Tag Archives: stocks

Pain Or Gain Ahead For Bank ETFs?

The going has been tough for bank ETFs for quite some time now mainly due to the twin attacks of a delay in further Fed rate hikes after a liftoff in December and the energy sector lull. Moreover, UBS Group AG’s (NYSE: UBS ) moderate earnings for the fourth quarter of 2015 triggered a sell-off in banking stocks because the bank pointed to several macroeconomic headwinds and geopolitical issues that will bother its operations in the near term. Not only banking stocks, broad-based risk-on sentiments took a backseat in the first quarter of 2016. Now, with the earnings season impending and the broader markets rebounding, albeit slowly, let’s catch a glimpse of the looming headwinds and tailwinds to the banking sector. Headwinds Tightening Yields: The benchmark U.S. 10-year Treasury note yield slipped to 1.76% on April 6, 2016 (down 48 since the start of the year) while the yield on the short-term Treasury note (one year of maturity) fell to 0.55% on the same day (down just 6 bps since the beginning of 2016). The narrowing gap between the short and long-term yields has been a cause of concern for the backing sector (read: Bank ETFs Hurt by the Dovish Fed ). In fact, in early March, the spread between the two-year and 10-year Treasury yields tapered the most since 2009. Narrowing spread between long- and short-term rates hurts net interest margin, which a key metric for the banking sector. Energy Sector Exposure: U.S. banks have significant exposure to the long-ailing energy sector where chances of credit default are higher. In February, the S&P cut its outlook on several regional banks with the highest energy sector exposure citing a likely increase in non-performing assets. Among the biggies, Wells Fargo (NYSE: WFC ) reported around $42 billion oil and gas credit in February. The situation is the same for JPMorgan (NYSE: JPM ), the energy loan of which accounts for 57% of the investment-grade paper. JPMorgan has ‘ set aside $600 million’ for loan losses emanating from the energy, metals and mining sectors. Panama Papers Scandal: The leaked documents from Panama Law firm Mossack Fonseca & Co. revealing global business leaders and officials moving money to international tax havens may take a toll on bank stocks. Banks may now face more stringent scrutiny and litigation issues to arrest means of evading taxes. Tailwinds Increased Activity: Having described the stress situation, we would like to note that fears of a 2008-like recession or financial market crash are perhaps exaggerated. The lower interest rates should boost capital market activities and benefit banks in other ways. After all, bank stocks have gained their lost ground in the U.S. in a rock-bottom interest rate environment (see all Financials ETFs here). Compelling Valuation: The finance sector has a current-year P/E of 12.6 times, reflecting a 27.6% discount to the S&P while its next-year P/E stands at 11.5 times, reflecting a 25.3% discount to the S&P 500. Such an intriguing valuation might also help the sector to score gains as and when favorable industry dynamics hit the space. ETF Impact All in all, bank stocks are on the fence with pain and gain on either side, though downside risks look higher at the current level. So, investors seeking a financial sector exposure can have a look at the following ETFs: The PowerShares KBW Bank Portfolio ETF (NYSEARCA: KBWB ) , with considerable exposure to Wells Fargo, JPMorgan and US Bancorp (NYSE: USB ). The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook. SPDR S&P Bank ETF (NYSEARCA: KBE ) also has similar holdings; but it holds stocks in an equal-weighted manner. No stock accounts for more than 2.19% of the fund and diversifies stock-specific risks pretty well. KBE has a Zacks ETF Rank #3 with a High risk outlook. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) takes into account companies that do business as regional banks or thrifts. KRE also has a Zacks ETF Rank #3. iShares MSCI Europe Financials Sector Index ETF (NASDAQ: EUFN ) measures the combined equity market performance of the financial sector of developed market countries in Europe. The fund has a Zacks ETF Rank #3. Link to the original post on Zacks.com

Apple Music, Pandora Stoke Digital Music In Face Of ‘Value Gap’

