May 26: Strong day yesterday for fixed income and stocks, today looking up in pre-market trading
By Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.
May 26, 2022 0926 ET
Markets look healthy, green and up in pre-market trading.
Discount retail looking strong, especially $DLTR Dollar Tree.
Fixed Income Corporate was up across the board yesterday. Fewer new lows, and more new highs.
Stocks were up yesterday globally (overnight and this morning), and the US equity market looked strong and up yesterday as well.
US Treasury yields were down yesterday. This is the opposite of the recent FOMC rate hikes and quantitative tightening we were told to expect. The market says no, long rates are coming down both for sovereign debt and corporates too.
Not much news today, except Broadcom is spending $61B to buy VMWare, and Nvidia had a somewhat poor quarterly report. Their sales and gross margins were up, but operating expenses rose faster and they hurt their quarterly earnings. The press release did not say why, so we need to read the 10-Q.
We did fundamental analysis 'on the fly' for $CONN or Conns furniture stores. Here is the quick bull and bear case we developed. It came up because we are providing significant amounts of fundamental data with our results now to clients. One should not trade blindly on data, but to understand the bull and bear case of every stock they hold, or consider to buy or sell.
Bull and Bear case
CONNS: Bull case: stock is down, cash and NI generation is strong.
If they keep it up, they can pay down the debt…equity value will rise.
Return cash to shareholders, and they manage a hefty 1.5B revolver
Heading into a recession
Housing sales (new homes) down 3%
Inflation is up, especially transportation and energy.
Furniture is heavy, a lot of trucks.
Inflation zaps their earnings
Recession reduces sales
$500M of debt becomes a noose around their neck
Spent $55.4M buying back shares (now down 40%)
We also looked at dividend stocks. Here are some strong dividend stocks. We say strong because they pass two requirements. They are towards the top of our risk-reward curve for individual stocks (but not as good as $SPY), and they paid dividends higher than the $SPY did last year. Here is that list of stocks. Most are in financial services and are exposed to market risk. Buyer beware, of course. Future dividends are not assured.
Oh, before we forget. The vix fell to 28.31 this morning. Risk is slightly lower today of large market swings. Also Oil is up to $112 / barrel and gasoline was doen 10 cents to $3.73 per gallon.
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