- Michael Santoli at Michael Santoli4 days ago
It’s mid-December, the holiday home stretch — the time for looking ahead to the next year in life, the economy and markets. And on CNBC’s FastMoney Halftime Report, it’s time for what might be called the preseason prediction period for the year-long contest among its trader commentators. The official name for this competition is the Playbook Playoff, and for the noon show on Friday December 13, I was asked to serve as a sort of odds-maker to evaluate and rank the investment ideas of the eight contestants. Their picks, and rules of the contest, can be found here. What follows are my observations on the stocks and exchange-traded funds revealed on Halftime Report, along with my ranking of the traders’ contest portfolios. First, a comment on the picks collectively: In aggregate, these traders seem to think most of the trends at work in the 2013 rally will remain in place at least into the first part of next year: steady economic growth, leadership by technology, financial and cyclical stocks, with little apparent concern for much downside risk. If these eight pros were a single investment committee, your 2014 portfolio would look like this:
- Michael Santoli6 days ago
Blackstone Group (BX) is preparing to check out of Hilton Worldwide Holdings Inc. at a more opportune time than the private-equity shop checked in six years ago.
When Hilton’s initial stock offering is priced Wednesday evening, it will be cheerily welcomed into a market in love with hotel stocks, which have been excellent performers all year, thanks to climbing occupancy rates and room charges. Hilton shares will begin trading Thursday morning on the New York Stock Exchange, under the ticker symbol "HLT."
Investors tend to flock to lodging stocks near the mid-point of an economic recovery cycle, as incremental gains in employment and corporate spending help bestow pricing power and profit-margin leverage upon hotel operators.
- Michael Santoli11 days ago
In most of the obvious ways, the stock market is closing out a very big year: The broad indexes are up more than 20% to reach new all-time highs, and the value of U.S. stocks has scarcely ever been greater relative to the size of the economy.
Yet in a few subtle but telling respects, the stock market is shrinking.
There are fewer publicly traded companies on American exchanges than at any time since at least 1990. A larger proportion of this narrower market falls into the “small-stock” category. And established companies have been aggressively pulling their shares off the market through buybacks.
Together, this amounts to a restricted supply of equities. To exaggerate slightly, there might not quite be “enough stock to go around” to meet a slowly rising level of investor demand. No doubt, this is at least a factor for the steady lift in share prices.
A steep downtrend
- Michael Santoli14 days ago
This has been one of the harder years in recent memory to lose money buying American stocks. But the unlucky holders of several dozen clunkers managed this trick pretty nicely.
While the broad stock market has gained more than 25% for 2013 and nearly every sector has delivered positive returns, pockets of profound weakness now feature some 50 large- and mid-capitalization stocks down more than 10% year-to-date. The small-cap Russell 2000, with a wider sample of volatile and untested companies, had at least 50 stocks shed more than 40%.
Behavioral-finance experts tell us holding on to losing stocks while wishing for a comeback is among the most deeply ingrained mental traps humans and their money fall into. Year-end tax-planning sessions are where hope often goes to die, as investors are motivated to sell underwater stocks to reap losses that can offset capital gains they have booked.
This tends to lead to further pressure on already-weak stocks in December, followed by a pronounced, mechanical bounce in January. This is one major source of the enduring “January effect,” in which smaller, riskier stocks tend to outperform at the start of a year.
The Time Is Now
- Michael Santoli15 days ago
Perhaps it’s appropriate that Wall Street has effectively crowd-sourced its outlook for Twitter Inc. (TWTR) as an investment.
With the post-IPO “quiet period” lapsed, analysts at the investment banks that underwrote Twitter’s $2 billion Nov. 6 initial stock offering initiated coverage of the stock Monday. In aggregate, their price targets approximate the stock’s Friday closing price of just below $42.
