Lyft IPO: 5 Things to Know about the Ride-hailing Company ahead of its IPO

Lyft will only report the revenue it receives from each ride, excluding the driver’s cut and other fees

Lyft Inc. has beat rival Uber Technologies Inc. to an initial public offering, and that’s important for a number of reasons.

The first is that Lyft LYFT is getting to set the narrative heading into the IPO process, which is crucial given that the company is smaller, more narrowly focused, and less well-known than Uber. Lyft removes an element of pricing uncertainty around the listing by going first, experts say. The company could kick off a roster of decacorns, or companies privately valued at upward of $10 billion, that are expected to go public in the year ahead.

The company’s prospectus shows that Lyft plans to report revenue on a net basis, excluding the money paid to drivers. Uber — which previously detailed a similar approach to MarketWatch — will be hard-pressed to break the mold and report gross revenue, given that the businesses are the same and share PricewaterhouseCoopers as an external auditor, something unusual for fierce competitors.

Lyft shares have been approved to list on the Nasdaq under the ticker “LYFT,” and are expected to do so Friday morning. Thursday afternoon, Lyft priced at $72 a share, at the top of its range, which it had raised Wednesday evening to a range of $70 to $72 a share after previously projecting a price between $62 and $68 a share. Lyft plans to sell 30.77 million class A shares, which would raise more than $2.2 billion at the top of the revised range with an initial valuation around $24 billion. That total could increase if underwriters exercise all the options to buy an additional 4.62 million shares.

Here’s what you need to know about the company ahead of its IPO.

The revenue is nothing but net

The company recognizes revenue on a net basis, meaning that the company’s top-line number is significantly less than the sum total of what all riders paid over the course of a given period. Lyft is able to report revenue on a net basis, rather than a gross basis, because it considers itself an “agent” in the process of connecting drivers and riders. The company argues that it merely helps third parties provide transportation services to riders and that both riders and drivers have the ability to reject a transaction price.

Uber is expected to make a similar choice as far as how it reports revenue, which has drawn criticism from accounting experts who argue that ride-hailing companies would be doing a disservice to investors by not reporting a fuller metric and giving investors a sense of what they pay their drivers. Both companies could also choose to report that metric under another name, as Lyft did with its bookings offering.

Slowing revenue growth, widening losses

Lyft doubled its net revenue in 2018, but that was a decelerating growth rate from a year earlier. The ride-hailing company posted revenue of $2.2 billion last year, up from $1.1 billion in 2017 and $343 million in 2016. The company’s losses are getting steeper as revenue grows: Lyft generated a net loss of $911 million in 2018, compared with losses of $687 million and $683 million in 2017 and 2016, respectively.

The company’s bookings, which represent the total dollar value of transportation spending through Lyft services, climbed to $8.1 billion from $4.6 billion in 2017 and $1.9 billion in 2016. Lyft’s net revenue represented 27% of the company’s bookings in the latest period. The company gives the example of a $24 ride-hailing charge, which includes a $4 tip and a $3 airport fee: Bookings would be $17 in this example, Lyft said. Revenue would presumably be $4 or $5 in that example based on the disclosure about what percentage of bookings go to revenue, though Lyft did not provide that figure in the example.

Lyft is mainly focused on the U.S. market, though it launched a Canadian business in 2017. The company provides scooter-sharing and bike-sharing services as well.

On a promo spree

In what seems like a fairly obvious bid to gain market share ahead of its expected listing, Lyft has been heaping discounts on riders in recent weeks. One offers 50% off 10 rides until mid-March, though it caps the savings at $6 per ride. Ride-hailing companies are already known for offering cheaper rides than can be found through traditional taxi services, and Lyft’s aggressive discounting ahead of the IPO plunges the company deeper into a price war with rival Uber.

“We believe that much of the growth in our rider base and the number of drivers on our platform is attributable to our paid marketing initiatives,” Lyft said in the risk-factors section of its prospectus. Growing brand awareness with both riders and drivers “can be costly,” the company contended. Lyft said its U.S. ride-hailing market share climbed to 39% in December, up from 22% a year earlier, based on third-party estimates from Rakuten Intelligence.

The company discussed other pricing risks as well in its filing. One involves the company’s shared-ride product, which offers users a lower fare if they agree to share a car with someone else going along a similar route. If Lyft fails to adequately match riders or determine an appropriate fare for drivers in the case of shared rides, the company warns that its financials could be impacted.

Another dual-class listing

Lyft, like many other hot tech companies to test the public waters, plans to concentrate voting power with founders Logan Green and John Zimmer, though the company hasn’t yet said what concentration each co-founder will have. Green, currently the chief executive, and Zimmer, Lyft’s president, each own 1,180,329 shares of Lyft’s class A shares, about 0.05% of the 240,597,591 shares currently outstanding, but are expected to have voting control.

Lyft will have 271.37 million class A shares outstanding and 12.78 million Class B shares outstanding. Class A shares will have one vote and Class B shares, which are convertible to class A shares at any time, will have 20 votes.

After the IPO, Green will have 29.3% of the voting power and Zimmer will have 19.5% of the voting power.

Dual-class structures haven’t deterred investors on the whole, though they’ve drawn sharp criticism as they make it nearly impossible for shareholders to question management’s judgment.

“Given the growing focus on corporate governance issues in general, and the negative commentary on the absolute voting majority that the startup founders prefer to hold, we believe tone-deaf is the right characterization for any company still planning to go ahead with the structure, Lyft included,” wrote Santosh Rao, head of research at Manhattan Venture Partners.

Other Lyft stakeholders include early investors including venture-capital firm Andreessen Horowitz, and investment entities associated with Rakuten Inc. RKUNY,  General Motors Co. GM, Fidelity and Alphabet Inc. GOOGL,  GOOG all of which own at least 5% of the pre-IPO shares.

