Tesla’s stock run leads to 5-1 share split


Shares of Tesla Inc. surged more than 7% in the extended session Tuesday after the Silicon Valley car maker’s board approved a five-for-one split of the company’s stock.

The move was geared to “make stock ownership more accessible to employees and investors,” the company said. Tesla
TSLA,
-3.11%

shares have more than tripled so far this year.

Each shareholder of record as of Aug. 21 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after the close on Aug. 28, Tesla said.

See also:For Nikola stock, no news was not good news

Trading on a stock split-adjusted basis will begin on Aug. 31, it said.

Tesla shares have gained 229% this year, compared with gains around 3% for the S&P 500
SPX,
-0.79%

, and are up 485% in the past 12 months, compared with a 14% advance for the S&P in the same period.

Related:Fisker is going public: Five things to know about the electric-car maker ahead of its IPO

The shares have hit a string of closing records, most recently July 10’s $1,544.65 close.

Tesla twice this year surprised investors with a quarterly profit when Wall Street called for a loss; its second-quarter earnings, its fourth consecutive quarter of GAAP profit, put it on track to join the S&P 500.

The inclusion, expected to happen within a few months, would unleash a torrent of new money from countless exchange-traded funds, and be followed by pension, mutual and other actively managed funds in the U.S. and overseas, that track the large-cap benchmark or have size or other restrictions on which stocks to add to their holdings.

Besides Tesla’s profitability, several analysts have praised Tesla’s cash reserves, the continued strong demand for its electric vehicles, its new factories being built in Texas and in Germany, and a “battery day” scheduled for Sept. 15 as well as the expected launch of the Cybertruck, its electric pickup.



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Ceragon Has Further To Run (NASDAQ:CRNT)


Ceragon (CRNT), the provider of wireless fronthaul and backhaul solutions for telecom carriers was in a bit of a funk for a while, but there are signs of an impending business recovery which the share price has already been discounting for some time:

The second quarter results already came in better than expected, but while management still sees some near-term pain and uncertainty due to the pandemic, mid to longer term things are actually accelerating.

Longer-term opportunities

  • Increased rollout
  • Speed plays in their strengths
  • Stimulus packages
  • Huawei
  • New 5G operator in the US in addition to the Tier-1 mentioned in Q1
  • Innovation

The lockdowns and work from home and office closures have of course brought home the need for connectivity, a theme with which we are familiar through Inseego (INSG).

This is why some carriers are speeding up their 4G and 5G build out, and this need for speed is playing in the hands of Ceragon’s wireless solutions. So it is striking new deals in Europe, in the US (a Tier-1 carrier in Q1 and a new company offering 5G in Q2), Africa (Orange Niger), Japan and India, among others. From the earnings deck:

T-Mobile (TMUS) is that Tier-1 customer demand is actually tapering due to its preoccupation with integrating Sprint (S) which was also a customer of Ceragon. Management expects order to increase towards the end of the year from T-Mobile.

The India market is complicated by the quilt of 700 regions, each with their own lockdown policy.

Another factor that could provide some tailwind are the big public stimulus packages which are used around the world in order to combat the economic malaise.

Many of these contain provisions for network build out and/or rural broadband accessibility and the like. The banning of Huawei in many countries is another factor that could play in Ceragon’s favor in places like India needless to say.

The company is working on a new chipset with NEC of Japan, which will tape out at the end of Q1 next year (and another 12 months to appear in next generation products), from the Q2CC:

our new chipsets are key enablers for 5G backhaul and fronthaul, bringing capacities that are 50 to 100 times higher than 4G, driving to 100 gigabits speeds via wireless, with a focus on smart, efficient spectrum asset management to secure network growth.

They are not worried about competition (Q2CC):

And at this point, we still believe that we are way ahead from anything from anyone else at this point, especially millimeter and microwave chipsets moving forward.