Buoyed by Apple ( AAPL ) Music, Spotify and other subscription streaming services, sales of digital music vaulted past physical music sales for the first time in 2015 to become the main revenue stream for recorded music, according to a new industry report released Tuesday. But there’s also a widening “value gap,” as music listening on Alphabet ( GOOGL )-owned video wing YouTube and other free, legal sites don’t bring as much revenue for the industry, the International Federation of the Phonographic Industry trade group said. Digital music sales worldwide contributed 45% of industry revenue in 2015, overtaking the 39% share from sales of CDs and other physical formats, the IFPI’s report said. “After two decades of almost uninterrupted decline, 2015 witnessed key milestones for recorded music: measurable revenue growth globally; consumption of music exploding everywhere; and digital revenues overtaking income from physical formats for the first time,” the IFPI said. The group added that “revenues, vital in funding future investment, are not being fairly returned to rights holders. The value gap is the biggest constraint to revenue growth for artists, record labels and all music rights holders.” Revenue growth came from subscription music streaming services such as Apple Music, Pandora Media ( P ) and Spotify. Others in the subscription sector include Amazon.com ‘s ( AMZN ) Prime Music and Google Play Music. Besides its free YouTube site, Alphabet subsidiary Google in December launched YouTube Red, a video-subscription service that offers ad-free and offline viewing. Music download sales dropped 10.5% in 2015, the report said, while sales of CDs and other physical formats fell 4.5%. The so-called “value gap” arose because some major digital services “are able to circumvent the normal rules that apply to music licensing,” the report said. “User upload services claim they do not need to negotiate licenses for the music available on their platforms, or conclude licenses at artificially low rates, claiming protection from so-called ‘safe harbor’ rules that were introduced in the early days of the Internet and established in both U.S. and European legislation.” IFPI CEO Frances Moore said in a statement that safe harbor rules were designed for the Internet of the past and “should no longer be used to exempt user upload services that distribute music online from the normal conditions of music licensing.” Apple, Alphabet and Amazon stocks were all up a fraction in afternoon trading in the stock market today . Pandora stock was up 2%, near 8. Image provided by Shutterstock .

How Regeneron’s Eylea Growth, Amgen, Sanofi Deal Figure In Stock

Biotech Regeneron Pharmaceuticals ’ ( REGN ) core ophthalmology business still has huge upside as its Eylea sales grow in treating a variety of eye diseases, says RBC Capital. RBC also says that a legal settlement with Amgen ( AMGN ) over Praluent, a drug intended to lower bad LDL cholesterol, would be a positive. Most of Regeneron’s sales come from Eylea, launched in 2011 to treat age-related vision loss in the elderly. Regeneron aims to build sales of Eylea in the market for treating diabetic macular edema (DME), a cause of blindness in working-age people, as well as a related eye disease affecting older people. “Turning DME into a $2 billion to $3 billion market opportunity is important and likely,” Adnan Butt, an RBC Capital analyst, said in a research report Tuesday. In DME, Eylea competes with Roche Holding ’s ( RHHBY ) Lucentis. Regeneron typically reports earnings in early May. Roche, Novartis ( NVS ) and Bayer ( BAYRY ) report earnings on April 19, 21 and 26, respectively, and their commentary could provide insights into Eylea’s growth, says RBC’s Butt. He says that consensus expectations for the recently launched cholesterol drug Praluent, which had only $7 million in December-quarter sales, still need to come down. Amgen makes a rival drug called Repatha. In March, a federal jury upheld the validity of two Amgen patents related to the cholesterol drug, dealing a blow to Regeneron and partner Sanofi ( SNY ). “A settlement with Amgen could be a positive,” Butt said in the report. He rates Regeneron stock outperform, with a price target of 668. Regeneron stock was up more than 1.5% in early afternoon trading in the stock market today , near 402.50. Amgen reports earnings on April 28, followed by Sanofi on April 29. Their earnings calls could provide reads on the status of Praluent litigation, says Butt. Regeneron stock has plunged 26% in 2016 amid a broad sell-off in biotech stocks, including Celgene ( CELG ) and Gilead Sciences ( GILD ). Regeneron shares touched a six-month low below 349 last month but jumped on April 1 after the company announced strong phase three clinical results for dupilumab, a drug for eczema, an itchy skin condition. Regeneron is developing that drug with Sanofi. “The landmark deal with Sanofi provides $160 million per year to fund antibody discovery for eight years, gives Regeneron 50% of the profit and defers all development costs until the partnership is profitable,” added Butts. Startup Intellia Therapeutics late Monday announced a licensing deal with Regeneron. Cambridge, Mass.-based Intellia has developed “gene editing” technology to treat liver and blood diseases. It plans to go public. Regeneron has an IBD composite rating of 58 out of a possible 99, lower than both Celgene and Gilead. IBD’s Medical-Biomed/Biotech group ranks just No. 108 out of 197 industry groups. That’s down from No. 39 six months ago.  But it’s up 9.8% the past four weeks, 10th best in that span. Anika Therapeutics ( ANIK ), Supernus Pharmaceuticals ( SUPN ) and Ligand Pharmaceuticals ( LGND ) have the highest IBD Composite Ratings within the biotech group.