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Undervalued: Finding Stocks In The Upcoming Recession

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Sometimes finding good stocks is a difficult task to accomplish. With thousands of companies out there how do you sift through the financial data and pro-forma’s to know which stocks are good and which are bad?

To start, multiple sources are vital. It’s not only that they will confirm for certain what you think you know. Second and third takes will show you new little layers you hadn’t thought to search out.

For another thing, only you can decide the attitude you want to take toward the market.

Should you be bullish or bearish?

There are a few things to consider in the global outlook of the economy when deciding to be bullish or bearish

The US Dollar

Typically, the US Dollar has an inverse relationship to gold and oil. So if you believe the value of US Dollar will decrease than oil and gold should rise.  Gold stocks and gold futures are great to buy when there is a sinking dollar.

Just check out this chart:

gold oil dollar

This chart points out the last ten years of relationship of the three, US Dollar Oil and Gold.

As the dollar rose from 2011 to 2015 gold and oil started to go sideways and then we’re at their lows. You can see from the chart it’s a bit of a lagging indicator but as the big money moves from one asset class to the other, you see major moves. 

As a matter of fast hedge funds are more bearish than ever right now on the US Dollar.

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When comparing the US Dollar to the S and P 500 they have had a correlation of .38 on a scale of -1 to 1.

So over the last 20 years as the value of the US Dollar increases typically stocks increase as well.

So keep an eye on the US Dollar and where economic policies have it going.

 
The Federal Reserve and Interest Rates

It’s no secret that the Federal Reserve has stimulated our economy since the recession of 2008-2011.

They pumped trillions into the markets and we saw the markets run into all time highs.

Now that they’ve stopped the stimulus, the market has been going sideways as the growth in the stock market wasn’t based on growth and savings. It was based on manipulation.

They believed with the injection of trillions, the market would correct itself and they could gradually increase interest rates. But we’ve seen the Fed hold steady on all time low interest rates.

quantitative easing

Take a look at the picture above. You can see the period where the federal reserve announces quantitative easing and when they end it.

It’s obvious QE worked. But has it run it’s course and what are the effects on the market?

What to look for in stocks

The company must be growing

We look at two things when determining when a company is growing or not:

  1. Net Equity – Net equity is the measure of a companies liabilities minus it’s assets. If we can see a company growing i’s net equity the company is adding value while decreasing capital outlay. We see this as a positive.
    1. Something we always keep in mind is that not all assets are on the balance sheet. For instance, don’t you think Apple Computers, the technology behemoth has some intangible assets they cannot put on the balance sheet. Apple users are typically “cultish” about their products (more on that later)
  2. Gross Sales – We look at the last 5 years of revenue and need to see growth in at least 4 out of the last 5 years of the company. If we do have any negative year, it cannot see a 10% decline or more
    1. The sales of the company need to have a minimum $250,000,000. If the company does not have $250,000,000 it’s unlikely to fit the remaining requirements.

The company must be an industry dominator

When you think of giant industry behemoths, companies that continually out perform their competition, whatever the economic environment, this is what we’re talking about.

Think of Coca Cola for example. Year after year Coca Cola expands it’s brand and dominates the soft drink space.

The company must be recession proof

The economy goes through ups and downs and twists and turns through every cycle. When you think of a falling market you want to think of companies and stocks that have products that you cannot live without, or that it would be rather difficult to live without.

The first company that comes to mind her is Proctor and Gamble. Proctor and Gamble produces and sells beauty, hair, and personal care products worldwide. Toilette paper, razors, deodorants.

Regardless of the economic environment, you’re going to need your TP.

The company must gush cash and return it to shareholders

This is probably the most important factor in this entire list.

Companies can provide value to their shareholders in the form of dividends or buybacks. Dividends because the shareholder receives an “interest” payment from the company or buybacks when the value of their stock instantly increases by decreasing the supply in the market.

We love companies that raise dividends and buy back shares. This is indicative of rewarding shareholders.

The easiest way to find this is to go to Yahoo Finance, click on the Cash Flow Statements, and read the “Dividends Paid and Sale Purchase of Stock” in the lower third of the statement.

If we we’re going to use Proctor and Gamble for example, It will look something like this:

proctor and gamble

We like seeing increasing dividends year over year and a steady purchase of stock buyback.