On a mission

It’s a virtual requirement for tech companies considering IPOs to have corny mission statements. Lyft’s is to “improve people’s lives with the world’s best transportation.” The company stresses its culture often in the prospectus, highlighting its values of “Be Yourself,” “Uplift Others,” and “Make it Happen.” Corporate-speak to be sure, but there is probably something to Lyft’s culture: Amid sexual-harassment and other scandals at Uber, some riders flocked to Lyft and didn’t turn back.

Article was originally published by Emily Bary at marketwatch.com


Why Investors Need to Shift from Wall Street to This Growth Haven

A pretty upbeat week for stocks could end on a sour note thanks to our pals in Europe.

Just a day after a rally for Wall Street, Germany dimmed the lights on global growth with the worst manufacturing purchasing managers index numbers in nearly 7 years on Friday. The reaction was instant, with risky assets everywhere taking a hit and the yield on the 10-year German bond careened to zero.

“It’s unusual to see such a widespread response to a piece of data like this but we have to remember that this is not a domestic problem. Germany may be impacted in an disproportionate way because of the size of its manufacturing sector but the causes of the contraction are global,” Craig Erlam, senior market analyst with Oanda, told MarketWatch.

Here’s what Fed Chairman Jerome Powell had to say about the region at this week’s meeting: “In Europe...we see some weakening, but, again...we don’t see recession, and we do see positive growth still.”

How nervous should investors be? As BlackRock’s chief equity strategist Kate Moore told this column earlier in the week, it’s an area that U.S. investors want to watch closely, because a slowdown there will hit American companies with global operations.

So with the jury out on U.S. growth and Europe clearly in trouble, who should investors turn to? Our call of the day from Saxo Bank’s Steen Jakobsen advises investors to diversify beyond U.S. shores this year to that trade friend/foe China, which has been pushing hard to keep its own global engine from stalling.

Jakobsen told clients in a note that while a new highs for Wall Street may still be on the cards, investors should “slowly change overweight to China vs. U.S.” That’s largely because 2019 for China is shaping up to look like what much of 2018 was for America, when Wall Street were stocks powered by $1 trillion worth of tax-reform fueled buybacks, he says.

“China and its growth model now needs to share its burden of becoming an industrialized country, and it knows that only treating investors well will keep the capital flowing in 2019,” he said.

And as the Chinese government tells its 90 million domestic retail investors to boost allocation to stocks, those elsewhere such as in the U.S. will also need to boost that as capital markets are reweighted later this year.

Last word goes to Pimco, which also made some upbeat noises on China in a blog on its website Friday. With that country upping the ante on stimulus this year and a trade deal with the U.S. in the making, “there’s a good chance global growth will stabilize or even pick up moderately this year,” said the home to the world’s biggest bond fund.

“The slowdown of global growth over the past year despite massive fiscal stimulus in the U.S. and still-supportive monetary policies in the advanced economies illustrates that, more than ever, China is a key driver of the global cycle,” said Pimco.

The market

The Nasdaq COMP, Dow DJIA and S&P 500 SPX are off to a weaker start, catching a cold from Europe.

The euro EURUSD is down pretty sharply, driving up the dollar DXY while the pound GBPUSD inched higher after news the EU gave U.K. PM Theresa May a two-week extension on Brexit.

Gold US:GCU8 has been getting some bids, while crude US:CLU8 is down sharply.

Europe stocks SXXP are obviously down, while Asian equities had a mixed session, with no big moves.

The chart

Our chart of the day offers a look at the ripple effect of the weak Europe data this morning. Here’s the yield on German government’s 10-year bond TMBMKDE-10Y or the bund, dropping below 0% for the first time in two years. Yields fall as prices rise. Elsewhere, the 10-year Treasury note yield TMUBMUSD10Y has hit a fresh 15-month low at 2.490% this morning.

The buzz

Nike NKE is down after warning of slower growth ahead, while Tiffany TIF  is getting hit by disappointing results. Hibbett Sports HIBB is soaring as earnings blew out forecasts.

Calling all workers. Tesla TSLA CEO Elon Musk is trying to rally his troops to help deliver 30,000 new cars by end March. The electric-car maker has also rebooted its customer-referral program.

At a seemingly prime time for IPOs, with Levi LEVI off to a gangbuster start Thursday, Pinterest has sped up the timing of its own offering, say sources.

China’s Tencent 0700,  sees worst-ever 32% drop in quarterly profits, plans international rollout of videogames.

Garuda Indonesia becomes the first airline to publicly confirm plans to cancel an order for 49 BA,  37 MAX jets, involved in two deadline crashes in recent months.

Facebook FB, CEO Mark Zuckerberg looks increasingly lonely at the top.

The economy

To close out the week, we’ll get the flash Markit PMI for March, exiting home sales for February and the Federal budget deficit later.

Article and media were originally published by Barbara Kollmeyer and Aaron Hankin at marketwatch.com

 


These Red Flags Will Tell You When it’s Time to Sell the Stock Rally: Bank of America Merrill Lynch

It has been a slow grind higher for stocks this week, but who’s complaining?

The Nasdaq is set for a 3% gain on the week, besting the Dow and S&P 500, which aren’t looking too shabby themselves, with respective rises of 1% and 2%-plus so far. Remember that the Dow has been weighed down by almost daily bad news for aircraft manufacturer and defense contractor Boeing.

Overall, though, it’s not too bad a picture for investors, even if they remain wary of what will happen next with the global economy, the trade and tariffs story, and the coming earnings season. And that buzzing in their ears that the post-Christmas bounce for stocks has gone a little too far, too fast.

So when do you hit the sell button on this rally, if ever? It’s a tough one, as lots of strategists have different opinions.

Enter our call of the day from Bank of America Merrill Lynch, whose weekly “Flow Show” note to clients has some fairly straightforward answers on when it will be clear that investors have gotten too bullish on stocks — and that it’s time to bail out.

“When the BofAML Bull & Bear Indicator moves above 8; the following three drivers would push the indicator toward ‘excess bullishness’ in the next 4-6 weeks,” say the strategists.

