Opinion: Why the S&P 500 Could Gain Another 10% from its Previous High

U.S. stock market often moves higher after overcoming a correction

It’s official: The U.S. stock market’s early-2018 correction has now been completely erased.

That doesn’t resolve all issues facing investors, of course. The future remains just as unknowable as before. But the market’s latest achievement does mean that we can no longer debate whether the January stock market highs represented the end of the bull market.

It most certainly did not. Someone who invested a lump sum in the stock market on Jan. 26 — the date of the early-2018 high — is now in the black. (This as judged by the dividend-adjusted Wilshire 5000 index, which represents the combined market cap of all publicly-traded stocks — see chart, below.)

July 25 was the day on which the dividend-adjusted Wilshire 5000 index eclipsed its previous high, which means that the stock market spent six months in the purgatory of not knowing whether a new bear market had started.

Counting from the Feb. 8 correction low, the stock market’s recovery time was five and one-half months. According to CFRA strategist Sam Stovall, this is only slightly longer than the five-month average recovery time of all corrections since World War II.

The early-2018 correction and subsequent recovery were entirely average.

The bottom line, therefore: The early-2018 correction and subsequent recovery were entirely average. That’s something to think about in light of the huge amount of ink spilled over the last six months about what might have caused the market’s pullback and what it meant for the future. Was it just a lot of sound and fury signifying nothing?

One mild surprise is that the market-timing community has been slow to jump back on the bullish bandwagon. This is encouraging from a contrarian point of view, suggesting that there is a healthy level of skepticism out there about the market’s rally.

After all, the normal pattern is for bullish sentiment to rise and fall more or less in lockstep with the market itself. So, other things being equal, we’d expect to see bullish sentiment over the last week to have risen to the same level it was at the January highs.

It’s not, as I outlined in my column last week. That’s why, as I reported in that column, the bull market has, at a minimum, a short-term lease on life.

The market often, though not always, continues higher after overcoming a correction.

How much higher can we expect the market to rise, now that it has overcome the last-six-months’ correction? Contrarian analysis doesn’t offer any insight, since it instead recommends that we instead let the sentiment indices tell their story as it unfolds. But Stovall says that the market often, though not always, continues higher after overcoming a correction.

“Encouragingly,” he wrote recently to clients, “History says, but does not guarantee, that the S&P 500 SPX could advance another 10% beyond the prior high before slipping into another decline of 5% or more.”

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

 

 


These 10 Companies have Recently Raised their Dividends by at Least 10%

Their dividend yields range up to 4.94%

The pace of dire warnings in the stock market seems to have picked up lately.

They’ve been stoked by the recent declines in share prices for large tech companies. If you are either looking to make some safer choices or to draw income from your stock investments, the following screen might be a good place to start.

One cannot know when the bull market for stocks that began in March 2009 might end, but the high-profile and high-flying technology sector is certainly under pressure this earnings season. Two of the biggest drags on the sector have been disappointing subscriber growth numbers from Netflix NFLX and warnings of slower revenue growth and a rapid increase in expenses from Facebook FB.

Big Tech — especially the FAANG stocks (Facebook, Amazon.com AMZN, Apple AAPL, Netflix and Google holding company Alphabet GOOG, GOOGL) —  had been hot for so long that some investors may have forgotten that a company cannot increase its sales by double digits each quarter forever.

All companies eventually mature and post slower growth. That often focuses the mind on profits, margins, efficiency, expense control, defending the current business and expanding into new areas.

All this means that we just might be entering a phase where a value-oriented approach to picking stocks may outperform the growth-oriented strategies that have been working so well in recent years.

In a strong economic environment and with so many companies awash with cash, you might expect to see many increasing their dividends by tremendous amounts. But as Mark Hulbert explains, many management teams prefer to spend the extra cash on buying back shares, even at record prices. After all, nobody expects buybacks to always continue at any level, but if a company cuts its regular dividend payout, the shares typically take a terrible beating.

But what if a company bucks the trend and raises its dividend payout by 10% or more? This certainly indicates great confidence on the part of the board of directors that there’s plenty of cash flow to support the dividend — they see no chance of a dividend cut on the horizon. And a combination of an attractive dividend yield, a large recent increase to the payout and a long-term history of no cuts to the dividend may help identify some defensive stocks that also provide decent income.

Don Taylor, who has run the $19 billion Franklin Rising Dividend Fund FRDPX for 22 years, recently discussed how a rapidly rising payout can be correlated to good long-term stock performance.

Starting with the S&P 1500 Composite Index (made up of the S&P 500 SPX the S&P 400 Mid-Cap Index MID and the S&P Small-Cap 600 Index SML), there were 199 stocks with dividend yields of 3.5% or higher as of the close on July 30, according to FactSet.

