Tech Heavy: A bet on China’s JD.com, a bet on Chevron or a bet on Oracle…
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Certainly momentum, if not originality is momentarily back for US markets.
Sidelined US traders got back into it last week, helping the three major averages to book solid gains, largely thanks to back-to-back positive trading sessions, maybe even suggesting Wall St has at last embraced the kamikaze path of the US Federal Reserve is beelining toward inflation.
The US stock market came off pretty good in the end, with the DJ Industrial Average and the S&P 500 rising nearly 2%.
The Tech Heavy Nasdaq Composite rose 2.6%.
However, these comments from Peter Toogood CIO of London’s Embark Group to CNBC overnight are probably worth noting:
The S&P 500 doesn’t really merit its circa 15% improvement since the start of October, Toogood reckons.
“It’s probably been a sucker’s rally for a while, is my best guess…You’ve got a nice little bear market bounce in the US”
So where should the US benchmark weigh in?
“It should probably be around 3200-3300.”
Which means Friday’s close of 4,045 for the S&P 500 is getting near 25% overcooked.
Michael Landsberg, partner and CIO at Landsberg Bennett Private Wealth Management predicts the US Fed has about 100 more basis points to disperse before it considers taking stock.
“Things are playing out as we expected. We have seen these bear market rallies play out since last summer. We believe the path is still lower, but there will continue to be these very strong short-term rallies to the upside suggesting otherwise.”
He also told CNBC that earnings will decelerate over the next few quarters: “in essence getting us to a deep recession.”
After suffering early on in the week, Wall St surged across the last two sessions, with big rewards for Messrs Apple (AAPL), Salesforce (CRM), Microsoft (MSFT) and Walt Disney (DIS).
T’was a lovely, broad rally as all 11 S&P sectors finished higher, driven by a 2% rise in Comms Services, Consumer Discretionary and Tech.
The Nasdaq was led forth by, among others, a circa 6% jump in Meta Platforms (META) and a 3.6% win for Tesla (TSLA).
On Friday the yield on benchmark 10-year Treasury note slipped below 4%, – a bit of a closely-watched threshold. The Nasdaq was the week’s strongest gainer.
First up Tesla (TSLA) really disappointed me and investors last week, failing announce the launch of a snazzy new model at their Investor Day.
Instead, Management elaborated on the key aspects it sees in becoming the world’s leading EV carmaker (the 20m unit target by 2030 was reiterated).
Central to these evil plans – codenamed Pegasus or something similar – is to go get fully vertically-integrated in mission-critical areas. Elon aims to drive down cost and scale fast (factory processes, batteries, mining, powertrain, semis, yada yada).
T’were no talk of financial targets.
He’s also overseen a bunch of awful outages since taking over Twitter.
Then there’s unsettling interaction, featuring Elon publicly trolling a guy who wanted to know if he’d lost his job sans communique.
Dear @elonmusk 👋
9 days ago the access to my work computer was cut, along with about 200 other Twitter employees.
However your head of HR is not able to confirm if I am an employee or not. You’ve not answered my emails.
Maybe if enough people retweet you’ll answer me here?
— Halli (@iamharaldur) March 6, 2023
Then it just keeps going.
This is the weirdest interaction I’ve ever seen on this app and I’ve seen some doozies
— Duncan Smith (@DuncanSmithNBA) March 7, 2023
And keeps going…
The reality is that this guy (who is independently wealthy) did no actual work, claimed as his excuse that he had a disability that prevented him from typing, yet was simultaneously tweeting up a storm.
Can’t say I have a lot of respect for that.
— Elon Musk (@elonmusk) March 7, 2023
So the Chevron balance sheet in a stonkingly strong place, net debts at a measly 3.3% after a few years of plenty and the oil giant remains committed to returning surplus cash to shareholders.
At their recent investor day, CVX pledged that starting in Q2, it’s going to raise its annual buyback rate to US$17.5bn. UBS says this would ‘imply a 21% increase vs. its buyback run rate of $14bn of Q4’.
Despite higher commodity prices, CVX is maintaining its guidance for annual organic capital expenditures of $13-$15bn through 2027 – this is important as the response in prior high commodity environments was to reinvest the “revenue dividend”. That is not the case anymore, that windfall is being directed back to shareholders.
Over the next five years, it expects annual free cash flow growth above 10% at a conservative US$60 for Brent and raised its share buyback guidance range to US$10bn to US$20bn per annum, promising to use surplus cash on its balance sheet to continue buybacks even when oil prices drop.
With a 3.5%-4.0% dividend yield, and a US$10bn-US$15bn buyback through the cycle, UBS calculates investors are going to begin each year ‘with an almost 10% distributable return.’
Consensus Recommendation: Hold / Price Target US$189.65 (Share Price US$162.77; +0.4%)
UBS Recommendation: Buy / Price Target US$215
Credit Suisse Recommendation: Outperform / Price Target US$205
While US earnings season is beginning to slow, there’s still several fascinating companies checking in:
JD.com (JD) – Thursday, March 9
Wall Street expects JD to secure 52 cents per share on revenue of US$43.05 billion. This compares to the year-ago quarter when earnings came to 33 cents per share on revenue of US$38.34 billion.
If there’s any warranted optimism in a China rebound, JD’s income from operations – which is ahead 235% YoY – is potential evidence.
The attraction for snappy traders is the JD share price is down 16% YTD.
While the Chinese e-commerce giant has made a name for itself by selling electronics, appliances and other consumer items, which accounts for some 50% of its revenues, JD wants to emerge as a leader in the realm of technology and logistics — a la Amazon (AMZN).
It’s fundamentals are decent and its ambitions in this regard have started a bit of an e-commerce price war across China.
Add in the growth of JD Mall, combined with its investments in real estate — aimed at building out its logistics capabilities — there are still several growth catalysts to be excited about. Revenues rose 11% last qtr, year over year, while service revenues jumped 42%.
Combined with the Chinese regulators’ eagerness to deliver market some market confidence and reopen the Chinese economy, a bet (that’s what it’d be) on the JD/China’s reopening looks pretty good, especially given the company’s diversified revenue sources within the country.
Oracle (ORCL) – Thursday, as well
Wall Street has Oracle earning US$1.20 per share on revenue of US$12.42 billion vs last time of US$1.13 per share, revenue of US$10.51 billion.
Oracle, despite software headwinds, has outperformed the market over the past year (up circa 12% vs the -9% of the S&P 500), largely thanks to the growing prospects of Oracle Cloud Infrastructure (OCI), making ORCL more of a transformation play toward a shiny new cloud subscription-based model.