Connect with us

Stocks

BofA Securities: Discovery shares could climb to $45

Discovery Inc (NASDAQ: DISCA) has had a fantastic start to the year with the stock up nearly 25% already, but BofA Securities says it’s just a trailer of what is to come later this year. Discovery upgraded to ‘buy’ at BofA Securities In a note on…

Published

on

Discovery Inc (NASDAQ: DISCA) has had a fantastic start to the year with the stock up nearly 25% already, but BofA Securities says it’s just a trailer of what is to come later this year.

Discovery upgraded to ‘buy’ at BofA Securities

In a note on Friday, BofA Securities’ Jessica Reif Ehrlich upgraded Discovery to “buy” with a price target of $45 that represents a 50% upside from here. Previously, she had a PT of $34 on the stock.

The bullish call is primarily based on Discovery’s pending merger with WarnerMedia that she expects will create the most dynamic global media company. The analyst wrote:

Warner Bros. Discovery could create a global media powerhouse driven by creative and content leadership. WarnerMedia has film and TV studios, other entertainment assets and a deep library, while DISCA’s portfolio of proven lifestyle, reality-TV and unscripted brands have notable strength.

The $43 billion deal is expected to complete by mid-2022. Also on Friday, Brahman Capital Corp increased its stake in Discovery from 1.76% to 5.26%, as per data from FactSet.

Discovery has a favourable risk/reward ratio

According to Ehrlich, Discovery has a favourable risk-to-reward ratio, and the merger will open new doors of incremental revenue for the combined entity. She added:

We view DISCA’s initial cost synergy target of $3.0 billion as highly achievable, if not conservative. We see several areas for incremental revenue opportunities like scale in advertising/distribution, pricing, advertising-based video-on-demand etc.

Streaming is a competitive space, especially since the onset of the COVID pandemic. Yet, Discovery CEO David Zaslav expects the newly launched direct-to-consumer streaming service, Discovery+, to rival established giants like Netflix and Disney+ globally.

Earlier this week, Wells Fargo’s Steven Cahall also said Discovery should be on everyone’s radar for 2022.

The post BofA Securities: Discovery shares could climb to $45 appeared first on Invezz.

Read More

Continue Reading

Economics

Morgan Stanley: SPX could return to its pre-pandemic 3,400 level

The S&P 500 index could return to its pre-pandemic 3,400 level in the coming months that translates to another 15% downside from here, warned a Morgan…

Published

on

The S&P 500 index could return to its pre-pandemic 3,400 level in the coming months that translates to another 15% downside from here, warned a Morgan Stanley analyst on Monday.

Don’t be fooled by the bear market rally

Michael Wilson dubs the recent bounce (about 4.0%) in U.S. equities a “bear market rally” and says investors should brace for more pain ahead as inflation and supply constraints remain a significant headwind. In his note, the analyst said:

With valuations now more attractive, equity markets so oversold an rates potentially stabilizing below 3.0%, stocks appear to have begun another material bear market rally. After that, we remain confident that lower prices are still ahead.

Last week, the U.S. Bureau of Labour Statistics said inflation stood at 8.30% in April – a marginal decline versus the prior month but still ahead of the Dow Jones estimate.

How to navigate the current environment?

Wilson continues to see a recession as unlikely, but agrees that the risk of such an economic downturn has certainly gone up. The U.S. economy unexpectedly shrank 1.40% in the first quarter of 2022.

That is just another reason why equity risk premium is too low, and stocks are still overpriced. The bear market won’t be over until valuations fall to levels (14 – 15x) that discount the kind of earnings cuts we envision, or earnings estimates get cut.

He recommends increasing exposure to real estate, health care, and utilities stocks to navigate the current environment, while tech and consumer discretionary stocks remain a big “no” for him.

The post Morgan Stanley: SPX could return to its pre-pandemic 3,400 level appeared first on Invezz.

Read More

Continue Reading

Economics

What Is Quantitative Tightening? How Does It Work?

What Is Quantitative Tightening?The main job of a central bank, like the Federal Reserve, is to keep the economy strong through maximum employment and…

Published

on

Quantitative tightening is not the opposite of quantitative easing—they are distinctly different activities.

