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JPMorgan: 3 Stocks to Buy (And 1 to Stay Away From)

JPMorgan: 3 Stocks to Buy (And 1 to Stay Away From)

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Times right now are unprecedented. The COVID-19 pandemic, the overarching government responses, the social and economic shutdowns – all are putting extraordinary pressures on financial markets. From the sudden equity collapse that started in late February, to the bear market rally we’re experiencing now, investors simply haven’t got the usual market signals they rely on.

Covering the overall situation, JPMorgan chief of Equity Strategy Dubravko Lakos-Bujas points out, “The sharp ~30% recovery in S&P 500 from the Mar 23 trough, even as earnings expectations and macro outlook were steadily being revised lower by the street, has come as a surprise to many.” Lakos-Bujas also notes that government stimulative policies have matched the extraordinary conditions with equally extraordinary liquidity injections – and that the fiscal and monetary stimulus has put a floor in the equity markets.

Looking ahead, the analyst says, “[We] have been arguing that this unprecedented stimulus and liquidity boom will outlast the health crisis. Our valuation models imply that the equity risk premia remains attractive…”

In line with JPM’s official analysis of market risks, the firm’s stock analysts have been picking possible winners – and losers. We’ve looked at three of those stocks through the lens of the TipRanks database, to find out what makes two of them compelling buys – and what makes the third a stock to avoid.

Federated Hermes (FHI)

We’ll start with a financial company. Federated Hermes is an asset management company, controlling an equity portfolio worth $68 billion and holding $606 billion in assets under management. AUM hit a record in the first quarter of this year.

While Q1 2020 saw EPS fall – the COVID-19 epidemic has been painful across the board – the 63 cents reported was still up 16% year-over-year. The company credits long-term assets for 56% of quarterly revenue.

Solid earnings support a reliable dividend. FHI has grown the payment slowly over recent years, and currently pays out 27 cents per share quarterly. At $1.08 annualized, this makes the dividend yield 5.1%, or more than double the average yield among peer financial sector stocks.

This company’s strong position has brought it to JPM’s attention. Analyst Ken Worthington upgraded the JPM view on FHI from Neutral to Buy. He set a $27 price target for the end of 2020, suggesting an upside potential here of 28%. (To watch Worthington’s track record, click here)

In his comments on the stock, Worthington wrote, “…Federated could keep more of the earnings driven by the massive increase in money market fund assets. We see the rest of Federated's business performing adequately and better than most, leveraging some good positioning, solid performance and its strengthening brand in ESG.”

Overall, Wall Street is cautious on FHI shares. The analyst corps has delivered 2 Buy ratings – but 4 Holds, making the analyst consensus rating a Moderate Buy. The average price target is $23.20, which indicates a modest upside of 10%. (See Federated Hermes stock analysis on TipRanks)

AbbVie, Inc. (ABBV)

Next up is a pharmaceutical company, one of Big Pharma’s major names. Pharmaceutical and biotech companies are known for their combination of high risk and high reward potential. The rewards and risks are both typified in Humira, the company’s successful immunosuppressive anti-inflammatory drug. Humira is expected to bring in ~40% of AbbVie’s 2020 drug division revenues – but with an expired patent, competition is growing. Last year, Humira accounted for 50% of drug revenues.

AbbVie is fortunate to have a strong product line-up, with new drugs Skyrizi and Rinvoq beating the expectations on their launches and projected to bring in $4.5 and $5 billion in revenue, respectively, by 2025.

The company saw solid earnings in 2019, and in Q1 2020, despite the coronavirus disruptions to economic activity, ABBV reported a substantial sequential earnings increase. EPS grew 9.5% to $2.42, and beat the forecast 6.6%.

Earnings growth has allowed ABBV to keep up a reliable dividend, one of the best in the pharmaceutical sector. The company has increased its dividend payment four times in the past three years, including in Q1 2020. The current payment is $4.72 annualized, with quarterly payments of $1.18. The yield is nearly 5.2%, which simply blows away the healthcare sector average yield of 1.75%.

