• Founder of world’s largest hedge fund doubles down on ‘cash is trash’ argument, warning of debt-fueled inflation

    Founder of world’s largest hedge fund doubles down on ‘cash is trash’ argument, warning of debt-fueled inflation

    With U.S. stocks down more than 20% from their February highs, investors who had taken money out of equities and corporate debt and put that money into cash in recent weeks have avoided a great deal of pain.

  • Amazon to suspend delivery service competing with UPS, FedEx

    Amazon to suspend delivery service competing with UPS, FedEx

    The online retailer told customers that the service, Amazon Shipping, will be paused starting in June, according to the Wall Street Journal, which was first to report the change. Amazon is suspending the service because it needs people and capacity to handle a surge in its own customers’ orders, the Journal reported, citing sources. "We regularly look at a variety of factors across Amazon to make sure we're set up in the right way to best serve our customers," an Amazon spokesperson told Reuters in an email confirming the halt in service.

  • Is the Dow staging a genuine rebound? Here’s what experts think as the stock market attempts to shake the bearish grip of the coronavirus pandemic

    Is the Dow staging a genuine rebound? Here’s what experts think as the stock market attempts to shake the bearish grip of the coronavirus pandemic

    Investors are seeing light at the end of the tunnel after a brutal period. But is it a train? Here’s what some strategists are saying about the outlook for the market as it tries to recover from COVID-19.

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  • 8 Dividends In Danger Of Being Cut

    8 Dividends In Danger Of Being Cut

    With interest rates at all-time lows, income investors have few places to turn for solid yields. To make things even more difficult, the (coronavirus) COVID-19 stock market sell-off has already triggered a handful of companies to cut or suspend their dividends.Red Flags Not only do dividend cuts drive away income investors, they're also a sign of potential liquidity issues at the underlying company. The sell-off has driven dividend yields of a number of S&P 500 stocks to their highest levels in years. But as attractive as a double-digit dividend may seem on the surface, a dividend is only as good as the company paying it.The quickest way to assess the reliability of a dividend is to look at a company's payout ratio. A payout ratio is a measure of the percentage of a company's EPS that is going back out to meet its dividend payment obligations. Ideally, a healthy dividend stock will have a payout ratio at or below 50%, but anything approaching 100% or higher is often a sign that the payout is unsustainable.Another red flag for investors to watch for is dividend yields that are too good to be true. A handful of real estate investment trusts and other companies pay yields at or above 8%, but most companies never intend to have yields that high. In many cases, stocks with yields that high have suffered large sell-offs that drove the payouts higher relative to the share price and could also indicate fundamental problems at the company.See Also: Exxon's CEO On How Oil Giant Plans To Maintain Dividend, Focus On Balance SheetDividends At Risk Here are eight S&P 500 stocks with dividend yields of at least 7% and payout ratios of above 100%, according to Finviz. * ONEOK, Inc. (NYSE: OKE), 16% yield. * Williams Companies Inc (NYSE: WMB), 11.8% yield. * Newell Brands Inc (NASDAQ: NWL), 7.1% yield. * AT&T Inc. (NYSE: T), 7% yield. * Wynn Resorts, Limited (NASDAQ: WYNN), 7% yield. * Chevron Corporation (NYSE: CVX), 6.4% yield. * Kraft Heinz Co (NASDAQ: KHC), 6.1% yield. * Baker Hughes Co (NYSE: BKR), 6.1% yield.Benzinga's Take Dividend investors looking for yield should tread very carefully in the market these days. There may be a number of companies waiting until their first-quarter earnings report to announce dividend cuts.Do you agree with this take? Email feedback@benzinga.com with your thoughts.See more from Benzinga * Here's How Large Option Traders Are Playing High-Yield AT&T As Market Falls(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  • Covid Report: Small Biotech Surges On Plan To Test Vaccine In May
    Investor's Business Daily

    Covid Report: Small Biotech Surges On Plan To Test Vaccine In May

    Novavax stock popped Wednesday after the small biotech company said it plans to begin human testing of its coronavirus vaccine in mid-May. The company expects preliminary results in July.

  • Why Is Warren Buffett Ignoring the Coronavirus Market Dip?

    Why Is Warren Buffett Ignoring the Coronavirus Market Dip?