But to measure relativity of dividend payout and sale purchase of stock, we’ll compare it to gross profit, which is the money left over after the cost of the revenue is deducted from the cost to generate it. This is the available capital left over to provide shareholders with the “bonus”:

You can find that in the income statement.

income statement

We see for the year 2015 P&G had 37,403,000 in gross profit and returned 7,287,000 in dividends and 1,778,000 n share buy backs.

That is a total investor return of gross profit of

9,065,000/ 37,403,000 = 24%

Anything above 20% is fantastic.

In Conclusion

We here at The Capitalist believe that the US Dollar and the Federal Reserve drive the stock market. By following these two things, in a macro basis, you should be able to decide whether being bearing or being bullish is the best stance.

By Following the fundamentals of stocks as stated above, you’ll be “head and shoulders” above the rest.

 

 

 

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Dow Jones Industrial Average Breaks 29,000 For The First Time in History

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Screenshot of Dow Jones Industrial chart taken January 15, 2020.
By ELAINE KURTENBACH, AP Business Writer

Slight gains send Dow Jones Industrial Average above 29,000!

The Dow Jones Industrial Average closed above 29,000 points for the first time and the S&P 500 index hit its second record high in three days Wednesday.

The milestones came on a day when the market traded in a narrow range as investors weighed the latest batch of corporate earnings reports and the widely anticipated signing of an initial trade deal between the U.S. and China.

President Donald Trump and China’s chief negotiator, Liu He, signed the “Phase 1″ deal before a group of corporate executives and reporters at the White House. The pact eases some sanctions on China. In return, Beijing has agreed to step up its purchases of U.S. farm products and other goods.

“This was telegraphed well enough that the market is kind of looking through it and toward the next phase and what that means,” said Keith Buchanan, portfolio manager at Globalt Investments.

Health care stocks accounted for much of the market’s gains. Utilities and makers of household goods also rose. Those gains outweighed losses in financial stocks, companies that rely on consumer spending and the energy sector.

The S&P 500 index rose 6.14 points, or 0.2%, to 3,289.29. The index also climbed to an all-time high on Monday.

The Dow gained 90.55 points, or 0.3%, to 29,030.22. The Nasdaq composite added 7.37 points, or 0.1%, to 9,258.70.

Smaller-company stocks fared better than the rest of the market. The Russell 2000 picked up 6.66 points, or 0-4%, to 1,682.40.

The benchmark S&P 500 index is on track for its second straight weekly gain.

Bond prices rose. The yield on the 10-year Treasury note fell to 1.78% from 1.81% late Tuesday.

While limited in its scope, investors have welcomed the U.S.-China deal in hopes that it will prevent further escalation in the 18-month long trade conflict that has slowed global growth, hurt American manufacturers and weighed on the Chinese economy. The world’s two largest economies will now have to deal with more contentious trade issues as they move ahead with negotiations. And punitive tariffs will remain on about $360 billion in Chinese goods as talks continue.

With the “Phase 1” agreement now a done deal, investors have more reason to focus on the rollout of corporate earnings reports over the next few weeks. Earnings have been flat to down for the last three quarters, and if the fourth quarter meets expectations, it should be around the same.

However, analysts are projecting 2020 corporate earnings growth to jump around 9.5%, which is why traders will be listening this earnings reporting season for any clues management teams give about their business prospects in coming months.

“We’re expecting a reacceleration in the back end of the year, so any (company) guidance that brings any type of skepticism to that could threaten the recent rally we’ve had and the gains that we’ve accrued in the past few months,” Buchanan said.

Health care stocks powered much of the market’s gains Wednesday. Several health insurers climbed as investors cheered a solid fourth-quarter earnings report from UnitedHealth Group.

The nation’s largest health insurer, which covers more than 49 million people, said its revenue rose 4% on a mix of insurance premiums and growth from urgent care and surgery centers. Its stock rose 2.8%. Other health insurers also moved higher. Anthem gained 1.6%, Cigna added 1.5% and Humana climbed 1.9%.

Technology companies also rose. The sector is reliant on China for sales and supply chains and benefits from better trade relations. Microsoft gained 0.7% and Advanced Micro Devices gained 0.8%.

Utilities and consumer staples sector stocks also notched gains. Edison International climbed 2.5% and PepsiCo rose 1.7%.

