I expect the market reaction to Nvidia’s (NVDA) earnings report, to be released after the close on Wednesday, February 21, to tell investors a lot about the short-term direction of this stock market. We’re likely to learn more, however, from the reaction to an Nvidia beat rather than from an earnings miss.
Can you hear the barkers yelling to the crowd? It’s Wall Street analysts rushing to raise their target prices for Nvidia (NVDA) ahead of next week’s quarterly earnings report. On February 21, after the close, Nvidia is expected to report earnings of $4.18 share, up from $0.65 a share in the quarter a year ago, on revenue of $20.5 billion. And even though the stock is up 47% for 2024 as of the February 15 close and up 219% for the last year, Wall Street analysts are rushing to increase their target price on the shares.
Today’s Quick Pick is Cheniere Energy (LNG). Cheniere is a liquified gas supplier and the stock was down about 7.5-8% this year. Much of that drop was a reaction to the Biden administration’s decision to delay permits for new LNG export facilities in order to put pressure on the industry to decrease their methane emissions. However, this is essentially a non-issue for Cheniere since the company’s most recent expansion had already been permitted. The company is on track to go from a capital-intensive/debt heavy stage to putting billions into new sites and export facilities to a generator of free cash flow from those completed facilities. The current dividend is only 1.05% but the total yield, (dividends plus stock buybacks) is about 6.05%. Management has said they believe there will be enough free cash flow to raise the dividend rate by 10% a year from now until the mid to late 20s. In my opinion, demand for LNG is shifting as markets like Japan and China are transitioning to nuclear or solar and wind, but there is still growing demand from places like India, which is looking to transition away from coal. Cheniere is predicting 3% annual revenue growth and I think that’s reasonable and enough to keep the cash flow and dividends moving. I will be Cheniere to my Dividend Portfolio on those future yield prospects.
The Labor Department reported Friday that its producer price index—which tracks inflation before it reaches consumers—rose 0.3% from December to January. The index had dropped -0.1% in December. Measured year over year, producer prices rose by 0.9% in January. But the month to month increase in producer prices and at a higher month to month rate is the latest sign that getting inflation the “last mile” down to the Federal Reserve’s 2% target rate is going to be harder and take longer than expected.
Remember all that fear talk after CPI headline inflation came in at a 3.1% annual rate in January versus the projected 2.9%? Well, that lasted all of a day.
Today’s video is Inflation: Stickier for Longer. The market is now beginning to suspect that the Fed has a last mile problem. The CPI numbers from Tuesday weren’t terrible, but they weren’t as low as the market hoped. Headline inflation was at 3.1% annual rate and core inflation was 3.9%–markedly better than the past high of 9%, but not quite hitting the 2.9% for headline inflation that economists were looking for. The miss has finished a flip in sentiment about a March rate cut. The CME FedWatch poll in January had March rate cut odds at 90% likely, now, just a month later, the odds of no action are up to nearly 90%. Only about a third of investors believe there will be a rate cut in May with odds of no action up to 61%. The calendar is being pushed out to June or July for cuts from the Fed. This has resulted in bond yields going back up, around 4.3% on the ten year Treasury, and stocks going down a bit. There is a hope out there that the CPI numbers were a January blip, but if you look at the breakdown of the inflation numbers, it seems clear that inflation is just plain sticky. The Atlanta Federal Reserve Bank index that looks at the sectors that tend to be sticky and how much they’re influencing the overall inflation rate shows that prices in those sticky inflation categories have stopped and that they are a major factor keeping inflation higher than hoped. . Additionally, while there’s been a big drop in goods prices, the price of services has not gone down nearly as much. The super core inflicts number, which looks a prices in the services sector after taking out the cost of shelter has stalled. All this to say, we’ve got good evidence that this last mile from 3% to 2% on inflation could take a while.
My 10 Penny Stock Homeruns Pick #5: Vestas Wind Systems (VWDRY).
Technically, the Vestas Wind Systems ADR (VWDRY) isn’t a penny stock. By the strict definition, a penny stock sells for $5 or less and the Vestas ADR closed on $9.06 today, February 14. But I included Vestas in my previous penny stock list back on July 11, 2022, even though the stock closed at $7.80 that day. With the company reporting a return to profitability for 2023 in its fourth quarter earnings report released today, I think Vestas has (finally) turned the corner. And, frankly, I just don’t want drop it from this list just as things get good again for the company and its investors. (Vestas is a member of my Jubak’s Picks Portfolio. The position is up 65.6% since initiation on March 4, 2019.) Tomorrow, February 15, I’ll also add Vestas to my long-term 50 Stocks Portfolio.
Headline, all-items Consumer Price Index (CPI) inflation fell again in January, but not by as much as economists had projected before this morning’s report from the Bureau of Labor Statistics. In January prices rose at 3.1% year-over-year. That’s a slower increase than the 3.4% annual rate notched in December. But economist had projected that inflation would dip to a 2.9% annual rate. And stocks dropped on the disappointment.
When I wrote my post “Was the Meta Platform 20% pop the market top? An important sign, yes,, but not for the reasons you think” I wasn’t thinking of a three-part series. But then came Part 2 “Why his isn’t 2000–I don’t see a replay of the Dot-Com Bear Market.”
And now Part 3: “OK, It’s not 2000, but that doesn’t mean there’s no risk in the market.” Part 3 in this series is going to segue right into the new Special Report that I’ll post on Wednesday with seven concrete steps I think you should implement now to protect your portfolio. But for today, I’m going to focus on a framework for thinking thinking about reward and risk in the current market. Think of the topic as “Why your portfolio needs protection now–even if we aren’t looking at a Bear Market.”
I’m adding a bit more timeliness to this weekly video slot by moving away from my Trend of the Week series and changing it to “Hot Button Moves NOW” to highlight action you can take now.. Today’s Hot Button Moves NOW video is: Put Options on the S&P Regional Banking ETF (KRE). This is a play on continued trouble in the regional banking sector. New York Community Bank has just been downgraded to junk by Moody’s, (due to its real estate loan portfolio) and has dropped by 60%, taking the regional bank sector along with it. Last Monday I bought puts for April 24 at 14 strike price for $2.09 each and the put price has gone through the February 7 date when I recorded this video. I don’t think this is the end of regional bank trouble so I’ll be holding on to these puts until the bad news subsides. This is a good way to take advantage of some of these dips in the market and hedge risks. For more options and volatility stocks, subscribe to JubakAM.com.
Nearly 20% of outstanding debt on US commercial and multifamily real estate-— $929 billion–will mature this year, requiring refinancing or property sales, Bloomberg reported today. The volume of loans coming due has swelled 40% from an earlier estimate by the Mortgage Bankers Association of $659 billion, a surge attributed to loan extensions and other delays rather than new transactions. About $4.7 trillion of debt from all sources is backed by U.S. commercial real estate. An estimated $85.8 billion of debt on commercial property was considered distressed at the end of 2023, MSCI Real Assets reported, citing an additional $234.6 billion of potential distress.