Author: Andrew Packer

Income investing

GenExDividendInvestor: Dividends vs Inflation: Who Wins?

Posted on by Andrew Packer

Inflation has seen a dramatic drop over the past year. However, it’s still higher than average. And getting it down further may require interest rates to keep ticking up. Or simply to stay higher for a prolonged period.

Higher inflation tends to result in lower returns in assets such as stocks. So, it’s important for investors to look at the impact. When it comes to dividend stocks, investors stand their best chance of beating out inflation over time.

However, it’s no sure thing. There are several factors to consider.

Dividends can provide half of an investor’s lifetime returns or more. For that to happen, the dividends have to be reinvested. And there can be major variations in the short-term.

And the focus should be on dividend growth, not the initial payout itself. Except for the high inflation of the 1970s, dividends grew more than inflation for every post-World War II decade.

That’s a sign that dividend investing can provide real returns above inflation for patient investors under most scenarios.

Investors should consider dividend stocks today. It’s clear that they can grow their payouts faster than today’s inflation. And that it’s a sign of a healthy and financially stable company.

Investing in such companies over the long haul can provide growing income. And do so with less volatility than just investing in growth stocks.

 

For the full data on how dividends perform against inflation, click here.

Economy

Deep Knowledge Investing: Higher for Longer – Again

Posted on by Andrew Packer

After over a decade of zero or near-zero interest rates, it’s all starting to change. Rates are now over 5 percent, their highest level in nearly 15 years. So are other costs, such as car payments and mortgage rates.

That likely won’t change anytime soon. After seeing inflation jump up to 40 year highs after the pandemic, central banks are working to fight inflation. They may even be willing to cause a recession to do so.

The good news? The economy has so much debt to it that we likely won’t see rates move too much higher. The bad news? The economy has so much debt that higher rates could lead to lower economic output for years to come.

That fits in well with the view that inflation is likely to stay higher for longer.

For investors, that leaves a few key takeaways. First, for stock investors, focus less on trading and more on long-term trends. That includes companies that can raise prices faster than inflation without losing profitability.

It also means investing in tech companies with a strong idea, such as the growth of AI. Flying cars or other high-tech concepts make sense at zero percent interest rates. But not when the cost of capital is 5 percent or higher.

It could also mean higher bond returns for longer as well. Investors may have overlooked fixed income during the boom years with such low rates. But that’s changed too.

 

To read the full analysis, click here.

Stock Picks

TipRanks: 2 “Strong Buy” Tech Stocks That Are Set to Benefit from the AI Revolution

Posted on by Andrew Packer

The market has been infatuated with AI stocks since the launch of ChatGPT last November. It’s become clear that generative AI can provide a massive productivity boost throughout the economy.

But not all AI stocks are created equal. And with the market’s recent selloff, AI names have been hit harder than other stocks. That’s creating an opportunity for long-term investors to buy high growth well off its recent peak.

Looking outside the major tech giants, one strong growth play is Alkami Technology (ALKT).

While a smaller cap play in the AI space, the company provides cloud-based digital banking solutions. That allows banks to improve their performance with digital technologies.

That allows them to manage data at scale, which is a key piece of infrastructure for rolling out AI technologies.

The company can now identify key customer data for improved retention and for upselling additional services.

Another smaller AI place is Procore Technologies (PCOR).

The company focuses on AI tools for the construction industry. With a major construction boom underway thanks to higher infrastructure spending, the company stands to benefit.

The company estimates that its tools can reduce rework on projects by 16 percent, and save 15 days per project. The overall savings can add up considerably given the high labor costs of construction.

 

To watch the full analysis, click here.

Economy

George Gammon: Why the Yield Curve Inverts Before a Recession (The Real Reason)

Posted on by Andrew Packer

In the post-World War II era, inverted Treasury yield curves have always accurately predicted a recession within 12-18 months. Currently, short-term Treasuries have higher yields than longer-dated ones. That’s an inversion.

That indicates there could be trouble ahead for the economy. Typically, investors will see an inverted yield curve, see assets continue to rise, and shrug it off. That could lead to a disastrous outcome.

