HI Financial Services Commentary 02-06-2018
You Tube Link: https://www.youtube.com/watch?v=Kab5KLgtc-I&t=1011s
What I want to talk about today?
How I had a position to take advantage of volatility – F
Then to create a bear put because F had fallen so much already and it had already pre announced not stellar earnings I:
Sold 11 puts for $0.19 per share
Cost basis ?=46 – 19 = $0.27
Maximum Rewards in my bear put = Difference in strike=$1 – 0.27 = $0.73
Well I got $0.13 in a dividend that lowered my strike prices by 13 cents and I sold them for
Well I got filled for $0.86 or 13 above the max reward and I got a 13 cents for a dividend OR I got the whole $1 in my spread after spending $0.27. BUT
My stock fell from 12 down to 10.31 yesterday when I took off protection and today finished at $10.76
Some accounts did MUCH better than others but every account I can live with the drops that occurred.
The last week was DIFFICULT and it ruined some people but probably not enough to stop the downward slide.
What happening this week and why?
Obviously this is the most important topic tonight !!!
Pullbacks and corrections are needed in the market along with some volatility
Not enough time for individuals, institutions, dark pools, funds, to spread out stop losses, sell orders, profit taking dark pool block orders,
The drop was purely technical with preplanned orders not being able to be filled while market makers didn’t have the time to “catch up”
Is today a reversal or can it be called something else? Retracement? Or Dead cat bounce?
Where were the circuit breakers yesterday???!!!!!!
Straight long put, collar protection worked best
Bear put, spreads, and short term options sucked
Long term leap options and trying to take advantage of volatility worked as well
ISM Services 59.9 vs est 56.7
Where will our markets end this week?
DJIA – Bearish over sold bounce and test 22743 200SMA range
SPX – Bearish and has an over sold bounce need to test the 2535 200SMA
COMP – Bearish and had an over sold bounce probably needs to test 6543-6460 200SMA range
Where Will the SPX end February 2018?
What is on tap for the rest of the week?=
Tues: AGN, BP, DNKN, EMR, GM, SAVE, TPR, AKAM, BZH, CMG, GNW, GILD, SNAP, DIS
Wed: BLL, HAS, HUM, ICE, KORS, NTES, TSLA, YELP, ZNGA
Thur: CAH, CVS, GT, GRUB, K, PM, TMUS, YUM, ATVI, FEYE, NVDA, ZG
Fri: PCG, CBOE
Tues: Trade Balance, Jolts
Wed: MBA, Consumer Credit
Thur: Initial, Continuing Claims,
Fri: Wholesale Inventories
The correction and if it is over will move the markets from here on out.
AAPL is the best US company to own fundamentally and Yes they could be up to $190 -$200 by the end of March
www.myhurleyinvestment.com = Blogsite
How am I looking to trade?
I now have long calls on BAC, V and I want more stock ownership in AAPL!
AAPL has the opportunity for a “one time” dividend could be $30 a share
A covered call DITM only gives you a little protection to add long puts for real protection
NEW Updated Positions
I choose to protect with a protective put At risk ?= 2.4% protecting 97.6% of my total invested capital
I moved 69 contracts to $105 stike capturing profit and others that haven’t been in as long as others that didn’t have enough profit I kept the long puts at $110
250/230 Bear put = $20 of downside protection
NEW Updated Positions
NEW Updated Positions
AAPL – 02/01 AMC
AOBC – 03/01
BIDU – 2/22
CLX – 02/02 BMO
DHI – 01/31 BMO
DIS – 02/06 AMC
FB – 01/31 AMC
FCX – 01/25 BMO
MO – 02/01 BMO
KMX – 04/04 BMO
V – 02/01 AMC
The Only Way To Trade Ford
Feb. 5, 2018 9:30 AM ET
Ford just released a very disappointing sales report.
However, it is not as bad as it seems.
Ford is suffering from general weakness in the automotive industry but remains a solid dividend play.
Ford (F) gained 25% from its August 2017 lows until the second week of 2018. Since then, the market cap of America’s second biggest car manufacturer is down more than 19%(!). At this point, both bears and bulls are stepping up their arguments from ‘Ford is a goner’ to ‘chance of a lifetime’. I believe that there is no reason to be extremely pessimistic. However, bulls might be disappointed too. In this article, I want to give you a full review of the stock, its problems and its opportunities.