Lead underwriter Goldman Sachs is recommending clients buy the shares, and applies a $46 price target. Deutsche Bank is the most bullish of the firms weighing in Monday, eyeing a $50 one-year price objective, or 20% above Friday’s finish. J.P. Morgan is “Neutral” with a $40 target. Bank of America Merrill Lynch rates Twitter “Underperform," suggesting $36 is fair value. And Morgan Stanley is lukewarm, citing a “base case” for a proper valuation of $33.
- Michael Santoli21 days ago
Tales of Nordic gods and Scandinavian princesses will carry Walt Disney Co. (DIS) well past $4 billion in global box-office receipts for the year, a record annual performance for the storied studio operator. “Thor: The Dark World,” a sequel in which the hammer-wielding Marvel hero must restore order to the universe, has earned nearly $550 million worldwide since its Oct. 30 international release, helping Disney hit $4 billion in one-year global ticket-sales. This beats the $3.79 billion earned by the studio in 2010 on the strength of “Toy Story 3,” “Tangled” and “Tron Legacy.” Disney will add many more dollars to that $4 billion figure over the holiday weekend, as its new animated feature “Frozen” debuts Wednesday. The film is based on Hans Christian Andersen’s “The Snow Queen,” a tale of princess sisters in a Scandinavian realm, and has received generally favorable reviews. Kevin Fallon at DailyBeast.com called it the best Disney Animation Studios release since “The Lion King,” which debuted nearly 20 years ago. On the Hollywood Stock Exchange, a site that allows betting on opening domestic box office totals, “Frozen” is seen collecting more than $130 million in its first four weeks, up from a collective guess below $100 million two months ago. A round of splashy audience pleasers These second-half hits took the baton from a couple of earlier big-money pictures this year, the can’t-miss three-quel “Iron Man 3” and “Oz: The Great and Powerful,” a re-imagined take on “The Wizard of Oz” that got a mixed critical reception but ultimately did nearly $500 million in global gross receipts. Together these splashy audience pleasers have more than made up for the spring flop that was “The Lone Ranger.” That money-losing Johnny Depp vehicle summoned memories of the ill-conceived and very expensive 2012 sci-fi Western “John Carter,” which led to a $200 million writedown for Disney and the replacement of its overall studio chief, Rich Ross. The 2013 box-office bonanza also further ratifies the long-term movie-making strategy of Walt Disney chief Bob Iger, who has run the company since 2005 and has worked to apply greater financial and branding discipline to an often irrational business. He came in openly saying Hollywood made too many films in a given year, and vowed that Disney in particular would focus on movies that identifiably embodied one of its core brands. That has meant fewer “me-too” romantic comedies or buddy movies, and more “occasion” movies with a strong brand voice that had the potential to become franchises in themselves. In Iger’s definition, a franchise is a set of stories or characters than can work across multiple product platforms, from movies to merchandise to theme-park rides to cruise-ship stage shows. Think “Pirates of the Caribbean,” “Cars” or the Disney Princesses line. Expert acquisitions Along the way, Iger has expertly acquired unique entertainment properties to complement and further enliven the traditional Disney moviemaking fairy dust. He bought Pixar in 2006, bringing aboard easily the most innovative and skilled generator of computer-animated stories that
- Michael Santoli22 days ago
“Eat or be eaten” could be the motivating principle for corporate CEOs in 2014, as all the elements of a merger-and-acquisition boom finally embolden bidders and restive investors to pursue deals. For the past few years, most of the conditions for an M&A revival have been in place. Companies have plenty of excess cash, profit margins are strong, but probably peaking, stock prices have been rising, and borrowing costs are at historic lows. Yet CEOs have remained largely risk-averse, scarred by the 2008 financial crisis and real and imagined aftershocks to the global economy, not to mention perceived fiscal and monetary “policy risk.” Big companies are running their businesses lean, redeploying extra cash into share buybacks and dividends, essentially shrinking their financial footprint rather than pursuing bold new growth opportunities. Sure, there have been some marquee transactions this year, such as the $23 billion purchase of H.J. Heinz Co. by private-equity firm 3G and Berkshire