Nike (NKE) Earnings: Can the Dow Stock Shrug Off Supply Chain Woes?

It’s the tail end of earnings season, but there are still some heavy-hitters on tap. Among them is athletic apparel maker Nike (NKE, $156.42), which is scheduled to tell all in the earnings confessional after the Sept. 23 close.

Investors would certainly welcome a positive reaction to NKE earnings, given the struggles the stock has seen over the past month. Since topping out at a record high near $174 in early August, Nike shares have shed more than 10%. 

While some of the more recent sell-off could be due to broad-market headwinds – the Dow and S&P 500 are both down about 0.2% so far in September – Wall Street appears to be a bit concerned over COVID-related global supply chain issues, particularly after Nike was forced to shutter factories in Vietnam in July because of the pandemic. 

These factories accounted for roughly 51% of NKE’s total production capacity in Asia ahead of the shutdown. “The risk of significant cancellations beginning this holiday and running through at least next spring has risen materially for NKE as it is now facing at least two months of virtually no unit production at its Vietnamese factories,” BTIG analyst Camilo Lyon wrote in a note. He recently downgraded the stock to Neutral (Hold) from Buy.

These months-long Vietnamese production disruptions also prompted UBS analyst Jay Sole to lower his fiscal 2022 earnings per share (EPS) estimate by 3%. Nevertheless, Sole – who has a Buy rating on the Dow stock – believes supply chain fears are likely already priced in. 

Stifel analysts (Buy) also cut sales and earnings estimates, for the second and third quarters of fiscal 2022, but they see the “supply-oriented shocks to the business as one-time in nature and representing opportunity for positive reversal in future periods.”

Additionally, any pullbacks in NKE should be viewed as a buying opportunity, “particularly if the stock sees a negative reaction to tempered fiscal 2022 guidance,” they say. “There is no change to our constructive long-term outlook.”

As far as Nike’s upcoming fiscal first-quarter report: The pros, on average, are looking for a 17.9% year-over-year (YoY) rise in earnings to $1.12 per share. Revenue, meanwhile, is expected to arrive at $12.5 billion, a 17.9% improvement from the year prior.

FedEx Stock Stalls Ahead of Earnings

FedEx (FDX, $255.22) will report its fiscal first-quarter earnings after the Sept. 21 close. 

The shares of the freight giant have been trending lower since May, and are now in negative territory on a year-to-date basis. But while “valuation has become more interesting … greater conviction in a sustained improvement in Express operating margin and return on invested capital (ROIC) is still needed for a more constructive view,” BMO Capital analyst Fadi Chamoun says. 

He adds that growth in FedEx’s ground segment has slowed and “there appears to be limited opportunity for further improvement in the operating margin as the segment faces inflationary cost pressures, further capital investment needs and likely greater competitive intensity.”

While Chamoun maintains a Market Perform (Neutral) rating on FDX, most pros are bullish. According to S&P Global Market Intelligence, 18 analysts call FedEx a Strong Buy, while five have a Buy rating. The other seven following the stock say it’s a Hold, with not one Sell or Strong Sell rating out there. Plus, the average target price of $341.25 represents implied upside of roughly 34% over the next 12 months or so.

In terms of earnings, analysts, on average, see EPS of $5.00 in FedEx’s fiscal first quarter, which is 2.7% higher than the year-ago period, and revenue of $21.9 billion (+13.5% YoY).

Darden Restaurants Expected to Report Major Growth 

Darden Restaurants (DRI, $149.43) has had a choppy year, but the broader path has been higher. To wit, the shares are up more than 25% so far in 2021, and are trading about 3 percentage points below their late-August all-time peak of $153.

The stock could take out this technical milestone after it reports fiscal first-quarter earnings ahead of the Sept. 23 open, should history repeat itself. Following the release of its fiscal fourth-quarter results in June – which handily beat expectations and showed the Olive Garden parent’s same-store sales had nearly returned to pre-pandemic levels – the shares jumped 3.2%.

Wall Street pros are certainly upbeat ahead of the company’s results. Oppenheimer analysts Brian Bittner and Michael Tamas, for instance, are anticipating year-over-year same-store sales growth of 45.1% for DRI’s fiscal first quarter, with 48.9% revenue growth expected for the three-month period.

Darden Restaurants “remains our favorite pick within full-service dining,” they say. “Based on our analysis, we believe the model is uniquely positioned to at least achieve fiscal 2022 EPS forecasts despite industry-wide cost pressures. Plus, management is armed with unique sales levers to accelerate share gains if industry demand becomes choppier into year-end.” They have an Outperform rating on DRI, which is the equivalent of a Buy.

Overall, the average analyst estimate is for Darden Restaurants to report fiscal Q1 EPS of $1.63 (+191% YoY). On the top line, estimates are for $2.2 billion, which is 43.8% more than what the company reported a year ago.

Source: kiplinger.com

Stock Market Today: China’s Evergrande Crisis Knocks 614 Points Off Dow

Most global investors’ eyes were fixated on China on Monday, as the looming debt default of a real estate titan there could have worldwide implications – indeed, such fears served the Dow its worst single-session loss since July.

We break down the situation in more detail here, but in short: Chinese property developer Evergrande (EGRNY, -22.1%) currently has about $15 billion in cash versus some $300 billion in liabilities, and several analysts believe that it could default on debt payments as soon as this week. A worst-case scenario could theoretically spark a credit crisis, hammer large firms with significant exposure to Evergrande debt and cause economic distress across the numerous other businesses that Evergrande is invested in.

How China plans on dealing with the issue is a pivotal question to be answered.