Among those 199 were 29 companies whose most recent dividend payout increases were 10% or more. We then looked back 46 quarters — to 2007 — to make sure that the companies had not cut their dividends. (A company may have initiated paying dividends recently). This pared the list to 10 companies. Here they are, sorted by dividend yield:

The overall performance for the group this year has been mixed, but that’s a short period for serious long-term investors.

If you are looking to move away from stocks that dominate the headlines or for decent payouts from companies whose management teams are very confident about their business prospects, this may be a good place to start. If you see any stocks of interest, it’s important that you take the next step and do the research needed to form your own opinion about how well a company will compete in its main business of providing goods and services over the next decade.

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


Wall Street Investors Can’t Remember the Last Time a GDP Report was so Crucial

Second-quarter’s GDP reading came in at 4.1%

Wall Street just traversed a gauntlet: the busiest week of corporate quarterly results, fresh developments in global trade relations and a historic stock tumble by Facebook Inc. However, the headliner of this jam-packed week may be GDP, the official scorecard of the U.S. economy.

As one fixed-income strategist put it, never has a reading of gross domestic product held so much significance, with the three main equity benchmarks—the Dow Jones Industrial Average DJIA, the S&P 500 index SPX and the Nasdaq Composite Index COMP —as well as the U.S. dollar DXY and Treasury TMUBMUSD10Y TMUBMUSD02Y markets primed for Friday’s highly anticipated print.

Here’s how Guy LeBas, head of fixed-income strategy for Janney Montgomery Scott, put it via Twitter on Thursday: “I can’t remember the last time the markets placed such importance on a #GDP number as they have with tomorrow. Given the perceived optimism, a miss could catch rates violently offside (i.e., rally risk),” he wrote.

What’s all the fuss about?

Second-quarter GDP data on Friday cam in at 4.1%, slightly below estimates for from economists polled by MarketWatch for a rate of 4.2%, but still representing the fastest pace of expansion in four years. Although the Federal Reserve’s GDPNow tracker was indicating a Q2 read of 3.8%, as of Thursday.

If it had come ahead of average economist’s projections, it would have been the best GDP report since 2003, wrote MarketWatch’s Steve Goldstein.

Growing buzz around the possibility of such a strong read had come as the White House has been suggesting that the number from the Commerce Department will be huge.

On Thursday, White House economic adviser Larry Kudlow predicted that the second-quarter GDP release will live up to the billing.

“You’re going to get a very good economic growth number tomorrow. Big,” Kudlow told Stuart Varney on Fox Business on Thursday.

Fox Business reported that a strong number may be used as an excuse for the Trump administration to take a victory lap, claiming that late-2017 corporate tax cuts and a number of other stimulative measures enacted over the past several months are bearing fruit. The current print may still be sufficiently strong for the administration to claim victory. Additionally, the first-quarter reading of GDP was lifted to 2.2% from a first read of 2.0%.

How will the market react over the longer term? It’s hard to say. With enthusiasm?

But also not without some skepticism, amid a barrage of tariff threats and revisions to the data that some argue could inform results, as Natixis strategists Joseph LaVorgna notes:

And as Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management, indicates via this Twitter thread:

Others note that at least some of the growth can be attributed to a rush to get ahead of the Trump administration’s tariff threats, which have had an outsize impact on the soybean market, as David Rosenberg points out:

On Thursday, investors mostly fixated on a decline in shares of Facebook FB which saw its worst day ever as a public company after a disappointing forecast for revenue, weighing on the broader market, although the Dow finished firmly higher. However, a string of otherwise rosy second-quarter earnings and an upbeat GDP may deliver just the right dollop of fuel to ignite the markets higher.

Article was originally published by Mark DeCambre at marketwatch.com


Google is a Great Investor, and Alphabet Earnings are Showing the Results

Opinion: Company has claimed more than $4 billion in investment gains in first half of the year, about one-third of its net income

Alphabet Inc.’s big earnings beat was partly due to large gains from investments, and not the money it spends on its own company.

Alphabet GOOG GOOGL, reported way better-than-expected second quarter earnings, after factoring the huge antitrust fine that Google paid to the European Union, and sent shares toward record highs. Excluding the fine, Alphabet’s earnings would have been $11.75 a share, way above analysts’ consensus estimate of $9.64 a share, according to FactSet.

That large gap between expectations and results was mostly due to a $1.06 billion in gains in securities, as Google’s parent company continues to factor in increases on its outside investments under new accounting rules. Alphabet executives were not asked about the gains on a conference call Monday afternoon with analysts, who did not seem that interested in the extra billion dollars of net income.

“It’s a way of accounting for existing investments on the books,” JMP Securities analyst Ron Josey explained in a telephone interview.

