Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778
Copyright © Daniel Cullinane CPA.
STOCKS TO OWN
The preliminary University of Michigan Consumer Sentiment Index for June improved slightly to a reading of 99.3 after slipping to 98 in May. Consumers appear to be more confident with their current situations while pulling back slightly on expectations for the future.
As interest rates continue their measured rise and inflation hovers around the Federal Reserve Bank’s magic 2% level, consumers will be watching for signs that it’s time to reduce discretionary spending and, perhaps, save a bit more.
Economists polled by Bloomberg were expecting a preliminary June reading of 98.5.
The month-over-month consumer expectations sub-index fell 1.9% to 87.4 from 89.1 and the current conditions sub-index rose 5.5% to 117.9 from 111.8.
Year-over-year, the consumer sentiment index is up 4.5%, the current conditions sub-index has gained 4.9%, and the consumer expectations sub-index has added 4.3%.
The survey’s chief economist, Richard Curtin, said:
Consumer sentiment rose slightly in early June due to consumers’ more favorable assessments of their current financial situation and more favorable views of current buying conditions for household durables. The Expectations Index, in contrast, declined to its lowest level since the start of the year due to less favorable prospects for the overall economy. The sharpest divide was between the record number of households who mentioned recent income gains and the highest expected year-ahead inflation rate since 2015. At some point in every economic expansion, favorable income and job prospects act to offset higher inflation and interest rate expectations. Only when inflation and interest rates are expected to persistently exceed income and job prospects will consumers begin to curtail their discretionary spending. Indeed, greater certainty about future income and job prospects have become the main drivers of more favorable purchase plans. … The unemployment rate during the year ahead was more often expected to decline than increase (29% versus 23%), with most (48%) expecting it to remain unchanged at its current low, which should modestly accelerate purchases. Moreover, the continued small declines that are now anticipated in the unemployment rate, as well as more robust gains in household income, will bolster real personal consumption expenditures during the year ahead.
It's June, which means the weather is finally warm in the Northeast and the birds are singing. Wall Street's broad indices are nearly flat for the year, but chances are that we can successfully navigate stocks for a profit.
They might say "Sell in May and Go Away," but the market's major indices actually scored small gains last month after both a tumultuous start and a tumultuous finish to May. Two sectors -- semiconductors and transports -- also outperformed both the S&P 500 and the Dow Jones Industrial Average last month.
Where We Are
First-quarter-earnings season is just about complete, and more than 78% of S&P 500 companies that have reported beat expectations for earnings per share. (Some 14% missed.) The S&P 500's EPS grew 26.3% in aggregate, while revenues rose 8.3%.
The information-technology sector led the way in EPS growth, while health care and the financials won the silver and bronze medals. Tech also led in revenue growth, sporting a 16.1% gain across the space.
All in all, it was another very successful earnings season - and analysts project second-quarter earnings to similarly ring up roughly 20% in year-over-year gains. That should be good enough (at least in theory) to keep equities from succumbing to the mess that is Italy and Spain. It should also be good enough to stay the course as long as Federal Reserve members stay on theirs, and if volatility in the U.S. dollar and West Texas Intermediate crude remains moderately predictable.
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The U.S. economy's growth story also seems to remain in place despite officials downwardly revising first-quarter gross-domestic-product growth to a seasonally adjusted 2.2% annual rate. After all, the Atlanta Fed's model for second-quarter GDP growth stands at a solid 4% as I write this.
Now, be mindful that the Atlanta Fed number is more of a snapshot and not so much of a prediction, but it's definitely running hot. Global growth? Not quite as hot as U.S. expansion, but the world economy is still at least growing.
So, here's how I'm playing things as we enter June:
Is oil too cheap? Well, on one side of the equation, India and China continue to increase their energy demands. On the other side, Russia, China, and U.S. shale producers are all champing at the bit to ramp up production and raise some revenue as oil prices trade fairly close to four-year highs.
And while U.S. sanctions on Iran and potentially on Venezuela could cause "holes" in global supply, other producers seem eager to fill them at current prices. So, I'm maintaining a long position in ExxonMobil (XOM) , if for no other reason than the fact that it pays a 4% dividend.
I also like oil-services companies, as they'll less dependent on underlying crude prices and more dependent on production levels that seem poised to rise. My largest longs in the space are oil-services firms Schlumberger (SLB) and Halliburton (HAL) . You might have also noticed that HAL just snagged a fracking deal with Saudi Arabia.
Schlumberger is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells SLB? Learn more now.
These stocks are generally trading at discount valuations relative to the broader market, and we'll get results from the latest Federal Reserve stress tests on banks on June 22 and 28. Firms that pass these tests can make more money available for dividends and stock-repurchase programs.
How to Play Today's Risky Markets. Click here and register for free to watch what top experts from Bank of America, Fisher Investments, Invesco and Wells Fargo say smart investors should do now.
Congress also recently eased the post-2008 Dodd-Frank financial law, reducing how many financial firms the U.S. government considers "Too Big to Fail" (and thus subject to greater regulation). This change will free up capital for regional banks, which should pave the way for more mergers and acquisitions.