Too Cheap To Be Any Good?
Ford’s stock price has pretty much been a mess since the economic slowdown of 2014. The stock performed very well when the US consumer made a comeback in 2012 and doubled its stock price between 2012 and 2014. Since then, the stock price has been in a downtrend that seemed to have ended in the fourth quarter of 2017 when the stock price finally broke out.
However, things changed and we are once again close to the lowest levels since 2012.
In terms of valuation, we see something very interesting. The stock is trading at 0.27 times sales and 5 times free cash flow. The current P/E ratio is 5.6 while the forward P/E is roughly the same. This is a typical situation of ‘being too cheap’ to be any good.
Let me explain what I mean by that by asking you a question: Why would anyone sell a stock to you that is trading at 5 times earnings? Isn’t that like selling a winning lottery ticket? The reason some companies are trading at rich valuations is the fact that traders and investors are looking further into the future. Expectations are simply higher. For example, if I expect a company to revolutionize the music industry, I am willing to pay a massive premium. In this case, we are talking about quality earnings. It also means that disappointment could kill the stock price in case the company fails to deliver.
Now, let’s look at EPS expectations for both 2018 and 2019. 2018 is expected to generate $1.63 EPS while 2019 is 4 cents lower at $1.59. In addition to the fact that analysts are not expecting any growth between 2018 and 2019, we see that there have not been any significant upside revisions. It’s pretty much a boring low/no growth story.
And speaking about growth, I think that monthly sales perfectly fit in this picture.
Car Sales – Not As Bad As It Looks
On the first day of February, Ford published results that look like a total catastrophe on first sight. Total vehicle sales went down 6.6% with declines in every segment except for truck sales. Retail declined 4.3%, fleet sales went down 12% while even SUV sales were 5.9% lower. Cars took the biggest hit with a 23.3% decline.
Source: Ford January Sales Report
Almost every single vehicle that belongs to Ford’s top-selling models saw declines in January. Even the all-new Explorer declined 1.9% while the F-Series printed another solid month with close to 2% growth. Moreover, the average ticket price of an F-150 is currently at $47,800, which is $1,400 higher than 12 months ago and up $140 since December of 2017.
Source: Ford January Sales Report
That being said, there are a few good reasons why the sales report came in so low. The first one being the timing of daily rental fleet sales. These sales were off 31%, which was (according to Ford) entirely due to the timing of new sales. Commercial and government fleet sales were up 1%. Furthermore, the company mentions that they do not care too much about rental volume. Their first priority is to meet customer timing and profitability.
The second reason is the strong performance of retail sales in January of 2017 when sales went up more than 6%. It was also the best month of retail sales of 2017. This makes the year-on-year performance of January 2018 look worse than it actually is.
Last but not least, the entire car sales decline of 23.3% was due to a rental sales decrease of 44.2%. The reason, as I explained already, was purely due to customer timing. Furthermore, Ford is once again mentioning the trend from cars to bigger vehicles like trucks and SUVs.
This brings me to another important point. Total sales in the US did not show much weakness. Yes, car sales declined another 10.8%, which is everything except a bullish tailwind. However, light duty trucks added 8% while every key vehicle in this segment showed a strong result. Pickup trucks added 5% while cross-overs saw a 13.6% increase.
Source: Wall Street Journal
This is not a sales report you read during economic downturns. It is just too strong. On the other hand, I am a bit disappointed that Ford is lagging with Explorer sales in decline and underperforming F-150 sales.
Macro Is Positive About Ford
One of the things I am always interested in are Ford’s comments about the US economy. The company is obviously interested in employment and economic growth in general given the cyclical nature of their products.
The company mentioned strong employment growth, low unemployment claims, and rising consumer sentiment. Still, the company is hinting at expected sales in the low 17 million range for the full year of 2018. This is slightly less than 2017.
Overall, economic conditions remain favorable for households and should be supportive of auto sales in the coming year. Our guidance for industry volume is in the low 17 million unit range, down slightly from 2017, but as Mark noted, still a historically high level. January sales are in line with that range.