“Honestly, I think most of us just back out those below-the-line items, and/or focus on operating profit,” Colin Sebastian, an analyst with Robert W. Baird & Co., said in an email.

Sebastian, who rates Alphabet an outperform, noted that the accounting change added a benefit of $1.17 to its earnings, the majority of the beat, and used that figure to adjust Google’s earnings to $10.58 a share in a note to clients.

Google’s investment gains should not be removed or ignored, however. According to Crunchbase News, Alphabet was the most active and largest corporate investor in the tech sector in 2017, surpassing both SoftBank Group Corp. 9984, of Japan and Intel Corp.’s INTC Intel Capital.

Early investments from Google’s GV and CapitalG investment arms are starting to pay off, in both initial public offerings and acquisitions. Since January, 20 Google-backed companies have had liquidity events according to Crunchbase data; there have been more than 50 since 2016. Alphabet declined to comment on the gain or its investments, including disclosing the major components of the gains.

During the quarter Alphabet reported Monday, one investment, Glassdoor Inc., was sold for $1.2 billion to a Japanese human resources company called Recruit Holdings, while another, the electronic signature company DocuSign DOCU,  had a strong IPO in which GV sold about 412,000 shares and held on to about 1.46 million. Two security investments have paid off recently as well, as Central Intelligence Agency-backed cloud security firm Evident.io was acquired by Palo Alto Networks Inc. PANW, and Zscaler Inc. ZS, went public in the first quarter.

Beyond straight tech company plays, Google’s venture capitalists have also invested in a handful of biotech and health-care companies, at least three of which have either been acquired or gone public in the past three months.

Alphabet’s investments gained more than $3 billion in the first quarter, when the company began following the new accounting rules, thanks to a fresh Uber Technologies Inc. stake it collected in the Waymo lawsuit, among other gains. With the $1 billion-plus disclosed Monday, the total gains for Alphabet’s investments in the first half of the year account for nearly one-third of Google’s GAAP net income figure for that period.

That is far too large a chunk of Alphabet’s profit, and too much money, for investors to ignore. For bulls, the cash Alphabet could realize by selling investments in the future is another strong point in their favor, while bears can say earnings are being propped up by large paper gains that may never materialize. Either way, Alphabet’s investments should start getting more attention as they boost Google’s bottom line.

Alphabet shares surged Monday to after-hours prices that would be record highs if they were to happen in regular trading. Class A shares are already up 15% so far this year, compared with the S&P 500 index SPX, up nearly 5% in 2018.

Article and media were originally published by Therese Poletti and Max A. Cherney at marketwatch.com

 


With 20%+ Earnings Growth Baked in, the Drama for Tech this Quarter will be in the Forecasts

Opinion: Most investors are baking in big gains from chips and big tech companies while watching the forecasts

As tech companies continue to dominate Wall Street, with four now standing alone with valuations of more than $800 billion, gigantic growth is priced in and expected. All the drama is in the forecasts.

As tech companies begin to drop their second-quarter earnings reports, analysts on average expect profit in the tech sector to grow 20.9% from the same quarter a year ago, according to FactSet. It would be the fourth consecutive quarter that the Information Technology sector of the S&P 500 SPX produced earnings growth of 20% or more, driven by gains from internet companies like Alphabet Inc. GOOGL, GOOG, Twitter Inc. TWTR and Facebook Inc. FB and chip makers like Micron Technology Inc. MU and Nvidia Corp. NVDA.

Those expectations are pretty much baked into stock prices at the moment, though, with the S&P’s tech sector gaining 16.5% and the Nasdaq Composite Index COMP adding about 14% in the past year. If there is upside, it is in the projections for the third quarter, when tech laps the beginning of this earnings jump — analysts are currently projecting earnings growth of 15.2% for the third quarter, with a chance that number will move up closer to 20% after the fresh outlooks arrive.

So investors will be relying more intently on company forecasts — as well as comments on the ramifications of President Donald Trump’s trade skirmish with China, updates on memory-chip pricing and anything in general that diverges from current expectations — to hunt for upside.

Some analysts, however, see the potential to head another way this earnings season.

“The earnings growth and secular stories driving much of tech are powerful and have drawn many investors in like a lifeboat on choppy waters,” Morgan Stanley equity strategy analysts wrote in a note earlier this month. “At some point, a lifeboat can take on too many passengers though, and overcrowding can magnify any otherwise manageable issues. We think the near-term risk-reward for tech sets up poorly on a few fronts.”

The analysts highlighted several factors that concern them this earnings season, including that consensus estimates and projections are already priced into tech stocks; valuations in tech are in general elevated versus the broader market; and concerns about the impact the trade tariffs will have on the global supply chain.

