Tag Archives: stocks

Technology in 2015: Part 6: The Final Scorecard

Despite the doom and gloom surrounding weak PC and computing sales overall, technology companies made huge progress this year in their penetration of other markets including artificial intelligence (AI), self driving cars, personal assistants, high speed Internet and home

Colombia’s Economic Struggles Are Reflected In The Global X MSCI Colombia ETF

Summary The macro-economic struggles of Colombia are reminiscent of those within other countries in the Latin American region. China’s economic issues and commodity price declines have exacerbated the economic problems within Colombia and the rest of the Latin American region. Colombia’s economic struggles have affected the performance of the Global X MSCI Colombia ETF. Only 5 of the top 25 holdings in the fund have a positive YTD return. In order to fully understand the issues within the Colombian economy, it is important to review the economic struggle within the Latin American region. It is no secret that the Latin American region has had a very poor economic run in 2015. The economy in Venezuela is dealing with high inflation that could be seen in quite a few statistics such as the inflation rate , core inflation rate, consumer price index and food inflation. The economic struggle in Brazil can be seen in the following chart with regards to their GDP in their last several quarters. This economic statistic has resulted in a brutal performance for the iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ) in 2015. The fund has a -38.8% YTD return. (Source: Bloomberg ) The Latin American region has been in a downward trend for the last several years in terms of GDP. This can be seen in the next chart below: (click to enlarge) (Source: CNN Money) This chart is as of July 2015. Now it is projected that the Latin American region is expected to contract 0.2% for the year, according to FocusEconomics. Major catalysts to the economic struggle in the Latin American region include the current economic struggle in China and the decline in commodity prices. China has strategically resorted to domestic consumption in order to spark economic growth. This is not good news for a region that heavily consumes Chinese exports. It is no secret that the Chinese stock market index has practically fallen off a cliff since June 2015 . In addition, China has shown signs of slow growth with its recent import totals. China’s imports dropped 8.7% year over year to $143.13 million in November. In October, China’s imports dropped 18.8% year over year. This marks the 13th straight month of year-over-year decline for Chinese imports . Chinese exports declined 6.8% year over year in November. This was the fifth straight month of year-over-year decline for Chinese exports. The Chinese debt to GDP ratio reached a record high for the month of June . The depreciation of the Chinese yuan against the U.S dollar has weakened commodity demand in Latin America and devalued Latin American currencies. This can be seen in the chart below. Notice that the Colombian peso was affected the most. (click to enlarge) The decline in commodity prices is quite evident and can be seen in the following charts involving crude oil, heating oil, silver and gold. (click to enlarge) (click to enlarge) (click to enlarge) (click to enlarge) Unfortunately, Colombia is right in the middle of the economic struggle in the Latin American region. The Colombian stock market has declined by over 31% YTD . Colombia has experienced a rise in inflation within the past few years. However, the increase in inflation has only accelerated within the past year. The following is the 1- and 5-year charts of the Colombia inflation rate as well as the country’s consumer price index. (click to enlarge) (click to enlarge) (click to enlarge) Thus, the central bank of Colombia has had to raise the interest rate for four consecutive meetings in order to curb the impact of increasing inflation. The interest rate is currently 5.75%. (click to enlarge) Thus, it is not surprising that Colombia has one of the worst performing country ETFs in the market in the Global X MSCI Colombia ETF (NYSEARCA: GXG ). The fund has a YTD return of -41.0%. Out of the top 25 holdings within the Global X MSCI Colombia ETF, only 5 holdings have generated a positive YTD return. These holdings have a combined portfolio weight of only 14.42%. It is not surprising that all of the fund’s price multiples fall short of their Morningstar benchmark totals. Value and Growth Measures Stock Portfolio Benchmark Price/Prospective Earnings 11.90 15.11 Price/Book 0.69 1.54 Price/Sales 0.69 1.04 Price/Cash Flow 1.93 5.42 Given the volatility of Colombian equities, it is no surprise that this ETF would have a greater standard deviation than its benchmark. Unfortunately, the fund is rampant with negative returns and ratios as seen in the fund’s 3- and 5-year volatility measures . 3-year Trailing Standard Deviation Return Sharpe Ratio Sortino Ratio GXG 26.78 -27.45 -1.05 -1.23 MSCI ACWI Ex USA NR USD 12.38 3.31 0.32 0.51 5-year Trailing Standard Deviation Return Sharpe Ratio Sortino Ratio GXG 23.81 -16.57 -0.64 -0.79 MSCI ACWI Ex USA NR USD 15.33 2.99 0.26 0.38 Bottom Line Given Colombia’s economic vulnerability at the moment, I think it would be best served to steer clear of this ETF due to its significant exposure to Colombian equities.