Ballun from Getty Images Signature; Canva

What Is Quantitative Tightening?

The main job of a central bank, like the Federal Reserve, is to keep the economy strong through maximum employment and stable prices. It does this by managing the Fed Funds Rate, which it sets at its Federal Open Market Committee meetings. This effectively raises or lowers the interest rates that banks offer companies and consumers for things like mortgages, student loans, and credit cards.

But when the economy needs help and interest rates are already low, the Fed must turn to other tools in its arsenal. This includes practices like quantitative easing and quantitative tightening; the former expands the shares of Treasury bonds, mortgage-backed securities, and even stocks on the government’s balance sheets, while the latter tightens the monetary supply. Both have a profound effect on liquidity in the financial markets.

The Fed came to the rescue with trillions of dollar’s worth of quantitative easing at the end of the 2007–2008 Financial Crisis, and again during the global Coronavirus pandemic.

But the Fed can’t go on printing money forever. Whenever it employs quantitative easing, the Fed must eventually turn to its counterpart, which is known as quantitative tightening, in order to limit some of the negative outcomes of the former, such as inflation.

How Does Quantitative Tightening Work? What Is an Example of Quantitative Tightening?

Through quantitative tightening, the Federal Reserve reduces its supply of monetary reserves in order to tighten its balance sheet—and it does so simply by letting the bonds and other securities it has purchased reach maturity. When this happens, the Treasury department removes them from its cash balances, and thus the money it has “created” effectively disappears.

Does the Fed know exactly when to ease the gas pedal on quantitative easing? According to the Fed, timing is everything. Remember how the Fed’s main job is to create a strong economy through stable prices and high employment? As it carefully monitors the effects interest rates are having on the economy, it also keeps a close eye on the overall measure of inflation. It’s both a constant battle and a juggle. 

Take the period following the Financial Crisis as an example. The 2007–2008 crisis stemmed in large part from the implosion of collateralized debt obligations, and so the Fed kept the Fed Funds Rate at virtually 0% for almost a decade in order to spur growth and maintain stable rates of employment.

During this period, it also undertook a series of quantitative easing measures, watching its balance sheet balloon from $870 billion in August 2007 to $4.5 trillion in September 2017.

The FRED graph below illustrates how the Fed Funds rate, in blue, remained at nearly zero for the period while the total size of the Fed’s balance sheet, in red, grew. The shaded areas indicate recession.

Federal Reserve Bank of New York, Effective Federal Funds Rate [EFFR], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/EFFR, May 16, 2022.

The Fed believed that as soon as employment became stable, it needed to turn its attention to meeting its 2% inflation target, which it accomplished by raising interest rates. And so, in October 2015, it began gradually increasing the Fed Funds Rate in 25 basis point increments. Over the next several years, rates went up from 0.0%–0.25% levels to 2.25%–2.5% in 2018. This course of action, in the Fed’s words, was known as liftoff.

After raising rates a few times with no disastrous consequences, in 2017 the Fed next embarked on an effort to reduce its balance sheet through quantitative tightening. This was also known as unwinding its balance sheet, because it was taking action in a slow and gradual way.

Between 2017 and 2019, the Fed let about $6 billion of Treasury securities mature and $4 billion of mortgage-backed securities “run off” per month, increasing that amount every quarter until it hit a maximum of $30 billion Treasuries and $20 billion mortgage-backed securities per month. By July 2019, the Fed announced that its unwinding was complete.

The Fed published a blog post detailing these efforts, categorizing them as its “balance sheet normalization program,” since it sought to “return the policy rate to more neutral levels.”

What Effect Does Quantitative Tightening Have on the Economy?

While the goal of quantitative easing is to spur growth, quantitative tightening doesn’t hinder it; in fact, many Governors of the Federal Reserve believe quantitative tightening doesn’t have much effect on the economy at all.

“Quantitative tightening does not have equal and opposite effects from quantitative easing,” said St. Louis Fed President Jim Bullard, “Indeed, one may view the effects of unwinding the balance sheet as relatively minor.”