For an early example of the kind of valuation destruction this setup can lead to, just take a look at Netflix Inc. NFLX which kicked off tech’s earnings season on Monday with a big disappointment. While the company easily beat on earnings per share, which soared 467% from the year before, shares plunged on a miss in subscriber growth and a forecast that indicated new subscribers would decline again from the year before.

That is the type of punishment that could await large tech names if they don’t live up to big growth expectations and guide for more of the same. Here are some companies that will be in the spotlight this quarter:

With gains from GPU makers like Nvidia and Advanced Micro Devices Inc. AMD and memory chip makers like Micron, semiconductor companies may be more popular with investors now than they have been since the 1990s. They also could be in a precarious position in the trade battle, as many semiconductor companies get a lot of revenue from China.

Chip giant Intel Corp. INTC — in the midst of looking for a new CEO after Brian Krzanich resigned in disgrace — makes its NAND memory chips that were designed in the U.S. at a factory in China. So far the company has not made any comments on how the trade war may or may not affect its business but some analysts have tried to assuage investors jitters by noting that Chinese buyers of semiconductors still (at least for now) rely heavily on their U.S. suppliers.

“Despite the high exposure for nearly all of our coverage universe into China, we believe in digital and analog semiconductors Chinese buyers have essentially zero sources of competitive domestic supply — at least in the medium term,” Cowen & Co. analyst Matthew Ramsay wrote in a note on Friday, adding that a trade war between the U.S. and China would “irreparably damage global competitiveness for several important Chinese tech giants (smartphone, wireless infrastructure and cloud vendors in particular) that rely often on single or dual-sourced critical semiconductor components from U.S. suppliers.”

Some semiconductor stocks, the big winners in 2017, have had a disappointing year so far, with the Philadelphia Semiconductor Index SOX up only 7% so far this year, compared with its hefty gains of about 37% in 2017. Chip companies are still up more than the S&P 500 overall, however, and will be watched closely this season, as will equipment suppliers like Lam Research Inc. LRCX.

While the chips may be down for the semi companies, the most popular of the FANG stocks, Amazon.com Inc. AMZN is expected to fare well, even though the second quarter is a slower one, and the trade war is not yet affecting any other FANG members. But these companies have their own issues, especially Facebook, Google parent Alphabet and Twitter. Facebook and Twitter’s results will be watched to see if has been any financial impact as for their efforts to combat fake news and fake accounts.

Amazon is expected to have a slower quarter, and its big Prime Day sale won’t be included in these results. Even so, investors again expect a big quarter from Amazon Web Services, Amazon’s cloud-computing division that has powered the e-commerce giant to profitability, and more revenue from advertising, as well as its own low-margin electronics products. While advertising is a newer revenue source, it is expected to hit $18 billion total in 2018, according to Cowen & Co. analyst John Blackledge. Overall revenue in the quarter is expected to grow about 40.9% from the year-ago period to $53.4 billion, according to consensus estimates on FactSet and earnings around $2.47 a share.

Investors are also very anxious to hear from Apple Inc. AAPL Tim Cook, chief executive of the world’s most valuable company, received reassurance from President Trump in mid-June that iPhones, designed in the U.S. but manufactured in China would not be subject to tariffs. But since then, Trump has instigated another $200 billion in tariffs and some investors are wondering if Apple’s supply chain could be impacted by the Chinese government. On Friday, Nomura/Instinet Securities analyst Jeffrey Kvaal addressed the fears in a brief note.

“While full visibility is elusive, the U.S. has stated that it will not tax Chinese-assembled iPhones,” Kvaal wrote. “China may have to think twice about impinging on the iPhone given high iPhone-related employment in China.”

Apart from tariff worries, investors are not expecting a huge earnings beat from Apple, which is expected to unveil its next iPhones and other products for the all-important second half of the year in the early fall — the forecast may give signs on plans to launch the new smartphones before the end of the quarter. Total revenue is expected to grow about 23% year over year to $52.3 billion, per FactSet consensus estimates, while iPhone revenue is expected to grow about 17% to $29.1 billion from the year-ago quarter. On a sequential basis, though, Apple is expected to see a decline in revenue in its slowest quarter of the year.

The most anticipated conference call will come from Tesla Inc. TSLA after volatile chief executive Elon Musk’s insult-fest with Wall Street last quarter and increasingly erratic behavior since. Much like the technology sector, though, the car maker’s numbers are already mostly assumed after it pushed through a production milestone at the end of the quarter, so they will be hyper-focused on any controversies or flippancies on the call.

If that status for Tesla sounds familiar, it should by now: Investors appear to expect big growth and only react if they see trouble suddenly jump up in the road ahead. Tech companies will have to sparkle as results flood in the next few weeks if they want to avoid a fate like Netflix.