Chris Schott, in his note on ABBV for JPM, sees a clear path forward for the company. He writes, “On the core portfolio, we anticipate ~9% annual growth in the company’s $30bn non-Humira business led by … Skyrizi and Rinvoq... ABBV’s pipeline represents another potential upside driver with little value being assigned to the company’s mid-stage assets… we see the company’s dividend as highly sustainable…”

In line with his comments, Schott initiates coverage of ABBV for JPM with a Buy rating. His $105 price target implies a healthy upside potential of 15%. (To watch Schott’s track record, click here)

The Wall Street view of ABBV shares is almost as bullish as Schott’s. The Moderate Buy consensus rating is based on 10 reviews, including 7 Buys and 3 Holds. Shares in this pharma giant are selling for $91.20, and the average price target of $101.13 suggests it has room for 11% growth this year. (See AbbVie stock analysis on TipRanks)

Quidel Corporation (QDEL)

Last up is a big player in the diagnostic healthcare segment. Quidel, and American company based in San Diego, operates worldwide. Earlier this month, Quidel scored a major coup: it received authorization from the US FDA, the regulatory body for the health care and pharmaceutical sector, to produce a COVID-19 antigen test.

This authorization shows up Quidel’s strength in the ‘Age of Corona:’ the company produces diagnostic tests, and those are in high demand. Such high demand that, while the markets generally turned bearing in February, QDEL shares started climbing – bringing year-to-date gains to 148%.

With earnings up and an approved authorization for development and production if a COVID-19 diagnostic test, it would seem that QDEL is primed for gains. And yet JPM says to sell this stock. Why the bearish call?

In short, Quidel’s recent steep share price gains have overvalued this stock. As 5-star analyst Tycho Peterson says in his review of QDEL shares, “…while not ruling out the COVID-19 antigen testing opportunity, we believe it may be overstated due to the nascent market, scale-up of competitive tests and potential for avaccine in 12-18 months, leaving us skeptical of the opportunity implied by the stock move.”

Peterson is careful not to blast the company, but he does downgrade his stance of QDEL from Neutral to Sell. His $158 price target projects a 15% downside for the shares this year. (To watch Peterson’s track record, click here)

The market’s collective wisdom agrees. QDEL has a Moderate Sell consensus rating, based on 2 Holds and 1 Sell rating. At $124, the average price target implies a 33% downside from the current share price of $186.05. (See Quidel stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

The post JPMorgan: 3 Stocks to Buy (And 1 to Stay Away From) appeared first on TipRanks Financial Blog.

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The Gall Of Lockdowners Who Support China’s Anti-Lockdown Protests

The Gall Of Lockdowners Who Support China’s Anti-Lockdown Protests

Authored by Michael Senger via ‘The New Normal’ Substack,

If the intent…

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The Gall Of Lockdowners Who Support China's Anti-Lockdown Protests

Authored by Michael Senger via 'The New Normal' Substack,

If the intent was to get western elites to simultaneously support totalitarianism in their own countries while pretending to oppose it in China, then Xi Jinping has certainly made his point...

Across the political spectrum, voices have risen up in support of the Chinese people who’ve launched protests of unprecedented scale against the Chinese Communist Party’s indefinite Covid lockdown measures.

As well they should. Even by Chinese standards, the lockdowns that Xi Jinping pioneered with the onset of Covid are horrific in terms of their scale, their duration, their depravity, and the new totalitarian surveillance measures to which they’ve led. Anyone who participates in a protest in China runs a risk of being subject to cruel and arbitrary punishment. For ordinary Chinese people to brave that risk in defiance of this new form of inhuman medical tyranny is an act of courage worthy of admiration.

There are notable exceptions to the otherwise widespread support the protesters have received. Apple has been silent about the protests, and had the gall to limit the protesters’ use of a communication service called AirDrop in compliance with the CCP’s demands, even as it threatens to remove Twitter from its app store over Elon Musk’s free speech policy. This comes even after Apple has long ignored requests by FCC officials to remove the Chinese-owned app TikTok from its app store over unprecedented national security concerns. So Apple complies with requests by the Chinese government, but not the United States government. Let that sink in…

Apple is, unfortunately, far from alone in its CCP apologism. Anthony Fauci told CNN that China’s totalitarian lockdowns would be fully justified so long as the purpose was to “get all the people vaccinated.”

This kind of apologism for the CCP’s grisly bastardization of “public health” is horrific, especially coming from the man most widely seen as the leader of America’s response to Covid.

But what may be even more galling than this apologism is the widespread support China’s anti-lockdown protesters have received even among those who demonized anti-lockdown protesters in their home countries and wished their lockdowns were more like China’s.

In 2020, the New York Times denounced anti-lockdown protesters as “Anti-Vaxxers, Anticapitalists, Neo-Nazis” and urged the United States to be more like China.

But in 2022, the New York Times admired the bravery of China’s anti-lockdown protesters fighting Xi Jinping’s “unbending approach to the pandemic” that has “hurt businesses and strangled growth.”

