Tag Archives: apple

Oil Rally Likely To Continue: ETFs And Stocks To Watch

Oil prices have shown an impressive rally over the past week on outages and supply disruptions around the world, suggesting that the global oil market might be rebalancing faster than expected. In addition, Goldman (NYSE: GS ), one of the most bearish forecasters, gave an added boost by suddenly turning bullish on the commodity. In fact, oil prices hit a seven-month high, with crude rising to over $48.50 per barrel and Brent currently hovering near $50 per barrel. Improving Fundamentals The oil market seems to be rebalancing, with shrinking supply and rising demand. This is especially true as the massive wildfire that broke last week in Fort McMurray, Alberta, is now at the doorstep of the oil-sands mines. This resulted in the evacuation of thousands of workers and cut Canadian oil production by at least 1 million barrels a day. Clearly, this marks a massive reduction given that Canada is the world’s fifth-largest oil producer, with an average output of 4.4 million barrels of oil per day. Additionally, militant attacks and the threat of nationwide strike pushed Nigeria’s oil output to a 20-year low of 1.4 million barrels per day. Political instability and economic meltdown in Venezuela also contributed to fears of oil supply disruption. Further, oil production in China fell 5.6% year over year in April and 2.7% in the first four months of 2016, while the U.S. saw a year-over-year decline of 0.7 million barrels a day last month. Moreover, the U.S. Energy Information Administration (EIA) expects oil production from the seven shale regions – Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica – to fall by 113,000 barrels a day to 4.96 million barrels a day in June from May. The agency also predicts global demand to grow on higher Chinese and Indian consumption. It expects demand to rise by 1.4 million barrels per day for this year and 1.5 million barrels per day for the next, compared to the earlier projections of 0.3 million barrels per day and 0.2 million barrels per day, respectively. Goldman Turns Bullish The unexpected supply disruption of as much as 3.75 million barrels a day and sustained demand has duly prompted Goldman to turn bullish on oil. The investment bank now believes that the two-year big oil supply glut has taken a “sudden halt” and turned to a deficit. It said “the oil market has shifted from nearing storage saturation to being in deficit much earlier than expected.” As a result, Goldman raised the price target for crude oil to $45 per barrel for the second quarter and $50 per barrel for the second half from $35 per barrel and $45 per barrel, respectively, predicted in March. However, the analyst cautioned that the market would return to surplus in the first half of 2017 on increased exploration and production activity. Diminishing “Contango” Impact The spread between the near-term futures contracts and the later-dated contracts has reduced, thereby giving a boost to oil prices. In particular, the spread between the oil futures contracts expiring later this year and similar contracts expiring in late 2018 narrowed to $1.21 from $8 in December 2015 . This reduced contango suggests that the supply glut may be falling, after years of overproduction. If this trend continues to persist going into the peak refining season, the oil market may move into a state of backwardation, where later-dated contracts are cheaper than near-term contracts. This is bullish for the commodity. ETFs to Tap While there are several ETFs to play the recent rally in oil prices, we have highlighted three funds each from different zones that are the biggest beneficiaries from this trend. Oil Futures ETFs – United States Oil ETF (NYSEARCA: USO ): This is the most popular and liquid ETF in the oil space, with AUM of $3.9 billion and average daily volume of more than 42 million shares. The fund seeks to match the performance of the spot price of West Texas Intermediate (WTI or U.S. crude). The ETF has 0.45% in expense ratio and gained 8.4% over the past five trading days. Energy ETFs – PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ): This fund offers exposure to the energy sector of the U.S. small cap segment by tracking the S&P Small Cap 600 Capped Energy Index. Holding 32 securities in its basket, it is highly concentrated on the top three firms with a combined 37.1% share, while other firms hold less than 6.6% of total assets. The fund is less popular and less liquid, with AUM of $52.4 million and average daily volume of about 38,000 shares. The expense ratio came in at 0.29%. PSCE was up about 5% in the same time period (see all the energy ETFs here ). Leveraged Oil ETFs – VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ): This is the popular leveraged fund targeting the energy segment of the commodity market through WTI crude oil futures contracts. It seeks to deliver thrice the returns of the S&P GSCI Crude Oil Index Excess Return and has amassed over $1 billion in its asset base. It trades in heavy volumes of 12.8 million shares a day, though it charges a higher fee of 1.35% per year. UWTI surged 26.4% over the past five trading sessions. Stocks to Tap We have chosen three stocks using our Zacks stock screener that have a Zacks Rank #1 (Strong Buy) or #2 (Buy) with a VGM Style Score of “A” or “B”. The combination of these two offers the best upside potential. Murphy USA, Inc. (NYSE: MUSA ): This Zacks Rank #1 company is a retailer of gasoline products and convenience store merchandise primarily in the United States. It saw positive earnings estimate revision of 21 cents for fiscal 2016 over the past 60 days and has an expected growth rate of 42.12%. The stock has a VGM Style Score of “A”. Enbridge, Inc. (NYSE: ENB ): This Zacks Rank #2 company with a VGM Style Score of “B” is a leader in energy transportation and distribution in North America and internationally. It saw positive earnings estimate revision of 18 cents over the past two months and has an expected growth rate of 8.69% for this year. McDermott International, Inc. (NYSE: MDR ): This Zacks Rank #1 company is a leading provider of integrated engineering, procurement, construction and installation services for offshore and subsea field developments worldwide. It saw an estimate revision to 4 cents from a loss of 3 cents over the past 60 days. It has a VGM Style Score of “B”. Contrarian View While we expect the oil price rally to continue in the near term, many market experts believe the rise is temporary and that the market will again be flooded with more oil once the problem of outages is resolved. Further, Saudi Arabia and Iran are keen on increasing their output. Original Post