The indicator they refer to is the green-and-red sentiment scale below, with the big arrow in the middle that swings from 1 to 10 — extreme bear to extreme bull. It slipped back to “neutral territory” between 4.6 and 4.9 last week.

And here are the drivers the strategists there are looking out for:

• Equity inflows of more than $50 billion in the next four weeks. (The most recent week’s data showed equity inflows of $14.2 billion, the biggest in a year. That breaks down to $27.4 billion for exchange-traded funds with $13.1 billion moving out of mutual funds.)

• Investor cash levels dropping to below 4.5% and equity allocation jumping from over 6% to 30%. They pull that data from the bank’s fund-manager survey, due out next Tuesday. February’s survey showed cash levels among managers dropping to 4.8% from 4.9%.

• Hedge-fund positioning via CTFC data show managers going long on riskier assets from a current position of neutral.

As well, the bank says it’s also watching out for these signals: when a combination of higher U.S. jobless claims and credit spreads “indicate recession and debt deflation,” or when higher Treasury yields and a lower dollar point to inflation and a policy mistake by the Fed.

So far this morning, the sell button is definitely not being activated. Hints of economic stimulus out of China might be helping out. And don’t forget it’s a quadruple-witching Friday — with simultaneous index-options expirations — which some say could trigger a late-month swoon for stocks.

The market

The Dow DJIA,  S&P 500 SPX, and Nasdaq COMP are all a bit higher in early action.

The dollar DXY is lower, while gold GCJ9 is higher and crude CLJ9 is flat.

Europe stocks SXXP are up, while Asia stocks also saw a largely stronger day, with a 1% gain for the Shanghai Composite SHCOMP after Premier Li Keqiang said the government will do more to help stimulate China growth this year. The Nikkei NIK rose 0.7% after the Bank of Japan left monetary policy on hold.

The chart

Our chart of the day warns that a key segment of loan activity is in a “danger zone.” The chart of commercial and industrial (C&I) loan activity comes from Jesse Colombo, analyst at Clarity Financial, providing this chart for Real Investment Advice.

As Colombo explains, C&I loans finance capital expenditures or help boost working capital for borrowers, and help signal when an economic expansion is under way. It turns positive two years after a recession, but also provides a warning when an economic cycle is approaching its end.

How to determine those loans are at the end? Colombo says, when they are at 10% of GDP or higher, “that is typically a sign that the cycle is long in the tooth and about to tip over into a recession,” he said, adding that they are currently in that zone.

Colombo, by the way, is one of a handful of market watchers given credit for calling the 2008 housing bubble and subsequent market collapse.

The quote

 

Reuters
Al Noor Mosque in Christchurch, New Zealand, in 2014.

“What has happened in Christchurch is an extraordinary act of unprecedented violence. It has no place in New Zealand. Many of those affected will be members of our migrant communities — New Zealand is their home — they are us.” — That was New Zealand’s prime minister, Jacinda Ardern, in a tweet after a terrorist attack at two mosques left at least 49 people dead.

A suspected gunman appears to have livestreamed the attack, with YouTube and Facebook being criticized for not taking the videos down fast enough. Some accounts say one shooter told followers to subscribe to Pewdiepie, a YouTube star who later tweeted of revulsion at being mentioned by the attacker, who also praised Trump in his manifesto.

The buzz

Tesla TSLA CEO Elon Musk unveiled the Model Y crossover SUV late Thursday, predicting that car, with a starting price of $47,000, will sell better than the Model S, Model X and Model 3 combined. Investors seem less than enthusiastic with shares dropping.

Facebook FB is under pressure after the sudden exits of Chief Product Officer Chris Cox and Chris Daniels, head of WhatsApp.

The captain of the doomed Ethiopian airliner requested a return to the airport just minutes after takeoff as the Boeing BA jet oscillated up and down by hundreds of feet before crashing on Sunday, a source who reviewed air-traffic communications told the New York Times.

The SEC has accused Volkswagen VOW3 of “massive fraud” and misleading U.S. investors, with ex-CEO Martin Winterkorn and two of the automobile maker’s units also charged.

Nike NKE could be in focus after Duke player Zion Williamson was back on the court in some custom-made shoes by the company. That’s after a memorable game last month that ended for him when one of his Nike sneakers virtually disintegrated as he fell to the floor with a knee injury.

Apple AAPL owes Qualcomm QCOM nearly $1 billion in patent rebate payments, says a federal judge.

Amazon AMZN is up after an upgrade to overweight, with a $2,100 price target at KeyBanc Capital markets.

Oracle ORCL is down after narrowly beating forecasts, thanks to a bunch of buybacks. Broadcom AVGO is up after earnings came in higher than expected.

The economy

Fresh data showed the Fed’s Empire State manufacturing survey was sluggish in March. Industrial production came in short of expectations, while surveys on job-openings and labor-turnover and University of Michigan consumer-sentiment are still to come.

Article and media were originally published by Barbara Kollmeyer at marketwatch.com


Opinion: This Bull Market is 10 Years Old? Try Three Months

Investors conveniently ignore bear markets that hit over the past decade

The birthday party Wall Street is throwing for the bull market’s 10th birthday is a fraud.

The revelers insist that the bull market began on Mar. 9, 2009. Yet that bull market came to an end long ago. If we’re even in a bull market right now — and that is not for sure — an argument can be made that it’s less than three months old.

Consider the semi-official definition of a bear market as a 20% decline in one or more of the major market averages. There have been at least two, and perhaps three, bear markets since 2009. (See accompanying chart.)

The first came in 2011, when between late April and early October several different market averages fell by more than 20%. The second came in the last quarter of 2018, when — once again — several different market averages fell by at least that amount.

The third possibly came between May 2015 and February 2016, when the Russell 2000 index RUT  — though neither the S&P 500 SPX,  nor the Dow Jones Industrial DJIA,  fell by more than 20%.