    The short-term coronavirus market dip doesn’t seem to interest the Berkshire Hathaway CEO. So, what will he buy next?The post Why Is Warren Buffett Ignoring the Coronavirus Market Dip? appeared first on Worth.

  • Why one fund manager sees a wealth bubble putting the property and stock market at risk

    Why one fund manager sees a wealth bubble putting the property and stock market at risk

    Niels Jensen, the founder and chief investment officer of London-based investment adviser Absolute Return Partners, said in a monthly letter to investors that wealth has been running too far ahead of the underlying economy for some time.

  • Billionaire Steven Cohen Picks up These 2 Stocks on the Dip

    Billionaire Steven Cohen Picks up These 2 Stocks on the Dip

    Stocks roared higher on Monday, but one legendary hedge fund manager isn’t breaking out the champagne just yet. Optimism that COVID-19's spread may be slowing powered the market’s impressive rally, with the Dow Jones closing the session up by over 1,600 points. That said, it may be too early to start toasting to the market’s recovery and the end of dramatic volatility.Billionaire Steve Cohen is warning staff of his investment firm, Point72 Asset Management, to stay cautious as stocks rebound from the COVID-19-driven sell-off. “Markets don’t come back in a straight line; after an earthquake there are tremors... We need to continue to be disciplined. We are seeing plenty of opportunities to generate returns, but I don’t want us taking undue risks,” he wrote in an internal note.The Point72 Chairman and CEO has earned a reputation as one of the most successful stock pickers, with his firm relying on a core hedge fund strategy that features stock market investments. Less frequently, Point72, which is based in Stamford, Connecticut, will make plays based on macro trends, placing global wagers on several asset classes at the same time. With Cohen earning an estimated $1.3 billion in 2019 after the firm’s main hedge fund posted a 14.9% gain, it’s no wonder market watchers follow his moves religiously.Taking all of this into consideration, we used TipRanks’ database to take a closer look at two stocks Cohen snapped up recently on the dip. The platform revealed that both Buy-rated tickers have earned the support of some members of the analyst community as well.Calithera Bio (CALA)Calithera Bio uses a onco-metabolism approach that brings a unique perspective to cancer, with it developing small molecule therapies that disrupt cellular metabolic pathways to block tumor growth. While shares have fallen 17% year-to-date to reach $4.74 apiece, this price tag could be an ideal entry point for those looking to get in on the action.This is the stance taken by Steve Cohen. According to a March 13 disclosure, Point72 added a CALA holding to its portfolio, in the shape of 3,240,046 shares. As a result, Cohen’s firm now has a 5% stake in the healthcare company.Weighing in on CALA for Jeffries, analyst Biren Amin sees an opportunity as well. He notes that a significant component of his bullish thesis is its CB-839 candidate. There is a substantial unmet need for successful outcomes in second- and third-line renal cell carcinoma (RCC) as checkpoint inhibitors are designated for first line use. As the candidate has already demonstrated efficacy in RCC, the top-line data readout in the second half of 2020 could serve as a key catalyst. Not to mention Amin estimates peak U.S. sales of $21 million for RCC alone.Adding to the good news, CB-839 could potentially be used to treat non-small-cell lung cancer (NSCLC) patients with KEAP1/NRF2 mutations. “With no currently approved therapies for this patient sub-group, CB-839 has the potential to be first-to-market in this 13,000 patient population (recall, KRAS G12c is ~14,000 NSCLC)…We estimate peak U.S. sales for CB-839 of $204 million (risk adj) for KEAP1/ NRF2 mutant NSCLC,” Amin commented.With the analyst pointing out that its two arginase inhibitors in development, INCB001158 as part of a collaboration with Incyte and CB-280, stand to drive additional upside, it makes sense that Amin takes a bullish approach.All in all, the five-star analyst puts a Buy rating on Calithera shares along with a $6 price target. Should the target be met, a twelve-month gain of 27% could be in store. (To watch Amin’s track record, click here)Like the Jeffries analyst, the rest of the Street is bullish on CALA. 4 Buy ratings compared to no Holds or Sells add up to a Strong Buy consensus rating. At $6.67, the average price target is more aggressive than Amin’s and implies upside potential of 41%. (See Calithera stock analysis on TipRanks)Syros Pharmaceuticals (SYRS)With the goal of taking control of gene expression, Syros develops small molecules to help improve the lives of patients. March definitely wasn’t its month, but some members of the Street believe its long-term growth prospects are strong.Cohen falls into this category. Made public on April 2, Point72 pulled the trigger on this healthcare stock. Acquiring a new holding, its purchase of 2.3 million shares puts the firm’s total stake in SYRS at 5.1%.Turning now to the analyst community, Roth Capital’s Zegbeh Jallah told investors that SYRS’s fourth quarter earnings results demonstrate the company’s potential. “We believe that Syros has made steady progress over 2019, and we look forward to the multiple data readouts expected during, particularly the readout of SY-1425 in r/r AML which should be a major catalyst. Cash and cash equivalents are expected to be sufficient to fund operations beyond major catalysts, and into 2022,” he explained.During the quarter, the company released data for its lead candidate, SY-1425, a selective RARα agonist currently in a Phase 2 clinical study in patients with acute myeloid leukemia (AML). The therapy was not only able to show a 62% CR/CRi rate and an 82% rate of transfusion independence, but it also produced a fast onset of action, was tolerable as a combination with Azacitidine and validated the biomarker strategy for patient selection.“The focus will likely be on response durability, which will probably be extrapolated to gauge the potential for durable responses in the r/r AML setting, for which Syros hopes to pursue an accelerated regulatory pathway,” Jallah added.On top of this, proof-of-concept data from the Phase 2 study of SY-1425 and Aza in r/r AML, which is slated for release in the fourth quarter of 2020, could drive significant growth for the company. Jallah is also watching out for an update on initial PK/PD and safety data from the Phase 1 study of SY-5609, its first oral and noncovalent CDK7 inhibitor.Bearing this in mind, Jallah has high hopes for SYRS. Along with a Buy rating, the analyst left a $17 price target on the stock, indicating 146% upside potential. (To watch Jallah’s track record, click here)Looking at the consensus breakdown, opinions are split evenly down the middle. With 2 Buys and 2 Holds received in the last three months, the word on the Street is that SYRS is a Moderate Buy. Based on the $9.33 average price target, the upside potential comes in at 35%. (See Syros stock analysis on TipRanks)