“Our China strategists believe that the government wants to make an example out of Evergrande to impose some discipline on investors and developers,” says Doug Peta, chief U.S. investment strategist at BCA Research. “Some onshore investors may be bailed out, but party officials will have no qualms about leaving offshore investors holding the bag.”

Also of increasing worry is the Sept. 30 deadline to address the debt-ceiling limit; Treasury Secretary Janet Yellen wrote in the Wall Street Journal that not raising the limit would “precipitate a historic financial crisis.”

The Dow Jones Industrial Average – led lower by the likes of Caterpillar (CAT, -4.5%), Goldman Sachs (GS, -3.4%) and JPMorgan Chase (JPM, -3.0%) – sank 614 points, or 1.8%, to 33,970. It could have been worse: The industrial average was off as much as 971 points at its intraday low, but it regained some ground in the afternoon.

Sign up for Kiplinger’s FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

The S&P 500 was slightly better at 1.7% declines to 4,357, while the Nasdaq Composite dropped 2.2% to 14,713. 

Other news in the stock market today:

  • The small-cap Russell 2000 closed 2.4% lower to 2,182.
  • Just one Dow stock finished in positive territory today: Merck (MRK, +0.4%). This impressive feat came after the Committee for Medicinal Products for Human Use of the European Medicines Agency  recommended MRK’s blockbuster oncology drug Keytruda for approval to treat breast cancer. Earlier this summer, the drug was approved by the U.S. Food and Drug Administration to treat high-risk, early-stage, triple-negative breast cancer in combination with chemotherapy.
  • In other drug news, Pfizer (PFE, +0.7%) and BioNtech (BNTX, -5.6%) released highly anticipated COVID-19 vaccine data today. The companies said the two-dose regimen they co-developed showed a positive response during a clinical trial of kids 5 to 11. PFE and BNTX plan to submit the data to the FDA “as soon as possible,” with hopes the vaccine will be granted Emergency Use Authorization (EUA) at some point over the next several weeks.
  • U.S. crude oil futures slumped 2.3% to settle at $70.29 per barrel.
  • Gold futures tacked on 0.7% to finish at $1,763.80 an ounce.
  • The CBOE Volatility Index (VIX) jumped 19.8% to 24.93, its highest level sincce May.
  • Bitcoin wasn’t immune from the selling pressure, with prices off 7.8% from Friday levels to $43,821.48. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 092021stock chart for 092021

Don’t Lose Your Head

Investors are understandably on red alert. Comparisons to the Lehman Brothers disaster of 13 years ago (they’ve been made) are bound to rattle nerves – and even if this Evergrande situation doesn’t deteriorate nearly so badly, it can still act as a sell trigger for investors concerned about other market metrics.

“While there is concern about the Evergrande situation infecting global markets, for the long-term investor, this situation may just be noise,” says Lindsey Bell, chief investment strategist for Ally Invest. “Stories like Evergrande’s can be tough to digest, and it may take time to understand the true risk related to this type of event.”

But she also acknowledges the argument that the market has seemed long due for a pullback – and sees the sunny side of that possibility.

“If you’re a long-term investor complaining about an expensive market, this may be your opportunity to bargain hunt,” she says.

You can start your hunt in these 16 top value stocks, though if you prefer small firms, consider these 11 small-cap deals instead.

Investors more concerned with simply navigating yet another market hiccup in a calmer fashion in the market might instead gravitate toward low-volatility funds, but if so, here’s a tip: Many low-volatility ETFs are designed to reduce volatility over the longer term but might not protect you against quick market shocks. This list of low-volatility ETFs covers some of each.

Source: kiplinger.com

How to Calculate Your Net Worth

Your net worth is a measure of your financial stability, and knowing your net worth gives you a handle on how healthy you are economically. The way to determine your net worth is simply adding up what you own – your assets, such as account balances and real estate – and subtracting what you owe – your liabilities like your mortgage and credit card debt.

Creating a detailed net worth statement gives you a good idea of where you can do better moving forward. It’s advisable to do this once a year. Our net worth calculator will get you going.

And just in case you need additional help, here are details on how to work your way through the process:

1. Add up assets.

Start with Cash: what you have on hand, what’s in your checking accounts and what’s in your savings accounts. Include any savings bonds and certificates of deposit along with money you’ve squirreled away under the mattress (that’s a bad idea, by the way.)

For Retirement Savings, the value of your 401(k), IRA or other defined-contribution plan will be available in your latest statement or online. If you have a pension and or profit-sharing plans, valuing these can be tricky. A program that will provide you with retirement income is surely an important asset, but it’s difficult (although by no means impossible) to put a current dollar value on income you’re supposed to receive in the future. This will require a spreadsheet, knowing what your pension promises you at retirement age, and then an understanding of the concept of “current present value.”

For Other Investments/Brokerage Accounts, you can draw from your most recent statements for stocks, bonds, mutual funds and other negotiable instruments. 

A business you own could be a potentially significant asset, but it may be illiquid or have significant debt. Furthermore, you will know best how to value it for your personal circumstances.

Do you have Life Insurance or Annuities as investments? Your premium payments on a whole-life insurance policy add to your net worth by increasing the policy’s cash value (the amount you’d get if you cashed it in). Your insurance agent or a table in the policy can tell you the current cash value. Ditto for the surrender value of any annuities you own.

Your Primary Residence is likely to be your biggest asset, so it’s especially important that the value you assign to it be accurate. Don’t list what it cost you or just take a wild guess at its present value. You can use calculators from Zillow or Redfin to get a ballpark estimate of what your home would sell for (consider averaging results, which can vary). But still, check around to find out what similar homes in your area are fetching, or ask a real estate agent for an estimate of your current market value. Same goes for a rental or vacation property you might own. 

