up over 3.6% so far in 2020.

To make matters more precise about the coronavirus and a strong flu season, Quest’s operations of running lab tests are likely to get even more business every time someone catches a cold or doesn’t feel well as they want to find out how sick they really are.

Republic Services Inc. (NYSE: RSG) is among the top waste management players of them all, and people are going to produce endless amounts of garbage whether the economy does well or not. Its shares were down just 0.7% on Friday at $95.05, but its chart has been rather impressive, with most days rising in 2020.

Republic Services still managed a 0.4% gain for the past week, and the shares are up 6% so far in 2020, with a $30 billion market cap.

Again, these are not the only strong stocks holding up during the market panic. These are current names that should have at least some insulation against coronavirus fears in 2020. Even if they do not go higher, they now either have major chart support or should hold up better than the broader stock market if major selling pressure continues.

​Microsoft Corp. (NASDAQ: MSFT) reported fiscal 2019 second-quarter results after markets closed Wednesday. The software behemoth reported diluted quarterly earnings per share (EPS) of $1.51 on revenues of $36.91 billion. In the same period last year, the company reported EPS of $1.08 on revenues of $32.47 billion. The consensus estimates called for EPS of $1.32 on revenues of $35.67 billion.

The Dow’s U.S. Technology Index jumped by around 47% in 2019 and Microsoft was one of two big reasons for the increase. The company’s stock added nearly 58% last year.

The company said it returned $8.5 billion to shareholders in the second quarter through a combination of share buybacks and dividend payments.

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Gross margins in the quarter rose to $24.55 billion, an increase of about 26% year over year, to total just over 66% of revenue.

CEO Satya Nadella said:

We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success. Along with our expanding opportunity, we are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world, so every person and every organization can benefit.

The company’s chief financial officer, Amy Hood, added:

Strong execution from our sales teams and partners drove Commercial Cloud revenue to $12.5 billion, up 39% year over year.

Indeed. Microsoft’s commercial cloud business accounts for about a third of the quarter’s sales.

Intelligent cloud revenue rose 27% and Windows OEM revenue rose 18% on a nominal basis. The company now claims 37.2 million subscribers to its Office 365 Consumer subscription base. Revenue growth in the company’s Azure platform rose 62% year over year.

The company said it would provide forward guidance on its conference call. The consensus estimate for the company’s third fiscal quarter calls for EPS of $1.24 on revenues of $34.14 billion. For the full fiscal year ending in June 2020, EPS is forecast at $5.40 on revenues of $140.34 billion.

Revenue from sales of the company’s Surface rose by 6% and search advertising revenue rose 6%, excluding traffic acquisition costs.

LinkedIn revenue rose 24% year over year and Xbox content and services revenue fell by 11%.

Shares traded up about 1.9% at $171.25 in after-hours trading Wednesday. The stock closed at $168.04 in a 52-week range of $102.35 to $168.74, a new 52-week high posted today. Prior to the earnings announcement, the 12-month consensus price target on the stock was $174.56.

​The current coronavirus outbreak that originated in Wuhan in the Hubei province of China has become even more deadly and less contained. To add on more fears, there are now indications that the virus is easier to spread than originally thought. As of January 26, 2020, with official estimates still changing, there are more cases and more fatalities than global health officials would have hoped. The reports now indicate that the virus can be spread even before symptoms appear.

Saturday’s count of more than 1,300 reported cases and more than 40 deaths has, as of Sunday morning reports, risen by perhaps another 1,000 cases with close to 60 deaths. On top of Wuhan and surrounding cities being closed off, outbound group travel from China has been suspended, and Hong Kong is now denying access to anyone who has been in Wuhan in the past two weeks.

The loss of life and suffering from illness is always the worst part of any outbreaks, epidemics and pandemics. Unfortunately, there is also an economic case that has to be considered in a global economy in which a virus moves from one nation to others. This is when portions of local economies have shut down and the impact begins to spread into other sectors and to other nations.

Wuhan is a city of more than 11 million people and is a major transportation hub inside China. The United States has organized a plane to remove Americans from the city and other nations are pursuing the same strategy. Shutting down a major transportation and manufacturing is one thing, but that tally of over 11 million people is roughly the size of the official populations of New York City and Los Angeles combined. With more cases and with more countries on the list of confirmed cases, the coronavirus is bringing additional challenges to what are already very fragile economies. Billions and billions of dollars are already showing up in stock losses for the companies with direct and indirect exposure.

To complicate the economic and fiscal impact further, the rapid spreading of the 2020 coronavirus outbreak in China also hit right at the start of Chinese New Year, which happens to be the Year of the Rat. The Lunar New Year was already expected to close much of China for the week ahead. Now the coronavirus has brought event cancellations. China has temporarily closed some 70,000 movie theaters to help curb the spread of the coronavirus, and large event venues are being closed for the time being. Again, all this comes with a serious loss to the economy.

This coronavirus outbreak is far from the first such case in the modern era. SARS, which was reported to be less than 1,000 deaths back in 2003, was perhaps the most memorable of the outbreaks in Asia as one of the first modern-era global scares. That had a direct impact on travel to China and the surrounding nations. There have been multiple Ebola scares in the past few years alone coming out of Africa. A cholera outbreak in Yemen, swine flu in India and other outbreaks have been far more deadly than the current numbers indicate. Also, multiple scares from swine and avian flu have been great concerns and have devastated animal populations. The 2019 African Swine Flu devastated China’s pig population, and China has imported record levels of pork and other meats to replace the demand.

There is no simple way to try to minimize or discount deadly viruses and other outbreaks. One relative reference would be that tens of thousands of deaths in the United States alone can come from each flu season. The U.S. Centers for Disease Control and Prevention (CDC) already has estimated that the 2019/20 flu season has seen 15 million to 21 million cases of the flu through just January 18, 2020, with 140,000 to 250,000 hospitalizations and an estimate of 8,200 to 20,000 flu-related deaths. As with most illnesses, the mortality rates are generally much higher among infants, the elderly, those with cardiopulmonary conditions and those with compromised immune systems.

China has halted almost all public transit in and out of Wuhan and the surrounding areas in an effort to contain the coronavirus from spreading even more than it has. On top of the isolated cases in the United States, confirmed cases have also been reported in Vietnam, Thailand, Nepal, South Korea, Japan, Singapore, France, Australia, Taiwan and the territories of Hong Kong and Macau. Canada has been added to the list of nations, and as of Sunday morning there was a third confirmed U.S. case in California from a patient who had traveled to Wuhan.

At this stage, it may seem too soon and too difficult to try to calculate the economic impact in China, the United States and globally. Most pandemic scares and other geopolitical scares usually come with only short-term economic and market impacts. What is not impossible to see right now is that there have already been billions and billions of lost market capitalization rates in dollars among just some of the top Chinese companies listed in America and in the value of U.S. companies that have direct exposure to Wuhan and other closures or curtailing of operations around China. Still, oil fell on Friday for the fifth straight day, with part of the blame on weakening demand if the coronavirus threat grows, and that removed billions of dollars worth of value in the already weak energy sector.

General Motors Co. (NYSE: GM) has a large manufacturing facility in Wuhan, as do other global automakers. With a 1.6% loss to $34.31 on Friday, GM lost about $750 million in market cap. Anheuser-Busch InBev S.A. (NYSE: BUD) has a large brewing facility in Wuhan, which was its first in China. Its American depositary shares (ADSs) fell 0.66% to $77.74 on Friday for a loss of close to $1 billion in market capitalization. Other U.S. and western businesses are halting or curtailing operations locally or around China.

Walt Disney Co. (NYSE: DIS) announced that it was closing its Disneyland and Disneytown parks in Shanghai. Its shares slid 1.5% to $140.08 on Friday, and while that’s not the end of a run, it is a loss of $3.8 billion in market capitalization. That also represents the lowest closing price going back to last November, before its shares jumped from about $138 to $147.


