September 20, 2024
What You Need to Know Today:
Adding Kenvue (KVUE) to my Dividend Portfolio
Kenvue (KVUEO) isn’t exactly new. As a stand-alone stock, Kenvue dates back only to May 2023, but the company is a spin off of Johnson & Johnson’s (JNJ) consumer division. The owner of household consumer names that include Tylenol, Nicorette, Listerine, and Zyrtec, Kenvue is the world’s largest pure-play consumer health company by sales. The stock closed on September 5 with a yield of 3.64%. Morningstar calculates that the shares are 16% undervalued and puts a $26 target price on the shares. The stock closed at $22.51 on September 5. I’m adding the stock to my Dividend Portfolio tomorrow. With the Federal Reserve extremely like to begin cutting interest rates at its September 18 meeting, a lot of investors are looking for higher yield with slid safety. I think Kenvue offers exactly that combination.
Weak July jobs report, tick up in unemployment rate send stocks tumbling on recession fears
The U.S.economy added only 114,000 jobs in July. Economists surveyed by Bloomberg had projected an increase of 175,000 jobs in the month. The unemployment rate unexpectedly climbed by 0.2 percentage points to 4.3% in July, exceeding all 69 estimates by economists. Average hourly earnings rose 0.2% on a monthly basis, also less than forecast, and on an annual rate increased by 3.6%–the least since May 2021. The jump in the unemployment rate triggered the Sahm Rule. Coined by former Federal Reserve economist Claudia Sahm, the rule says that when the average jobless rate over three months is 0.5 percentage point above the 12-month low, a recession is coming. And that’s exactly where we are now. “We’re not headed in a good direction,” Sahm said on Bloomberg Radio Friday. It’s fair to say the stocks weren’t happy on Friday.
Stock indexes fall hard on data saying U.S. manufacturing contracted in July
The latest report on the ISM manufacturing index came in at 46.8 for July, lower than expected and down 1.7 points from the 48.5 recorded in June. (In this index ny reading below 50 indicates contraction in the sector.) That sign of contraction fueled fears that the Federal Reserve may have waited too long to cut interest rates–a rate cut seems to be in the cards for the central bank’s September meeting–and that the U.S. economy is in danger of slipping into recession. The stock market tumbled Thursday. The Dow Jones Industrial Average fell almost 500 points, or about 1.2%. The S&P 500 dropped about 75 points, or almost 1.4%, while the tech-heavy Nasdaq composite index was down more than 400 points, or about 2.3%. Money flowed into bonds: The 10-year Treasury yield fell below 4% for the first time since February.
September it is: today Fed signals September interest rate cut
At today’s meeting the Federal Reserve left its benchmark interest rate unchanged at 5.25% to 5.50%. Fed Chair Jerome Powell said an interest-rate cut could come as soon as September. “The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market,” Powell told reporters Wednesday. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”
McDonald’s sales drop for first time in four years–this is what a McDonald’s economy looks like
I’ve started to call this The McDonald’s Economy–where the long-term effects of high inflation on prices damps consumer purchasing, but where the recent drop in inflation has limited companies’ “cover” for price increases. The result is that companies are seeing lower sales volumes at the same time as consumers push back ore strongly against price increases. McDonald’s isn’t the only company caught in this vise. Customer traffic at U.S. fast-food restaurants fell 2% in the first half of the year compared to the same period a year ago, according to Circana, a market research company. Circana expects high inflation and rising consumer debt will also dent traffic in the second half of 2024.
Saturday Night Quarterback says (on a Sunday), For the week ahead expect…
Earnings, earnings, earnings. From members of the Magnificent 7: Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Apple (AAPL). in the consumer sector from consumer stocks Starbucks (SBUX), McDonald’s (MCD), Mastercard (MA).From drug companies Pfizer (PFE), Moderna (MRNA) and Merck (MRK). And from Big Oil Chevron (CVX), ExxonMobil (XOM), Shell (SHEL), and BP (BP). Here’s what I’d watch for.
Special Report It’s a New World for Dividend Income Investors Stock Pick #8 Verizon
Bookkeeping. I added Verizon (VZ) as Pick #8 for my New World for Dividend Investing Special Report (You can find it in the Special Report section of this site along with all the content on this market and its trends for Dividend Income investors. But I’m reposting it as a stand alone pick so no one misses it. Dividend Pick #8: Verizon (VZ) The question for Verizon–and for dividend investors–is remarkably similar to the question for AT&T (T): Can a management that has run up a huge debt load find the discipline to use the company’s immense cash flows to pay down debt?