While valuing other tangible Property can be difficult, vehicles are fairly straightforward. Consult a car-price guide, such as Kelley Blue Book or Edmunds.com  or CarGurus. Their results will vary, so average them. For help in putting a value on a boat, motorcycle or other vehicle, start with Nada Guides. Kelly Blue Book also has values for motorcycles and personal watercraft, but not for other boats. The more unusual it is, the harder you’ll need to research. If you own a rare or classic automobile (or other vehicle) you’ll probably have specialty insurance for it, which should provide guidance for valuation.

Ballpark figures will do for the value of Household Furnishings, Appliances and other personal belongings. It’s best to be conservative in your estimates. One way to do that is to guesstimate that what’s inside your home is worth about 20% to 30% of the value of the home itself. Or make your own item-by-item estimate, then slash it by 50%. Use estimated market value (not purchase price) of Antiques, Jewelry, and Collections. InsureU offers a handy checklist to help you track your home inventory. Your home insurer might offer similar tools on its website or mobile app, too.

You can also try to drill down on the value of some of your more expensive and prized possessions by searching eBay for similar items and noting the prices for which they sold. This is different, of course, than the asking prices, which don’t necessarily reflect value.

WorthPoint is a subscription service that provides values for antiques, art and collectibles. It offers a free trial period. You can also use a Google reverse image search service like CamFind to look online for information about sales of similar items.

2. Look at your liabilities.

Filling out this portion of the form may be painful, but it shouldn’t be difficult. Most liabilities are obvious, and whoever you owe probably reminds you of the debt on a regular basis.

Start with Bills Due. Next, list the sum of the balances due on your Credit Cards. Check your most recent statement to see how much remains outstanding on your  Mortgage, if you have one.  Speaking of homes, if you’ve borrowed against its value, list how much you have outstanding on a home equity loan. Auto Loans and Student Loans have their own lines,  and there’s an extra entry for Other Loans/Debts (a family member, maybe?). List every debt you can think of because whatever you owe is a liability that diminishes your net worth.

3. Behold the bottom line.

Your Net Worth will display the balance: Assets minus liabilities.

Maybe it’s not what you’d like it to be. It’s even possible that it’s a negative number, especially if you’re young and just took out a big mortgage on a house and a big loan on a car. But don’t worry, because you’ve just taken the first step toward starting or revising a budget that can show you ways to beef up your assets and trim your liabilities.

Source: kiplinger.com

These 2 Emotional Biases Could Kill Your Retirement

If investing and saving for retirement were based solely on objective mathematics, a very healthy nest egg could be a forgone conclusion for many of us. Realistically, however, investors are human beings, with wants, feelings, conflicting priorities and a wide range of emotions. In fact, a subfield of behavioral economics called behavioral finance studies how psychological influences and biases affect the financial behaviors of investors.

While there are many facets to behavioral finance and complexity behind the science, some of the concepts I see at work in my daily practice can be simplified to help the average investor identify and change damaging thoughts and behaviors. These include the emotional biases of overconfidence and herd behavior.

Watch Out for Overconfidence Right About Now

Overconfidence is an emotional bias that I see most at work in an up market. When individuals see impressive gains in their portfolios, it can distort their decision making. “Winning” can create emotional highs and disconnect us from rational behavior.

For example, one individual I know is in her 60s and unemployed, with her assets invested in high-risk instruments. While she is focused only on the gains she is currently experiencing, I have asked her to recognize how much those investments can go down in the future — to the tune of about 25% of her funds and hundreds of thousands of dollars. Despite my best attempts to encourage her to diversify and spread risk, she continues on her current path of unrealistic optimism, with huge losses only a market downturn away.

In addition to being overconfident in the market, an investor can also be overconfident in his or her own abilities. After all, we all think we are great drivers, yet more than 36,000 traffic fatalities occurred in 2020, according to the National Highway Traffic Safety Administration. Like driving, investing has inherent risk. We need to be aware of the risks and take steps to migrate those risks. Just like seatbelts cut down on our risk of dying in a car accident, exercising prudence and caution in a financial plan can help protect us from devastating losses.

Therefore, when looking at your investments, exercise some introspection about your level of confidence. Are you giddy because your portfolio is so high? Have you taken steps to also consider what your losses might be, and can you comfortably accept those losses? Are you ignoring the voices of financial experts who are encouraging prudence?

Feel the Urge to Follow the Herd? Don’t You Dare

Likewise, another emotional bias is herd behavior. In essence, we may ignore our own inner dialogue of caution or the advice of professionals and instead “follow the crowd” and its strategies. The most detrimental way I see this at work in my practice is when an up streak is featured throughout the news. This triggers “herd” investors to buy stocks (at a high price). When the news is then filled with market declines, and they see their accounts tumbling, herd investors sell (at a low price). People also do the same in their 401(k)s, transferring money between sub accounts at the worst possible times. All in all, the buzz of “now” gets into their heads, and the old adage of “buy low and sell high“ goes out the window.

Following the herd is a devastating way to manage investments, and the best things to do are ignore what everyone else is doing and remind yourself of your overall plan, which should include diversification, taking a long-term view and rebalancing your assets.

Before you look at your plan, again ask yourself if you are prone to emotional bias — this time, herd behavior. Do you have a track record of moving money out of accounts or investments at a loss, and then moving money in or purchasing when the market is up? Do you worry about your accounts when you hear that the market is up or down and itch to take action? Are you ignoring your long-term plan and acting out of fear or glee?

