Wall Street Strategies
Login:  
Password:
  remember me
Sign Up | Lost Password

Take a Free Trial
Try Charles' premium stock selection services free for 7 days. Check it out in real time!
You will get actionable advice, trading ideas and email alerts.

Morning Commentary

Marco...Polo...China Cuts Own Path
By Charles Payne, CEO & Principal Analyst
5/15/2017 9:45 AM

Question of the Week

Should America focus on exports to bolster the economy, including more investments outside the USA? Your thoughts?
No- It is globalism time to focus on America First.
Yes- It is a smart investment.

The latest provocation from North Korea and the guessing game over the next FBI director have dominated the headlines. However, the biggest long-term news began over the weekend with China moving forward with its new “Silk Road.”

This project reverse engineers Marco Polo’s route while expanding its footprint, all in the name of China’s goal to propel to the top of economic globalism at a time when the west is retreating.

The ‘Belt & Road Forum’

The roster and attendees for the Silk Road project named ‘Belt and Road Forum’ were quite impressive. Attendees included Vladimir Putin, along with twenty-eight heads of state, representation from four continents, and sixty countries.

The participating countries boast about a 55% global economic output, inhabit 70% of the world’s population, and hold an estimated 75% of known energy reserve.

The project includes 55,000 miles of high-speed rail.

China is spending billions boring tunnels and building bridges and ports in the jungles of Laos and Sri Lanka. There’s $46.0 billion for Pakistan, including the construction of new power plants. This plan is amazing; while the U.S. will play a role, I’m worried we aren’t leading the way on such an initiative. 

I understand the message in our current political environment that it would be difficult, but China’s $1.4 trillion investment around the world is a “China-First” policy.  Of course, with America’s infrastructure crumbling, there should be an effort to bring our roads, bridges, and tunnels into the future. I wonder if the richest nation on the planet can do both.

I’m a proponent of a stronger military, but we must find funds for an economic investment, mostly at home but also abroad. China has made it clear that it wants to supplant the United States as the world’s premier economy.  I understand that a lot of Americans say they aren’t concerned about an economic arms race with China, and many would rather focus on domestic issues. 

However, the benefits of the U.S. dollar being the world’s reserve currency and a never-ending demand for our debt will allow us to focus on domestic issues and survive $20 trillion in debt.                                                                                            

Herculean Deal

U.S. Commerce Secretary Wilbur Ross announced a “Herculean” accomplishment on Friday with the new United States-China trade agreement. The ten-point agreement is just the beginning with Ross promising much more that will fall in line with the administration’s reciprocal approach to trade.

Most of the $2.5 billion agreement involves greater access in key markets for both nations:

United States

  • LNG (liquefied natural gas)
  • Beef
  • Biotech
  • Financial Services
  • Electronic Payment Services
  • U.S. Bond Underwriting & Settlement License (two companies)

China

  • Exports into U.S. Cooked Chickens
  • Six-Month Extension of current no-action relief to U.S. Regulatory Shanghai Clearing House
  • Access to U.S. Banking Market
  • The U.S. to Recognize China’s One Belt, One Road Initiative

Earnings Season

The earnings season wrapped up last week, and it has been better than advertised: 

  • 91% Companies reported
  • 64% Beat on revenue
  • 75% Beat on earnings per share
  • 7% Reported eps in line
  • 18% Companies missed
  • 13.6% Blended earnings growth rate (best since 3Q11 16.7%)
  • 9 of 11 Sectors: faster growth rates since March 31st

In this tense period of potential trade wars and skirmishes and questions about the strength of the U.S. Dollar, it must be pointed out that companies with more than 50% of revenue outside of the United States (OUS) grew bottom lines two times faster than the others.

  • 50% Sales in USA Revenue +7.1% EPS +9.9%
  • 50% Sales OUS Revenue +9.4% EPS +20.9%
  • Valuation Worries

It’s obvious this has been a miserable earnings season for companies that missed or issued even a slight change to guidance. A part of the reason is the extent of the market rally and the herd mentality that runs amok when there is confusion or disappointment. That’s why earnings beats resulted in four-day rallies of only 1.1% versus the 1.3% five-year historical average, and misses that saw stock valuations drubbed by 3.1% instead of a historical average of -2.4%.

Right now, the forward S&P 500 price-to-earnings (P/E) is 17.5, which is two percentage points higher than the average from recent years.

Estimates for the remainder of the calendar year bode well for current and even higher valuations.

2017 Expectations

2Q17

3Q17

4Q17

FY17

Revenue Growth

4.8%

4.8%

5.2%

5.3%

Earnings Growth

6.8%

7.5%

12.4%

9.9%

This Week’s Key Earnings Report (company and consensus)

Retail:

  • (HD) Home Deport: $1.61
  • (TJX) TJX Companies: $0.79
  • (WMT) Wal-Mart: $0.96
  • (RL) Ralph Lauren: $0.79
  • (GPS) Gap Inc.: $0.29
  • (ROST) Ross Stores: $0.80
  •  (FL) Foot Locker: $1.38

Restaurants:

  • (JACK) Jack in the Box Inc.: $0.91
  • (RRGB) Red Robin Gourmet Burgers: $0.58

Tech:

  • (CSCO) Cisco Systems: $0.53,
  • (AMAT) Applied Materials: $0.76
  • (ADSK) Autodesk Inc.: $0.36
  • (CRM) Salesforce.com:  $0.05

Misc.:

  • (DE) Deere & Company: $1.64
  • (RXN) Rexnord Corp.: $0.33

Today's Session

The markets are all in the green this morning with cyber stocks leading the way higher following Friday's cyberattack "WannaCry" which hit at least 150 countries affecting computers in factories and hospitals. Oil is also up and WTI is trading around $52 after news that the Russians and Saudis have agreed to keep supply cuts through March of 2018.


Comments
Yes, it is a big deal and we, USA, should participate, and we will. I recently spent time in Xi'an China and it is progressing with workers working and economy active!

James on 5/15/2017 9:52:34 AM
The Chinese have been investing abroad for decades in Africa and Latin America with the help of the money they've made on trade with us. They take the long range view; we are always looking at yesterday. The one dark cloud on their horizon is the coming population decline they face thanks to their aggressive 1-child policy. They're waking up to that mistake, but more than a little too late.

Dennis Howard on 5/15/2017 2:43:09 PM
Green is the word of the Day.
Cyber blackmail must be discovered and put to dust and jail time for the offenders
Your points are super - success to your mind
With no break ins

Ramon Espinosa on 5/15/2017 2:49:31 PM
We need to work on our own crumbling infrastructure, weak schools (including liberal colleges that won't allow opposing views), and most importantly jobs in the USA.

Eddie Roop on 5/17/2017 6:51:55 PM
 

Add a Comment!

Name:
Email:
Comment:
 
 
Submitted comments are subject to moderation before posting.


BLOGROLL
Differential Research

Home | Products & Services | Education | In The Media | Help | About Us |
Disclaimer | Privacy Policy | Terms of Use |
All Rights Reserved.