Category Archives: Market News

Market News, S&P 500

Financial Stocks and Federal Reserve Monetary Policy

2 Comments

Bank of America: Financial Stocks and Federal Reserve Monetary Policy

  • The financial sector is rallying strongly, and Bank of America is leading the pack higher.\
  • But all eyes are on US President Donald Trump in his next selection for leader of the Federal Reserve.
  • These rallies could be at risk depending on the outcome, and shareholders in BAC could be some of the most deeply impacted if certain monetary approaches are favored in Trump’s selection.  

Stock markets continue to push in their upward surge and some of the strongest names over the last three months can be found in the financial sector.  Leading the pack higher in Bank of America Corp (BAC), which is a stock that we originally bought on the drop to $15 in a trade that is now showing profits of roughly 75% (not including dividends).   

The stock recently experienced the major range breakout that we were expecting, and investors that are long the stock will now need to gauge the likely monetary policy direction that is likely to be taken by the Federal Reserve as a means for understanding how to position going forward.  This is a factor that is more likely to influence financial sector trends more than any other single element in the equation, and Bank of America could be used by the market as a proxy for expressing any significant changes in the outlook.  

Stock Trade Ideas

Our stance is to remain long BAC but with the understanding that adjustments might need to be made if a move dovish monetary policy stance is signalled by Donald Trump’s next selection for leader of the Federal Reserve.

On a year-to-date basis, Bank of America has soundly outperformed the market with stock gains of nearly 26%.  We can compare this to the SPDR S&P 500 ETF (SPY), which has moved higher by only 15% for the period even though the broader environment has been characterized by optimism over tax reform and a pro-growth agenda for the US economy.  

Global Interest Rates

The disconnect here is significant, as it underscores the majority expectation for higher interest rate into 2018.  There are valid arguments in both direction with respect to whether or not these initial expectations have actually been satisfied.  But the real questions here lie in the monetary policy direction that will be undertaken by the Fed once its new leadership regime takes control.  

Currently, markets are dealing with three possibilities as Fed Chair (John Taylor, Jerome Powell, or the continuation of Janet Yellen in her current position).  There are very different implications here depending on which economist is ultimately selected, and those long BAC will almost certainly feel the resultant volatility in their positions over the next few weeks.

BAC Earnings Data: Yahoo Finance

Higher interest rates generally make it easier for banks to drive revenues and improve margins, but the policy course that has been taken by Janet Yellen has been far more dovish than many analysts initially anticipated.  We have seen conflicting commentaries from US President Donald Trump with respect to his assessment of Yellen’s approach to the economic recovery.  

But, over time, it has started to look as though Trump does favor this supportive stance as it is more likely to drive consumer spending and help stock markets maintain their record highs.  But, at the same time, Trump has shown an interest in appointing more hawkish names (i.e. Taylor and Powell).  

Fed Policy Direction

On the spectrum from most dovish to most hawkish, this list of possibilities moves from Yellen to Powell to Taylor and so the ultimate decision here will likely determine the trading tone that is seen for most of the first half of next year.  For BAC bulls, Taylor would likely lead to the most favorable outcome and this is important given the areas of weakness that were seen in Bank of America’s earnings report for the third quarter.  

Earnings of 48 cents per share did beat the market expectation of 45 cents (confirming the longer-term trends) but revenues were more erratic at $22.079 billion (also confirming the longer-term trends).  Trading revenues remain the central cause for concern, as annualized revenues from fixed-income trading fell a substantial 22% for the period.  

Bank of America Chart Analysis

This has put some cracks in the foundation, and the rallies in BAC could be at risk if the market if not convinced that the next Fed chief is ready to aggressively tighten policy in ways that match normalized historical trends. Given Trump’s recent comments, it would not be entirely surprising to see something of a “compromise verdict” where the US President selects Jerome Powell as Fed Chair and then appoints John Taylor in a secondary role at the central bank.  

Anything short of this is likely to lead to selling pressure in BAC.  Readjustments in our long position will be considered if an unfavorable outcome sends share prices back below 23 as it would suggest another period of consolidation that cannot be fully mitigated by the stock’s 1.73% dividend yield.  Until then, we will hold our positions and collect the dividend while the momentum is still positive.

 

Forex, Market News

Stock Market Rallies Continue Setting New Records

4 Comments

Stock Market Rallies Continue Setting New Records

  • Stock markets have resumed their rallies after the summer sluggishness.
  • The SPDR S&P 500 Trust could continue to benefit on multiple fronts.
  • Donald Trump’s pro-growth agenda could get another shot in the arm once his Federal Reserve selections are finalized.