Former Fed Chair Janet Yellen famously described quantitative tightening as “something that will just run quietly in the background over a number of years,” and that “it’ll be like watching paint dry.”

St. Louis Fed Research Director Chris Waller compared quantitative tightening with “slowly opening the stopper in a drain and letting the water run out,” and by doing so, they were “letting the supply of U.S. Treasuries in the hands of the private sector grow.”

But critics have argued that the excess reserves the Fed creates by “printing money” through quantitative easing have negative consequences on the overall economy. For example, these reserves can lead to currency devaluation and higher inflation, which is defined as when prices rise faster than wages. Inflation can have disastrous effects on an economy, resulting in asset bubbles and even recessions.

Even the Fed admitted as much when St. Louis Vice President Chris Neely noted that between 2008–13, the Fed’s asset purchases led to a decrease in 10-Year Treasury yields by 100–200 basis points. He said, “this reduction modestly raised prices and real activity.”

Just remember that the Fed’s principal aims are to generate stable prices and high employment. So while the Fed hasn’t explicitly said so, reducing its balance sheet might be one of its methods to combat inflation.

Why Is Quantitative Tightening on the Fed’s Agenda Again?

In 2022, inflation reached decades’ high, stemming from a number of factors, including fallout from the global Coronavirus pandemic, which increased labor prices, and Russia’s invasion of Ukraine, which affected energy and commodities. In March, 2020, the Fed slashed the Fed Funds rate to 0.00%–0.25% in response to the pandemic. In May, 2022 it raised rates again by 0.5%.

What Is the Schedule for Quantitative Tightening?

On May 4, 2022, the Fed announced it would be undertaking a “phased approach” of quantitative tightening measures beginning with a 3-month period of unwinding $30 billion of Treasuries and $17.5 billion mortgage-backed securities beginning on June 1, 2022. By September, 2022 these caps would increase to $60 billion and $35 billion, respectively.

Is Quantitative Tightening Really So Frightening?

TheStreet’s Ellen Chang says that, according to economists, inflation is on a downward trend, most likely to decline to 3% by the end of the year, and that higher interest rates as well as quantitative tightening should do what they’re supposed to, and reduce pricing pressure. 

Read More

Continue Reading

Economics

Recession-Proof Stocks To Buy Now? 4 Retail Stocks To Know

These retail stocks could be in focus ahead of April’s retail sales data.
The post Recession-Proof Stocks To Buy Now? 4 Retail Stocks To Know appeared…

Published

on

Do You Have These Top Retail Stocks On Your Radar This Week?

As we begin another week of trading in the stock market, retail stocks appear to be in focus. Investors can expect plenty of action from the sector as Walmart, Lowe’s (NYSE: LOW), and many other consumer juggernauts are expected to report their earnings. In fact, Dillard’s (NYSE: DDS) has already set the tone last week after announcing favorable first-quarter financials. The company reported a comparable retail sales growth of 23% year-over-year and a record high retail gross margin of 47.3%. Aside from that, April’s retail sales report is also scheduled to be released on Tuesday. Hence, it would not be surprising that investors are paying close attention to the retail sector this week.

Now that the world is returning to normalcy, many would expect retailers to see a strong rebound from their pandemic struggles. For instance, Seattle-based Nordstrom (NYSE: JWN) recently announced plans to open a new Nordstrom Rack in the spring of next year. The new store will be a mixed-use complex in the North Hollywood neighborhood of Los Angeles, California. It will be part of the heart of the area that features other top retailers such as LA Fitness, Regal Cinemas, Ulta Beauty (NASDAQ: ULTA), and others. With all said and done, retail companies will likely stay relevant if they can keep up with the times. So, here are some of the top retail stocks in the stock market today worth checking out. 

Retail Stocks To Watch This Week

Walmart

Walmart is among the top retail names in the stock market. Put simply, the company offers shopping opportunities in both retail stores and through e-commerce and provides access to its other service offerings. Moreover, the company often promotes its services at everyday low prices to attract the interest of consumers. Elsewhere, its International segment includes various formats that include supercenters, supermarkets, hypermarkets, and e-commerce entities. Now, all eyes are on WMT stock ahead of its first-quarter earnings report on Tuesday, May 17. 