Hathaway Inc. (BRK-A, BRK-B), and the pending agreement for Verizon Communications Inc. (VZ) to swallow the 49% of Verizon Wireless owned by Vodafone plc (VOD) for $130 billion. But the run rate of deals in terms of number and total dollar value has lagged. Through the first nine months of the year, M&A volume was 33% below the levels seen in 2007, the last time the major stock indexes traded near 2013 levels. Friendly debt markets It now seems, at last, that companies will entertain more deal-making in the coming year, for a variety of reasons in addition to the cash-rich, cheap-debt elements noted above. Investment-research firm Strategas Group says, “A combination of recession-like nominal GDP growth, vast cash hoards on corporate balance sheets, and a growing activist investor base could make 2014 the year the much-anticipated M&A boom finally takes place. We’ve asked rhetorically before, if Apple (AAPL) isn’t safe from the influence of activists like Carl Icahn, what company would be? Next year might very well be a use-it-or-lose-it year for cash.” The persistently low nominal growth rate of the global economy has reinforced corporate managers’ resistance to investing heavily in their own businesses through capital spending and research-and-development efforts. The idea of “buying growth” by acquiring an established company is likely to seem more attractive. Strategas points out that assets under management at dedicated activist hedge funds has doubled since 2009 to a record near $80 billion, an amount of cash that can be amplified as it is mobilized, considering that Icahn is exerting pressure on Apple’s balance-sheet strategy with a reported stake of only $1 billion. Activists tend to stalk companies perceived to be hoarding cash, resisting the idea of putting themselves up for sale or carrying several unrelated businesses that could be separated or sold. All of these raise the prospect of quickening M&A action. Sifting for potential activist targets has become a popular exercise among professional investors. Strategas maintains a Buyout Index of companies that appear more likely than most to fetch a bid, which
- Michael Santoli25 days ago
The Great Phony Bubble Scare of November 2013 is blowing over, but further corporate-profit growth is necessary to support the market near record highs. Even a gentle “second wind” for earnings growth, which we could see, would better support the indexes and keep further gains from being spun dangerously on hopes and risk-seeking cash alone. You’ve heard the talk that stocks are now in or will soon enter a bubble, with warnings of varying urgency coming from Carl Icahn, Jeremy Grantham and Doug Kass. In a Bloomberg Global Poll this week, 65% of respondents said they see global equities as being either in or near a bubbly state. Central banks’ purchase of $7.5 trillion in assets the past four years must have resulted in an unsustainable, overinflated balloon by now, right? Right? Well, as Barry Ritholtz of Ritholtz Wealth Management and others have correctly noted, bubbles thrive amid mass delusion and a refusal to focus on growing investment risks. Because so much worry has been aired, the chance we’re in a bubble is inherently diminished. And market valuation isn’t quite as stretched as at the 2007 top (which was more credit than equity bubble), let alone the drunken-cliff-diving action at the 2000 peak. In the past couple of weeks, as bubble talk was percolating, the indexes paused briefly, adrenaline-juiced cult growth stocks backed off hard and small-investor sentiment cooled considerably. All to the good. An ambiguous state In a way, it would be easier if the stock market were undeniably a bubble, rather than in its present ambiguous state – neither cheap nor outlandishly expensive, at a record high but not far above where it was six and 13 years ago. If one sees an all-out bubble, the simple choices are to sit it out and wait for the pop, or play it knowing it’ll keep growing as “greater fools” pile in. With the Standard & Poor’s 500 index up 26% this year and 166% from the 2009 low, it’s important to recognize equities can get pricier than average relative to company profits long before they get ridiculous. Stocks can become popular again on Main Street well ahead of reaching mass greed and infatuation. The tape can stay in a sturdy uptrend for months, rarely stumbling badly along the way, as all the while it compresses returns available over the next decade. This, it seems, is where we are as 2014 approaches. And, simplistic as it sounds, the swing factor that should determine whether this market is acutely vulnerable to a substantial downturn is the path forward for corporate profits. From 2010 through 2012, earnings for S&P 500 companies grew far faster than stock prices rose. Beginning a year ago, as crisis-relapse risk receded and liquidity remained abundant, stocks raced ahead of profit gains. The S&P’s climb this year has come on 4.9% per-share earnings growth. Without heavy stock buybacks reducing share counts, profit growth would have been just 3.7%, according to Strategas Group. Even so, the current