To be sure, if you focus on closing values as opposed to intra-day readings, the S&P 500 did not fall by 20% in 2011. But that strikes me as a distinction which makes no difference. Other indices did slide by more than 20%, even on a closing basis. And the granddaddy index of all, the Wilshire 5000 index, which encompasses all publicly-traded stocks, lost more than 20% on a closing basis, even assuming dividends were reinvested.

The 2015-16 decline is admittedly more ambiguous. But it’s worth noting that Ned Davis Research, the quantitative research firm that uses a set of specific and objective criteria for defining a bear market, counts the 2015-16 decline as a bear market. That bear market also is included in the calendar maintained by Jack Schannep, editor of TheDowTheory.com.

(You may recall that last year I wrote a column about the differences between Schannep’s and Ned Davis’ respective calendars. For purposes of this discussion, however, the important thing is that both calendars regard the 2015-16 decline as a bear market.)

Why does the bull market’s age matter? One reason: Some worry that bull markets die of old age. If indeed this bull market began in March 2009, it would be one of the oldest in U.S. stock market history — and, therefore, so the worriers believe, ripe for an early death. In fact, as mentioned above, it’s not even sure we’re in a bull market right now, but if we are it’s just three months old.

Another reason why this discussion matters: It illustrates, once again, the power of collective delusion. If investors can be in denial about recent events as big and significant as bear markets, are there any limits at all to what they can convince themselves to be true?

It’s hard not to be reminded of the classic book on the subject, now almost 200 years old: Charles Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds.” While the current delusion about the age of the bull market may not elevate to the level of those on which Mackay focused — the South Sea Bubble, the Railway Mania of the 1840s, to name two — the same underlying habits of thought are still present.

Humphrey Neill, the father of contrarian analysis, once argued that “when everyone thinks alike, everyone is likely to be wrong.” That’s because the collective group think deadens our critical faculties, and in the process we overlook things that are otherwise utterly obvious.

So have a piece of bull-market birthday cake. But don’t kid yourself that this bull is 10 years old.

Article and media were originally published by Mark Hulbert at marketwatch.com

 


Opinion: Best Buy and Five Other Brick-and-Mortar Retailers Whose Shares are Worth Buying in 2019

Death by e-commerce has been exaggerated — these stores are thriving amid the internet onslaught

To some investors, it may be counterintuitive to buy brick-and-mortar retail stocks. After all, this is the age of e-commerce, and there are signs consumer spending is cooling.

Sure, Amazon.com AMZN is the most obvious evidence of the e-commerce revolution. But smaller companies such as Wayfair W are also taking market share — its stock exploded 30% in a single day after blowout earnings. And the bankruptcy of onetime mall mainstay Sears SHLDQ casts a pall over the brick-and-mortar retail industry.

And, bigger picture, the outlook for traditional consumer stocks is getting uncertain. Federal Reserve Chairman Jerome Powell admitted as much this week, warning of “conflicting signals” in the economy during testimony before lawmakers.

Still, there are old-school retail stocks that are doing well. Case in point: Best Buy BBY which surged 15% Wednesday on blowout earnings. Revenue smashed expectations, and the company reported a 3% increase in same-store sales.

There are plenty of opportunities in retail even if the big-picture trends seem to be moving in the other direction. Here are five other retail companies that, like Best Buy, have produced great performance lately and are worth considering as investments in 2019.

Costco

Ask around and you’re bound to find one of those people who worships at the cult of Costco COST for grocery items including rotisserie chickens or its Kirkland brand vodka. Investors have lots of reasons to keep coming back, too, as the shares have risen more than 90% in the past five years, nearly double the returns of the S&P 500 SPX in the same period.

Now, Costco did spook a few folks in December after weaker-than-expected revenue. However, analysts remained confident and have been vindicated as shares have snapped back.

And why not? The company’s renewal rate is over 90% with its members, a population nearly 100 million strong that drives about $3 billion in revenue a year. Overall revenues are rising, too, with total sales set to expand by nearly 10% this year to over $150 billion; a just-released sales tally for January showed an 8% increase on the month, showing Costco is tracking with that brisk growth outlook.

On top of all this, this brick-and-mortar mainstay has a few digital tricks up its sleeve; in the latest American Customer Satisfaction Index, a consumer survey that ranks stores in the U.S., Costco actually topped Amazon for the highest satisfaction among internet retailers. That rating coupled with strong in-store metrics and loyal customers is a sure sign that this company has a bright future.

Five Below

Another growth-oriented name in retail is discounter Five Below FIVE a store that offers a host of toys, school supplies, snacks and décor all for less than $5.

Quirky products coupled with bargain prices has been a big hit with consumers. Five Below doesn’t post fourth-quarter numbers until late March; however, third-quarter figures showed 22% growth in net sales and 33% growth in earnings per share (EPS). That’s pretty much par for the course for this retailer, which has boasted average revenue growth of more than 20% over the past five years.

The secret of Five Below is something Costco loyalists would attest to: It’s fun to go shopping there. The bright stores are engaging, the product lines connect with young Americans, and it’s easy to treat yourself to an impulse buy that won’t break the bank.

Here’s an example I swear I’m not making up: When I asked my daughter what she wanted to do on her birthday, she rattled off the usual like a movie, junk food — but also a trip to Five Below!

I don’t pretend to understand the appeal of squishy stuffed animals or groaner puns on graphic T-shirts. But what I do understand is the profit potential, as this stock has risen more than 200% in the past two years.

Boot Barn

If I’m out of my element when it comes to the tastes of a preteen girl, I’m equally adrift when it comes to the gear sold by Boot Barn BOOT But I don’t have to personally like cowboy boots to understand the appeal of this stock, which has jumped more than 60% in the past 12 months.

“Specialty retail” has gotten a bad name because many stores have been disrupted out of business. Radio Shack became obsolete as folks could buy all manner of arcane electronics cheaply, and mainline apparel companies now face big pressures on both price and style from theoretically limitless online competition. But there remain companies like Boot Barn that have a strong brand, a good focus and a promising future.

