• 23 Nov
    Happy Black Friday! Which stock is a better value right now – TGT or WMT?

    Happy Black Friday! Which stock is a better value right now – TGT or WMT?

    It’s an annual thing – the day after Thanksgiving marks the official start of the holiday shopping season. Anxious to get a jump on the best deals of the season, shoppers line up outside stores all over the country. It also marks a point in the year when the stock market starts to pay even closer attention to the retail sector than normal. More →

  • 22 Nov
    Homebuilders are down big this year – does that mean opportunity with stocks like OC?

    Homebuilders are down big this year – does that mean opportunity with stocks like OC?

    Happy Thanksgiving! The holiday is a good opportunity, while the market takes a break from its wild day to day swings of the past six weeks or so, to sit back and think about where there might be some interesting opportunities to be had in the weeks, months, and possibly even years ahead. Despite the angst and worry that has dominated market headlines, centered primarily around continuing trade tension and interest rate fears, the fact remains that the economy for the most part continues to be quite healthy. Despite the general healthy state of the economy, one of the biggest underperforming sectors in the market throughout the year has been homebuilders, including building products companies. More →

  • 21 Nov
    Wait…what? Did Bezos really just say AMZN is doomed to fail?

    Wait…what? Did Bezos really just say AMZN is doomed to fail?

    Last week in Seattle, Amazon (AMZN) held an all-hands company meeting. When asked by an employee about the company’s future, founder and CEO said something that I don’t think most people would expect of any CEO, much less the CEO of one of the most disruptive companies in the world. “Amazon is not too big to fail,” he said. “In fact, I predict one day Amazon will fail. Amazon will go bankrupt.”

    At first glance, his comment seems pretty surprising, especially given the way the company has expanded its presence from a simple online bookseller to a purveyor of just about anything and everything you might be able to imagine. Not content with simply operating as an online retailer, and with establishing a dominating presence, Amazon is one of the most aggressive companies in the world when it comes to identifying opportunities to move into new businesses. No longer just an online retailer, AMZN has really expanded its business model over the past decade or so.

    To keep pace with the tablet market, the company introduced its own line of e-book readers and tablet computers with the Amazon Fire product line. In a move that now seems prescient, in 2006 the company launched Amazon Web Services (AWS), aimed at cloud computing and data services; according to recent reports, they now own about 34% of the U.S. cloud market, putting them firmly in the driver’s seat in that arena. Another smart move was the introduction Amazon Prime in 2005; initially started as a paid membership shipping service, in 2012 it was expanded to include streaming video and music content, and now stands as a strong competitor in the streaming media business with Netflix (NFLX). They also made a big splash last year when they finalized a merger with Whole Foods Market, giving them a foothold in the grocery market that put big-box retailers like Walmart (WMT) and Target Stores (TGT) on edge.



    So why would the CEO of one of the most aggressive and disruptive companies with such a take-no-prisoners attitude about business make such a provocative statement? I think that when you read further, you get a good into the mindset that makes Bezos such an interesting figure in world business. He didn’t just stop at predicting his company’s doom; he expanded the discussion, explaining that large companies generally have lifespans that cover about three decades – not ten or more. 

    How could a company prolong its otherwise inevitable demise? By learning to “obsess over customers,” said Bezos. “If we start to focus on ourselves, instead of focusing on our customers, that will be the beginning of the end.” What I think you see is a glimpse into the mindset of an executive that has grown his company into one of the largest companies in the world by refusing to stand pat – not only by attacking new markets fearlessly and being willing to take big risks, but also by always looking for new ways to make the their customer’s lives better.

    What does this mean for an investor? The stock has been one of the biggest growth stocks of this bull market, increasing in price from a low in late 2008 in the mid-$30 range to a September high above $2,050. Since that high, the stock has dropped a little over 27%. Does this represent an opportunity to buy in at a discount? The problem is that just because a stock may have entered its own bear market territory – and 27% certainly means that bears are running a lot harder right now than bulls with AMZN – it doesn’t automatically mean the stock is a good value. AMZN has some very impressive fundamentals behind it, but as I think you’ll see, the value proposition offers conflicting information that to me translates to an increased level of downside risk.