Furthermore, the company has also been actively promoting its Walmart+ membership program. Late in April, Walmart announced that Walmart+ members will be eligible for lower fuel costs with a bigger discount per gallon at the pump at more than 14,000 fuel stations nationwide. With the addition of 12,000 Exxon and Mobil locations across the U.S., its members will save 10 cents per gallon at participating Exxon and Mobil locations. Also, Murphy and Walmart U.S. stations will offer a reduction of 5 to 10 cents per gallon. Considering these, would you be investing in WMT stock ahead of its earnings report?

WMT STOCK
Source: TD Ameritrade TOS

[Read More] Best Social Media Stocks To Buy Now? 4 To Watch This Week

Lululemon

Another top retail company to note right now is Lululemon. For those unaware, the company is a designer, distributor, and retailer of lifestyle-inspired athletic apparel and accessories. On a sense of scale, the company has approximately 575 stores in 17 countries around the globe. Most of its retail stores are either located in on-street locations, lifestyle centers, or within shopping malls. With that being said, Lululemon has been making several positive strides in the right direction over the past month. For starters, the company announced the nationwide expansion of lululemon Like New in April. 

This marks the brand’s first trade-in and resale program that is now available to all guests across the U.S. The company plans to reinvest all of its profits to support the company’s commitment to making 100 percent of its products with sustainable materials and end-of-use solutions by 2030. On top of that, Lululemon also announced that it plans to double its 2021 revenue of $6.25 billion to $12.5 billion within the next five years. It believes that significant growth can be expected across key pillars such as product innovation, guest experience, and market expansion. For example, the company’s Power of Three x2 growth strategy plans to double men’s and digital revenues and quadruple international revenues relative to 2021. Given these plans, should investors be keeping a closer tab on LULU stock now?

LULU stock chart
Source: TD Ameritrade TOS

Home Depot

Following that, let us have a look at the home improvement retailer, Home Depot. In detail, the company offers an assortment of building materials, lawn and garden products, decor products, home improvement products, and many more. Besides that, the company also provides several services such as home installation services, and tool and equipment rental. With approximately 2,300 stores throughout the U.S. and other parts of the world, the company is no stranger to most consumers. However, HD stock has been trading sideways over the past month. Investors are likely hoping that a strong earnings report on Tuesday may change the sentiment for the stock. 

Earlier this month, Home Depot announced a partnership with Bonnie Plants and AmpleHarvest.org. For the uninitiated, Bonnie Plants is the largest grower of vegetables and herb plants for home gardens in the U.S. The collaboration aims to empower gardeners to grow and donate to local food pantries. So, gardeners can ensure they will have an abundance of amazing harvest by expanding their garden with the Bonnie Plants Harvest Select line that is available exclusively at Home Depot. It is also noteworthy that UBS recently set a price target of $360 on HD stock, representing an upside of about 20%. All things considered, would HD stock be worth watching right now?

HD stock
Source: TD Ameritrade TOS

[Read More] Stock Market Today: Dow Jones, S&P 500 Opens Lower; Spirit Airlines Soars On JetBlue Hostile Takeover Bid

Foot Locker

Lastly, we have the shoes and apparel retailer to sum up the list, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Well, some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep.

Not long ago, the company and one of the leading sports brands in the world, Adidas, announced a new and enhanced partnership. This new collaboration will be built around product innovation, deeper consumer connectivity, and overall better experiences. Moving forward, Foot Locker will be the lead partner for Adidas in the basketball category. Additionally, the partnership will target over $2 billion in retail sales over the next three years. Given such exciting developments, do you think FL stock could see brighter days ahead soon?

FL stock chart
Source: TD Ameritrade TOS

If you enjoyed this article and you’re interested in learning how to trade so you can have the best chance to profit consistently then you need to checkout this YouTube channel. CLICK HERE RIGHT NOW!!

The post Recession-Proof Stocks To Buy Now? 4 Retail Stocks To Know appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

Read More

Continue Reading

Trending