Stocks are once again moving higher as markets have resumed their rallies after the summer period that was characterized by long periods of sluggishness.  In recent weeks, there has been a good deal of debate about whether or not the election of US President Donald Trump is what actually led to all of the gains that have been seen for those trading CFDs in the SPDR S&P 500 Trust (SPY).  Of course, a conclusive answer to those questions is all-but-impossible to achieve.  

But the strength of the rally, its historical proximity to the 2016 election results, and the supportive outlook that is generated by agenda pieces like tax reform and infrastructure rebuilding combine to suggest that investors are reacting Trump’s strategy course (and that those results are favorable).  In the weeks ahead, we could see additional impulse rallies in the SPY ETF if Donald Trump selects a Federal Reserve leader that is reluctant to aggressively rate interest rate levels.  This supports the outlook for CALL options strategies in the SPY at current levels.

S&P 500 - Stock Markets
S&P 500 – Stock Markets

On a year-to-date basis, the SPY ETF has posted gains of 15.3%.  Earnings have been largely supportive in many sectors but the real catalysts have been seen in the macro phenomena that have characterized the period.  On several occasions, the current Fed Chair Janet Yellen has made suggestions that broad uncertainties within the economy (and within the policy agenda pieces promoted by President Trump) have made it difficult to normalize interest rate policy in line with historical trends.  The ultimate result here has been cheap credit and improved consumer spending habits that have supported the outlook for corporate earnings into the final parts of this year.

Federal Reserve - Stock Markets
Federal Reserve – Stock Markets

So the real question here is whether or not these trends will continue within the financial environment, and the answer to that question could be seen near-term once Donald Trump makes clear which economist will be leading the Federal Reserve.  Of the likely possibilities, John Taylor has the strongest history of hawkish rhetoric so a selection here could catch markets by surprise and make rallies in the SPY ETF difficult as we head into the final parts of this year.  Janet Yellen has kept her foot on the brake on many occasions and it is now looking as though markets will need to see a continuance of this (in the selection of Jerome Powell) in order to keep this bullish train moving forward.

Microsoft - Stock Markets
Microsoft – Stock Markets

The second-largest holding in the SPY ETF is Microsoft Corp, which has been surging over the last several quarters as improvements in its cloud infrastructure have led to a series of strong earnings reports.  The stock makes up 2.75% of the total values seen in the ETF and given the strength of the recent earnings performances in the tech sector as a whole, rallies here could continue to be supportive of the larger fund collectives going forward.  In the monthly chart above, we can see that the bullish momentum here is undeniable and since the tech space is an area that is generally not as vulnerable to hawkish changes in interest rates, there is little reason to believe that these trends will be ending in the near-term.  

Readings in the Commodity Channel Index are bullish but holding at overbought levels, which is suggestive of a period of consolidation without a macro catalyst to drive prices higher.  This could come if a name like Jerome Powell is selected as Fed Chair, as the rising tide lifts all boats in the SPY fleet.  At this stage, there is very little reason to expect declines (barring a major surprise in the coming Fed appointments).  But with the SPY ETF still trading at record highs, the conservative bet is to use CALL options as a means for expressing that bullishness.

Long Ideas, Market News

Medical Marijuana: Positive Growth Prospects and Investment Opportunities

3 Comments

Medical Marijuana: Positive Growth Prospects and Investment Opportunities

Medical Marijuana Inc (OTC: MJNA) is the first cannabis company to be publicly traded in the United States. It is a diversified holding company that operates the industrial hemp sector and the legal medical cannabis industry.  It was incorporated in 2009 and is comprised of a well-positioned portfolio of cannabis brands that continues to expand and flourish.  

From a broader investment perspective, the market capitalization of MJNA now stands at $207 million — and this represents a massive discount to the company’s strong net asset values.  As an undervalued company in a growing industry, MJNA is in a place to move higher over the next several years, while other areas of the stock market remain inflated and vulnerable to potential downside.

Following are the business units and subsidiaries of MJNA:

STRONG FINANCIAL OUTLOOK:

Revenue Growth & Drivers:

  • The Gross Revenue of MJNA has grown by 230% from $1.7 million in Q2 2016 to $5.7 million in Q2 2017. This year has been positive for MJNA as it did see some revenue declines in the past two years.
  • For the entire year of 2016, they had revenue of $8 million. In Q1 2017 they had revenues of $3 million while in Q2 2017 they grew to $5 million. Thus the company has been growing at an exponential rate.
  • There are strong indications of the revenue increasing much more in the next two reporting quarters for 2017 as Mexico has legalized medical marijuana.  MJNA has subsidiaries in Mexico and so they can look forward to increases its sales from that market.
  • There is significant interest income ($1.6 million in Q2 2017) that MJNA is paying for its debts which is having an adverse impact on its profitability. However, if MJNA’s keeps improving on its revenue on subsequent quarters, the interest expense would not matter as much and the company can bring itself into a consistently profitable phase.

