(FUND OPTIONS IN THE MARKETPLACE)

February 2, 2024

Hello everyone,

Money market funds are awash with money.

The 2022 sell-off and rapid rise in interest rates in 2023 caused money-market balances to soar, doubling from where they were just five years ago – a far bigger increase than the historical trend.  Investors didn’t necessarily want their money to grow but rather keep it safe.

That’s a lot of cash.

And the likelihood that much of that cash will flow into stocks, given the market’s more optimistic mood these days, is why we’re unlikely to see a sharp pullback soon, as counterintuitive as that seems given the markets’ big move of late.  Although, I hasten to add that the Magnificent Seven are definitely overstretched.

$6 trillion on the sidelines is a big deal.  This pot of money is looking for a home in stocks, bonds, and real estate.  Having that much dry powder means there is room left for stocks to fly a little higher before we can call this a bubble.

So, what’s the best way for us to profit in a market like this, other than scaling into stocks on down days and buying LEAPS?

One option is investing in a mutual fund.  This type of fund is one that many companies offer to workers in their 401 (k) plans.  The problem here is that many of those funds perform poorly.  And there is a kickback play taking place on the employers’ side as the latter receive benefits from the high fees charged by the fund managers that run them.   I believe it’s called keeping the status quo.  Here is an example.

Clearbridge Sustainability Leaders Fund (CBSLX) This fund has an environmental, social, and governance mandate (ESG) that has weighed on its returns, even though it holds many S&P500 standouts, like Apple (AAPL) and Microsoft (MSFT).

Another popular option is an index fund, like the SPDR S&P 500 ETF Trust (SPY), which holds the entire S&P500 and tracks the index.  Buffett has often advised investors and anyone willing to listen to buy an index fund – not necessarily the one above – and just keep adding to it on dips.

But how much does it yield?

Only 1.4%.  You would need $7.1 million invested to receive $100,000 in passive income from this fund.  But it’s a solid fund and over time it will increase in value.

How about a closed-end fund (CEF) called the Liberty All-Star Equity Fund (USA).

This fund (current yield: 9.7%) holds many of the same stocks as SPY, like Microsoft and Apple, as well as United Health Group (UNH), Visa (V), and Capital One Financial (COP). What’s more the fund (USA) has delivered a solid 661.5% return in the last 15 years.  So, its appeal is twofold:  it returns the profits of the broader stock market in a well-diversified fund and two, it delivers a large slice of those profits as dividends.

What are CEFs: 

They are like mutual funds or ETFs in that they pool money from investors, which the fund’s managers then use to buy a basket of stocks, bonds, real estate investment trusts (REITS), or other investments, depending on the CEF’s mandate. 

The fund managers then buy and sell over time, handing profits over to investors as dividends.  CEFs trade on public exchanges and can be bought and sold, just like a stock.

CEFs are heavily regulated.  They must account for their operations and file statements with the SEC every quarter.

Being publicly traded means CEFs are liquid.  If you need cash, just sell your shares during market hours, Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time.

The (USA) yield of 9.7% will provide you with a $100,000 annual passive income with $1,030,928 invested.

And this payout will probably grow in the future.  All-Star Funds has a policy of paying out 10% of its net asset value (NAV or the value of its underlying portfolio as dividends every year, and the fund’s total NAV return has been 12.6% per year on average over the last 15 years.  (With CEFs, per-share NAV returns often differ from a fund’s market price–based returns, in part because CEFs have more or less the same share count for their entire lives.)  That means (USA) has earned 121% of its payouts during this period, which also suggests it can sustain its dividend for a long time. 

Investors can also look forward to some upside generated by the fund’s discount to net asset value (NAV).  Right now, the shares trade for around 3% below NAV, under the five-year average of a 0.9% discount.  Not a wide gap, but as it closes it will give the market price an extra push.

This Post has provided you with a brief introduction to closed-end funds, featuring the Liberty All-Star Equity Fund (USA).  The discussion here is designed to educate you about what is on offer in the financial marketplace.  Always do your own research and make sure you are aware of all the risks. 

