We remain cautious on the market even if the US economy is performing quite well, earnings are pretty lousy:
Even analysts who estimate pro-forma, ex-bad-items, non-GAAP earnings that S&P 500 companies propagate to look better and that these analysts use to inflate their stock-price targets, just threw in the towel on the quarter. They expect these inflated earnings per share for the first quarter to plunge 8.5% from a year ago, according to FactSet. If this holds after S&P 500 companies report their ex-bad-items earnings, it would be the worst EPS decline since Q3 2009.
Revenues of the S&P 500 companies are now expected to decline 1.1% in Q1. If the last few quarters are any guide, reality will get worse as companies begin to report a “disappointing top line”: For example, at the end of Q4, before companies began reporting their Q4 results, revenues were expected to decline 3.2%. After everything was said and done, revenues as tracked by FactSet actually fell 5.5%. Five sectors are expected to show year-over-year growth in revenues, led by Telecom Services (12.5%), Health Care (8.9%), and Consumer Discretionary (5.4%). Five sectors are expected to show a decline in revenues, led by Energy (-29%), Materials (-8.7%), and Information Technology (-4.8%), which once again bashes the idea that “tech” is a driver of corporate growth.
One could argue we also fell for this at least to some extent (from Zacks):
Being overly cautious-to-bearish in Q1 was not a good strategy. I know because it's a trap I fell into. And now we watch several sectors eclipsing their Q4 highs, with Industrials, Materials, and Energy the standouts as the US dollar weakens further.
The arguments for being bullish are:
Here are the four main drivers of the current exuberance for US equities...
1) Earnings Recession Discounted: Investors seem to believe they have seen the worst at -10% growth for Q1 and that things will only get better from here.
2) Yellen's Fed As Dovish As Ever: The US dollar trended lower throughout Q1 on ideas that the Fed couldn't possibly hike at the March meeting. Since then, the "dot plot" and Yellen make the market believe the doves will only allow one hike this year.
3) Manufacturing Bouncing Back: Regional surveys from Richmond, Philly, Dallas, and Chicago all point to the national ISM number this morning getting back above 50.
4) Fund Managers Can't Miss Rallies: Besides the fact that they "have to buy" stocks with the money they are given, there are still few alternatives to US equity markets.
But then again..
And yet, despite five quarters in a row of year-over-year revenue declines, and despite four quarters in a row of year-over-year ex-bad-items earnings declines, the S&P 500 soared over the past seven weeks and is near its ludicrous high established last May
Bit of a curious selloff in Sketchers today (-6% at the moment), which does have its fans:
Meanwhile, Skechers USA Inc SKX remains Citi's top-rated footwear stock. Citi said with a growing global presence in athleisure, Skechers has the highest upside to its $44 target price and potential for multiple expansion over the next year. "Our recent meetings with management, industry experts, and retailer read-throughs indicate continued momentum in athleisure in 2016, bolstered by major athletic brands' marketing/launches around the Olympics, while incremental distribution and share gain opportunities could drive upside to SKX's US and international revenue growth in the near-term," Ghinst said. At time of writing, Skechers was down 0.68 percent on the day at $30.58
We never got around explaining why we bought Ambarella (AMBA) last week, and now we don't have to as there is a good article:
There’s a small cap tech marvel that is participating in some of the most radically innovate themes moving technology forward that has been crushed by the market. The stock has dropped from just below $130 in July, to $35 and has recently bounced back to $45 on big news. But here’s the secret: Wall Street has overreacted and thrown the baby out with the bathwater.
The whole article is very readable. Basically the headwind is a one-off (problems at its biggest customer, GoPro), but the underlying growth for its product is structural, until a serious competitor emerges.
South Korean exports, nicknamed "the world's economic canary in the coal mine," fell 8.2% in March from a year earlier, according to Korea's latest export data. This is the 15th consecutive month that exports have dropped. However, it's worth nothing that this drop better than economists' expectations of 10.4%, and it narrowed from January-February – meaning that one could read this as a positive sign, too.
We are tempted to add to our position in Sketchers (SKX). It's both oversold and cheap. This is a company that has virtually no debt, half a billion in cash, and in February they said this:
Skechers (NYSE:SKX) says sales in January were up 35% Y/Y and were strong into the first week of February. The company say it's "comfortable" with the consensus estimate for Q1 revenue of $885M-$890M and EPS of $0.50-$0.55. Looking ahead, Skechers continues to become more of a global play. International sales were at 41% of total Skechers sales in Q4 as the percentage swings closer to the company's long-term target of 50%.
At over $2 eps expected this year (up from $1.50 in 2015), the shares are quite cheap, especially given that 13% of the market cap is cash. It's also oversold (see attachment). Macquarie came out with a $45 price target this moring, but that obviously hasn't had any effect. Curious.
Skechers USA (SKX) is a “lean, mean shoe business machine,” says one analyst, calling out its global growth potential in Asia and Europe, and comparing it to another growing sportswear brand: Under Armour (UA).
“We believe Skechers’ international story is just as intriguing as Under Armour’s international story,” wrote Macquarie Capital analyst Laurent Vasilescu in a Thursday initiation note.
Using Google Trends to evaluate brand recognition between the two labels in the U.K., “we show that Skechers is just as popular if not more in this particular geography.” The U.K. is Skechers’ second largest market globally, he said, with $155 million in 2015 revenue. Vasilescu projects that France and Germany will also each be significant European markets down the road.
And Asia represents a billion-dollar opportunity for the lifestyle brand, which makes popular walking shoes and sporty footwear.
“China is the biggest piece of the international pie for Skechers,” he wrote, estimating that Skechers can reach a cool billion in revenue in 2021, “representing approximately a third of Nike’s Greater China revenues today. With rapid triple-digit to high-double-digit growth, management anticipates this market can be a $1 billion market in 4-5 years.”
Last year, Skechers surpassed Adidas as the second most popular footwear brand by market share, according to the Wall Street Journal, citing NPD Group, though as of last May it only held 5% to Nike’s (NKE) hold over 62% of the athletic shoe market.
Macquarie, which started the stock at an outperform with a 45 price target, sounded bullish on the company’s overall prospects, highlighting Skechers’ improving gross margins and SG&A (selling, general and administrative) leverage in addition to the international growth story.
04-09-2016, 01:23 AM (This post was last modified: 04-09-2016, 01:26 AM by admin.)
This was a particular worry for us, but it seems to have subsided, for now:
The worst of China’s capital outflows, which just a couple of months ago looked like they might imperil the economy, is over—for now. The country’s central bank said yesterday foreign exchange reserves rose for the first time in five months. The unexpected news seemed to calm those worrying about the potential of a huge yuan depreciation leading into money fleeing the country.
In nominal terms China’s forex reserves rose $10 billion last month to $3.21 trillion. However, that may flatter the underlying reality: reserves should have gained $47 billion thanks to fluctuations in the exchange rates of the currencies in which China holds its reserves, says Goldman Sachs. What that means is that the central bank was still selling a lot of dollars to prop up the value of the yuan. Capital outflows still may have been as high as $60 billion in March, says Capital Economics, a little more than the $43 billion in February. But it is far from January’s $124 billion in outflows and breaks the trend of money dramatically leaving the country. (The country’s biggest holiday falls in February, so the figures aren’t generally representative.)
ECK), Skechers U.S.A., Inc. (NYSE:SKX) - Citi's Pair Trade In Footwear: Favors Deckers Over Wolverine World Wide, Skechers Remains Top Rated | Benzinga