• 08 Jun
    Is DIS undervalued? I think so

    Is DIS undervalued? I think so

    We’re moving fully into summer, and that means kids are home from school and families are planning vacations. Growing up as a kid, and then again as a parent, it seemed like Walt Disney theme parks always found their way into my family’s vacation plans. More →

  • 07 Jun
    KR could rebound and rise more than 25%

    KR could rebound and rise more than 25%

    We’ve watched volatility in the broad market increase significantly this year compared to last year, and some of that was a reflection of uncertainty about the economy’s health and sustainability moving forward. Those are conditions that usually give investors a reason to look for more conservative, defensive types of investments, and in the stock market, one of the sectors that usually provides that comes from the Consumer Staples arena. More →

  • 06 Jun
    PH is a very interesting value play

    PH is a very interesting value play

    Finding good investment opportunities can be a pretty hard thing to do, no matter how much knowledge or experience you have in the market. Part of the problem, I think comes from the nature of the (social) media-driven, instant-information society we live in today. If you pay attention to media news outlets for market information, you’ll usually find that a lot of what gets talked about doesn’t change a whole lot from one day to the next. Politics, monetary policy and interest rates are three primary themes from which the talking heads never really seem to move very far afield.

    One of the methods that I have learned is useful as a tool to stay abreast of current market events and to identify pockets of opportunity is called sector analysis. That might sound pretty complicated, but it really just means taking time to pay attention to the different industries that make up our economy. As business flows back and forth from one economic segment to another, you can begin to see specific industries rise into and fall out of favor in the stock market. That ebb and flow creates opportunities within the broader scope of overall market movement to pick industries, and therefore stocks that might be trading at discounted levels but that have a reasonable basis to be trading higher.

    The last day or so has given me an opportunity to go through my sector analysis, and I wasn’t really all that surprised to see a few sectors, like Consumer Staples, Real Estate, Financials and Industrials lagging the market. It’s true that since the broad market hit a new all-time high in late January, most sectors are down, or only marginally higher for the year. However, these three sectors have stood out from the crowd. The reasons for that are interesting, and can provide some good insight about where the greatest risks, and best opportunities in these areas are.



    The Real Estate and Financial sectors are both being weighed down by the prospect of higher interest rates. While the Fed has generally maintained the posture and attitude towards rates that it has been telegraphing to the market for some time now, there is still speculation that the economy could start heating up more than expected and force the Fed to accelerate the timing and size of rate increases moving forward. I also believe that Real Estate, which has generally seen big gains in property values over the last year nationwide, is starting to reflect some investor uncertainty. At what point does the strength in the economy translate to an overbuilt housing market that will force property values to drop? At what point does the surge in property values reach a tipping point, where average Americans looking to buy a home simply can’t afford it? To what extent will higher interest rates translate to higher mortgage costs that frustrate and stymie home buyers? I think Real Estate right now is acting as an early indicator of much broader economic uncertainty and concerns that have yet to be fully realized or refuted.

    Consumer Staples companies include well-known and long-established names like General Mills (GIS), Kraft-Heinz (KHC), and Campbell Soup (CPB). This is a sector that a lot of analysts, myself included, like to think of as a defensive segment of the market; it generally performs well when the market is showing signs of strength, and is usually less sensitive in nature than other sectors, whose cyclic nature leaves them vulnerable to broader economic weakness. If there are signs of economic uncertainty starting to show, defensive stocks like those in this industry should hold up pretty well. That hasn’t been the case for the last few months, as most of names you and I think of immediately when we think about things grocery shopping have been under pressure by shifting consumer trends away from processed and packaged foods to generally healthier, more organic alternatives. This is a trend that I’m not sure is done playing itself out, despite the fact that many of the companies in this sector have terrific balance sheets and overall fundamental strength.