Sort-term complications

  • Latin America
  • Logistics, supply chain

The most obvious complication in Q2 was caused by the pandemic which caused supply-chain and field deployment issues, increasing cost. Another problem was Latin America, which is still largely in lockdown and many countries suffering from devaluations, so some projects were delayed.

Management argues that some of this will linger in Q3 (indeed, the situation in Latin America doesn’t seem to be improving much, if at all)

Q2 results

From the earnings deck:

There is a graph tied to some of this that isn’t a pretty sight:

Guidance

Management expects revenue and gross margin to return to a more ‘normal’ range (which you can see for yourself in the table above). That is, revenue is guided at $70M-$75M with gross margin at 30%-35%.

This would put gross profit between $21M-$26.25M, which is a significant improvement over the $16.5M earned in Q2.

Margins

Gross margin at 26.5% was way below par due to a variety of factors. Lower revenue is one, the complications due to the pandemic is another, and geographical mix (a strong quarter from India) is a third.

However, management expects gross margin to recover to the more normal 30%-35% range in H2, although probably at the lower end. The pandemic issues will subside somewhat, revenue recovers and the mix shift will likely reverse (in favor of higher mix areas like the US, Europe and Africa).

Operational cost have been reduced by some $2M-$3M to $19.5M due to much less traffic and sales efforts. However, for Q3 management expects this to increase again to $20.5M-$21.5M range on the basis of an increase in R&D with respect to their new chip. That increase will subside in 2021 though as the project completes.

Cash

Q2 showed a substantial improvement in working capital, inventories were reduced by another $6M (and $20M for H1) to $54M, receivables were reduced by $21M in H1 to $97.5M. This has enabled the company to return $13M in loans in H1 and generate $9.8M in cash flow from operations, from the earnings deck:

The company had $35.1M in cash and equivalents and $19.6M in outstanding borrowings at the end of Q2. Dilution has been mild:

ChartData by YCharts

Valuation

ChartData by YCharts

The earnings and EBITDA multiples aren’t very useful at the moment while the revenue multiple has already ran up a lot from the lows in March. Analyst expect EPS to come in at a loss of $0.16, rising to a profit of $0.09 next year, but we don’t think these figures have been updated since the Q2 earnings.

Conclusion

We think the shares have more upside if revenue and gross margin is returning to normal levels in Q3 and the future looks fairly bright for the company as we’re now in the early innings of a big network buildout in most parts of the world.

Uncertainty remains over the impact of the pandemic.

                                   If you are interested in similar small, high-growth potential stocks you could join us at our marketplace service SHU Growth Portfolio, where we maintain a portfolio and a wachtlist of similar stocks. 

We add real-time buy and sell signals on these, as well as other trading opportunities which we provide in our active chat community. We look at companies with a defensible competitive advantage and the opportunity and/or business models which have the potential to generate considerable operational leverage.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CRNT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Scientists estimate the speed and distance of coronavirus transmission when people cough, sneeze, speak — and run


There’s a lot scientists know — and a lot they don’t.

In “Coughs and Sneezes: Their Role in Transmission of Respiratory Viral Infections, Including SARS-CoV-2,” released Tuesday, researchers describe the various types and sizes of virus-containing droplets present in sneezes and coughs, and how some medical procedures and devices may spread these droplets. “Coughs and sneezes create respiratory droplets of variable size that spread respiratory viral infections,” according to the article, which was published online in the American Thoracic Society’s American Journal of Respiratory and Critical Care Medicine.


‘While most respiratory droplets are filtered by the nose or deposit in the oropharynx, the smaller droplet nuclei become suspended in room air and individuals farther away from the patient may inhale them.’

“Because these droplets are forcefully expelled, they are dispersed in the environment and can be exhaled by a susceptible host. While most respiratory droplets are filtered by the nose or deposit in the oropharynx, the smaller droplet nuclei become suspended in room air and individuals farther away from the patient may inhale them,” said Rajiv Dhand, professor and chair of the Department of Medicine and associate dean of clinical affairs at University of Tennessee Graduate School of Medicine, and co-author of the paper.

