Author: Andrew Packer

Income investing

Daniel Pronk: 5 Undervalued Stocks to Buy In June 2024

Posted on by Andrew Packer

With the market near all-time highs, some stocks have already made a big run. Some may have already hit their peak for the year. Investors can always find an undervalued stock, no matter what’s happening in the market.

By buying undervalued stocks, investors can benefit in several ways. The first is if the company has a catch-up rally. Many lagging stocks often do. The second comes from earning a high dividend payment in the meantime.

Undervalued stocks can also mean that investors get into an unloved sector as it starts to trend higher.

For instance, while not as exciting as tech, asset management services tend to fare well in rising markets. That’s good for Brookfield Asset Management (BAM).

The company went public at the end of 2021, but still looks like a value play today. They mange one of the largest alternative asset portfolios in the world.

Shares also pay a 4.0% dividend at today’s prices.

Another undervalued stock is Rexford Industrial Realty (REXR).

The industrial property REIT benefits from the soaring demand for warehouses, data centers, and other non-office commercial space.

Currently, Rexford is buying in California. It could have bigger growth by expanding to other states. Shares also pay about a 4.0% dividend at current prices.

 

To view the full list of undervalued stocks right now, click here.

Economy

The Pomp Letter: The Public Market Pivot

Posted on by Andrew Packer

For most of the past 15 years, interest rates have hovered near historic lows. That’s punished savers keeping cash in the banks. Or bondholders. But it’s meant a frenzy for borrowers.

Corporate borrowers have been even better off. With investors desperate for yield, issuing debt has allowed a number of companies to expand. In that space, venture capital funds have been able to outperform the stock market.

These companies have been able to acquire companies, whether publicly traded or privately held. Venture capital firms can then leverage up the company, sell off assets, or otherwise create value for them.

However, about half of all venture funds fail to return their original investor’s capital. The high debt levels required may cause issues if a deal doesn’t work out as expected.

And only about 5% of venture capital funds manage to return more than 3X what investors put in. Meanwhile, the number of venture capital funds seeking deals has more than tripled compared to 15 years ago.

This trend may be starting to reverse. With interest rates now at their highest level in 15 years, deals aren’t as attractive with the debt attached.

That could make public companies, with the ability to issue stock, more attractive for reasonable returns going forward.

 

To read the full analysis, click here.

Economy

QTR’s Fringe Finance: The Bull Market Just Died

Posted on by Andrew Packer

There’s an old Wall Street saying: They don’t ring a bell at the top. Bull markets tend to end on wild speculation. On the notion that the party isn’t going to end anytime soon.

In time, and after a big pullback, investors can realize signs that they should have left the party. Today, investors may be seeing one such time. That’s because meme stocks are back.

Retailer GameStop (GME) saw some massive moves in recent weeks. From a low this year of $10, shares have touched on $60. While not quite the gains seen in 2021, the parallels are there.

This time around, hedge funds aren’t shore more than 100% of the stock’s available shares, or float. Since that danger is off the table, the prospect of a massive short squeeze isn’t as attractive as it has been three years ago.

Meanwhile, GameStop itself is helping to keep a lid on shares. The company has now twice announced plans to issue more shares. GameStop raised nearly $1 billion the first time it did so.

While the company’s core retail business remains at risk of obsolescence, big cash on the balance sheet could allow them to acquire another company. Or they could park that cash and earn about 5% right now.

But that kind of return pales compared to the movement in shares. And it may be an overall sign that the stock market may have hit its speculative peak for some time.

 

To view the full rationale on what GameStop’s recent moves mean, click here.

Stock market

The Lead-Lag Report: The Most Deceptive (And Phony) Bull Market In History

Posted on by Andrew Packer

While the market hovers near all-time highs, there are a number of signs that this market rally is unhealthy. That doesn’t mean stocks will crash anytime soon. But it does mean that investors should be cautious until some healthy signs improve.

The biggest sign of market sickness? Overall participation. Since late 2022, the market rally has been dominated by a number of big-cap stocks. Notably, they’re tech-heavy as well.

