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Opinion: The stock market is in no man's land. Prepare to
cash-in when the turn-around comes
Updated October 8, at 8:06 pm
Listen to video @ https://www.marketwatch.com/story/the-stock-market-is-in-no-mans-land-prepare-to-cash-in-when-the-turnaround-comes-11665080108
If you were too scared to buy stocks last week when investors panicked, I’d suggest doing a little selling now to free up your nerves — and capital.
I’ll be a buyer on the next leg down, just as I was on the last leg down. Otherwise, for now, I think the market is in no-man’s land, and I plan to mostly sit tight.
For the bigger picture, here’s part of the first-quarter letter I sent to my hedge fund investors in April before stocks had completely tanked:
“The list of stocks that are starting to look like great investment opportunities is growing slowly and I expect to find several stocks amidst the rubble that can go up 10-100 times in coming years. It’s in times like we are heading into that great fortunes are built.”
Now let’s talk about the here and now. When I analyze the market from the top down, looking at the S&P 500 SPX, -2.80%, things still look dire. Analysts still believe that the S&P 500 will grow earnings to about $220 a share for 2022. Take 10%-30% off that for the likely earnings cuts for some companies as margins narrow (higher costs) and demand declines, and you have earnings of $180 or so.
The markets have been trading at an 18-20-plus multiple on those earnings for the last couple of decades while inflation was low and, more importantly for multiples, interest rates were extremely low.
As interest rates rise, U.S. Treasury securities and other debt become more competitive, so people are willing to pay lower multiples for stocks. So let’s say we should expect to a 15- to 16-time multiple on those earnings (and that might even be generous if interest rates stay up here or even go higher). In math, take 15 to 16 times 180, which equals 3200 to 3380 points for the S&P 500. It’s currently trading at 3790, which means that the S&P 500 could go lower another 15% and still be considered at about fair value.
Then again …
When I analyze individual stocks that I like from the bottom up, I like the action. Let’s use two names that I’ve recently started building up, Adobe ADBE, -3.23% and ShockWave Medical SWAV, -5.44%. Shockwave isn’t at all like ADBE, but it’s an interesting comparison. Shockwave has new biotechnology that will penetrate new markets and will be largely paid for by the government’s ridiculously favorable rules for health-care companies that allow them to make 85% gross margins. ADBE has software for its primary business, which has almost no incremental costs when you bring on a new paying customer. This company also runs at 85% gross margins, without having the government set its prices.
Anyway, Shockwave will grow 40% or more for the next few years as it penetrates new hospital systems and more doctors likely adopt its technology Adobe will continue to grow in the high single digits or low double digits — call it 10%. Shockwave is set up to become cheap in five years. In the meantime, it’s pretty expensive now. ADBE is cheap now and will get cheaper, but slowly.
Likewise, when I look at the near-term economy with all its challenges, including higher interest rates, inflation, Silicon Valley depression, Russia/Ukraine war, supply chain crises, real estate and other overvalued assets, the outlook is dire.
Then again, long-term investors need to consider the following: Large companies have spent the past couple of years figuring out how to make their supply chains more resilient and redundant by moving at least parts of their manufacturing to additional countries in Asia, Eastern Europe and Central/South America — and of course, re-domesticating much of the supply chain into the U.S.
And interest rates are already now close to natural levels for the first time in decades — that’s healthy!
And the rate of inflation has probably already peaked, even if inflation itself probably isn’t going back to 2% this year or next. But it could eventually, as those new and improved supply chains cut away at the global shortages, and inventories go back to healthy levels, as prices are cut to clear the existing excess inventories in many sectors out.
And many companies like Alphabet GOOG, -2.61% GOOGL, -2.70%, Meta Platforms META, -4.04% and Adobe are finally rationalizing their employee base and are probably going to see wider operating margins in many sectors of their business as the overhiring phase is over.
And crypto is finally washing itself out.
And just as recently as last week when we followed our playbook and bought stocks, fear was everywhere and bears were bragging about how brilliant they’ve been and the bulls were deferring to them.
Our largest positions at the time of this writing include, in alphabetical order: GOOG, Intel INTC, -5.37%, META, Qualcomm QCOM, -3.49%, Rocket Lab USA RKLB, -5.63%, Rockwell Automation ROK, -3.31%, Tesla TSLA, -6.32% and Uber Technologies UBER, -5.58%.
For the first time in a long time, I covered almost all of our short positions as the markets collapsed into the end of the quarter, opening up some additional long exposure into the panicky action, as planned.