Case in point: Boot Barn is predicting 14% revenue growth this fiscal year after increasing guidance in its February earnings report, and another 11% or so in fiscal 2020. Net sales have soared from $400 million in fiscal 2015 to a predicted $770 million when fiscal 2019 ends in a few months. So much for death by e-commerce!

In addition to strong fundamentals and a great niche in Western wear, a luxury category where quality boots and hats can regularly run $500 or more, Boot Barn also has more accessible consumer lines as well as work wear that ensures a diverse product portfolio that will keep it in favor.

Dollar Tree

On the other side of the retail spectrum is a value play: Dollar Tree DLTR The discounter has attracted the attention of activist investors including Starboard Value who think they can unlock shareholder value in a big way.

As representative of that value proposition, Dollar Tree DLTR still trades for a forward price-to-earnings of only 16 or so even after a big run of 20% from its December lows.

At its core is the lack of realized synergies, or cost savings, between legacy Dollar Tree operations and the Family Dollar brand it acquired in an $8.5 billion deal almost five years ago. Still, this discounter has a lot of potential. Headline sales are set to grow incrementally in 2019, and EPS will rise by double digits.

Whether Starboard succeeds in agitating for a spin-off of Family Dollar to cut and run or whether the headlines simply spur management into making hard choices for the betterment of shareholders, either solution looks very good these days on Wall Street.

And as a largely urban and suburban discounter, this retailer is recession-proof and Amazon-proof as it sells low-priced essentials. That makes it certainly worth a look from value investors.

Bed, Bath & Beyond

Another value play that could be staging a comeback in 2019 is Bed, Bath & Beyond BBBY While this specialty-home-goods retailer has assuredly fallen on hard times, with a decline of about 65% across the past five years, like Dollar Tree there are signs that brighter times are ahead.

To begin with: Bed, Bath & Beyond’s BBBY stock is up 45% so far in 2019 after soaring 20% in a single session after strong earnings and an improved outlook in January. Shares have not just held on but have moved steadily higher in the intervening weeks. What’s more, even after this run Bed, Bath & Beyond’s stock BBBY boasts a forward price-to-earnings ratio (P/E) of less than 10.

Revenue has flat-lined, and margins are weak. But, clearly, investors were discounting this stock too steeply, and there is value to be had here with the hopes of a turnaround. After all, the competitive pressures that have weighed down the retailer are in many ways priced-in after the stock plunged below even pre-crisis lows in December.

Now, I’m not saying that Bed, Bath & Beyond is back, or even that it’s ready for sustained growth. But we’ve seen this movie before in which embattled retailers mount a brief snap-back rally after Wall Street realizes it has been overly negative.

Bed, Bath & Beyond isn’t destined for bankruptcy. Share momentum is great in the past two months, and the valuation is still attractive after the recent run. On top of a single-digit P/E, the company is valued at about $2.2 billion with some $700 million in cash and investments on the books to sweeten the pot.

You don’t have to hold the stock forever. But in 2019, it may be wise to consider a short- or medium-term position in this retailer, which seems to be on the upswing.

Article was originally published by Jeff Reeves at marketwatch.com


9 Stocks with Dividend Yields Over 4% in a Sector That Often Beats the Broader Market

REITs outperformed the S&P 500 last year and so far in 2019

Real estate investment trusts, or REITs, are usually considered income investments, so some investors panic and sell them when interest rates are rising. But the Federal Reserve’s recent change in policy should put that fear to rest.

Meanwhile, you can see that REITs have performed very well compared to the broader stock market in the long run. We list S&P 500 REITs, sorted by yield, below.

We pointed out in August that a knee-jerk reaction to avoid REITs when interest rates are rising isn’t supported by performance. A rising-rate environment is typically one that also features significant economic growth, which means a REITs’ rental income and earnings will rise. This tends to offset negative price action from rising rates.

The Fed’s recent change in direction may have eliminated the usual fear of interest-rate increases, at least for now.

And the silver lining is that REITs as a group have measured up well against the broader stock market over long periods. Here’s how the S&P 500 REIT industry group’s total returns (with reinvested dividends) have compared to the entire S&P 500 SPX over various periods. First, we’ll show total returns and then average annual returns.

Total returns through Feb. 15, except as indicated:

S&P 500 REITs S&P 500
2019 12.7% 11.0%
2018 -2.1% -4.4%
2 years 20.3% 22.9%
3 years 42.3% 58.3%
5 years 61.8% 67.3%
10 years 388.2% 314.5%
15 years 275.6% 230.2%
Source: FactSet

You can see that the 10-year figures are distorted because in early 2009, we were close to the market bottom that followed the deep declines experienced during the credit crisis.

It might be more useful to compare average annual total returns over long periods:

S&P 500 REITs S&P 500
2 years 9.7% 10.9%
3 years 12.3% 16.5%
5 years 10.1% 10.8%
10 years 18.4% 15.3%
15 years 9.2% 8.3%
Source: FactSet

The 15-year figures are particularly interesting. Despite the 2008-2009 crisis, the REITs have performed better than the S&P 500, even though the full index is so heavily weighted to large tech stocks, such as Facebook FB, Apple AAPL,  Amazon AMZN,  Netflix NFLX, and Google holding company Alphabet GOOG, GOOGL.

S&P 500 REITs: yields and returns

While we have compared total returns with dividends reinvested, you won’t be reinvesting if you are buying REIT shares for income.

It is very important to consider your investment objective. Even if you are not investing in REITs for income, they can help you diversify your portfolio. You should also consider a REIT’s particular specialty and growth prospects when deciding whether to invest.

