Tag Archives: services

Transport ETFs Modestly Up On Q3 Earnings

Unlike the second quarter, the transportation sector is headed for a solid Q3 earnings season, lagging only auto. This is especially true as total earnings from 97.8% of the sector’s total market capitalization reported are up 22.5% while revenues declined 1.2%. This is much better than Q2 earnings growth of 9.4% and revenue decline of 1.9% for the same period. Further, earnings surprises were predominantly solid with 84.6% of the companies beating earnings estimates and 30.8% beating on revenues compared with earnings and revenue beat ratios of 58.3% and 8.3%, respectively for Q2. For a better understanding, let’s dig into earnings results of some well-known industry players: Transportation Earnings in Focus The world’s largest package delivery company – United Parcel Service (NYSE: UPS ) – beat our earnings estimate by a couple of cents but revenues of $14.2 billion fell shy of our estimate of $14.35 billion. The company now expects earnings per share on the high end of the previous guidance of $5.05-$5.30 for fiscal 2015, which represents 6-12% growth on an annual basis. The Zacks Consensus Estimate at the time of earnings release was pegged at $5.27. Union Pacific (NYSE: UNP ) , the U.S. largest railroad, reported earnings of $1.50 per share outpacing the Zacks Consensus Estimate by seven cents but revenues of $5.56 billion fell short of our estimate of $5.65 billion. Other major railroads like CSX Corp. (NYSE: CSX ) and Kansas City Southern (NYSE: KSU ) also missed on revenues. At CSX, revenues lagged the Zacks Consensus Estimate by $68 million while at KSU revenues missed by $8 million. However, CSX outpaced our earnings estimate by couple of cents while KSU missed our earnings estimate by a penny. Ryder Systems (NYSE: R ) , the leader in supply chain management and fleet management services, topped the bottom line but lagged the top line. Earnings per share of $1.74 came above the Zacks Consensus Estimate of $1.72 while revenues of $1.67 billion were below our estimate of $1.72 billion. The two largest U.S. airlines – Delta Air Lines (NYSE: DAL ) and United Continental (NYSE: UAL ) – beat our earnings estimates by three cents and four cents, respectively. Revenues for Delta were slightly below the Zacks Consensus Estimate but above for United Continental (read: Highflier Airlines Earnings: Time for JETS ETF ). Last but not the least, earnings for the leading trucking carrier – J.B. Hunt (NASDAQ: JBHT ) – also came in above the Zacks Consensus Estimate by three cents and revenues were $30 million below our estimate. ETFs in Focus Despite the slew of earnings beat, many stocks have seen rough performances. As a result, the transport ETFs has been modestly up over the past 15 days. Both the iShares Dow Jones Transportation Average Fund (NYSEARCA: IYT ) and the SPDR S&P Transportation ETF (NYSEARCA: XTN ) are up 0.4% and 0.2%, respectively. Both funds have a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (see: all the Industrials ETFs here ). IYT The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 21 securities. The fund has a certain tilt toward large cap stocks at 49% while mid and small caps account for 31% and 20% share, respectively, in the basket. The product is heavily concentrated on the top firm – FedEx (NYSE: FDX ) – at 11.9%, followed by UPS (8%), UNP (6.8%) and KSU (6.3%). From a sector perspective, air freight & logistics takes the top spot with more than one-fourth of the portfolio while trucking, airlines and railroads round off to the next three spots with double-digit exposure each. The fund has accumulated nearly $965 million in AUM while sees solid trading volume of more than 409,000 shares a day. It charges 43 bps in annual fees. XTN This fund uses an almost equal weight methodology for each security by tracking the S&P Transportation Select Industry Index. Holding 49 stocks in its basket with AUM of $270 million, each security accounts for less than 3.4% of total assets. The ETF is skewed toward small caps at 55% while the rest is evenly split between mid and large caps. About one-third of the portfolio is dominated by trucking, while airlines takes another one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation each. The fund charges 35 bps in fees per year from investors and trades in a moderate volume of nearly 96,000 shares a day. Link to the original post on Zacks.com