I will judiciously look to add some more shorts and/or put hedges in coming days and weeks. I expect individual stocks will stop trading so broadly in line and that stock picking on the long and short side is going to be more important for the next cycle.
Be careful out there. Some stocks have bottomed, and some are very close to bottoms. We will look back at in a few years and be glad we were taking advantage of the broad sell-off. But we’ve already had this huge bounce off those recent lows and we should be prepared for more volatility and perhaps more downward bias as the path of least resistance in the broader markets. Be ready to keep buying on the dips, especially when they get extreme like last week.
HOOSIER Hysteria Friday night---Video
WEEKEND MUSIC~~
Blues/Jazz/Soul
Louie Armstrong --St Louis Blues
Check Back Later ~POOF ~ for now
Futures pare losses-Jobless claims rise more than expected as the labor market starts to cool
<--CAG $33.55
Gold, silver- trade modestly higher, investors look toward jobs report
CAG $34.50
MW forecast-Jobless claims estimated to reach 230,000, 8:30 report, tick-tock
CAG Conagra brands stock rallies after adjusted profit, and sales beat expectations
7:50 am STZ pops 2.6% pmkt
Credit Suisse Mulls Outside Money for Investment Bank Spinoff
Bank is considering boutique model for advisory, dealmaking
But an exodus of talent is complicating the discussions
cont @
https://www.bloomberg.com/news/articles/2022-10-06/credit-suisse-mulls-outside-investor-for-investment-bank-spinoff?srnd=markets-vp
CAG $33.80 - Conagra Brands Reports First Quarter Results
https://finviz.com/quote.ashx?t=CAG
Highlights
First quarter net sales increased 9.5%; organic net sales increased 9.7%
Operating margin in the quarter was (0.7%); adjusted operating margin was 13.7%
Diluted loss per share for the first quarter was $0.16, and adjusted earnings per share (EPS) was $0.57
First quarter operating margin, net income, and diluted EPS were impacted by non-cash goodwill and intangible asset impairment charges, primarily driven by an increased discount rate
The company is reaffirming its fiscal 2023 guidance reflecting:
CEO Perspective
Sean Connolly, president and chief executive officer of Conagra Brands, commented, "The strength of our brands and continued execution of the Conagra Way playbook resulted in strong sales and adjusted operating profit during the first quarter. We continued to deliver improved service and productivity as we navigate ongoing inflationary pressures and industry-wide supply chain challenges. Our strong start to fiscal 2023 reaffirms our confidence in our outlook for the balance of the fiscal year as we remain focused on generating value for our shareholders."
Total Company First Quarter Results
In the quarter, net sales increased 9.5% to $2.9 billion. The increase in net sales primarily reflects:
a 0.2% decrease from the unfavorable impact of foreign exchange; and
a 9.7% increase in organic net sales.
The 9.7% increase in organic net sales was driven by a 14.3% improvement in price/mix, which was partially offset by a 4.6% decrease in volume. Price/mix was driven by the company's inflation-driven pricing actions that were reflected in the marketplace throughout the quarter. The volume decrease was primarily a result of the elasticity impact from inflation-driven pricing actions; however, the elasticity impact was favorable to expectations.
Futures fall as high oil prices stoke inflation worries, Telsa falls
Futures fell on Thursday as rising oil prices exacerbated inflation worries, while high-growth stock Tesla fell on worries over funding for Elon Musk's proposed buyout of Twitter.
Fears of aggressive interest rate hikes by the Federal Reserve have returned to the forefront after a report on Wednesday showed strong U.S. labor demand.
Rate-sensitive growth stocks fell as the yields on the 10-year Treasury note rose for the second day. Twitter Inc , Nvidia Corp (NVDA.O) and Microsoft Corp were down between 0.7% to 1.2% in premarket trading.
PTON to cut another 500 jobs, 4th round of cuts this year
BKE $34.87 Buckle reports September 2022 net sales
Thu, October 6, 2022 at 6:50 AM·2 min read
KEARNEY, Neb., October 06, 2022--(BUSINESS WIRE)--The Buckle, Inc. (NYSE: BKE) announced today that comparable store net sales, for stores open at least one year, for the 5-week period ended October 1, 2022 increased 2.7 percent from comparable store net sales for the 5-week period ended October 2, 2021. Net sales for the 5-week fiscal month ended October 1, 2022 increased 3.8 percent to $115.5 million from net sales of $111.2 million for the prior year 5-week fiscal month ended October 2, 2021.
Comparable store net sales year-to-date for the 35-week period ended October 1, 2022 increased 2.9 percent from comparable store net sales for the 35-week period ended October 2, 2021. Net sales for the 35-week fiscal period ended October 1, 2022 increased 3.4 percent to $844.6 million compared to net sales of $817.1 million for the prior year 35-week fiscal period ended October 2, 2021.