    Industrials have been showing some very attractive earnings growth, fueled in part by the Tax Reform Act from December of last year, but for the last couple of months have been under pressure by the looming threat of a trade war that is starting to shows signs of increased costs on a lot of basic materials besides the steel and aluminum imports that recently imposed tariffs on Mexico, Canada and the European Union targeted. Trade tensions with these countries and with China are still playing themselves out, and so making a play in this space could be risky. I think it’s useful to remember that tariffs on imports, while deemed by market analysts and political wags as bad, misguided policy, have also been applauded by a lot of American companies as necessary steps to assure a level playing field on a global scale. I think the opportunities in this sector lie in targeting industries that tariffs are designed to protect, and among those are companies that work in aerospace and defense. PH is a great example of that, with a very solid fundamental profile, and a depressed market price that offers a nice opportunity if you’re willing to take a long-term view.



    Fundamental and Value Profile

    Parker-Hannifin Corporation (PH) is a manufacturer of motion and control technologies and systems, providing precision engineered solutions for a range of mobile, industrial and aerospace markets. The Company operates through segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial Segment is an aggregation of several business units, which manufacture motion-control and fluid power system components for builders and users of various types of manufacturing, packaging, processing, transportation, agricultural, construction, and military vehicles and equipment. The Diversified Industrial Segment consists of Automation Group, Engineered Materials Group, Filtration Group, Fluid Connectors Group, Hydraulics Group and Instrumentation Group. The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on domestic commercial, military and general aviation aircrafts. PH has a current market cap of $23 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased by more than 30, while sales grew a little over 20%. It’s hard for a company to grow earnings faster than sales, and generally not sustainable over time. Initially, however it is a good sign that management is doing a good job of maximizing their business operations.
    • Free Cash Flow: Free Cash Flow has shown strong improvement dating back to the fourth quarter of 2015, when the company reversed a two-year trend of negative Free Cash Flow growth. As of their last earnings report, PH’s Free Cash Flow was more than $1.2 billion.
    • Debt to Equity: the company’s debt to equity ratio is .82, a number that is generally manageable. Their debt has also declined by a little more than 10% over the past year.
    • Dividend: PH pays an annual dividend of $3.04 per share, which translates to an annual yield of 1.76% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods uses the stock’s Book Value, which for PH is $44.20 per share. At the stock’s current price, that translates to a Price/Book Ratio of 3.9. I usually like to see this ratio closer to 1, or even better, below that level, but higher ratios in certain industries aren’t uncommon. The Machinery industry’s average is 5.13, putting PH quite a bit below its counterparts. The stock’s historical Price/Book Ratio is 3.2, which is below its current level and could be a sign the stock is fairly valued right now. The stock would have to move about 24% higher to reach par with its industry average, however, which translates to a long-term target price above $210 per share.



    Technical Profile

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

    • Current Price Action: Over the last week or so, the stock has been dropping from a pivot high at around $184 per share (which I’ve marked B on the chart). The stock does appear to be showing some signs of stabilization over the last few days between $170 and its current price, which I’ve marked with a C on the chart.
    • Trends: I’ve highlighted the stock’s intermediate-term downward trend, which dates back to its high near $213 in mid-January with the red diagonal line. The stock’s recent decline has been following that line, meaning that the trend is acting as resistance for the stock’s price right now. The dotted green line on the chart traces the intermediate trend’s low point at about $161 along with the stock’s recent stabilization around $170 per share. If the stock’s current support holds, the difference between the short-term upward trend line and the intermediate-term downward trend line will continue to decrease. You think of that like the tightening compression of a coiled spring; the longer that lasts, the more likely there will be a significant move, or release of tension out of that range. If it breaks higher, the stock should see little near-term resistance until it reaches about $184 per share. In the longer-term, and given the stock’s underlying fundamental strength, I think there is a good basis to suggest the stock could revisit the highs it approached at the beginning of the year.
    • Near-term Keys: Watch the stock’s movement carefully over the next few days. A break above $175 would likely mark a reversal the downward trend and could mark a good bullish trade, either by buying the stock or working with call options. On the other hand, a break below $170 could offer an attractive bearish trade, either by shorting the stock or using put options.


