Tag Archives: industrial-goods

John Deere Q1 Results Drag Down Agribusiness ETFs

Before the opening bell on Friday, the world’s largest agricultural equipment maker, Deere & Co. (NYSE: DE ), reported disappointing fiscal first-quarter 2016 results. Though the company surpassed our earnings estimates, it missed on revenues and provided a bleak outlook for full fiscal 2016, reflecting another year of declining sales and continued pullback in the global agricultural sector. Deere Q1 Results in Focus Earnings per share came in at 80 cents, comfortably beating the Zacks Consensus Estimate of 71 cents, but deteriorating 28.6% from the year-ago period. Revenues declined 15% year over year to $4.77 billion and lagged our estimate of $4.79 billion. The global agricultural slowdown and weakness in construction equipment markets were the major culprits for the lackluster revenue performance and this trend is likely to continue this year. Additionally, a strong dollar continues to weigh on the company’s profitability (read: Top and Flop Currency ETFs YTD ). As a result, the manufacturer expects 2016 to be another challenging year with overall equipment sales expected to drop 8% for the second quarter and 10% for fiscal 2016. Segment wise, the company expects global construction and forestry equipment sales to decline about 11% in fiscal 2016, including negative currency translation of 2%, and global sales of agriculture and turf equipment to drop 10%, including negative currency translation of 4%. The company also expects net income of about $1.3 billion for fiscal 2016. Market Impact Based on bleak outlook, shares of DE dropped as much as 4.7% on the day while trading volume was also heavy with around 9 million shares exchanged in hand compared with the 3-month average of around 3.6 million shares. Rough trading is expected to continue in the ETF world as well over the next few days, especially among those that have the largest allocation to this big agricultural equipment maker (see: all Materials ETFs here ). However, investors should closely monitor the movement of these funds and the stock, and could tap the beaten down prices with a low risk in the basket form. This is especially true as Deere has a solid Zacks Rank #2 (Buy) with additional flavors of a Value and Momentum Style Score of ‘B’ each. iShares MSCI Global Agriculture Producers ETF (NYSEARCA: VEGI ) This fund follows the MSCI ACWI Select Agriculture Producers Investable Market Index and offers investors global exposure to 128 firms that are primarily engaged in the business of agriculture. Here, Deere occupies the third position with a 7.9% allocation. From a sector look, agricultural chemicals takes the largest share at 47%, closely followed by farming/fishing (20%) and industrial engineering (18%). American firms dominate the fund’s holding with 45.4% of total assets, followed by a double-digit exposure to Switzerland. The ETF is less popular and illiquid with $24.7 million in its asset base and around 10,000 shares in average daily volume. The ETF charges 39 bps in fees per year from investors and has shed 2.2% post Deere results. Market Vectors Agribusiness ETF (NYSEARCA: MOO ) This fund is by far the most popular and liquid choice in the space with AUM of about $758.4 million and average daily volume of nearly 215,000 shares. It tracks the Market Vectors Global Agribusiness Index and charges 57 bps in annual fees. In total, the fund holds 53 securities in its basket with DE occupying the third spot at 6.8% of total assets (read: Market Crashing! ETFs & Stocks That Deserve Love ). The product provides nice diversity across business segments with agricultural chemicals accounting for 37% share while industrial engineering (17%), farming/fishing (14%) and packaged food products (13%) round off the next three spots. In terms of country allocation, half of the portfolio goes to the U.S. firms while Canada, Switzerland and Japan get a decent exposure of around 8% each. The fund lost 1.5% on the day of the earnings release. Original Post

