With the Federal Reserve seemingly winding down its cycle of interest rate increases, a stronger dollar is no longer the big currency market story. Gold is. Gold is back. And for at least the next 3 to 6 months.
Yesterday, shares of Microsoft (MSFT) rose by more than 4.6% on an earnings report for the December quarter that showed the company slightly beating analyst estimates on earnings and training only slightly on revenue. Today, investors and traders had second thoughts. The stock was down as much as 4.6% in morning trading (That’s down from the close yesterday and not from the after-hours price.) The stock ended the day down just 059% but that was enough to erase all the after-hours gains from the previous day. So what caused the second thoughts?
After the market close today, Microsoft (MSFT) announced earnings of $2.32 a share, just beating Wall Street forecasts of $2.30 a share. That was a 6.5% drop from the December 2021 quarter, however. Revenue missed expectations at $52.7 billion versus a forecasted $52.9 billion. But the big news was that revenues for Azure, the company’s key cloud computing software unit, rose just 31% year over year in the quarter. That badly trailed Wall Street forecasts that called for 36.8% year-over-year growth in the December quarter.
Today I posted my two-hundred-and-twenty-fifth YouTube video: Get Ready for the Tech Earnings Flood. This week is a bit of a breather. Last week ended with bank earnings and next week begins the flood of tech stock earnings. This week we’ve got Alcoa, which used to be a market indicator but that is no longer the case (thankfully, since Wall Street estimates have them at a loss of $.75 for this quarter.) Netflix is up next on Thursday, January 19. Netflix (NASDAQ: NFLX) will show +$.44 this quarter versus +$1.33 last year at this time. I think this will likely be the trend with tech stocks. Lower earnings and slower revenue growth year-over-year. 2022 has been tough for technology companies and earnings will likely be lower for the fourth quarter than in 2021. Look closely at future estimates and guidance. Where are they going from here? (the bad news for the fourth quarter is widely expected.) Microsoft will report earnings on January 24, shortly after announcing it will be laying off 10,000 employees. After that, we’ll get Apple (NASDAQ: AAPL), on January 26, and then the floodgates open with more and more technology companies announcing earnings and setting the tone for the stock market at the start of 2023.
Tesla (TSLA) can’t win for winning. On Monday, while U.S. markets were, fortunately, closed, the company reported record quarterly deliveries for the fourth quarter of 2022 of 405,278 cars. Unfortunately, Tesla had convinced Wall Street to look for delivery of 420,7690 cars. So even record deliveries amount to a miss. For a third straight quarter, Tesla’s deliveries missed company and Wall Street projections. The company saw deliveries rise 40% in 2022, but that too was short of the 50% growth targeted by the company. As of the close today, January 3, Tesla shares were down 12.24%
Expectations are so negative on China that a 56% drop in gross gaming revenue in Macau counts as a positive surprise. Analysts had expected year over year gross gaming revenue to drop by 57% year over year in the month. And the December total was actually up 16% from the gross gaming revenue in November, according to the Gaming Inspection and Coordination Bureau.
On Friday I posted my two-hundred-and-twentieth YouTube video: Quick Pick Sell MGM. This week’s Quick Pick is a little different. Normally my Quick Picks are long (buys) but this one is short (sell). This is a reaction to the terrible Covid outbreak in China right now. China went from a strict, 0-covid policy to hardly any policy at all. While their vaccine rate sounds good at 90%, a lot of that is Chinese-produced, non-RNA vaccines, which have proven to be fairly ineffective against the new Covid variants. As a result, viral projection models expect 1.1 to 1.3 million deaths over the next wave (or waves) of Covid in China. So how does that affect MGM International? Their resort in Macau, China, while recently receiving their gambling license renewal, will get hit hard by the largely self-directed reduction in travel. And the “official” policy, which is to encourage travel and work-as-usual, seems to be having the opposite effect by creating fear among Chinese citizens. Macao, following the lead of the new policies from the central government, has just about dropped its requirements for testing and quarantine. The new rules essentially say, “We just want you to come.” Instead, many people are locking themselves down in an effort to stay healthy as China’s covid problem runs rampant and the Chinese government refuses to share accurate data. I don’t want to watch this Covid disaster further hammer my position in the stock. I’ll be selling it at a loss in my Jubak Picks Portfolio (hey, harvest those tax losses for 2022), but I will look to get back in April or May if I start to see optimistic traders betting on an end to this wave of the Covid Pandemic in China.