Prudent investing requires patience and thoughtful decisions to help you reach your retirement goals and balance out the ups and the downs. Taking a good hard look at your emotions and biases can be the first step to improving your investment strategy for the long-term. Be honest with yourself if you see a pattern of mistakes and take steps to ensure that your emotions don’t get the better of you.

Founder/Wealth Preservation Strategist, Premier Wealth Advisors

Jack Gelnak is an experienced and talented adviser with a proficient and comprehensive understanding of investment concepts, tax and legal planning solutions. After 23 years as a practicing wealth manager, Jack finds satisfaction in getting to know each of his clients personally. Employing kindness, insight, compassion and integrity, he uses his knowledge and experience, together with coherent communication to identify solutions and explain complicated concepts in a way that make sense.

Source: kiplinger.com

Stock Market Today: Stocks Weeble, Wobble, But Finish Mostly Flat

Stocks struggled to find direction despite mostly positive vibes from Thursday’s economic data dump.

New unemployment-benefits filings for the week ended Sept. 11 rose by 20,000 claims to 332,000 – slightly higher than expected, but still near the pandemic-era lows. Moreover, the four-week moving average for claims declined to 335,750, which is the lowest such figure since March 2020.

More clearly positive were August headline retail sales, which rose 0.7% month-over-month, surprising economists who on average had forecast a 0.7% decline.

“American shoppers bounced back nicely in August even as another wave of the virus sent confidence plunging, suggesting decent underlying support from growing employment and excess savings,” says Sal Guatieri, senior economist for BMO Capital Markets. “Strength in general merchandise (3.5%) and furniture (3.7%) was tempered by virtually no change in clothing and food services.”

Another upside surprise came from the Philadelphia Fed factory index, which came in at 30.7 in September from 19.4 in August, signaling a sizable jump in the region’s manufacturing activity.

Investors weren’t quite sure what to do with the info.

Sign up for Kiplinger’s FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

The Dow Jones Industrial Average swung from an early 129-point gain to a 274-point loss before stabilizing to a mere 63-point (0.2%) decline to 34,751. The S&P 500 (-0.2% to 4,473) and Nasdaq Composite (+0.1% to 15,181) experienced similar up-and-down rides.

Other news in the stock market today:

  • The small-cap Russell 2000 posted a marginal decline to 2,232.
  • Beyond Meat (BYND, -2.3%) took a notable dive today after Piper Sandler analyst Michael Lavery downgraded the stock to Underweight from Neutral – the equivalent of Sell and Hold, respectively. While noting that BYND is an early leader in the plant-based protein market, “we believe its current all-channel retail momentum lags consensus expectations, and our foodservice estimates may be high,” Lavery wrote in a note to clients. 
  • Food delivery firm DoorDash (DASH, +5.6%), on the other hand, got a boost after a bullish brokerage note. Specifically, BofA Global Research analyst Michael McGovern upgraded DASH to Buy, citing expectations for “significant three-year revenue upside potential from non-restaurant delivery.” He also pointed to higher-than-expected core restaurant growth and online penetration as reasons for the upgrade.
  • U.S. crude oil futures finished flat at $72.61 per barrel.
  • Gold futures fell 2.1% to settle at $1,756.70 an ounce.
  • The CBOE Volatility Index (VIX) climbed by 2.9% to 18.71.
  • Bitcoin declined by 1.4% to $47,443.29. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 091621stock chart for 091621

Get Ready for a New Batch of IPOs

Fall is here, which means the turning of the leaves, pumpkin-spicing of everything … and likely one last batch of new stocks hitting the public markets.

2021 has seen an explosion in initial public offerings. IPO investment advisory firm Renaissance Capital says that new offerings have raised more than $100 billion so far this year – already surpassing the record $97 billion raised across the entirety of 2000.

Much of that has come thanks to the rise of special-purpose acquisition companies (SPACs) – a process that some companies use to list on major exchanges while bypassing the usual IPO route.

However, traditional IPOs have had quite the year too, including the debuts of well-known names such as Weber (WEBR), Bumble (BMBL) and Duolingo (DUOL).

Investors still have a few chances to get in more offerings before 2021 comes to a close. We’ve recently added a host of new names to our list of hot upcoming IPOs, and all told, we’ve identified 14 must-see potential listings that are expected to launch sometime before the end of the year. Check them out.

Source: kiplinger.com

5 Medtech Stocks to Seize Major Growth

It’s no secret that technology is changing every facet of our lives. From how we conduct business to how we shop, tech is everywhere. And that wide reach of technology includes our bodies. Tech is revolutionizing the healthcare sector – and creating opportunities in medical technology stocks.

Dubbed “medtech,” this blending of healthcare and technology has already had sweeping effects. Advanced genomic tools allow us to create targeted cancer medicines, new medical devices empower patients to control diabetes with better results; heck, we can even see a doctor virtually or use data to buy health insurance at lower prices. All in all, the blending of technology and healthcare is transforming how we treat and care for our bodies.

And it’s been great for investors, as well.

Healthcare has been traditionally one of the more stable and recession-resistant sectors. As we know, technology stocks are often fast-moving. When you combine the two, you get medical technology stocks, which offer stability with a real side of growth. Typically, revenue growth is faster at medtech firms than a traditional drug manufacturer. 

And returns have been wonderful, as well. While there’s no official index for medtech stocks, there is the iShares U.S. Medical Devices ETF (IHI). This fund owns a host of medical device and medtech producers, and is up a staggering 671% since its inception in 2006 for a 14.4% annual average return. Not too shabby at all.

With that in mind, here are five medical technology stocks for investors looking to capitalize on the growing sector.

