Master the Art of Safeguarding Your Investments From Currency Volatility With 5 Assets

Posted on by The INO.com Team

Jerome Powell and his team at the Federal Reserve have raised the benchmark borrowing cost to 5.25%-5.50%. While a 2.6% rise in inflation, down from a 4.1% rise in Q1 and well below the estimate for a gain of 3.2%, and an annualized increase of 2.4% in the gross domestic product in the second quarter, topping the 2% estimate, had raised hopes that the elusive “soft landing” could be within reach, recent developments have been less than encouraging.

As the Federal Reserve Bank of Kansas City’s annual gathering in Jackson Hole, Wyoming, gets underway, with a more-than-forecasted wage increase, there are increasing concerns that interest rates could stay higher for longer.

While a hawkish stance usually lends strength to the dollar, Fitch Ratings’ recent downgrade of the U.S. long-term rating to AA+ from AAA, citing the erosion of confidence in fiscal management, has weakened the global reserve currency.

Moreover, the slump in their market value and a consequent increase in their yields due to a selloff of long-duration fixed-income instruments, which led to Moody’s cutting ratings of 10 U.S. banks and putting some big names on downgrade watch, has not helped matters either.

With a material risk that an apparently resilient economy could find itself regressing into an economic slowdown, it is understandable why seasoned investors could look at international equities for diversification opportunities to manage tail risks.

However, the pandemic, armed conflict in Ukraine, shifting geopolitical inclinations in the Middle East, the recent expansion of the BRICS bloc of developing nations accompanied by calls to reduce reliance on the U.S. dollar, and the Bank of Japan’s policy tweak of loosening its yield curve are all indicating to a changing world order.

Hence, returns from international investments are as much a function of wild swings in currency exchange rates as they are of the performance of the securities of underlying businesses. To help investors reduce risk exposure to unfavorable impacts of the former, many currency-hedged mutual funds and ETFs focus on providing long (buy) and short (sell) exposures to many currencies.

In view of the above, these five exchange-traded funds could be worthy of consideration:

Xtrackers MSCI EAFE Hedged Equity ETF (DBEF)

DBEF is an exchange-traded fund launched and managed by DBX Advisors LLC. It offers currency-hedged exposure to developed equity markets outside the U.S., making it a suitable fixture in long-term buy-and-hold portfolios. DBEF uses short-term forward contracts to neutralize the impact of exchange rate fluctuations, thereby rendering the performance of the underlying stocks the sole driver of returns.

With $4.14 billion in AUM, DBEF’s top holding is Nestle S.A. (NSRGY), which has a 2.04% weighting in the fund. It is followed by  ASML Holding NV (ASML) at 1.72% and  Novo Nordisk A/S (NVO) at 1.65%. The highly diversified fund has 1,000 holdings, with only 18.97% of its assets concentrated in the top 10 holdings.

DBEF has an expense ratio of 0.35%, lower than the category average of 0.46%. It currently pays $6.22 annually as dividends, and its payouts have grown at a 55.7% CAGR over the past five years. It saw a net inflow of $21.22 million over the past month and $255.64 million over the past three months. The ETF has a beta of 0.71.

iShares Currency Hedged MSCI EAFE ETF (HEFA)

As the name suggests, HEFA is a currency-hedged exchange-traded fund that is managed by BlackRock Fund Advisors. The fund invests in public equity markets globally, excluding the U.S./Canada region, through derivatives and through other funds in value stocks of companies operating across diversified sectors.

Almost all of HEFA’s $3.46 billion in AUM is allocated to iShares MSCI EAFE ETF (EFA), which has a 99.95% weighting in the fund, with USD comprising the remaining assets of HEFA.

EFA’s top holding is Nestle S.A. (NSRGY), which has a 2.13% weighting in the fund, followed by  ASML Holding NV (ASML) at 1.76% and  Novo Nordisk A/S (NVO) at 1.68%. The highly diversified constituent fund has 1000 holdings, with only 17.08% of its assets concentrated in the top 10 holdings.

HEFA has an expense ratio of 0.35%, which is lower than the category average of 0.40%. It currently pays $6.56 annually as dividends, and its payouts have grown at a 49.1% CAGR over the past five years. It saw a net inflow of $74.06 million over the past month and $176.04 million over the past three months. The ETF has a beta of 0.7.

