The Financials

We have started into earnings season the first “Market Movers” to report have been the big banks.

 

Goldman, Citigroup, Wells Fargo and JP Morgan all reported, and the results are all fine.

What is interesting is thus far in 2019 they couldn’t be in a worse interest rate environment and all are coming out saying net interest margins will go lower, and that pain will impact them.

But all their stock prices are holding in just fine.

 

This chart is very interesting in that it shows the S&P financial index increasing by roughly 20% as the US 10 Year Treasury declines by almost 30%, the two normally trade in similar patterns.

And over a longer term, from the Trump election until now- when the yield broke out on Treasuries, the banks traded higher in lock step, but as yields declined this year, it shows the financials move back to towards their all time highs.  This is interesting in that generally they should go up and down together, and the correlations are less relevant.

Ultimately, what we think this is telling us is that even in a difficult operating environment for the financials, these stocks are provide good value and don’t seem to want to decline any further, if anything they look like they want to go higher with the market.

 

We’re looking forward to the rest of earnings season.

Too early to judge Lyft IPO, says PM | Going indep

Too early to judge Lyft IPO, says PM

Those giving Lyft a rough ride after its shaky IPO need to take a step back and let the firm prove its worth, according to a portfolio manager.

Chris Stuchberry, portfolio manager at the Stuchberry Group, Wellington-Altus Private Wealth, admitted he wouldn’t be going in on the unicorn tech firm at this stage but said the negativity over its initial price drop was too knee-jerk.

Lyft’s initial sheen wore off in the first 48 hours, with its price dropping below the $72 IPO. Calling it a classic risk-reward scenario for investors, Stuchberry said Lyft – like Facebook and Snapchat before it – now has to prove its business model to convince the market it can progress from the growth, cash-burn phase through to profitability.

But he said the naysayers have been too quick to judge the firm’s market debut, which has been interpreted as a worrying signpost for a host of other unicorns that plan to list this year, like its rival Uber Technologies Inc. and also Pinterest Inc., Postmates Inc. and Slack Technologies Inc.

Stuchberry told WP: “There is no question that buying something on opening day with minimal public history is a risk but, remember, short-term risk exists in every stock. I could name 100 stocks that you bought last Friday and might not be up on this Tuesday.

“It’s such a short time horizon that it doesn’t make much sense to jump to a conclusion right away. To sit here and look at a company that is trying to disrupt the entire transport business model and has been doing it very successfully for three years and just did a $2 billion IPO and then within days is down 9% … to say its business model is this and that, it’s too soon.”

He pointed to Facebook’s listing in 2012 as being “as bad as an IPO could go”, with its stock down 50% within six months. Just like Lyft now, Mark Zuckerberg & Co had to prove they could run the business and prove it was actually a money-maker. The rest, as they say is history. Snapchat also went through see-saw growing pains, having been priced at $17, opening at $28 and then sinking to $19 in its first month, although its current stock is a worrying $11.

Toronto-based Stuchberry said: “They are hyped because it’s [about] the idea. These companies are where the innovative ideas are. But it’s not like any of them have shown up on the market with this profitability. They are showing up in their massive growth phase, which seems to last longer for these companies.”

He added: “The big picture and most important thing for Lyft is not just proving they can run their business but proving their business model works.

“That’s something other companies don’t really have to do if you are yet another auto parts company, for example. We had Levi’s jeans [have its IPO] two weeks ago and it’s a proven business model and historic. It doesn’t have to prove they can run the business or that it works.

“Lyft, on the other hand, has to do both of those things. With these tech IPOs, there is significantly more risk but I would say quite a lot more reward.”

Personally, Stuchberry likes Lyft and is encouraged by its back-to-back years of 100% growth and $2.2 billion IPO. He urges caution, though, and said the first days of trading should be taken with a pinch of salt. Clients keen on a name must be able to handle the risk involved and from a team perspective, Stuchberry Group prefers to sit back and see how the market settles down.

“On the first day of trading, if you buy at the high you are the person who has paid the most ever for that stock … ever! And that’s always a difficult position to be in. Where possible, we endeavour not to be in that position in any investment.

“If you have a client whose risk tolerance it fits and it makes sense and they really want to, you can always dip a toe in the water and get a piece of what you might want as an initial position. But I don’t think you ever need to do that on opening day.”