Cheers,

Jacquie

(THE RISE OF BIOTECHNOLOGY WILL BE A GAME CHANGER FOR THE HEALTHCARE INDUSTRY)

January 31, 2024

Hello everyone,

I’m going to dive into the Healthcare Industry today.  It may have done poorly in the last couple of years, but analysts are bullish on it right now.  By 2050 biotechnology and artificial intelligence will lead to advances in genetic engineering that could lead to an era of personalized medicine, facilitating customized treatments based on each person’s genetic makeup.  No more one-size-fits-all medical care.  So, it’s an area that deserves our attention.

I believe healthcare investors may be able to climb the wall of worry in 2024.

Citibank, among others, expects the Federal Reserve to ease its restrictive monetary policies over time.  Growth stocks such as those in tech and biotech usually benefit from rate cuts. 

Stocks dialed into the trends of longevity and innovation saw a downturn in 2023.  This gives us opportunities now.

Analysts have cited biotech, in particular, as one of a few areas to watch. 

I have been looking for biotech stocks that did well last year and that analysts are still positive about.

These stocks were up more than 20% in 2023.

They have a potential upside to the average price target of more than 40%.

They have a buy rating of more than 70%.

And seven or more analysts have covered the stocks.

Humacyte (HUMA)

Marinus Pharmaceuticals (MRNS) 

Olema Pharmaceuticals (OLMA) is involved in developing therapies for women’s cancers, particularly in breast cancer.  The company is looking to partner for its Phase 3 studies and it’s anticipated that shares could react once such a relationship is announced in the near to mid-term.

Ovid Pharmaceuticals (OVID)

These stocks have all been given more than 100% upside.

Biomea Fusion (BMEA) has been given more than a 200% upside to the average price target and a 75% rating from analysts.  (Citi gave it more than 800% upside last November, as the bank remarked that its treatment therapies had “potential advantages” over others.

Another three stocks here drew 100% buy ratings from analysts: Ardelyx (ARDX), Cabaletta Bio (CABA), and Rocket Pharmaceuticals (RCKT).  Of these, RCKT got the highest potential upside of 81.4%

Here is a brief description of just a few of these stocks that I like:

Biomea Fusion (BMEA) (Stock price:  $17.74)

A biopharmaceutical company focused on the discovery and creation of novel covalent small molecules to treat patients with genetically defined cancers.  Their mission is to create therapies that cure patients of their diseases.  Thomas Butler co-founded Biomea Fusion in August 2017.  He is CEO and a member of the Board of Directors.  Analysts’ ratings put the company near the top of the Biotech industry.  The name biomea derives from the Greek word bios meaning “life” and the Latin word mea meaning “my”.

Humacyte (HUMA)(Stock Price: $3.19)

This company is involved in the manufacture of human acellular matrix products for vascular and non-vascular applications.  It offers its products to the cardiovascular, cosmetic, soft tissue reconstruction, neurosurgical, and orthopedic markets.  The company was founded by Laura E. Niklason and Juliana L. Blum on October 13, 2004, and is headquartered in Durham, NC.

On average, Wall Street analysts predict that HUMA’s share price could potentially reach $7.75 by Dec 27, 2024.  The average HUMA stock price prediction forecasts a potential upside of 170.98% from the current share price of $2.91.

Ovid Therapeutics (OVID) (Stock Price: $3.93) is a New York-based biopharmaceutical company working towards providing treatments for rare neurological disorders.  In other words, the company is looking to end epilepsy and seizures through the scope of science.  The company is in the process of developing potentially small-molecule medicines that seek to drastically improve the lives of those affected by rare disorders with seizure symptoms.  Jeremy Levin, D. Phil, MB BChir, is the chairman and chief executive officer of Ovid Therapeutics Inc. 

Rocket Therapeutics (RCKT) (Stock Price: $28.96) life mission is to develop gene therapies to cure patients with life-threatening diseases.  The company has launched a multi-platform pipeline of treatments that directly target the genetic mutation in the affected cells for rare life-threatening disorders.

