As I currently write, the S&P futures are down almost
1%, oil is just pennies away from making new 5 year lows, and the euro is down
another 100 points to new 11 year lows. What gives, you ask? The answer is
Greece. It looks like the Syriza party, which is the primary opposition party
to the $269B bailout the country received in 2012. While Greece’s economy has
grown out of a recession since that time, the unemployment rate stands at about
25%, leading to extreme poverty. Prior to Greece receiving the bailout, there
was a lot of talk about the country pulling out of the euro zone, creating
uncertainty, causing the euro to fall and financial markets to drop along with
it. If the Syriza party does take control, many people believe they will roll
back the bailout and separate themselves from the euro zone. But the reality is
that Greece has become a relatively insignificant part of the euro zone and
with the recent quantitative easing announcement out of the ECB, markets are
currently overreacting. The Greek elections will be completely priced in by the
time US markets open on Monday morning.
For now, forget about Greece. What happens in Greece tonight
is so unimportant as compared to what this week brings to US equities. So far,
earnings season has been pretty lackluster, with many of the big banks, along
with Dow heavyweight, McDonalds disappointing. But all isn’t lost, as
Starbucks, Honeywell, United Health and Union Pacific, all posted very strong
quarters. This week could be the most important week of earnings, with most of
the big tech companies reporting. Microsoft reports on Monday afternoon, Apple
and Yahoo report on Tuesday, Facebook and Qualcomm report Wednesday, and on
Thursday we hear from Google and Amazon. This week also features earnings from Visa,
Amgen, Chevron, Boeing and United Technologies. The technology sector has led
the market direction seemingly for years, so if some of these names disappoint,
then the markets will surely head lower in the short-term. I would not
recommend buying any of these stocks prior to earnings because most investors
believe that a lot of these names are overvalued. Any miss by any of these
companies, could result in big drops, but also good long-term buying
opportunities. On any sell off, I would be looking to buy Apple, Facebook, Visa
and Chevron.
As if all of those earnings reports weren’t enough to move
the market, the Fed will release minutes from its 2 day meeting on Wednesday,
where investors expect to get further clarity on when the Fed will begin
raising rates, and how much of an affect the strong US Dollar, low oil prices
and no sight of inflation will affect their decision. I expect the Fed to say
that they are not concerned about any of those factors and will maintain their
stance that they will hint at rates rising beginning in the summer. I would not
recommend buying anything on Wednesday, until after the Fed minutes are
released.
On Friday morning, I bought shares of United Rentals (URI)
after they reported a pretty solid beat on both revenues and earnings. The
initial reaction on their earnings report was to sell off, and I took full
advantage. Although stock rallied almost 3% on Friday, it still has a very long
way to go, and is a stock I think you should buy this week. For those who don’t
know, United Rentals is the largest equipment rental company in the world,
renting to construction, utilities, industrial, and manufacturing companies, as
well as the government and homeowners. If you look at a chart of United
Rentals, it is a mirror image of energy stocks because investors believe that
lower oil prices will have a significant negative impact on the company.
However, management cited that energy companies represent a measly 6% of sales,
and that just 1% of all of their customers anticipate a slowdown in 2015. I
believe that they will greatly benefit from lower oil prices because consumers
will spend more, companies will sell more and homeownership will increase. Meanwhile,
URI reported Q4 revenues increased 16.4% and earnings rose 37.7%. Full year
earnings and revenues also grew 41% and 18% respectively. The company offered
revenue and earnings guidance that was in-line with estimates. With URI trading
at just 11x next year’s earnings, I am a big buyer of this stock.
As I mentioned in my last letter, I sold half of my long US
Dollar position, but kept the other half, which I plan to sell this week as I
think it is starting to get too crowded of a trade. I also bought United
Rentals on Friday morning.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL),
Facebook (FB), Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC),
General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner
(TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI),
Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), Mobileye
(MBLY), Jack In The Box (JACK), Under Armour (UA), Masco (MAS), United Rentals
(URI), long US DOLLAR, and long HEATING OIL.
Jeff Lewison
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