Chinese initial public offerings (IPOs) could be hot again this year, but don’t look to America as the breeding grounds: the flow to the U.S. is dead.
The big market for Chinese IPOs will be at home in China where there could be as many as 349 IPOs this year, according to a calculation by Goldman Sachs. (Source: “IPO deep dive: The Sword of Damocles or Paper Tiger?,” Goldman Sachs web site, January 23, 2013, last accessed May 14, 2013.) Of course, we have seen only a trickle this year, so the Goldman estimate seems to be more fiction than fact.
In the U.S., there are no Chinese IPOs scheduled for the immediate future, a stark contrast to the 60 Chinese stocks that debuted on U.S. equities markets from 2008 to 2011.
The more recent numbers look even worse, and tell us a tale of misfortune for Chinese IPOs.
In 2012, there was one Chinese listing on U.S. equities markets, but we saw the delisting of several Chinese stocks that have been taken private. Since August 2011, 23 Chinese stocks have delisted from U.S. equities markets, according to Money Week magazine.
Based on what I have been reading, I doubt that there will be much activity this year or next for Chinese IPOs, unless the rules of engagement for financial reporting and auditing are made better and meet U.S. standards. The Securities and Exchange Commission (SEC) wants any Chinese company aiming for access to U.S. capital markets to use one of four approved U.S. Big Four auditors. That request is fine, but the problem lies in the SEC also wanting … Read More
With capital shifting into the perceived safety of blue chips and large-cap stocks, small-caps and technology stocks have been declining on the charts.
Given the advance so far this year in the equities market, it’s understandable to expect some hesitancy.
The Dow is up 13.4% as of April 12, and it’s on pace for a gain of 47% on an annualized basis.
I doubt this will happen and expect market adjustments in the equities market along the way. The same goes for the S&P 500 and the other key market indices.
Small-caps in the equities market have also fallen off since the end of the first quarter.
At the back of the pack is the technology sector; but there has been a lack of strong leadership from any sector, including the semiconductor, Internet, and technology sectors, in general.
The following chart shows the recent movement of the three sectors (semiconductor, Internet, and technology) since March and their sideways direction.
Chart courtesy of www.StockCharts.com
Without any leadership in the equities market, the NASDAQ and technology stocks will continue to drift. However, there are some opportunities for speculators searching for contrarian situations.
The Internet sector is flat and lacking a clear direction.
In the stock chart below, the First Trust Dow Jones Internet Index (NYSEArca/FDN) fund shows the sideways channel that has been in place since late January.
Extrapolating on this data, I don’t see any strong and clear signs of a breakout at the top channel line, but if you think longer-term, there are opportunities in the equities market.
Chart courtesy of www.StockCharts.com
The “Best of Breed” in the Internet sector … Read More
The Federal Reserve is intent on keeping this Fed-induced stock market rally intact for perhaps another few years.
At the Federal Reserve monthly meeting this past Wednesday, the Federal Reserve reconfirmed its program of maintaining near-zero interest rates and its $85.0 billion monthly bond-buying strategy. As I recently discussed, the environment of low rates will offer little choice for investors who have to weigh low-yielding fixed-income investments against stocks. In other words, the equities market will continue to be driven, at least in part, by the cheap money. This will be great for the people who have the funds, but it will be horrific for those with lower income and who may be dependent on income from their investments. But for the government it’s great news, especially when it’s carrying so much debt—well, the government can thank the Federal Reserve.
Faced with the uncertainties in the jobs market and job creation, the Federal Reserve suggested it would maintain its record-low interest rates until the country’s unemployment rate falls to 6.5%. The problem is that the Federal Reserve predicts this will not occur until sometime in 2015, so that’s another two years of easy money and the building up of massive national debt. Remember what I said about the sequestration cuts and how they are well below the interest paid on the debt? Imagine the payments when interest rates ratchet higher! It’s not going to be pretty. The Federal Reserve has created this situation, which could inevitably blow up.
In reality, achieving an unemployment rate of 6.5% may not happen until after 2015, based on current job generation. According to the … Read More
The market appears to have another bull leg, with the Dow closing higher in 10 straight sessions, setting multiple record-highs in the process.
