Category Archives: stocks

JPMorgan, Bank Of America Earnings Seen Hurt By Q1 Stock Volatility

The horrendous start to the first quarter for stocks, coupled with losses in energy and commodities, is expected to kick bank earnings in the teeth as JPMorgan Chase ( JPM ), Bank of America ( BAC ) and others report this week. Plunging oil prices in January and February sent the market into a tailspin, lodging its worst-ever start to the year. Accordingly, a weak environment for trading and capital markets is expected to hurt banks. JPMorgan and Citigroup ( C ) are among the lenders who have issued warnings on trading revenue. JPMorgan, which reports Wednesday, is expected to see its earnings decline 13% to $1.26 a share, according to estimates compiled by Thomson Reuters. Revenue is expected to fall 5.5% from a year earlier to $23.4 billion. The New York-based bank’s shares tumbled 10.3% during the first quarter. In February, the nation’s largest bank warned that its trading revenue should decline 20% in the quarter. The drop in trading revenue is expected to be exacerbated by the surge of the Swiss franc in January 2015, resulting in tough year-over-year comparisons. But CEO Jamie Dimon said at the time that improved market conditions in March could help. Dimon himself helped out in February, when he bought $26 million of JPMorgan shares. The bank also boosted its energy loan-loss reserves by $500 million for the quarter, though oil prices have rebounded somewhat since falling below $27 a barrel earlier in the quarter. BofA Earnings Bank of America, which reports Thursday, is seen earning 21 cents a share in Q1, down 22% from a year earlier, while its revenue is expected to decline 5.2% to $20.4 billion. The Charlotte, N.C.-based lender’s shares plunged 20% in Q1. Q1 typically is the strongest quarter of the year, but weak trading and investment banking revenue this year “would set up for a tough operating environment through the rest of 2016,” according to Jason Goldberg, an analyst at Barclays, in a research note last week. Wells Fargo’s Revenue To Rise Wells Fargo ( WFC ), which is also slated to report on Thursday, is expected to earn 97 cents a share, down 6.7%. But revenue is expected to grow a modest 1.6% to $21.6 billion. Its stock slipped 11% in Q1. The San Francisco-based bank focuses more on lending to consumers and businesses. As a result, it isn’t quite as exposed to stock market fluctuations as some of its rivals. But Wells Fargo set aside $1.2 billion last quarter for nonperforming energy loans. Also looming overhead is the constant concern over how many times the Federal Reserve will hike interest rates this year. After December’s 0.25 percentage-point increase, some Fed officials talked about four hikes in 2016. But the stock market’s gyrations, coupled with weak overseas economic growth, has led some to speculate that there will be two rate hikes — or maybe even none. Net Interest Margins In a healthy economy, higher interest rates help boost banks’ net interest margins, a key measure of profitability. A bank’s net interest margin is the difference between the interest it pays out to depositors and the interest it charges borrowers. “We want to see higher rates for the right reasons,” said Jeffery Harte, an analyst at Sandler O’Neill & Partners. “If the economy is strong enough to handle higher rates, that’s good news for the banks as well.” Analysts at Barclays said they’re closely watching Wells Fargo’s mortgage activity. UBS analysts last month rated Wells Fargo a sell, arguing that its portfolio is tilted toward risky energy and auto loans. Most analysts remain positive on Wells Fargo. Citigroup, Morgan Stanley, Goldman Sachs Citigroup will earn $1.06 a share, a 30% decline, analysts expect. The revenue forecast is for a tumble of 11% to $17.6 billion. The New York-based bank’s stock fell 19% during Q1. Citi reports Q1 results on Friday. In March, CFO John Gerspach warned that fixed-income trading is expected to fall 15% in Q1 and investment banking revenue is seen declining 25%. Morgan Stanley ( MS ) and Goldman Sachs ( GS ) report Q1 results next week. Both investment banks are expected to post year-over-year declines in EPS and revenue. Image provided by Shutterstock .

SAP’s Strong Pipeline Into Q2 Keeps Stock Near Recent High

While SAP ( SAP ) late Friday preannounced Q1 earnings and revenue that missed Wall Street views, investors Monday were buoyed by the German enterprise software company’s assurances that its pipeline is flowing strongly into Q2. SAP stock was up a fraction, near 77, in afternoon trading in the stock market today, just 7% off an 18-month high of 82.70 set July 25. In its release Friday, SAP CEO Bill McDermott said he expects “increasing momentum” in 2016. Shares of rival  Salesforce.com ( CRM ) were down a fraction Monday afternoon, but rival  Oracle ( ORCL ) was up a fraction. With final Q1 results scheduled for release April 20 before the open, SAP issued preliminary earnings of 0.64 euros per share minus items (73 cents at Monday’s exchange rate), up 9%, where Wall Street analysts expected 0.70 euros. It said revenue rose 5% to 4.73 billion euros (or $5.39 billion), short of the 4.85 billion euros and 4.82 billion euros that Evercore ISI and Wall Street projected, respectively, observed Evercore ISI in a research note. One euro was worth about $1.14 Monday. In a research note Sunday, Evercorse ISI analyst Kirk Materne said he’s looking for “more color” from SAP on April 20,  but “we expect the (Q1) license shortfall and comments around a slower start in the Americas are going to pressure shares on Monday despite SAP reiterating its full-year guidance and the comments around a ‘strong (Q2) pipeline.’ ” Materne maintained a buy rating on SAP stock, but said “we continue to favor Oracle ( ORCL ) and Microsoft ( MSFT ) in  mega-cap software.” RBC Capital Markets analyst Ross MacMillan maintained a sector perform rating on SAP stock but lowered his price target to 78 from 81. MacMillan noted that SAP’s Q1 cloud bookings of 140 million euros rose 22% year over year, and more than 25% in constant currency. “We view this as slightly disappointing” following Q4’s 75% “organic growth,” less than 50% in constant currency, “although do note that (Q1) is a seasonally weak quarter,” MacMillan said. “SAP also added over 500 new S4HANA customers, of which around 30% (i.e. about 150) are net new. While well below about 1,400 customer adds in (Q4), we would expect (Q1) to be seasonally weaker.” He said weakness in the energy sector and “some pull forward of demand” in Q4 due to S4HANA product promotions drove SAP’s softness in Q1. “As a result, we think there is limited read-through for other companies in enterprise software.” Got that, Salesforce.com sellers? “SAP’s fundamental growth drivers are rock solid, from our best-in-class S4HANA applications to our completeness of vision in the cloud,” said SAP’s McDermott in Friday’s release. “We expect increasing momentum as the year progresses, fully consistent with our guidance for the full year. SAP continues to be a highly profitable growth company.” HANA is SAP’s linchpin business software suite. CFO Luka Mucic said the Americas, dragged by Brazil, “got off to a slower start.”

Dual ETF Momentum April Update

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet, which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum . Antonacci’s book , Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, also details Dual Momentum as a total portfolio strategy. My Dual ETF Momentum spreadsheet is available here and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum.” Relative momentum is gauged by the 12-month total returns of each ETF. The 12-month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of the iShares Barclays 1-3 Treasury Bond ETF (NYSEARCA: SHY ). In order to have an “Invested” signal, the ETF with the highest relative strength must also have 12-month total return greater than the 12-month total returns of SHY. This is the absolute momentum filter, which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns. An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3, 6, and 12-month (“3/6/12″) total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6 and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF. Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12″). The test results were posted in the 2013 Year in Review and the January 2015 Update . Below are the four portfolios along with current signals: Return Data Provided by Finviz Click to enlarge As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions and the terms of their commission-free ETFs could change in the future. Disclosure: None