Performance of its subsidiary: Kannaway Inc:

    • Kannaway’s revenue has grown 25 times from March 2016 to August 2017 (with exponential growth seen in the CBD hemp oil industry).
    • Since March 2016, the company has grown its customer base by 500 percent, leading to increases in overall revenues of roughly 1,100 percent.

BLE REASONS FOR INVESTMENT:

Geographic Penetration:

  • Mexico: MJNA is expanding its footprint in Mexico as it is the first company with CBD (Cannabidiol) products approved by the Mexican Government. HempMeds, subsidiary of MJNA produces a cannabis product that is the only legally approved product and the first to receive a COFEPRIS approval to import cannabis products.
  • Latin America: MJNA has found lot of success in the Latin American market, (especially in Brazil and Paraguay).  The company’s Real Scientific Hemp Oil has already been granted 12 medical registrations in Puerto Rico.  In April 2014, the Brazilian government approved the importation of a drug produced by MJNA (Real Scientific Hemp Oil), which is a CBD Hemp Oil. HempMeds Brazil has received approval for its first three indications (Parkinson’s disease, chronic pain and epilepsy).

CBD Pharmaceutical Applications:

MJNA and its subsidiaries are focused on devising treatments for several serious illnesses where there are currently no treatments. Research studies have shown that cannabinoids (THC, CBN, CBC, THCV, CBD, CBG) have a positive impact on the wellness and health of those with cancer or other debilitating ailments.   

Growth Outlook:

Over the last two years, shares of MJNA have moved lower in line with the many of the small cap stocks within the industry.  The company has continued to implement strategies on initiatives, build its brand, and enter new markets. The diversification of the company’s subsidiaries and associates helps in increasing the revenues of the company and thus improving its market share profoundly over the next several years.

Strong Initiatives by Subsidiaries:

The subsidiaries of the company have diversified their footprints in the cannabis market. Following are some initiatives in this regard:

      1. MPSI: MPSI is the first logistics and security company serving the cannabis industry. As more and more states in the US look toward legalizing cannabis products, MPSI looks toward expanding its services.
      2. AXIM: AXIM Biotechnologies entered into an exclusive agreement to introduce  a new medical product to market, MedChew RX. It has access to intellectual property that will innovate how cannabis-based medicines are manufactured and purchased by patients.
      3. Wellness Managed Services: Wellness Managed Services has provided services to 150 dispensaries in Colorado, Arizona, Nevada, and California. The combination and standardization of its services has allowed the company to be the first to offer a franchise-like opportunity to proprietors in the dispensary or collective industry in the states where medical marijuana is legal.
  • Kannalife: Kannalife is currently using its licenses to develop novel therapeutic drugs to treat CTE and hepatic encephalopathy (HE). While CBD from marijuana is tightly restricted, CBD found naturally in hemp is legal in all 50 states.
    1. Kannaway: It is the first hemp lifestyle marketing company, with more than 2,000 brand ambassadors to offer cannabidiol hemp botanical products. Kannaway offers several high-quality CBD hemp oil products.

Strong Management Team:

Medical Marijuana, Inc. is led by a management team that is structured in a way that can create strategic value for its shareholders and also continues to execute on its initiatives. The company’s CEO, Dr. Stuart Titus, is a Fellow with both the American Association of Integrative Medicine and the American Academy of Pain Management and was a former clinician holding a Ph.D. in Physiotherapeutics. Blake Schroeder manages company operations and has a capable background after his tenure in nutritional company, which developed an Acai-based nutraceutical and promoted its health benefits throughout the world.

Medical Marijuana Inc. is comprised of a diversified portfolio of companies and brands that continue to flourish as new markets open and existing markets continue to develop.  The current market capitalization of $207 million creates a massive discount when viewed alongside the company’s net asset value of roughly $428.5 million, according to Q2 filings.  As an undervalued company in a growing industry, MJNA stock is in a place to move higher over the next several years.

Market News

Financial Markets: Securities Lending and Borrowing

Leave a comment

Financial Markets: Securities Lending and Borrowing

Securities or Stock Lending and borrowing (SLB) involves borrowing of shares by traders that they do not own.  Similarly, they can lend the stocks that they own but do not want to sell immediately.  SLB transactions carry an interest rate on the borrowing or lending of loans.  Moreover, the lending period/borrowing period is mutually fixed by the two concerned parties.  There are differences as well between SLB and loans.  The rate of interest is not under any form of control in the case of SLB and is totally dependent on the market.  Stocks in the futures and options segments are the ones that can be a part of the SLB process.   