Article and media were originally published by Therese Poletti at marketwatch.com


Opinion: These Five ‘Mega Trends’ are Producing Soaring Stocks Regardless of Trump, Tariffs or the Economy

Industries including gaming and artificial intelligence are being pushed forward by strong tailwinds

The idea that “uncertainty” has returned to the stock market in 2018 is perhaps the understatement of the year.

Protectionist trade policies are whipsawing the S&P 500 SPX based on the news cycle, and headlines can cause individual segments of the market to move even more dramatically. Just look at the slump for Harley-Davidson Inc. HOG in late June, and how automakers responded to discussions of targeted tariffs last week.

There are plenty of investors who are a bit testy about this, since one tweet by Donald Trump or the latest tit-for-tat in tariffs can undercut their strategy.

But there are still stocks that are very much on the upswing regardless of trade escalations. Those companies are riding long-term trends that are sure to withstand whatever political moves we see this year — and many years after that.

That makes those opportunities perfect both for investors looking for stability in tough times, as well as for those seeking out the next big idea to fuel growth.

Some of the ideas require patience and a long-term perspective. But the future is undeniably on your side if you own these stocks.

Here are five so-called mega trends that are sure to reshape the global economy in the years to come, and a few stock ideas so you can trade them.

Artificial intelligence

Machine learning and artificial intelligence (AI) are not the stuff of science fiction any longer. Businesses continue to deploy AI solutions to help organize information, streamline operations and maximize sales to customers.

As a result, research firm IDC estimates worldwide AI spending will be up over 50% in 2018 from last year, and sales will top $50 billion annually by 2021.

One way to play this mega trend is via mega-cap tech companies that have the scale to play this trend widely. Google parent Alphabent Inc. GOOG was ahead of the curve on this trend, acquiring AI startup DeepMind in 2014 for $500 million and in many ways proving the value of artificial intelligence through autocompleted searches and instant answers. Others, like Microsoft Corp. MSFT are expanding into AI functions as part of their enterprise offerings, and of course there’s IBM IBM with its iconic Watson engine.

Investors can also play the hardware side, if they don’t want to horserace the AI technologies themselves. There’s chipmaker Nvidia NVDA which is the dominant manufacturer of the hardware required for these complex computer brains, as well as specialized players like Xilinx Inc. ( XLNX that make “field programmable gate arrays” that allow engineers to be much more flexible and responsive in how they code.

And if you don’t want to choose, there are also specialized ETFs like the Global X Robotics & Artificial Intelligence ETF BOTZ which includes some of those stocks.

E-commerce

While we are certainly seeing strong consumer spending trends in 2018, it’s important to remember that the dollars are increasingly moving away from brick-and-mortar merchants and into e-commerce. Consider that broad e-commerce sales were up 16% last year to tally over $390 billion — the highest growth rate since 2011.

This is a trend that is amplified by strong consumer sentiment, but don’t think this is a cyclical thing that will crash if the broader U.S. economy rolls over. Furthermore, it’s a global phenomenon; research firm eMarketer recently estimated that Asia-Pacific e-commerce grew 31% last year while overall retail sales rose only 7% in the region.

So how do you play this trend? There are obvious answers in Amazon.com AMZN and its Asian peer Alibaba Group BABA. But the universe of e-commerce investments is huge, including specialized plays including car-sales platform Carvana Co. CVNA, which has soared 120% in the past 12 months, and furniture and home goods site Wayfair W, which is up about 60% in the past year. Clearly there is more than enough spending to go around outside the big boys.

There are also ETFs including the Amplify Online Retail IBUY, which is up 50% in the past 12 months.

Mobile payments

Anyone who has used a credit card at a food truck or swiped their smartphone at a coffee shop knows that the trend away from cash has really gained steam. In fact, consultancy firm Capgemini estimates over 720 billion digital payments will be processed worldwide by 2020.

The most interesting thing, however, is that the U.S. is actually lagging behind in this trend despite seemingly rapid adoption; China’s tally of roughly $9 trillion in mobile payments in 2016 dwarfs the $112 billion total for the U.S. that same year.

That presents a host of interesting opportunities for investors, including a play on emerging market expansion as well as yet-to-be-realized growth at home.

Domestically, players like mobile payments giant Square SQ offer direct exposure to this trend. There are also indirect plays via Fiserv FISV a financial technology company that assists with mobile banking and other payment technologies.

There are also targeted plays internationally, with Alibaba and its Alipay, and Tencent TCEHY and its WeChat mobile payment system that dominates in China. Those two leaders are great investments if you’re more interested in the emerging markets angle.

There are diversified ETFs like the ETFMG Mobile Payments ETF IPAY that ties up a bunch of those names in one fund if you want to play the cashless trend broadly. With IPAY up over 40% in the past year despite a choppy market, that shows the promise of mobile payments even amid market uncertainty.