Duke Energy And Southern Company Set To Soar In 2016

Unregulated utility companies’ performance likely to stay challenging in 2016 because of weak and volatile power prices. DUK and SO making correct strategic attempts to strengthen regulated operations. Stock valuations for DUK and SO are cheap, as both are trading at discounts to peers and the industry average. 2015 has been a tough year for the U.S. utility sector, mainly because of concerns regarding the Fed interest rate increase; the utility sector ETF (NYSEARCA: XLU ) is down 10% year-to-date. Moving into 2016, given the decline in the power and natural gas prices, U.S. unregulated utility companies’ performance will stay volatile and weak; however, I think U.S. utility companies with significant and growing regulated business operations will stay an attractive investment option for income-hunting investors. Duke Energy (NYSE: DUK ) and Southern Company (NYSE: SO ) are the two U.S. utility companies that have large regulated business operations and are further working to strengthen their regulated business operations, which will provide stability to their revenues and cash flows, and support dividend growths. Moreover, valuations for both the stocks stay compelling. Two Utility Stocks: DUK and SO In recent years, low power and natural gas prices has adversely affected performance of unregulated business operations. As the power and natural gas prices continues to stay weak, I think, 2016 will be another challenging year for the unregulated utility companies. In the volatile unregulated business environment, the U.S. utility companies are working to lower their unregulated business operations, which will positively affect their performance. DUK is among the leading utility companies of the U.S., and has been working to strengthen its regulated business operations by making regulated capital investments; the company is expected to make capital investments of $20 billion in the next four years, which will result in increase in its rate base and support earnings growth. The company is not only upgrading its existing regulated infrastructure, but also diversifying the power generation assets by focusing on renewable energy sources, which will improve its business risk profile and allow it to comply with changing environmental regulations. DUK plans to spend to $3 billion on renewable energy in the next four years. Moreover, in 2016, if the company decides to sell its international unregulated business operations, it will positively affect its stock price and will make its cash flows more stable. Also, once the company successfully closes acquisition of Piedmont Natural Gas (NYSE: PNY ), which is consistent with its efforts to grow regulated earnings, it could opt to undertake more regulated gas business acquisitions to strengthen its gas business. Given the company’s aggressive efforts to strengthen its regulated operations, its cash flows will improve, which will allow it to increase its dividend growth consistently in the coming years. The stock has yield of 4.75% , which is supported by its 14% operating cash flow yield, and makes it an impressive investment option for income investors. Also, investors should keep track of yearly earnings call in February, in which the company will provide update on its 5-year growth expectation, synergies related to PNY acquisition and rate case outlook. Southern Company is another utility stock which stays an attractive investment option for income investors, as it offers a solid yield of 4.7% , which are backed by its operating cash flow yield of 15% . The company generates almost 90% of its earnings from regulated operations, which provides stability to its cash flows. Similar to DUK, SO also is working aggressively to modernize and strengthen its power generation assets. Moreover, once the company’s two construction projects, Kemper and Vogtle Power plants, are completed it will portend well for its long-term earnings. Also, the company has been actively increasing its renewable energy asset base. The company spent more than $2 billion on renewable in 2015, and plans to spend another $1.3 billion in 2016, which is expected to increase its renewable energy portfolio capacity to 2,600 MW. Consistent with its renewable generation assets base growth, the company acquired almost 600 MW of solar assets from First Solar (NASDAQ: FSLR ). And also, completion of SO’s and AGL Resources (NYSE: GAS ) in the later half of 2016 will augur well for the stock price. The company’s efforts to improve its regulated power asset base will support its long-term earnings growth, and its business risk profile will improve, as it will complete pending acquisitions and ongoing construction projects. Also, the company’s cash flows will stay strong to support its dividend growth, which will improve investors’ confidence. Valuation and Summation Unregulated utility companies’ performance is likely to stay challenging in 2016 because of weak and volatile power prices. However, companies like DUK and SO, which are making correct strategic attempts to strengthen their regulated operations, will deliver healthy performances in future years. Both DUK and SO offer solid yields of 4.7% and 4.75%, respectively, which makes them attractive investment prospects for income-hunting investors. Moreover, stock valuations for DUK and SO are cheap, as both are trading at discounts to their peers and the industry average. DUK and SO are trading at forward P/E of 14.8x and 15.7x, respectively, versus the utility sector’s forward P/E of 16.5x .