WisdomTree Japan Hedged Equity Fund ETF (DXJ)

DXJ is an exchange-traded fund co-managed by Mellon Investments Corporation and WisdomTree Asset Management, Inc. The fund offers broad-based exposure to the Japanese equity market while hedging out the effects of currency fluctuation. Hence, it is best suited for investors who are bullish on Japanese stocks but bearish on JPY’s value vis-à-vis that of USD.

With $2.72 billion in AUM, DXJ’s top holding is  Toyota Motor Corp. (TM), which has a 4.86% weighting in the fund, followed by Mitsubishi UFJ Financial Group, Inc. (MUFG) at 4.37%, and Mitsubishi Corporation (MSBHF) at 3.64%. The well-diversified fund has 435 holdings, with only 30.7% of its assets concentrated in the top 10 holdings.

DXJ has an expense ratio of 0.48%, which enables investors to benefit from hedging while incurring costs lower than what could be managed while doing it on their own. It currently pays $2.60 annually as dividends, and its payouts have grown at a 9.8% CAGR over the past five years.

DXJ’s net inflow came in at $23.56 million over the past month and $731.28 million over the past three months. It has a beta of 0.65.

WisdomTree Europe Hedged Equity Fund ETF (HEDJ)

HDJ is an exchange-traded fund co-managed by Mellon Investments Corporation and WisdomTree Asset Management, Inc. The fund offers broad-based exposure to the European equity market while hedging out the effects of currency fluctuation.

Hence, it is best suited for investors who are bullish on European stocks but wish to insulate themselves from the impact of fluctuation of the exchange rate of EUR with respect to USD.

With $1.40 billion in AUM, HEDJ’s top holding is Stellantis N.V. (STLA), which has a 6.91% weighting in the fund. It is followed by  ASML Holding NV (ASML) at 4.41% and  Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) at 4.37%. The fund has 127 holdings, with 41.83% of its assets concentrated in the top 10 holdings.

HEDJ has an expense ratio of 0.58% and currently pays $1.58 annually as dividends. The fund’s payouts have grown at a 9.8% CAGR over the past five years. DXJ’s net inflow came in at $28.25 million over the past three months. It has a beta of 0.88.

iShares Currency Hedged MSCI Japan ETF (HEWJ)

As the name suggests, HEWJ is a currency-hedged exchange-traded fund that is managed by BlackRock Fund Advisors. The fund invests in the public equity markets of Japan through derivatives and through other funds in value stocks of companies operating across diversified sectors. Hence, it is best suited for investors who are bullish on Japanese stocks but bearish on JPY’s value vis-à-vis that of USD.

Almost all of HEWJ’s $213.9 million in AUM is allocated to iShares MSCI Japan ETF (EWJ), which has a 99.95% weighting in the fund, with USD comprising the remaining assets of HEWJ.

EWJ’s top holding is  Toyota Motor Corp. (TM), which has a 5.16% weighting in the fund, followed by Sony Group Corporation (SONY) at 3.05% and Mitsubishi UFJ Financial Group, Inc. (MUFG) at 2.59%. The well-diversified fund has 238 holdings, with 23.5% of its assets concentrated in the top 10 holdings.

HEWJ has an expense ratio of 0.50%. It currently pays $12.31 annually as dividends, and its payouts have grown at a 92.3% CAGR over the past five years. HEWJ’s net inflow came in at $45.01 million over the past month and $61.84 million over the past three months. It has a beta of 0.63.

Who Wins the Battle Over 4,400?

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

SPY – How low will stocks go? That is the question on everyone’s mind as the recent highs for the S&P 500 (SPY) seem like a distant memory as stocks have been going the wrong direction for the entirety of August. Investment expert Steve Reitmeister the causes of the recent sell off plus a market outlook, trading plan and 11 top picks for the days ahead. Read on below for the full story…

 

There is no doubt a pullback is taking place as the S&P 500 (SPY) is a good spot off the recent highs found at the end of July. Since then, the large cap index has given back around 4% with small caps and other Risk On positions seeing even worse results.

The key questions at this time are: Where is bottom? And when will we get there?

We will explore these vital topics in this week’s Reitmeister Total Return commentary.

Market Commentary

We are going to tackle commentary in reverse order today…first explore the price action, then talk about the fundamentals driving price.

As noted above, stocks topped out near 4,600 at the end of July. Since then has been an ongoing process to find bottom:

Moving Averages: 50 Day (yellow), 100 Day (orange), 200 Day (red)

Stocks cut through the 50 day moving average like a hot knife through butter and have not looked back. Clearly a deeper wash out was needed given five straight months of excellent gains.