Financial stocks fell the most. Bank of America slid 1.8% after reporting weaker profits due to the rapid decline of interest rates in late 2019.

Energy stocks also fell along with the price of crude oil. Valero Energy dropped 3.3%.

Homebuilders marched broadly higher on news that U.S. home loan applications surged 30.2% last week from a week earlier. The pickup in mortgage applications reflects heightened demand for homes and suggests many buyers are eager to purchase a home now, rather than waiting for the traditional late-February start of the spring homebuying season. Hovnanian Enterprises jumped 6.4%.

Target slumped 6.6% after a disappointing holiday shopping season prompted the retailer to cut its forecast for a key sales measure in the fourth quarter. The company said weak sales of electronics, toys and home goods crimped sales growth to just 1.4% in November and December.

Benchmark crude oil fell 42 cents to settle at $57.81 a barrel. Brent crude oil, the international standard, dropped 49 cents to close at $64 a barrel.

Wholesale gasoline fell 1 cent to $1.64 per gallon. Heating oil declined 3 cents to $1.88 per gallon. Natural gas fell 7 cents to $2.12 per 1,000 cubic feet.

Gold rose $9.70 to $1,552.10 per ounce, silver rose 25 cents to $17.92 per ounce and copper fell 1 cent to $2.87 per pound.

The dollar fell to 109.91 Japanese yen from 110.00 yen on Tuesday. The euro strengthened to $1.1150 from $1.1128.

Markets in Europe closed mostly lower.

AP Business Writer Damian J. Troise contributed.

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20 Stocks Every Investor Should Add to Their Watch List in 2020

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Best Stocks in 2019

Interested in what stocks to look out for this year? Then you’ll love this list of the best stocks to watch in 2020.

But before we get started, remember the most important advice when it comes to investing in stocks: the wisest way to invest is to use a stock index fund.

These funds purchase multiple stocks and spread risk appropriately across the top companies. This is the advice of Warren Buffett, who once said,

“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals.”

If you’re looking for a stock index fund, check out Vanguard’s 500 Index Fund.

With that aside, here are the most promising stocks going in to 2020:

1. Chipotle Mexican Grill

Chipotle is an international chain of restaurants specializing in tacos, burritos, and other Mexican style cuisines. They have establishments all over the world from the United States to Germany and France.

This beloved food joint performed very well in the first two quarters of 2020 and are expected to continue to grow.

P/E ratio as of August 2019: 87.81

2. Constellation Brands, Inc.

Constellation is an international beer and wine producer. They are the largest importer of beer in the United States and command 7.4% of the market share.

P/E ratio as of August 2019: 17.00

3. Lululemon Athletica

Lululemon Athletica creates athletic apparel such as performance shirts, shorts, and pants, as well as yoga accessories. They’ve built a brand over the years that millions recognize and love.

P/E ratio as of August 2019: 47.51

4. Coty Inc.

Coty Incorporated is a multinational company that specializes in beauty products and services such as cosmetics, fragrances, skincare, and nail care.

Coty owns over 70 brands, such as CoverGirl, Clairol, and Bourjois. In 2018, the company’s revenue was over $9.4 billion.

As of August 2019, Coty Inc. stock is valued at 10.42 USD. Their P/E ratio is not yet available.

5. Anadarko Petroleum Corporation

Anadarko is in the natural gas and petroleum industry. This entails everything from gathering resources to treating and transporting gas. The company is also in the hard mineral business.

In early 2019, Anadarko had an estimated 1.47 billion barrels of oil in reserve, making it one of the biggest players in the industry.

As of August 2019, Anadarko’s stock is valued at 73.48 USD. Their P/E ratio is not available yet.

6. Brookfield Infrastructure Partners L.P.

Brookfield Infrastructure Partners acquires and manages infrastructure assets all over the world. They specialize in utilities, energy, and transportation infrastructure.

The company invests in ports, toll roads, pipelines, and telecommunication lines. In other words, things that people will always need and use.

P/E ratio as of August 2019: 75.27

7. ONEOK Inc.

ONEOK (pronounced “one – oak”) Incorporated is in the natural gas industry and is a key leader in the gathering, storing, processing, and transporting natural gas in the United States.

P/E ratio as of August 2019: 22.62
TerraForm Power Inc.
TerraForm Power specializes in renewable energy, particularly solar and wind power. There is an ever-growing trend that demands less damage to the environment.