Biotech ETFs:

iShares Biotechnology ETF (IBB) or the SPDR S&P 500 Biotech ETF (XBI)

These ETFs hold a basket of shares, including those I have briefly described above. If you would like to invest in the biotechnology area, you can average in with small parcels in single stocks or purchase shares in an ETF for the long term.  Biotechnology is an area that will lead to discoveries, development, and the manufacture of new therapies that can cure our modern-day diseases.

Daily chart IBB

Weekly chart IBB

Daily chart XBI

Weekly chart XBI

Cheers,

Jacquie

(A WEALTH OF NEWS WILL HIT WALL STREET THIS WEEK)

January 29, 2024

Hello everyone,

Welcome to the last few days of January 2024.   Hope you are all doing well.

Calendar for the week ahead

ET Times

Monday, Jan 29.

10:30 a.m. Dallas Fed Index

Japan Unemployment Rate

Previous: 2.5%

Time: 6:30 pm ET

Earnings: Whirlpool

Tuesday, Jan 30

9:00 a.m. FHFA Home Price Index (November)

9:00 a.m. S&P/Case Shiller comp. 20 HPI (November)

10:00 a.m. Consumer Confidence (January)

10:00 a.m. JOLTS Job Openings (December)

Australia Inflation Rate

Previous: 5.4%

Time: 7:30 pm ET

Earnings: Marathon Petroleum, United Parcel Service, General Motors, Pfizer, Advanced Micro Devices, Alphabet, Starbucks, Microsoft.

Wednesday, Jan 31

8:15 a.m. ADP Employment Survey (January)

8:30 a.m. ECI Civilian Workers (Q4)

9:45 a.m. Chicago PMI (January)

2:00 p.m. FOMC Meeting: Previous 5.5%

2:00 p.m. Fed Funds Target Upper Bound

Earnings: Boeing, Mastercard, Qualcomm

Thursday, Feb 1

8:30 a.m. Continuing Jobless Claims (1/20)

8:30 a.m. Initial Claims (1/27)

8:30 a.m. Unit Labour Costs preliminary (Q4)

8:30 a.m. Productivity preliminary (Q4)

9:45 a.m. Markit PMI Manufacturing final (January)

10:00 a.m. Construction Spending (December)

10:00 a.m. ISM Manufacturing (January)

UK Interest Rate Decision

Previous: 5.25%

Time: 7:00 am ET

Earnings: Meta Platforms, Amazon, Apple, Royal Caribbean, Clorox.

Friday, Feb 2

8:30 a.m. Jobs report (January) Previous: 216k.

10:00 a.m. Durable Orders (December)

10:00 a.m. Factory Orders (December)

10:00 a.m. Michigan Sentiment final (January)

Earnings: Chevron, Exxon Mobil

All eyes will be on Wall Street this week. 

Earnings season is well and truly upon us and most of the so-called Magnificent Seven are reporting this week.  (Alphabet, Apple, Amazon, Meta Platforms, Microsoft)

The latest Federal Reserve monetary policy decision is heard on Wednesday.  Investors believe the Fed will keep rates on hold, and there now seems to be an expectation that any rate cut won’t be delivered until June.   By that time, we are likely to have softer inflation numbers and even more softening in the labor market.  The data is continuing to confirm the downside trend in inflation.

Jobs Report on Friday.  This will clue us all in on whether the labor market is continuing to cool, and Friday’s report is expected to confirm this.  The unemployment rate is expected to have ticked up to 3.8%, from 3.7% previously.

Investors are seeking signs of a broadening rally this year, and there seems to be some palpable concern.  What if the broader market doesn’t catch up to the mega-cap stocks?  Is this an indication that the rally won’t last?  Have the mega-caps run too hard too fast on artificial intelligence dreams?   Let’s patiently wait for the reports.  I am still confident in the bull market – long-term. 

All eyes on the earnings picture.

Earnings aside for a moment.

We all know the Magnificent 7 has been all the rage lately.  But there are other technology stocks worthy of our attention.  The Invesco NASDAQ Next Gen 100 ETF (QQQJ) tracks the next biggest 100 Nasdaq stocks after the Nasdaq 100 – Nasdaq stocks Nos: 101 to 200.  This ETF shows a good technical setup.