Among the researchers’ recommendations: “Health care providers should stay six feet away from infected patients, especially when the patient is coughing or sneezing. For spontaneously breathing patients, placing a surgical mask on the patient’s face or using tissue to cover his or her mouth, especially during coughing, sneezing or talking, may reduce the dispersion distance or viral load. While ideally, infected patients should be in single rooms to prevent droplet dispersion, it is acceptable for two patients with the same infection that is spread by respiratory droplets to be in the same room.”

The contagiousness of speech droplets

“Speech droplets generated by asymptomatic carriers of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) are increasingly considered to be a likely mode of disease transmission,” a separate study published in the latest edition of the peer-reviewed Proceedings of the National Academy of Sciences, the official journal of the National Academy of Sciences, found. “Highly sensitive laser light scattering observations have revealed that loud speech can emit thousands of oral fluid droplets per second.”

In a closed, stagnant-air environment, droplets disappear from view after eight to 14 minutes, “which corresponds to droplet nuclei of ca. 4um diameter, or 12um to 21um droplets prior to dehydration,” the researchers wrote. One micrometer, um, is equivalent to one millionth of a meter. The coronavirus is 0.125 um. The scientists said that, while it’s long been recognized that respiratory viruses such as coronavirus can be transmitted via droplets generated by coughing or sneezing, it’s less widely known that normal speaking does too. High viral loads of SARS-CoV-2 have been detected in oral fluids of COVID-19−positive patients, including asymptomatic ones.

Related:5 critical mistakes that created the biggest public-health crisis in a generation

How far coronavirus droplets can travel

Social distancing has been defined for people that are standing still. “It does not take into account the potential aerodynamic effects introduced by person movement, such as walking fast, running and cycling,” researchers wrote in another study titled, “Towards aerodynamically equivalent COVID-19, 1.5 meters social distancing for walking and running.” Bert Blocken, a professor of civil engineering at Eindhoven University of Technology in the Netherlands and Katholieke Universiteit Leuven in Flanders, Belgium, and his co-authors recommend that people avoid walking or running in the slipstream of a walker or runner in the park and street.

“In the absence of head wind, tail wind and cross-wind, for walking fast at 4 kilometers per hour, this distance is about 5 meters (16 feet) and for running at 14.4 kilometers per hour, this distance is about 10 meters (32 feet),” the study, which has not been peer reviewed, found. The smaller the distance between the runners, the larger the fraction of droplets to which the trailing runner is exposed.” If people wish to run behind and/or overtake other walkers and runners with regard for social distance, “they can do so by moving outside the slipstream into staggered formation,” it added.

Letter from New York:‘When I hear an ambulance, I wonder if there’s a coronavirus patient inside. Are there more 911 calls, or do I notice every distant siren?’

Factors indoor contributing to contagion

Factors affecting whether the virus remains “stable” and contributing to transmission: Humidity and temperature of the room, air-conditioning, whether or not there are open windows, general air quality, size of the room and, of course, how many people are present and how close they are to each other. “In contrast to SARS-CoV-1, most secondary cases of the new SARS-CoV-2 transmission appear to be occurring in community settings rather than health-care settings,” a recent study published in the New England Journal of Medicine found.

The COVID-19 pandemic, which was first identified in Wuhan, China in December, had infected 9,154,232 people globally and 2,325,970 in the U.S. as of Tuesday. It had claimed at least 473,650 lives worldwide, 120,771 of which were in the U.S., according to Johns Hopkins University’s Center for Systems Science and Engineering. The Dow Jones Industrial Index
DJIA,
+0.95%

and the S&P 500
SPX,
+1.01%

were slightly higher Tuesday, as investors weighed progress in COVID-19 vaccine research amid fears of a surge of coronavirus in U.S. states that have loosened restrictions.