Euroclear Group provides securities lending and borrowing solutions that enable the client firms to focus on increasing returns, liquid generation or enhanced risk management.  The true potential of the business firm’s portfolio while at the same time conforming to the regulations as they have changed over time.  Their automated securities lending and borrowing programs which are literally risk-free are secure and extremely flexible.  Settlement failures, as well as counterparty claims, are avoided by targeting the borrowing demand.  Clients are thus able to get confidential, flexible, risk-focused and secure solutions.

Time Tested Efficiencies

The robust securities and lending programs offered by Euroclear’s UK and Ireland are time-tested and proven that deliver settlement efficiencies that have not been available before to the client firms. The SLB programs fund different collateral operations, optimize settlements, and cover shorts.  For those firms that are opportunity lenders and borrowers, the GC Access Product from the Euroclear Group through Euroclear Bank allows for the baskets of HQLA lending and borrowing against different collaterals at the street level.  

Clients are encouraged to outsource the management of their collateral aspects related to activities regarding street lending to the Triparty Securities Lending service of the Euroclear group.  This enables businesses to firmly focus on their business opportunities in the market leading to better business performance.

There are many reasons which propel the business organizations to avail the securities lending and borrowing services (for example in the Australian market).  If a trader has ended up selling his securities short, there is a requirement to borrow those securities because it has an obligation to fulfill in the settlement required for the securities.  As per the rules prevalent in Australia, for this to happen, the trader must possess the securities and deliver them to the buyer within 3 days after the trade took place.  

Short selling might be reflective of the direction of the price of the security or it could be related to the view of the relative price.  Another reason to get involved in SLB is that in the derivatives market, the trader might want to sell securities that are not owned by it to hedge a derivatives position linked to equity.  This trader too must borrow securities to fulfill the settlement obligation that follows.  On a similar note, arbitrage and falls -driven borrowing can lead to situations in which the lending and borrowing of securities would be necessitated.

Market News, S&P 500

Taxes, Insurance, and Portfolio Planning at Morris Retirement Advisors

Leave a comment

Taxes, Insurance, and Portfolio Planning at Morris Retirement Advisors

Retirement planning is one of the most important investment phases in the lifetime of any person, and there are several important issues that are often missed in the process.  Some of these issues include less-glamorous factors like investment insurance and taxes but the fact that they are often neglected makes them no less important.  In order to successfully structure your retirement portfolio, you need to find a retirement advisory that can help you plan in these areas.  One of the fastest-growing names in the sector is Morris Retirement Advisors, which has shown a stable track record in all of these areas.

Morris Retirement Advisors (MRA) offers solutions for:

  1. Financial Planning
  2. Wealth Management
  3. Taxes
  4. Insurance

Investment Solutions for Retirees

MRA offers 5 basic service plans for clients based on differing needs:

  1. Wealth Management: A basic investment management solution allowing investors to select and automatically invest from a list of risk-based model portfolios. Expensed as a fee-based investing plan wherein customers are charged a wrap fee on percentage of assets managed. Tax planning and preparation with an in-house accountant/CPA is also offered for an additional fee.
  2. Wealth Management and Basic Financial Planning: In addition to the services offered by the wealth management basic plan, this plan offers basic financial planning solutions including Budget, Cash Flow, Net Worth Projection and Analysis, Cash Management Strategies, Retirement Planning, Goal Tracking and Education Planning. A Digital Wealth Management Portal offering a consolidated view of all the client’s in-house and external accounts is also provided. Insurance solutions are also available as additional commission based solutions.
  3. Wealth Management and Advanced Financial Planning: Aimed at career professionals and business owners with emerging wealth, this plan offers advanced financial planning solutions like Executive Benefits, stock option analysis, Estate and Legacy Planning along with Tailored Goals based wealth planning in addition to the services offered by the above plans.
  4. Wealth Management and Complex Financial Planning: This plan is tailored for pre-retirees and retired clients looking to preserve, grow and distribute their wealth across generations. This plan offers Retirement Income and Distribution Planning in addition to the services offered by the above plans.
  5. Customized Solutions for Business Owners: Offers solutions for business owners customized to their business needs. The wealth management solution allows clients to select and automatically invest from a list of risk-based model portfolios. Financial planning services include Complimentary Tax Assessment, Executive Benefits Planning, Key Person Retention Strategies, Quarterly Tax Filings, strategic planning for board of directors, Employee Benefits (retirement, life, health, etc), Succession Planning, Entity Formation and Use Evaluation, Estate and Legacy Planning. Insurance solutions are offered as additional commission based solutions.