Live Market Report (20 minute delay)
Watch My New YouTube Video: Hot Button Moves NOW–AI Woodstock
Today’s Hot Button Moves NOW video is AI Woodstock. Nvidia’s big AI update on March 18 has been dubbed “AI Woodstock” by Bank of America. Nvidia will update its pipeline and prospects for new projects and report on where it sees the AI market going. It will likely create volatility throughout the AI sector as investors try to get out ahead of the company’s projections. Tuesday, Bank of America raised its target price for Nvidia from $925 to $1100 and upped its estimate of the size of the AI accelerator market from under $250 billion to $250-500 billion in 3-5 years. This wide gap in both market size and time makes me a little nervous, but for now we can focus on the next few days. Nvidia will be discussing its new B1000 and N100 chips, ethernet switches, and AI at the Edge for PCs and smartphones. Keep an eye on stocks like Broadcom (AVGO), Qualcomm (QCOM) and Super Micro Computer (SMCI) for reaction to this news. The volatility in the reaction could open up a good place to get in on these AI stocks.
Why next week’s Dot Plot from the Fed is more important than ever after a hot inflation report
There’s not much question of what the Federal Reserve will do at its March 20 meeting. The odds–99% on the CME Fed Watch Tool–are that the Fed will do nothing and leave interest rates at the current 5.25%-5.50% benchmark. But that day the Fed will also release its most recent quarterly revision of its economic projections for the year ahead, the Dot Plot. And those projections will have, potential, market moving power. The central question: Will the Fed hold to its projection of 2 interest rate cuts in 2024 or will the bank, worried by recent evidence that inflation has been stubbornly high in recent months, point toward just one cut by the end of the year?
Please Watch My New YouTube Video: Quick Pick Qualcomm
Today’s Quick Pick is Qualcomm, (QCOM). I always look for product momentum in technology stocks, and Qualcomm’s pipeline is very promising. The company reported a good first quarter for 2024 but I’m focused on growth for their Snapdragon chip which is used in cell phones, cars, and the internet of things. Qualcomm has recently renewed its chip agreements with Apple and Samsung. Samsung’s Galaxy 24 is the first cell phone to include AI technology powered by Snapdragon and sales are up 13% year over year from 2023 and 47% from 2024. It’s likely more companies will be looking to add AI to their phones and I think Qualcomm has a leading position in that market. A new Snapdragon product, X-Elite, will put AI on PCs and is coming out this year. In 2023 the Snapdragon chip was also installed in infotainment modules for 75 new car models and the company’s automotive revenue is up about 12% this quarter. The Internet of Things is growing more slowly but is still growing. Morningstar says the stock is trading at a 22% premium, but I find that to be very, very conservative. While this stock isn’t a bargain at the moment this is a decent time to get in on an AI stock with promising pipeline momentum, and I don’t see it being more reasonable any time soon. I added Qualcomm to my Jubak’s Picks Portfolio on January 15, 2024. The position is up 23.5% since then as of the close on March 12.
Core CPI inflation disappoints again for February
Core CPI inflation came in hotter than expected in February for a second straight month. The core Consumer Price Index, which excludes food and energy prices, increased 0.4% from January, the Bureau of Labor Statistics reported today. The year over year inflation rate rose to 3.8%. Economists had been projecting 3.7% annual rate. Core CPI over the past three months rose an annualized 4.2%, the highest annual rate since June. That adds to worries that the improvement in inflation has stalled in recent months.
Please Watch My New YouTube Video: The Magnificent Five?
Today’s video is The Magnificent Five? The Magnificent Seven were the main drivers of market success at the end of 2023 and the beginning of 2024. But what happens when the Magnificent Seven are more like a magnificent Five, or even four? The original Magnificent Seven included Apple, Amazon, Meta Platforms, Microsoft, Alphabet (Google), Nvidia, and Tesla. Both Tesla and Apple have taken major hits largely due to problems with China. China’s regulations have made it harder to sell Apple products in the country in the government’s effort to push domestic goods. Apple sales in China are down 16-17%. in the first six weeks of 2024. This, alongside a Wall Street perception that Apple is behind in AI technology, has brought Apple shares down 12% for 2024. As for Tesla, China is producing massive numbers of cheaper electric vehicles that are increasingly exported globally (with the exception of the United States where high tariffs on Chinese electric vehicles limit sales) leaving Tesla down 25% in 2024. Google is also down 5% year to date though it may be too soon to write Alphabet off as “not magnificent” just yet. Both Apple and Tesla are no longer pacing the market and are indeed lagging. Bad thing? Good thing? I’d vote for “good thing.” The rally is beginning to spread out from a handful of big names. The only thing that makes me a bit wary is that so many investors are hoping to make money on speculative moves while the market is moving sideways. Those moves could cause volatility in a market that is otherwise likely to stay steady until we get big news from the Federal Reserve on interest rate cuts in June or so.