​McDonald’s Corp. (NYSE: MCD) has announced that it was closing its restaurant locations in Wuhan and surrounding cities where transportation has been hated. Its shares lost 1% to close at $211.24 on Friday, a loss of about $1.6 billion in market cap. Starbucks Corp. (NASDAQ: SBUX) also reportedly closed an unspecified number of stores in China. The 1.8% drop to $92.03 a share on Friday was close to a $2 billion loss in its market capitalization.

The U.S. air carriers are even taking a hit. United Airlines Holdings Inc. (NYSE: UAL) saw a 3.5% price drop on Friday to $81.90. American Airlines Group Inc. (NASDAQ: AAL) fell 4% to $27.64, with rival Delta Airlines Inc. (NYSE: DAL) falling the least of the big three with a 2.4% drop to $58.81 on Friday. All three majors have made allowances for schedule changes for flights in and out of China.

Many other companies in major economic sectors have been and will be affected by the most recent coronavirus outbreak.

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Yum China Holdings Inc. (NYSE: YUMC) saw its shares fall from almost $50 at the end of the prior week to $44.25 by this past week’s close. Yum China has closed some KFC and Pizza Hut stores in Wuhan. Yum! Brands Inc. (NYSE: YUM), which collects a royalty from its former subsidiary, saw its shares down almost 1% at $104.98 on Friday.

Luckin Coffee Inc. (NASDAQ: LK), the recent hot IPO that is dubbed the “Starbucks of China,” saw its shares drop over 8% to $40.83 on Friday alone. That is down from about $50 just the week before. By losing close to $20% of its value from the prior week, that’s a market cap of $2.1 billion loss from its recent peak.

Melco Resorts & Entertainment Ltd. (NASDAQ: MLCO), with its main resorts and casinos in Macau, was a standout on Friday with a gain of three cents a share to $21.24, but this was trading at $25.00 just a week earlier.

China Life Insurance Co. Ltd. (NYSE: LFC) is worth $115 billion, even after losing 1.6% on Friday and having lost close to 8.4% from the prior week’s closing bell. That’s roughly a loss of $10 billion in market cap for the week.

New Oriental Education & Technology Group Inc. (NYSE: EDU) saw a 3.4% drop to $124.61 on Friday, but the top Chinese education company had been above $135 the prior week. TAL Education Group (NASDAQ: TAL) fell 3.6% to $46.68 on Friday, and that is down from $54.00 the prior week. That’s a combined $1.6 billion or so in market cap losses just on Friday, and even greater for the whole week.

Huazhu Group Ltd. (NASDAQ: HTHT), a hotel operator in China, saw a 2.5% drop to $32.31 on Friday, but this was down from above $39 just a week earlier. That’s close to $2 billion in market cap lost in a week.

Trip.com Group Ltd. (NASDAQ: TCOM), the leader in online travel (including Ctrip.com), saw its shares drop by 6.9% to $31.90 on Friday, and this was a $39 stock just the week before. The company has allowed for expanded cancellations in hotels. That’s a loss of about $1.3 billion in market just on Friday, and a weekly loss of closer to $4.5 billion in lost market cap.

China Southern Airlines Co. Ltd. (NYSE: ZNH) saw its ADSs fall 2.5% to $29.59 on Friday, but the loss for the week was more than 13%, and that translates to over $1 billion in losses to the current $9.9 billion level. China Eastern Airlines Corp. Ltd. (NYSE: CEA) ADSs fell 1.4% to $24.09 on Friday, down over 12% for the week for a total weekly loss of more than $1 billion in market cap.24/7 Wall St.
Cities Around the World That Will Soon Be Underwater

While there are actually some winners here, it’s important to consider just what has been happening and what the outlook is for the global picture between the United States and China alone. China’s look at 2019 gross domestic product showed annual growth of 6.1%, but it was decelerating into the end of 2019 ahead of China signing its phase-one trade pact with the United States. The International Monetary Fund recently down-ticked global growth for 2020, but that was before considering any impact from a pandemic or epidemic scare was even large enough to try to factor into models. And GDP growth in the United States is barely expected to be 2% in the fourth quarter of 2019, with most economists still expecting a relatively slow growth phase in 2020.

Losses in market capitalization are definitely not the same as true economic costs against the broader economy. That said, it counts against the wealth of their shareholders and businesses shutting down or curtailing operations can have a direct impact on wages, consumer spending, transportation and employment trends. That can all add up to the multiple billions of dollars of real economic impact, when you consider the size of the U.S. and Chinese economies.


​As with almost all pandemic scares and other national and global issues, some speculative stocks manage to see their shares rise sharply. As many of these companies are under a $50 million or $100 million basic size threshold, some of them have been overlooked or omitted. And if history repeats itself, many of the companies that see huge surges from related news often come back to earth.

Lakeland Industries Inc. (NASDAQ: LAKE) is not a biotech, but it occasionally gets to play tag-team when there are biotech movers or biohazard situations around major diseases and industrial waste issues. After all, it makes self-contained industrial protective clothing and containment suits for hazmat and all sorts of applications. Lakeland’s share price jumped just over 25% to $13.77 on Tuesday, but even a 5% gain on Friday made for a $13.74 closing price. This was at $10.97 as of the prior week’s close, and its new market cap is just $110 million.

Allied Healthcare Products Inc. (NASDAQ: AHPI) saw its shares surge 93% to $2.90 on Friday, but it barely has an $11 million market cap, and it only just recently regained Nasdaq listing compliance. Among its breathing and respiratory products are facemasks and other products.

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Alpha Pro Tech Ltd. (NYSE: APT) makes masks and disposable protective apparel, and its shares rose almost 18% to $6.00 on Friday to end with a $78 million market cap. That’s a 71% gain from the $3.50 share price the prior week, and the more than 26 million shares that traded this last week as a whole (more than 6.5 million average each day) compares with a typical trading volume 10,000 to 20,000 shares before that.

BioCryst Pharmaceuticals Inc. (NASDAQ: BCRX) managed to slide back from highs earlier in the week with a 6% drop to $2.81 on Friday, but the $2.75 price from the prior week rose to as much as $3.35 earlier in the week. BioCryst has a $432 million market cap, and its galidesivir is being tested in Phase 1 studies for multiple viruses, including coronaviruses.

Novavax Inc. (NASDAQ: NVAX) often sees its shares surge around global health and pandemic scares. While it rose not even 2% to $7.80 on Friday, this $250 million market cap stock was trading at less than $6 a week earlier.

Moderna Inc. (NASDAQ: MRNA), which was the largest biotech IPO in America, closed down 1.6% at $21.12 on Friday, with a market cap of $7 billion. This company’s stock rose to as much as $23 after the Coalition for Epidemic Preparedness Innovations (CEPI) gave funding to accelerate its work on a coronavirus vaccine.


Cerus Corp. (NASDAQ: CERS) is targeting the MERS coronavirus and exploring to adapt its treatment to the current Wuhan strain. Cerus closed up just 2% at $4.57 on Friday, with a $650 million market cap, but that is up from $4.07 the prior week.

Co-Diagnostics Inc. (NASDAQ: CODX) fell 7% to $1.88 on Friday, with barely a $32 million market cap, but that was up more than 50% from earlier in the week. It may have been higher except that it sold shares to raise capital at a deep discount in a share offering. The company is preparing a coronavirus test.

Vir Biotechnology Inc. (NASDAQ: VIR) saw its shares rise 17.5% to $19.95 on Friday, impressive enough for a $2.3 billion market cap, but that is up 23% from its lows of the week. The company has an antibody for another coronavirus strain, and management is said to be testing to determine if it is effective against this Wuhan strain.

Inovio Pharmaceuticals Inc. (NASDAQ: INO) closed up 10% at $4.24 with a $424 million market cap on Friday, but that’s up a total of more than 28% from the close of the prior week. Inovio has been selected by the CEPI with a grant of up to $9 million to develop a vaccine against the recently emerged strain of coronavirus.

NanoViricides Inc. (NASDAQ: NNVC) saw a whopping 54.5% gain on Friday alone, but it’s still just a $32 million market cap. This stock rose over 150% in the last week, despite having closed on an $8.6 million public stock offering at just $3.00 per share. The company is targeting nano-medicines targeting swine and avian flu, as well as Dengue and Ebola.