Here are all 32 REITs in the S&P 500, sorted by dividend yield:

Real estate investment trust Ticker Primary investing activity Dividend yield - current Average total return - 15 years
Iron Mountain Inc. IRM Document and data storage facilities 6.96% 8.6%
Macerich Co. MAC Commercial properties 6.87% 4.6%
Kimco Realty Corp. KIM Shopping centers 6.31% 2.9%
Weyerhaeuser Co. WY Timberland 5.32% 3.7%
Ventas Inc. VTM Senior housing and health care properties 4.86% 12.4%
HCP Inc. HCP Senior housing and health care properties 4.80% 7.2%
Welltower Inc. WELL Senior housing and health care properties 4.48% 11.3%
Simon Property Group Inc. SPG Shopping malls 4.36% 13.2%
Host Hotels & Resorts Inc. HST Hotels 4.29% 5.8%
Realty Income Corp. O Diverse commercial properties 3.86% 14.2%
Public Storage PSA Self-storage facilities 3.85% 13.8%
Vornado Realty Trust VNO Office buildings in New York, Chicago and San Francisco 3.84% 7.3%
Crown Castle International Corp CCI Cellular towers 3.75% 17.9%
SL Green Realty Corp. SLG Commercial properties in Manhattan, New York 3.71% 7.9%
Mid-America Apartment Communities Inc. MAA Apartment communities 3.69% 12.5%
Regency Centers Corp. REG Shopping centers 3.53% 7.4%
Digital Realty Trust Inc. DLR Data centers 3.51% N/A
Extra Space Storage Inc. EXR Self-storage facilities 3.45% N/A
Apartment Investment and Management Co. Class A AIV Apartment communities 3.14% 9.9%
AvalonBay Communities Inc. AVB Apartment communities 3.10% 13.6%
Federal Realty Investment Trust FRT Retail properties 3.01% 11.7%
Equity Residential EQR Rental apartment properties 2.95% 11.7%
UDR Inc. UDR Multifamily residential properties 2.89% 11.3%
Duke Realty Corp. DRE Industrial properties 2.89% 5.1%
Alexandria Real Estate Equities Inc. ARE Life sciences and technology office campuses 2.88% 8.9%
Boston Properties Inc. BXP Office properties 2.84% 11.2%
Prologis Inc. PLD Logistics and distribution facilities 2.70% 8.6%
Essex Property Trust Inc. ESS Multifamily residential properties 2.67% 14.4%
Equinix Inc. EQIX Data centers 2.34% 20.6%
American Tower Corp. AMT Communications infrastructure 1.89% 20.7%
CBRE Group Inc. Class A CBRE Services to the commercial real-estate industry 0.00% N/A
SBA Communications Corp. Class A SBAC Wireless communications infrastructure 0.00% 29.3%
 Source: FactSet

So a high dividend yield can be a very good thing if income is your objective. But as you can see, the best 15-year performer on the — SBA Communications Corp. SBAC  — doesn’t even pay a dividend.

Article and media were originally published by Philip van Doorn at marketwatch.com


The Stock Market Dip? Keep Buying, Says Bank of America Merrill Lynch

Stock market action over the last 24 hours is telling us that either investors are looking for excuses to sell, or reality has caught up with everyone in a big way.

Wall Street met a wall of selling on Thursday, though nothing like the ugly days of December, as worries about global growth and trade got together and collectively blew up confidence a little. Given it’s Friday and lots of investors want to see if this move down has legs, there may not be too many too many bravehearts out there ready to dive back in. At least that's how things are shaping up.

As for hand-wringing over the latest developments on U.S.-China trade talks, some have had quite enough.

“It’s been a year now. Trump isn’t going to meet [Chinese President] Xi until after the deadline, so the market goes down. I don’t remember Trump meeting XI as ever being part of the plan, or being a definite? Do they both have to meet? Do they not have phones? Is it possible for a deal between the two countries to be worked out by the deadline…and then signed in April? Or Maybe March 2?” says Mott Capital Management’s Michael Kramer, in a blog post.

Bottom line, Trump will get a deal because he wants to add that to his list of achievements before 2020. “He also doesn’t want the stock market to go down, that is his Job approval rating,” says Kramer, who provides our chart of the day below that shows the S&P 500 is still in good shape.

Onto our call of the day, from Bank of America Merrill Lynch, whose weekly “Flow Show” update says investors should remain loyal, for now, to a resurgent market mantra.

“The correct strategy in 2018 was ‘sell-the-rip’; Positioning, Policy, Profits and Populism argue the correct early 2019 trading strategy is to ‘buy-the-dip,’ wrote BofA strategists, who say indicators they are watching — the Philadelphia Semiconductor Index SOX, the SPDR S&P Homebuilders ETF XHB and the South Korean Kospi index SEU — remain bullish.

But they are worried about a “still stubbornly flat” yield curve and the fact that an ETF tracking U.S. retailers XRT has broken below its 50-day moving average.

As for the bull case, here’s the breakdown of their four P’s: Positioning: flows show a rush back to credit, but not equity, and if cash levels drop from 4.9% to 4.6% or below in next week’s fund manager survey that would “temper” their bullish call. Policy: The global central bank tightening cycle has clearly ended. Populism: the greatest threat to earnings per share in the next three years— via taxation, regulation and government intervention. But “populism simply means investors discount higher budget deficits (U.S. government already spends $1 billion every 2 hours) and avoids government bonds…equities would benefit.” Profits: Companies will need to stop reversing earnings forecasts lower before markets can set new highs, unless investors go on a 1999-style buying frenzy.

But they really don’t expect investors to return to “irrational exuberance” territory. In a deep dive with private clients, the bank finds that since 2012, of every $100 invested, $55 has gone into debt, $35 into equities and $10 into cash and other alternative investments. And the last three years has seen no chasing of this stock market higher, they say.

Here’s a look at their latest bull-bear indicator, which is sitting just about in neutral territory:

The market

The Dow DJIA, S&P SPX and Nasdaq Composite COMP are off to a downbeat start. Check out more in Market Snapshot.

Crude CLH9 is a little softer, gold GCH9 is flat, along with the dollar DXY.

