Wells Fargo Bank has been going through cross–selling and making two million fake accounts to prop up sales and profits. Their CEO John Stumpf resigned last week after coming under pressure from the United States Senate Representatives. The scandal has hit the share prices hard, but Wells Fargo still managed to beat expectations.
Wells Fargo is the favorite bank of Warren Buffet, has one of the biggest loan portfolios, and is also one of the most expensive Wall Street banks. Amid hit by scandal, Wells Fargo still has the ability to manage a growth in its loan books, which make it a compelling buy. However, since the scandal, shares have become easier to buy than before, while they are cheaper than before. The bank has already produced a better earnings per share, being $1.03, in comparison to market estimates of $1.01, and $22.3 billion in third quarter revenues.
One thing to still look after is the need to address the non-interest expenses. Much of it is driven by litigation and legal fees, which will rise as the scandal heats up and many customers either look for a legal action or refunds over their fake accounts and present commitments. Before this quarter, Wells Fargo had one of the best efficiency ratios in the industry, while the case is no more as the company reports their current efficiency ratios may stay elevated. Return on Asset is down by 0.3 percent and Return is Equity is down by 1.3 percent.
One thing to look after for is the way new customers grow, as Q4 guidance, for the time being the bank will fall short of many major estimates. Wells Fargo is a long buy now if you are loyal bank shareholder, for the rest, there are other banks such as Goldman Sachs and J Morgan Chase you should consider if profits and bond buying activity is what you were looking for.
Apart from the British pound, Gold and Silver saw massive and historic declines too. The strengthening of the dollar and the ongoing hype that the Federal Reserve may increase rates in December are making it hard for Gold to stay a possible reserve currency for many in these economic conditions. Gold is down by almost 3 percent and reached its lowest level in four months of $1,245 levels, however, Gold has risen by 21 percent from its close in 2015.
As interest rates rise, yields on those assets backed by the interest rates also become a much more attractive investment than commodities. Inflows are also at record low as investors bought only 11 tons of gold in September. India saw a record drop in imports by 43 percent last month. Retail sales in gold and silver coins in the US are also down by 40 and 50 percent respectively. The SPDR Gold Trust exchange-traded fund has seen its worst drop in three years, while silver saw a decline of over seven percent on Tuesday. The Global X Silver Miners ETF has seen a decline of over 9 percent, its worst in since Nov 2014.
Nevertheless, both Silver and Gold depend on how global inflation performs in comparison to the rise in interest rates. If inflation remains low, an increase in interest rates is highly unlikely, while the spread also declines, helping both metals maintain their current values by December.
Election year in the United States, always has some kind of an impact on the financial markets globally, and this time, the stakes are really high. As the world looks at who the American citizens choose to lead them for the next four or eight years, foreign policy and global business sentiment rest on their ability to bring a positive change to the world.
As per reports published by CNBC, October has always been volatile during election years for stocks. Since 1992, the CBOE Volatility index has usually risen an average 21 percent in past 6 presidential terms. In contrast, the VIX index that also tracks market volatility has been down 60 percent in all other Octobers since 1990. However, in October 2008, the VIX soared above 50 percent due to the ongoing financial crisis and the recession that loomed over the economy. None of those fears are true about the current economic conditions, but still American economy isn’t completely out of the woods. Moreover, currencies should be watched closely, as a Trump presidency may make Yen one of the safest currencies to bet at, while Mexican Peso that has seen a decline in recent days may see more dismal performance.
In comparison to consumer goods and financials, Goldman Sachs issued a note regarding the healthcare sector last week. The Chief market strategist at Convergex, Nicholas Colas while supporting that call said, “If you look at the VIX of the health care group, it’s currently running around 12 percent, very low levels and near the lows of the last 12 months. And if you go back to last October, it was 30 percent.”
There is a reason that Wall Street loves ABC, because it always manages to bring dividends and profits. Alphabet Inc., the parent company of Google, by far is the most sought stock and a healthy investment for years to come due to its prudent business model that not just relies on online advertisements, but also on software distribution, internet of things and upcoming mobile phones dubbed the Pixel lineup.
Considering the pace at which the stock prices increases, Alphabet can reach $1,000 next year, due to a 21 percent rise last year and an expected 20 percent upside potential this year. Google’s revenue grew by 21 percent in 2015, while its smaller rival Facebook grew by 59 percent year on year. Although there is no direct comparison of both companies, the online advertisement business that includes both mobile and digital platforms, are toe to toe. Moreover, Google’s brand and its search engine have been the go–to brand for billions of internet users for years.