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​The futures traded much lower Friday morning as investors digested another wild and woolly week on Wall Street. The positive January employment numbers should help to backstop the end of the week trading. All-time highs have come back into focus, as China lowered tariffs on $75 billion worth of U.S. goods. The coronavirus cases keep rising (over 28,250 cases and 565 deaths in China), but there is some growing hope that a vaccine or treatment may be available in a few months.

With global gross domestic product weighed on by China weakness, there is still much uncertainty and many ongoing and unresolved developments that investors have to digest in 2020. Many investors still have not made some of their normal portfolio changes this year either.

24/7 Wall St. reviews dozens of analyst research reports each day of the week with a goal of finding new ideas for traders and long-term investors alike. Some of the daily analyst calls cover stocks to buy, while some calls cover stocks to sell or to avoid.

We have provided these analyst calls in a quick-hit summary for easy reading, and additional comments and trading data have been added on many of the calls. The consensus analyst price targets and other valuation metrics are from the Refinitiv sell-side research service.

These were the top analyst upgrades, downgrades and initiations seen for Friday, February 7, 2020.

AmerisourceBergen Inc. (NYSE: ABC) was raised to Outperform at Baird, where the analysts have a $112 price target. That compares with the Wall Street consensus target of $96.27. The stock closed trading om Thursday at $92.48.

Artisan Partners Asset Management Inc. (NYSE: APAM) was named as the Bull of the Day at Zacks, which said that, with the market pushing up to new heights, asset managers have been living on easy street. Shares most recently closed at $36.20 with a consensus price target of $34.33.

Becton Dickinson and Co. (NYSE: BDX) was downgraded to Outperform from Strong Buy at Raymond James, where the analysts have set a $283 price objective. That compares with a consensus target that is right in line at $284.36. The stock closed Thursday at $252.25, down almost 12% on the day despite topping analysts’ estimates.

Cabot Corp. (NYSE: CBT) was upgraded to a Buy rating from Neutral at UBS, which also raised the price target to the $52 level. That compares to the consensus target of $50.63. The stock was last seen trading at $42.34.

Cardinal Health Inc. (NYSE: CAH) was raised to Outperform from Neutral with a $68 price objective at Baird. That compares with the $54.93consensus target. The shares closed Thursday at $58.26, up almost 11% on the day on strong earnings and revenue growth. The shares were up another 1% in Friday’s premarket.

Domino’s Pizza Inc. (NYSE: DPZ) was upgraded to Buy from Neutral at Goldman Sachs, which raised the price target for the pizza restaurant giant to $320. The consensus target is $298.86, and the stock ended Thursday at $279.41.

FedEx Corp. (NYSE: FDX) was named as the Zacks Bear of the Day stock. The firm said trade war headwinds have given way to a new scapegoat, the coronavirus. Shares last closed at $148.63 and have a consensus price target of $170.72.

Ford Motor Co. (NYSE: F) was downgraded to Neutral from Outperform with a $9 target at Credit Suisse. Also, DZ Bank lowered it from Buy all the way to Sell. Shares for the automotive giant closed Thursday at $8.25.

Funko Inc. (NASDAQ: FNKO) was downgraded to Hold from Buy with a $10 price target at Stifel. The consensus target is much higher $15.88. Shares ended trading Thursday at $9.29.

General Electric Co. (NYSE: GE) was raised to a Hold rating at Gordon Haskett. The 52-week trading range of the beleaguered but seemingly on the path back industrial giant is $7.65 to $13.00. The consensus price target is $12.49. The stock closed at $12.95 on Thursday.


​Grubhub Inc. (NASDAQ: GRUB) was downgraded to Underperform from Neutral at D.A. Davidson, which has set a $33 price target. The consensus target is much higher at $49.48, and the closing share price on Thursday was $54.62.

Helmerich & Payne Inc. (NYSE: HP) was downgraded to Neutral from Buy at B. Riley FBR, which also lowered its price target to $39. The consensus target for the drilling giant is $46.03. The last trade reported Thursday came in at $43.80.

HSBC Holdings PLC (NYSE: HSBC) is raised to Outperform from Neutral at Keefe Bruyette. The shares have traded in a 52-week range of $35.35 to $44.93, and the consensus price target for the bank is $40.68. The stock most recently closed at $37.10.

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L3Harris Technologies Inc. (NYSE: LHX) was started with a Buy rating with a $280 price target at Benchmark. The consensus target is $254.80. Shares of the defense leader closed Thursday at $225.98.

Marvell Technology Group Ltd. (NASDAQ: MRVL) was downgraded to Underperform from Outperform at Cowen. The analysts also set an $18 price target, but the consensus target is much higher at $29.86. The stock closed Thursday at $25.75, but shares were under pressure in the premarket, down over 5% on disappointing results.

Peabody Energy Corp. (NYSE: BTU) was started with a Hold rating at Benchmark. The stock has traded in a stunning 52-week range of $6.35 to $32.25. The last trade on Thursday was reported at $8.95, down almost 4% on the day.

Synaptics Inc. (NASDAQ: SYNA) was raised to Neutral from Underweight at JPMorgan, which also pushed the price target to the $73 level. The posted consensus target is $67.33. The stock closed Thursday at $70.10, but the shares are up almost 14% in the premarket as the company posted strong results after Thursday’s close.

Twitter Inc. (NASDAQ: TWTR) was raised to Positive from Neutral with a $47 price target at Susquehanna, which compares to a $34.47 consensus price objective. The stock had a big move this week after posting very impressive results and user numbers. Guggenheim downgraded the shares to Neutral from Buy but kept a $36 price target. The stock closed Thursday at $38.41, up a massive 15% on the day.

Uber Technologies Inc. (NYSE: UBER) was raised to Buy from Hold at Lake Street. The ride-sharing leader has traded between $25.58 and $47.08 over the past 52 weeks. The consensus price target for the shares is $45.08. The last print Thursday came in at $37.09, but shares are up almost 6% in the premarket on positive numbers and forward forecasts.

Yum! Brands Inc. (NYSE: YUM) was downgraded to Neutral from Buy at BTIG Research. The restaurant leader’s shares have traded between $92.02 and $119.72 over the past 52 weeks, and the stock was last seen on Thursday at $103.74, down almost 3% on weakness at the Pizza Hut group.24/7 Wall St.
Why 2020 Could Be a Comeback Year for CSX Stock

Also note that Merrill Lynch has five Buy-rated tech stocks that pay large dividends.

And see why 2020 could be a comeback year for CSX stock and how long investors should be patient with Lyft stock.

Thursday’s top analyst upgrades and downgrades included AbbVie, Biogen, Boeing, Etsy, Gilead Sciences, GoPro, Micron Technology, Newmont, Peloton Interactive, Pfizer, Valero Energy, Zynga and many more.

Equinix

This is one of the larger capitalization companies in the industry and a top pick. Equinix Inc. (NASDAQ: EQIX) provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific.

The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.

Equinix investors are paid a 1.66% distribution. The $630 Merrill Lynch target price compares with the $514.87 consensus price objective. The last trade on Friday came in at $591.96 a share.


QTS Realty Trust

This is a top pick data center real estate investment trust that has been mentioned as a takeover target in the past. QTS Realty Trust Inc. (NYSE: QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. Its integrated technology service platform of custom data center, colocation and cloud and managed services provides flexible, scalable, secure IT solutions for web and IT applications.

The company’s Critical Facilities Management (CFM) provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 24 data centers and supports more than 1,000 customers in North America, Europe and Asia-Pacific.

QTS investors receive a 3.08% distribution. Merrill Lynch has set its price target at $56. The consensus target is $47.19, and the shares closed at $57.21 on Friday.

​Bank of America Corp. (NYSE: BAC) reported third-quarter 2019 results before markets opened Wednesday. The big bank reported diluted earnings per share (EPS) of $0.56 on revenue of $22.8 billion. In the same period a year ago, it reported EPS of $0.66 on revenue of $22.93 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.51 on revenue of $22.79 billion.