Broad Approaches to Wealth Management

MRA’s wealth management approach focuses on helping clients understand and manage investment risk, as well as increasing their chances for goal achievement. The portfolio return expectations of clients are set using risk rather than return, which is generally preferable for a long-term outlook.  The investment risk is quantified using a risk number. The risk number is determined using Riskalyze, a cutting-edge technology that identifies acceptable levels of risk and reward. Individual client portfolios are also stress-tested for a variety of stock and bond market scenarios.

MRA maintains multiple model risk portfolios that are used as the basis for implementing a client’s investment plan in the Wealth Management Program. The models range from income, conservative, moderate, moderately aggressive and aggressive. Each portfolio has varying degrees of asset categories and is reviewed with the client prior to implementation and periodically thereafter. The Wealth Management program can be summarized as follows:

Financial Planning for Retirees and Pre-Retirees

Investment advice offered by MRA is tailored for each client to address his/her financial goals, objectives and risk tolerance and structured in view of any outside investments held by the client, considering each investment’s effect on the client’s total portfolio. The financial planning services offered are:

  • Personal budgeting and cash flow
  • Personal financial statements
  • Life, disability and long-term care insurance consulting
  • Investment due diligence, management and portfolio construction
  • Financial independence planning
  • Estate planning and wealth transfer
  • Education and specific goal/need planning
  • Foundation management and charitable giving
  • Business investment analysis and succession planning

The Financial Planning program for every client has 4 stages:

Proven Investment Strategies

MRA maintains multiple model portfolios that are used as the basis for implementing a client’s investment plan. Portfolios are comprised of Core (traditional asset allocation) and Explore (tactical asset allocation) investment themes. MRA’s Investment Committee meets monthly to review investment policy and strategy. 

During the investment committee meeting, there is a review of each investment model that may result in tactical adjustments to each model determined by market and economic conditions. The committee also reviews core recommendation list of investments, analyzing each individual asset class that supports the investment models.  In the video below, we can see how Morris Retirement Advisors is redefining what it means to plan for retirement:

Here, we can see that MRA investment strategies work because they employ the following analytical criteria to select the funds and securities in its recommended portfolios:

  • Past risk-adjusted performance and expense ratios relative to other investments within the same asset class having similar investment objectives
  • Consistency of performance and rankings over time
  • The historical volatility and downside risk of each proposed investment
  • Consistency of investment style and tenure of the portfolio manager
  • How each investment complements the others in the portfolio
  • Economic conditions and comparisons to other investment opportunities

MRA re-evaluates portfolios using fundamental and tactical analysis each quarter, and rebalances them as necessary. For portfolio risk assessment, the company utilizes its sophisticated software services that provide risk management analytics for investing. Based on the risk metrics of each portfolio, these strategies can limit exposure to volatility and enhance your returns over the long-term.  These are strategies that have been tested over time and can be tailored to the needs of the individual.  For more information, visit MorrisRetirementAdvisors.com.

 

Market News

Stock Trading: Oracle Shares Surges to New Highs

Leave a comment

Stock Trading: Oracle Shares Surges to New Highs

Stock markets continue to post major bull rallies but one sector that has been largely missed by investors is the technology space.  This can be seen in professional indices trading trends, which have recently shown that assets tied to the NASDAQ have underperformed those tied to the value of the S&P 500.

But we are starting to see some of these trends change, as tech stocks have been able to post better rallies in recent weeks.  One of the best examples here can be seen in Oracle Corp. (NYSE: ORCL) which is now trading at long-term highs.

Stock Price Chart: Oracle Corp. (NYSE: ORCL)

Stock prices in ORCL have surged above prior resistance levels en route to new highs above $45 per share.  “Information driven,” Oracle is one of the most prominent names in tech development and marketing of business software products, database technology software and cloud engineered systems.  Based in the USA and established in 1977, the company is a public multinational entity having more than 136,000 employees currently with head office in California’s Silicon Valley.  

Key products among others related to Oracle are storage, servers, oracle applications and oracle enterprise manager. Enterprise resource planning, supply chain management, and customer relationship management soft wares are also specialized names which are associated with Oracle. It reported annual revenue of $37.04 US billion Dollars (2016) and net income worth 8.90 US billion Dollars (2016).