When the yield curve inverts, it’s ultimately a sign that investors are heavily buying long-dated Treasuries.

That locks in higher interest rates before yields drop. And it also allows for investors to benefit from price appreciation. That’s because bond prices rise when yields fall.

The more long-term Treasuries are bought, the more the price rises and the more yields fall. Since there’s less demand for short-term Treasuries, those don’t move as much.

With yields falling at the long end of the curve, but little movement for short-dated Treasuries, an inversion becomes possible.

To some extent, the move can also become a self-fulfilling prophecy. Treasury yields are now at their highest levels since 2007, with the 10-year now closing in on 4.4 percent. But inflation has dropped to the 3 percent range.

That’s the first time in over a decade that bond yields have offered an inflation-adjusted real return. And it may entice more investors into bonds, taking money out of the stock market. If that happens, the prophecy would be fulfilled as stock prices decline.

 

To watch the full analysis, click here.

Stock market

Data Driven Investor: Investing: 17 Forecasts for 2023

Posted on by Andrew Packer

Whether it’s earnings season or not, Wall Street spends considerable time forecasting prices for stocks, typically as far out as 12 months. Investors then pay attention to those forecasts, particularly for any change.

A Wall Street upgrade or downgrade on a stock can cause an immediate price change. However, these forecasts are based on a considerable amount of data. Consequently, the valuation has considerably leeway to it.

For instance, a view on a specific stock will also depend on a view of the overall economy. That overlooks stocks capable of growing even in a weak economy. Or in being able to buck the next slowdown for specific reasons.

Other outside factors may include consumer sentiment. Or trends such as geopolitical sentiment. Ultimately, combining all these factors results in a forecast price. That price should be based on a concept that’s both explainable and reasonable.

However, this style of analysis tends to take current trends and extrapolate them out. Investors may have entered the start of 2023 bullish on energy given its strong run in 2022.

But energy prices were already on the decline. And it’s been a poor performer this year as other sectors such as technology have fared better.

Investors need to understand that price forecasts can often reflect reality, or reflect current conditions that are about to change.

 

To read the full analysis, click here.

Cryptocurrencies

Coindesk: Crypto’s Theater Is Becoming More Surreal

Posted on by Andrew Packer

Following 2022’s ride lower, the crypto market has seen some signs of life so far in 2023. Bitcoin prices jumped when the banking sector went into a tailspin in March. And prices have held up well since.

Talk of a bitcoin ETF, which would lead to other cryptocurrencies getting an ETF, have likewise given the space a bullish feel. However, other parts of the crypto space have had a more mixed result.

For instance, the past few years saw an explosion of interest in defi cryptos. Short for decentralized finance, these cryptos were designed to be immutable.

Only pre-written rules could be followed. Yet many projects in the space have shown that they can be changed, blockchain or not.

That also means that many crypto projects aren’t as decentralized as they sound on paper.

But it’s not just defi tokens. Governance tokens, also designed to be immutable, are also heavily concentrated. And they could also face big changes at any time.

Ultimately, in a world with thousands of crypto projects, some won’t fare well. In fact, most likely won’t.

That’s why today’s investors should focus on crypto projects that can potentially succeed. And ones that are honest about how decentralized or programmable they are.

Big projects like bitcoin and Ethereum are here to stay. Investors should start there before getting into smaller tokens, no matter how much upside potential they have.

 

To read the full analysis, click here.

Commodities

VanEck: Focus on Gold Miners’ Cash Flow – Not Earnings

Posted on by Andrew Packer

Investors typically use earnings to gauge a company’s performance across industries. But some earnings are better than others. For a tech company, earnings may not be strong as the company is focusing on developing a new product or service. They may not have earnings at all, but can still grow.

For other companies, cash flow may be a better measure. That can indicate how well a company is performing, without getting into the accounting changes that lead to earnings.

That’s particularly true when looking at commodity-producing companies such as gold miners. For a mining company, their forecasts are based on properties that are being mined.