Next up we had psychological support at 4,400. That too did not hold. Then came up just short of breaking back above on Monday followed by another failed test on Tuesday.

That makes 3 straight closes below 4,400. This means we now likely have to contemplate whether the 100 day moving average at 4,305 will hold as support and bottom of the range. We got fairly close on Friday with an intraday strike down to 4,335 before a bounce ensued.

My gut tells me it wouldn’t take much to dive another 2% to test that 100 day moving average. That likely is as far as we need to go given the fundamental story in hand.

Meaning that a test of the long term trend line (200 day MA) at 4,136 seems likely overkill at this time. Probably the 100 day moving average is as far as we need to go.

Getting as low as the 200 day moving average is plausible ONLY if the economic events from here come in much worse than expected. Thus, a good time to switch to the fundamental picture of the market.

Fundamental Picture

My main thesis is that we have a long term bull market unfolding as the Fed does look on track with a soft landing as they bring inflation down to size.

DON’T thank the Fed…they have been doing their level best to create unemployment and a recession.

The main reason a recession has not unfolded…and likely won’t happen, is that the 2-4 million early retirees during Covid created an employment shortage. Anybody who wants a job can pretty much find one leading to historically low unemployment rate that has not buckled under the pressure of 1.5 years of intense rate hikes.

Unfortunately, this thesis includes the fact that bulls got way ahead of themselves bidding stocks up to 4,600 when the economy is still soft and earnings growth is non-existent. This led to an elevated PE over 20 which is too much weight for the current fundamentals to withstand.

The natural conclusion given above is to have a long overdue pullback that properly resets market equilibrium at a more logical valuation. This begets a trading range between likely the 100 day moving average at 4,305 and the previous high of 4,600.

This is a comfy trading range to play around in awaiting the next key catalysts to break out. Most likely that will be a break higher as the soft landing comes together allowing the Fed to lower rates which is strong caffeine promoting higher stock prices.

Yet while in the trading range we are very susceptible to every new headline that could make us go higher one day…and lower the next. So, let’s review the key economic events before us that could provide the next catalyst for the overall market:

8/16 FOMC Minutes: This happened last week. But an important piece of information to weigh against other events down the road.

The actual meeting on 7/25 the Fed clearly started their “dovish tilt”. That being the acknowledgement that inflation is moderating nicely. Plus, they no longer saw a recession unfolding before they were ready to lower rates. However, the meeting minutes had a bit more language about the “potential need” to raise rates further to put the final nails in the high inflation coffin.

Given that the market was already in the midst of a pullback, then this was just another reason to hit the sell button. Yet really, the language of the minutes was no more hawkish than any statement made by the Fed in the past to give themselves whatever flexibility necessary to win the battle over inflation.

All in all, the pathway is there for the Fed to not have to raise rates further and create the soft landing for the economy which leans bullish in the long run.

8/23 PMI Flash: This report rarely makes headlines, but is a strong leading indicator of the trends found in the next round of ISM Manufacturing & Services reports the first week of the new month. Thus, always beneficial to review this announcement to appreciate if odds of recession are going higher or lower. Right now investors expect this reading to be the same as last month at 52 with services in better shape than manufacturing.

9/1 Government Employment Situation: The job add expectations continue to ebb lower as the Fed rate hikes slow down the economy. But gladly has not tipped over into negative territory that would raise the unemployment rate…and risk of recession. Right now, the forecast calls for 180,000 jobs added which would be a very “Goldilocks” outcome where the unemployment rate would stay low. On the other hand, not so many jobs created as to heat up wage inflation that would concern the Fed.

9/1 ISM Manufacturing: This has been the weakest part of the economic picture with 9 straight readings in contraction territory (below 50). Right now, it seems that June may be the worst of these readings with July a notch higher…and the August reading on 9/1 expected to be another step in the right direction.

9/6 ISM Services: This is the larger, and healthier part of the economy leading to the positive GDP readings. It is currently expected to be somewhat in line with last month’s 52.7 reading, which is modestly in expansion territory. Yet I think the impressive mid month reading for Retail Sales may lead to a topping of current ISM Service expectations.