How COVID-19 is transmitted



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Recovery rally has further to run, so buy stocks: Morgan Stanley By Reuters


© Reuters. A woman takes photos by the Morgan Stanley building in Times Square in New York

SINGAPORE (Reuters) – Stock market gains have further to run and investors are still under-pricing the scale of the world’s coronavirus recovery, investment bank Morgan Stanley (N:) said in an outlook note.

“While the last four months have been exceptional, we think that this cycle has been, and will be, more ‘normal’ than appreciated,” said Andrew Sheets, the bank’s chief cross-asset strategist.

“We think that stocks and credit will be modestly higher and tighter over the next 12 months,” he said. The bank forecasts the S&P 500 index at 3,350 points and benchmark U.S. 10-year yields at 1.3% by mid-2021.

The call, made in a note dated Sunday and distributed on Monday, comes as global markets pull back from a sharp rally that has lifted world stocks about 36% from March lows.

The S&P 500 () closed at 3,041.31 points on Friday and U.S. 10-year yields () last sat at 0.6625%.

Morgan Stanley analysts suggest clients take long positions in U.S. small caps and financials, the euro and emerging market currencies, such as the Indonesian rupiah and Indian rupee, and add a little bit more risk to their credit portfolios.

“We recommend a broad rotation into cyclicals and value across global equities.”

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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The Market Still Has Legs To Run: 6 Names That Will Stand To Benefit The Most


This article is written by Euphoric Investment authors Austin Weiermiller, Youbeen Baek and Zach Thomas.

Overview

Virtually every interaction we have as humans has been flipped on its head due to the effects of COVID-19. Popular upticks in working from home, social distancing, and limited traveling are all substantial trends that we feel. At the market lows of March 23rd, the S&P bottomed in 2020 at 2,377.44. From those lows, the S&P has since recovered over 30% in market value. A question many investors are asking is – Do the markets still have legs to run?

We fully believe that there is plenty of gas left in the market’s tank despite the sentiment around this pandemic.

The Spanish flu, 9/11, SARS, and other black swan events all have one thing in common when it comes to the market: Wall Street is resilient! Following the 11 worst performing quarters in S&P 500 history since 1990 (Q1 2020 being the worst quarter in market history), the market has shown an average return of 7% in the subsequent quarters (see figure 1 below). Airlines, banks, and oil companies have all withstood the test of time, yet the markets have priced in what it believes is the end of the road for these cyclical sectors. Legendary investor Bill Miller put it best in his interview on CNBC stating “if you are betting against airline stocks, you are in turn betting against a vaccine.”

Figure 1 (Source: CNBC)

In terms of an overall strategy, our portfolio has been evenly divided into two sub-sectors that we have referred to as “More Room for Growth” companies and “Guilty by Association” stocks/indices.

We define “More Room for Growth” as companies that have benefited immensely from this COVID-19 environment, and the market has priced these stocks back to pre-COVID levels seen earlier this year. Yet, these three names we have picked have more growth ahead not only for the rest of 2020 but also in the years to come.

For our “Guilty by Association” sub-sector, we identified these industries (casinos, real estate and financials) as some of the hardest hit due to this change in consumer behavior. All three of these stocks/indices are dramatically undervalued as they have been impacted by uncontrollable circumstances. Whereas our first sub-sector highlights more room for growth, these names illustrate a comeback to previous levels that we saw in early 2020. Pent-up demand is the driving force behind this sub-sector, and we believe that these three names will show resilience not only for the rest of 2020 but also in the long term as the entire world returns to a new version of normal.

Above is a chart of our portfolio’s cumulative returns on 5/19 in comparison to the S&P’s returns on the same day.

As a result of COVID-19, the markets have been deeply entrenched by this black swan event that has so adversely impacted many Americans. Our goal is to create the most alpha through these six securities and indices despite shelter in place being a major concern of Wall Street analysts. We want to take advantage of these six investments and this is why.