The V20 Portfolio Week #2: Underperformance

Summary The portfolio declined 3.5% versus a gain of 0.9% for the S&P 500. Additional shares were purchased for one of the major holdings. The largest position may be trimmed in the future. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! No one wants to admit that he or she lost money. Of course, I didn’t invest in the V20 Portfolio so I can see my holdings dwindle in value. Unfortunately, you can’t count on the market to recognize the value of your portfolio all the time. Considering the V20 Portfolio’s concentrated style and historical volatility, it shouldn’t be surprising to see the portfolio tick up or down 5% on a weekly basis. Last week we were riding on the market tailwind, this week however, we were not so fortunate. While the S&P 500 eked out a minor gain for the week (0.9%), the V20 Portfolio gave away much of its earlier gains, having fallen 3.5% over the same period. Handling The Laggard Last week I talked about some negative news affecting one of our major holdings, Conn’s (NASDAQ: CONN ). The stock continued to disappoint this week, with shares sliding more than 13% from $24.48 to $21.24. At the end of last week, Conn’s constituted 23% of the entire portfolio, so this position alone accounted for over 2% of the portfolio’s decline. I think this is an excellent opportunity to illustrate my investing principle. Not many people would be happy when one of their holdings slide two weeks in a row, but this is where discipline comes in. Were there any news or events that materially affected my view of the company? The answer is no. In fact, this week presented us with the opportunity to accumulate more shares at a lower price. Why does this make sense? It seems to go against the conventional wisdom of “don’t try to catch a falling knife.” However, Buffett disagrees: When stocks go down and you can get more for your money, people don’t like them anymore. If your view and valuation of a company have not changed, there is no reason why you should not be buying more as the price declines. This was exactly my course of action. As Conn’s shares declined, I added more to the position. By the end of the week, Conn’s made up 28% of the entire portfolio, up from 23% a week ago. As Conn’s declines, the upside increases. By expanding our exposure to the stock, we can hope to capture a larger upside. There is a catch to “buy the dip” however: the money has to come from somewhere. Fortunately for us, there was some cash leftover in the portfolio (see the allocation chart here ), so we did not have to sell any other holdings. However, suppose that we were fully invested already, what could we have done then? This is where it pays to be diversified. While the market may not recognize one stock’s value, hopefully sentiments are more positive of your other holdings. In our case, one of the market’s favorites is MagicJack (NASDAQ: CALL ). Due to its continued appreciation, the holding constitutes a whopping 38% of the V20 Portfolio. While I believe that the company still has the potential to continue this nice run with catalysts in place (share repurchase, expansion), we could trim this position in order to purchase more shares of Conn’s. If Conn’s stock continues its decline, this is definitely something that could be on the table. The Week Ahead As we near the Q3 results from our holdings, don’t expect too many pieces of news over the coming week as companies tend to keep quiet prior to earnings release. However, there may be worthwhile updates from Dex Media (NASDAQ: DXM ), as the company recently hired a chief restructuring officer to lead the ongoing efforts to stave off bankruptcy. While the portfolio is going through a rough patch, it is very important to have discipline and stick to a plan. For us, Conn’s is our biggest “problem” right now, so we should carefully monitor the stock’s movements and evaluate opportunities should a big enough price decline materialize.

Retail ETFs Hit Hard By Soft September Sales

September seems to be a doomed month as it repeatedly ascertained the lost growth momentum in the U.S. economy. First, soft job and manufacturing data and then a weaker-than-expected retail sales report reconfirmed that the impetus had gone astray. Retail sales (barring autos) dived 0.3% in September, the largest decline since January, and below economists’ expectation of a decline of just 0.1%. Though consumers spent on cars and at food joints, sales targeted at e-commerce, general-merchandise stores, home centers, grocery stores, electronics stores and appliances lacked, per the source. Retail sales barring automobiles, gasoline, building materials and food services dropped 0.1% after 0.2% expansion in August. Overall, retail sales nudged up 0.1% on cheaper fuel prices against August sales which were revised down from 0.2% gain to flat. As per Retail Dive , hurricane in the Southeast spoilt sales in that region while a soothing weather weighed on fall clothing purchases. Fragile wage growth appears another factor behind this sales slump. Since consumer spending makes up about 70% of the U.S. GDP, this blow to retail sales remains a matter of concern. This is more so as consumers saved a considerable amount from low fuel prices. But these savings are hardly being spent at stores. This proves that the last recession is still fresh in the memory of consumers, who are extra cautious about loosening their purse strings for discretionary purchases. However, autos had a safe journey in September, with sales expanding 1.7% in the month and representing the largest gains since May, per Bloomberg. All the three retail ETFs – SPDR S&P Retail ETF (NYSEARCA: XRT ), Market Vectors Retail ETF (NYSEARCA: RTH ) and PowerShares Dynamic Retail Portfolio (NYSEARCA: PMR ) – closed in the negative following the somber retail sales data. Weak earnings guidance from retail-behemoth Wal-Mart (NYSE: WMT ) also did substantial damage to the sector. The funds were off about 1%, 2.4% and 3.1%, respectively. While the results surely caught many investors off guard, we should wait for another month before drawing a conclusion on the momentum level in the U.S. economy. After all, the ongoing fourth quarter embraces the all-important holiday season, which is apparently the key selling-season for retailers. Plus, with the tentative timeline of the Fed rate hike shifting back to not before early 2016, U.S. consumers will see cheap money inflows for some more months. A few more months of low-rate environment in turn may persuade consumers to spend at stores rather than stuffing energy savings in their bank accounts. Muted job growth is an issue; but probably it’s too early to take a call on the fate of retail sales. Original Post