9/13 Consumer Price Index (CPI): Inflation reports are the most telling of what the Fed will do with future rate hike decisions. Gladly this key inflation report has been moderating faster than expected for quite some time. Thus, that positive trend staying in place will be key to reignite bullish sentiment. And will have a fair amount to do with the next item…

9/20 Fed Rate Announcement: Right now, investors place 85% odds of the Fed pressing pause on rates. And yes, this appears to be the pattern going back the past few meetings (hike > pause). Plus the tenor of what was said at the last announcement combined with inflation reports since then came coming under expectations.

As always, what Powell says at the press conference has much more impact on the market than the initial rate decision. What investors will be looking for is whether the dovish tilt that started in July will be more or less dovish this time around. Obviously…the more dovish it sounds for the future…the better it is for stock prices.

Trading Plan

Fundamentally we are in a bull market. And technically in a bull market because we are well above the 200 day moving average. But yes, stocks were overdue for a stiff sell off which is taking place now.

Now we are just trying to find bottom. Maybe already found it…but sense a test of the 100 day moving average at 4,305 could unfold.

But even at current prices we are in a “buy the dip” scenario as the market will likely retest 4,600 early in the Fall. Then have a good shot for Santa Claus rally to help close out the year taking a shot at the all time high of 4,818.

Now we just need to consider what are the best stocks & ETF’s for this environment. And that is what the next section will tackle…

What To Do Next?

Discover my current portfolio of 6 stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.

Plus I have added 5 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these 11 hand selected trades, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!

SPY shares rose $0.35 (+0.08%) in after-hours trading Tuesday. Year-to-date, SPY has gained 15.43%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

Walmart (WMT) vs. Costco Wholesale (COST) vs. Target (TGT): Navigating Inflation's Impact on Grocery Chains

Posted on by The INO.com Team

U.S. domestic consumption has been on a roller coaster ride over the past three years. People have gone from not being free enough to spend practically free money to spending like there’s no tomorrow.

That, in turn, led to a not-so-transitory inflation, the hottest since the 1980s, forcing the Federal Reserve to implement eleven interest-rate hikes in a span of 16 months, taking the benchmark borrowing cost to 5.25%-5.50%.

Meanwhile, with the pandemic firmly in the rear-view mirror, Americans have been going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones.

However, with the stash of stimulus cash fast dwindling, average American consumers have been forced to go bargain hunting to squeeze out the maximum possible value from money, which has gotten dearer so that more of it can be set aside in favor of outdoor experiences instead of manufactured goods.

Consequently, they have been forced to trade down to budget-friendly retailers, leaving the businesses that offer something in between wrong-footed and stranded. Although budget retailers have lost sales from low-income consumers, that loss has been offset by increased business from the middle-income consumer segment.

However, not budget retailers are created equal. Hence, let’s take a closer look at three such retailers' varying fortunes and prospects.

Walmart Inc. (WMT) has been relatively immune to the seismic shifts in the consumption ecosystem, as discussed in our piece on June 22. Hence, despite closing 21 stores in 12 states and DC this year owing to poor financial performance being cited by the company, the big-box retailer surpassed Street expectations for both earnings and revenue for the second quarter of fiscal year 2024.

Encouraged by the strong performance, WMT also raised its full-year guidance. It said it now anticipates consolidated net sales will rise by about 4 to 4.5% in the fiscal year. It expects adjusted earnings per share for the full year will be between $6.36 and $6.46.

WMT’s e-commerce sales for the U.S. also jumped 24% year-over-year as customers bought more items from the company’s growing third-party marketplace and placed more orders for store pickup and delivery.

With the double-edged sword of inflation cutting both ways, while WMT attracted new and more frequent shoppers, including younger and wealthier customers looking for both convenience and value, the shift back to services is taking a bite out of sales of goods, particularly after a pandemic-fueled spending boom. Consequently, consumers have been buying fewer discretionary items, such as electronics and home appliances, and trading down for lower-priced items.

Since general merchandise prices have dropped compared with last year, WMT saw a “modest improvement” in sales of big-ticket and discretionary items like electronics and home goods during the quarter. According to the CFO, John David Rainey, the retailer also had fewer markdowns as the inventory was down by 5% at the end of the second quarter compared to a year ago.

Moreover, as food prices remained steady, and some staple grocery items have fallen, shoppers have been buying more fresh meats, seafood, and eggs, accounting for nearly 60% of the annual U.S. sales for the nation’s largest grocer.

Although consumers are facing newer challenges, such as the return of student loan payments, with the Back-to-School season getting off to a strong and early start and with stock price gains of more than 10% year-to-date, WMT is looking forward to the holiday season with cautious optimism.