    Fundamental and Value Profile

    Amazon.com, Inc. offers a range of products and services through its Websites. The Company operates through three segments: North America, International and Amazon Web Services (AWS). The Company’s products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. The Company, through its subsidiary, Whole Foods Market, Inc., offers healthy and organic food and staples across its stores. The Company also offers a range of products like whole trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic gala and fuji apples, organic rotisserie chicken. AMZN has a current market cap of $731,2 billion.

    • Earnings and Sales Growth: Over the past year, earnings increased a more than 1000%, while sales improved about 29%. Growing earnings faster than sales is hard to do, and generally isn’t sustainable in the long term, but it is also a positive mark of management’s ability to maximize its business operations. In the last quarter, earnings increased about 13.5%, while sales increased nearly 7%. The company operates with a margin profile that improved from 4% in the past twelve months to 5% over the last quarter.
    • Free Cash Flow: AMZN’s Free Cash Flow is more than $15.3 billion, which is impressive in terms of sheer numbers is very impressive, but considered against the scope of the size of their business gives a hint into the narrow room for error AMZN works with. Their Free Cash Flow Yield is a modest 2.07%.
    • Debt to Equity: AMZN has a debt/equity ratio of .63, which is a conservative number. Their balance sheet indicates more than $29.7 billion in cash against $24.6 billion in long-term debt.
    • Dividend: AMZN does not pay a dividend.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for AMZN is $80.01 per share. At the stock’s current price, that translates to a Price/Book Ratio of 18.69. The stock’s historical Price/Book ratio by comparison is 20.56 and puts the top end of the stock’s long-term price target at around $1,645 per share. AMZN may be down since September by more than 27%, but that translates to just about 10% of upside potential. The real conflict comes when you factor in the stock’s Price/Cash Flow ratio, which is trading more than 41.5% above its historical average that puts a contrasting target price at only $882.32 per share.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: AMZN’s downward slide since September is impressive in both its speed and and depth; the strongly bearish momentum certainly also implies that the worst could still be yet to come, with major support for the stock sitting at around $1,400 per share. A drop below that level could see the stock test the $1,300 level, with an even deeper low in the $1,200 level not out of the question. The stock has major resistance at around $1,600 per share and should be expected to act against any kind of sustained rally.
    • Near-term Keys: A short-term bullish trade is very speculative right now, and will continue to be unless the stock can push up to about $1,650 per share. That is a pretty good price level that could signal the long-term downward trend is about to reverse. A much higher probability set up will be seen if the stock breaks down below $1,400 per share. That could provide a good signal to short the stock or start working with put options. The spread between the target prices offered by the Price/Book and the Price/Cash Flow ratios is so extreme that it’s hard to justify the stock as any kind of value-based investment.


  • 20 Nov
    Is AVY another great bargain in the Materials sector?

    Is AVY another great bargain in the Materials sector?

    In yesterday’s post, I wrote about the Materials sector as a segment of the economy that seems have started to attract the interest and attention to institutional investors. Sector rotation is an approach to market analysis that suggests that if you want to find good investments in any market, it’s a good idea to pay attention to where institutions – mutual funds, investment banks, and insurance companies, to name just a few – are putting their money to work for them.  More →

  • 19 Nov
    Is WRK a smart choice in a sector that is gaining institutional favor?

    Is WRK a smart choice in a sector that is gaining institutional favor?

    The month of October put investors on notice that volatility in the stock market wasn’t going to go away anytime soon. I think it makes sense; investors are becoming more and more aware of the difficulty associated with extending an unprecedented period of economic expansion. More →

  • 16 Nov
    FDX is nearing bear market territory – should you pay attention?