As the world values green innovations, companies like TerraForm are expected to be favored in the coming years.

P/E ratio as of August 2020: 227.44

8. Netflix

Netflix is a service provider and production company with their main product being a subscription-based streaming service.

Streaming TV and movies have largely replaced traditional television. With no commercials and instant access to thousands of products, Netflix is suspected to continue to grow.

P/E ratio as of August 2019: 120.23

9. iRobot

iRobot is an advanced technology company that specializes in military and domestic robots. They designed the Roomba, which is an autonomous vacuum cleaner.

The U.S. military has purchased and uses thousands of robots from iRobot and are contracted to make more.

P/E ratio as of August 2019: 22.24

10. Amazon

Amazon is a multinational company that specializes in e-commerce and cloud computing. It’s considered one of the big four technology companies along with Apple, Google (Alphabet, Inc.), and Facebook.

Amazon is well known for distributing goods through technological innovation and on a massive scale. Some estimate that Amazon commands 50% of all goods sold online.

P/E ratio as of August 2019: 73.65

11. Apple Inc.

Apple is a multinational tech company that develops and sells computer software, electronics, and online services. They designed some of the world’s greatest tech products including the iPhone and Apple Watch.

Being a leader in tech devices, many analysts believe Apple is one of the most promising stocks to invest in.

P/E ratio as of August 2019: 16.61

12. Alphabet Inc.

Alphabet Inc. is a multinational conglomerate founded in 2015. It’s the parent company of Google, which is the dominating search engine on the internet.

Google performs 90% of all searches on the internet. Alphabet has additional subsidiaries such as Calico, Capital G, and Deep Mind.

These subsidiaries have their hands in industries such as autonomous cars, biotechnology, video game software, and internet tech.

P/E ratio as of August 2019: 23.87

13. Facebook Inc.

Facebook is the popular American social media site founded by Mark Zuckerberg. In 2018, Facebook had a net income of $22.11 billion and its total assets were $97.33 billion.

Facebook has subsidiaries such as Instagram and WhatsApp, which are also very popular social media outlets.

P/E ratio as of August 2019: 31.00

14. MarketAxess Holdings Inc.

MarketAxess is an international company that specializes in financial technology, also known as fintech.

They operate an electronic trading platform for various credit markets such as corporate bonds and income products.

P/E ratio as of August 2019: 70.82

15. AT&T Inc.

AT&T is a multinational conglomerate holding company and is the world’s largest company in telecommunications.

AT&T is the parent company of Warren Media, which makes it the largest entertainment company in the world in terms of revenue.

P/E ratio as of August 2019: 14.17

16. Verizon Communications Inc.

Verizon is a multinational telecommunications conglomerate. They are well known for their subsidiary Verizon Wireless, which is its mobile network.

Together with AT&T, these two companies dominate the mobile and landline market. Since our needs for communications will develop, these two stocks are poised to grow.

P/E ratio as of August 2019: 14.49

17. Axon Enterprise Inc.

Axon Enterprise Inc. is a U.S.-based company that develops weapon products and technology for civilians and law enforcement. This company developed the Taser, a line of electric shock weapons.

Since then, Axon developed other technologies including body cameras and a cloud-based management system that empowers police departments to manage and review evidence.

P/E ratio as of August 2019: 129.55

18. Intuitive Surgical Inc.

Intuitive Surgical Inc. develops and manufactures surgical equipment to make surgeries less invasive. As of 2017, they had 4,271 bases worldwide.

P/E ratio as of August 2019: 48.51

19. Ford Motor Company

Despite the localized recession in Detroit, the automotive giant is doing very well.

The market continues to demand their SUVs and commercial vehicles, not to mention their luxury vehicles, which are usually created under their Lincoln brand.

P/E ratio as of August 2019: 16.90

20. General Motors Company

General Motors is a multinational manufacturer of vehicles and own automotive brands like Buick, GMC, Cadillac, and Chevrolet. They have nearly 400 facilities on six different continents.

P/E ratio as of August 2019: 6.19

Conclusion

Let’s point out two trends from this list:

  • Tech and software companies are dominating
  • Utility-related companies are tried and true

About half of the world still doesn’t have internet access. And a large portion still doesn’t have access to common devices like cell phones and laptops. That means these industries are set up to grow significantly for years to come.