Tech Manufacturing Companies

In addition to manufacturing and marketing of business software products Oracle also offers other services which comprise consultancy, training and financing which is also a unique element in relation to Oracle. Since its inception Oracle has gone through a comprehensive process of acquisition of entities both corporate and individuals.  In 1995, IRI software was acquired by it under consideration of $100 million US Dollars.  

Other notable acquisitions include:

  • PeopleSoft in 2005 $10.3 billion US Dollars
  • Seibel Systems in 2006 for $5.85 billion US Dollars
  • Hyperion Corporation in 2007 for $3.3 billion US Dollars
  • Sun Microsystems in 2010 for $7.4 billion US dollars
  • Micros Systems in 2014 for $5.3 billion US Dollars
  • NetSuite in 2016 for $9.3 billion US Dollars
  • Apiary in 2017  for which the valuation of purchase consideration is yet to be agreed

According to reports in 2015 Oracle after Microsoft was second-largest software maker revenue wise which is indeed an impressive and substantial outlook internationally. Since the beginning company has introduced multiple technological dimensions like UNIX-based Oracle applications in 1987, PL/SQL in 1988, 64 bit RDBMS in 1995.  

This was followed by its free database to qualify industry standard security evaluations in 2002, smart scans that enhance software query response in HP Oracle Database machine in 2008 and in particular initiative in the shape of Oracle 12c which can facilitate cloud services along with Oracle Database in 2015.  Conclusively, despite facing multiple challenges since the beginning, Oracle has proved itself among preferred and highly recommended global tech entities.

Long Ideas, Market News

Brookfield Real Assets Offers Value in Elevated Markets

Leave a comment

Stocks Strategies: Brookfield Real Assets (RA) Offers Value in Elevated Markets

In December, Brookfield Investment Management (NYSE: RA) announced its decision to merge three legacy funds (Brookfield Mortgage Opportunity Income Fund Inc, Brookfield High Income Fund Inc., and the Brookfield Total Return Fund Inc.) These funds became the Brookfield Real Assets Income Fund (the Fund) on Dec 5th, 2016. The Fund has an annualized distribution rate of 10.3% as of March 2, 2017.

In the chart above, we can see that the recent strategy changes at Brookfield have been viewed positively by the market, with significant rallies already posted this year.  This means that stocks like RA should be on the radar for any investor looking for sustainable value in an environment where stock benchmarks like the S&P 500 and the Dow Jones Industrials are trading at overextended levels.

Recent Updates

In the Q4 update, Brookfield stated that the objectives of the reorganization were threefold. Merging the fund would provide a larger scale through trading liquidity for shareholders and broaden market interest. In this way, it is clear that Brookfield still sees opportunities for greater income and growth. Additionally, merging the funds has allowed income levels to stabilize and this should lead to less volatility during market cycles.

Strategically, this closed-end investment instrument looks to provide high total return using two approaches. Primarily, the Fund looks for high current income opportunities and, secondly, it looks for growth of capital. As its name suggests, the Fund looks to invest in so-called “real assets” such as real estate securities, infrastructure, and natural resources.

Those three industries comprise more than 97% of the Fund’s total investments. The Fund’s NAV is currently more than $25 and this number has increased by more than 3% since its December inception.  The stock trades at a NAV discount that is something of a rarity when we look at the elevated nature of stock prices in general.

Stock Market Optimism

So far in 2017, the Trump victory has supported analyst expectations for higher economic growth within this US-focused fund. The stock has clear potential for growth as Trump’s pro-business agenda will likely lead to continued improvement in the nation’s housing market fundamentals. 

As a whole, investors have in bullish fashion as Brookfield is already well-positioned in a somewhat overlooked industry that still has potential to grow over the next few years. Notably, the Fund’s investment in hotels, health, telecom, and oil and gas transportation has been positively received as an added volatility safeguard.  But even with the significant price rallies already seen this year, the stock still trades at a NAV discount of nearly 10%:

As 2017 continues, the outlook remains favorable. Streamlining regulations, tax reforms, and growing infrastructure spending policies should continue to support the assets that make up Brookfield’s portfolio.  Of course, as U.S. policy becomes more clear over the next few months it should be noted that there is some inherent risk if broader market surprises are seen.  

For example, inflation may continue to rise as energy prices stabilize. The Fund management believes the general improvement of the US economy should tighten credit spreads and increase equity prices, however.  If this turns out to be the case, RA should be able to extend in its rallies and gain more of the market’s attention in the process.

 

For more information, visit Pristine Advisers for a free investor relations consultation.

Market News, S&P 500

Will S&P 500 Hit New Record Highs?

Leave a comment

Will S&P 500 Hit New Record Highs?