Homebuilding ETFs In Focus Following U.S. Home Resale Data

The recent home resale data from National Association of Realtors (“NAR”) indicated that the U.S. homebuilding sector still faces weaknesses. The data showed a 3.4% decline in existing home sales in the U.S. to an annual rate of 5.36 million units in October from 5.55 million units in September. The decline is blamed on the shortage of properties that pushed up prices and discouraged buyers of existing homes. Per NAR, the number of unsold homes for October ebbed 2.3% over the previous month to 2.14 million units. Unsold homes inventory was down 4.5% from the prior year. The tight inventory caused median home price to increase 5.8% from the year-ago level to $219,600, marking the 44th straight month of a year-over-year rise (read: Homebuilder Stocks and ETFs Gain on Solid Data ). Last week, U.S. Commerce Department also revealed disappointing housing starts data for October. Groundbreaking dipped 11% to a seasonally adjusted annual pace of 1.06 million units during the month, the lowest level in the past 7 months. The decline was attributed to slowdown in the construction of multi-family homes. Groundbreaking data for the largest housing market segment indicated a 2.4% fall in single-family home projects for October. Much of the decline has been contributed by a 6.9% downfall in groundbreaking activity in the South, the most active region for the homebuilding sector. Meanwhile, housing starts for the multi-family segment slumped 25.1% to the annual pace of 338,000 units. Notably, new single-family home sales in the U.S. tumbled 11.5% to a seasonally adjusted annual rate of 468,000 units in September from August. This has led to 5.8 months’ supply of new homes in September, the highest since July last year. The U.S. homebuilding sector already faces a major threat from the strong possibility of an interest rate hike by Fed in December. A higher interest rate environment heavily weighs on the affordability of homes. On the other hand, it raises the mortgage rates that could fend off existing homeowners from upgrading to luxury and expensive homes (read: Is it the Right Time for Homebuilder ETFs? ). However, some have predicted that the decline in housing activities during October could be short-lived, particularly when the labor market is improving and the broader market is recovering. Further, industry experts argue that Fed’s lift-off could send a positive signal about the economy and boost consumer confidence. ETFs in Focus The depressing homebuilding reports for October turns our attention to the ETFs tracking the performance of the sector. Although the two major homebuilding ETFs (discussed below) delivered good performance both in the one-month and year-to-date time frames, investors should remain cautious about them given the adverse developments and the threat of an impending rate hike by the Fed (read: Two Homebuilder ETFs & Stocks Set to Soar ). iShares U.S. Home Construction ETF (NYSEARCA: ITB ) This most popular homebuilding fund provides a pure play on the home construction sector by tracking the Dow Jones US Select Home Builders Index. It holds a basket of 41 stocks, with double-digit allocation going to both D.R. Horton (NYSE: DHI ) and Lennar Corp. (NYSE: LEN ). The product has amassed more than $2 billion in its asset base and trades in heavy volume of more than 3.7 million shares per day, on average. The ETF charges 43 bps in annual fees, and has added about 2.9% in the past one month and 10.4% in the year-to-date period (as of November 24, 2015). It has a Zacks ETF Rank #2 (Buy) with a High risk outlook. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) XHB follows the S&P Homebuilders Select Industry Index, representing the homebuilding sub-industry portion of the S&P Total Markets Index. The fund holds 36 securities in its basket, with none accounting for more than 3.87% of the assets. It has garnered about $1.9 billion in its asset base and exchanges a heavy volume of roughly 3.4 million shares per day, on average. XHB charges 35 bps in annual fees and returned 0.6% in the last one-month and 6.9% so far this year. It has a Zacks ETF Rank #2 with a High risk outlook. Original Post