    FDX is nearing bear market territory – should you pay attention?

    Throughout most of the year, stocks that are considered cyclical in nature – think autos, airlines, transportation, and energy, to name just a few – have been among the most volatile stocks in the market. That has included companies in the air freight & logistics industry; and while there are a number of players in the industry, the two biggest and most recognizable names without question are United Parcel Service, Inc. (UPS) and FedEx Corp. (FDX). More →

  • 15 Nov
    Oil is officially in a bear market – and that could be a good thing for SLB

    Oil is officially in a bear market – and that could be a good thing for SLB

    The stock market has seen a lot of turmoil and turbulence since the beginning of October, with all three major indices touching, or coming very near to the 10% level that most technicians consider correction territory. What you may or may not be aware of, however is that at nearly the same time the stock market was hitting a peak, so was oil – but the decline in the oil market is significantly more severe. As of Wednesday’s close, West Texas Intermediate crude was sitting around $56 per barrel, which marks a decline of more than 26% from its peak on October 2, which topped $76 per barrel.

    The decline isn’t just limited to U.S. oil – the price of Brent crude, which also hit a multi-year high at the same time as WTI, has declined from a little above $86 per barrel to its current price around $66. What is the big driver? Increasing supply, for one; oil inventories across the globe are high and increasing. Late in the summer, Brent prices were driven higher on speculation that economic sanctions on Iran would pressure OPEC oil production capabilities, but even as the U.S. put those sanctions in place, it also granted waivers to eight countries, including China, India, South Korea and Japan who are heavily dependent on Iranian imports. Additional reports suggest that while Iranian production is declining, it is also being more than offset by production increases in Saudi Arabia and the United Arab Emirates.

    In the U.S., shale producers have been boosting production in a major way as well; another complicating factor is the reality that while production in shale-rich areas like the Permian basin are high, pipeline capacity is maxed out, with little hope for short-term relief. That reality has pushed prices for shale coming from that region to as much as $20 per barrel below the going rate for WTI crude in general. New reports now also indicate that pipeline under-capacity is spreading to the Bakken region of the Dakotas as well. Shale producers are producing about 1.3 million barrels per day right now, while the region’s pipeline capacity can only handle about 1.25 million barrels per day. Just as with the Permian, there are projects underway and being proposed to increase the areas capacity, including a proposed “Liberty pipeline” that Phllips 66 and Bridger Pipeline have announced an open season to gauge interest that would move Bakken crude to Wyoming.



    The problem is that pipelines take time to bring online – most of the current projects are forecast to be completed in mid to late 2019, with a number of others expected for 2020. That’s a positive in the long run for U.S. producer’s ability to meet demand, but in the short run it is also contributing pretty heavily to the current pressure, and it doesn’t look like that is going away quickly.

    In his book, The Intelligent Investor, Benjamin Graham (the man who mentored Warren Buffet, and referred to by many as the father of value investing) wrote that when a sector of the economy is in a bear market, a reasonable long-term strategy is to identify the leader in the sector. As long as their balance sheet is healthy, all you have to do is buy in and be willing to wait out the decline for the inevitable decline. Oil producers can be a bit of a mixed bag, since many of even the largest of these companies operate with high debt levels, but a smart way to invest in oil and energy is with the companies that provide the equipment and services explorers, drillers and producers rely on.

    Schlumberger N.V. (SLB) remains the largest oilfield services company in the world, and while some of their fundamental measurements have suffered from some of the same dynamics that have pressured the oil sector throughout the year, the truth is that their balance sheet remains very healthy. They also fit the description of the kind of company that will not only still be around when the sector finally finds bottom, but will also be in a prime position to take advantage of that bottom by acquiring the assets of weaker competitors. The stock’s price performance in the last month is nearly -20%, which is a little less than the sector’s decline. More interestingly, the stock is down more than 40% since reaching its 52-week high at around $80 at the beginning of the year. It may not be done dropping, but if you’re willing to follow Mr. Graham’s advice, this looks like it could be a very good time to think about buying this stock.