Warehouse club Costco Wholesale Corporation (COST) found its famous $1.50 hot dog and soda combo back in the headlines as inflation bit harder to squeeze pockets further. The hot dog combo and its rotisserie chicken, whose price has been pegged at $4.99 since 2009, are the retailer’s loss leaders that lure in customers who are likely to buy other items as well.

This could be helpful, especially in times like these in which, according to CFO Richard Galanti, even COST’s relatively well-to-do members have been ditching pricier beef products for cheaper meats such as pork and chicken, while others are bypassing the fresh meat aisle entirely and opting for cheaper canned meat and fish products with longer shelf life. Even the retailer has been forced to restrict itself from handing out unlimited free samples to shoppers.

Ahead of its earnings release, analysts expect COST’s revenue and EPS for the fourth quarter of fiscal year 2023 to increase by 8.3% and 14.5% year-over-year to $78.05 billion and $4.82, respectively. As a result, its revenue and EPS for the fiscal would increase by 6.3% and 9.8% year-over-year to $241.23 billion and $14.58, respectively. That could lend momentum to the stock, which has gained more than 19% year-to-date.

At the other end of the spectrum, Target Corporation (TGT), which also caters to value-conscious shoppers, missed Wall Street’s sales estimate for the fiscal second quarter and consequently slashed forecasts for the year ahead. The company expects comparable sales to decline by about mid-single digits for the full fiscal year and earnings per share to range from $7 to $8, from a previously expected range of $7.75 to $8.75.

One of the reasons behind this bearish outcome and outlook could be the shifting patterns of consumer expenditure, which was redirected to prioritize groceries over discretionary items to make room for outdoor experiences.

As a result, TGT, which caters to a segment generally more affluent than that served by WMT and draws only about 20% of its yearly revenue from grocery, found its top line getting negatively impacted and even its online sales declining by 10.5% year-over-year. However, given the higher margins on non-essential items compared to those for food items, TGT’s quarterly EPS of $1.80 exceeded Street expectations of $1.39.

TGT is taking measures to stem the rot, including remodeling its digital experience in the next three months. The remodeled site would include different landing experiences, more personalized content, enhanced search functionality, ease of navigation, and other updates to bring more joy and convenience to our digital guests.

However, even as WMT has been experiencing a “modest improvement” in discretionary goods, such as blenders, hand mixers, and other kitchen tools in the second quarter, as some consumers cook more at home, TGT has not shared the same optimism.

With the Back-to-School season in its early days, sales of frequency categories, such as food and beauty items, have not been enough to offset weaker discretionary sales at the retailer, which has seen its stock price decline by more than 19% since the beginning of the calendar year.

Bottom Line

With increased borrowing costs expected to keep weighing on the economy in the foreseeable future, WMT is expected to keep benefiting from consumers’ shift to essentials, which could offset weaker clothing and electronics sales until a potential recovery at the beginning of the holiday season.

Meanwhile, in order to manage and improve slimmer margins from food items compared to general merchandise, WMT has been doubling down on initiatives to increase the efficiency of its operations through innovations in packaging and Artificial Intelligence (AI) and Machine Learning (ML).

Hence, given its stronghold on sales of low-margin and high-volume groceries and other essentials, shoots of recovery in discretionary expenditure, and ever-growing moat by figuring out what the customer wants to buy and how best to get it to them, WMT’s prospects appear to be the most promising of the three retail chains.

4 Stocks Set to Gain From Nissan Motor’s (NSANY) Shady Business

Posted on by The INO.com Team

Last week, the Nissan Motor Co., Ltd. (NSANY) dealership in North Carolina found itself mired in controversy as more than 400 charges were filed against twelve of its current and former employees. North Carolina’s Department of Transportation (DOT) filed the charges against the Nissan of Shelby dealership employees.

The charges include failing to disclose damage, improperly rebuilding salvage titles, failure to inspect vehicles prior to being offered for sale, failure to deliver title, improper use of temporary markers, making false statements about the date of sale, and more.

The agency stumbled upon these misdeeds while looking into the process used by the dealership to rebuild the titles of salvage vehicles. The dealership’s former general manager Sam Kazran was caught with 110 counts of Failure to Inspect Vehicle Prior to Being Offered for Sale.

Another employee, Casey Ramsey, was charged with 38 counts of Failure to Deliver Title, 38 counts of Improper Use of Temporary Markers, four counts of Failure to Disclose Damage, and one count of Making False Statement about the Date of Sale. The other ten employees were charged with a combination of the abovementioned violations.