The S&P 500 is arguably the most important benchmark in the financial markets.  Over the last few months, we have seen some amazing trends that have confirmed a bullish end to 2016.  But now that a lot of the initial optimism in stock markets has fully run its course, investors will be looking for new ways of profiting on a dynamic market that has been defined by bullish sentiment and low interest rates.

For the S&P 500, this has meant new record highs at a fairly regular clip, as investors start to price in the possibility of renewed economic optimism under the administration of President Donald Trump.  When trading this type of event in the market, traders can use the SPDR S&P 500 ETF (NYSEARCA:SPY), which can be traded using the MT4 platform that is made available by easyMarkets.

Stock Market Trends

When looking to make the best investments in the S&P 500, it is essential to understand the cyclical nature of the ways that stock market trends unfold.  If, for example, we were to look at the Elliott Wave Theory, then many would suggest that the markets unfold in a series of wave structures that can be forecasted in advance.  

On the other hand, practitioners of fundamental analysis will need to look at factors like price-to-earnings ratios and industry competition in order to determine which stock investment strategy is best.  So there does not necessarily need to be a one-size-fits-all strategy when looking to gain stock investment exposure in assets that are tied to the S&P 500.  

The world-famous stock benchmark is currently trading at record highs and when we think about the fact that the Federal Reserve has left the economy at relatively low-interest rate levels there is still clear scope that we could see stock market rallies in the S&P 500 index.

S&P 500 Trading Systems

When we are looking at the potential trading systems that can be used to trade the S&P 500, it is important to consider possibilities like options and contrarian strategies that are able to take advantage of stalling momentum or even complete reversals in major benchmarks like the S&P 500.  This is not always something that is considered by traditional stock market investors, but this is an investment strategy that can be used to profit from investments in the other direction when stock markets are trading near their all-time highs.  

Stock Price Chart: GOOG

In other cases, it makes sense to look at other stock market benchmarks like the Dow Jones Industrials and the NASDAQ.  These instruments have their own characteristics when we are looking at the ways stock market investors can implement a stance on the economic outlook.  But now that we have seen some more evidence with respect to the ways the Federal Reserve will probably proceed with interest rate policy over the next two quarters, there are ways for investors to capitalize on these trends as they unfold.  

Market News, S&P 500

How to Invest in the S&P 500

Leave a comment

How to Invest in the S&P 500

When we look at the financial markets activity that is currently seen today, there have been some interesting trends that have started to unfold.  Since the Great Recession of 2008, financial markets have started to stabilize and this has led to historic bull rallies in assets like the S&P 500.  For newer investors, it might be unclear what this stock benchmark is exactly.  So, here we will look at some of the factors that are traditionally involved when investors are ready to start investing in the S&P 500 stock market index.

S&P 500: The Basics

First, it should be clear that the S&P 500 is a collection of 500 commonly traded companies that are offered in shares on a US stock exchange.  When we look at the financial news headlines in periodicals like the New York Times or the Wall Street Journal the numbers that are quotes will essentially tell you the collective value of those 500 commonly traded stocks.  So, for example if the television news tells us that the S&P closed at 2,000 on a given day it would essentially mean that the total value of all stocks in the index would be equal to $2,000.

screenshot-2016-11-26-at-9-36-23-pm

This is important for those investors that are looking to buy the S&P 500 stock index as a whole.  This can be done using a few different methods.  Investors can buy stock options or stock futures as a means for speculating on the underlying value of the stock exchange.  This can be accomplished using the MT4 trading platform that is freely available from easyMarkets.  Additionally, investors can buy into exchange traded funds (ETFs) that track the total performance of the S&P 500 index.  The most common instrument for doing this would be the SPDR S&P 500 ETF (SPY), which is one of the most commonly traded assets in the financial markets.

Individual Stock Shares

Whenever you are trading in the S&P 500 it is important to remember that you are still trading the values of individual stocks.  In the general consumer space, this includes names like Exxon Mobile (XOM), Johnson & Johnson (JNJ), and General Electric (GE).  In the tech space, there are other popular names that can often influence the market.  This includes some of the best stocks in the market:  Apple, Inc. (AAPL), Microsoft (MSFT), and Facebook (FB).  

So, if you are looking to get started in investing and to learn how to profit in the financial markets one of the best options that will be available to you can be found in the asset instrument known as the S&P 500.  Significant profits can be made, but when you are dealing with the pro stock markets it is always best to conduct your proper research before getting into any major investments that could be subject to increased market volatility.  Once this is accomplished, it becomes much easier to beat the market and to secure your financial freedom for both wealth-building and retirement.  Good luck to you in your stock market trading!