With the advance, there are now questions regarding the sustainability with arguments on both sides. Even former Federal Reserve Chairman Alan Greenspan went on CNBC and suggested the stock market did not show “irrational exuberance,” saying stocks were cheap. (Source: Belvedere, M.J., “Greenspan: No ‘Irrational Exuberance’ in Stocks Now,” CNBC, March 15, 2013.) There have been others also supporting the bull case, yet some pundits have also come out and suggested the market is set for a downfall.
While I’m encouraged by the recent rally to multiyear highs, I believe the rapid pace of the advance is not sustainable and stocks are priming for a setback, but I’m not sure when or by how much. I do believe 2013 will be positive for stocks, but at this time, you also need to be aware of the risk and vulnerability on the charts, especially with the S&P 500.
So while the global economy is improving, the catalyst for the upward move in stocks has largely been the easy monetary policy worldwide that has resulted in a low interest rate environment and the search for alternative investments to low-yielding bonds. Without the easy money, I highly doubt stocks could have risen at such a rapid pace.
At this time, you need to think about a viable investment strategy in case stocks falter.
One investment strategy would be to take some profits off the table, but then you may miss out on a potential stock market rally.
You can buy … Read More
Bearish traders tend to short stocks and/or the equities market. While stocks subject to short selling are viewed as negative, I often take the contrarian view, and look at these shorted stocks as a possible buying opportunity due to the short-covering possibility.
Let me explain. With short selling, a trader disliking a particular stock would short the stock by borrowing the stock from his or her broker and selling it in the market at the prevailing price. The short-seller hopes the stock falls in price. For the short-selling strategy to pan out, the short stock must drop in price so that the short-seller can buy it back at a lower price and replace the borrowed position to the registered holder. The short-seller would profit.
In my view, looking at heavy short-selling stocks is a strategy to buy a stock that could have more potential than what the short-seller thinks. By taking this contrarian short-selling approach, you can often discover stocks that may be set for a short-covering rally in which you can profit.
For instance, online leader Google Inc. (NASDAQ/GOOG) is trading at over $800.00; however, investors continue to like the stock, as there are minimal short-selling positions on the stock at 1.6% of the float, or 1.4 million shares, as of February 15, 2013. (Source: Thomson Financial, last accessed March 14, 2013.) But note that a month earlier, there were 3.28 million short shares on Google, so the stock attracted some short-selling covering that helped to drive the stock higher, based on my stock analysis.
I normally would not look at a stock like Google as a short-selling buying … Read More
The equities market continues to hover near its multi-year highs. There are still many Wall Street analysts who suggest that the bulls are in full control and will drive stocks higher.
Investor sentiment had been extremely bullish in each session since the start of the year, but a neutral rating was reported on February 21–22.
We are still seeing optimism on Wall Street from the bulls, with some market watchers calling for the Dow to crack 15,000, and move upward toward 20,000. Even the small-cap Russell 2000, which recently traded at a record high, is up nearly 10% this year. Based on an annualized rate, the Russell 2000 would advance over 60% this year, considering what has happened so far. I actually think some of the euphoria in the equities market is overblown.
While Wall Street and the media may still feel the equities market will continue to move higher, I believe there’s some real risk in the equities market that you should be aware of as shown in the chart below.
Chart courtesy of www.StockCharts.com
While I’m not calling for a stock market correction, I do see red flags out there that suggest some selling pressure may be on the horizon for the equities market.
Take a look at the Dow. The blue-chip index has failed on two occasions to hold above 14,000, so there appears to be some topping action, based on my technical analysis. The reality is that selling in blue chips would be a red flag in the equities market.
In the broader market, while the S&P 500 initially held at 1,500, the index did see … Read More
It’s amazing how resilient the equities market has been in spite of the concerns regarding the budgetary cuts and debt ceiling, the eurozone’s economic stalling and debt, and the earnings risk.
The current equities market has some bull legs and could advance higher, driven by more encouraging earnings and economic news; but we are also at a crux, with the S&P 500 at 1,500 and the Dow recently breaking to 14,000. The reality is that the advance we saw in January is not sustainable at the same pace, based on my technical analysis. Just think back to last year. After an equally strong start and January, stocks began tapering off in February after the first quarter.