– Ford January Sales Transcript
This perfectly sums up what is currently going on at Ford. Future expectations are low while the company is perfectly able to sell their top products like the F-150, Explorer & co.
Below, you find total car sales per year in the US. 2017 has been the first year with lower sales since the GFC. The fact that even car manufacturers expect sales to stay at current levels is putting pressure on their stocks.
Now let’s move over to the next graph. This graph shows the ISM manufacturing index. For the people who are not familiar with this index, it is important to mention that it is a leading indicator. This indicator tells us what we can expect to happen over the next 1-3 months. It is therefore much more important than GDP growth, which only tells us how things went in the past.
This also means that all indicators Ford is looking at are being predicted by the ISM index. That’s why the graph below shows you that Ford has had tremendous bull runs during strong economic times.
Furthermore, it seems that Ford desperately needs rising sentiment since falling sentiment above the neutral level of 50 is pushing the stock down.
Below, I added the ISM vs. Ford graph going all the way back to 1972. That’s why it looks a bit messy.
The thing that strikes me is that every time Ford declines during strong economic times, we see an economic slowdown. It is also very uncommon for Ford to decline during economic accelerations.
How To Trade Ford?
Ford is everything but a weak company. The company was able to grow sales by almost 4% in 2017 thanks to a rock solid product portfolio, which was, and still is perfectly able to capture the trend towards bigger vehicles.
The problem however is that the automotive industry is not generating growth after doing very well until 2016. Expectations are extremely low. Ford is trading at an extreme discount while EPS forecasts are reflecting no growth until at least 2019 without any significant upside revisions.
Add to that the fact that the latest report showed underperformance compared to General Motors (NYSE:GM) and some Japanese producers.
So, is there no reason to be bullish? To clarify my view, I have to say that I am not bearish. The stock still has potential given the strong growth acceleration trend in the US, which was confirmed by the latest ISM release.
This stock is a great opportunity for long-term investors. And according to my own research, I think that most of my readers who read my Ford articles are long-term holders. Ford is paying you a solid dividend of 5.6%, which is supported by Ford’s current market position and ability to do very well in a slow growth environment.
In other words, we are likely going to see that dividend gains will outperform capital gains. I would therefore only buy this stock to collect its juicy dividend. Swing traders and mid-term traders should look for retailers in the automotive industry. I will cover my favorite stocks in that industry as soon as possible.
In other words: enjoy your dividend but do not count on capital gains. The market is just too weak.
Thank you very much for reading my article. Please let me know what you think of the Ford situation. Why are you bullish and do you agree that the market cannot offer Ford enough growth opportunities?
And as always…
… Stay tuned!
Author’s note: Thank you for reading my article. Please let me know what you think of my thesis. Your input is highly appreciated.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article serves the sole purpose of adding value to the research process. Always take care of your own risk management and asset allocation.
Trump’s biggest victory — tax cuts — could lead to the demise of his beloved bull market
- President Trump’s tax cuts may lead to inflationary conditions and the end of the nine-year bull market for stocks.
- Billionaire hedge fund manager Dan Loeb specifically called out the risk of inflation to the market rally last month.
Published 23 Hours Ago Updated 9 Hours AgoCNBC.com
Investors (and presidents) should be careful what they wish for.
President Donald Trump’s biggest legislative accomplishment may lead to inflationary conditions and the end of the nine-year bull market for stocks.
The Republican tax overhaul, which the self-proclaimed “king of debt” Trump signed into law in December, lowered the corporate tax rate to 21 percent from 35 percent. The Congressional Budget Office estimatedthe tax bill will increase the deficit by $1.5 trillion over the next decade and by $136 billion in fiscal 2018.
Some are concerned that adding fiscal stimulus at this late stage of the economy cycle with a jobs markets at or near full employment will spur a rise in inflation.
Will be ironic and politically costly for president and Republicans if as seems increasingly likely tax cuts and deregulation, first by overstimulating already strong economy, then by adding to already large national debt, lead to much higher rates, which cause market correction
Former Federal Reserve Chairman Alan Greenspan predicted both inflation and interest rates will surge as a result of the country’s growing national debt and budget deficit.