“More Room for Growth” Companies

The Boston Beer Company, Inc. (SAM):

  • Sales increased 36% in Q1 2020 (YoY).

  • The company has increased advertising/marketing capex in efforts to increase consumer demand for the upcoming Summer season peak.

  • An increase in sales (up to 20%) in 2020 is expected as the company has resolved supply chain issues.

As COVID-19 has limited our ability to continue our normal daily lives, many have experienced an abundance of leisure time. From that, alcohol sales have increased by 55 percent within the United States. The Boston Beer Company, also known as the founding company of various alcoholic beverages including Samuel Adams, is one of the most popular brands in the industry.

In early 2016, Samuel Adams released a new and unique line of low-calorie, light tasting beer – Truly Hard Seltzer. With the private company White Claw pioneering the recent hard seltzer trend, Boston Beer Company decided to launch its brand Truly, as the second player in this market space. Since then, Truly has returned Boston Beer to its growth days of 2012 to 2015. Boston Beer is exhibiting record sales and growth due to the popularity of Truly. From its most recent 10-Q, CFO Bill Urich stated that “Depletions increased 36% from the comparable 13-week period in the prior year” due to the popularity of Truly Hard Seltzer in the last 12 months.

During 2017 and 2018, the company faced supply chain issues as the demand for Truly seltzer rose. Specifically, the sleek can manufacturing companies could not keep up with the increased demand. Since then, the Boston Beer Company has fixed its production problems and increased its depletions/shipping by 36 percent Q1, which will contribute to the possibility of increasing its overall growth by 15 to 25 percent in 2020 sales.

In order to compete with others in the hard seltzer industry, the Boston Beer Company has increased Advertising, promotional, and selling expenses by $26.2 million (total of $97.9 million) compared to Q1 2019 ($71.7 million). By doing so, the company expects to increase sales during its peak season and make its line of Truly the ultimate Summer season hard seltzer. According to calculations based on the 10-K reports of 2019, a dollar spent in marketing equates to a profit of 3.704 (marketing ROI of 1:3.704).

Overall, the alcohol industry is undeniably growing because of stay-at-home orders and the Boston Beer Company is leading the way. The recent overall preference of hard seltzers and the success of Truly will grow beyond measures in the future. Every year since its launch in 2016, Truly has claimed a market share of about 30 percent in the industry. Coming in second behind White Claw, Truly has managed to stay as one of the top hard seltzer brands despite manufacturing issues and competition from other alike substitutes.

Fortinet, Inc. (FTNT):

  • Fortinet has had a growth in operating income of 56% YoY.

  • FTNT expects its revenue to be in the range of 590M to 605M in Q2 of 2020, which would be an increase in revenue of 2.27% to 4.87% from Q1 to Q2.

  • Fortinet has seen a 17% increase in viruses and cyber attacks in January, a 52% increase in February, and a massive 131% increase in March compared to the same months in 2019.

Source: Check Point Research highlights the parabolic increase in relation to COVID-19 shelter-in-place legislation.

Due to the current stay-at-home orders issued in virtually every corner of the world, people have resorted to communicating via platforms like Zoom and Skype. In addition, computer usage has increased as billions now work at home. This has opened up a whole new world for cybercriminals to take advantage of the sudden surge in computer usage, and these hackers are here to stay.

Fortinet has stated that it has seen a drastic increase in cyber attacks in the past 3-4 months. Fortinet claims that in Q1 2020, it has seen a 17% increase in viruses and phishing attacks in January, a 52% increase in February, and a 131% increase in March, in comparison to the respective months in 2019. This means that as more people become exposed to these cyberattacks, they are going to look to companies to protect their information and intellectual property. The question becomes this: which cybersecurity company will be in the best position to take advantage of this paradigm shift in demand?