Stuchberry hopes Lyft’s “ethical” mission to increase ride sharing and reduce pollution is a success but conceded there may by some overhang because people are still waiting on Uber to enter the IPO battleground. He thinks they can exist together, however, and that the unicorns waiting in the wings should not be concerned by this week’s events.

He said: “Each has to cross the path at some point anyways. The Facebook path, the Twitter path, the Snapchat path … at some point they all have to turn and create that validity.”

Microsoft’s stock is looking like a buy, Chris Stuchberry says

Sourced from Cantech Letter

August 22, 2018 by Jayson MacLean

Microsoft (Quote, Chart NASDAQ:MSFT) may not be a member of the exclusive FAANG group of tech stocks but there are more than a few reasons to be bullish about the company, says Chris Stuchberry of Wellington-Altus Private Wealth, who thinks that Microsoft’s transition from traditional software company to cloud services giant has been a true success.

The proof is in the pudding, or in this case, Microsoft’s latest quarterly report which beat analysts’ expectations on both earnings and revenue and gave better-than-expected guidance for next quarter’s revenue. Investors honed in on Microsoft’s Commercial Cloud, which includes the commercial versions of Office 365 software, Dynamics 365 business software and its Azure public cloud. That segment took in $6.9 billion over MSFT’s fiscal fourth quarter of 2018, representing 53 per cent year over year growth which itself beat expectations. (All figures in US dollars.)

“We had an incredible year, surpassing $100 billion in revenue as a result of our teams’ relentless focus on customer success and the trust customers are placing in Microsoft,” said Satya Nadella, Microsoft’s CEO in a press release. “Our early investments in the intelligent cloud and intelligent edge are paying off and we will continue to expand our reach in large and growing markets with differentiated innovation.”

Stuchberry says Microsoft is really rolling at the moment. “The investment thesis on Microsoft is very good,” says Stuchberry, portfolio manager at Wellington-Altus, to BNN Bloomberg. “They converted from software to cloud computing and they did a fabulous job of it. The stock price has shown you that.”

Since Nadella took the reins from then CEO Steve Ballmer in 2014, Microsoft’s share price has tripled. In 2018, alone, MSFT has risen more than 24 per cent, while its market capitalization has climbed over the $800-billion mark.

Stuchberry says even though Microsoft’s next act in terms of growth prospects is still unclear, there’s a lot for investors to be positive about.

“I think you’re probably in good shape,” he says. “A big part of that [cloud computing] transformation is behind you, so what’s forward? I don’t have that yet. I think that they could grow some dividends, I think that they could easily do buy-backs, their balance sheet is fabulous. Not a lot of reasons why you wouldn’t buy it, so that’s probably a reason to buy it.”

 

Quick update on Markets- We think we’re close to a bottom

Wish I could say the market decline is over, but we don’t think it is.  We do think we’re very close to bottoming out, but there is a sentiment potential to have another leg lower and an absolute washout.  Those are no fun, but healthy as they remove excess and we start fresh like a forest fire.  The market wants to rally today, but unfortunately, I think it is meaningless and will weaken until we washout…

So far, we’re down nearly between 8-11% on the indices from the highs and close to 10% for October.
Below is the S&P TSX, S&P 500 and Nasdaq, no mercy in any, all are down roughly 8%.

Here, the same three indices over the last 5 days, down 5%, and very unfortunately, and its kind of hard to see, we almost had an intraday reversal Tuesday, where you start the day low and end positive, those are always great signs of strength, but it failed and then yesterday we gave everything back to close at the lows, approaching negative 10% total correction.

Here is a bit of what we have done recently to take advantage of this dip and ideally swing strongly out the other side.
In August, we invested structural cash in treasuries, ensuring plenty of cash to navigate a period like this.
In September, an arbitrary stock came into our buy range and we dipped a toe in, as we like the company.
In early October, when the market started to show signs of weakness we took a large profit in a winner to increase cash and net out the arbitrary stock purchase to keep cash even.
October started to lose its grip, we filled out our arbitrary stock buy, and just yesterday added a new position in a promising stock, deploying about 3% cash, keeping cash balances comfortably in the teens.

In the last major bull market, after back to back positive years, its pretty normal to have a negative year.  If you look at 1988-89, you see 1990 was rough.  We think the major market is intact, but markets speak for themselves here.

Happy to discuss any thoughts or ideas. For younger investors, this is an opportunity to add to your savings and for older investors, you won’t need to dust off your resumes, we have cash to last years.