Saturday, July 22, 2017

TLH Market Review 7/22/17

"Profits always take care of themselves but losses never do." Jesse L. Livermore

Equity markets have continued to post new highs this year. The S&P 500 has posted 3 weeks in a row of gains.  Meanwhile the Nasdaq had registered 10 days in a row of gains, with a slew of new all time highs this week. The Nasdaq continues to pace this years rally as it's up 18.7% YTD. Over the last year the Nasdaq has put in a 25.25% gain. Impressive! In fact every index is showing solid gains over the last year. That makes it easy to do well in a bull market like this. 





We had a lot of central bank action this week with comments coming out of both the European Central Bank and Bank Of Japan. Neither bank decided to raise interest rates, and Mario Draghi quelled participants idea the bank would soon begin tapering asset purchases.  That didn't quite matter as the Euro put on a big rally this week.

Portfolio

Earnings will be the focal point the next few weeks. We received reports from IBM(IBM), Phillip Morris(PM), and Visa(V) this week. Plus remember we have one ETF in the portfolio IBB.  The whole biotech sector has really come to life recently which is great to see.

IBM earned $2.48 on revenues of $19.3 billion. I'm really starting to sour on IBM. The shares had a great rally in 2016 coming off lows around $115. But the company is still struggling to show any gains in revenue.  Plus their Watson product isn't showing the traction I thought it would be at this point. I'm willing to give it more time, but my patience is wearing thin.  If it weren't for the fact the stock is a good dividend payer I'd probably be out the door much sooner. Add in the fact the stock hasn't been rallying with the technology sector is proof the market doesn't expect much right now.

Phillip Morris reported EPS of $1.14 on revenues net of excise taxes at $6.9 billion.  I love the tobacco companies since they have great margins, and a product that's lets say is sticky. The company has been a solid performer over time. But volumes are tailing off quicker overseas than I think the company has expected. Worse yet is their reduced risk products segment isn't big enough yet to offset the decline in traditional cigarette use.  The portfolio is heavy in tobacco, and after this weeks report I'm thinking it might be a good time to ease up a bit on tobacco the next year or two. The combination of Reynolds American and British American Tobacco will help as it opens the door for another pick in 2018.

Visa has been a solid performer for us.  It has a strong tailwind right now too.  For the quarter the company reported 2017 Q3 results with EPS of $0.86 on revenues of $4.6 billion. The stock rallied this week to new all time highs above $98/share.  I think we can expect a good dividend increase from Visa when they finish their fiscal year. I'm expecting at least another 10% raise.

The payment space has really seen a strong rally the last month with portfolio member PayPal, and MasterCard all seeing strong gains lately. After a strong move it wouldn't necessarily surprise me if one gets hit after announcing earnings as traders take profits.

The IShares Nasdaq Biotechnology ETF(IBB) has really come to life for us.  YTD shares are up over 22%. This is welcome after the sector had undergone a long consolidation since 2015. A lot of that gain is underpinned by heavyweight Amgen(AMGN) which has rallied 25% this year. There is a reason why I want to own the entire sector instead of just one company. Each company is prone to wild swings based on just one drug.  I don't like that when I know overall the entire sector is poised to make lots of money off multiple different drugs.  That's the great thing about investing today. We can manage risk in ways that weren't readily available to investors before.


The next few weeks will be extremely busy with more earnings reports plus a meeting from the Federal Reserve(keep your eyes and ears open). I'll do my best to get recaps out as quickly as I can. Don't be surprised if the stock either makes a new all time high, or gets hit hard. Enjoy the weekend.

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