The bank’s EPS includes a $0.19 per share impairment charge of $2.1 billion related to a joint venture with Fiserv Inc. (NASDAQ: FISV) in its merchant services business.

Net income fell from $7.2 billion in the same period a year ago to $5.8 billion (including the impairment charge) while net interest income rose by 1% ($126 million) and non-interest income dipped by $43 million. Income tax expense dropped from $1.83 billion to $1.08 billion. Non-interest expense rose by $2.16 6illion to $15.17 billion (including impairment charge).

Credit loss provision totaled $779 million in the quarter, up by $63 million compared with the same period in 2018. In the global banking division alone, credit loss provision rose from a gain of $70 million a year ago to an expense of $120 million. Bank of America said the increase was “driven primarily by the absence of 3Q18 reserve releases, primarily from energy exposures.”

Net charge-offs decreased by $121 million to $811 million, and the net charge-off ratio dropped from 0.40% to 0.34% year over year.

CEO Brian Moynihan said:

In a moderately growing economy, we focused on driving those things that are controllable. We made continued strong investments in our capabilities to serve customers, more relationship management teammates, more and refurbished branches and offices, and more digital capabilities, all while core expenses are flat. Our client activity, the expansion of our client base, and our ability to gain market share across most of our businesses in the quarter, all reflect responsible growth.

The bank did not provide guidance in its earnings release. The consensus estimate for fourth-quarter EPS is $0.70 on revenues of $22.52 billion. For the full 2019 fiscal year, the consensus calls for EPS of $2.65 on revenues of $91.6 billion. Consensus estimates for both annual EPS and revenues have declined since the end of the second quarter.

The dissolution of the bank’s joint venture was announced in late July, and even though the charge came in at the high end of the range, investors had plenty of time to adjust. Add to that Warren Buffett’s apparent interest in boosting his ownership of the shares beyond the 10% limit for passive investors. Bank of America shares added 2% on Tuesday after that report broke.

Shares traded up by more than 2% in the premarket Wednesday to $30.40. The current 52-week range is $22.66 to $31.17. Analysts had a 12-month consensus price target of $32.78 before results were announced.

​IPO

RECOMENDATIONS

As with all outbreaks and panics, thousands of illnesses and a rising death toll is what matters the most. There are still economic impacts that occur as well. With the outbreak of the coronavirus in China having spread to other nations, there is now practically no way that China will not take a serious hit to its first-quarter gross domestic product (GDP) as the nation faces more and more shutdowns, travel bans, extended holidays and so on. This also will have a big impact on U.S. and western companies with significant operations and sales in China.

Apple Inc. (NASDAQ: AAPL) is one of the most widely followed and widely held companies in the world. After its announcement that it would temporarily shut down all of its stores in China, Apple faces a financial impact as well. It could rapidly recover in the following weeks or the next quarter, but a formal estimate has been offered up.

Daniel Ives of Wedbush Securities, who has been and remains one of the largest Apple bulls among all analysts, has outlined the potential impact of China’s store closures. First and foremost, Apple is not the first company to shut its China stores (and corporate offices). McDonald’s and Starbucks have already done the same. That current period is through February 9, but the actual dates may change, of course, depending on the progression or contraction of the coronavirus.

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Ives believes that much of the buying of iPhones and AirPods and other items in stories in China and surrounding countries would have taken place ahead of the Chinese New Year consumer. That is also ahead of the mass closures in China and travel bans that have been announced since. Strong sales in December and January likely were already in the books for Apple, with strong annualized gains. Unfortunately, up to a million iPhones may be shifted from the current quarter (March) to the second quarter (June). Ives said:

We believe with the limited transportation in major cities throughout China and limited foot traffic in Shanghai, Beijing, and other cities that at most approximately 1 million iPhones in the region could be at risk of shifting out of the March quarter into the June quarter if this continues into late February which would be less than 3% of Chinese annual iPhone sales at most and a very containable risk. Furthermore with the vast majority of sales online we view a one week closure of Apple stores as having a negligible impact thus far despite the scary and concerning headlines from the region.

One issue that was already shown to have set the stage for this was Apple’s wider guidance for the coming quarter. Ives also believes that Apple “is on pace to convert more than half of the 60 million to 70 million iPhones currently in the window of an upgrade opportunity and should be a source of clear strength going forward.”

Ives does note that the coronavirus outbreak is obviously a sad situation and brings added headline concerns for investors. That said, Apple’s fundamental impact from this coronavirus outbreak to Apple’s actual revenues likely will be negligible as there were no major reductions in iPhone and related prices nor any last-minute sales heading into the Chinese New Year.

Apple shares fell over $14 (4.4%) on Friday to close down at $309.51. That was after having hit a prior high of $327.85 after earnings, and it is now a lower close than all but one pre-earnings day since January 9. Wedbush maintains an Outperform rating and the formal $400 price target, which is also the street-high target price. Ives concluded:

While China is a major part of our bull thesis and growth story of Apple for the coming 12 to 18 months, we do not view the impact of this virus epidemic as changing the numbers/merits behind the renaissance of growth in China for FY20/FY21 with a 5G super cycle the longer term driver. We would be buyers on weakness and reiterate our Outperform rating and $400 price target.

Apple’s most recent consensus analyst target price from Refinitiv has risen handily since the start of 2020. It now sits at $328.42 after so many analysts have hiked their targets.24/7 Wall St.


​STOCK BUYS

​The national average price for a gallon of regular gasoline dropped by nearly four cents per gallon last week to $2.50, according to industry analysts at GasBuddy. The drop continues a trend of falling pump prices. At the beginning of January, gas cost $2.57 a gallon.

Crude oil traded around $52.75 a barrel early Monday morning, down about 2.6% from Friday’s closing price of $54.19. Over the past month, the price of West Texas Intermediate (WTI) crude for immediate delivery has plunged by nearly $9 a barrel (more than 14%). The national average price of gasoline is at its lowest level since March 10 of last year.

GasBuddy’s head of petroleum analysis, Patrick DeHaan, commented:


Worry has gripped oil markets, sending the commodity plunging in value in recent weeks, with motorists continuing to be the beneficiaries as downdrafts in gas prices accelerate. With oil prices now nearly $6 per barrel lower than a week ago and nearing their lowest level since October, there’s plenty more room for the decline in gas prices to be extended again.

DeHaan added:

While the national average could fall into the $2.30’s before all is said and done, the downward move likely won’t last much more than a few more weeks. For now, my advice to motorists is don’t be in a rush to fill–nearly every station nationwide will be cutting their prices in the days ahead–but shop around if you do need to fill up and patronize the stations with the lowest prices.

The week’s median price for a gallon of regular gas was $2.39, down six cents week over week. The average price at the 10% of gas stations charging the most for gas was $3.48, down a penny a gallon, while the average at the 10% charging the least fell by four cents to $2.06. The most common price across the country was $2.39 a gallon.

The five states where drivers are paying the most for gas are Hawaii ($3.88), California ($3.53), Nevada ($3.04), Washington ($2.99) and Alaska ($2.94). The only other state currently reporting a price of more than $2.75 a gallon is Oregon.

The five states where gas is cheapest are Missouri ($2.15), Mississippi ($2.20), Texas ($2.20), Louisiana ($2.20) and Oklahoma ($2.22).

Compared to last month, the national average is down seven cents per gallon, and compared to last year, prices are up about 25 cents.

​FEBRUARY NEWSLETTER PAGE 1

​GAS PRICE TO GO DOWN

​One of the best places for investors to have been over the past year was the technology sector, and with good reason. Industry giant Apple Inc. (NASDAQ: AAPL) had a massive 86% increase alone in 2019. However, the question facing investors in the sector is simple: Where do we go now?

With fourth-quarter earnings reporting winding down, we decided to review the results, looking for tech stocks that delivered solid earnings, were rated Buy at Merrill Lynch and also paid solid dependable dividends. We found five stocks that look like solid investments for 2020 and that should hold up better if we get a protracted technology and momentum sell-off.