Biotechnology

There’s always a lot of noise about publicly traded drug stocks, from patent expirations to chatter about potential regulations. But in many ways, the innovative biotechnology sector is a thing apart.

Many of those companies have nothing to do with marketing strategies or public health policies. They are focused primarily on researching the next generation of life-saving drugs, using techniques that once were seen only as science fiction.

Take BioXcel Thereapeutics BTAI a company that is trying to tailor cancer cures to individual patients’ immune system in order to fight off disease. Or take gene-editing stock Editas Medicine EDIT which is researching a host of techniques such as editing retinal tissue genes to combat childhood blindness.

You can understand why the general public gets excited about the prospect of those treatments, and why investors see tremendous profit potential. And with aging baby boomers in the U.S. demanding more treatment from conditions including diabetes to Alzheimer’s, there is a tremendous need for any successful treatments that win Food and Drug Administration (FDA) approval.

Individual biotechs can be risky, of course, as firms plow money into research that may not pan out. But diversified funds like the SPDR S&P Biotech ETF XBI which is up 27% in the past 12 months, offer a great way to play the broad promise of the sector without putting all your eggs in one basket.

Gaming

This may not strike some folks as a mega trend, but the evolution of video games has moved way beyond stereotypes of geeks sitting alone in their parents’ basement. Gaming is a global phenomenon that knows no age or gender — and, most importantly, has become big business.

According to the Entertainment Software Association, the average male video game player in the U.S. is 32 years old and the average female player is even older, at 36. That’s in the prime age range for spending, and also for passing that tradition of gaming on to kids, since two-thirds of families have a parent who games.

The dollar signs also tell the story, with $36 billion in U.S. gaming spending last year alone and over $108 billion worldwide.

So how to play this trend? There are dedicated game companies like Take-Two Interactive Software TTWO and Activision Blizzard ATVI that are obvious choices; TTWO is up almost 70% in the past 12 months, and ATVI is up about 35%. There are also more mobile-focused gaming names like Glu Mobile GLUU which has soared 160%.

Companies such as China’s NetEase NTES gets 68% of its revenue from mobile gaming, and is enjoying a nice tailwind from the growth of smartphones in Asia. There’s also tech conglomerate Tencent that also is a big player in the industry both directly and indirectly, thanks to significant stakes in some of the biggest studios in the world.

As with so many of these trends, investors can cast a wide net on this mega trend simply buy buying ETFs like the ETFMG Video Game Tech ETF GAMR which includes all of those names among its 72 total holdings.

Article was originally published by Jeff Reeves at marketwatch.com


U.S. Adds 213,000 Jobs in June, but Wage Gains Soft and Unemployment Rises to 4%

Businesses can’t find enough talent to fill a record number of job openings, but they are still hiring aggressively.

The numbers: The U.S. created 213,000 new jobs in June, another hearty gain that shows companies are finding ways to fill open jobs despite a dwindling pool of skilled workers.

The gain in hiring topped the 200,000 forecast of economists polled by MarketWatch.

In a surprise, the unemployment rate rose to 4% last month after dropping to an 18-year low of 3.8% in May, the Labor Department said Friday.

The jobless rate rose largely because some 600,000 people entered the labor force. More Americans look for jobs when they are seen as easier to find, another sign the labor market is very healthy.

The number of people who were unemployed also grew by half a million, but the increase might be tied to changes in educational employment at the end of the school year.

The shrinking pool of labor is slowly forcing companies to raise pay as the competition for talent intensifies, but they are still managing to keep labor costs down.

Hourly wages rose a modest 5 cents to $26.98. The yearly rate of pay increases was unchanged at 2.7%.

What happened: White-collar professional firms filled 50,000 jobs last month to lead the way in hiring. Manufacturers added 36,000 jobs, health-care providers beefed up payrolls by 25,000 and construction companies hired 13,000 new workers.

The only segments of the economy to reduce employment was retail. Companies shed 22,000 jobs after hiring 25,000 workers in the prior month.

Adding to the bright picture, the government raised the number of new jobs created in May and April by a combined 37,000.

Big picture: Many things are going right for the economy and the labor market is at the forefront. Rising sales are cajoling businesses to try to fill a record number of job openings.

The problem is finding enough talent, especially with so many baby boomers retiring. The U.S. has added some 19 million jobs in the last eight years and the unemployment rate could soon drop to levels not seen since the 1960s.

The labor shortage is a double-edged sword, though.

While workers could reap higher pay and benefits, rising labor costs could also spur the Federal Reserve to raise the cost of borrowing more aggressively. That would mean higher payments for mortgages, new cars and other consumer goods.