  • The Stock Market Has Become One Big Value Trap

    The Stock Market Has Become One Big Value Trap

    (Bloomberg Opinion) -- Watching equities rally strongly for a second consecutive day, pushing the S&P 500 Index at one point to its highest level since March 11, it was hard not to be reminded of one of the most famous lines in movie history, or at least among fans of the Star Wars franchise. In 1983’s “Return of the Jedi,” the rebel alliance mobilizes its forces to destroy the Death Star during the Battle of Endor. But the rebels get ambushed, prompting Admiral Gial Ackbar to shout “It’s a trap!” And, just like that, equities gave up all their gains on Tuesday to post a slight decline.At its highest point on Tuesday, the S&P 500 was up 23% to 2,757 compared with last month’s closing low of 2,237 on March 23. The two main reasons given to explain the rebound are optimism that officials may be getting ahead of the curve in the battle to contain the coronavirus pandemic and what looks to be deeply discounted valuations on stocks following the fastest drop into a bear market in history. It remains to be seen whether Covid-19 is coming under control. When it comes to valuations, though, the optimists may well have fallen into a trap. A value trap is a well-known phenomenon in markets. It happens when a security or asset appears inexpensive relative to any number of metrics. The trap springs when the price of the security or asset continues to languish or drop even further. Indeed, stocks did look cheap, with the S&P 500 going from trading at close to 20 times this year’s estimated earnings down to 14 on March 13, which was the lowest since early 2013, according to data compiled by Bloomberg. But that was before analysts starting cutting their 2020 profit estimates, dropping them to $152 a share from $175 at the end of January. As a result, stocks no longer look so cheap, with the S&P 500’s price-to-forecasted earnings multiple jumping up to a not-very-inexpensive 18 times. The problem is that many analysts have held off slashing their profit estimates, deciding to wait until they hear from company executives when the first-quarter earnings reporting season begins in a few weeks. In other words, get ready for earnings estimates to fall even further, which should weigh on sentiment and valuations.Bloomberg News reports that Keith Parker, UBS AG’s head of equity strategy, calculates that many firms hadn’t updated their forecasts on individual company earnings for weeks. That means the existing data covering the next 12 months are probably underestimating the scope of the decline in S&P 500 profits by a factor of 2. The 2008 bear market had a number of false starts, with the S&P 500 rallying about 18% between late October and early November, and 24% between late November and early January, before tumbling again by about 25% before finally bottoming at a 13-year low in March 2009.DEBT RULES THE WORLDGovernments globally are stepping up their debt issuance to raise cash to support their economies during the coronavirus pandemic. There’s no shortage of market participants who expect all this money flowing into the system will set the stage for a sharp rebound in global growth once the crisis passes. Perhaps they should review a famous paper written a decade ago by economists Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff that argued economies with high debt potentially face “massive” losses of output lasting more than a decade, even if interest rates remain low. What’s concerning is that debt issuance showed no sign of slowing before the pandemic. The Institute of International Finance issued a report Tuesday saying that the mountain of global debt across all sectors rose by more than $10 trillion in 2019 to exceed $255 trillion. That tops 322% of global gross domestic product, rising from 282% at the onset of the 2008 financial crisis. The IFF estimates that if global economic activity contracts 3%, debt would exceed 342% of GDP this year based on net government borrowing for 2019. The question is whether all this government borrowing will begin to crowd out private borrowers, sending interest rates soaring for all but the safest debt. That would be another