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Broadcom

This stock has rallied smartly off last summer’s lows and could potentially break out to new highs this year. Broadcom Inc. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.

Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Top Wall Street analysts like Broadcom’s leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many analysts see a cyclical rebound in industrial and communications demand.

Broadcom investors receive a very solid 4.07% dividend. Merrill Lynch has a $360 price target on the shares. The Wall Street consensus target is handily lower at $350.62, and Broadcom stock closed Thursday’s trading at $319.16 per share.

Corning

This company continues to be a huge player in the fiber optic world, and it resides on the Merrill Lynch US 1 stock list of top picks. Corning Inc. (NYSE: GLW) is a technology pioneer that manufactures LCD glass for flat-panel displays for multiple product lines.

Telecommunications (30% of sales) produces optical fiber and cable, component hardware and equipment, and photonic components for the telecommunications, CATV and networking industry. In addition, the company’s Environmental Technologies division (12% of sales) produces specialized glass, glass ceramic and polymer-based products for the automotive industry.

Corning offers shareholders a reasonable 2.84% dividend. Merrill Lynch has a $34 price target, while the consensus target was last seen at $30.17. Corning stock closed at $28.17 a share on Thursday.

IBM

This blue-chip giant still offers investors a very solid entry point. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.

IBM’s five major segments are: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for their positive outlook going forward. But note that IBM is among the big corporations with the most debt.

GM FORD

​Tesla Inc. (NASDAQ: TSLA) has dominated the news flow with its incredible run, but now we will be getting a bigger picture of the auto industry when rivals Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) report their most recent quarterly results.

Last week, Tesla reported impressive results, feeding fuel to the fire of its rally over the past six months. While Tesla has gone from a cult stock to a market darling in this time, Ford and GM largely have been nonfactors, with their stocks down 3% and 15% respectively. On the other hand, Tesla shares are up 233% in this time.

One has to wonder if positive earnings for Ford or GM will give any credence to these auto manufacturers and get them back in the game.

Ford is expected to report its fourth-quarter financial results after the markets close on Tuesday. Analysts are calling for $0.15 in earnings per share (EPS) and $36.49 billion in revenue. The same period of last year reportedly had $0.30 in EPS and $38.72 billion in revenue.

Here’s what a couple of analysts said about Ford ahead of the report:

JPMorgan has a Neutral rating and a $10 price target.
Wolfe Research rates it at Outperform with a $12 target.
Benchmark has a Hold rating.
Evercore ISI has an Underperform rating.
Credit Suisse has an Outperform rating.

GM is scheduled to release its results before the markets open on Wednesday. The consensus estimates are $0.01 in EPS and $31.04 billion in revenue. In the fourth quarter of last year, the company reported $1.43 in EPS and $38.4 billion in revenue.

A few analysts have made calls on GM ahead of the report:

Deutsche Bank has a Buy rating with a $43 price target.
Credit Suisse has a Buy rating and a $47 price target.
Barclays rates it a Buy with a $44 target price.
RBC’s Buy rating comes with a $49 price target.
Benchmark has a Buy rating and a $49 price target.

Ford stock traded up about 2% at $9.16 a share on Tuesday, in a 52-week range of $8.16 to $10.56. The consensus price target is $10.09.

GM stock was up about 3% to $34.65. The 52-week range is $32.97 to $41.90, and the consensus price target is $47.76.

​PRICES ARE DECLING

​Shares of Walmart Inc. (NYSE: WMT) are down 1.18% to $117.44. It is among the worst-performing Dow Jones industrial stocks. The index itself is higher by 3.01% to 29,398.08. The move in Walmart stock may be a reaction to worries about retail in general.

Walmart will suffer due to the coronavirus in China. The country is one of Walmart’s largest markets. The spread of the disease shows no sign it will abate. That means some Walmart stores could be shuttered for weeks.

Walmart’s earnings may be less than stellar. The holiday season in the United States was shorter than usual. This may trigger poor comparisons to 2018. Although investors should overlook this factor because it is driven by the calendar, they may not. The anticipation of rocky results may be why short interest in Walmart surged in the most recent period.

Walmart also has to deal with the “Amazon effect,” which has dogged it for over a decade. Results of Walmart’s e-commerce division will be carefully scrutinized. Even if this part of the company is growing, total revenue from it will be dwarfed by Amazon’s fourth-quarter 2019 numbers. While strong growth will be good news, a direct comparison will be wanting.

Walmart has tried to combat Amazon’s strength. It lets people order products and food online and then pick them up at one of Walmart’s stores. This should be a convenience. Walmart does not break out the numbers, which makes it impossible to decipher whether the results are good.

While Walmart’s results often top those of other retailers, it cannot escape the drop in same-store sales of many of its competitors. Results from smaller companies in the industry are often relentlessly lower. Among the exceptions is Walmart’s most direct competitor: Target. This should spark some enthusiasm that size means something, at least in retail.

Now, all investors have to do is wait a few days to find out how Walmart is really doing.

​The company’s chief executive officer, Ginni Rommety, who had been in the position since 2012, recently stepped down, and the stock market greeted the news in a very positive manner. The solid quarterly report had the analysts saying this:

IBM reported revenue above the street on strength across all segments, particularly on Red Hat and strong mainframe cycle. We view cross IBM-Red Hat cross selling opportunity growing into 2020, return to total company growth, 4%+ dividend yield as strong positives.

IBM shareholders receive a large 4.13% dividend. The $170 Merrill Lynch price target compares with the $149.94 posted consensus target. IBM stock closed most recently at $156.76 per share.


Qualcomm

This stock has been very volatile over the past year. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.

In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.

5G should prove to be big for the company, and the analysts said this after the company reported earnings:

Qualcomm reported a strong first quarter, and second quarter revenue/EPS guidance of $5.30 billion/88c was strong on the surface vs the Street’s $5.09 billion/86c. Second quarter Mobile station modem guidance of 135 million disappointed vs our 156 million, offset by $31 average selling price guidance which was significantly higher than our $25. The results prove that Qualcomm is starting to benefit from the global 5G cycle.

Shareholders of Qualcomm receive a very dependable 2.74% dividend. Merrill Lynch has raised its price target to $115 from $110. The posted consensus target is $99.74, and Qualcomm stock was last trading at $90.61 a share.

ALSO READ: Merrill Lynch Very Cautious on Oil Stocks: 5 Defensive Picks to Buy Now

Western Digital

This is a leader in the total addressable hard disk drive (HDD) market. Western Digital Corp. (NASDAQ: WDC) designs, manufactures and markets hard disk drives for use in enterprise storage, servers, desktop and laptop computers and consumer electronic devices. It also has a growing solid-state drive and storage systems portfolio and is currently the third-largest enterprise solid-state drive manufacturer.

The company sells its products directly to original equipment manufacturers, as well as distributors and retailers, and its production capabilities are vertically integrated. Western Digital posted solid results for the latest quarter, and the analysts noted this:

The company reported a strong quarter and guide with confidence in solidly expanding gross margins driven by flash pricing. Western Digital lost some share in capacity enterprise but we expect this to be a cyclical not structural issue. With earnings power headed toward $8+ in fiscal 2021, we see continued positive revisions and raise our price objective.

Western Digital shareholders are paid a 2.91% dividend. The recently raised Merrill Lynch price target is $90. The consensus analyst price target is $79.77, and the stock closed trading most recently at $68.70.

MERRILL LYNCH


In an overbought and frothy stock market, sometimes the hardest thing for dedicated stock investors to do is to head to the sideline, and with good reason. While the longest peacetime expansion and the corresponding almost 11-year bull market have been outstanding for those who were in the whole time, there is always a chance there is another 5% upside before a blow-off top.

The question is, given all the current financial jitters and with the potential for the coronavirus to explode, what stocks make sense now? Using a somewhat contrarian stance, but acknowledging that it’s always darkest before the dawn, we found five top companies that are rated Buy at major firms, are very well known, and have been tossed into the Wall Street penalty box. Like in the National Hockey League, they will not be let out until the penalty time is served.