    Fundamental and Value Profile

    Schlumberger N.V. provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The Company’s segments include Reservoir Characterization Group, Drilling Group, Production Group and Cameron Group. The Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. The Drilling Group consists of the principal technologies involved in the drilling and positioning of oil and gas wells. The Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Integrated Production Services (IPS) and Schlumberger Production Management (SPM). The Cameron Group consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities. SLB has a current market cap of $66.2 billion.

    • Earnings and Sales Growth: Compared to other stocks I’ve highlighted in this space, SLB’s earnings and sales growth has been modest: over the last twelve months, earnings increased 9.5%, while sales increased 7.5%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations. By contrast, the company’s Net Income versus Revenue over the last year was -1.9, but improved in the last quarter to 7.5%, which can be taken as an indication their bottom line has improved in the last quarter.
    • Free Cash Flow: SLB’s Free Cash Flow is healthy, at nearly $3.5 billion.
    • Debt to Equity: SLB has a debt/equity ratio of .38, which is conservative and indicates the company has a disciplined approach to debt management. While the company’s cash and liquid assets have declined significantly since the beginning of 2016, they also totaled more than $2.6 billion in the most recent quarter. Their balance sheet indicates that operating margins are more than adequate to service the company’s debt, which was a little over $14 billion in long-term debt in the last quarter.
    • Dividend: SLB pays an annual dividend of $2.00 per share, which at its current price translates to a dividend yield of about 4.18%. The stock’s dividend offers a compelling reason for patient investors to hold this stock, with a current yield well above even long-term Treasury yields, which remain around 3% right now.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for SLB is $26.68 per share. At the stock’s current price, that translates to a Price/Book Ratio of 1.79. The stock’s historical Price/Book ratio by comparison is 2.66 and puts the top end of the stock’s long-term price target at around $71 per share. The stock’s Price/Cash Flow ratio provides a more conservative target at around $56, since SLB is currently trading a little more than 17% below that historical average. Either way, the long-term upside from the stock’s current price level looks very attractive right now.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: SLB’s downward trend is pretty easy to recognize on this chart – particularly the way that trend has accelerated since the first week in October. The stock is currently in free-fall, dropping below levels not seen since the first half of 2009. Investors naturally correlate SLB’s stock price, and its peaks and valleys, with movement in oil and energy prices. That actually provides another interesting take on the stock’s value proposition, since when WTI crude bottomed at $27 per barrel in 2016, SLB’s price found a bottom at around $65. Crude might not be at a bottom right now, but it remains more than twice as high as that 2016 bottom, while SLB is plumbing levels that are more than 25% below its low point in 2016. Most U.S. producers for the last couple of years have publicly referred to being able to maintain healthy profitability with WTI in the mid-$40 range, which is something that lends credence to the idea that production isn’t going to taper in the U.S. quickly.
    • Near-term Keys: Given the strength of the stock’s current bearish momentum, I don’t think a short-term bullish trade is anything but a speculative, low-probability play right now. Its pivot levels in early 2009 indicate it could find good support in the $45 range, so a pivot and bounce higher from that level could offer some kind of short-term bullish opportunity; but I would wait to see the stock break above $52, where it saw some very short-term stabilization last week before thinking about any kind of near-term bullish trade using call options. Given how close the stock is to support from those 2009 levels, i’m also not sure a bearish trade, either by shorting the stock or buying put options is a very good trade, either. The stock would need to break below $35 to offer a decent bearish signal at this stage. The best bet with SLB right now? Play the long game; but the stock and enjoy the passive income from its high dividend payout while you wait for it to reverse its downward trend and reclaim its highs.


  • 14 Nov
    AAPL is down big since October – how much is it actually worth?