Data is as of Sept. 14. Analysts’ average long-term growth rate expectations represents the estimated average rate of earnings growth for the next three to five years, and is courtesy of S&P Global Market Intelligence.

1 of 5

Veeva Systems

A Veeva Systems facilityA Veeva Systems facility
  • Market value: $46.4 billion
  • Analysts’ average long-term (LT) earnings growth rate: 18.2%

Cloud computing and software-as-a-service (SaaS) applications have already revolutionized business, finance and entertainment. Veeva Systems (VEEV, $299.01) is doing the same for healthcare.

Founded by former Salesforce.com (CRM) executive Peter Gassner, VEEV has used the SaaS approach to produce various applications for the life sciences and biotech industries, drug producers and hospitals. These cloud solutions include everything from collecting trial data during drug development, customer management services and even ongoing risk management tools for drugs in production. Nearly a thousand clients use VEEV’s software, including large-cap firms like Eli Lilly (LLY) and Moderna (MRNA).

One win for Veeva is that healthcare is a very regulated sector. The Food and Drug Administration (FDA) and other international regulatory groups require plenty of data and compliance to get drugs to market and keep them there. Veeva’s products make these record-keeping and compliance requirements simple and easy.

This creates plenty of stickiness with its revenues. Just over 80% of its annual revenue for fiscal 2021 came from subscription services. Perhaps even better is that Veeva has been successful in transitioning its clients into other products. In fiscal 2021, VEEV saw a 33% year-over-year jump in revenues as it added new clients and moved older ones into extra products.

What is exciting for Veeva and its potential investors is that the company actually makes money. For the second quarter of fiscal 2022, net income clocked in at $108.9 million. This was a 16.3% year-over-year increase. Cash flows from operations were robust, as well.

As far as medical technology stocks go, this one is in a must-have niche for drug developers. 

2 of 5

DexCom

woman checking glucose monitoring systemwoman checking glucose monitoring system
  • Market value: $52.5 billion
  • Analysts’ average LT earnings growth rate: 17.2%

There’s a major epidemic that has swept across the world: diabetes. According to the latest numbers from the Centers for Disease Control and Prevention (CDC), more than 34.2 million people of all ages in the U.S. had diabetes in 2018. That’s nearly 10.5% of the total population. 

Globally, the International Diabetes Federation estimates that the number of adults with diabetes in 2019 was roughly 463 million. Managing that burden is a major endeavor and medical technology is helping on that front.

One win comes from continuous glucose monitoring (CGM). Here, a sensor is placed on a patient’s body and is able to wirelessly send real-time glucose numbers to devices like smartphones and smartwatches. This eliminates the need for painful finger pricks and allows diabetes patients to quickly identify trends and make decisions on needed treatments.

There are a few medtech stocks in the CGM sector, but one of the fastest growing is DexCom (DXCM, $542.23).

DXCM created its first CGM product in 2006 and its latest iteration, the G6, was launched in 2018. The beauty of this device is that it can be paired with an insulin pump to help users more easily manage their diabetes. 

Dexcom’s strong presence in the CGM market is seen in its financial results. In the second quarter, the company saw a 32% jump in sales to $595.1 million versus a year ago. “Strong new customer additions continue to be the primary driver of revenue growth as awareness of real-time CGM increases,” the company noted in its earnings press release.

There’s plenty of growth potential, as well. CGM is still in its infancy here in the U.S. and abroad. And while originally designed as a product for Type-1 diabetes, new studies have suggested that CGM has profound effects on Type-2 diabetes care. This could lead to plenty of future sales for Dexcom.

3 of 5

Abiomed

man and child holding heart stoneman and child holding heart stone
  • Market value: $16.0 billion
  • Analysts’ average LT earnings growth rate: 12.9%

The best medtech stocks use technology to improve processes or reduce the risk to patients. Abiomed (ABMD, $353.53) is a prime example of both.

Many patients needing heart surgery will use a percutaneous coronary intervention (PCI), or, as it was formerly called, angioplasty with stent. Heart surgery is very risky for even the healthiest of patients. But for those who have undergone some major cardiovascular event, surgery can be life-threatening. This is where ABMD comes in.

Abiomed’s prime product is the Impella series of heart pumps. These devices help patients undergoing PCI or other heart-related surgeries while reducing risks. The Impella is a minimally invasive device and helps keep blood pressure and blood flow normal during surgery. It also takes the strain off of the heart. Impella pumps are removed after surgery.

Given that heart disease is the number one cause of death in the U.S., ABMD’s products are very much in demand. Since 2005, Abiomed’s sales have grown at a compound annual growth rate (CAGR) of 25% per year. 

An added bonus: ABMD has been profitable since 2012. And with no debt on its balance sheet, the firm’s cash balance has exploded over the years. At the end of fiscal 2021, Abiomed had $848 million in cash and investments on its balance sheet – up 30% on a year-over-year basis. That gives it a lot of firepower for research and development.

At 55x forward earnings, ABMD isn’t cheap. But given the addressable market and its historic rate of revenue growth, that valuation may just be worth it for this medtech superstar.

4 of 5

Teladoc Health

person meeting with doctor virtuallyperson meeting with doctor virtually
  • Market value: $21.3 billion
  • Analysts’ average LT earnings growth rate: N/A

Another plus for medical technology stocks is their ability to reduce costs and time for both consumers and enterprise customers. Take for instance Teladoc Health (TDOC, $133.72).