These charges come after a WBTV investigation earlier this year revealed that Nissan of Shelby had listed totaled cars and flooded vehicles for sale and were sold to unsuspecting customers. WBTV found nearly a dozen cars the dealership either bought or sold at insurance salvage auctions, with many of them ending up for sale on their website.

NSANY’s stock has declined more than 12% over the past month.

NSANY’s association with this controversial dealership would definitely alarm buyers. In this scenario, its peers Stellantis N.V. (STLA), Honda Motor Co., Ltd. (HMC), Ford Motor Company (F), and NIO Inc. (NIO) stand to benefit.

Let’s delve into the fundamentals of these stocks to understand their near-term prospects.

Stellantis N.V. (STLA)

Headquartered in Hoofddorp, the Netherlands, STLA designs, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, mobility services, and production systems worldwide. It offers its products under the Abarth, Alfa Romeo, Chrysler, DS, Dodge, Jeep, Fiat, Maserati, Ram, Opel, Lancia, Vauxhall, Peugeot, Comau, and Teksid brands.

On July 24, 2023, STLA and Samsung SDI announced that they had signed an MOU to establish a second battery plant in the U.S. under the existing StarPlus Energy joint venture, targeting to start production in 2027 with an annual production capacity of 34 GWh. This supports Stellantis' aim to offer 25 new electric vehicles in North America by the decade's end and move towards carbon neutrality by 2038.

On July 6, 2023, STLA and NioCorp Developments Ltd. announced the signing a Rare Earth Offtake Term Sheet. The Term Sheet envisions a definitive agreement for a 10-year offtake contract for specific amounts of neodymium-praseodymium oxide, dysprosium oxide, and terbium oxide that NioCorp aims to produce at its Elk Creek Critical Minerals Project in southeast Nebraska.

The supply agreement will support STLA’s efforts to build reliable supply chains and achieve its sustainability goals.

In terms of the trailing-12-month EBIT margin, STLA’s 12.46% is 70.1% higher than the 7.33% industry average. Likewise, its 10.40% trailing-12-month net income margin is 149% higher than the 4.18% industry average. Likewise, its 27.85% trailing-12-month Return on Common Equity is 157.4% higher than the 10.82% industry average.

In terms of forward non-GAAP P/E, STLA’s 3.18x is 78.4% lower than the 14.73x industry average. Its 0.27x forward Price/Sales is 68.3% lower than the 0.86x industry average. Likewise, its 0.61x forward Price/Book is 75.4% lower than the 2.48x industry average.

STLA’s net revenues for the six months ended June 30, 2023, increased 11.8% year-over-year to €98.37 billion ($107.02 billion). Its net profit increased 37.2% year-over-year to €10.92 billion ($11.88 billion). Its adjusted operating income rose 11% year-over-year to €14.13 billion ($15.37 billion). The company’s EPS came in at €3.45, representing an increase of 39.7% year-over-year.

Analysts expect STLA’s revenue for the fiscal period ending September 30, 2023, to increase 19.2% year-over-year to $48.94 billion. Its EPS for fiscal 2023 is expected to increase 3.2% year-over-year to $5.70.

Honda Motor Co., Ltd. (HMC)

Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.

On February 28, 2023, HMC and LG Energy Solution held the groundbreaking ceremony for their joint venture EV battery plant spread over 2 million square feet. The facility is scheduled to be completed by the end of 2024, aiming for an annual production capacity of 40 GWh. The JV company will deliver lithium-ion batteries to support HMC’s plan to build battery-electric vehicles (BEV) in North America.

In terms of the trailing-12-month EBITDA margin, HMC’s 13.12% is 21.8% higher than the 10.77% industry average. Likewise, its 4.89% trailing-12-month net income margin is 17% higher than the 4.18% industry average.

On the other hand, its 7.46% trailing-12-month Return on Common Equity is 31.1% lower than the 10.82% industry average. Its 5.38% trailing-12-month EBIT margin is 26.5% lower than the 7.33% industry average.

In terms of forward EV/Sales, HMC’s 0.62x is 46.3% lower than the 1.16x industry average. Its 0.38x forward Price/Sales is 55.9% lower than the 0.86x industry average. Likewise, its 9.97x forward EV/EBIT is 26.4% lower than the 13.55x industry average.