reason to not expect a sharp economic rebound.AN EMERGING-MARKET TRAGEDYEmerging markets have accounted for a greater percentage of the global economy over the last decade, and that’s before considering the tremendous growth in China. What’s concerning for investors is that their health-care systems continue to lag behind those in developed markets, raising questions about their ability to handle the coronavirus pandemic. Among the top 25 health systems in the world as measured by the Johns Hopkins Global Health Security Index, only four are in emerging-market economies: Thailand at six, Malaysia at 18, Brazil at 22 and Argentina at 24. “As bad as the coronavirus crisis is likely to be in the world’s wealthiest nations, the public health and economic blow to less affluent ones, often referred to as ‘developing countries,’ could be drastically worse,” the analysts at Eurasia Group wrote in a note to clients. “They have less testing capability, fewer hospital beds, and lower stocks of ventilators and other specialized equipment. There are also far fewer doctors per capita.” Eurasia adds that while governments and central banks in the rich world can unleash stimulus packages that run into the trillions of dollars, developing countries have much less financial firepower, and their borrowing costs are also higher. Investors have already pulled $90 billion out of emerging markets since mid-January, helping to push the MSCI Emerging Markets FX Index down 5.67% for the year, raising problems such as faster inflation that can accompany a weakening currency.THE WRONG KIND OF INFLATIONThe market for raw materials hasn’t been spared from the coronavirus pandemic, with the Bloomberg Commodity Index falling about 22% in 2020, dropping to its lowest level since the 1970s. But the commodities market is wide, and not all sectors move in lockstep. Prices are rising for rice and wheat, which account for about a third of the world’s calories, according to Bloomberg News. The increased costs are a double whammy for a global population that faces a worldwide recession, with many either already out of work or soon to be. In Nigeria, for example, the cost of rice in retail markets soared more than 30% in the last four days of March alone. According to Bloomberg News, it’s unclear whether the price increases are the result of a trickle-down effect from grain futures or local logistical choke points or panic buying, or some combination of those factors. Elsewhere, export prices for rice from Thailand, the world’s second-biggest shipper, are at a six-year high. Wheat futures in Chicago, the global benchmark, shot up more than 8% in March, while Canadian durum, the type of grain used in pasta and couscous, is at the highest since August 2017. Bloomberg News points out that staple-crop prices have a long history of fueling political instability. During the spikes of 2011 and 2008, there were food riots in more than 30 nations across Africa, Asia and the Middle East.TEA LEAVESWhat were they thinking? Market participants will find out Wednesday when the minutes of the Federal Reserve’s emergency meeting on March 15 will be released. To refresh, that’s when the central bank slashed its benchmark interest rate by a full percentage point to near zero and promised to boost its bond holdings by at least $700 billion, the first of several moves announced by the Fed in the weeks that followed to support the financial system during the coronavirus pandemic. Although the minutes will be dated, Bloomberg Economics notes that they will “provide some context of policy makers’ thinking at the onset of the crisis.” More specifically, the minutes may shed some light on whether Fed officials anticipated the depth and breadth of the shock from shutting the economy down or whether they were taken by surprise like the government.DON’T MISS This Stock Market Swoon Differs From All Others: Aaron Brown Stocks Rally Suggests Turning Point in Virus Fight: John Authers Banks Need to Put Dividends on Hold: Narayana Kocherlakota Europe’s Debate Over Coronabonds Can Wait for Later: Clive Crook Emerging Markets Are Peering Over the Precipice: Marcus AshworthThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • MarketWatch