  • 05 Jun
    MRO is a bad bet in this market

    MRO is a bad bet in this market

    Yesterday I wrote about the opportunity that I think exists in the energy sector among oil refiners and transportation stocks. That stems from infrastructure challenges that are likely to restrict the ability of oil producers to keep pushing production higher to meet ever-increasing demand. That is one of the factors that is playing itself out right now and is reflected by a much wider than normal spread between WTI and Brent crude prices. I think that limits the upside of U.S. producers like Marathon Oil Corporation (MRO), who have major exposure to the oil fields that are most affected by limited transportation capacity.

    How long is the problem likely to last? There are major projects underway now to expand existing pipeline and storage infrastructure, but even the most optimistic forecasts don’t expect those facilities to come online until late 2019 or even 2020. While crude from areas like the Eagle Ford and SCOOP/STACK oil fields in Texas and Oklahoma are currently running about $11 per barrel below the price of comparable Brent contracts, oil from the Permian basin is even lower, with the spread at nearly $20 per barrel below Brent. Production remains high, which means that companies like MRO are being forced to use more expensive means to get their product to market.



    MRO is a company with a very solid fundamental profile, including solid cash flow that reflects strong balance sheet management over the last several years. That reality, along with an increase in the price of WTI crude from the low $40 range to a little above $70 in late May, helped the stock rally over the same period from a low a little above $10 to its recent peak, reached at about the same time as the peak in WTI, at about $22 per share. That is a one-year, long-term trend that under most circumstances would lead analysts to forecast even more growth. Given the external pressures I’ve already mentioned, however, and the stock’s state as of now as a bit overvalued, I think there is greater downside risk for this stock than there is growth potential.

    Fundamental and Value Profile

    Marathon Oil Corporation is an exploration and production (E&P) company. The Company operates through two segments: United States E&P and International E&P. The United States E&P segment explores for, produces and markets crude oil and condensate, natural gas liquids (NGLs) and natural gas in the United States. The International E&P segment explores for, produces and markets crude oil and condensate, NGLs and natural gas outside of the United States, and produces and markets products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol, in Equatorial Guinea (E.G.). MRO has a current market cap of $17.6 billion.



    • Earnings and Sales Growth: Over the last twelve months, earnings more than tripled, while sales grew more than 50%.
    • Free Cash Flow: Over the last twelve months, Free Cash Flow has Increased steadily and is very strong at more than $2.9 billion as of the company’s most recent earnings statement.
    • Debt to Equity: the company’s debt declined from about $6.7 billion to a little less than $5.5 billion as of the most recent quarter. Their balance sheet indicates that operating profits are abundantly sufficient to service their debt, and also that liquid assets are more than adequate to cover any potential shortfall in operating profits.
    • Dividend: MRO pays an annual dividend of $.20 per share, which translates to an annual yield of a little less than 1% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods uses the stock’s Book Value, which for MRO is $14.16 per share. At the stock’s current price, that translates to a Price/Book Ratio of 1.46. The stock’s historical Price/Book Ratio is .9, which is 38% below its current level. The industry average Price/Book ratio is 2.1, which could offer a long-term target for the stock a little above $29 per share. How should an investor resolve the difference? Consider the potential upside versus the downside risk. That translates to a reward: risk ratio of nearly 1:1. Smart investors look for stocks that offer a ratio of 2.5 or 3 to 1 at minimum.



    Technical Profile

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

    MRO 1-year chart

    • Current Price Action: It’s pretty easy to see the strength of the stock’s upward trend since mid-August of last year. The trend peaked last month at about $22 per share and the stock is down marginally from that point. Historically speaking, the stock has shown considerable resistance in the $20 price area, which appears to be coming into play now. If the stock continues to move lower, it should find some stabilization around $19 per share, but a break below that point would probably see the stock test its March swing low around $15.
    • Trends: Basic trend analysis leans heavily on a principle based on the maxim, “the trend is your friend.” The most practical application of this idea uses the next longer trend versus the trade you’re thinking about to dictate your forecast. If you’re thinking about taking a position that would cover anywhere from a few weeks to a few months, the long-term trend is your primary point of reference. In MRO’s case, that would mean you’d take a bullish view of the stock right now. The fact the stock is dropping off of a trend high could actually be a bullish, positive indicator, if the stock breaks above resistance to about $23 per share. A drop below $19.50 would mark a breakdown of the stock’s short and intermediate trends and would increase the likelihood the long-term trend could also reverse.
    • Near-term Keys: Watch the stock’s movement carefully over the next week or so. A break above $22.50 would likely mark a continuation of the long-term trend to new 52-week highs and could mark a good bullish trade, either by buying the stock or working with call options. On the other hand, a break below $19.50 could offer an attractive bearish trade, either by shorting the stock or using put options.


