Good Afternoon,
Attached is another summary perspective on tax reform put together by Fidelity. This piece addresses the positive short and long term implications of the tax reform and discusses how the multiplier effect changes the magnitude of increases to U.S. GDP growth.
Thank You,
Pete
Market volatility is the rate at which prices increase or decrease over a certain period of time. One way to measure the implied volatility of the S&P 500 is the VIX.
The VIX is a volatility index comprised of options, with the price of each option reflecting the market’s expectation of future volatility. Increased put prices will indicate an expectation for greater volatility. It is important to note that the VIX measures 30-day implied volatility so this is not a tool used to predict long term market movements. Below is a link that breaks down the equation used to measure the VIX:
https://www.cboe.com/micro/vix/vixwhite.pdf
In this piece, the goal is to get a perspective on the low volatility levels experienced in 2017 and set expectations for what may occur as volatility begins to tick upward. While we are not predicting a major market correction in 2018, we want clients to be aware that it makes sense to expect increased volatility. In turn, we want to emphasize that maintaining a diversified portfolio provides downward protection during periods of equity selloff.
JP Morgan has published a very good bulletin summarizing the effects of the tax cut recently passed in Washington, which is attached. This article does a good job digesting the many changes and their effects on the economy.
Yesterday Sensata had its Analyst Day and provided 2018 guidance above expectations (the stock reacted positively, up +8%). Additionally, ST’s management gave an upbeat view on the business next three years, and is forecasting a 2-3X acceleration in revenue growth, after three years of below expectations growth.
Following the event, I am updating my price target to $61/share, from $51 prior. This is to reflect the better business trends in the coming three years than previously thought and a re-rating of the stock. A 16-17x P/E is reasonnable, leaving ST’s multiple below peers as the company is still highly levered to the auto business (peaked in the US). I recommend we hold the position.
Below is a summary of the information provided during the event. Continue reading “Sensata Analyst Day Review – Increasing Price Target to $61”
Black Knight, Inc. is a leading provider of mortgage processing and technology solutions to the US mortgage industry. Over 60% of all first lien loans are processed using BKI’s technology. BKI servicing revenue is very stable with long term contracts. Also, BKI sells software facilitating loan originations and sells data and analytics services to the mortgage industry. Continue reading “Adding Black Knight, Inc. (BKI) to the Focus Equity portfolio”
The technology behind Bitcoin, Blockchain, is fascinating and a game changer. Blockchain is a way to assign value electronically. Whether it is cash, oil, electricity, stocks, bonds or even votes, the Blockchain technology is a safe and secure way to conduct transactions. Another way to think of Blockchain is a community where everyone agrees to rules setup in the code. Users are free to join or leave. There is no central authority, only the rules set forth by the code. Blockchain creates a history of all transactions which all the users agree is correct. Without digging into the technology, it is very difficult for one party to defraud everyone else. Continue reading “Bitcoin overview”
Overall we are willing to remain patient with CVS’s stock to see their new strategy being implemented. This could help change the complex healthcare landscape in the US.
We also see limited downside risk at this point, with the stock trading at 11.2x next year’s P/E, and offering a 2.8% dividend yield. Continue reading “CVS/Aetna Talking Points”
Good Morning,
Attached is the most recent chart pack put out by SSGA.
Aramark (ARMK) reported Q4 2017 earnings of $.54 up 9% y/y. Sales were up 2% organically, missing analysts’ expectations of 3%+. Hurricanes dragged down results, especially uniform operations in Puerto Rico. Dividend was increased modestly. Price Target unchanged at $43. Continue reading “Aramark (ARMK) Q4 Results”
Last night CVS announced a definitive agreement to acquire Aetna (a Health Insurance Company), for $207/share, financed by 30% new equity and 70% new debt ($45B)/cash on hand. The transaction is expected to close mid-2018. This deal greatly increases CVS’s pro forma leverage to 4.6x (current 2.9x). In order to deleverage quickly, CVS will stop its share buyback program and maintain its dividend flat, until the leverage ratio goes down to low 3x, which I expect to happen within the 2 years post deal. The synergies seen by the management team are currently at $750M in the second year of the deal, which should create EPS accretion in the low to mid-single digit range. Continue reading “CVS / Aetna Merger Commentary”