But those earnings can be heavily adjusted by a number of accounting factors. That includes non-cash items and mine depletion allowances. And earnings can be impacted by non-performing mines that need to be started up first.

Plus, with the variable costs of gold prices, predicting earnings can be tough. That’s why a focus on cash flow may prove superior for determining long-term value.

Looking at the free cash flow per ounce of gold, for instance, investors can get a better gauge as to the value of a mining company. And that makes it easier to take an apples-to-apples comparison across the space.

This kind of cash-flow analysis could also work with any other commodity-driven business.

 

To read the full report, click here.

Income investing

Dividend Growth Investor: Four Dividend Growth Stocks Rewarding Shareholders With Raises Last Week

Posted on by Andrew Packer

While some parts of the economy are starting to feel the pinch of higher interest rates, other parts are faring well. Companies that have a strong brand or unique product are able to offset inflation by passing on the costs to their customers.

These companies tend to be in more mature businesses with limited competition. That means they can use their excess cash to reward shareholders with dividend payments. And grow them over time.

Recently, a handful of companies raised their payouts.

One such company is J&J Snack Foods (JJSF). They produce and distribute nutritional snack foods throughout North America. They’ve raised their dividends for 18 years in a row now.

And they’ve grown the dividend by an average of 9.1 percent over the past 5 years, far in excess of the recent bout of inflation.

While shares yield 1.7 percent for buyers today, the dividend growth can lead to higher payouts over time.

Another such stock is Nordson Corporation (NDSN). They produce polymer and adhesive fluids and systems. Nordson recently increase their dividend for the 60th consecutive year.

Shares yield just 1.1 percent. That indicates that even with dividend growth, a rising share price can keep starting yields low. So patent investors will want to bear that in mind.

 

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

 

Economy

The Med Faber Show: Stephanie Pomboy on the Corporate Credit Crunch

Posted on by Andrew Packer

Interest rates have jumped from 0 percent to over 5.5 percent in under 18 months. That’s leading to borrowing costs such as mortgages rising to their highest level in over 15 years.

That’s also going to start to impact corporate America. As low-cost bonds roll over, companies must either pay up on higher interest rates, or pay off their debts entirely. Either way, that will increase costs and reduce profitability.

That suggests that there will be headwinds for corporate America. That will be felt more by smaller companies dependent on financing.

That includes companies that aren’t publicly traded and can’t issue stock. It also includes companies that have a cyclical product or service. They may need to refinance at a time when their cash flows are lower.

Meanwhile, the Fed has hinted at another interest rate hike. With inflation’s decline stalling out, chances are even if rates don’t move much higher, they’ll at least stay higher.

Those who need to refinance their home or car may not be able or willing to do so. That could lead to consumers hunkering down.

For corporate America, nearly $1 trillion per year needs to be refinanced in 2024 and 2025. That will occur at higher rates, which may lead some overleveraged companies to bankruptcy.

 

To view the full analysis, click here.

Stock market strategies

Elliott Wave Options: Expect More Weakness… Elliott Wave 4 Downside

Posted on by Andrew Packer

The market downtrend of the past few weeks reflects a few concerns. That includes the market’s strong performance since the start of the year. And concerns about a slowing economy. The latest data out of China suggests slow growth there.

The good news? With the labor market holding up well, and with investors adjusting to today’s level of interest rates, the market’s downside is limited. However, there is still some more downside ahead.

On a technical level, the S&P 500 index spent little time testing the 50-day moving average, following its drop there on Tuesday. The index seemed to have some support slightly lower at the 4,400 level but broke below that on Thursday.

That leaves a final potential move lower to the 4,250 range. From there, traders can likely expect some consolidation.

The stock market is in the 4th wave of the Elliott Wave pattern. So the good news is that once this down wave is completed, a fifth wave will likely lead to a further rally.

Such a move should move higher than the peak of the third wave. That indicates the current market selloff is setting up conditions for a rally in the coming weeks that could lead markets to new highs.

That may take a few months to play out. Markets are seasonally weak in August and September. On average, markets fare well in October, but the month has a number of historically poor-performing years.

 

To watch the full video, click here.