On the one hand, I can see this market moving higher to new multi-year highs; but on the other hand, I feel that there’s chart risk, as evidenced by the potential third top on the S&P 500, which I recently discussed in this newsletter. The early success of the earnings season is already discounted into the market. The nice economic recovery in the U.S. is also discounted. We need more positive readings out of the financially challenged eurozone, as well as China.
So while the bias remains positive, the biggest investor mistakes may be to get too comfortable and let down your guard.
Just take a look at the CBOE Volatility Index (VIX) based on the S&P 500, which is known as the “fear factor.” The VIX reading on February 6 was 14, which is well below some of the high readings since 2004, as shown on the chart below. The low VIX reading … Read More
The “Boeing 787 Dreamliner” may be grounded for the time being, but the aerospace sector as a whole is delivering some excellent results.
We all know how significant the Chinese aerospace market is, given the superlative rise in air travel and tourism in and out of the country. I expect this to increase going forward.
The Boeing Company (NYSE/BA) estimates that China will require 5,000 aircrafts, valued at approximately $600 billion, over the next 20 years. The estimate may be conservative, especially if China can grow its income levels at a much higher pace. Boeing is looking at its new 787 Dreamliner as its big play on wide-body jet travel in spite of current issues.
Chief rival Embraer S.A. (NYSE/ERJ) estimates that the global demand will be around 28,000 new planes over the next two decades. According to Embraer, there will be over 32,550 planes in the sky by 2031, up from the current 15,500; the company also estimates that the Asia-Pacific region will account for 35% of all plane purchases. According to Embraer, the major airlines will operate in the U.S., China, intra-Western Europe, and India; and China will be the world’s largest domestic plane market in 20 years.
The findings by Embraer are not a surprise, as they will be driven by higher average disposable incomes in the emerging global markets and by the more popular desire for travel. My feeling is that strong wealth generation in the world’s largest emerging markets, including China and India, will help to drive the demand for commercial and defense planes along with stocks in the equities market.
Air traffic in China … Read More
The U.S. Securities and Exchange Commission (SEC) is doing its job in helping to clean up some of the fraudulent Chinese stocks that have invaded the U.S. equities markets in the past years and ripped off investors to the tune of billions of dollars.
So far this year, only three Chinese initial public offerings (IPO) have listed on U.S. exchanges, and based on the reception from U.S. investors, there appears to be some excitement and trust returning to Chinese stocks in the equities markets.
A recent listing was the Chinese social media play YY Inc. (NASDAQ/YY), which debuted at $10.50 on November 21 and is currently trading up 20% as of Wednesday. The fact the stock has edged higher is a surprise, but it may suggest that the worst is over for new Chinese issues. The other two Chinese IPOs, Chinese e-retailer Vipshop Holdings Limited (NYSE/VIPS), which has more than doubled from its IPO price of $6.00 on March 23, and e-commerce services company Acquity Group Limited (NYSE.MKT/AQ), which is slightly up from its IPO price of $6.00 on April 27.
For Chinese companies, it will be a long journey before they can regain investors’ trust, but I feel that the new strict requirements for listing on U.S. equities markets will help to assure that only sound Chinese companies will seek listing here. The fact that Chinese companies seeking listing in the U.S. equities markets must use approved U.S. auditors will only help to bring some trust back. This is the only way investors can feel comfortable dealing with Chinese stocks in the equities markets.
We all know about the … Read More
China Eastern Airlines announced on Friday that it would be purchasing 60 “A320” passenger planes from Airbus, a subsidiary of European Aeronautic Defence and Space Company. (“China Eastern Airlines to Buy 60 Aircraft from Airbus,” Fox Business, November 23, 2012.) At first glance, it doesn’t seem to be a big deal, but given that the buyer is one of the top Chinese airlines, I’m optimistic.
We all know how significant the Chinese aerospace market is, given the superlative rise in air travel and tourism to and from the country. I expect this to increase going forward.
The Boeing Company (NYSE/BA) estimates China will require 5,000 aircrafts, valued at around $600.0 billion, over the next 20 years. The estimate may be conservative, especially if China can grow its income levels at a much higher pace. Boeing is looking at the new “787 Dreamliner” as its big play on wide-bodied jet travel in spite of current development delays. (Source: “Boeing in China,” The Boeing Company, last accessed November 25, 2012.)