For the first quarter that ended June 30, 2023, HMC’s sales revenue increased 20.8% year-over-year to ¥4.62 trillion ($31.67 billion). The company’s operating profit increased 77.5% year-over-year to ¥394.45 billion ($2.70 billion). Its profit for the period increased 134.1% year-over-year to ¥382.95 billion ($2.62 billion). In addition, its EPS came in at ¥219.06, representing an increase of 151.1% year-over-year.

For the quarter ending September 30, 2023, HMC’s revenue is expected to increase 17.4% year-over-year to $34.09 billion. Its EPS for the fiscal year 2024 is expected to increase 19.2% year-over-year to $3.77.

Ford Motor Company (F)

F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments.

On August 17, 2023, SK On, EcoProBM, and F announced an investment of C$1.2 billion to build a cathode manufacturing facility that will provide materials that ultimately supply batteries to F’s future electric vehicles. The facility will help the automaker localize critical battery raw material processing in regions where it produces its EVs. Production is slated to begin in the first half of 2026.

F’s 2.44% trailing-12-month net income margin is 41.7% lower than the 4.18% industry average. Likewise, its 8.16% trailing-12-month EBITDA margin is 24.2% lower than the 10.77% industry average. Furthermore, the stock’s 10.34% trailing-12-month gross profit margin is 70.8% lower than the industry average of 35.41%.

On the other hand, the stock’s 4.43% trailing-12-month Capex/Sales is 37.8% higher than the industry average of 3.22%.

In terms of forward non-GAAP P/E, F’s 5.73x is 61.1% lower than the 14.73x industry average. Its 0.29x forward Price/Sales is 66.6% lower than the 0.86x industry average. Likewise, its 1.03x forward Price/Book is 58.4% lower than the 2.48x industry average.

On the other hand, in terms of forward EV/EBITDA, F’s 10.46x is 9.2% higher than the 9.58x industry average. Likewise, its 14.12x forward EV/EBIT is 4.2% higher than the 13.55x industry average.

F’s total revenues for the second quarter ended June 30, 2023, rose 11.9% year-over-year to $44.95 billion. Its adjusted EBIT increased 1.7% year-over-year to $3.79 billion. The company’s adjusted net income increased 6.5% over the prior-year quarter to $2.93 billion. Its EPS came in at $0.72, representing an increase of 5.9% year-over-year.

Street expects F’s EPS and revenue for the quarter ending September 30, 2023, to increase 50.3% and 10.3% year-over-year to $0.45 and $41.01 billion, respectively. The stock has gained 7.2% year-to-date to close the last trading session at $11.87.

NIO Inc. (NIO)

Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles. It offers five and six-seater electric SUVs, as well as electric sedans. The company also provides power solutions, including Power Home, Power Swap, Power Charger and Destination Charger, Power Mobile, Power Map, and One Click for Power valet service.

On June 20, 2023, NIO announced that it entered into a share subscription agreement with CYVN Holdings L.L.C. NIO’s founder, chairman, and CEO William Bin Li said, “The strategic investments from CYVN Holdings demonstrate NIO’s unique values in the smart electric vehicle industry.”

“The investment transaction will further strengthen our balance sheet to power our continuous endeavors in accelerating business growth, driving technological innovations, and building long-term competitiveness,” he added.

NIO’s negative 37.01% trailing-12-month EBIT margin compares to the 7.33% industry average. Likewise, its negative 30.74% trailing-12-month EBITDA margin compares to the 10.77% industry average.

On the other hand, the stock’s 13.88% trailing-12-month Capex/Sales is 331.5% higher than the industry average of 3.22%.

In terms of forward EV/Sales, NIO’s 2.17x is 87.1% higher than the 1.16x industry average. Likewise, its 2.18x forward Price/Sales is 154.4% higher than the 0.86x industry average.

For the fiscal first quarter ended March 31, 2023, NIO’s total revenues increased 7.7% year-over-year to RMB10.68 billion ($1.47 billion). Its gross profit declined 88.8% year-over-year to RMB162.29 million ($22.35 million).

Its non-GAAP net loss attributable to ordinary shareholders of NIO widened 222.3% year-over-year to RMB4.14 billion ($570.08 million). Also, its non-GAAP loss per share attributable to ordinary shareholders widened 217.7% year-over-year to RMB2.51.

Analysts expect NIO’s revenue for the quarter ending September 30, 2023, to increase 35% year-over-year to $2.44 billion. 