    By Thomas Moore Energy Sector Oil
  • 04 Jun
    This Oil Pipeline Stock is ready for a BIG upside move

    This Oil Pipeline Stock is ready for a BIG upside move

    One of the most interesting developments of the past week that a lot of investors probably didn’t pay a lot of attention to is the widening spread between U.S. (WTI) and Middle Eastern (Brent) crude oil. WTI, short for West Texas Intermediate, typically trades at a discount of a few dollars per barrel compared to Brent crude, but over the last week that spread has increased to a little over $11 per barrel. The last time that kind of spread happened was 2015, and prior to that it was 2011. The rarity of such a discrepancy is a big part of what opens up an opportunity for investors who are paying attention.

    I think a lot of stock investors miss these kinds of anomalies is because of the fact that it reflects most directly on the commodities themselves. Unless you are actively involved in trading commodities futures, you might not think too much about the price of a barrel of oil except in relation to how its impacts the price you pay at the pump for gasoline. So how does this translate to something a stock investor can use to guide an investment decision?



    A wider-than-normal spread between these two competing commodities can be caused by a lot of different things, but it usually implies some kind of negative pressure on U.S. producers. I this particular case, the spread appears to be a reflection of the reality that U.S. producers have been increasing production consistently for quite some time now, to the point that U.S. transport infrastructure – pipelines and storage facilities, in particular – to handle the supply is almost uniformly already running at full capacity. That means that producers can either scale back production, or find other transportation methods, such as truck and railroad transport, which are more expensive than pipelines. Either way, the pressure is on producers, while pipeline and storage companies are working as hard as they can to bring new capacity online.

    The problem is that new pipelines and storage facilities take time to build and get up and running. An increasing number of experts think that the current capacity limitations will persist through 2019, which means that U.S. crude prices could see limited upside potential on that commodity for the foreseeable future. On the other hand, pipeline and transportation companies are in a advantageous position, since they can charge a higher premium to those producers. Oil refiners are also in a good spot, since the bigger spread means that they can buy U.S. crude at a deeper discount, which naturally improves their profitability potential.



    There are a number of stocks that could be in prime position to see great upside due to the factors I’ve just outlined, but the stock I’m highlighting today, EPD is one that also has a good fundamental and technical basis that bolsters that forecast even more. Let’s take a look.

    Fundamental and Value Profile

    Enterprise Products Partners L.P. (EPD) is a provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals and refined products in North America. The Company’s segments include NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services. The Company’s midstream energy operations include natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage, and import and export terminals, including liquefied petroleum gas (LPG); crude oil gathering, transportation, storage and terminals; petrochemical and refined products transportation, storage, export and import terminals, and related services, and a marine transportation business that operates primarily on the United States inland and Intracoastal Waterway systems. EPD has a current market cap of $63.8 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings grew by a little more than 8%, while sales grew more than 27%.
    • Free Cash Flow: Over the last twelve months, Free Cash Flow has declined modestly, but remains solid at about $1.4 billion as of the company’s most recent earnings statement.
    • Debt to Equity: the company’s debt increased by about 10% over the last year, but is manageable, as their operating profits are more than sufficient to service their debt.
    • Dividend: EPD pays an annual dividend of $1.71 per share, which translates to an annual yield of more than 5% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods uses the stock’s Book Value, which for EPD is $10.63 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.76. The stock’s historical Price/Book Ratio is 3.4, which is 23% above its current level. If the stock rallied to par with that historical average, its price would be $36 per share, a level the stock last saw late in 2014.