    AAPL is down big since October – how much is it actually worth?

    Apple Inc. (AAPL) is one of the biggest companies in the world; in August of this year, with the stock pushing nicely above $200 per share, they were the first company in the modern era to officially cross the $1 trillion dollar threshold. And over the last ten years, it is without a doubt one of the biggest performers throughout the course of the bull market. Along with its big tech brethren like Alphabet (GOOGL), Amazon (AMZN) and Microsoft (MSFT), AAPL has long been one of the companies that the rest of the market seems to have taken its cues from. More →

  • 13 Nov
    How close is the S&P 500 to a level that you should REALLY start to worry?

    How close is the S&P 500 to a level that you should REALLY start to worry?

    If you were watching the market sell off again yesterday, you probably started to wonder as I did if the market was really starting to follow through on the bearish sentiment that drove it back into correction territory for the Dow and the NASDAQ. The S&P plunged nearly 2% amid worries that the entire tech sector, which has paced and even led the market throughout its bullish trend since 2009, has finally peaked. The “FANG” stocks – Facebook, Apple, Netflix and Alphabet, and Amazon – all led the selloff as reports indicated that demand for Apple’s (AAPL) iPhone has weakened.

    If you’re listening to the talking heads on market media outlets, it’s even easier to buy into the negative hype, as more and more of them wring their hands and talk about the end of the bull market. The to remember, however is that while a correction always precedes a legitimate bear market, not all corrections are followed by a bear market. In fact, corrections are entirely normal, and even healthy; they are one of the things that makes a long-term upward trend sustainable. During its nearly ten-year bullish run since 2009, the stock market has experienced numerous pullbacks and corrections.



    Does that mean that all of the angst, worry and concern is overblown? I’m not sure; the truth is that the longer the market holds an upward trend, the greater the major trend reversal risk becomes. The truth is that when the market’s long-term upward trend does finally reverse – and make no mistake, it certainly will – the drop is likely to be extreme. First, consider that since bottoming in late 2009, the S&P 500 has more than quadrupled value; next, consider that in the last two bear markets, from 2008 to 2009 and prior to that, from 2000 to 2002, the downward trend shaved 50% or more from that index each time. As of yesterday’s close, the S&P 500 closed a little above 2,700 with its all-time high in late September coming at around 2,900; that means that if the market is actually starting the latest, inevitable slide to bear market territory, the bottom might not be seen until the index is around 1,400, or even lower.

    I think the real question isn’t if the market is going to reverse; it isn’t even when, despite the talk that seems to be dominating market news right now. Even the question of why or how it could happen is less important at the moment than identifying the point that I think every smart investor should be ready to acknowledge the reversal could actually be happening.

    Analysts like to use percentage declines as a barometer for how severe the latest drop from a high is. 10% is generally accepted as the level at which the market is officially in a corrective phase. The market’s drop in October put things in the second corrective phase of the year. Where is does the bear market come to play? The next percentage level is 20% – which for the S&P 500 would be around 2,300 based on its September highs. We’re still more than 400 points away from that point, which is why you might see some analysts maintaining their generally bullish stance right now.



    I like to use trend and pivot analysis on the broad market to supplement these generally accepted levels. I think the market is closer to a legitimate bearish signal than the 20% minimum suggests, and it is another reason a lot of people are wringing their hands right now. Here is what I’m seeing right now.

     

    This chart is for the S&P 500 SPDR (SPY), the ETF that matches the movement of the index. The prices shown on the right for the stock don’t equate directly to the S&P 500, but the percentages between prices are consistent, so this is a good proxy chart for the index. I’ve drawn a horizontal red line along the bottom of the chart using the previous low points the S&P 500 tested during the first correction of the year. That levels corresponds roughly with the 2,600 level for the index; as of yesterday’s close the market is a little less than 5.5% above that point. It came near to that point in October before rallying strongly towards the last couple of days and into the beginning of November.