While not suitable for very conservative accounts, they all make sense for investors who have a long-term view on the markets and can wait out the current issues in an effort to see some big-time returns.

Boeing

This company has had a public relations nightmare due to the 737 Max issues. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. It is also one of the most valuable brands in the world.

The different segments in the company are Commercial Airplanes, Boeing Defense, Space & Security and Boeing Capital. The latter provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles.

In 2018, Boeing and Embraer signed a nonbinding memorandum of understanding to create a new strategic partnership for commercial aviation. The new joint venture is valued at $4.75 billion, which values Boeing’s 80% share at $3.8 billion.

With the 737 Max expected to come back into service in the summer, it may still take a couple of months of safe air travel for nervous investors to enjoy the ride again.

Shareholders receive a 2.40% dividend. Jefferies has a $390 price objective on the shares, while the Wall Street consensus target price is $344. Boeing stock closed Thursday at $342.82 a share.

Exxon

This is a safer long-term play for conservative investors, and the energy giant is trading at stunning 10-year lows. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products. Note that Exxon has one of the highest paid American CEOs.

The company reported mixed fourth-quarter results that did have some positive trends, and while earnings came in slightly below estimates, revenues exceeded them. One issue that has kept some pressure on the shares is concerns that the long-standing dividend may be cut. Merrill Lynch doesn’t agree and noted this earlier this week:

Suggestions that Exxon’s dividend is at risk misunderstands a decade long strategy of investing at the low end of the cycle. Its sector leading balance sheet is considered strategic and stands best in class despite any borrowings to fund future growth. The company remains the only major with line of sight for a material expansion in cash/flow and dividend growth through the decade.

The company raised the dividend last year by a nickel per share to $0.87. That translates to a massive 5.71% dividend. The Merrill Lynch price objective is $100, while the consensus price target is just $74.10. Exxon Mobil stock closed at $60.93 on Thursday.24/7 Wall St.
5 Contrarian Dividend Stocks to Buy as Market Rips to All-Time Highs


​It never fails. Just when you think some legacy technology giant is down for the count, it regroups and comes back, and just blowing away the skeptics and sometimes Wall Street as a whole. That is exactly what semiconductor giant Intel Corp. (NASDAQ: INTC) did last Thursday when it reported huge fourth-quarter numbers.

The venerable chip leader reported fourth-quarter financial results with a stunning $1.52 in earnings per share (EPS) and $20.21 billion in revenue, compared with consensus estimates that called for $1.25 in EPS and $19.23 billion in revenue. The same period of last year reportedly had $1.28 in EPS and $18.66 billion in revenue.
One reason for the huge surprise is an area the company has focused diligently on the past few years, as it moved away from being PC and laptop focused and shifted to data center growth. For the quarter, data-centric businesses achieved record revenue. This was led by record Data Center Group revenue, which grew 19% year over year. Robust demand from cloud service provider customers and a continued strong mix of high-performance processors drove this growth.

We have covered the top data center stocks for years here at 24/7 Wall St., and the timing for investors looking to add shares in the top companies could not be better, as most backed up quite a bit in the fourth quarter after huge runs in 2018 and early 2019.

We screened the Merrill Lynch data center coverage universe and found four top stocks that pay healthy dividends and look like solid 2020 buys.

CyrusOne

This is a top pick among the data center stocks and is priced right. CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs.

Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.

Many analysts feel that some of the best returns in the data center sector may be found in the smaller players in the space like CyrusOne. The company has traded at numerous lower multiples than some of its bigger competition, and other top analysts also feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company also has exhibited faster deployment times, rapid new market expansion and low churn among customers, all bullish reasons for buying the stock.

CyrusOne unitholders receive a solid 3.19% distribution. The Merrill Lynch price objective for the shares is $75, while the Wall Street consensus target price is $60.71. The shares closed trading on Friday at $62.62 apiece.

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​The bull market is now more than a decade old, and the massive stock market strength of 2019 was seeing a continuation into January. Earnings were coming on strong from the market leaders, and most economic data was looking good. Interest rates even looked like they were going to be flat for most or all of 2020. Then came the market fears as China’s coronavirus has spread and become a global health scare. As of February 1, 2020, the number of coronavirus cases has risen to 12,000 and at least 259 deaths have been reported.

When bad things happen and regions or parts of economies get shut down, it has an immediate spillover into the stock market. Not all companies get hit the same, and some even continue to thrive. But when tourists and travelers stop going to hotels, when flights get canceled, when cruises become a major concern, when restaurants and stores shut down, and when big destinations that draw crowds are closed and big events are canceled, it all comes with a major economic impact and many sectors feel the pain immediately.

There is now no possible way to consider that the coronavirus impact in China and beyond will not create a serious hit to China’s gross domestic product for at least the first quarter of 2020. The only question now is whether other nations can avoid the hit when everyone does so much business there.

24/7 Wall St. frequently looks for defensive stocks that do well even when the stock market sells off. That is partially the case for 2020, but in finding stocks that still do well even when there is a growing fear of contagion or pandemic, the view becomes rather different.

We have gone through the large-cap stocks that are based in the United States and that either are in the S&P 500 or are well-known to the markets with multi-billion-dollar market capitalization rates to see which companies are, at least so far, acting as if they are somewhat immune or resistant to the current fears around the market.

American Water Works Co. Inc. (NYSE: AWK) did close down 0.4% at $136.20 on Friday, but it had been up earlier in the day and hit a new all-time high of $137.73. Being America’s largest water utility and serving water to about 14 million people in 46 states comes with some advantages. Businesses can slow down, but everyone still has to drink water (and hopefully use their baths, showers and toilets).

American Water Works shares have risen almost 11% so far in 2020, and the nosebleed valuations of 35 times forward earnings haven’t reached a point of deterring investors yet, even if those valuations for new money are getting harder to justify easily.

Amazon.com Inc. (NASDAQ: AMZN) just reported stellar earnings and its guidance was good enough to keep the strength of the AWS cloud operations running high along with its core Amazon delivery business. Amazon shares closed up 7.4% at $2008.72 on Friday, and the shares hit a high of $2,055.72. Amazon stock is now up almost 9% so far in 2020.

Admittedly, Amazon may be the lease defensive name of these, but it should now have great chart support down closer to $1,900, and 5% near-term downside seems to be considerably less risk than some other tech giants that had risen much greater in 2019 and earlier in January. Amazon is immune to Asia, but it has less dependence there than some of the major tech giants do.

Coca-Cola Co. (NYSE: KO) was down almost 0.8% at $58.40 on Friday, but its shares saw a solid earnings gain this week, and it did hit a new high of $59.08 on Friday as well. Coca-Cola is generally a go-to defensive name anyway, and it now sells water and many other sports and daily beverages aside from its core Coca-Cola and soda beverages.

Coca-Cola’s stock chart (see below) has exhibited a breakout from a long-term peak as well. Its shares are up 5.5% so far in 2020.

Colgate-Palmolive Co. (NYSE: CL) is one of the go-to defensive stocks in most down market days, but it managed a 4.3% post-earnings gain on Friday to close at $73.78. Its more recent level of closer to $71 that was resistance on the chart may now offer strong support for limited downside.

Colgate’s $63 billion market cap is nowhere close to the largest of the consumer products makers (P&G).

Duke Energy Corp. (NYSE: DUK) is not the only utility that has seen its shares rise, but it is among the largest utilities in America and still has valuations that are not out of line with the market and the utilities sector. Duke Energy stock closed up almost 0.2% at $97.63 on Friday, with a $71 billion market cap.

Duke’s shares hit a new high of $98.05 on the day while still having close to a 4% dividend yield. The stock is now up over 7% so far in 2020.

​One of the best places for investors to have been over the past year was the technology sector, and with good reason. Industry giant Apple Inc. (NASDAQ: AAPL) had a massive 86% increase alone in 2019. However, the question facing investors in the sector is simple: Where do we go now?