Chief rival Airbus estimates the global demand will be around 28,000 new planes over the next two decades. There will be over 32,550 planes in the skies by 2031, up from the current 15,500, according to Airbus, and the Asia-Pacific region will account for 35% of all plane purchases. The major airlines will operate in the U.S., China, Western Europe, and India, according to Airbus. China will be the world’s largest domestic plane market in 20 years. (Source: “Global Market Forecast 2012-2031,” Airbus, last accessed November 25, 2012.)
The findings by Airbus are not a surprise and will be driven by higher … Read More
Investors bid up stocks prior to the presidential election on Tuesday, when President Barack Obama won his second term. Investor confidence was due to some uncertainty eliminated with the election, but the nervousness quickly resurfaced on Wednesday morning, impacting investor confidence; stocks plummeted on the realization that Obama still has many hurdles to overcome and the fact that the global economy, namely in Europe and China, may be prone to more weakness that will negatively impact investor confidence.
I’m sure President Obama is relieved that the election is over; but I can tell you, it’s only the beginning of some difficult times ahead that will challenge his patience and fortitude, while also impacting investor confidence.
While the uncertainty of the election is over, there is a lot of work ahead for Obama, as he now needs to immediately deal with the pending fiscal cliff. This will not be an easy feat, but it must be done to instill some investor confidence in the equities market.
The major problem is that President Obama must be careful, as he will need to cut and control the deficit and national debt of over $16.0 trillion, while at the same time not allowing the full extent of the $607.0 billion in broad budget cuts to take place on January 1; if he doesn’t balance the two, he will likely kill the economic recovery, 2013 and 2014 gross domestic product (GDP) growth, and investor confidence.
Moreover, any agreements or decisions made by President Obama will need to be agreed upon by the House. This will be problematic, given the continued political gridlock, as the Republicans … Read More
Israel is not widely known as a hotbed for start-ups, but this dynamic country of 7.9 million people situated on the Mediterranean Sea is just that. The country has the second highest number of start-up companies in the world, trailing only the U.S. There are over 120 Israeli companies listed on U.S. exchanges, including about 60 on the NASDAQ, which makes Israel second only to China on this index. However, a major difference is that Israeli stocks are more trustworthy than Chinese stocks, based on my stock analysis.
My stock analysis is that one of the top Israeli and best stocks listed in the U.S. equities market is pharmaceutical giant Teva Pharmaceutical Industries Limited (NASDAQ/TEVA; NYSE/TEVA), a developer of generic and branded drugs and active pharmaceutical ingredients.
Technology and healthcare are some of the leading industries in Israel, based on my stock analysis. My stock analysis shows that the country has seen a steady rise in technology companies that have performed well on the world stage.
I will mention a few that are good examples, but again, these stocks are not meant as specific investment advice and are more for information purposes, based on my stock analysis.
A small-cap technology stock that has excellent long-term potential for above-average price appreciation is Petach-Tikva, Israel–based ClickSoftware Technologies Ltd. (NASDAQ/CKSW), according to my stock analysis.
Founded in 1979, ClickSoftware creates solutions that allow companies to manage resources efficiently and effectively. The company develops and sells workforce management and service optimization solutions that allow companies to improve productivity, customer satisfaction, and cost effectiveness. Its offices are in Israel, the U.S., Europe, and Asia.
Chart … Read More
Chinese stocks are leaving the U.S. equities markets as fast as they arrived. It has been a relatively quiet year for new Chinese stocks, following the debut of 60 Chinese stocks on U.S. equities markets from 2008 to 2011. In 2012, there has been one Chinese listing on U.S. equities markets, along with the delisting of several Chinese stocks that have been privatized. Since August 2011, 23 Chinese stocks have delisted from U.S. equities markets, according to Money Week magazine.
Some of the companies were delisted by the exchanges due to fraud, while others decided to pack up and obtain listing in Hong Kong and elsewhere. Others were taken private due to a lack of buying and overall distrust in the U.S. equities markets.
We all know about the trail of fraud initiated by numerous Chinese companies that emerged on U.S. equities markets via the speculative reverse merger process.
The pipeline of new Chinese stocks has essentially dried up in the North American equities markets, as Chinese companies are currently subject to intense scrutiny and detail reporting. I like the move to cleaning up the mess from fraudulent companies, albeit, many sound Chinese stocks have suffered in the process due to the general distrust in the market.