Dividend Stocks, Investing, Market News

Dividend Stocks: JNJ Looks Strong After Earnings

Leave a comment

Dividend Stocks: Johnson & Johnson Looks Strong After Earnings

  • Bullish run in JNJ set to continue, despite claims stock is overvalued
  • Overall, margins and earnings performance will support the stock into next year
  • Wait for small retracements to improve risk-to-reward outlook

Johnson & Johnson (NYSE:JNJ) is a company that has one of the most firmly-established presences of any name that can be located in the financial markets.  The company was founded in 1887 by Robert Wood Johnson, James Wood Johnson and Edward Mead Johnson with its headquarters in New Brunswick, NJ.  Today, Johnson & Johnson is, ultimately, a holdings company.  Their main businesses are in health care products and its manufacture and sale of a wide range of products that are sold in almost every American household.

In the healthcare field, the company has been a forerunner in the research and development of everyday products that have become staples in defining modern daily life.  The company, through its subsidiaries, does business around the world in 120 manufacturing facilities and can be traded using the MT4 platform.

Johnson & Johnson’s Redefined Expansion

With this context in mind, it should be understood that there is still room for expansion at the company — and Johnson & Johnson has taken recent steps to define this as an emerging outlook.  Last month, the company announced its plans to buy Abbott Medical Optics for $4.325 billion in cash. In a similar move last quarter, the company acquired Vogue International for $3.3 billion in cash as a means to strengthen its position in hair care and other personal care products.  From a strategy perspective, it can be said that these efforts have come in response to recent disappointments in its quarterly earnings reports.

On July 19, the company announced Q2 results, with earnings-per-share of $1.43 and Q2 sales of $18.5 billion.  Prior to this, the analyst consensus showed expectations of earning-per-share at $1.68 and sales of $17.97 billion. On the positive side, JNJ’s Q2 worldwide sales increased by 7.9% while domestic sales grew by 8.8%. Thomson Reuters polls suggest that FY2016 sales will come in from $71.5 billion to $72.2 billion and adjusted earnings-per-share will come in from $6.63 to $6.73.

Stock Performance

Johnson & Johnson stock is currently trading near $117, toward the upper end of its 52-week trading range of $94-126, with a trailing twelve-month earnings-per-share is $5.37.  At these valuations, this gives JNJ a 21.9 PE — and this is perhaps one of the most overlooked features of the stock at current price levels. The industry average shows a PE multiple of 36.6.  So when we take these factors into consideration along with the significant buy momentum that has already been seen this year, it is much easier to see why the current bull run has not yet run its course.  At this stage, the analyst majority is expecting earnings-per-share of $6.96 for the year ending December 2016 and $7.11 for December 2017, and this supports the outlook for further gains in the market valuation.

Over the last five years, Johnson & Johnson has produced a 13.32% annualized return-on-investment, and a 20.05% annualized return-on-equity during the same period.  On the negative side, it should be noted that the company has a somewhat subdued 5-year annualized sales growth rate of 2.62% and 5-year annualized EPS growth rate of 2.76. This can be attributed largely to the broader weakness we have seen in global markets, and this is something that should continue to be rectified as long as most central banks in emerging markets maintain a dovish policy stance.  Another factor that helps to reduce these negatives is the fact that the company performs much better with its margin levels than the comparable industry average.  Its gross margin is TTM 69.61% vs industry average of 54.53% and its net profit margin is 21.20% where the industry average now rests at 11.10%.

Dividend Stock Investing

So while many analysts have dismissed the stock as being overvalued in the current market context, there are several factors that put those forecasts at risk in favor of additional runs higher.  Given the regular nature of the stock’s price performance over the last year, investors can wait for a drop back toward the 200-day moving average near $115 (highlighted in the chart above).  One factor that could change the outlook and reduce performance within the company is the fact that Johnson & Johnson is still lagging when we talk about the company’s return-on-assets. Its 5-year average annualized return-on-assets is 10.66% (compared to the industry average of 13.25%), so there are clearly managerial issues here that will need to be addressed.  Similar trends have been seen in cryptocurrency markets and this is likely to continue until investors see a Bitcoin ETF.

But, overall, investors will continue to be rewarded for their patience in the stock as the company is one of the best regular dividend payers in the market. JNJ pays its dividend quarterly, and over the last two-quarters the company paid $0.80 a share (a dividend-yielding 2.7% at current prices). This is nearly double the industry average, which is now showing yields of 1.41%, and this is why there are still many in the analyst community expecting the stock to outperform when bought on dips from current levels.