Category: Blog
Apple & Google Pivot Points for 12.03.2012
S&P Emini and Unusual Option Activity for 11.30.2012
Is The Steel Sector A Steal: Industry Analysis (NUE, AKS, X) 11.30.2012
The steel sector is a function of economic activity and tall operating leverage. Traditional steel is also a capital-intensive sector, given the former one can expect to not pay up for EBITDA. Furthermore, United States steel mills usually have lower cost curves. This is indicative of NUE. Nucor has historically been the producer of low cost with their mini mills and prime acquisition of scrap; this has set them apart from the competition for many years. To that point, NUE has as paid out lots of cash to shareholders via, dividends, special dividends, and buy-backs. Other capital allocation has gone into many acquisitions of smaller firms, or to vertically integrate NUE, so it is run well, no matter the environment.
NUE has been doing the best out of its peers, in terms of price performance, which can be attributed to the above. The environment is not easy however, Chinese froth is difficult to cut through, the economy is stagnant regardless of the zero interest rate policy, and the whole market seems to be gunning for NUE’s margins. NUE is arguably the best-run steel stock.
Jefferies and Bank of America both point out that NUE is the target of short-term traders as a hedge against more aggressive longs. This confirms the quality investment thesis, because NUE has conservative balance sheet, high credit rating, product diversification, and lower implied volatility.
While still on the topic of quality fundamentals leading to outperformance, under the leadership of CEO Dan DiMicco, NUE is up a cool 370% since he took over in September of 2000, while the SPX is unchanged to lower. Dan DiMicco plans to leave NUE at the end of 2012.
Contrary to all of the positives…management and overall executives, own less than 1% of the shares, which is disappointing and not a good indicator. Furthermore NUE has not paid a major special dividend since 2008, the risk is that they continue not generate enough cash in order to be comfortable to do said programs again. A risk to being conservative is being left behind, or the opportunity cost to being more leveraged, however their current position seems to be better than everyone else as of now.
As indicated in the below graph when NUE is compared to the SPX(grey) AKS(blue), X(pink), SLX steel ETF(purple). The chart indicated that NUE(green and red) outperforms their peers, market, and sector ETF. NUE would be up more but dividend returns are not included.
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First Business Interview (at 13:53) 11/30/2012
S&P Emini Pivot points for 11.30.2012
Apple & Google Pivot Points for 11.30.2012
Color Me Green- What is a Better Economic Indicator: Black Friday or Cyber Monday 11.29.2012
Considering the idea of volume, the proper answer to the aforementioned question is simply both. Mosaic theory suggests that looking at many different inputs creates a better, more informed, ‘picture’ than only sourcing from one idea or indicator.
Back on the topic of retail sales, in order to gauge the American consumer one should look introspectively first. According to the data and personal accounts, there is a solid mix of online shopping and physical shopping going on. Yahoo finance reported that the average American spent $423; up from $398 last year at this time over Thanksgiving weekend.
Over the whole weekend retail sales were estimated at $59 billion. After the weekend Computer World reported that, “The Adobe Digital Index, which tracks online spending, said that online sales totaled some $1.98 billion Monday, a 17% increase over Cyber Monday online sales last year.” Every data point should be taken in with a skeptical eye, for these holidays tend to overlap…for who is to day that online shopping is only done on Cyber Monday, because it is not. According to the data and other reports, online shopping is increasingly taking share of retail sales, but it also helps that traditional retail sales were increasing too. The best of both sectors, for these numbers seem to confirm the high valuation technology & retail stocks.
The other side of this argument is one that is rather harsh. Most traders and investors completely write of economists; they fade them. Economists get filed away with the analyst community, which is not a good place to be, for they tend to be wrong or confirm ‘group think’ in the mind of a trader. Right or wrong. The other side of the retail trade is that Americans are now more complacent, confirmed by our loose spending habits near recent highs.
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Dividend Stocks Face Higher Tax Rate 11.29.2012
The dividend stock payoff will not be as attractive if the tax rates go up. If a deal is reached before the January 1st deadline it may be feasible for lawmakers to negotiate a more attractive rate.
Currently the tax rate on income incurred from capital gains is 15%. As of January 1st, 2013, the income investors receive from capital gains could be taxed up to a rate relevant to their tax bracket. The chart below shows how each tax bracket will be affected by the higher tax rates on capital gains.
The possibility of a higher tax rate may cause investors who typically enjoy the payoff of dividend yielding stocks to start researching alternative investment strategies. One such alternative may be to hold on to a handful of stocks that have long term growth potential. Tech stocks are known for their high growth rate and may prove to be a popular choice for investors. According to Bloomberg, the information technology sector is estimated to grow revenue 8.7% through the 2013 fiscal year.
Anxiety over the possible increase in tax rates has made the muni bond market a popular choice for investors in higher tax brackets. Muni bonds are currently tax exempt, providing a more stable investment opportunity ahead of the fiscal cliff.
Author: Tyler Sciortino