Saturday Night Quarterback says (on a Sunday), For the week ahead don’t expect…
A month after the stock market was rocked by a worse-than-expected inflation report, investors are fearing a reprise when the latest data arrives on Tuesday. Last Thursday stocks rallied when Fed Chair Jerome Powell said in his testimony before the Senate that the central bank is “not far” from being ready to cut interest rates. But this week Fed officials are in their regular blackout period ahead of their meeting on March 19 and 20. Absent Fed commentary on the inflation report, stocks may be volatile again.
Use the plunge in Viking Therapeutics as a buying opportunity
Shares of Viking Therapeutics (VKTX) are down norther 6.22% as of noon today in New York. That comes after the stock dropped 18.84% yesterday. I think that the market thinking here by and large wrong and I’d use the big painful drop as an opportunity to buy more shares of Viking Therapeutics.
Job adds surprisingly strong; unemployment rate climbs
Can we just agree that they way we measure the labor market is nuts? Today’s report on the U.S. economy is a case in point. Employers added 275,000 jobs in February, the Labor Department reported Friday. But the unemployment rate rose to 3.9% from 3.7%.
Tesla to lose money in 2024? From Magnificent 7 to Market Dog in 3 months
Right now Tesla (TSLA) is a case study in how sentiment on a stock changes, how long it takes sentiment to change (and recover), and the stages of sentiment change. You understanding of this process should be our guide to whether you want to own Tesla and when. Tesla (TSLA) could potentially lose money in 2024, Morgan Stanley’s Adam Jonas wrote in a note to investors this week. And he cut his Tesla earnings projections by 25% to $1.51 a share from a prior $2.04. Gross profit margins will fall to 11.4% (excluding regulatory credits that Tesla gets paid by automakers looking to meet EPA mileage and emissions rules.) And this is from a Tesla bull.
Another (yep, another) reason to buy Novo Nordisk today
Yes, I know this is my third post (plus video) on diabetes/weight-loss drug leader Novo Nordisk (NVO) in three weeks. But the company keeps pumping out research updates that keep powering the stock higher. Think of this as a momentum stock where the momentum comes from the R&D pipeline and not moves in the share price. (The last post was https://jubakam.com/another-reason-t…-success-for-glp/) Today, the company reported early results for a next-generation oral weight loss drug called amycretin, showing a 13.1% weight loss after 12 weeks. That’s a bigger weight-loss than either Novo Nordisk’s own Wegovy or Eli Lilly’s (LLY) competing drug Zepbound. Shares of Novo Nordisk were up 8.9% today to $135.85. I added them to my Jubak’s Picks Portfolio on February 20. The position is up 11.91% since then.
Apple is a sell at least until its developers conference in June
Apple (AAPL) shares are down 12% for 2024 to date as of March 5. But I don’t think Apple’s troubles are over. And it will take some pretty fast taking at the June WWDC (World Wide Developers Conference) to reverse the downtrend in the shares. Absent a knock-it-out-of-the-park performance from CEO Tim Cook, I think the weakness will continue the company’s product announcements in September. And maybe longer. Those of you who have long memories may recall that I sold my shares of Apple in my 12-18 month Jubak’s Picks Portfolio back on September 12, 2023 at $176.30 a share. (I kept my long-term position in Apple in my 50 Stock Portfolio.) That sell turned out to be early. Painfully early. The stock hit a 2023 high of $198 on December 14. And it has only recently moved below my September sell, closing at $169.62 on March 6. But the iPhone China problem that led to that sell call has gotten worse. And since then Apple has developed an AI problem as well. And unfortunately the China problem and the AI problem mix to form an especially potent negative brew.
Here’s why lithium producer Albemarle was down 17.9% today
Today Albemarle (ALB) announced that it would sell $1.75 billion in ADRs to fund capital spending during the collapse in lithium prices. The offer will be for a mandatory convertible preferred with a 7% to 7.5% coupon. The plunge is a reaction to the company having to do a capital raise at the bottom for the lithium market
Another reason to buy Novo Nordisk: Kidney trial success for GLP
Back on February 20, I posted a video recommending a buy of Novo Nordisk (NVO). In the video, “Buy GLP-1,” I said that the stock, along with Eli Lilly (LLY) was riding the momentum of increased sales of GLP-1 drugs, originally developed to treat diabetes, as weight-loss drugs. Buy, I said, despite the huge run-up in the shares, because new trials and analysis of existing data were pointing to expanded uses for the drugs. Today, Novo Nordic announced exactly the kind of news that I had talked about.
