Blow-out first quarter earnings results from the big banks didn’t produce huge gains this week–and that’s actually reassuring to me because it says a significant number of investors are still paying attention to fundamentals
Microsoft (MSFT) will buy speech-recognition pioneer Nuance Communications (NUAN) for $19.6 billion in cash. The move will speed Microsoft’s ambitions in the healthcare digital record keeping market. Microsofts goal is to use voice recognition technology to develop products that feee doctors from note-taking and allows more effective search of those notes for meaningful treatment solutions. The offer at $56 a share was a premium of 23% to the close for Nuance’s shares on Friday, April 9. Microsoft forecasts that the acquisition will result in a loss than 1% hit to earnings in the fiscal year that begins on July 1 and will add to earnings in the following year.
Today, I’m going to review the fundamental case for Wyndham shares (the reason I added it to Jubak Picks on March 17) and give you the details on the Call Option on Wyndham that I’ll be adding to my Volatility Portfolio tomorrow.
In my Trick or Trend post on Saturday, March 27, I argued that the increasingly serious chip shortage experienced by car makers was bad for car stocks (since car companies are having to cut production), but good for chip makers who concentrate in the auto sector (since they are seeing rising demand and increasing pricing power) and even better for chip equipment makers (since they were already on a roll to meet higher demand for equipment to expand chip production and are now very likely to see that extra demand for chip equipment run higher and longer.)I already own shares of two chip makers that are seeing rising demand and increasing pricing power: NXP Semiconductors (NXPI) and Infineon Technologies (IFNNY). I own NXP in my Volatility Portfolio–up 97.16% since June 2, 2020. I own Infineon in my Jubak Picks Portfolio–up 81.38% since May 6, 2019. And I also own shares of chip equipment maker Applied Materials in my Jubak Picks and 50 Stocks portfolios. Applied Materials has been a member of my Jubak Picks Portfolio since January 14, 2021 (for a gain of 21.59% as of the close on March 26) and of my long-term 50 Stocks Portfolio since December 31, 2017 (for a gain of 151.64%.) Today, Monday March 29, I’m adding shares of ASML (ASML), the leading producer of lithography equipment to draw circuits onto chips. That stock gained 7.14% on Friday and is now up 28.28% for 2021 to date.
Car makers have put investors on notice that a severe shortage of chips is forcing them to curtail production. Volkswagen, Toyota, and General Motors have all reported halting production due to a shortage of silicon and the companies have suspended forecasts of manufacturing volumes because of the shortage. Volkswagen, for example expects a drop in production of 100,000 cars in the first quarter. Electric car maker Nio has suspended production at its Chinese plant for 5 days due to the shortage. And the shortage looks to be getting worse.
In commodities world there are bounces. There are rallies. And then there are super cycles of higher prices that can go on for years on an imbalance between supply and demand. We’re had our bounce in copper. And our rally. Now are we seeing the emergence of a copper super cycle? I think the answer is yes.
I’d like to add more exposure to the bank sector. But what? At this stage in the bank stock rally, I’m looking for well-run banks that will be able to take advantage of the increase in the yield spread to add to earnings. (As opposed to earlier in the cycle, when I added Citigroup because things were getting a lot better even for not-so-well run banks.) Bank of America (BAC) is one possibility. But the stock is up 25.80% for 2021 as of March 18 and up 32.26% in the last month. I think, instead, that I’ll go with U.S. Bancorp (USB), the country’s largest regional bank. U.S. Bancorp is up 16.96% for 2021 to date and up “only” 21.27% in the last month. It also comes with a 3.8% dividend (well above the 1.90% paid by Bank of America) that will give investors some downside protection. I’m adding that stock to my Jubak Picks Portfolio on Friday.
Wyndham Hotels and Resorts is a relative bargain for anyone looking to profit from the “vaccine rally.” The stock is up only 19.9% for 2021 as of the close on March 16. Most of that (18.4%) has come in the last one one month. Given the likely resurgence in travel and Wyndham’s focus on the leisure travel market in the low to medium priced segment, I think the stock has more room to run. I’ll be buying the shares tomorrow for my Jubak Picks Portfolio with a target price of $84 a share. The stock closed at $70.41 today, March 16.
Shares of MGM Resorts International (MGM) are up 15.16% since I added them to my Jubak Picks Portfolio on February 11, 2021. I don’t think the gains are done for this casino and hotel stock. Today I’m raising my target price to $48 a share from the current $42
Today, March 15, shares of Marvell Technology Group (MRVL) closed at $48.08, slightly above my target price of $48 a share. In this very volatile market for technology stocks, I’m going to take my almost 20% profit (19.90% to be exact) and sell these shares out of my Jubak Picks Portfolio tomorrow, March 16. The profit came in less than two weeks from my March 6 buy.
Let’s be clear. I don’t have any idea of when the current selling in technology and high-valuation growth momentum stocks will end. It does seem likely to me, even after the March 9 bounce, that the rotation into cyclicals, vaccine recovery stocks, and value stocks will continue for a while. From that perspective, I’m glad that I added Invesco KBWB Bank ETF (KBWB), Vulcan Materials (VMC), Caterpillar (CAT), MGM Resorts International (MGM) and Coca Cola (KO) to my Jubak Picks Portfolio since the middle of February. And that I added Dow (DOW) and Citigroup (C) to my Dividend Portfolio in Mid-December. (All those picks are in the black since my purchase date. You can check the online portfolios to see by how much.) But now that the NASDAQ Composite has dropped into an official correction–down 10% from its February 12 high–I’d like to be holding some more cash in case
While the NASDAQ Composite and Standard & Poor’s 500 were flirting with a correction on March 4, Marvell Technology Group (MRVL) has moved into its own better than 10% drop in just the last week. The stock is down 13.89% in the last week as of the close yesterday March 4 at $40.10. The stock is now down 15.66% for 2021 to date. I’m going to use this correction to add the shares to my Jubak Picks Portfolio on March 5 with a target price of $48 a share. The stock pays a tiny 0.60% dividend.