This week’s Trend of the Week: Christmas? Bah Humbug! Harris recently did a poll for Bloomberg that showed 60% of the people polled said they would be buying fewer gifts for fewer people this year due to inflation. That same poll said that 60% of respondents said they’d be cutting back on holiday travel, and 33% said they were skipping gift-giving completely. We’ll skip the discussion about the spirit of Christmas, and look at how this is going to affect retail and airline earnings in January. Retailers like Costco, Wal-Mart, and Kohl’s have already warned Wall Street that sales will not be great for Christmas, but even with that warning, retailers could surprise investors with lower-than-expected numbers. Costco announced its fiscal first-quarter earnings on December 10 with sales going up 6%. Although they were warned that margins were going to be soft, Wall Street was expecting 6.9% same-store growth and punished the shares accordingly with a huge drop in the stock. Costco is a great retailer for this moment, with affordable pricing on a wide range of goods and gas sales bringing in traffic. If Costco’s trending this way, I think we can expect the same from companies like Walmart and Kohl’s. It’s likely the airlines will take a hit as well, with the drop in holiday travel. For now, drink your wassail and try not to think about impending January earnings!
Yesterday, shares of clean energy battery startup Freyr Battery (FREY) rumbled 12.01% on news that the company would sell 20 million new shares to raise capital for its planned battery factories in Norway and (newly announced) Georgia. Today, December 2, traders and investors have done a bit of rethinking and bid the stock up 3.91% as of the close.
Granted it’s only a forecast, but yesterday General Motors (GM) forecast that its electric vehicle models will start generating a profit in 2025. The company now projects free cash flow of as much as $11 billion, compared with prior guidance of $7 billion to $9 billion. Electric-vehicle sales should top $50 billion in 2025, GM said. The Detroit-based company plans to build 400,000 EVs in North America from 2022 through the first half of 2024. Production capacity will reach 1 million units annually in North America in 2025. By 2025, its family of electric crossover SUVs, pickups, and luxury models will compete in segments that represent about 70% of the electric vehicle industry volume, the company projects.
When I put together my Special Report: “5 Safe Dividend Stocks Paying 6% or More,” one key requirement was that the company showed a long track record of raising dividends every year and the clear potential to continue to raise dividends every year. That formula could turn a 6% annual dividend yield now into 8% or 9% or even more over the next ten years. A safe almost guaranteed 10% yield at the end of 10 years strikes me as a very attractive prospect, especially given how tough I think the financial markets are going to be over the next five years or more. (For more on that outlook see my recently revised Special Report: “Your Best Investment Strategy for the Next Five Years.”) But I realized, looking at all the high-yield stocks that didn’t make the cut for that report that the requirement for a high-probability trend of higher dividends each year for the next 10 years, that this requirement left a lot of stocks paying very attractive high dividends now on the cutting room floor. Stocks paying 8% or more got left off the list because I didn’t see a commitment at the company to continued dividend increases every year or enough growth in free cash flow to make it possible for a company to raise or maintain its dividend through the ups and downs of the business cycle. These stocks paying 8% or more were very safe bets to continue paying that yield for the next year or two. But 10 years? Too much uncertainty. Which doesn’t mean you shouldn’t own some of these stocks now. An 8% or better yield for a couple of years is a very attractive prospect given how uncertain the economy and the stock market are right now. And an investor has a very simple remedy if a company looks like it can’t or isn’t committed to sustaining that yield. Sell the stock. So with all that in mind, I’ve put together a list of five “outlier” dividend stocks paying 8% or more at a time when the SPDR S&P 500 Trust ETF (SPY) has a yield of just 1.6%.
Today I posted my two-hundred-and-fifth YouTube video. This week’s Trend of the Week: U.S. Oil Production is Not Rising as Expected. Oil prices have averaged $100 per barrel over 2022–a figure that would normally lead oil companies to expand production and capital spending, but it hasn’t this time. According to the Energy Information Administration, U.S. oil production is only up about 3% from December 2021. Projections had the U.S. at 12 million barrels a day by the end of this year, but we’re currently only at 9.77 million barrels a day. Why is the production not going up? Oil shale fields deplete faster than traditional fields and we may have reached peak production in some of these oil shale basins. The best properties may have been exhausted and we’re now seeing companies move to their more inferior properties. The drilling and fracking may be happening at a steady pace, but we’re not getting as much out of the wells and properties currently being drilled. Companies that had a stock of drilled, but uncompleted have now worked through those “spare” wells and don’t have the motivation to drill new ones as Wall Street and investors would prefer high dividends instead of capital spent on a commodity that has an unclear future. The two oil companies I would look at are Pioneer Natural Resources Company (NYSE: PXD) and ConocoPhillips (COP) because of their mix of resources.