Tech stocks tend to be more volatile. And the concentration of these tech stocks relative to the overall size of the S&P 500 stands at a record high.

Meanwhile, small-cap stocks can’t seem to catch a break. The Russell 3000 index, which holds a number of much smaller stocks shows the danger. Over 70% of those companies continue to trade below their 2021 highs.

Again, the market isn’t at danger of a correction yet. But if there is going to be a correction, it won’t take that many stocks to get one started.

This situation does parallel the end of the bull market in tech stocks in the 1990s. We could still see one last final speculative top. That would involve traders throwing in the towel on a potential selloff now, and joining in tech stocks at all-time highs.

Eventually, the party will stop. For now, it’s simply starting to throw up some warning signs for investors.

 

To view the full extent of the market’s concentration danger, click here.

Stock market

FX Evolution: Most People Will Ignore This Stock Market Warning Sign

Posted on by Andrew Packer

Nvidia (NVDA) has been the market darling for the past 18 months. The rise of AI technologies means that the semiconductor designer has become the top play for investors.

While shares of Nvidia have soared, what’s more impressive is that this price move is still lower than the company’s surging earnings and revenues. However, there is an unusual event surrounding Nvidia that could mean some market trouble ahead.

That sign? Nvidia’s recent stocks split. On Monday, shares split 10-for-1. A holder of shares at $1,200 now has 10 shares valued at $120.

In theory, stock splits make it less expensive for smaller investors to acquire a position in a company. It also makes trading easier as well.

However, each of the prior share splits by Nvidia specifically have come ahead of a bear market for stocks. That includes the last split in 2021 that came ahead of the 2022 bear market.

But going into both the dotcom crashes and the global financial crisis, a similar story unfolded.

While this indicator has worked in the past and has no guarantee moving forward, it’s a sign for caution. With a market cap of $3 trillion, Nvidia recently became the second-largest company by market cap.

Further exceptional gains from those of recent years seem less likely going forward. And with Nivdia making up a big part of market indices, a selloff could mean the overall markets sell off too.

 

To view the full danger Nvidia’s recent stock split poses, click here.

Income investing

Dividend Growth Investor: Four Dividend Growth Stocks Increasing Dividends Last Week

Posted on by Andrew Packer

While the market continues to grind higher, investors aren’t taking any big swings right now. Stocks often climb what’s called the “wall of worry.” Record home equity and cash on the sidelines suggest that investors don’t want to get burned by stocks.

Fortunately, there’s more to the market than big growth names. And investing in companies with a history of raising their dividend payouts can provide great returns. That’s thanks to the combination of increasing cash payouts, as well as a rising share price.

Recently, several stocks have raised their dividend payouts. While starting yields may be low, investing in these companies over the long haul can create strong results that are less volatile than the overall markets.

For instance, home improvement retailer Lowe’s (LOW) just raised its dividend. The company increased its annual payout by 4.5%.

Shares now yield 2.1%. This is the 62nd consecutive year that Lowe’s has increased its dividend.

Royal Bank of Canada (RY) also just increased its payout. The banking giant pays a 3.8% dividend.

Plus, Royal Bank of Canada just increased their dividend for the 14th consecutive year, with a 2.9% increase. Canadian banks also tend to hold up better than U.S. banks during a financial crisis.

While starting yields may be low, slow and steady increases over time can lead to a big stream of income.

 

To view the full list of companies recently raising their dividends, click here.

Stock Picks

Let’s Talk Money: 5 Stocks to Buy Now BEFORE Nvidia Buys Them

Posted on by Andrew Packer

Corporate America is focused on growth. That could mean producing new goods and services. For some companies, it may make more sense to buy that growth. That usually means buying a small company outright.

The “growth-through-acquisition” strategy is popular in the drug manufacturing and technology space. That’s because small players with one breakthrough idea suddenly become attractive to the players with big wallets. With the AI boom underway, it’s no surprise that many tech giants are looking for such plays.

For example, chipmaker Nvidia (NVDA) has been the runaway leader in the AI chip space. But they do that partially through their own production, and partially from acquiring other companies or partnering with them.