    Delta's stock rallies, on track to end losing streak, again

    Shares of Delta Air Lines Inc. rallied 3.5% in afternoon trading, which puts them on track, again, to snap a losing streak. The stock had plunged 29.8% amid an eight-session losing streak through Tuesday. But in five of those losing sessions, including the past four sessions, the stock had traded in positive territory intraday only to lose those gains at the close. On Tuesday, the stock was up as much as 15.8% at its intraday high of $25.85, only to close down 0.3%; at 2 p.m. ET on Tuesday, the stock was still up about 2.9%. The latest losing streak is only the longest suffered in less than two months, as the stock tumbled 22.4% amid an 11-session losing streak through Feb. 28. The stock has tumbled 60.9% over the past three months, while the U.S. Global Jets ETF has shed 54.9% and the S&P 500 has declined 16.5%.

  • Goldman Tells Rich Clients U.S. Stocks Promise Best Returns

    Goldman Tells Rich Clients U.S. Stocks Promise Best Returns

    (Bloomberg) -- Goldman Sachs Group Inc. is advising its wealthy clients to return to equities and particularly favors U.S. stocks on optimism for a strong economic recovery after the end of the virus lockdowns.“Our own advice to clients is that right now is a good time to get back into markets and take advantage of the decline in equity markets to position for the rebound,” Silvia Ardagna, managing director in the investment strategy group within Goldman Sachs Private Wealth Management, said in a phone interview.While Goldman strategists expect a sharp near-term decline in global economic activity, they also forecast a V-shaped rebound in the second half of the year. Ardagna said her team has been “positively impressed” by the response of policymakers and while these measures won’t prevent a recession in the first half, they’ll likely fuel a powerful recovery.Goldman’s investment strategy group recommended in mid-March that clients use the selloff to slowly add to risk assets and said it was using options instead of direct purchases of U.S. stocks. Ardagna said that in its tactical fund, Goldman has since gone outright long the S&P 500 Index to position for the bounce. U.S. equities reached their low on March 23 after slumping 34% over the course of a month and have since rallied 21%.“We see light at the end of the tunnel because we believe that sooner or later the medical community will make breakthroughs, and because the fiscal and monetary response around the world, especially in the U.S., where we’re overweight stocks, has been pretty aggressive and forceful,” she said, while adding that the market may remain volatile because of the pandemic.Strong ReboundHer comments echo those of Peter Oppenheimer, Goldman’s chief global equity strategist, who said on Bloomberg TV that global growth is expected to rise 6% next year, fueling a strong rebound in equities. He added that the stock market isn’t yet reflecting a pick-up in earnings in 2021 that is expected to be at least 50% in Europe and the U.S.Fiscal support measures in the U.S. are giving businesses incentive to retain workers, which should allow them to restart their operations more quickly once lockdowns are lifted, Ardagna said. Sentiment among U.S. small businesses collapsed in March by the most on record and payrolls slumped by more than 700,000, seven times as much as economists had forecast.Goldman’s consumer and wealth-management unit had $561 billion of assets under supervision at the end of 2019, up 23% from a year earlier.Ardagna said the team isn’t recommending positions in high-yield credit or European government bonds because U.S. stocks offer a much better risk-reward. The S&P 500 gained as much a 1.8% today, extending its recovery on optimism for another round of stimulus and an eventual move toward reopening the economy.“When valuations are so low, when there’s been pretty sharp drawdowns in equity markets, on a 12- to 18-month horizon, the probability of getting a positive return is pretty high,” she said.(Updates with today’s U.S. stock market in penultimate paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • U.S.News & World Report

    7 Best Value Stocks to Buy in 2020

    The 2010s were dominated by growth stocks, and when the year 2020 rolled around, many investors felt that it was time for value stocks to take the lead. Theoretically, a bear market would be the perfect time for value stocks to outperform growth, but year-to-date, many value names have underperformed their growth-minded peers; cheaply priced energy companies, in particular, continued getting cheaper as oil prices fell, and every sector has been hit by the pandemic. Albemarle is a specialty chemical company that is one of the world's largest and lowest-cost lithium producers.