Valuation Dashboard: Industrials – October 2015

Summary 4 key fundamental factors are reported across industries in the GICS Industrial sector. They can be used to assess the valuation status of an industry relative to its historical average. They can also be used as a reference for picking quality stocks at a reasonable value. This article is part of a series giving a valuation dashboard by sector of companies in the S&P 500 index (NYSEARCA: SPY ). The idea is to follow up a certain number of fundamental factors for every sector and to compare them to historical averages. This article is going down at industry level in the GICS classification. It covers Industrials. The choice of the fundamental ratios used in this study has been justified here and here . You can find in this article numbers that may be useful in a top-down approach. There is no analysis of individual stocks. A link to a list of individual stocks to consider is provided at the end. Methodology Four industry factors calculated by portfolio123 are extracted from the database: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). They are compared with their own historical averages “Avg”. The difference is measured in percentage and named with a prefix “D” before the factor’s name (for example D-P/E for the price/earnings ratio). The industry factors are proprietary data from the platform. The calculation aims at eliminating extreme values and size biases, which is necessary when going out of a large cap universe. These factors are not representative of capital-weighted indices. They are useful as reference values for picking stocks in an industry, much less for ETF investors. Industry valuation table on 10/29/2015 The next table reports the 4 industry factors. For each factor, the next “Avg” column gives its average between January 1999 and October 2015, taken as an arbitrary reference of fair valuation. The next “D-xxx” column is the difference between the historical average and the current value, in percentage. So there are 3 columns relative to P/E, and also 3 for each ratio.   P/E Avg D- P/E P/S Avg D- P/S P/FCF Avg D- P/FCF ROE Avg D-ROE Aerospace&Defense 19.64 18.02 -8.99% 1.15 1.02 -12.75% 22.45 21.28 -5.50% 7.31 9 -18.78% Building Products 27.98 20.14 -38.93% 1.3 0.64 -103.13% 37.43 22.38 -67.25% 11.96 6.07 97.03% Construction&Engineering 19.89 18.3 -8.69% 0.4 0.48 16.67% 15.75 19.81 20.49% 3.86 5.98 -35.45% Elec.Equipment 23.15 18.31 -26.43% 1.53 1.64 6.71% 25.31 21.88 -15.68% -7.83 -3.3 -137.27% Ind. Conglomerates 36.65 20.45 -79.22% 2.44 1.3 -87.69% 29.48 29.98 1.67% 2.59 12.12 -78.63% Machinery 17.84 18.25 2.25% 1.04 0.9 -15.56% 25.17 21.81 -15.41% 10.34 8.72 18.58% Trading Companies&Distri 17 17.14 0.82% 0.58 0.7 17.14% 14.47 25 42.12% 8.39 8.61 -2.56% Commercial Services&Supplies 22.99 20.86 -10.21% 1.22 1.03 -18.45% 26.12 19.84 -31.65% 3.9 3.99 -2.26% Professional Services* 21.91 24.04 8.86% 1.5 1.22 -22.95% 19.53 17.43 -12.05% 6.51 3.09 110.68% AirFreight&Logistics 23.45 21.06 -11.35% 0.65 0.57 -14.04% 23.49 32.87 28.54% 12.44 11.12 11.87% Airlines 12.02 15.18 20.82% 0.96 0.41 -134.15% 24.97 12.37 -101.86% 25.32 3 744.00% Marine** 16.02 14.04 -14.10% 1.13 1.41 19.86% N/A N/A N/A -13.74 6.05 -327.11% Road&Rail 16.71 19.17 12.83% 1.15 0.86 -33.72% 28.74 36.17 20.54% 16.39 9.43 73.81% Transport Infrastructure 7.7 23.6 67.37% 1.07 1.19 10.08% 5.48 20.8 73.65% 16.51 -3.22 612.73% *Professional Services: Avg since 2008 **P/FCF currently outlier for Marine Valuation The following charts give an idea of the current status of industries relative to their historical average. In all cases, the higher the better. Price/Earnings: Price/Sales: Price/Free Cash Flow: Quality Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF (NYSEARCA: XLI ) with SPY. (click to enlarge) Conclusion Industrials have underperformed the broad market in the last 6 months. At the industry level, Transport Infrastucture, Road & Rail are the only 2 industries with at least 2 of 3 valuation ratios pointing to underpricing, and a quality level above their respective historical averages. However, there may be quality stocks at a reasonable price in any industry. To check them out, you can compare individual fundamental factors to the industry factors provided in the table. As an example, a list of stocks in Industrials beating their industry factors is provided on this page . If you want to stay informed of my updates on this topic and other articles, click the “Follow” tab at the top of this article. You can choose the “real-time” option if you want to be instantly notified.