Of course, that doesn’t mean other industries will simply disappear. As you’ve seen in the list, there are still key industries that our society relies on, such as energy and infrastructure companies.

Some of the most promising stocks are in tech and software, such as Apple, Facebook, Google, and Amazon.

Nevertheless, the wisest investment is still a stock index fund, which bets on the collective market rather than individual companies.

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Washington State OKs Some of the Nation’s Toughest OT Rules

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SEATTLE — Washington state is adopting some of the nation’s most aggressive overtime rules, restoring protections for hundreds of thousands of salaried workers and taking what supporters say is a crucial step toward rebuilding the middle class.

The Department of Labor and Industries finalized the rules Wednesday and will phase them in by 2028. By that time, salaried workers making up to about $83,400 a year will be entitled to time-and-a-half pay if they work more than 40 hours per week.

Workers making more than that could also get overtime unless they are certain types of professionals — such as those with higher degrees — or unless they are truly managers or executives, as demonstrated by their ability to  and fire, direct other people’s work or make significant business decisions.

Many job categories will be affected, including shift managers at restaurants and retail establishments, office managers, some medical workers and other white-collar staff, officials said.

“We need to make sure the middle class shares in our state’s prosperity,” Washington Gov. Jay Inslee said in a news release. “Overtime protections ensure workers are fairly compensated when they work more than 40 hours in a given week — time that would otherwise be spent with their families and in their communities.”

Employees who are paid hourly have long been entitled to overtime. But salaried workers have generally been entitled to it only if they make less than a certain amount: about $23,660 under federal law, or more where state laws are more generous.

Those thresholds may have worked decades ago, when they meant that nearly two-thirds of salaried workers nationally were covered by overtime protections. But after a recession in the 1970s, lawmakers largely stopped updating them. Washington’s has been stuck at $13,000 since 1976.

As people’s salaries rose with inflation, they found themselves no longer eligible for overtime. Businesses have also been able to convert hourly workers into salaried ones who make just more than the threshold as a way to avoid  additional staff or paying overtime.

In other cases, workers have been classified as managers when their actual duties more closely resemble those of hourly workers, officials said.

By some estimates, as few as 7% of salaried workers across the country are now entitled to overtime.

The federal government and several states, including California, New York, Pennsylvania, Colorado, Michigan and Massachusetts, have recently updated or started to update their overtime rules, but none have adopted a target threshold as high as Washington’s, said Paul Sonn, state policy program director with the National Employment Law Project.

The rules adopted by the Trump administration will raise the threshold to cover workers making up to $35,308 a year — a significant cut from the $47,000 limit proposed by the Obama administration.

“The overtime threshold is to the middle class as the minimum wage is to low-wage work,” said Nick Hanauer, a Seattle venture capitalist whose think-tank , Civic Ventures, advocates for progressive economic policies. “It is the indispensable labour protection for middle class people.”

Business groups in Washington have agreed that the state’s rules needed to be updated, but they criticized the plans as drastic. The Association of Washington Business, warned when the proposed rules came out in June that they would be a shock to many businesses and that they could particularly hurt nonprofits.

The organization warned that many businesses might convert salaried workers to hourly ones, reducing scheduling flexibility.

After hearing extensive public comment, the department added two years to the phase-in period. The threshold will increase incrementally until it reaches 2.5 times the minimum wage — about $83,400 — by 2028. The rules will phase in more slowly for businesses with fewer than 50 employees.

The department estimates that by the time they are fully implemented, the new rules will give overtime protections to about 260,000 workers who don’t have them and strengthen overtime protections for about 235,000 others. Affected workers will also become eligible for sick leave and retaliation protections.

At a news conference Wednesday, Labor and Industries Director Joel Sacks gave an example of one type of worker who will be protected : a shift manager who makes $40,000 a year but is expected to work 60 hours a week.

Under the new rules, that worker will be paid overtime for the additional hours, or the business will need to  additional staff.

“It’s fair, it’s right and it’s long overdue,” Sacks said.

Among those who might be helped is Victor Duran, a co-manager of a sports apparel store south of Seattle. He said he makes about $52,000 a year and doesn’t get overtime, but is required to work at least 45 hours per week — and up to 60 during the holidays.

“We say bye to the family at the beginning of the season and say we’ll see them after Christmas,” Duran said.

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