Europe stocks SXXP are treading water, but Asia had a rough session, with the Nikkei NIK, dropping 2%. China markets remain closed for Lunar New Year holidays. But those markets will be open on Monday, so look out for some catch-up action.

The chart

Tough enough. That’s the S&P 500, according to our chart of the day from Mott Capital’s Michael Kramer, who notes that the index held an important support level at 2,690 on Thursday, not just once but four times. The selloff that started Thursday, he says? One and done.

The buzz

With the trade topic red hot again, a report that the Trump administration plans to ban China telecom equipment from U.S. networks later this month, may go down like a lead balloon in Beijing.

Amazon AMZN CEO Jeff Bezos has accused the National Enquirer of trying to blackmail him, saying the tabloid threatened to publish embarrassing photos if he didn’t call off a Washington Post investigation into a prior expose on his romantic life.

It’s a quiet day on the earnings front, with Hasbro HAS, and Phillips 66 PSX, Arconic ARNC and Goodyear Tire GT among those reporting.

Apple AAPL is taking some heat on social media after Ariana Grande’s latest album had trouble seeing the light of day on the iPhone maker’s music service, but was everywhere else with no problem. Meanwhile, Apple will reward the teen who unearthed the Group FaceTime bug.

Donald Trump Jr. ripped into Democratic Rep. Alexandria Ocasio-Cortex’s “Green New Deal” as socialism on Twitter, and got an education on the matter in response.

On the data front, just wholesale inventories for December will round off the week. In comments late Thursday, St. Louis Fed President James Bullard said he thinks the central bank’s interest-rate policy is just a bit too “restrictive.”

The quote

“It’s the kind of thing that hits you in the chest and sticks with you.” — That was Adam Mosseri, Facebook-owned Instagram’s vice president of product management, after learning the father of 14-year old Molly Russell blamed the site for her suicide in 2017 after the teen had been viewing graphic images on the site. Mosseri said Instagram will ban all graphic self-harm images and make even those not as graphic harder to find.

Article and media were originally published by Barbara Kollmeyer at marketwatch.com


An Earnings Tsunami — with 113 S&P 500 Components — Marks ‘Pivot Point’ for Stock Market

13 Dow components are set to report this busy week

Stock-market investors are bracing for a frenzied week of earnings, in what could be a crucial stage in a potent recovery from last year’s lows for major equity indexes.

In the week ahead, 113 of the 505 S&P 500 SPX companies, representing a little more than one-fifth, or 22%, of the broad-market benchmark’s constituents, and 13 of the 30 components of the Dow Jones Industrial Average DJIA are slated to report quarterly results.

It all amounts to the busiest week of earnings season.

Indeed, Thursday alone will see about three dozen S&P 500 companies report, according to FactSet data.

Art Hogan, chief market strategist at B. Riley FBR, Inc., told MarketWatch that the onslaught represents a potential “pivot point” for the stock market that has worked its way steadily back from the brink, with the S&P 500, Dow and the Nasdaq Composite Index COMP, marking their worst annual declines since 2008. “This is the real pivot point,” Hogan said. About 252, technology-laden Nasdaq components, or about 9.6% of the index, is scheduled to report earnings.

The Dow is on a five-week win streak and stands off 7.8% from its Oct. 3 all-time high at 26,828.39, according to Dow Jones Market Data, the S&P 500 is off 9.1% from its Sept. 20 record close at 2,930.75, while the Nasdaq stands 11.7% from its Aug. 29 peak at 8,109.69.

Among those notably reporting this week are Amazon.com Inc. AMZN, Apple AAPL, Microsoft MSFT, Facebook FB, Qualcomm QCOM, Nvidia NVDA and Tesla Inc. TSLA.

“This week may well be the alarm bell, or the signal, that companies have confidence enough to move forward,” or not,” he said.

Thus far, about one-fifth, or 112, of the S&P 500 companies have reported already, with the majority topping analysts’ earnings estimates: 72.3% of companies have reported above analyst average estimates, compared with an average outperformance of 64%, but below the average over the past four quarters of 78%., according to data from Refinitiv.

However, 58.0% of companies have reported fourth-quarter revenue above analyst expectations, which is below the long-term average of 60% and below the average over the past four quarters of 72%, the data provider said. Moreover, earnings expectations themselves had been dialed back by analysts just before the fourth-quarter kicked off amid a panoply of headwinds.

A Monday research note from analysts at Morgan Stanley, including prominent equity strategist Michael Wilson, expressed reluctance to wax bullish on stocks just yet, given recent corporate earnings.

“We are hesitant to draw a bullish signal for the broader market given that a) the bar for ‘beats’ has been substantially lowered and b) those areas of the market seeing the biggest rallies were also those where valuation was at extremes, which is not true of the entire market,” the Morgan Stanley strategists wrote.

“However, with most stocks up at least 10-15 percent from the lows, led by the high beta names, we think the risk reward is much less attractive at this point given the numerous hurdles still confronting equity investors. In contrast, our conversations with clients have revealed a growing anxiety for the chance of a market that runs away from them as the media and other market commentators seem to be espousing,” Wilson and the Morgan Stanley crew wrote.

Commencing in October, investors have been rattled by worries about protracted talks between the U.S. and China on tariffs, signs of a slowing economy in Beijing and throughout the rest of the globe, a Federal Reserve that appeared determined to raise interest rates, despite market convulsions, and mounting concerns of a coming recession that could wound corporate earnings.

Although many of those anxieties remain in the fore, Wall Street believes that the Fed, at least, is relenting in the pace at which it normalizes interest-rate policy and its balance sheet.

Kicking things off on Monday, China’s slowing economy and increased material and transpiration costs weighed on Caterpillar’s CAT results, according to the company.