- Michael Santoli27 days ago
When the opening bell rang on Twitter Inc.’s (TWTR) celebrated stock-market debut, more than 1,500 employee millionaires were minted, and each one suddenly had the same happy problem: How to manage their new wealth. With a world of investment advisors vying for the overnight affluent of Silicon Valley, one upstart wealth-management firm has signed on an outsized number of early Twitter employees as clients. Wealthfront, a young and fast-growing software-driven financial advisor, boasts that more than 10% of Twitter employees with vested stock holdings have opened accounts. Twitterites who are millionaires on paper won’t be able to sell their stock for months or more, so they're heading to Wealthfront with savings they’ve built independent of equity awards. Most of them arrived through an early-access program furnished by Wealthfront — a clever move by a company that's made itself a favored destination for the burgeoning nest eggs of the young techno-elite.
- Michael Santoli29 days ago
The upstart electronic currency bitcoin has soared from zero five years ago and under $150 apiece six weeks ago to above $600 Monday – more than a share of Apple Inc. (AAPL) is worth, and quite a sum for an instrument with only limited use as money and which few consumers understand. The confusion surrounding bitcoin, which has attributes both of a currency and a speculative investment, has prompted U.S. authorities to weigh in on its legitimacy. The Justice Department told Congress that it and all electronic payment technologies have benefits for consumers, while of course asserting it will seek to root out any illicit transactions made in bitcoin. The Securities and Exchange Commission, meantime, suggested bitcoins “likely” meet the definition of securities, and thus could be subject to SEC regulation. No one needs bitcoins To begin at a basic level, no one on the planet actually needs bitcoins. Once someone exchanges dollars or another established currency for bitcoins in an online account, there is a growing but still narrow group of Web merchants and physical retailers, including WordPress.com and two Subway stores, that accept it as payment. True, transaction volumes are soaring, though from a very low base. At today’s price, the total value of bitcoin in circulation is $7 billion. To make a slightly unfair comparison, the amount of physical U.S. currency in circulation is $1.2 trillion. Bitcoins are “mined,” or created, by programmers who set their computers to compete to solve math problems. The pace of creation of new bitcoins, now about 12 million, is set in advance. The supply of bitcoins will ultimately peak, forever, at 21 million. [See related: Bitcoin Couple Travels the World Using Virtual Cash] Each bitcoin can be divided into ever-tinier pieces to use in transactions, and the price per bitcoin is theoretically unlimited, so advocates of the currency say its market value can continue growing after that cap is reached. Still, the perception of built-in scarcity is clearly driving the speculative surge in bitcoin’s value, while simultaneously diluting its utility as a currency. Neither buyers nor sellers of goods and services would want to rely on prices set in a medium of exchange that can swing so violently in value relative to other currencies or “real” assets. The supply cap in bitcoin seems ultimately suited to encourage saving, or hoarding, them – especially to the extent a buyer believes they will become more mainstream over time. It is implicitly “deflationary,” or likely to pressure prices lower in bitcoin terms, which itself creates incentives to forestall spending and save more. The main philosophical benefits of bitcoin are its decentralized creation and processing protocols, free of any government control or endorsement; the anonymity of bitcoin users; global fungibility; and the fact that, unlike traditional money controlled by central banks, it can’t be created without limit. On the flipside, it has no intrinsic value, the encryption and processing system is untested and government action could, in theory, restrict or forbid its use.