Currently, Nvidia owns over 1,960,784 shares of ARM Holdings (ARM). Valued at over $147 million, or 0.19% shares. ARM designs microprocessor architecture. That’s essentially the “brains” of any chip or device.

That’s a key component that stacks in well with Nvidia’s core business. Having this ownership stake allows Nvidia to keep up with any developments ARM comes up with.

Plus, the stake also makes it easier for Nvidia to potentially grab any new ARM chip ahead of other players. That could even mean locking smaller players out of the market. That would allow Nvidia to maintain its dominance.

 

To view the other stocks Nvidia has a stake in, click here.

Personal finance

The Lead-Lag Report: Gareth Soloway on Market Psychology, Risk Management, and Economic Forecasts

Posted on by Andrew Packer

Markets are dynamic. Today’s leaders can be tomorrow’s laggards, and vice versa. What drives a stock’s price higher is supply and demand. But understanding how changes in supply and demand interact can make a huge difference in returns.

If investors clamor for a stock, that soaring demand for shares will move the price fast. If a stock has little demand, but continues to reduce supply with a share buyback, the gains will prove slower.

Currently, investors love all things AI. In that space, the chipmakers are the most attractive of all. They’re the key component for AI programs to use.

However, ramped-up production and increased global competition could mean a supply saturation. In time, that could compress the wildly-growing earnings of semiconductor stocks.

Once that slowdown starts, investor demand for semiconductor stocks could shift overnight. And that could lead to big losses. Especially for investors who buy at the top.

Meanwhile, global investing has taken a backseat to the AI space. That’s creating an opportunity for investors to get significant value from a number of emerging market countries. That includes China and Brazil.

Investors tend to have a love/hate relationship with international investing. Right now, feelings are cool. If that changes, money could pour into emerging markets, leading to a massive rally for those stocks.

 

To watch the full discussion, click here.

Economy

A Wealth of Common Sense: America’s Piggie Banks Are Full

Posted on by Andrew Packer

While markets hit new all-time highs, investors remain flush with cash. Besides holding cash on the sidelines, homeowners are sitting on record equity. Since the end of 2019, households have added over $12 trillion in equity.

Today, households now have nearly $32 trillion in equity, compared to about $6 trillion during the housing crash. While the days of treating a home as an ATM are well in the past, it’s a sign that households are playing it safe today.

The downside to all this wealth? It’s trapped. Homeowners who want to take out a new mortgage don’t want to pay 7%.

Especially when they refinanced just a few years ago at 3%. Home equity lines of credit, or HELOCs, have even worse rates, over 8%.

Should interest rates finally start to head lower, that could change. Homeowners would be able to cash out at more reasonable rate.

Meanwhile, money market funds now hold over $6 trillion today. That’s a record high, and nearly twice the $3.5 trillion since before the pandemic. With today’s high interest rates, those funds offer a good yield.

Once rates start to decline, that’s a lot of cash on the sidelines that could head elsewhere, such as the stock market.

Given the high levels of home equity and money sitting around earning interest, stocks could take off once rates decline.

 

To see the full amount of cash on the sidelines, click here.

Stock market

FX Evolution: This Doesn’t Happen Everyday

Posted on by Andrew Packer

Year-to-date, the stock market is up over 10%. That’s above average, given its historic average annual return of 8.8%. Typically, in years when the market is up more than 10% by the end of May, it will continue to rally further.

That suggests that investors may not want to get too cautious. The market slowdown over the past few weeks may not be the sign of a big turn in the market. Rather, it could be a pause before a move higher.

About 70% of the time, markets performing this way will rise in June. And they have about an 85% chance of being higher for the rest of the year. Those are good odds for investors to follow.

In the meantime, market volatility is low. That’s usually a sign that the market doesn’t see any potential big dangers on the horizon. And that markets should generally drift higher.

Many big rallies over the past 40 years have occurred under similar conditions.

Investors in this market could do best by looking for sectors that are starting to trend higher. And avoid market sectors that have run strong, but are now starting to underperform.

This market rotation could create some market-beating opportunities as stocks remain likely to trend higher in the months ahead.

 

To view the full analysis, click here.