The reality is that I do not sense a return to recent years. Speculation of several big Chinese e-commerce initial public offerings (IPOs) looking to list in the U.S. equities markets this year have not come to fruition. Three Chinese Internet plays that were looking at listing in the U.S. were 360buy.com (online retailer), Vancl.com (largest online clothing retailer in China), and Xiu.com … Read More
Facebook, Inc. (NASDAQ/FB) traded at another new low of $17.55 on Tuesday, down a whopping 61% from its initial public offering (IPO) high of $45.00 on May 18. Initial investors are selling their shares as the lock-up periods come up; until this ends, the stock will continue to face selling pressure. Conversely, Amazon.com, Inc. (NASDAQ/AMZN) and Google Inc. (NASDAQ/GOOG) both recently traded at record highs in the equities market.
So while the aforementioned stocks are all Internet-based, the difference is that Amazon.com and Google have managed to successfully monetize their massive user base, while Facebook has yet to figure out how to make money from its over 900 million users.
The trajectory of Apple Inc. (NASDAQ/AAPL) helps dictate the movement of the NASDAQ in the equities market. When Apple lost seven percent in five sessions from April 10 to below $600.00 on April 16, the NASDAQ lost some ground and breached support at 3,000. As Apple rallied towards its 52-week high of $680.87 on August 27, the NASDAQ touched a new 52-week high.
Technology, growth, and small-cap stocks led the way in August, with the NASDAQ and Russell 2000 advancing 4.3% and 3.3%, respectively. Technology is leading the broader market with a 17.7% advance to date in 2012, well ahead of the 11.8% of the S&P 500.
And as we move forward, I continue to feel that the top growth areas to make money in the equities market will still be in technology.
I believe the areas that will offer opportunity for the best stocks in the equities market are mobility applications for tablets and smartphones, as users shift away … Read More
The global travel industry is on an uptrend, with China rapidly becoming one of the top travel markets in the world for both domestic and international travelers, according to my stock analysis.
To deal with the increased travel, the country has been steadily building its road, rail, and air infrastructure that will make traveling in the country much easier for both domestic and international travelers. China has spent hundreds of billions on its railroad.
“China is the most attractive place in the world right now for hotels. That’s why investment capital is racing there and why the major international brands are racing there too,” said Patrick Ford, president of U.S.-based Lodging Econometrics. (Source: time.com)
China is the fourth top destination for tourism, but it is expected to become the number one destination by 2020, according to the World Tourism Association.
According to a research report, “China Tourism Industry Forecast to 2012,” on traveldailynews.com, China will see major growth in its domestic travel from 2011 to 2013.
China’s burgeoning travel industry is understandable. With a population in excess of 1.3 billion people and a rapidly rising middle class with money to spend on travel, the potential is significant, based on my stock analysis. Plus, there are the millions of foreign travelers with money to spend who have made Asia and China the premier travel destination for business and leisure. And, as wages increase, so will the spending on non-essential items, such as travel and recreation.
To handle the expected increase in travel, there is a push to build more hotels and motels across the vast country.
In the Chinese travel and … Read More
Many of us cannot start off the morning without a cup of coffee. I know I can’t.
Coffee prices are showing some life after nine straight months of contraction, according to data from the International Coffee Organization (ICO). The price of coffee rallied in July 2012 with the ICO composite indicator surging up 9.5% versus June.
My stock analysis is that the fundamentals also look promising on the demand/supply end.
World production is estimated at 131 million bags in 2011 and 2012, which is lower than the 138 million bags predicted to have been consumed in 2011, as shown on the chart.
Source of statistics: International Coffee Organization
Chart © Lombardi Publishing 2012
In the equities market, my stock analysis is that Starbucks Corporation (NASDAQ/SBUX) is the dominant player on the retail side, especially with its aggressive growth strategy in China.
While I do like Starbucks as a long-term play, based on my stock analysis, mid-cap coffee wholesaler Green Mountain Coffee Roasters, Inc. (NASDAQ/GMCR), a producer of higher-end specialty coffees and single-cup brewing systems, has a better risk-to-reward profile.
Green Mountain sells hundreds of varieties of coffee, tea, and other beverages that are used in single-cup brewing machines, including the company’s “Keurig K-Cup Single Cup” brewers. Green Mountain also offers whole bean and ground coffee in bags.