  • U.S. crude and fuel stocks soar as demand craters due to pandemic - EIA

    U.S. crude and fuel stocks soar as demand craters due to pandemic - EIA

    The oil markets have crashed as the pandemic has sapped fuel demand, virtually shutting down commercial aviation worldwide and cutting off gasoline demand as people stay home and businesses remain shuttered. U.S. fuel demand has dropped by about one-third in the last three weeks, according to the U.S. Energy Information Administration, with last week's fall of 3.4 million barrels per day (bpd) the most ever. The weekly figures on refining activity and oil production show the industry making the painful adjustments to throttle back activities as worldwide demand is expected to drop by roughly 30%.

  • Bloomberg

    Great Depression Is Closest Parallel to Pandemic, Warns Odey

    (Bloomberg) -- The global economy is slipping into a “different era” as the devastation in industries from oil to services roils markets, hedge fund manager Crispin Odey cautioned his investors.“This is not like 2008-9, nor 2001-2, nor even 1989-92,” Odey wrote in a letter to clients seen by Bloomberg. “The fall in global gross national product for this year will echo 1931-2. That was a terrible time when countries and institutions disappeared and characters like Adolf Hitler seized their chance to take over Germany.”The warning follows a 21% gain in his flagship Odey European Inc. fund in March, the biggest monthly increase in 11 years, according to the letter. Odey, known for his bearish views, is recovering from sharp losses over the past five years as bets that markets would fall misfired.Odey is among a small number of bearish investors profiting from the market crash last month. His fund, which has shrunk over the years and now manages only about $800 million, lost money in four of the five years from 2015 to 2019, according to the letter.Odey Hedge Fund Slips to Fourth Annual Loss in Five YearsA spokesman for London-based Odey Asset Management declined to comment.The services industry faces defaulted customers and no revenues for months as the spread of the deadly coronavirus continues to lock-down countries across continents. The outbreak’s impact was exacerbated by the oil war, Odey wrote.The money manager, who has long been a vocal critic of central banks and government policies, also turned his attention to decisions by some of Britain’s biggest lenders to cancel dividend payouts. Regulators pushed them to free up more money for loans to counter the fallout from the pandemic and withhold cash payouts for top staff.HSBC, StanChart Slide After Halting Dividends at BOE Request“The idea that shareholders should be sacrificed to allow banks to make unprofitable loans to the private sector to help them through a difficult period shows just why governments have no idea how to incentivize the right behavior to get the right outcome,” Odey wrote.Rather than another round of quantitative easing, the U.K. government should have issued debt at the long end of the bond market and paid a 1.5% yield, the hedge fund manager said. The banks would have bought the debt and then been invited to lend in ways that could have not cost them any profits, he added.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Coronavirus crisis will leave 3 lasting scars, even if the economy recovers in fourth quarter, Pimco warns

    Coronavirus crisis will leave 3 lasting scars, even if the economy recovers in fourth quarter, Pimco warns

    The U.S. economy is in the midst of one of the deepest, most painful recessions the country has ever seen, but, as long as the pieces fall into place, it could also prove to be one of the shortest, according Pimco’s Joachim Fels.