13 Dow components reporting this week Reporting date
Caterpillar Monday
Apple Inc. Tuesday
Boeing Co. Tuesday
Chevron Corp. Thursday
DowDuPont Inc. Thursday
McDonald’s Corp. Wednesday
3M Co. Wednesday
Merck Co. Friday
Microsoft Wednesday
Pfizer Inc. Tuesday
Visa Wednesday
Verizon Communications Tuesday
Exxon Mobil Friday

Even as earnings receive white-hot attention, a number of key events also will hold investors’ gaze, including a vote on an alternative plan for Britain’s exit from the European Union on Tuesday, a Fed policy update on Wednesday, and January jobs figures due to be released on Friday.

Article was originally published by Mark DeCambre at marketwatch.com


Dow Rises 150 Points Buoyed by Goldman’s Earnings-Driven Rally

U.S. stocks rose early Wednesday, as investors digested mostly positive earnings from financial institutions like Bank of America and Goldman Sachs.

Meanwhile, Wall Street continues to battle uncertainty driven by a partial government shutdown entering its 26th day and drama in the U.K. related to its tumultuous attempts at negotiating an orderly divorce from the European Union.

How are major benchmarks performing?

The Dow Jones Industrial Average DJIA rose 160 points, or 0.7%, at 24,225, the S&P 500 index SPX climbed 13 points, or 0.5%, at 2,623, while The Nasdaq Composite Index NQH9 advanced 55 points to 7,078, a gain of 0.8%.

What’s driving the market?

Wall Street investors are cheering fourth-quarter results from Bank of America Corp. BAC reflected healthy demand for loans even as interest rates rise, while also taking solace in quarterly results from Goldman Sachs Group Inc. GS which produced earnings and profits that topped expectations on the back of healthy mergers and acquisitions.

In the early innings of fourth-quarter earnings season, management guidance has communicated their confidence in domestic expansion, if not in global economic growth, which has been showing cracks. That trend continued Wednesday, after B. of A.’s C.E.O. said in a statement accompanying the earnings release that “we see a healthy consumer and business climate driving a solid economy.”

Traders are also taking solace in a move by the People’s Bank of China to inject a record $83 billion into the country’s financial system Wednesday, as the government tries to blunt the economic slowdown that threatens to damage the European and U.S. economies as well.

Also in focus on Wednesday was a U.K. parliamentary vote of no confidence in Prime Minister Theresa May’s government, set to take place at around 2 p.m. Eastern Time, after the British leader suffered an overwhelming rejection of her proposed Brexit deal late Tuesday. The defeat, 432 against compared with 202 in favor, was the largest margin of defeat by a sitting British government since the 1920s, and throws into doubt the country’s plans to exit from the EU without disrupting global markets. May is expected to survive the late-Wednesday vote.

Investors will also continue to weigh the implications of a protracted, partial government shutdown, which has now stretched to a record 26th day. While markets have largely shrugged off the drama unfolding in Washington, economists warn that the longer the impasse lasts, the greater the effect on the economy will be, with Trump administration economists now estimating that gross domestic product in the first quarter will be reduced by 0.1% each week the shutdown drags on.

Which stocks are in focus?

B. of A. reported revenue and profit that were better than average analysts’ estimates from FactSet. The bank reported earnings per share, or EPS, of 70 cents, compared with consensus for 63 cents. The stock is up 5.4% Wednesday.

Sears Holdings Corp. SHLDQ shares are in focus, after Chairman Eddie Lampert prevailed in a bankruptcy auction for the struggling department store chain with an improved takeover bid of roughly $5.2 billion, according to reports. The stock is up 39% early Wednesday.

Ford Motor Co. F said it expects adjusted earnings per share of $1.30, compared with FactSet consensus of $1.33 a share. Shares are down 1.2% at the start of trade Wednesday.

BlackRock Inc. BLK reported quarterly results that were weaker than expected, with revenue totaling $3.434 billion in the fourth quarter, while analysts polled by Refinitiv expected sales to reach $3.516 billion. Nevertheless, the stock is up 4.2%.

Shares of Fiserv Inc. FISV are down 8% Wednesday, after the company announced a deal to acquire First Data Corp. FDC in an all-stock deal worth $22 billion. First Data stock is up 16.3%.

Shares of Goldman were rising 5% early Wednesday, after the investment bank delivered sales and profits in the fourth quarter that were better than expected.

Nordstrom Inc. JWN stock is down 6.8% after the retailer said Tuesday evening that its full-year fiscal 2019 earnings would be at the low end of its previous guidance, citing weak holiday sales.

Shares Charles Schwab Corp. SCHW are up 2% Wednesday, after the brokerage beat Wall Street estimates for earning and revenue in the fourth quarter.

What are the strategists saying?

Mark Newton, independent market analyst at Newton Advisors, on Wednesday wrote that the “S&P [is] likely to face strong overhead resistance between 2630-40 between Wednesday-Friday of this week. Reversals of trend look likely technically, and one should consider using strength Wednesday to flatten out and/or adopt hedges for an above-average chance of a drawdown into next week.”

What data are in focus?

The cost of imported goods fell for the second month in a row, declining by 1% in December, the Labor Department reported Wednesday morning.

At 10 a.m. the National Association of Home Builders will release its index measuring home builder confidence.

At 2 p.m., the Federal Reserve will release its beige book, featuring anecdotal information on current economic conditions in the U.S.

How are other markets trading?

In Asia, markets traded mixed, after disappointing data on machinery orders helped send the NIK 0.6% lower. In Hong Kong, the Hang Seng Index HSI rose 0.3%, while China’s Shanghai Composite Index SHCOMP traded flat.

European markets traded mostly higher Wednesday, with the Stoxx Europe 600 SXXP rising 0.6%, while the U.K’s FTSE 100 UKX fell 0.4%.

Crude oil CLG9 prices were on the retreat Wednesday morning, down 0.2% to $52.03 per barrel, while the price of gold GCG9 rose and the U.S. dollar DXY was virtually unchanged.

Article was originally published by Chris Matthews  and Mark DeCambre at marketwatch.com