In 2020, CNN published an open letter from “over 1,000 health professionals” denouncing anti-lockdown protests as “rooted in white nationalism” while admiring “China’s Covid success compared to Europe.”

But in 2022, CNN admired China’s anti-lockdown protesters as “young people” who “cry for freedom”

In 2020, the Washington Post denounced anti-lockdown protesters as “angry” populists who “deeply distrust elites,” and wished the United States was more like China.

But in 2022, the Washington Post celebrated global “demonstrations of solidarity” with China’s anti-lockdown protests.

In 2020, the New Yorker denounced anti-lockdown protesters as “militias against masks” while marveling at how “China controlled the coronavirus.”

But in 2022, the New Yorker admired the protesters standing up to Xi Jinping.

Earlier this year, Amnesty International issued a statement of concern about Canada’s anti-lockdown Freedom Convoy protests being affiliated with “overtly racist, white supremacist groups,” even as Justin Trudeau invoked the Emergencies Act to crush the protests.

But now, Amnesty International has issued a statement urging the Chinese government not to detain peaceful protesters.

These headlines are, of course, in addition to the hundreds of other commentators, influencers, and health officials, such as NYT journalist Zeynep Tufekci, who used their platforms in 2020 to urge for lockdowns that were even stricter than those their governments imposed, but now join in support for those in China protesting the same policies they were urging their own countries to emulate.

Etymologically, Zeynep’s latter comment makes no sense. Lockdowns had no history in western public health policy and weren’t part of any democratic country’s pandemic plan prior to Xi Jinping’s lockdown of Wuhan in 2020. Though some countries, such as Italy, imposed lockdowns shortly before the United States, their officials too had simply taken the policy from China. Thus, because no other precedent existed, any call for a “real lockdown” or a “full lockdown” in spring 2020 was inherently a call for a Chinese-style lockdown.

Though by “full lockdown” Zeynep may have intended somewhere in between the strictness of lockdowns in the United States and China, there was no way for any reader to know what that medium was; it existed only in her own head. Thus, the reader is left only with a call for a “full lockdown,” and the only example of a “successful” “full lockdown” that then existed was a full Chinese lockdown.

Zeynep’s latter comment further illustrates the efficacy of what was arguably some of the CCP’s most effective lockdown propaganda in early 2020: The ridiculous viral videos of CCP cadres “welding doors shut” so poor Wuhan residents couldn’t escape.

CCP apologists have argued that these videos prove the CCP was not trying to influence the international response to Covid, because they make the CCP look so bad. But on the contrary, the over-the-top inhumanity of the idea of welding residents’ doors shut was precisely the purpose of this propaganda campaign. The idea had to be so absurd that no decent government would ever actually try it. It thus gave the CCP and its apologists an infinite excuse for why lockdowns “worked” in China and nowhere else—because only China had ever had a “real lockdown” in which residents were welded into their homes.

When those with a decent knowledge of geopolitics or a bit of common sense see a graph like this, which looks nothing like that of any other country in the world, from a regime with a long history of faking its data on virtually every topic, the conclusion is obvious: China’s results are fraudulent. But to simple minds, a weld is a strong, durable bond capable of incredible feats, from supporting skyscrapers to spaceships. Surely, if a weld can do all that, then it must be able to stop a ubiquitous respiratory virus?

The entire concept is, of course, utterly asinine. You cannot stop a respiratory virus by indefinitely suspending everyone’s rights. But this idea that lockdowns had worked in China because the CCP had gone so far as to weld people into their homes was invoked over and over again during Covid, creating a limitless “No-True-Scotsman” out for lockdown apologists as to why lockdowns weren’t “working” anywhere except China. Whether COVID-19 cases went up, down, or sideways, the solution would always be the same: “Be more like China.”

The use of this darkly humorous propaganda campaign of welding residents into their homes speaks to two key points as to how Xi Jinping and CCP hawks like him view China’s relationship with the west. The first is that westerners will never respect the CCP; thus, you can make westerners believe anything so long as it confirms westerners’ prior belief that the CCP is barbaric.

Second, Xi Jinping sees the concepts of democracy and human rights as mere propaganda that western elites use to further their own self-interest. So long as they approve of a policy, then it’s not a human rights violation, but if they oppose it, then it is. It remains to be seen whether the response to Covid will, in the long run, ultimately advance Xi’s goal of making the world China. But insofar as the intent was to get western elites to simultaneously support totalitarianism in their own countries while pretending to oppose it in China, then he’s certainly made his point.