We believe that Fortinet is the company that will benefit and capitalize the most from the unprecedented need for cybersecurity. Fortinet has posted a growth in operating income of 56% YoY. Fortinet is also issuing guidance in its Q2 income growth to be in the range of 2.27% to 4.87%. The crossover between the shelter-in-place legislation and the current 2020 election year underlines the need for cybersecurity and emphasizes the importance of cyber-related protection. The current state of our unique environment highlights the potential growth that could be enabled by adding cybersecurity based security into an investor’s portfolio, and our group’s research states that Fortinet is undeniably the top pick.

Match Group, Inc. (MTCH):

  • ARPU (Average Revenue Per User) is up to an average of .59 cents.

  • Average subscribers for Match Group have increased 15% YoY to 9.9 million users.

  • The stock price is still 18% off its 52 wk. high.

The Match Group is arguably one of the biggest players when it comes to online dating. Shelter-in-place legislation, while it is highly dependent on the state, has forced people to turn to this platform as an outlet for finding a significant other. While many believe that the market has already priced in this company’s growth potential to future users, we feel as if its financials tell a drastically different narrative.

The Match Group has been undoubtedly dominating the online dating market by showing an increase in ARPU (1% overall with a 5% increase in the US) as well as the number of average subscribers (15%) YoY. As a result, the company’s Q1 earnings report highlights a diluted EPS increase by a staggering 31%. This directly correlates to Match Group’s performance from a revenue and net income standpoint. We see no roadblocks or barriers as to why these numbers would come to a halt in the near or long term, making this company a true beneficiary to this atmosphere that COVID-19 has created.

Source: The Match Group, Inc. Q1 2020 Earnings Report showing key metrics such as APRU increases and total average subscribers increases.

As far as the bigger picture is concerned, TTM revenues of $2.13 billion paired with revenue growth just shy of 20% illuminate why this company is a noteworthy investment. Combined with ARPU and average subscriber gains, this company is poised to continue growing at an unprecedented rate. We see no reason prohibiting this company from revisiting its 52 wk. high of $95.32 that it had previously reached on January 13th before the COVID outbreak in the United States and visiting newfound stock prices that this market has never experienced.

“Guilty By Association” Companies/Indices

Wynn Resorts, Limited (WYNN):

  • International revenue in Macau shrank from 76% in Q1 2019 to 50% in Q1 2020.

  • Macau is poised for a quicker restart than the US as China was impacted by COVID-19 in late 2019.

  • Estimated tourist arrivals in Macau are expected to increase from 140,000 by the end of Q2 2020 to 3,162,000 in 12 months’ time, a 2,158% increase.

Source: Trading Economics highlights how tourists in Macau will eventually surpass normal levels.

When Americans think of casinos, they think of the gambling capital of the United States: Las Vegas. While large casino companies have exposure in Vegas, copious amounts of revenue stem from a completely different beast: Macau. Gambling revenue in 2019 from Macau reached $36.5 billion whereas Vegas gambling revenue in 2019 came out to roughly $6.59 billion.

Wynn Resorts stands to benefit the most from this global pandemic environment. This company only has two properties in Macau compared to five properties that competitor Las Vegas Sands (LVS) owns, yet Wynn makes significantly more revenue per casino in Macau than LVS does ($244.5 million in Q1 2020 compared to LVS’s $162.8 million). When Macau’s tourist arrivals stimulate to levels that we have seen in the past, Wynn will ultimately be the lead beneficiary.

Second, Wynn’s COVID-19 response, which is encapsulated in a 28-page lengthy document, is now being adopted by rival casinos everywhere. Being the first casino to close its doors in the US, Wynn appears to be in the lead yet again in terms of reopening. Social distancing guidelines, taking every guest’s temperature, and even changing floor plans to accommodate this new environment is in the works for all Wynn properties.

Since Macau’s casinos officially opened their doors for business on February 20th, the stock’s price has been down 40%. The stock has ample room to grow as Macau, Las Vegas and now a new property in Boston see guest numbers return to normal in the near future.

iShares Mortgage Real Estate Capped ETF (REM):

  • This ETF is down 58% from its 52 wk. high.

