Happy Sunday to everyone on The Street. 

It's been a tough stretch for China. Retail sales faltered in July, according to official data from the National Bureau of Statistics, as the Chinese saved rather than spent. Unemployment in cities hit 5.3% last month, its highest level in the past half-year. Meanwhile, youth unemployment specifically reached 17 percent. According to the FT, "Offices in China’s biggest cities are emptier than they were during stringent Covid-19 lockdowns..."

As you already know, we like to look for the knock-on effect in this newsletter. So who is getting hit hard by China's challenges? Keep your eye on the road...

As Momoka Yokoyama, Bloomberg Markets Live reporter and strategist writes, "Japan’s automobile-related shares are down 17% this quarter, the second-worst performer of the Topix’s 33 industry groups. Their index is headed for a sixth month of declines after Japan’s auto exports to China plunged almost 31% in August from a year earlier."

Meanwhile, shares of Mercedes-Benz Group tumbled 8% on Friday after the German carmaker made another cut to its full-year guidance, citing a slowdown in car sales caused by a slump in China’s economy.

Economic headwinds are being compounded by competition from local manufacturers. According to Mamoru Shimode, chief strategist at Resona Asset Management, “Chinese companies are likely to go on offense with a pricing war abroad, potentially intensifying competition with the Japanese names." Could be a bumpy road ahead.

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An Undervalued Oil Giant

An Opportune Environment

Schlumberger (SLB) is having a tough year.

The oil services company is down more than 18% despite double-digit gains for the S&P 500.

A sputtering Chinese economy, OPEC spare capacity, and high production in the US have clobbered oil prices, leading some investors to dump their holdings in the sector.

Barron’s believes an opportunity has formed to scoop up Schlumberger for cheap.

Value Meal

Barron’s argues that SLB stock is undervalued, pointing out that it trades at about 11 times current year earnings.

Evercore analyst James West is also bullish on Schlumberger. He says it should trade at a much higher multiple, pointing to years past when the oil company traded as “a 20 multiple stock.”

The analyst gives a price target of $74, significantly above the stock’s current price of about $40 per share.

Texas Tea Is Sticking Around

Another reason Barron’s is willing to put its weight behind Schlumberger is its belief that the green energy transition will take longer than anticipated, and oil demand will continue to rise globally.

The publication sees Schlumberger taking advantage of energy demand with its “varied expertise” in the industry.

On the other hand, bears say oil stocks like SLB will continue to face pressure because of China’s sluggish economy and OPEC capacity coming online over the next year.

Barron’s hopes the bears are wrong and that the oil cycle will turn back in Schlumberger’s favor.

Incoming Energy Picks

Cenovus Energy

Looking for some interesting energy-related ideas? Barchart identified three dividend-paying energy stocks currently trading below their intrinsic value.

First up is Canadian oil and gas company Cenovus Energy (CVE). It boasts a well-diversified portfolio of conventional oil, oil sands, and natural gas, which allows it to navigate commodity price volatility smoothly.

Analysts’ average price target for the stock gives it about a 44% upside. The company’s revenue and EPS are growing steadily, and its recent acquisitions have positioned it for future growth.

Matador Resources Company

US energy company Matador Resources (MTDR) has seen its stock price drop over 10% YTD despite record-high production and robust revenue growth. The company focuses on unconventional oil and natural gas.

Matador recently acquired Ameredev to bolster its presence in the Delaware Basin, and analysts think the stock has around a 55% upside.

Its annual dividend yield is only 1.61%, but its high dividend growth rate and low payout ratio make a strong case for future increases. Its net cash from operating activities also saw a 32% jump year-over-year.

Baker Hughes Company

To round out the trifecta, Barchart highlighted Baker Hughes Company (BKR), one of the world’s largest oilfield service providers. It offers an array of services from drilling to surface pressure control. Analysts believe it is well prepared for the future of energy thanks to its gas technology and LNG portfolios.

The energy company has a well-established dividend that’s been paid for 34 consecutive years and recently bumped its yield up to 2.51%. It recently beat Q2 earnings expectations on the back of increased demand from international markets. Analysts give it about a 26% upside.

Oil is down, and it could be reaching a cyclical low. These stocks could give investors a chance to hop on for the ride back up.

Passing With Flying Colors

Charter School Municipal Bonds

Dan Close, the head of municipal bonds for Nuveen, believes he’s found an ultra-niche segment of the muni bond market that could pay off for investors.

Charter schools account for a very small percentage of education muni bond sales, but demand for these types of schools is increasing, and the supply of bonds tied to them is edging higher as well.

Demand Is Rising

At present, there are around 8,000 charter schools across the country with a total enrollment of about 3.7 million students, according to data from the National Alliance for Public Charter Schools.

For perspective, the total number of students enrolled in charter schools has increased by more than 300,000 from before the pandemic. Over the same period, traditional public schools are down around 1.5 million students.

Charter schools currently account for around $33 billion of the K-12 muni bond industry, with another $4-5 billion worth of issues expected next year.

Tax Efficiency

As an additional perk, municipal bonds are typically free from federal tax, and sometimes free from state tax. As a result, Close says that these bonds can provide investors with an 8% tax-equivalent yield.

Charter school bonds currently account for around 9% of Nuveen’s High Yield Municipal Bond holdings.

But investors should still do their research. According to Close, when choosing a charter school muni bond, investors should hone in on factors like location, academic performance, fiscal management, and strong legal provisions.

SPONSORED & WRITTEN BY INVESTORS ALLEY

This new income loophole could pay your bills every month

There's a new way to collect huge monthly income in retirement called Big-Tech's secret dividend. But thanks to a brand new loophole... Tech titans like Apple, Microsoft, and Nvidia can now pay you huge dividend yields up to 12%! It's the best income opportunity I've ever seen, and yet NOBODY seems to know about it. That changes today with my brand new special report.

Grab your FREE copy here.

Last Week’s Poll Results

Which stock do you think will outperform over the next 12 months?

🟩🟩🟩🟩🟩🟩 Walmart (WMT)

⬜️⬜️⬜️⬜️⬜️⬜️ TreeHouse Foods (THS)

Which stock do you think will outperform over the next 12 months?

🟨🟨🟨⬜️⬜️⬜️ US Steel (X)

🟩🟩🟩🟩🟩🟩 Nucor (NUE)