*  *  *

Michael P Senger is an attorney and author of Snake Oil: How Xi Jinping Shut Down the World. Want to support my work? Get the book

Tyler Durden Mon, 12/05/2022 - 15:53

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Correction in Energy Provides High-Yield Buying Opportunity

By now, most investors have heard and come to understand how the yield curve for the bond market is inverted — where the two-year Treasury Note yields…

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By now, most investors have heard and come to understand how the yield curve for the bond market is inverted — where the two-year Treasury Note yields considerably more than the 10-year Treasury Bond.

An inverted yield curve historically marks a very difficult time for the economy in the coming months. Examples include major events like 13% inflation in 1979, the dot-com blowup of 2000, the housing crisis of 2008, the COVID-19 outbreak in 2020 and, in the current case, aggressive rate hikes to force a slowdown in demand after massive spending triggered rapid inflation.

As of Dec. 1, the yield on the two-year T-Note stood at 4.27% while the yield on the 10-year T-Bond paid out 3.54%. The difference between the two yields is 0.73%, or 73 basis points, as illustrated by the graph below. This is the widest 2-10 spread since 1980, when the economy was in a deep recession. While there is one camp that argues such an inversion is a precursor to a hard-landing-type recession, others would contend that it marks a bottom for the economy followed by a gradual recovery.

What history tells us is that the economy does suffer a material slowing in the year following peak yield curve inversion, meaning 2023 will likely prove to be a challenging time for the U.S. economy that will include higher unemployment, lower housing prices, low gross domestic product (GDP) growth and lower earnings for the S&P 500. For the record, the past week’s rally has raised hopes that the economy will not fall into recession, but simply endure a slow growth environment.

Here is just one example of what’s happening in the housing market. The monthly payment on a 3%, 30-year fixed mortgage for a $400,000 home was $1,349 during December 2021. Today, the monthly payment on a 7%, 30-year fixed mortgage for a $400,000 home is $2,129 – a $780 increase. For a home buyer who wants to maintain that $1,349 monthly payment per their budget, she or he will have to settle on a home priced at $253,000. That’s 37% price differential. Either wages move higher or home prices decline further, or both occur.

History also shows that the year following a steep inverted yield curve, the stock market begins the next leg of the secular bull market. If past is prologue, 2023 should be a pretty good year for stocks. There are those who argue the bottom is in and the next bull leg has just begun. Some of this uncertainty will be sorted out by Dec. 14 at the Federal Open Market Committee (FOMC) meeting.

In another high profile and fluid situation, more volatility in the crude oil market can be expected. On Sunday, OPEC+ agreed to stay put on its production output targets as the energy markets contend with pricing in a slowing Chinese economy and a potential European Union boycott of most Russian oil imports and a price cap of $60 per barrel on Russian exports imposed by the European Union, the Group of Seven countries and Australia.

Some countries won’t sign on, and the policy directive is coming at a time when China and India are content to buy Russian oil at its current $66 per barrel price while WTI crude trades at around $81 per barrel. Russia has been effective at circumventing sanctions to date. If there were any teeth to this new set of sanctions and price caps, oil prices would likely be trading much higher. So, it stands to reason the status quo for an ongoing tight global energy market will persist.

The resurgence of COVID-19 in China has dampened sentiment for demand by oil traders amid a long-term timeline by which demand in China will increase when that economy full reopens. Overt pressure from the Biden administration on OPEC+ to increase supply had also weighed on oil prices heading into last Sunday’s meeting, but that obviously did not work out to the liking of the White House. WTI closed out the week around $80/bbl. and right where the Saudis want to maintain a floor.

Back in June of this year, the Royal Bank of Canada hosted an energy conference in New York with the highlight being a keynote speech by Mohammed Barkindo, the secretary general of OPEC. In his keynote speech, Barkindo warned that “OPEC is running out of capacity,” and that “with the exception of two or three members, all are maxed out.”  Further, “the world needs to come to terms with this brutal fact” and that it is a “global challenge.”

I’ll take that statement at face value. OPEC+ is running out of spare capacity that supports the bull case for a strong pricing environment for crude oil and natural gas into 2023. Amidst all the confusion, most exploration and production energy stocks have pulled back off their recent highs and offer, in my view, some attractive entry points — especially in those stocks with variable dividend policies and those high-yielding domestic infrastructure investments.

Foregoing major capital expenditure (capex) spending in the face of an anti-fossil fuel administration, returning free cash flow to shareholders in the form of variable dividends has turned out to be one of the greatest inflation-fighting asset classes from both fundamental and total return basis in 2022. In the E&P space, Coterra Energy Inc. (CTRA) yields 9.2%, Devon Energy Corp. (DVN) yields 7.9% and Pioneer Natural Resources Co. (PXD) pays out a 10.4% dividend yield. (I have no position in these stocks.)