    This red line is what I think most investors should be treating as the signal point; not necessarily for the point where the market has finally turned to bear market conditions, but rather the point where the market can actually confirm a legitimate downward trend. We’re not quite there, although the drop from the market’s pivot high a few days ago is a warning sign. If the index drops below its October pivot low, the market will officially be in a short-term downward trend. If that is then followed by a drop below the red line I’ve drawn, I think you’d be smart to say that the downward trend  is more likely to extend into an intermediate time frame, which could last anywhere from just a couple of months to as long as nine months.

    An intermediate downward trend doesn’t guarantee the trend will become a long-term one, and it doesn’t guarantee the market will drop into bear market territory; however given how raw the market’s emotional state appears to be right now, I think you would foolish to discount the very real possibility that the market could easily shift from uncertainty into legitimate panic once the market breaks below the 2,600 level. If that panic extends to massive selling, we’ll see a lot of average investors getting out of their positions and you’ll hear even more about concepts like “safe havens” and “flight to quality.” These are market conditions that exist when investors start dumping stocks and moving en masse into instruments like bonds, money markets, and even to cash. That hasn’t happened yet, but pay attention to the 2,600 level for the S&P 500. If the index drops below that level, and stays below it, don’t be surprised if the selling gets even worse. That’s why even as I’m writing about stocks in this space that I think represent interesting values right now, you should be very careful about taking on any new positions. When the sell-off really starts, it will be hard to find a place to hide, which means that you should be holding stocks you’re willing to ride out over the long-term, with conservative positions sizes that make it easier to limit your overall risk even in an extended bear market.


  • 12 Nov
    Want to bet on financials? C isn’t a smart gamble yet

    Want to bet on financials? C isn’t a smart gamble yet

    One of the rising concerns that has helped keep the market on edge for the last couple of months now is the spectre that since interest rates are likely to keep rising, economic growth in the United States will inevitably have to slow or, worse reverse into a new recessionary cycle. I do think that it is true that the longer the latest expansionary cycle – which could begin to stretch into an unprecedented full decade in the next few months – continues, the more likely a new extended downward cycle becomes. That doesn’t mean the end is near, or that we know when that reversal will come; it just means that a cycle, by definition has a beginning and an end, and that in a market economy, every bullish cycle eventually and inevitably turns bearish, and every bearish cycle eventually and inevitably turns bullish.

    One of the real tricks to being able to keep your money working for you no matter what the broader economy and market’s trend is doing is being able to recognize that opportunities exist in every kind of cycle. I was reminded about that recently while listening to a few analysts talking about current market conditions. The discussion closed with the moderator asking these experts where each one thought some of the smartest places to put their money right now would be. It wasn’t too surprising when a couple of them singled out the financial sector.



    The premise is simple enough: rising rates are good for fixed-income investors, because they can get a higher yield on “safer” investments like bonds and short-term instruments. That’s usually just one piece of positive news for banks, as they see increased volume in bond purchases as well as flows into shorter-term instruments like money markets, Treasury bills, and certificates of deposit. That also gives them more money to offer to borrowers at higher interest rates, which often means that while other parts of the market are experiencing turbulence and increased volatility, financial stocks like banks become part of the “flight to quality” that are often typical of the end of a bull market.

    It is a bit of a double-edged sword, however; rising interest rates can only continue for so long before the economy inevitably begins to slow, because at some point interest rates become high enough that borrowing becomes prohibitively expensive. In the financial crisis that triggered the last recessionary cycle from 2008 to 2009, the store was made even worse by the realization that mortgage companies and banks had over-leveraged themselves with subprime loans – loans that charged higher interest rates to borrowers with poor credit quality. The problem was that when the economy began to slow, these loans became almost completely non-productive. The federal government took steps in the years following to regulate subprime lending more closely, and so there isn’t likely to be the same kind of risk now that existed ten years ago. Even so, it is a cautionary tale worth noting, because the truth is that even banks, insurance companies and investment institutions remain at risk when the economy slips into recessionary conditions.