Alphabet has 28 percent operating profit margin to revenues, while generating $6.9 billion in free cash flows last year. It is also sitting on a cash pile of $78.5 billion, ample to withstand any long-term shocks. It holds a PE Ratio of 19, considered average with other S&P500 stocks of 18. Hence, Alphabet with new innovations is all set to dominate the digital advertising business for some time, making it a neutral stock to hold in all economic conditions.
Oil prices may see a rebound in September this year as many major OPEC member have started to think over an oil production freeze that can bring back normal demand and supply dynamics to the markets. One major criticism of this strategy is that oil production in major oil–producing nations such as Saudi Arabia, Iran and Russia have already peaked out at their maximum capacities of production. Moreover, many major oil exploration companies such as Royal Dutch Shell Plc, and BP Plc are thinking to invest more in increasing their current capacities rather than indulge in future exploration missions.
Nevertheless, amongst the big players, if you wish to invest in the oil industry, one company is making headlines knowing that no matter what oil prices are, it may end up making profits for all of the tis investors. Core Laboratories N.V. (NYSE:CLB), is topping charts for investors as the number one oil stock to buy and hold, due to its expertise in reservoir optimization. It also happens to be one of the very few companies that can manage to withstand both lower and higher oil prices. Core Lab highly relies on its intellectual property to lower operating expense as a percentage of total revenue.
Oil prices have risen by 25 percent this year, while energy stocks have risen by 14 percent. Bank of America believes that there is still a huge demand for oil products and production should increase, which will bring prices of oil back to the 2011 levels, while offering prudent analysis that whenever oil prices have increased by 25 percent, energy stocks outperform S&P 500 by 90 percent.
Piper Jaffray and RBC Capital have some positive news for the media streaming company Netflix. Their surveys and estimates make it one of the most sought–after stock, which is underperforming now but may rise by another 25 percent soon. The price target stands at $125. It currently trades at around $99-$100 range. In 2015 the stock boosted a return of over 125 percent.
Wall Street Analyst at RBC Capital, Mark Mahaney in a survey conducted in markets such as Brazil, UK, and US, found that investors and subscribers are optimistic about the media streaming services and future growth of Netflix. In their report, they said, “These results showed rising usage, an improving competitive position, and potentially ameliorating impact from the 2016 price increases – clear positives, in our view. All in, we continue to believe that Netflix can grow its subscriber base while increasing the price by continuing to improve its content offerings and proving out its value proposition to users – all this while increasing its profitability.” 54 percent of all responders were using some sort of Netflix services. In the UK 42 percent of respondents used Netflix and market penetration in Brazil may reach 71 percent this year, up from 60 percent last year. One area of concern is from competition by Amazon, who also offers same services, especially their Amazon Prime services, which overlaps with Netflix subscriptions. However, it was found subscribers prefer Netflix.
Currently, the stock is underperforming and has disappointing premiums and return on equity. Many analysts have a “Hold” rating on it.
A team led by equity strategist Sarbjit Nahal at the Bank of America Merrill Lynch, has come up with a list of stocks and investment that the millennials are a most enthusiast in buying or would end up buying.
As per the team, “There are 2 billion Millennials worldwide and they have overtaken Boomers to become the largest living generation in U.S. history. But we need to prepare for the rise of the 2.4 billion Centennials, born at the turn of the century and set to live to over 100 years. They are embracing diversity, sustainability, globalization, disruptive technology, peak stuff,’ new business models, and entrepreneurialism like no generation before them, and they are economically optimistic to boot.” The team also thinks that millennials would be able to see an increase in their incomes from $21 trillion in 2015 to $62 trillion in 2030.
Amongst the most loved stocks for the millennials, tech stocks top the charts. Apple Inc., Netflix Inc., Facebook Inc., and other fintech giants can see a huge boost. When it comes to automobiles, Tesla is their favorite. Shares of Tesla trade at $200 per share and are usually hard to find. Other important stocks that make the top 10 include Disney, at $94 a share, and Chesapeake Energy at $6.
As per the managing director of trading at TD Ameritrade, Nicole Sherrod thinks, “That’s a major theme with young people. I think we’re only going to see more and more of that going forward.” On the Fidelity platform, millennials are seen to be more aggressive and active when buying stocks. They take more risks than the Baby Boomers. Many millennials successfully passed the volatilities that were present in the financial markets before and after the Brexit vote. Executive vice president for retirement and investing strategies at Fidelity, John Sweeney said, “They’re learning that when markets get volatile, this is an entry point to step in and buy something that’s on sale.” Millennials are eventually helping make their own retirement plans and it reflects in their trading habits.