About Buckle
LLY $331.78 Eli Lilly gets FDA fast track for Tirzepatide in Obesity
STZ- Constellation Brands down 1.3% pmkt-
To divest part of its mainstream premium wine portfolio to The Wine Group
Just posted the full report, did miss the street estimates, mixed report
MKC $73.31 -ugly chart bottoming? Does have room to move, but unsure here
https://finviz.com/quote.ashx?t=MKC&ty=c&ta=1&p=d
Bond yields rise after Fed officials talk tough on rates
IR $46.94 - Ingersoll Rand to Acquire SPX Flow's Air Treatment Business
Highly complementary product portfolio of compressed air dryers, filters and other consumables with high attachment rate to core air compressor product offerings
Attractive growth profile and a strong recurring aftermarket revenue stream (nearly 50% of total revenue) supported by large installed base
Globally recognized brands aligned with multi-channel, multi-brand strategy
Strong strategic fit expected to quickly yield adjusted EBITDA margins accretive to the Industrial Technologies and Services (IT&S) segment; meaningful synergy improvements by year three expected to drive adjusted EBITDA margins to greater than 30%
$525 million purchase price equates to a low double digit multiple of pre-synergy, expected stand-alone 2022 adjusted EBITDA
DAVIDSON, N.C., October 06, 2022--(BUSINESS WIRE)--Ingersoll Rand Inc. (NYSE:IR), a global provider of mission-critical flow creation and industrial solutions, has entered into an agreement to acquire SPX FLOW’s Air Treatment business for approximately $525 million.
With expected revenue of approximately $180 million in 2022, the Air Treatment business is a leading manufacturer of reliable and energy efficient desiccant and refrigerated dryers, filtration systems and purifiers for dehydration in compressed air. The business has manufacturing capabilities in the U.S., Germany and South Korea with nearly 500 employees and goes to market through the highly recognized brands of Hankison®, Pneumatic Products®, Jemaco, Deltech® and Delair®.
"We are excited to welcome the SPX FLOW Air Treatment team into the Ingersoll Rand family," said Vicente Reynal, chairman and chief executive officer of Ingersoll Rand. "Our customers lean on us to deliver innovative technologies that drive reliability, efficiency, performance and excellence. Compressed air dryer and filtration equipment helps increase the production and process reliability of the compressor and continues our strategy of expanding our product offerings in the broader compressor ecosystem. The business is highly complementary and we expect it to be driven by the same sustainability trends that we see as a tailwind for our compressor business."
cont-
https://finance.yahoo.com/news/ingersoll-rand-acquire-spx-flow-103000024.html
Instacart IPO could Fuel a 'Game of Thrones' For Food Delivery--
(Delivered my Kroger order last night)
https://www.wsj.com/articles/instacart-ipo-could-fuel-a-game-of-thrones-for-food-delivery-11665023624?mod=rss_markets_main
Yep, it's a great time of year with local vendors, great crafts, fun,
food and games.
Great for every community
McCormick Q3 sales $1.60 bln vs $1.55 bln a year ago-
EPS 82 cents vs 79 cents a year ago
WoW->Fan who caught Aaron Judge's 62nd home run offered $2 million for ball!
https://www.marketwatch.com/story/fan-who-caught-aaron-judges-62nd-home-run-offered-2-million-for-ball-01665005896?mod=newsviewer_click
Futures are RED, at least for now ahead of weekly initial jobless claims @ 8:30
Morning Stranger....My BROOM is always charged and ready to fly!
How the heck are y'all doing?
See, I re-started Hoagies sports board?
We can rant about hoops over there!
{MANY -hugs- across the miles -miss those comments from you}
Take Care-Ole Man Winter is coming
It's Harvest Homecoming on this side of the river......
I am working a few hours with organizations in booths for
ticket and other sales each day (when possible).
I spent the afternoon helping with the preparation of chicken and dumplings!
(volunteer and charity work is good for the soul)
This Market is not for the faint of heart, it's more like
Jack be nimble
Jack be quick
Don't get burned by the candlestick
(The belief behind this nursery rhyme was Good Luck could be had-
should you jump over a flame and not extinguish it)
THINK about that LOL
Majority Won! You did well to have so many chips on that table.
A very hard market which does change course faster than Road Runner,
(Beep-Beep)
Stock futures tick up slightly after two day rally ends
9:57 pm
Dow Jones Industrial average futures rose by 37 points, or 0.12%.