  • Mortgage rates have reached an all-time low.

  • We are forecasting a full recovery in the next 12 months with a surge in demand for new home buyers.

The symbol REM represents and tracks the Mortgage Capped Index which is composed of the US Real Estate Investment Trusts (REITs). The underlying index measures and tracks the performance of residential as well as commercial real estate markets.

Investing in this ETF gives this portfolio direct exposure to the domestic real estate markets, and REM is down 58% from its 52-week high and 52% YTD. The 30-year mortgage rate has reached 3.26% this month, an unprecedented decrease of 26% YTD that this market has never seen. Shifts in consumer behavior have been noteworthy as the United States’ new home sales have depleted 15.38% from February 2020 to March 2020. Yet, the consistent theme of this half of our portfolio is how COVID-19 will ultimately boost certain sectors in the future that haven’t reaped the certain momentum swings of other beneficiaries.

Source: The Mortgage Reports emphasizes how low the current mortgage rates are in comparison to recent years.

If anything, this virus has nudged America towards a world where cities are not at a high premium to live in. Working from home can now be done from the comfort of your own living room, not the high rise office that is a 45 minute commute (without traffic presumably). Densely populated cities such as New York have become a petri dish for the coronavirus and future diseases to take effect.

These low mortgage rates combined with the index 52% off its January 2nd price, as well as a sentiment shift in home buyers moving from cities to suburbs, lead us to expect the index to make a full recovery in 12 months time.

Citigroup Inc. (C):

  • C is currently trading at a .55X price/book ratio.

  • Citigroup’s book value per share has the highest disparity amongst the four biggest banks.

  • This bank has the highest TTM revenue growth out of its competition.

Source: Macrotrends graph above illustrates book price, book value per share, and price to book ratio of Citigroup Inc.

Financial companies have been one of the hardest hit industries by the COVID-19 pandemic. Yet, we expect Citigroup’s revenues and net income statements to tell a different story that would not suggest a 50% selloff in this sector. C gives investors the most upside in the financial industry in terms of growth for various reasons consisting of revenue growth, price/book ratio, and book value per share.

The big banks we are looking at are JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup, and Wells Fargo (NYSE:WFC) (four biggest banks by market cap). When we compare all four of these companies in terms of revenue growth TTM, the bank that stands out amongst the rest is C, with revenue growth coming in at -2% which far outweighs its opposition. Yes, we are celebrating negative revenue growth.

The other metric that is key when it came to our analysis of choosing Citigroup amongst the bank sector was the price/book ratio. C is currently trading at an astounding .55X price/book, the lowest ratio by a considerable amount compared to the four biggest banks.

As a result, this transitioned into our last statistic which led us to arrive at our conclusion of holding equity in Citigroup: the book value per share. This measurement allows us to dive deeply in regards to overvaluation or undervaluation of a company’s stock price. Citigroup’s book value per share has undoubtedly the highest disparity amongst its actual real-time stock price which led us to believe that this bank is the most undervalued amongst all of its competitors. Citigroup’s book value per share is currently at $71.52 while its stock price is trading slightly over $45.

Wrap-Up

As exhibited in the article above, we have emphasized the impact of our portfolio research by citing the incremental difference between our security collection versus the actual S&P rate. In light of our presentation, we hope that investors and readers consider our recommendations, see the value, take note of the potential growth, and include the companies listed above to their own portfolio during this season in order to positively impact their investments choices. Our group emphasizes the high worth of the companies listed above, and we hope that investors find light during this uncertain season by investing in what we believe is the ultimate portfolio.

This is our blueprint for how to generate the most alpha in relation to the S&P 500. In our articles to come, we will show how more alpha can be generated by looking at specific sectors that can be heavily disrupted due to recent events.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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