TDOC is the leading player in the growing field of telemedicine. Users can log in to Teladoc’s cloud via a number of devices and speak with a doctor or physician’s assistant in real-time, 24/7. Patients can get a diagnosis, requests for referrals or additional testing and they can even order prescriptions. Additionally, the company added programs that send remote monitoring devices, like blood pressure cuffs, to its users in order to get accurate data before Primary Care appointments.  

Both patients and employers like the idea. Use of TDOC’s services exploded during the pandemic when traditional doctor’s offices were reducing the number of patients seen. Moreover, employers have continued to add Teladoc as part of their benefits packages. Since 2016, revenues have grown by a 70% CAGR, while the number of visits has grown 40% annually.

There’s still room for additional growth. Teladoc recently launched myStrength Complete, a full-service mental health suite that allows users to access therapists and psychiatrists. New deals with Dexcom, Microsoft (MSFT) and health insurers are designed to add revenues and complimentary products to its mix.

The one caveat to TDOC is that it has yet to turn a profit, so the stock is very much a revenue play at this point. But given its leadership position, first-mover advantage and scope, profits could start materializing sooner rather than later.  

And Wall Street pros are certainly bullish on the name, per S&P Global Market Intelligence. The consensus recommendation among the 29 analysts following the stock is Buy, while the average price target is $197.65, representing expected upside 47.8% over the next 12 months or so.

5 of 5

Illumina

Concept art of DNA sequencingConcept art of DNA sequencing
  • Market value: $70.2 billion
  • Analysts’ average LT earnings growth rate: 25.1%

One of the latest trends in drug development happens to be products that use gene sequencing. From custom cancer treatments and those drugs curing rare genetic diseases to diagnostics and testing, gene sequencing makes it happen. And much of that sequencing happens on machines produced by Illumina (ILMN, $448.85).

ILMN is one of the leaders in so-called next-generation sequencing. Skipping the science lecture, next-gen sequencing allows researchers to look at entire genomes or targeted regions of DNA or RNA quickly and at a lower cost than older methods. That means the science that used to take months to do could possibly be done in a day. 

Both drug developers and university researchers continue to see the benefit in owning Illumina products, while hospitals, doctor’s offices and clinics are now using sequencing for diagnostic testing. The next-generation sequencing market is expected to reach $24.2 billion by 2026, and ILMN is well-positioned to capitalize on that growth. 

The firm uses the classic razor-blade model. The sequencers themselves aren’t cheap to begin with, but where the Illumina makes its real money is in selling the blades, or, in this case the reagents, flow cells and microarrays. These items are needed to make the sequencer run and they get used up in the process. 

In the second quarter, these sorts of consumables made up about 62.5% of Illuminia’s total revenue – and sales for them were up 82% year-over-year. ILMN is also very profitable, with adjusted Q2 earnings per share tripling to $1.87 from the year prior. Plus, the company has plenty of free cash flow (FCF), which is the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business. In the second quarter, Illumina’s FCF clocked in at $209 million.

There is significant growth potential for ILMN, too. New diagnostic testing kits, continued genetic drug research and its pending buyout of multi-cancer early detection firm Grail will help boost revenues and profits down the road.

Source: kiplinger.com

How Exactly Do You Stress-Test Your Financial Plan?

If you’ve been investing for some time, you most likely have a plan in place. Of course, these plans will vary depending on your specific goals, age and risk tolerance. But the essential consideration is that some sort of attainable goal, as well as a plan on how to reach that goal, is common to most investors.

Along with that, however, comes a fatal flaw that is seen far too often: These plans are made in a vacuum. You may think, if I continue earning my current salary, putting 10% in savings, and investing another 25%, then everything will turn out fine. Unfortunately, nothing happens in a vacuum — least of all in the world of investing.

The fact is that the circumstances in which you made your plan will most certainly change. Income can fluctuate (either expectedly or unexpectedly), interest rates change, inflation rises or drops, economies experience recessions, and industries crash.

This means that our immediate cash needs and the risks associated with certain investments can significantly fluctuate, too. The way they impact our long-term financial plan is vital.

None of us can predict how the future will unfold. However, we can approximate what would happen to our portfolio if some of those initial factors were to change. The basic idea isn’t too complicated: If your primary source of income sharply decreases, will your limited savings require you to liquidate long-term investments to generate short-term cash flow, thereby throwing your entire retirement plan off course?

These are the occurrences we wish to avoid — and stress-testing our financial plan helps us do just that.

In practice, this process requires a vast amount of knowledge and expertise. Most investors turn to financial advisers to help with such a task. Whether you’re seeking to conduct this yourself, or plan to turn to a trusted adviser, the following will provide a head-start either way.

Stress-Testing Your Portfolio: Considerations

The first and most crucial aspect of a stress test is to start with a budget. Calculating your budget will allow you to forecast cash needs over time.

Understanding your cash needs — which are specific to your income, financial goals and lifestyle — allows you to recognize the most important aspect of successfully managing a financial plan over time: Your goal isn’t just about growing your assets; it’s about managing liquidity.

Life happens — and we all eventually run into unexpected cash needs. The last thing you want to do in such a situation is liquidate a long-term investment to satisfy short-term cash flow needs. This will not only divert your long-term financial plan, but you’ll likely incur added immediate expenses through capital gains taxes.

When most investors think of their financial plan, they think long-term. And that’s great — but everyone needs to be prepared for a rainy day in the immediate future. The key to finding this balance between a long-term vision and the immediate future boils down to liquidity management, which all starts with defining a budget.

If your budget isn’t clearly defined, then you’ve already botched your stress-test.

So, once you nail down a budget and projected cash flow, the focus then shifts to your portfolio. This is where things get a little tricky. Most portfolios are built using tools that only professional money managers can access. This is why it’s always best to utilize a financial adviser.