At the same time, the Federal Reserve is considering easing the Volcker Rule, which prohibits proprietary trading by banks. That would serve as an extremely welcome change for bigger banks.
I used the banking sector's recent meltdown on the Italian-debt crisis to boost my long positions in Goldman Sachs (GS) and JP Morgan Chase (JPM) . I also continue to maintain a long position in Citigroup (C) .
Goldman Sachs, JPMorgan and Citigroup are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.
I don't know what I love more in the tech space -- semiconductors or cloud computing.
Among semiconductor stocks, I added to my long of Micron Technology (MU) on weakness throughout the spring -- and am I ever glad I did, as the stock rose some 25% in May.
DRAM pricing? Suddenly, Micron investors' worries about that have abated amid the company's improved guidance, coupled with a share-repurchase program that's on steroids. As for NAND, Micron plans to work with Intel (INTC) -- another one of my longs -- on next-generation NAND chips.
I'll also stay the course with both Intel and Nvidia (NVDA) , as I believe these are the firms best positioned for whatever comes next in the semi space.
Speaking of what comes next, for the business world, that's cloud computing -- and there's still plenty of room for growth there, especially internationally. My cloud plays include Adobe (ADBE) , Amazon (AMZN) , Microsoft (MSFT) , Salesforce (CRM) and Splunk (SPLK) . That last one seemed like a no-brainer to buy on its recent post-earnings discount.
Nvidia, Amazon and Microsoft are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.
My Secret Weapon: iQIYI
I could go on and on, but nobody likes it when a son of a gun like me writes forever. So instead of listing all of my positions, I'm going to leave you with my secret weapon -- iQIYI (IQ) , which is kind of a Chinese version of Netflix.
IQ now has 61 million premium subscribers, up from 50.8 million as recently as Dec. 31. The stock's American Depositary Shares have only been public for less than two months, and while I didn't get in on the initial public offering, I'm still up 37% on my position. So, it's hard not to like this one.
9 STOCKS GOLDMAN SACHS LIKES
CONSUMER SENTIMENT UP
2018 is just about over, in the minds of some investors.
"We expect investors will soon look past 2018 and focus on 2019 growth," says Goldman Sachs strategist David Kostin. "For many years, beginning in July investors would start to value stocks based on the following year's profit outlook." That's almost hard to believe this go around as markets continue to be very daily headline driven. To that end, focusing on 2019 in July 2018 may prove to be a money-losing proposition for investors.
Nevertheless, much of the Wall Street's smart money will extract themselves from trading the news cycle and place bets on 2019 from exotic beaches this summer. Goldman Sachs believes the best stocks to play in a year of rising interest rates and less of a tax reform bump are those companies with strong sales growth potential. Wall Street is modeling for 2019 S&P 500 sales growth of 5% -- Goldman's new "high revenue growth stock basket" could notch sales growth of 12% in 2019.
The hot list:
Align Technology (ALGN) (+22% revenue growth estimate)
Amazon (AMZN) (+22%)
Autodesk (ADSK) (+27%)
Cabot Oil & Gas (COG) (+34%)
Concho Resources (CXO) (+30%)
Facebook (FB) (+27%)
Netflix (NFLX) (+25%)
Pentair (PNR) (+22%)
Vertex Pharmaceuticals (VRTX) (+22)
"Firms with high revenue growth should outperform the S&P 500 during the next 12 months as the index climbs by 6% to our target of 2875," says Kostin.
Now get to researching those nine names.
Amazon and Facebook are holdings in Jim Cramer's Action Alerts PLUS.
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JUNE NEWSLETTER 8
Alphabet Inc.’s (NASDAQ: GOOGL) Google division released its “Google annual diversity report 2018.” On the cover of the research study there is a video in which several women speak to one another on a sofa while others walk around the campus. In truth, Google’s gender diversity is so poor that only 30.9% of the search firms are women.
The study was penned by Danielle Brown the VP – Chief Diversity & Inclusion Office. None of her four goals for the work force mentions women or minorities. There are, among the principles, plans to improve “fairness” in “distribution,” although the report is not clear about what that means. Another principle is “diversity” which appears to be aimed at gender, but does not say how parity for women or minorities will be achieved. The next principle is “inclusion” so all employees will feel welcome. Finally, “integrity,” which is the encouragement of high values.
Aside from the numbers about women, one other minority is under represented. Blacks comprise 2.5% of Google’s workers. At the other end of the spectrum 53.1% are white and 36.3% are Asian
The numbers among people in leadership roles are even less diverse for women. Only 25.5% of people in leadership roles are women. Two percent are Black, 23% are Asian, and 67% are white.
Brown has come up with a reason for the mix of races and sexes:
Everyone is biased—science shows that’s how the human brain works. We don’t expect people to rid themselves of all bias, but we want them to recognize it. Research shows that when we are more aware of unconscious bias, we make more objective decisions. To date, 84% of Google’s people managers have taken Unconscious Bias training, and we’ve also introduced Unconscious Bias workshops into all “Noogler” (new Googler) orientation
If that is “how the human brain works”, it has been a huge disservice to both women and Blacks.