Wireless Firms Act As Utilities; Other Techs Exit Top Rankings

The market faces no shortage of challenges: a buildup of distribution days, the S&P 500 settling back into negative territory for the year, and the Nasdaq diving below support at its converged 50- and 200-day moving averages. Those technical challenges are being underscored by another development: a vacuum of leadership among technology industries. Tech industry groups have entirely exited the top 20 of IBD’s 197 group rankings, with the exception of two: wireless and integrated telecom services. The wireless services group includes major mobile phone carriers Sprint ( S ) and T-Mobile U.S. ( TMUS ). The integrated group is dominated by AT&T ( T ) and Verizon ( VZ ). Investigate this tech stock that broke out of a base in heavy trade on Thursday using IBD’s Stock Checkup feature. Wireless services and networks are clearly high-tech territory. But as more consumers abandon their landlines and rely strictly on wireless services, and as more young people spend a growing share of their lives via smartphones, the wireless stocks also increasingly present the stability associated with utility stocks. In that respect, they represent a defensive hedge for funds and other large investors as indexes weaken. This could help explain why both of the telecom groups rose into the top 20 rankings as the broad market pulled back over the past four weeks. The S&P 500 has backed off 3.7% from its mid-April high. The tech-heavier Nasdaq peeled back 5.3% during the same period. Even 13 weeks ago, when defensive groups such as utilities, bond funds and tobacco crowded the leading ranks, tech groups including Internet content providers, chip equipment makers and solar energy manufacturers held in the top 20 rankings. Instead of continuing to lead the market, those three groups have since fallen to rankings of No. 85, No. 110 and No. 169, respectively. Beyond the top 20 rankings, medical systems manufacturers rank a strong No. 23. The technology-driven group counts Intuitive Surgical ( ISRG ) and Idexx Laboratories ( IDXX ) among its bulwarks. The next tech group bearing some potential growth stocks is the scientific electronic equipment group, ranked No. 41 Thursday. Danaher ( DHR ) and Agilent ( A ) are the strong suits here. The only other tech group in IBD’s top 50 rankings is the foreign telecom services industry, led by China Mobile ( CHL ), Japan’s Nippon Telephone & Telegraph ( NTT ) and London-based Vodafone Group ( VOD ). What about the big-charisma tech names? Apple ( AAPL ) is down 16% from its mid-April high. Alphabet ( GOOGL ) is down 10% and fighting for support at its 200-day line. Facebook ( FB ) is down only 3%, but has erased all gains from its April 28 breakout. A number of other stocks in the group are also keeping their heads up as the market pulls back. Look at WebMD Health ( WBMD ) and Zillow ( Z ), just to name a couple. Sell-offs among China-based plays, including Baidu ( BIDU ), YY Inc. ( YY ) and Momo ( MOMO ) have helped pressure the Internet content group to a No. 167 ranking. Amazon.com’s ( AMZN ) chart remains durable, extended above a buy point. Also in the Internet retailers group, Argentina’s MercadoLibre ( MELI ) is in buy range from a 127.87 buy point, although its fundamentals continue to lag. But sell-offs in the group — particularly among China-based Internet plays including JD.com ( JD ), 58.com ( WUBA ) and Vipshop Holding ( VIPS ) — have helped hold the group to a weak No. 104 ranking.

The Jury’s Still Split On The Value Of Activist Investing

Activist investing continues to be a topic of great debate in the financial world. One of the main issues that drives the controversy is whether activist investors help or hinder the market. Are they a force for good that keeps management and boards honest? Or are they simply quick buck artists intent on creating short-term value at the expense of building long-term sustainable companies? With these questions in mind, we asked CFA Institute Financial NewsBrief readers the following: “Is activist investing helpful, harmful, or a short-term nuisance?” As you might expect, opinions were split almost right down the middle. Is activist investing helpful, harmful, or a short-term nuisance? Click to enlarge Nearly half (48%) of the 538 respondents felt that activist investors are good for the system and improve the quality of the firms they invest in. Just over half of those surveyed, however, offered a less sanguine view of activist investing, split between those who feel activist investors are harmful to the system and are often motivated by short-term profit at the expense of long-term investors (34%), and those who say activist investors are a short-term nuisance and have little long-term effect on a company’s performance (18%). So what is the answer? Is activist investing a problem or not? As typical humans with short attention spans, we demand an easy answer! Unfortunately, as with most questions of this sort, the answer is typically yes and no, depending on your perspective. By its very nature, shareowner activism does often seek to return cash to shareowners in some form in a relatively short time frame. But activists rarely pursue corporate prey that has been executing consistently on a proven strategy for years. Activists tend to target companies that have lost their way in one way or another. There is also a definitional problem with short-termism. The markets work because someone is willing to buy or sell in the short term, often with an unknown time frame. If an investor feels that the full value of their investment is reached in three years, three months, or even three minutes, we do not begrudge them the right to sell. Activism has increased in recent years because it is believed to be a profitable strategy. It will likely decline as a strategy when and if there is less low hanging fruit — when there are fewer poorly run companies or firms with poor strategies. If management and boards up their games, their companies will not look so attractive to activists. Corporate boards also have reasonable allies in the battle against those activists motivated by short-term considerations: long-term investors. Long-term investors are typically institutional investors and generally do not have the option of selling the companies they own, so they can be receptive to a strong argument from an activist looking to drive value. It is therefore incumbent upon management and boards to: Have a sound long-term strategy. Tie variable compensation to the execution of that long-term strategy. Foster a dialogue and ongoing relationships with long-term investors. By engaging with these investors consistently and effectively, companies earn their trust. Then, if an activist comes to their door, they have a more receptive investor ear in the contest of ideas that plays out in the media and corporate boardrooms.