Above all, there are two primary concepts at play in your stress-test: asset appreciation and after-tax cash flow expectations. This is very similar to the strategies behind many large endowment fund managers — but just on a micro-scale.

In action, this typically involves examining risk-ratios to calculate expected returns and volatility from modern portfolio theory. The obvious goal is to maintain the lowest risk ratio for the highest expected value. A key component is maintaining balance between risk and reward, and one way in which this is done is through the Sharpe Ratio.

To put it simply, the Sharpe Ratio adjusts the expected return of an investment based on its risk. Let’s say Jerome and Sarah are both traveling from point A to point B. Jerome takes his car, averaging a modest 45 mph. Sarah takes her motorcycle, averaging 75 mph. Of course, Sarah reaches point B first. But — she also incurred much more risk than Jerome — despite the fact that they both reached the same destination.

Was the risk that Sarah took worth the benefit of arriving early? Of course, the level of risk you’re willing to assume will vary based on your unique situation, but this is the sort of insight that the Sharpe Ratio aims to illuminate.

Then, there are some stressors that need to be thrown into the mix. The most important of which should be a loss of primary income. Many experts suggest having three to six months of your salary readily accessible as cash in a savings or brokerage account. All too often however, this simply isn’t enough. More conservative savers aim for a figure closer to 12 months. Again, we see how starting with a budget — to determine monthly expenses and manage short-term cash flow needs — plays a crucial role.

For most people, the end goal of this entire process is adequately preparing for your retirement — so that you can indeed retire on time. For various reasons, the average age of retirement continues to rise, particularly for men and entrepreneurs over the age of 65. Making the choice to continue working is one thing, but feeling obligated to maintain an income stream is another. Stress-testing your portfolio will help you gain a better understanding of your preparedness to life’s curveballs — and will hopefully help you sleep better at night.

Of course, the steps above are fairly easy to understand in theory, but are much more difficult to execute in practice. Building a budget, measuring risk and assessing expected value are difficult tasks. While they are not necessarily impossible to perform on your own, the above framework — at the very least — should be used as a template when selecting a financial adviser.

One way in which financial advisers test different scenarios — and their subsequent impact on portfolios — is through the Monte Carlo Simulation.

Monte Carlo Simulations

Dwight Eisenhower once said, “Plans are nothing, planning is everything.” While the first part of that sentence might be too harsh, one is forced to agree that the actual planning is more important than the plan. Plans depend on circumstances, and circumstances change, but the ability to adapt — and construct a plan — is valuable at all times.

Monte Carlo simulations work by taking a financial plan and simulating how it would fare under different conditions; the most important of which are changes to your income and expenses, savings, your life expectancy, and expected returns from long-term investments.

Some of these factors are under your control — income, expenses and expected returns due to asset allocation largely depend on you. However, market conditions such as inflation, your investment horizon and many other factors do not. So, in order to get a result, the Monte Carlo method assigns a random value to those uncertain factors. The simulation is then run thousands of times to get a probability distribution.

If this sounds complicated, there’s no need to worry. Even if you’re an experienced investor, this is a topic that requires professional experience in the field. The fact is, even if the software used to run stress-tests were available to the general public (which it isn’t), you would still be left with the trouble of deciphering the results of the test and putting them to use.

Final Thoughts

It’s an arduous task to stress-test a financial plan on your own. Leveraging a professional is the most popular path here. You can, however, do some prep work yourself to better understand the process and select a financial adviser you trust. Most of those preparations will revolve around budgeting and making contingency plans for yourself — think of them as your own prelude to a stress-test.

Founder, Lakeview Capital

Tim Fries is co-founder of Protective Technologies Capital, an investment firm focused on helping owners of industrial technology businesses manage succession planning and ownership transitions. He is also co-founder of the financial education site The Tokenist. Previously, Tim was a member of the Global Industrial Solutions investment team at Baird Capital, a Chicago-based lower-middle market private equity firm.

Source: kiplinger.com

Stock Market Today: Stocks End Choppy Week With a Loss

U.S. stock markets turned lower in early trading, and stayed in negative territory as the day wore on.

In addition to a lower-than-anticipated preliminary reading on the University of Michigan’s consumer sentiment survey (71.0 vs. 72.0 expected), investors also had to contend with a “quadruple-witching” day.

This occurs four times a year – March, June, September and December – and marks the simultaneous expiration of index futures, index options, stock options and individual futures. It can often lead to heavier-than-usual volume and erratic moves in all or parts of the market.

By the close, the Dow Jones Industrial Average was down 0.5% at 34,584, the S&P 500 Index was off 0.9% at 4,432 and the Nasdaq Composite had given back 0.9% to 15,043 – with all three indexes erasing their weekly gains.

Sign up for Kiplinger’s FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

Next week, all eyes will be on the latest policy announcement from the Federal Reserve, due out on Wednesday afternoon.

Barclays economists “expect the committee to signal that it is prepared to reduce the pace of asset purchases ‘later this year’ conditional on further progress toward the dual mandate [of inflation and unemployment].” However, they do not believe a formal announcement will come until November or December.

