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🏷️ Dividends at a Discount

🏷️ Dividends at a Discount

May 05, 2024

Happy Sunday to everyone on The Street.

America’s biggest retailer made multiple headlines this week… some good and some bad.

Here’s a breakdown of what Walmart has been up to:

In the next 45 to 90 days, Walmart will close all of its 51 health clinics and virtual care operations due to a lack of profitability.
Walmart launched its new premium brand, Betterfoods, to expand its empire and compete with Trader Joe’s and Whole Foods.
Eight tons of ground beef sold at Walmart locations nationwide were recalled for possible E. coli contamination.
Walmart is preparing to launch the Onn Pro, a cheap combo device that serves as a 4K TV streaming box and a smart speaker.
Walmart’s plan to acquire smart-TV maker Vizio for $2.3 billion is set to undergo a full FTC antitrust probe.

Despite the mixed bag of news, Walmart’s stock price changed little this week. However, the company’s stock has surged over 12% in the last 12 months, largely due to consumers flocking to its bargain deals amid high inflation.

The real question for Walmart is whether it can retain consumers when inflation eases. However, the retailer’s plans to diversify into premium brands and smart TVs show that it is well aware of this fast-approaching issue.

Are you bullish or bearish on Walmart (WMT) over the next 12 months?

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Review

The stock market breathed a sigh of relief as Fed Chair Jerome Powell eased fears of interest rate hikes amid recent inflation surprises.

The Fed now plans to hold rates steady longer to ensure inflation moves toward the central bank’s 2% target.

In April, the labor market displayed some signs of cooling, with the pace of new job creation dropping compared to March, and the unemployment rate unexpectedly rising. The earnings season remains optimistic, with half of S&P 500 companies already having reported, and nearly 80% of them exceeding earnings expectations. Apple made headlines Thursday with a double beat announcement and a record $110-billion stock buyback program.

Sell In May?

The “Sell in May and Go Away” trading strategy is put to the test in election years. Contrary to popular belief, historical data reveals that these periods do not consistently coincide with increased market volatility. In fact, the returns from May through November tend to be positive and even more substantial during years when an incumbent president seeks reelection.

Tesla Hype Cools

Goldman Sachs issued a cautionary note to investors regarding Tesla Inc.’s self-driving technology, stating it hasn’t reached eyes-off capabilities yet. The Wall Street firm's tempering of excitement around self-driving underscores the ongoing challenges and regulatory hurdles Tesla faces in achieving full autonomy.

Housing Entry Barriers

Treasury Secretary Janet Yellen highlighted the severe challenges first-time homebuyers face in today’s market, describing entry as almost impossible. Rising costs and economic pressures have notably tightened the housing market, putting homeownership out of reach for many new entrants despite ongoing governmental efforts to provide support.

Kiyosaki’s Crypto Confidence

Robert Kiyosaki, the author of "Rich Dad Poor Dad," recently disclosed his investment approach to Bitcoin in the face of the cryptocurrency market’s downturn. Kiyosaki advocates buying during the dip, emphasizing his optimistic outlook on Bitcoin‘s future potential and resilience, despite the prevailing market instability.

Top 1% Retirement Goals

Are you on track to join the wealthiest retirees? A recent study revealed the exact retirement savings amounts held by the top 1% at different life stages. This benchmarking could serve as a motivational tool or a reality check, helping individuals gauge their financial planning for retirement.

Preview

Economic Data

Monday: Richmond Fed President Tom Barkin speaks, New York Fed President Williams speaks
Tuesday: Consumer credit
Wednesday: Wholesale inventories, Fed Gov. Cook speaks
Thursday: Initial jobless claims
Friday: Consumer sentiment (prelim), Monthly U.S. federal budget

Earnings

Monday: Eli Lilly, Spirit Airlines
Tuesday: Ally Financial, Bank of America, Budweiser
Wednesday: AMC Entertainment
Thursday: First Advantage
Friday: Axon Enterprise, American Homes 4 Rent

Money in the Clouds

Investment Bank Highlights A German Tech Stock

Berenberg is telling investors to look across the pond for a position to add to their portfolio.

The investment bank is a fan of Northern Data (NB2), a company that has recently shifted its business to focus on alternative endeavors.