“We are dealing with a fiscally unstable long-term outlook in which inflation will take hold,” Greenspan said in an interview on Bloomberg Television last Wednesday. “I think we’re getting to the point now where the breakout is going to be on the inflation upside. The only question is when.”
The rates breakout may have started last week.
On Friday a stronger-than-expected jobs report and wage number sent interest rates higher, sparking a 2.1 percent sell-off in the S&P 500 that day. The benchmark 10-year yield rose to a four-year high of 2.85 percent.
Investors are now concerned the Federal Reserve will reduce its monetary stimulus and increase interest rates more aggressively as the economy continues to strengthen.
Billionaire hedge fund manager Dan Loeb last month specifically called out the risk of inflation to the market rally.
“Low inflation has been a critical support for the market because it has allowed the Fed to be unhurried in its rate normalization,” Loeb wrote in a letter to clients. “We are watching closely to see how a tightening labor market and recently announced wage hikes will shape the future path of inflation.”
The S&P 500 index has rallied 32 percent since the Nov. 8, 2016, Trump election through January, something the president has heralded many times in public appearances and on Twitter. The benchmark index is down more than 6 percent this month through Monday.
The market’s two-day swoon comes after the World Economic Forum in Davos, Switzerland, in late January, where American CEOs embraced Trump’s corporate tax cuts and expressed optimism over the stock market and economy.
The extreme positive sentiment by investors and corporations actually worried one legendary investor.
“There is a good amount of euphoria out there,” Jeff Vinik told CNBC on Jan. 26. “I don’t remember a time honestly, maybe back to 2000, when there was so much good news and so much bullishness. And every instinct of mine tells me when that is the case, you should be a little cautious.”
The euphoria can even infect the most experienced investors.
Bridgewater Associates founder Ray Dalio predicted at Davos “a market blowoff” rally, fueled by cash from banks, corporations and investors.
“There is a lot of cash on the sidelines. … We’re going to be inundated with cash,” Dalio said Jan. 23. “If you’re holding cash, you’re going to feel pretty stupid.”
As inflation rises from Trump’s fiscal stimulus, this key risk for the stock market, according to Loeb, means a correction is ahead for equities even if the economy improves.
At year-end, investors who stay in cash may not feel so dumb.
A decision to invest today has to rely on the belief that ‘it’s different this time,’ says billionaire Howard Marks
- Howard Marks tells his clients to stay “defensive or cautious” in the current market environment.
- His firm, Oaktree Capital, has $100 billion of assets under management as of September 2017, according to its website.
Published 9:57 AM ET Wed, 24 Jan 2018 Updated 5:29 PM ET Wed, 24 Jan 2018
Howard Marks believes investors should be “defensive” due to high valuations and avoid betting for a runaway market.
“Most valuation parameters are either the richest ever … or among the highest in history,” Marks wrote in a note to clients Tuesday. “In the past, levels like these were followed by downturns. Thus a decision to invest today has to rely on the belief that ‘it’s different this time.'”
Marks, whose firm, Oaktree Capital, had $100 billion of assets under management as of September, noted the S&P 500 has roughly quadrupled since its low in 2009 and nearly every valuation metric is high on a historical basis.
On whether investors should be bullish or bearish in the current environment the investor added, “my answer today, as readers know, is that I would favor the defensive or cautious part of the spectrum.”
“I’m convinced the easy money has been made,” he said.
Marks is known for his prescient investment memos, which warned about the financial crisis and the dot-com bubble implosion.
The Oaktree co-chairman warned his clients from chasing the market in anticipation of a late-stage surge, saying trying to time investor sentiment is “unpredictable.”
“It appears many investment decisions are being made today on … belief that the overpriced market may have further to go, and FOMO [fear of missing out],” Marks wrote. “Oaktree will continue to invest on the basis of value and its relationship to price, and to refrain from trying to time markets based on predictions regarding economies, markets or psychology. The ‘melt-up’ school says securities that already are highly priced may become more so. We’d never bet on whether they will or won’t.”
On the flip side Bridgewater Associates founder Ray Dalio predicted on Tuesday “a market blowoff” rally, fueled by cash from banks, corporations and investors.
“There is a lot of cash on the sidelines. … We’re going to be inundated with cash,” Dalio said. “If you’re holding cash, you’re going to feel pretty stupid.”