With fourth-quarter earnings reporting winding down, we decided to review the results, looking for tech stocks that delivered solid earnings, were rated Buy at Merrill Lynch and also paid solid dependable dividends. We found five stocks that look like solid investments for 2020 and that should hold up better if we get a protracted technology and momentum sell-off.

Broadcom

This stock has rallied smartly off last summer’s lows and could potentially break out to new highs this year. Broadcom Inc. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.

Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Top Wall Street analysts like Broadcom’s leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many analysts see a cyclical rebound in industrial and communications demand.

Broadcom investors receive a very solid 4.07% dividend. Merrill Lynch has a $360 price target on the shares. The Wall Street consensus target is handily lower at $350.62, and Broadcom stock closed Thursday’s trading at $319.16 per share.

Corning

This company continues to be a huge player in the fiber optic world, and it resides on the Merrill Lynch US 1 stock list of top picks. Corning Inc. (NYSE: GLW) is a technology pioneer that manufactures LCD glass for flat-panel displays for multiple product lines.

Telecommunications (30% of sales) produces optical fiber and cable, component hardware and equipment, and photonic components for the telecommunications, CATV and networking industry. In addition, the company’s Environmental Technologies division (12% of sales) produces specialized glass, glass ceramic and polymer-based products for the automotive industry.

Corning offers shareholders a reasonable 2.84% dividend. Merrill Lynch has a $34 price target, while the consensus target was last seen at $30.17. Corning stock closed at $28.17 a share on Thursday.

IBM

This blue-chip giant still offers investors a very solid entry point. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.

IBM’s five major segments are: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for their positive outlook going forward. But note that IBM is among the big corporations with the most debt.


​Amazon.com Inc. (NASDAQ: AMZN) already had been considered to be a relatively new stake for Team Buffett’s portfolio managers, but Buffett had praised the growth and explosive change brought on by Jeff Bezos in the past. The conglomerate’s stake was kept the same in September as it had been raised its stake by more than 10% to end the second quarter with just over $1 billion at the close. Amazon’s stake is up to 537,300 shares from the previous holding of 483,300 shares.

There were some changes worth noting in oil and gas, although one might have easily been expected. Phillips 66 (NYSE: PSX) was 5.18 million shares at the end of September, down from 5.55 million shares in June. Occidental Petroleum Corp. (NYSE: OXY) was a new stake of 7.467 million shares, but this was likely an add-on from the $10 billion merger assistance Buffett contributed for Anadarko. Buffett and Berkshire Hathaway had already committed to invest a total of $10 billion in connection with Occidental in its acquisition of Anadarko. That acquisition and the Berkshire Hathaway investment in Occidental closed on August 8, 2019. Berkshire’s investments in Occidental included newly issued Occidental Cumulative Perpetual Preferred Stock with a total liquidation value of $10 billion, along with warrants to purchase up to 80 million shares of Occidental’s common shares at an exercise price of $62.50 per share, but Occidental was handily under $40 more recently.

Some slight changes and notes have been made in financials here. Globe Life Inc. (NYSE: GL) appeared to be a new stake of 6.35 million shares, but this is the former Torchmark in which Buffett had a stake. The company targets supplemental health insurance products and annuities to lower-middle to middle-income households. U.S. Bancorp (NYSE: USB) was the same 132.46 million shares as in June, but it had been raised the prior quarter from a previous holding of 129.31 million.

RH (NYSE: RH) was a new stake as of September 30 of 1.208 million shares in the luxury home furniture seller, a move that is obviously tied to one of the portfolio managers rather than Buffett himself.

Kraft Heinz Co. (NASDAQ: KHC) has continued to be a thorn in the side of Buffett, and Berkshire Hathaway’s stake likely will be buried here for quite some time. The Kraft Heinz holdings remained unchanged at 325.63 million. Its latest quarterly filing with the SEC (10-Q) signaled that it held a stake in Kraft Heinz common representing 26.6% of the outstanding shares. That filing from earlier in November said:

Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment was approximately $9.1 billion at September 30, 2019 and $14.0 billion at December 31, 2018. The carrying value of our investment was approximately $13.8 billion at both September 30, 2019 and December 31, 2018.

Other changes and positions with updates since the end of the September 30 date have been combined below.

Charter Communications Inc. (NASDAQ: CHTR) was effectively the same 5,426,609 share stake, but it had previously been lowered from 5.71 million shares. As far as shares in the airlines companies, Buffett’s stakes were the same in American Airlines Group Inc. (NASDAQ: AAL), Delta Air Lines Inc. (NYSE: DAL), Southwest Airlines Co. (NYSE: LUV) and United Airlines Holdings Inc. (NASDAQ: UAL).

Sirius XM Holdings Inc. (NASDAQ: SIRI) was 136.28 million shares in September, down slightly from 137.92 million shares in June. One issue to consider here is that there are also the same number of Liberty Media shares that are directly tied into Sirius XM.24/7 Wall St.
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Merger issues have already removed some recent holdings as well:

The arbitrage stake of Red Hat Inc. (NYSE: RHT) disappeared as the Red Hat acquisition by International Business Machines Corp. (NYSE: IBM) closed over the summer.
USG Corp. (NYSE: USG) already had been eliminated in the shares owned by Team Buffett, after years and years of ownership, after Knauf KG acquired the company in a $7 billion deal that took out Buffett’s 30% or so stake in the company.

That’s it for the Warren Buffett stake changes.

​The Amazon.com Inc. (NASDAQ: AMZN) headcount at the end of last year was just above 800,000. At its current growth rate, it would become one of the few American companies with a million employees by the end of 2020. That is a sign of how large Amazon has become and its effect on the economy. Founder and CEO Jeff Bezos is considered one of the most influential people in 2020 as well.

In a further sign of 2020 growth, Amazon has disclosed it will add 15,000 to its campus in Bellevue Washington, relatively near its global headquarters, although not all those jobs will be added this year. It has inked a deal for 335,000 square feet in New York’s growing Hudson Yards neighborhood too.

Across the United States, Amazon’s warehouses are booming. Same-day delivery needs are part of this. Its North American sales grew from $44.1 billion in the final quarter of 2018 to $53.7 billion in the last quarter of 2019. That is a growth rate of 22.7%. In addition, Amazon Web Services (AWS), the leading cloud service in the world, posted fourth-quarter revenue of $7.3 billion, which grew to $10.0 billion in the final quarter of last year.

Among the world’s private and public companies, Amazon is probably the third largest behind Walmart at 2.2 million and China National Petroleum at 1.4 million, based on 2019 numbers. It is probably eighth or ninth in terms of revenue worldwide. At its rate of growth, it could rise to the sixth or seventh place this year.

Amazon likely will continue to grow at a rate of 20% for another year or two, and then well into the double digits after that. E-commerce has done much to cripple brick-and-mortar retail, which has lost over 100,000 jobs in the last year. And cloud companies continue to add workers as firms turn to services that store and manipulate tech work remotely.

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​CORONAVIRUS

​OVERSUPPLY

​1 MILLION EMPLOYEES

Tesla Inc. (NASDAQ: TSLA) has been a market darling over the past six months, with the stock more than doubling in this time. As a result, founder and CEO Elon Musk is looking to capitalize on this move with a secondary offering. This move by Musk is twofold. It gives more investors the opportunity to buy into Tesla stock, while raising capital to support further development at the company. The question here is whether shares are being discounted too much.

According to its filing with the U.S. Securities and Exchange Commission, Tesla will be offering 2.65 million shares at $767 apiece. This is a discount of 4.6% from the most recent closing price of $804. There is an overallotment option for an additional 397,500 shares.

Also as part of this offering, Musk will be purchasing up to 13,037 shares of common stock for roughly $10.0 million. Additionally, Larry Ellison, another board member and the founder of Oracle, has indicated a preliminary purchasing interest in 1,303 shares for approximately $1.0 million.

For this offering, Tesla has a broad array of underwriters, including Goldman Sachs, Morgan Stanley, Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Wells Fargo and Societe Generale.