    If you want to watch the financial sector right now, it’s smart to keep a cautious eye, and to look for stocks that represent an excellent value. Citigroup Inc. (C) is a good example; since hitting a 52-week high at nearly $81 in late January of this year, the stock began an extended slide downward, falling all the way to the $65 level by the beginning of July. It stages a short-term bullish trend from that point, rallying to around $75 in late September before dropping back to a new 52-week low around $63 in late October. As of this writing, the stock is back around $65 price level – a price that might offer a tempting opportunity for somebody looking for a good value play in the financial sector. But is C really a stock that is worth investing your hard-earned dollars right now? You decide.



    Fundamental and Value Profile

    Citigroup Inc. (Citi) is a financial services holding company. The Company’s whose businesses provide consumers, corporations, governments and institutions with a range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. The Company operates through two segments: Citicorp and Citi Holdings. Citicorp is the Company’s global bank for consumers and businesses and represents its core franchises. Citicorp is focused on providing products and services to customers and leveraging the Company’s global network, including various economies. As of December 31, 2016, Citicorp was present in 97 countries and jurisdictions, and offered services in over 160 countries and jurisdictions. Global Consumer Banking (GCB) provides traditional banking services to retail customers through retail banking, including Citi-branded cards and Citi retail services. C has a current market cap of $165.5 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased 22.5%, while sales increased almost 10%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of management’s ability to maximize their business operations. The company’s Net Income versus Revenue tells an interesting story, since over the last twelve months it was actually -5.4%, but in the last quarter improved to more than 18.5%, pointing to major improvement in the company’s margin profile.
    • Free Cash Flow: C’s Free Cash Flow is strong, at more than $21.5 billion. This is a number that has increased throughout 2018, but before that point had declined from a high in late 2015 of about $65 billion.
    • Debt to Equity: C has a debt/equity ratio of 1.32, which appears high, but it should be noted that most banks carry higher debt levels as a normal course of their business. It should be noted that despite the high debt/equity ratio, the company’s cash and liquid assets are more than 3 times higher than the total amount of long-term debt on their balance sheet.
    • Dividend: C pays an annual dividend of $1.80 per share, which at its current price translates to a dividend yield of about 2.73%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for C is $69.58 per share. At the stock’s current price, that translates to a Price/Book Ratio of .94, which at first blush seems very low; however, the stock’s historical average is only .8. The stock is also trading about 22% above its historical Price/Cash Flow ratio. Together, those two measurements put the stock’s fair value at somewhere between $52 and $55 per share, which is well below the stock’s current price. The stock would actually have to drop below $45 to be considered a useful discount relative to its historical Price/Book value.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The chart above displays the stock’s price action for the last year. The decline from the stock’s September peak at about $75 marks a decline over the past six weeks or so of about 12% at the stock’s price as of this writing. It has strong support between $63 and $65 per share, while near-term resistance should be seen around $69, with $72 and $75 acting as secondary resistance points if the stock can begin to stage a bullish rally.
    • Near-term Keys: A short-term trade right now is pretty speculative on this stock, no matter whether you want to trade the bullish side by buying the stock outright or to start working with call options. A bearish trade also is a very low probability proposition right now given the stock’s current support level; the only decent signal on this side would come if the stock break below $65. In that case, the next likely support level would be in the $57 to $58 range, so there could be an interesting opportunity to short the stock in that case or work with put options. While the company has some interesting fundamental strengths, I think that it remains a bit expensive right now, even with the stock’s current decline for most of the year. I wouldn’t really be very interested in working with this stock unless and until it drops into the $44 to $45 range. That would take a decline from its current price of a little more than 30%, which really the biggest reason I don’t think this is a risk worth taking right now.


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