What they are saying?: “If payroll growth remains anywhere near 200,000, the downward trend in the unemployment rate will return in due course,” said chief economist Ian Shepherdson of Pantheon Macroeconomics. “We still target 3.5% by year-end.”

Market reaction: The Dow Jones Industrial Average DJIA and the S&P 500 SPX were set to open lower in Friday trades.

The stock market has gyrated up and down in the past few months amid worries about a widening trade war, with the U.S. and China each imposing fresh tariffs on Friday. Both indexes have receded from record highs set earlier in the year.

The 10-year Treasury yield TMUBMUSD10Y fell to 2.82% owing to the soft wage growth in the jobs report. The modest increase in wages suggests inflation is still well under control.

After reaching 3.1% last month, the yield has also fallen in response to growing trade tensions.

Article and media were originally published by Jeffry Bartash at marketwatch.com


Opinion: These 7 Stocks Could Profit Handsomely from a Cashless Future

My kids constantly remind me how fast technology moves. The latest instance was when I said something about the telephone poles by the side of the road.

My 7-year-old asked, “Why do they call them telephone poles?”

There are plenty of other examples of my kids asking a question and I say without a hint of irony that “when daddy was a kid, a long time ago,” people had to use crazy things like encyclopedias or paper road maps that were impossible to fold.

Soon, the old phrase “cash is king” may be one of those old-timey sayings that kids can’t intuitively understand. In the very near future, the idea of cash — tangible paper money — may be as much of an anachronism as landline telephones.

Digital research firm eMarketer estimates that mobile payment apps that don’t use a traditional financial institution — dubbed peer-to-peer payments systems — will process $120 billion in transactions this year, up 55% from the prior year. That figure is forecast to double by 2021.

This is a global phenomenon, and not just one of those overhyped fads of Silicon Valley futurists. Last year, the New York Times ran a piece about the rise of mobile payments in Asia with the headline “In Urban China, Cash is Rapidly Becoming Obsolete” as estimates for these kinds of payments has hit a $5.5 trillion annual pace — 50 times that of the U.S.

Most importantly for investors, of course, is the profit potential. Just look at the April acquisition of VeriFone PAY for an instant 50% premium as evidence of the opportunity in mobile payments.

While the evolution of landline telephones to iPhones is already behind us, the mobile-payments revolution is still in its early stages. And that means more big winners are still out there.

For investors who want to play this trend, here are seven mobile payments stocks to consider.

PayPal

An oldie but a goodie in the mobile payments game, PayPal PYPL is in many ways at the forefront of cashless transactions in the 21st century. The platform was one of the first digital-first providers to offer bank-like solutions such as sending money and processing payments. In fact, the mobile and cashless angle of this property was so compelling and the growth so impressive that eBay EBAY, spun off the outfit in 2015 so it could more efficiently focus on this payments mission.

Across its various properties, which include Venmo and Xoom, PayPal now boasts 227 million accounts worldwide and processes $2.2 billion transactions worth about $130 billion each quarter. And most importantly, PayPal is focused on the cashless future without the baggage of a legacy banking operation.

No wonder PayPal stock is up 140% since its July 2015 spinoff vs. just 32% for the S&P 500 SPX,  and just under 50% for former parent eBay in the same period.

Visa

With a rather ill-timed IPO in 2008, you’d think that payments processor Visa V, would have run into trouble in its early years as a public company. Nothing could be further from the truth, as shares hung tough in the Great Recession thanks to strong growth metrics and have powered higher over the last several years. That puts this stock up about 750% since its debut about 10 years ago, vs. about 110% for the S&P 500 in the same period.

And with profit surging sixfold in the most recent quarter, momentum certainly isn’t slowing down.

With total payments processed tracking about $2 trillion each quarter and recent partnerships with PayPal to bolster its mobile offerings, this company is a force to be reckoned with in a cashless age. Its brand is unmatched and the general move away from cash and toward plastic or mobile payments creates a great tailwind for this $300 billion powerhouse.

Alibaba

Alibaba BABA is already a technology powerhouse on many fronts, including e-commerce and online advertising, but investors shouldn’t shortchange its mobile-payments potential. A United Nations report last year pegged payments through Alibaba’s Alipay interface at $1.7 trillion — 23 times higher than just four years ago.

The massive scale of Alibaba in China is a huge leg up on the competition. That’s because culturally, this region is so much better equipped for a cashless future as e-commerce platforms, social media and other platforms have willingly embraced mobile payments to help make them ubiquitous.

There are undoubtedly challenges and risks inherent in emerging markets. But in the case of mobile payments, the lack of legacy financial products and the absence of deep-pocketed financial giants incentivized to keep consumers on the old model has allowed Chinese mobile payments — and Alipay — to thrive.