Please Watch My New YouTube Video: Stock Pick of the Week Stripe
Today’s Quick Pick is Stripe. Stripe isn’t public yet but will likely go public in late 2024 or in 2025. This is an alert to prepare for this IPO. Stripe started in 2011 and is the “Paypal of its time.” I use both platforms and I find Stripe the more powerful and more user-friendly payment platform. Stripe recently did a private, series H deal that valued the company at $65 billion. Paypal, its major competitor (along with Square), has a market cap of $65 billion. I think this will be a very hot, oversubscribed IPO share you can make a quick profit by flipping the shares on IPO day. The recent Series H offer means that Stripe probably won’t go public until the last half of 2024, at the earliest, or more likely 2025. Which give you time to get your ducks in a row in order to put in a bid for some shares in the offering. Talk to your broker now to ensure you sign all the right paperwork and meet eligibility requirements for IPO offers. If you get that started now, you’ll be able to place an order for IPO shares when they’re available. Stripe revenue is at $14 billion with about 19% of the market share versus 42% for PaylPal. The company has just turned EBITDA profitable, a major milestone. This is an appealing IPO and something to start preparing for even though it may be a little ways down the road.
Long-term investors! This is the most important trend to think about–the global savings glut is ending
Way back in 2005, shortly before he became chair of the Federal Reserve, economist Ben Bernanke proposed that the world was seeing a long-term glut of savings. With the world awash in cash as a result of massive numbers of people in the developing world entering the job market, and as the Baby Boom generation (and others) hit its peak earning years, and as relatively low inflation and rising real wages freed up more cash for many consumers, long-term interest rates would stay low and remain low for longer. The thesis looks, in retrospect, to have been massively correct. The global economy did experience a long period of extraordinarily low interest rates, with interest rates turning negative for important chunks of the the world. Now, it looks like the long-term trend has gone into reverse. We’re headed into a period of cash scarcity.
My 10 Penny Stock Homeruns Pick #7 L’Occitane International LCCTF
Although I’m selling Natura out of my portfolio and my penny stock list, I do want to keep exposure to global beauty sector, however. I like the high margins and I like the correlation between sales of beauty products and rising incomes in developing economies. My pick for this iteration of my penny stock list is L’Occitane International (LCCTF)
Saturday Night Quarterback says, For the week ahead expect..
The coming week I expect a battle for the market’s attention between the continued AI monster momentum story and the macro story on inflation and interest rates.
Ouch! There’s more to the credit crunch than interest rates as auto loan availability sinks
Access to auto credit declined in January as credit tightened across all channels and across most lender types compared to December, according to the Dealertrack Credit Availability Index. Investors who pay so much attention to interest rates to predict the trend in consumer spending need to spend more time on the other parts of the current credit crunch, the ability of loans. Consumers who can’t borrow can’t spend no matter how many times the Federal Reserve cuts interest rates.
Please Watch My New YouTube Video: Hot Button Moves NOW Buy VKTX
Today’s Hot Button Moves NOW video is Buy Viking Therapeutics (VKTX). Last week I suggested that you buy GLP-1 drug stocks like Eli Lilly (LLY) or Novo Nordisk (NVO). This class of diabetes and weight loss drugs is growing rapidly, with $36.5 billion in sales in 2023. Viking Therapeutics, a development-stage biotech company, recently announced Phase 2 trial results for its compound VK2735. This drug has the potential to be the best in its class when it hits the market. The company still has to go through Phase 3 trials and approval, but the data show VK2735 to be more effective at weight loss than its competitors. It could also be one of the few drugs of its kind to be available orally. The current round of trials shows that the drug will need to be injected less frequently than competitors. The company trades with a market cap of $9 billion (in contrast to Lilly’s $720 billion market cap) and is still small enough that it could be bought before the expensive process of taking a drug to market. (Although the company recently raised a secondary offering that would advance marketing plans.) I would buy this up to $100 a share and expect it to continue to zoom as more good news, I expect, on the oral version gets released this quarter. I am adding the stock to my online portfolios today, Thursday, February 29. You can find a write up on this pick on my subscription JubakAM.com and free JubakPicks.com sites.
Inflation, especially services inflation, looks sticky: PCE inflation up a fast 0.4% month to month in January
The headline, all-items Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation measure, climbed at a 2.4% year over year rate in January. That was in line with what economists had forecast and down from the 2.6% annual rate in December. The core PCE, that is after stripping out more volatile food and fuel prices, climbed at a 2.8% year over year rate. In December the annual rate of core inflation had been 2.9%. But that was the end of the good news in today’s PCE inflation report.
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