Berenberg believes the stock could rally more than 50% from current levels.

More Than Crypto

Northern Data has primarily been known as a bitcoin miner in recent years. However, executives have expanded the company to add cloud computing and data center infrastructure to its competencies.

The offering that gets Berenberg excited is the cloud. The investment bank argued that investors should pay more attention to the possible growth the company’s Taiga cloud could bring.

In a recent note, analysts also touted Northern Data’s “latest liquid-cooling mining technology” for crypto mining.

Pivot! Pivot! Pivot!

The German company isn’t afraid of changing it up.

Northern Data used to be known as Biosilu Healthcare and operated as a pharmaceutical company. As cryptocurrency rose in popularity, it shifted to crypto mining and changed its name to Northern Bitcoin.

With artificial intelligence gaining popularity, executives have turned to cloud computing for the next phase of growth.

Executives are also putting money where their mouth is. Northern Data’s CEO announced he plans to add up to 30 million euros worth of shares in 2024. Investors can choose if they’d like to follow suit.

How do you view AI’s impact on stocks?

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Dividends at a Discount

Undervalued

If you’re in the market for dividend-paying stocks, Morningstar (MORN) has you covered.

The firm believes crop chemical manufacturer FMC (FMC) is undervalued. It’s currently yielding 4%, up from its five-year average of 2.1%. Shares are down more than 50% over the past 12 months, but Morningstar is bullish for the long term.

According to a recent note from the firm, the drop in share price is due to a broader inventory destocking. It’s affected the industry and has hampered the company’s numbers.

Strong Product Pipeline

Morningstar analysts are confident that the destocking will come to an end in 2024. This landscape shift for the industry plus FMC’s impressive research and development are expected to help it beat out the competition over the long term.

Currently, insecticides account for over half of the company’s revenue. However, the company is developing herbicides and fungicides which should allow for a more balanced array of products.

According to Morningstar analyst Seth Goldstein, demand for these new products will allow the company to outearn its capital costs for at least the next 10 years.

Sales Rebound

Goldstein also noted that FMC is trading at half its true value, enough to garner a five-star rating from Morningstar.

Dave Sekera, the firm’s chief US markets strategist, believes sales were down in 2023 because Covid supply chain fears caused companies to overbuy. They used up the excess inventory last year, and sales are expected to rebound.

According to Morningstar, FMC could be a good fit for those in the market for a discounted income stock.

Are you bullish or bearish on FMC (FMC) over the next 12 months?

Picking up Steam

Strong Numbers

Alphabet’s (GOOG) latest earnings report was a good one, and investors are feeling reassured about the company’s AI progress.

In its first quarter, the company beat both revenue and earnings estimates. It’s celebrating by declaring its first-ever dividend and a $70 billion stock buyback. These announcements caused the stock to shoot up 10% to an all-time high the day following the release.

Now many analysts are touting the tech giant as a strong AI play with plenty of future growth potential.

Singing Its Praises

Following the earnings report, JPMorgan (JPM) analyst Doug Anmuth lifted his price target from $165 to $200 and reiterated his overweight rating. Anmuth believes in the company’s ability to drive strong top-line growth. He expects it to benefit from restructuring its costs and forecasts a $50 billion spending hike to build up its AI business.

According to Barclay’s (BCS) analyst Ross Sandler also believes the company has a lot going for it. He points out that Google is picking up growth, improving margins, shipping faster, and returning capital to shareholders – all green lights for the stock. Sandler also increased his price target to $200 up from $173.

Other analysts have cited Google’s valuation, increased YouTube monetization, advertising, and cloud revenues as reasons for investors to be bullish.

Some Concerns Remain

On the flip side, several analysts are questioning how much Alphabet can continue to grow given industry-wide AI spending.

UBS (UBS) analyst Ken Gawrelski joined in the chorus of praises for the company, but he’s nevertheless concerned that generative AI might not result in a “big new product cycle.” The analyst is also worried that advertising demand could cool off.

Despite his concerns, Gawrelski increased his price target slightly from $166 to $173.

There’s no doubt that Google has some momentum right now. Bullish analysts are encouraging investors to get in on the action.