Apple

While admittedly lagging behind China, western markets where the iPhone is ubiquitous have provided ample runway for Apple AAPL mobile-payments technologies. Apple Pay is used by 127 million iPhone users worldwide, and the continued dominance of the Apple brand gives this tech company a massive springboard to expand this platform over time.

Detractors note that only about 16% of iPhone users bother to deploy Apple Pay — hinting at a reluctance that may be hard to overcome. However, it’s hard to tell if that low figure is because of challenges with broader customer perceptions about mobile payments or about the specifics of the Apple product itself.

History has shown it’s not exactly wise to bet against Apple in the long run, and the continued evolution of Apple beyond the hardware uprgrade cycle and instead focusing on “services” revenue from its installed user base hints that Tim Cook & Co. are serious about making this mobile payments product work.

Mastercard

Mastercard MA is in many ways the forgotten little brother of Visa and American Express AXP with most consumers finding this logo in their wallets less frequently. But don’t count out Mastercard stock, with a $200 billion market value and operating cash flow north of $5 billion annually.

Mastercard is hungry for an edge, with a very aggressive stance to adopt the blockchain tech that has become so captivating in the age of bitcoin and cyptocurrencies. This began last year, as the company allowed customers to use blockchain instead of swiping their Mastercard-branded cards to transact. At the Money20/20 conference in Amsterdam, a Mastercard executive boasted that the company has built blockchain technology that can run its whole network, providing security and portability of transactions around the world.

From hiring engineers to opening up access to its blockchain API, Mastercard is one of the few big players to openly chase blockchain as a key part of its cashless future. That could give it an edge over the competition if the broader appeal of this tech continues to grow and move it from a fad to widespread adoption.

Square

This company has long been investors’ go-to name for riding the mobile payments revolution. Aside from a few months around the company’s November 2015 IPO, where investor interest seemed tepid, it has been off to the races; Square’s stock SQ is up 400% since entering the public market vs. just 30% for the S&P 500 in the same period.

There’s good reason for that, too, as growth shows no sign of slowing down. In its most recent earnings, Square reported that revenue jumped 51% — objectively impressive, and up from a 47% year-over-year rate the prior quarter. The company also has moved into consistent profitability, and is still aggressively expanding its offerings, such as a recent effort to help smaller companies launch omnichannel sales operations via a partnership with e-commerce engine Weebly.

The growth is real, and after finally achieving consistent profitability it is clear that Square stock is a front-runner in the mobile payments age for a reason.

Fiserv

Though not a household name, Fiserv FISV is a $30 billion payments-technology company that all investors should make note of, not the least of which because the stock is up an impressive 250% or so in the last five years, compared with about 70% for the broader S&P 500 index.

So what exactly does Fiserv do? In an nutshell, it’s a technology company that provides the platform for financial-oriented businesses to succeed in a digital age. With clients that include big-time banks, small credit unions, insurance companies and plenty of institutions in between, it is well connected across the sector and fuels everything from payment processing to risk management to customer-relationship-management tools.

Consumers may never know this company exists on the back end. However, if you’d prefer not to go all-in with a front-end payments processor, then consider a stock that is helping financial institutions of all sizes meet the challenges of a cashless and mobile age.

Article nad media was originally published by Jeff Reeves at marketwatch.com


Trump Reportedly Told Apple that Tariffs against China Would Spare iPhones

Tech giant worries China will retaliate as trade tensions heat up

Apple Inc. iPhones assembled in China will not be subject to U.S. tariffs, according to a report Monday, but the tech giant may still get punished by rising trade tensions.

The New York Times reported that the Trump administration has told Apple Chief Executive Tim Cook that tariffs would not be placed on iPhones imported from China. The Times said Cook visited Trump at the White House last month to warn the president that imposing tariffs against Chinese goods could hurt Apple.

Last week, Trump approved about $50 billion in tariffs on Chinese goods, including some microchips. China announced retaliatory tariffs against U S. goods, and late Monday ,Trump said he was preparing an additional $200 billion in tariffs against China because of that retaliation — and another $200 billion in tariffs on top of that if China again retaliates.

Tariffs aside, Apple officials are reportedly worried that the company may find itself in the crossfire of a trade war, and that China may retaliate by causing delays to its supply chain and increasing the level of regulatory scrutiny to its products. Those fears are well-founded: Reuters reported last week that Ford Motor Co.’s F,  imported autos were already being delayed in Chinese ports because of trade tensions.

China is an increasingly vital market for Apple. About a quarter of its annual revenue — $50 billion — comes from China, and last quarter Apple’s China revenue grew 21%.

Apple shares AAPL are up 11.5% this year, while the Dow Jones Industrial Average DJIA, of which Apple is a component, is up 1% in 2018.

Article was originally published by Mike Murphy at marketwatch.com