  • Two Accounting Scandals in China in One Week Burn Investors

    Two Accounting Scandals in China in One Week Burn Investors

    (Bloomberg) -- China’s second accounting scandal in less than a week is underscoring concern over lax corporate governance at some of the country’s fastest-growing companies.TAL Education Group, a tutoring business whose success turned founder Zhang Bangxin into one of China’s richest people, delivered the latest bombshell on Tuesday after saying a routine internal audit found an employee had inflated sales by forging contracts. The company’s American depositary receipts sank as much as 18% in late U.S. trading.The sell-off follows the 83% slump in Nasdaq-listed Luckin Coffee Inc. since the company announced that its chief operating officer and some underlings may have fabricated billions of yuan in sales for 2019. Accounting firm Ernst & Young later said it discovered the fabrications when it audited the firm’s financial statements. Trading in the ADRs was suspended Tuesday.While China Inc. is no stranger to claims of financial irregularities -- particularly from short sellers who have targeted both TAL and Luckin in the recent past -- the fresh wave of revelations is once again putting the spotlight on corporate malpractice at U.S.-listed Chinese firms. The fallout has already affected other listings from the nation and is likely to deter some overseas investors from buying into future initial public offerings.The cases are “reviving the big question for investors in Chinese firms: the financial data may look pretty, but can you trust it?” said Alvin Cheung, associate director at Prudential Brokerage Ltd. “The latest case has further fueled anxiety over Chinese firms’ financials, especially under a slowing economy and a difficult business environment.”Moves in other education stocks shows how investor nerves can quickly spread: New Oriental Education & Technology Group Inc. lost 4.6% in U.S. post-market trading. Hope Education Group Co. fell 3.3% in Hong Kong Wednesday, while CAR Inc., a car-rental firm founded by Luckin’s chairman, dropped another 17%.The declines vindicate short sellers like Carson Block’s Muddy Waters, which has for years targeted Chinese firms listed on U.S. exchanges.Peer Wolfpack Research released a new critical report on Iqiyi Inc. Tuesday, alleging that the Chinese video-streaming company overstates revenue and subscriber numbers. Muddy Waters assisted Wolfpack in its research and said it’s also short the company. Iqiyi denied the claims. ADRs in the company fell 3% in extended trading.(Updates with Hong Kong’s close of trading in sixth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Morgan Stanley: 2 Stocks to Consider Buying (And 1 to Forget)

    Morgan Stanley: 2 Stocks to Consider Buying (And 1 to Forget)