With oil prices having declined for much of the fourth quarter due to concerns over demand by China, the next round of variable dividends may not be as juicy as recent quarters, but listening to oil execs, their outlook remains bullish. Speaking to the most recent earnings release, Pioneer CEO Scott Sheffield noted, “I still think they will probably get back to $120, sometime mid-next year, once China opens up,” in a Bloomberg Television interview. Sheffield also said China’s growing energy infrastructure could surpass the United States if the country doesn’t invest more in areas such as pipelines and liquefied natural gas terminals.

A couple high-yield energy infrastructure exchange-traded funds (ETFs) and closed-end funds that convert the K-1 MLP income into 1099 ordinary taxable income include:

  • Alerian MLP ETF (AMLP), paying 7.34%
  • InfraCap MLP ETF (AMZA), paying 7.14%
  • Kayne Anderson Energy Infrastructure Fund (KYN), paying 9.03%

(NOTE: I have no position in these funds.)

To ramp up domestic production, Sheffield added, Biden needs to speak not just with leaders of companies like his, but also with shareholders and financial players who fund the industry. Personally, I don’t see this dialogue being anywhere near constructive going forward. That reality will keep new development of energy sources limited and prices elevated. To this point, the risk/reward investment proposition continues to look very promising for energy companies dedicated to fossil fuels, as long as there is a major deficiency in supply by renewables.

The post Correction in Energy Provides High-Yield Buying Opportunity appeared first on Stock Investor.

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Disney Has Bad News for Marvel, Star Wars Fans

With Bob Iger back at the Disney helm, the company’s content strategy is already changing.

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With Bob Iger back at the Disney helm, the company's content strategy is already changing.

It's no secret that the last few years have seen a boom in the production of movies and television shows. Thanks to the presence of streaming platforms, audiences have more options than ever when it comes to choosing what to watch. As soon as vaccines made it possible for production studios to pick back up after the covid-19 lockdown, there was a surge in original content.

Leading the pack was Disney  (DIS) - Get Free Report, thanks in large part to its impressive library of valuable intellectual property. Under the leadership of Disney CEO Bob Iger and Head of Strategy Kevin Mayer, Disney acquired major studios Pixar, Star Wars, and Marvel. In 2020, Iger left Disney in the hands of Bob Chapek, who had 26 years of experience with Disney working first in the Home Entertainment department and then as Chairman of Parks & Resorts.

Thanks to political entanglements with Florida Governor Ron DeSantis and an unpleasant legal battle with actress Scarlett Johansson, the last few years of Chapek's leadership have left board members with something to be desired. In a surprising announcement over Thanksgiving weekend, Iger was reinstated as Disney CEO for a period of two years -- during which time, Disney will likely see some changes.

Getty Images/TheStreet

Disney is Trimming Down its Content in 2023

Shortly after the news of Chapek's leaving and Iger's return, Disney released its annual report stating that 2023 will see a reduction in television shows and feature programming. According to the document, "In fiscal 2023, the Studios plan to produce approximately 40 titles, which include films and episodic television programs, for distribution theatrically and/or on our DTC platforms."

To put that in perspective, 2022's annual report set a goal for 50 titles. In the last two years, both Marvel and Star Wars have released several major film and series titles, each of which cost millions of dollars to make and market. Each new addition to the brands' libraries drew praise and criticism alike -- but now it looks like Disney is looking for more precise hits that favor quality over quantity.

For Disney, Less Could Be So Much More

Cutting down production by ten projects next year is a strategy that could bring a lot of benefits to the House of Mouse. There's no such thing as a cheap Disney production, and prioritizing projects that are more likely to succeed at the box office could be a better use of company resources.

Earlier this year, Marvel Studios specifically was plagued by reports of overworked and underpaid graphic designers -- another bit of press that reflected poorly on Chapek's overall leadership. With less pressure to complete more projects and an increased budget per project, Disney and Marvel could work to repair its tarnished reputation among creatives.

Regardless of what the surplus budget is used for, Disney isn't the only streaming service moving toward a more fiscally-conservative 2023. Warner Brothers Discovery  (WBD) - Get Free Report service HBO Max has been itching to slice $3 billion from its own budget, cutting programming and even shopping animated content to Amazon. Meanwhile Netflix  (NFLX) - Get Free Report, it seems, is going full speed ahead into the new year.

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