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Proprietary Data Insights Financial Pros Top P/E <10 Stock Searches November
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Profits Instead of Growth For the better part of the last decade, markets have been obsessed with growth, even at the expense of current profits. You need look no further than companies that saw soaring valuations for years without ever turning a profit… Like Snapchat (SNAP) which garners an $82 Billion market cap on less than $4 Billion in annual revenues and became operating cash flow positive just last year. Rate increases should take stocks like these down a peg. One or two rate hikes probably won’t budge the markets much. Back in 1980, we saw a 10-year treasury yield of +15%. We don’t think it’ll get that high. But you can bet your bottom dollar that if 10-year yields start crossing even 3%, investors will rethink their positions. That puts the emphasis on companies earning profits and cash now, not in the future. It’s the whole investment payoff analysis you learned back in finance class. When interest rates are higher, you need more profits, profits sooner, or both. That’s why we’re looking more towards stocks with low price-to-earnings and price-to-cash flow ratios with little debt on their balance sheets as the likely winners next year, like those in our search data above. |
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Inflation |
Consumer Prices Worst in 40 Years |
Key Takeaways
The last time inflation was this bad John Cougar Mellencamp topped the charts with Jack & Diane. And there’s no silver lining in the Consumer Price Index (CPI). The Bad
The Good
Yes, the data was really that bad. Even airline fares, which had been on the decline the prior two months jumped 4.7% month over month although they’re down 3.7% year over year. In fact, that was the only category down year over year this time around. Wages Can’t Keep Pace When you hear about ‘real wages’ they’re talking about wage growth minus inflation. So if your paycheck increases by 5% but inflation jumps by 6%, you’re in the hole 1%. And that was the case again this month as average hourly earnings declined 1.9% year over year. The Bottom Line: This data bolsters the case for the Fed to taper their asset purchases and raise rates faster. Markets began to price in a 33% probability of one rate hike of in March of next year with 43% expecting one rate hike in May and almost 12% expecting two. That should limit any upside potential and create more downside risk for equities and treasury bonds. If you’re looking for a hedge, the TBT ETF tracks the inverse of the 20+ year US Treasury Bond market prices. So if US treasury prices fall, the TBT will rise. Otherwise, consider locking in profits on any winners you’ve had this past year. |