S&P 500 and Nasdaq 100 futures climbed 0.13% and 0.17%, respectively.
Stocks fought to hold onto the winning streak Wednesday but ultimately fell short.
full @
https://www.cnbc.com/2022/10/05/stock-futures-are-flat-on-wednesday-after-two-day-market-rally-ends.html
You might get out of those shorts today! Maybe... ;-0
8:15 ADP Employment Report consensus 205,000 -> 208,000 report
SCHN $32.49- Schnitzer Steel sees Q4 EPS below consensus
Issues downside guidance for Q4 (Aug), sees EPS of $0.42-0.47, excluding non-recurring items, vs. $0.88 two analyst estimate.
Issues downside guidance for FY22 (Aug), sees EPS of $6.00-6.05, excluding non-recurring items, vs. $6.46 S&P Capital IQ Consensus.
EMR $78.25, Emerson Electric Said to Be in Asset-Sale Talks With Blackstone. The Stock Is Rising.
Shares in Emerson Electric (ticker:EMR) were up in premarket trading Wednesday after it was reported to be in talks with private-equity giant Blackstone over the sale of part of its commercial and residential solutions division.
The deal could be valued at between $5 billion and $10 billion depending on the assets sold, although no final decision has been made, Bloomberg reported, citing unidentified sources. Barron’s has contacted Emerson and Blackstone for comment.
Shares in Emerson were up 2.2% in premarket trading after the report. Emerson has reshuffled its portfolio recently, in August agreeing to sell its InSinkErator food-waste-disposal business to Whirlpool (WHR) for $3 billion.
Emerson’s commercial-and-residential solutions unit manufactures products ranging from refrigeration to heating and air conditioning. Blackstone is one of the world’s largest commercial property owners and is also a major investor in residential homes for rental.
https://www.marketwatch.com/articles/emerson-electric-blackstone-asset-sale-talks-51664970156?mod=newsviewer_click
Premarket Movers: Bausch + Lomb, Coty CI A, RPM Intl
https://www.marketwatch.com/articles/premarket-movers-bausch-lomb-coty-cl-a-rpm-intl-01664969424?mod=newsviewer_click
Mortgage activity hits 25-year low as rates rise
In the past week, overall application activity dropped to its slowest pace since 1997.
Demand for mortgage applications plunged 14.2%, according to the weekly mortgage application survey from the Mortgage Banker's Association.
"The 30-year fixed rate hit 6.75% last week – the highest rate since 2006," said Joel Kan, MBA’s associate vice president of economic and industry forecasting. "The current rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone."
The Refinance Index decreased 18% from the previous week and was 86% lower than the same week one year ago.
The Purchase Index decreased 13% from one week earlier.
more https://www.foxbusiness.com/economy/mortgage-activity-hits-25-year-low-as-rates-rise
Grains-Wheat, corn, soybeans fall on recession fears, firm dollar
October 5, 6:56 am
Chicago wheat, corn and soybean futures fell on Wednesday as renewed recession fears came back into focus while forecasts of generally stable U.S. harvest yields also depressed.
A rise in the dollar, making U.S. exports more expensive in world markets, added downward pressure.
Chicago Board of Trade most active wheat Wv1 fell 0.7% to $8.96 a bushel at 1041 GMT.
Corn Cv1 fell 0.4% to $6.80-1/4 a bushel, soybeans Sv1 fell 0.6% to $13.74-1/4 a bushel.
The dollar rose on Wednesday, a day after suffering its biggest one-day drop in more than two years, as the excitement of the previous day's rally in stocks and risk friendlier currencies wore off.
"Wheat, corn and soybeans are being weakened today by renewed fears of world recession and demand destruction," said Matt Ammermann, StoneX commodity risk manager.
"Following the risk-on mood on Tuesday, the mood has switched more risk-off today with equities falling and a firm dollar unfavourable for U.S. export prospects."
"The concern is that the high food prices consumers around the world are seeing will reduce demand. The U.S. soybean export programme is already looking poor now."
Seasonal pressure from an expanding U.S. harvest weighed on soybean prices, while traders awaited more information about the size of U.S. crops.
Commodity brokerage StoneX raised its estimate of the average U.S. corn yield to 173.9 bushels per acre (bpa), from 173.2 previously, but lowered its corn production estimate to 14.056 billion bushels, from 14.168 billion last month.
https://www.nasdaq.com/articles/grains-wheat-corn-soybeans-fall-on-recession-fears-firm-dollar
Bond yields rise as rally fades ahead of jobs data
Mortgage rates hit 6.75% highest since 2006