Tesla expects to receive net proceeds of $2.01 billion from the offering, or $2.31 billion in the total overallotment option is exercised. Management detailed its intentions for the net proceeds in the filing:

We intend to use the net proceeds from this common stock offering to further strengthen our balance sheet, as well as for general corporate purposes. Pending use of the proceeds as described above, we intend to invest the proceeds in highly liquid cash equivalents or United States government securities.[Chase for Business]
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Tesla stock traded at $805.13 on Friday, in a 52-week range of $176.99 to $968.99. The consensus price target is $433.41.24/7 Wall St.


​SALES DECLINE

​DOWN

​STOCKS WITH SIGNIFICANT UPSIDE.

​BANK OF AMERICA

The Federal National Mortgage Association, better known as Fannie Mae (FNMA), is one of several U.S. government-sponsored enterprises (GSEs) that has been supervised and regulated by the Federal Housing Finance Agency (FHFA) since the housing market crash.

The agency, along the Federal Home Loan Mortgage Corporation, aka Freddie Mac (FMCC), was placed under FHFA conservatorship in 2008 following an injection of $190 billion in bailout funds to keep the two GSEs from failing. Since being placed into conservatorship, the two GSEs have returned more than $300 billion in dividend payments to the U.S. Treasury.

About 20% of Fannie Mae stock trades over-the-counter and the remaining 80% of preferred stock is owned by the federal government. Last September, the Trump administration announced a three-pronged plan to overhaul Fannie Mae and Freddie Mac following a March order from the president. In October, the FHFA announced a more detailed strategic plan for the two agencies, which together hold about a third of the country’s nearly $16 trillion in mortgage debt.

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The strategic plan for Fannie and Freddie includes three main objectives. First is fostering national housing finance markets that support sustainable homeownership and affordable rental housing. Second is operating in a safe and sound manner, and third, preparing for their eventual exits from the conservatorships.

For investors, the administration’s plan for exiting conservatorship is the most interesting and important part. There are three parts to the plan. First, return Fannie and Freddie to private control after recapitalizing them. Then create an explicit federal guarantee of the mortgage-backed securities issued by the two GSEs. And, finally, create more private companies to compete with Fannie and Freddie for mortgage purchases.SPONSORED BY TYSON
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Returning Fannie and Freddie to private control means holding initial public offerings (IPOs) that could raise as much as $200 billion, putting the recent, world’s largest-ever IPO of Saudi Aramco in the shade. The Saudi national oil company raised $25.6 billion in a recent offering of 1.5% of the company on the Saudi Tadawul exchange.

The IPO Process Has Begun

In December, Fox News reported that the FHFA was interviewing potential advisors for an IPO of the two GSEs. Last week, the agency announced that it had hired Houlihan Lokey Capital “as a financial advisor to assist in the development and implementation of a roadmap to responsibly end the conservatorships of Fannie Mae and Freddie Mac.”

The contract pays Houlihan Lokey $9 million in the first year and may be extended for four and a half more years with a total payment of $45 million. Last November, FHFA director Mark Calabria said that an IPO could be completed in 2021 or 2022 “if all is going well.”

Technically, of course, an offering of shares in Fannie and Freddie is not an IPO. Fannie began trading on the New York Stock Exchange in 1968 and Freddie started trading in 1989. Both were kicked out when their share prices dropped below a dollar following their conservatorship.

Now, for the Politics of Recapitalization

A major contributor to the collapse of Fannie and Freddie in 2008 was an expectation that the federal government would backstop any fool thing the GSEs did. Investors always believed that, but the agency’s management, which knew better, also decided that the GSEs were not profiting enough from the housing boom. Fannie and Freddie assumed more credit insurance risk transfer by buying mortgage-backed securities that were stuffed full of risky loans.

As it turns out, when push came to shove during the housing crisis, investors and GSE management were proved right. The current administration believes that making the guarantee explicit may be required. Therefore, the federal government would extend a federal guarantee to any other FHFA-approved guarantors of collateralized mortgage-backed securities.

Recapitalizing Fannie Mae Is Not Straightforward

One item on the FHFA’s checklist ahead of an IPO is contracting with investment banks willing to underwrite the share offering. For a sale of this size, it’s not far-fetched to assume that a couple dozen banks will be lined up. That should be the easy part.

An especially tricky bit is what some big investors in Fannie Mae will want. Investment management firm Capital Group owns more than 11% of the outstanding shares, valued at more than $420 million at a recent price around $3.50 a share.

Fannie could recapitalize itself, but that could take another decade. The Trump administration doesn’t want to wait, so that leaves fronting more federal funds to Fannie, taking the GSE private or having a public stock offering.

Spending more federal dollars to prop up an institution that the administration doesn’t particularly care for is a nonstarter. Finding a firm or consortium that could and would put up $200 billion also may be a nonstarter. That leaves a public sale of stock.

That means paying Capital Group and other existing shareholders handsomely or wasting more years in legal wrangling.24/7 Wall St.
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Before that happens, the U.S. Senate and the House of Representatives will have to agree on what role the GSEs play in the U.S. housing market. Democrats, who control the House, want the companies to increase the number of less-wealthy borrowers who want to buy homes. Republicans, who control the Senate, generally resist affordable-housing policies, and some want the federal government out of the mortgage market altogether.

The big reason that the GSEs remain under the Treasury’s thumb nearly 12 years after being put there: only Congress can create an explicit government guarantee for Fannie Mae and Freddie Mac bonds.

Opening the Market to Private Companies

Once plans are finalized to recapitalize the GSEs and explicitly to guarantee their bonds, the third part of the administration’s plan would involve extending that guarantee to private firms that want to compete with Fannie and Freddie.

Creating more competitors in the secondary mortgage market would have “several compelling benefits” according to the Treasury’s September report. Among these benefits is helping protect taxpayers against bailing Fannie and Freddie out of the soup again. Another is leveling the playing field for private competitors by guaranteeing private sector loans as well as GSE loans (subsidies on loans would be passed through to borrowers rather than shareholders). Promoting innovation in the mortgage lending business is a benefit too.

One thing that should be clear is that whatever happens with Fannie and Freddie won’t happen this year. If Congress couldn’t agree on a path forward during the past decade, chances that it will suddenly agree on a course of action are essentially zero. The FHFA still has to find underwriters and figure out how much Fannie Mae stock it can sell to investors.

Also, those investors are going to want more than the vague notions about how the GSEs should be regulated and whether they can survive private competition.

At its peak, Fannie Mae stock traded at nearly $90 a share. Returning to even half that level would return more than 10 times the cost of a share today. A recent note from Nomura/Instinet even recommends the near-term prospects of Fannie and Freddie. In mid-2011, however, shares traded at about one-tenth their value today.

​The spread of the coronavirus first diagnosed in China has undercut world oil prices. China is the world’s largest oil importer, and its economy and some of its major industries have slowed. Experts believe that if the disease continues to spread, China’s gross domestic product growth could be severely undermined. One byproduct of the trouble is a drop in gasoline prices in the United States. In some states, it is barely above $2 a gallon.

The price of West Texas Intermediate crude was almost $65 a barrel a month ago. It has dropped to $50 in recent days, near a one-year low. While OPEC and some of its partners have discussed production cuts to buoy the price, this has not happened yet.

The price of a gallon of regular in the United States is $2.46 nationwide, down from $2.59 a month ago. However, in several states it is much lower and falling. According to GasBuddy, the price is under $2.12 in several states, including Louisiana, Mississippi, Missouri, Oklahoma and Texas. It is under $2.20 in Alabama, Arkansas, Kansas and South Carolina.

    

Most of the states on the low gas price list also have low state gas taxes and levies. However, as prices continue to drop in other states, the tax ratio to total gas prices will become less important.

What is bad for China today has a benefit in the United States. Gas prices can be a large part of family annual expenditures, particularly for people with low and middle-class income. While the U.S. economy may be slowed by a drop in China’s imports from America, the benefit remains.

Gas prices are headed toward $2. If a pandemic develops, they will reach there soon.