Buy the Dip NOW!

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

SPY – As the title of this article implies, Steve Reitmeister believes now is the time to buy the dip for the stock market. Simply 4,600 was too high for the S&P 500 (SPY) given current conditions. And the recent trip down towards 4,300 is too low. The key is knowing which stocks to buy to outperform. More about that in the article below…

 

Fret not dear investor. The recent rally for the S&P 500 (SPY) was overextended with this sell off being the natural consequence.

Let’s spend our time wisely discussing why stocks are down…how much lower they will go…why they will bounce…and when to buy back in for the next leg higher.

All that and more awaits you in today’s commentary.

Market Commentary

Good news is that the yield curve is getting less steep which decreases odds of a recession.

Bad news is that it is happening as long term rates are going up which is bad news for all forms of borrowing including cars, housing and long term investment in a business (which is the main fuel for economic growth).

Why is this happening?

It all started after the Fitch ratings downgrade for the US when the 10 year was closer to 3.8%…yet now is a good spot higher at 4.3%. Which is the highest level for these rates since the Fed embarked on their hawkish regime.

However, I suspect very little of it really has to do with the Fitch downgrade. The more I read on this topic…the more people are discussing the Fed minutes from Wednesday. That being where there is still solid concern on the part of committee members that inflation is well above target…not coming down fast enough…and that more rate hikes could be needed.

Even if they don’t raise rates again, which is my prediction, they could simply leave the current high rates in place longer than previous anticipated. This too would push up the longer end of the yield curve.

Why is this bad news for the stock market?

When you consider the importance of asset allocation between stocks and bonds…then the higher the bond rates, the more attractive bonds become…and the less attractive it is for stocks. So more investment dollars flow out of stocks towards bonds as rates escalate.

No doubt some of the recent sell off was simply investors finally taking some profits off the table. Unfortunately, there is more to the story given this investment trade off issue noted above as bond rates rise.

How much higher will Treasury rates go from here? I suspect not much higher UNLESS upcoming inflation readings are hotter than expected pushing the Fed to act more vigorously with additional rate hikes.

And yes, the more hawkish the Fed becomes…the greater the risk of recession…which clearly is a negative for stocks.

All in all, this sell off was long overdue. Yet, given the facts in hand it is hard to be bearish. In particular, how much inflation has come down without a recession forming, thus making soft landing the most likely possibility.

Further, beyond the soft landing the Fed will be lowering rates…meaning more accommodative. That has always been a good tasting tonic for stock gains.

Rather right now all we are determining the bottom of this move for which stocks bounce…and then play in a trading range for a while awaiting the next catalyst to bolt higher.

Thursday marked the 3rd straight close under the 50 day moving average (4,450). And the first close below 4,400 which was an area of psychological support. In fact, it spent most of the Thursday teetering at 4,400 before breaking lower in earnest.

As stated in my last commentary, I think there are solid odds that investors may push down to the 100 day moving average (4,292) before calling it quits on this overdue pullback. That is about 2% below Thursday’s close. Not too scary in the grand scheme of things given that we started the year around 3,800.

Trading Plan 

This is still a bull market til proven otherwise. But yes, investors are FINALLY reappreciating that the bearish argument was never gone. That the Fed could go to far creating recession.

So this pullback from 4,600 is creating a better resting place for stocks. As in a price that better balances the future bullish vs. bearish possibilities.

I continue to see this as a “buy the dip” especially for those who have been under allocated to the stock market this year. No doubt you have been waiting for an opportunity to get back in as you didn’t like chasing it when reaching 4,600. So now under 4,400 and likely finding bottom here soon…NOW IS YOUR TIME TO BUY IN.

I am practicing what I preach on this front as I put more money to work in my Reitmesiter Total Return portfolio. As well as putting 7 figures worth of cash back to work in my personal accounts this week.

If you are looking for the exact perfect moment…you will never catch it in real time. That fantasy of perfect timing leads to indecision…and then missing the train altogether.

Looking out to the end of 2024, when the market will be making new all time highs well above 5,000 (maybe even hit 6,000)…then it is crazy at this point to quibble over 1% here or there. Just jump in and act now!

What should you buy?

More on that below…

What To Do Next?

Discover my current portfolio of 6 stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.

Plus I have added 5 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these 11 hand selected trades, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!

SPY shares were trading at $435.87 per share on Friday afternoon, down $0.42 (-0.10%). Year-to-date, SPY has gained 14.83%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.