    Technical Profile

    EPD has been hovering in a relatively narrow range for most of the past two years, but I think the economic factors I’ve already outlined could act as a catalyst to drive the stock out of that pattern. Here’s a look at the stock’s latest technical chart.

    EPD 5-year candlestick chart

    • Current Price Action: The chart above covers a five-year period because I want you to think about this stock’s potential beyond the limits of its range over the past couple of years. A lot of investors tend to think only about 52-week high or low ranges, but when you see that the stock’s actual high in late 2014 was around $41, the fact that the stock is now pushing near to a 52-week high seems less formidable.
    • Trends: We tend to think about stock trends only in upward or downward terms, and in that context the stock’s short-term upward trend since April of this year is a positive. I’ve used the horizontal red and green lines on the chart to illustrate the stock’s actual long-term trend, which in real terms can only be considered sideways. The stock is at the upper limit of its 2-year range, and that does mean that the stock could break down and drop back down toward the $24 price range it last saw two months ago. On the other hand, a break above that red resistance line, to the $30 level should give the stock the momentum to drive to between $34.50 and $35 in the near-term, and if the trend holds, it wouldn’t be surprising to see the stock test its multi-year high around $41. That is, admittedly, a best-case scenario, but it also offers a long-term price target nearly 40% above the stock’s current level.
    • Near-term Keys: Watch the stock’s movement between its current level and $30. A break above $30 is a prime opportunity to go long, while a break back down below $29 could offer a good bearish-oriented trade, either by shorting the stock or by buying put options.


    By Thomas Moore Commodities Energy Sector Oil
  • 01 Jun
    The Reward With First Solar Is High, But Are The Risks Too Great?

    The Reward With First Solar Is High, But Are The Risks Too Great?

    Today, I’ll first describe the key factors for First Solar (NASDAQ: FSLR) and then focus on what we know and what we don’t know to determine the investment’s risk reward.

    Key points:

    #1: Growth from the current 2,000 MW yearly production to 7,600 MW by the end of 2020 as new factories are built in Malaysia, Vietnam, and the U.S. More →

  • 01 Jun
    Average Joe Investors Are Getting Screwed – Here’s How

    Average Joe Investors Are Getting Screwed – Here’s How

    Recent news came out that Alibaba (NYSE: BABA) just closed a $10 billion financing round for Ant Financial Services Group, operator of China’s biggest online payment platform by market share, Alipay. The deal valued the company at $150 billion and this is an excellent example to show how the little investor gets screwed.

    According to Reuters, investors are Singapore’s sovereign wealth fund GIC Pte Ltd, and state investor Temasek Holdings (Private), as well as U.S. private equity firm Warburg Pincus LLC. So, mostly private and well-positioned firms invest before the IPO. But let’s take a look at what has been going on.



    Yahoo, Alibaba & Ant Financial

    If you have a pension fund, it probably owned shares of Yahoo which consequently owned part Alibaba.  More →

  • 01 Jun
    A Few Final Words From Sven Carlin

    A Few Final Words From Sven Carlin

    Dear Investiv Daily reader,

    The last two years have been very exiting as I’ve been writing daily articles for Investiv Daily.

    I would like to thanks Shane Rawlings—Investiv’s founder—for the opportunity given to me, and I would also like to thank the hundreds of thousands of readers who have enjoyed my articles.

    As with everything in life, there comes a time to part with the old and dig into new adventures. However, keep reading Investiv Daily as Shane has already found an amazing replacement for me. His name is Thomas Moore, and he is a 25-year market veteran and investing expert. You can learn more about Thomas here. More →

  • 31 May
    U.S.-China tensions could force AMAT much lower

    U.S.-China tensions could force AMAT much lower

    Over the last several weeks, the threat of a trade war between the United States and China has put a lot of pressure on the broad market. Virtually every sector of the economy could be affected by U.S. tariffs More →

  • 30 May
    CVS looks poised for a big break out – here’s why

    CVS looks poised for a big break out – here’s why

    Looking for a new investment to make can be an intimidating process, no matter how experienced you may be as an investor. There are so many ways to go about doing it, how are you really supposed to know what method works best? More →

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