Green Mountain coffees are sold under the Van Houtte, Brûlerie St. Denis, Brûlerie Mont-Royal, and Orient Express brands. The company also licenses coffee from Bigelow and Wolfgang Puck.
Yet this former high-flying stock has been under extreme pressure on concerns of increased competition in the single-cup coffee business and its bagged coffee sales…. Read More
Oil is trading at just below $90.00 a barrel, and we continue to see a build-up in capacity in the aviation sector. It was the same even when oil prices were over $100.00 a barrel. Air travel prices continue to edge higher as airlines cut capacity and some routes.
And better yet, strong wealth generation in the world’s largest emerging markets, including China and India, will help to drive the demand for commercial planes and defense. For investors, I view aerospace as a buying opportunity in the equities market.
The Boeing Company (NYSE/BA) estimates China will require 5,000 aircrafts valued at around $600 billion over the next 20 years. The company is looking at the new “787 Dreamliner,” as its big play on wide-body jet travel despite development issues.
Air traffic in China is growing at approximately three times the rate in North America, so the Chinese aviation market is significant. China recognizes this and is developing its own commercial aviation program that will see the manufacturing of airplanes with capacity of over 150 passengers. There are no concerns at this time, as this is still decades away.
The global aerospace market is estimated to surpass $500 billion by 2012, according to Global Industry Analysts, Inc. in its report, “Aerospace and Defense Industry: A Global Strategic Business Report.” I see buying opportunities in the equities market.
Boeing is a major player in the global aerospace sector and excellent aerospace play in the equities market. The other major play in the equities market is Embraer S.A. (NYSE/ERJ), the European builder of the Airbus. The two companies are in a battle for … Read More
Following the corporate earnings release for NIKE, Inc. (NYSE/NKE), shares collapsed. During its corporate earnings call, the company’s management issued a statement indicating that they see further uncertainty in the world economy, raising specific issues in Europe and China among other emerging markets. NIKE CEO Mark Parker specifically stated that the company expects these areas to grow much more slowly than they have over the past several years.
While many are envious of the corporate earnings growth the company has been able to generate over the past few years in emerging markets, like China where the firm has over 7,000 stores, a slowdown is now negatively impacting corporate earnings. The worldwide slowdown is having an impact on estimates, and with such a global brand, one can only assume that other firms in the equities market will also voice similar caution in their corporate earnings releases.
There are some positive drivers for the firm that should have an impact on their corporate earnings over the next several quarters, including the Olympics and the new NFL contracts. But caution is warranted, and I would not buy shares at the current moment. I would prefer to wait until late 2012 or early 2013, when the corporate earnings will be positively impacted by these events.
NIKE’s corporate earnings are one more sign of a global slowdown, now affecting the equities market in several nations. Recently, some poor results were released by the Institute for Supply Management (ISM) survey, an important factor for the overall equities market. The results were extremely weak to say the least. The ISM U.S. Purchasing Managers Index (PMI) declined to … Read More
The U.S. equities market has staged a remarkably resilient performance this year in spite of worldwide economic troubles. With the corporate earnings season about to begin, I’m expecting that many firms will issue conservative and cautious guidance, which might weigh down the equities market. Already we have seen several companies issue corporate earnings guidance that has been less than what the market expected.
An example would be Nike, Inc. (NYSE/NKE), which, during its corporate earnings call, issued a statement indicating that it sees further uncertainty in the world economy, raising specific issues in Europe and China among other emerging markets. Nike CEO Mark Parker specifically stated that the company expects these areas to grow much more slowly than had been seen over the past several years.
Last week saw the release of the Institute for Supply Management (ISM) survey. The results were extremely weak to say the least. The ISM Purchasing Managers Index (PMI) declined to 49.7 for June. A reading below 50 indicates a contraction in the economy. The ISM Prices Index was another negative component, reported at 37, which marks a decline of 24 points over the last two months. Combining the prices components as well as the PMI index itself will weigh on the equities market, as investors fear this will translate into weaker corporate earnings.
Chart courtesy of www.StockCharts.com.
I think these signs indicate that we might see more negative sentiment from corporate earnings releases weighing down the equities market over the next few weeks. There were earlier thoughts that additional quantitative easing might help the equities market, but it seems the Federal Reserve continues to … Read More