Other news in the stock market today:

  • The small-cap Russell 2000 ended 0.2% higher at 2,236.
  • M&A buzz helped lift shares of Invesco (IVZ) 5.5% today. Specifically, a report in The Wall Street Journal suggested the financial firm is in talks to merge with State Street’s (STT, -2.6%) asset-management division, according to people familiar with the matter. “We are not surprised that IVZ has entered another asset manager’s crosshairs,” CFRA analyst Catherine Seifert says. “We think the merger of these two firms makes sense, and would enhance STT’s already strong exchange-traded fund (ETF) presence. We caution that a potential merger of the number four ETF provider (IVZ) with the third-largest ETF provider (STT), while potentially overtaking Vanguard and the second largest ETF provider, could also raise antitrust issues.” Seifert has a Buy rating on Invesco.
  • Thermo Fisher Scientific (TMO, +6.5%) got a lift after the medtech company issued upbeat guidance. TMO expects fiscal 2022 earnings of $21.16 per share on $40.3 billion in revenue, well above the $19.68 earnings per share and $34.3 billion in sales analysts, on average, are expecting. 
  • U.S. crude oil futures slipped 0.9% to $71.97 per barrel.
  • Gold futures declined 0.3% to end at $1,751.40 an ounce, marking their third straight loss.
  • The CBOE Volatility Index (VIX) jumped 11.3% to 20.81.
  • Bitcoin edged up 0.1% to $47,505.29. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock price chart 091721stock price chart 091721

Stay the Course With Stocks

Don’t let the daily headlines distract you from long-term fundamentals.

There are several reasons to be constructive on stocks, says Tony DeSpirito, CIO of BlackRock’s U.S. Fundamental Active Equities, including the return to a more normal, shareholder-friendly distribution of capital. In addition to surging share buybacks – which are reaching 2018’s record levels – many publicly traded companies are raising and reinstating dividends.

“Through July, 45% of dividend payers in the Russell 1000 have hiked,” DeSpirito notes. “This compares to a full-year average of 61%. At this rate, we estimate over 75% of dividend payers in the index could raise their payout by year-end.”

If you want to brush up on the best dividend payers, check out the generous yields in real estate investment trusts (REITs) and healthcare stocks. And there are always the beloved Dividend Aristocrats, companies with a track record of increasing shareholder payouts for the last 25 straight years.

Not sure where to start? Take a look at these five names. This elite list has received top-billing from Wall Street pros based on their current financial situation and future prospects.

Source: kiplinger.com

Natural Asset Companies (NACs): A New Type of ESG Investment

The New York Stock Exchange (NYSE) is launching a new type of asset class that could transform the way investors value nature.

Called natural asset companies (NACs), these securities will be listed and traded on the NYSE, just like traditional stocks. And the wait won’t be long: The exchange plans to list these entities starting later this fall. The launch comes just as companies and governments are preparing to make substantial commitments to combating climate change at the next U.N. global climate meeting in November.

Here’s the skinny on this new investment class geared toward ESG (environmental, social and governance) investors.

What Are NACs?

Natural asset companies assign value to the services provided by nature (such as storing carbon in a forest), rather than to the extraction of natural resources (such as logging).

NACs will hold the rights to “ecosystem services,” or the benefits people receive from nature, such as food, pollination, tourism, or clean water; such global benefits are valued at an estimated $125 trillion annually.

Each NAC will issue an IPO tied to a specific tangible asset, such as a rainforest, a marine ecosystem or farmland. The proceeds will be used to manage the property to enhance ecosystem services – or in the case of farmland, to convert it to sustainable, “regenerative” agriculture. (Regenerative ag actually builds soil, stores carbon, and increases biodiversity.)

How Are They Valued?

The NYSE is working with, and has a minority stake in, the Intrinsic Exchange Group (IEG). The IEG has several years of experience tackling challenges to the NAC model, such as how natural value should be measured, monitored and translated into financial value.

The IEG, with the help of the Inter-American Development Bank (IDB), has developed an accounting framework based on projects conducted throughout Latin America. The NYSE will license the IEG’s accounting framework.

“We believe it is absolutely critical to provide investors in Natural Asset Companies with relevant, reliable and understandable information on the flows of the ecosystem services they produce and their stocks of natural capital assets,” Robert Herz, former chairman of the Financial Accounting Standards Board (FASB), says in a statement.

Bottom Line

One of the biggest challenges to addressing climate change has been a lack of funding for conservation, biodiversity, and other climate strategies tied to natural value. If natural asset companies are scalable and earn the confidence of investors and stakeholders, they could help ramp up investments in climate solutions.

More comprehensive climate policy in the U.S. and abroad also could make NACs attractive long-term investments. Not to mention, they provide another way investors can diversify their portfolios.

Investors interested in ESG should keep an eye out for natural asset companies in the next few months. You might just be able to help keep a forest standing as you feather your nest.

Source: kiplinger.com

Retirees Likely to Receive Significant Bump in Social Security Benefits in 2022

After several years of tepid cost-of-living increases, seniors are likely to get a significant raise in their Social Security benefits in 2022.

The Kiplinger Letter is forecasting that the annual cost-of-living adjustment for Social Security benefits for 2022 will be 6%, the biggest jump since 1982, when benefits rose 7.4%. That would also be slightly lower than The Kiplinger Letter predicted in July. 

The final adjustment announced on Oct. 13 could be a little different, as the inflation rate for September has yet to be determined.

The projected increase reflects the rebound of consumer prices that were depressed during the pandemic. Gasoline prices rose strongly this past year, as have airline fares and hotel rates. There have been notable pickups in the price of appliances, furniture, car insurance, and eating out. Prices of new cars are up because a shortage of semiconductors has limited production, which has also caused used vehicles prices to surge 41%.

Social Security COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers. If prices don’t increase or fall, the COLA is zero. That happened in 2010 and 2011, as the economy struggled to recover from the Great Recession, and again in 2016, when plummeting oil prices wiped out the COLA for that year. In 2021, the COLA increased payouts by 1.3%.

Source: kiplinger.com