    We’ve had more good news in the stock markets this week, lending credence to the view that recent gains are more than just a ‘bear market rally.’ Markets are up their recent trough, reached on March 23, and the gains appear to be both substantial and lasting.Investment bank Morgan Stanley has been tracking the markets closely, watching for evidence that the true bottom has been reached. The bank’s US chief equity strategist, Mike Wilson, believes that it has. He points out the “unprecedented and unbridled monetary and fiscal intervention led by the U.S.” and goes on to add that, with stock valuations at their most attractive since 2011, “we stick to our recent view that the worst is behind us…”Wilson believes that bear markets, with their low prices, typically end in recessions. The risk/reward ratio grows more favorable in an environment of low prices and high upside potentials. In addition, Wilson adds that today’s market levels should make a good entry point for traders seeking 6- to 12-month investment horizons.Morgan Stanley’s analysts aren’t just taking the macro view, however helpful that may be to investors. Recent stock reviews from the bank’s research teams have pointed out particular stocks for investors to note. Some are buying moves; others are must-to-avoid.We’ve pulled up three of Morgan Stanley’s recent calls, and run them through the TipRanks database. It turns out that two of the bank's bullish picks have received significant support from other members of the Street. That being said, one name stands out as being an investment to avoid, falling out of favor with Morgan Stanley as well as the broader analyst community.O’Reilly Automotive (ORLY)Consumer automotive has always been a profitable niche in the USA; you have to expect that from the country that brought us the Motor City, the Mustang, and the Camaro. The company dates back to 1957, and has been providing aftermarket accessories, equipment, parts, supplies, and tools to both professional and DIY customers ever since.The lockdown and quarantine regimes put in place to contain the spread of coronavirus have shut down many businesses – and also boosted do-it-yourselfers. With garages closed, home auto maintenance is rising, and customers are looking for tools, supplies, and advice. O’Reilly provides all of that – and the stock has outperformed the overall markets in recent weeks, losing 14% in the same time that the S&P 500 has slipped 21%.Morgan Stanley’s Simeon Gutman, reviewing O’Reilly shares, sees the DIY auto sector as a solid position to take in advance of an economic recovery. Gutman writes, “DIY Auto has long behaved counter-cyclically as a weak economy depresses new car sales, which results in an aging of the car fleet and period of outsized same store sales.”Gutman believes ORLY is due for better times, noting, "We view ORLY as a best-in-class operator in a fundamentally healthy sub-sector of Retail. Near-term COVID-19 disruption is a risk, but we think the stock's recent selloff is overdone and presents a compelling buying opportunity with a valuation discount to other high quality retailers."As a result, the analyst upgraded his view of the stock from Neutral to Buy. His $360 price target implies a modest upside of 7%. (To watch Gutman’s track record, click here)Overall, ORLY shares hold a Moderate Buy rating from the analyst consensus, based on 8 Buys, 6 Holds, and 1 Sell set in recent weeks. Meanwhile, the average price target, $364, indicates that there is room here for potential growth of 8% in the coming 12 months. (See O’Reilly stock analysis on TipRanks)ServiceMaster Global Holdings (SERV)Next up is a name in the maintenance industry. ServiceMaster caters to both the residential and commercial sectors, offering customers a wide range of services, including lawn and landscape maintenance, termite and other pest control, furniture repair and home and office cleaning. The company has responded to the COVID-19 epidemic in a clever way – by announcing a ‘full mobilization’ of services for cleaning and disinfecting both homes and offices.The company’s stock has underperformed in the recent market slide, and is down 33% year-to-date. And these losses come after SERV finished up 2019 with some mixed numbers for Q4. The quarterly results, reported in early March, saw revenues just miss the forecast, although the $507 million reported was up 11% YoY. EPS edged just over the estimates, and grew 16% year-over-year. The year-over-year growth didn’t boost the stock, as SERV shares are down 22.5% over the past year, which compares poorly to the 11.8% loss among its industry peers.Toni Kaplan, covering SERV for Morgan Stanley, sees the company with a clear path to weather the current storms. Kaplan writes, “We view SERV as somewhat hedged to the ongoing pandemic, as 80% of revenue is recurring, residential customers still have a need for pest control services, and commercial customers … will also have a need to keep facilities serviced for when workers return… We think SERV is well positioned for the immediate fallout from COVID-19, and the potential upcoming economic recession.”Kaplan upgrades SERV shares from Neutral to Buy, and sets a $35 price target that shows confidence in a robust 36% upside potential. (To watch Kaplan’s track record, click here)Overall, ServiceMaster’s Moderate Buy analyst consensus rating is based on an even split among the stock’s reviews: 3 Buys, 3 Holds, and 1 Sell. The stock sells for an affordable $26.15, a low entry point that helps to mitigate forward risk. The average price target, $36.43, shows the possible reward: a 42% upside potential for the next 12 months. (See ServiceMaster stock analysis on TipRanks)UDR, Inc. (UDR)UDR is a real estate investment trust, focused on the residential apartment sector. The company is among the largest apartment owners in the US, and operations brought in over $1.15 billion in revenue for 2019. The company’s earnings were strong enough that management increased the dividend, with the new quarterly payment of 36 cents taking effect this month.UDR’s dividend deserves note. The annualized payment, $1.44, gives a yield of 4.1%, on the low end for an REIT, but still more than double the average dividend found on the S&P 500. The company also has an 11-year history of reliably keeping up the payments.However, as Morgan Stanley analyst Richard Hill points out, apartment-based residential REITs are more likely to take a cyclical hit in a recession. As job losses grow, more people will have trouble paying their rent – and with apartment dwellers more likely both to fit the demographic profile of those facing layoffs, and less likely to possess adequate savings to see them through a time of dearth, the apartment-owning REIT’s are primed to see a decline in income.This makes the big question for UDR, Is a recession on the way, or are we looking at a V-shaped recovery?Hill believes that we are looking at a probably recession, along the lines of the one following 9/11, or the 2008 financial crisis. With that in mind, he has downgraded his stance on UDR shares, rating the stock a Sell. His price target, $33, suggests a likely downside of 7% this year. (To watch Hill’s track record, click here)Backing his stance, Hill writes, “UDR has the most downside risk in our FCF yield analysis, as we think their strengths (portfolio diversity, NextGen operating platform, predictive analytics, and capital allocation) are already reflective in the price… we see the risks skewed to the downside if job growth slows in the Company’s West Coast-focused markets.”All in all, UDR shares have received 5 Holds and 1 Sell rating in recent weeks, making the analyst consensus view here a Hold. The stock sells for $35.39, and at $45.17 the average price target still shows a 27% upside potential for the year. (See UDR stock analysis on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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