If stocks are to track higher from here, the areas that haven’t broken out yet could very well play catch up.  I’m talking about areas within technology, but also other sectors as well.

Let’s look at the (QQQJ) holdings and see how it compares to the Nasdaq 100 (NDX)

The QQQJ and the NDX (Nasdaq 100) are similar in a few ways. 

# Technology is their biggest weight for both.

# The top five sectors represent 90% of both.

But as you can see from the chart here the NDX is very top-heavy and the QQQJ is not.

Six stocks in the NDX have weightings of at least 4%, while the biggest weight in QQQJ is MPWR at 2.2%.  The top 10 NDX stocks represent nearly 46% of the entire index.  The top 10 within QQQJ are just 16%.  So, we could easily argue that QQQJ gives investors a more balanced exposure to its holdings than QQQ does.

OK, I imagine some of you might not know what the QQQJ ticker symbols stand for, so here is a quick brief.

MPWR                   Monolithic Power Systems

TSCO                     Tractor Supply Co.

SMCI                      Super Micro Computer Inc.

ULTA                       Ulta Beauty Inc. (largest beauty retailer in the U.S.)

ALNY                      Alnylam Pharmaceuticals Inc.

ICLR                        ICON PLC. (Irish headquartered Nasdaq listed multinational healthcare intelligence and clinical research organization that provides consulting, clinical development, and commercialization services for the pharmaceutical industry.)

JBHT                        J.B. Hunt Transport Services

EBAY                       eBay Inc.

PTC                          PTC Inc. (helps companies achieve their digital transformation goals)

VRSN                     Verisign Inc. (based in Virginia U.S. & operates a diverse array of network infrastructure & is a provider of domain name registry services.

So, now we have a bit of background, let’s talk about the chart patterns – the technical setup.

The QQQJ is looking very attractive here and could be close to a breakout through a multi-year trading range.  This pattern – which represents a bullish cup and handle – dates all the way back to the spring of 2022 (blue).  Because of the range being so extended, another bullish formation has taken shape within it:  a second cup and handle pattern that started at the July ’23 high (green).   On the chart here the upside targets are near 33 and 32, respectively.  Buy a small parcel of the ETF and hold for an upside breakout.

A Mackay patrolled beach.

A Coolangatta (Gold Coast) patrolled beach

Cheers,

Jacquie

“Success is not to be pursued; it is to be attracted by the person you become.” - Jim Rohn

(THE 2024 RATE CUT STORY HAS RISKS WE SHOULD ALL UNDERSTAND)

January 24, 2024

Hello everyone,

The subject of rate cuts in 2024 has been making headlines for the last several months.  But has the Fed definitively said it will lower interest rates sharply this year?   Rising geopolitical tensions and the potential for political turmoil could combine to throw a spanner in the works for investors who are hoping the Federal Reserve will enact sharp interest rate cuts this year.

I know no one wants to hear this – but I’m just throwing it out as a possibility. 

The futures market is anticipating cuts – but is it ignoring risks that could force the Fed and its global central bank counterparts into a less accommodating posture?  The equity rally of the past couple of months was driven by the emergence of a Goldilocks disinflation thesis that would allow central banks to cut rates early and aggressively (ahead of elections). 

JPMorgan, among others, believes the disinflation process is likely to slow or stall in 1^st H24, in part due to the impact of shipping/supply chain disruptions and upside risk for energy prices.  Tensions in the Red Sea and the U.S. presidential election are risks to the ongoing disinflationary process.   

Later this week, we get a better look at the economic picture.  On Thursday the Commerce Dept. releases its initial estimate of fourth quarter GDP growth, and on Friday the personal consumption expenditures price index, a key inflation measure that’s watched by the Fed, is released.

Netflix closed at $480.33 on January 17 when I recommended you scale in…

Netflix added 13.1 million subscribers during the fourth quarter.  It now has 260.8 million paid subscribers.  The stock jumped 8.66% after earnings yesterday. 

In the third quarter, there were 8.76 million paid memberships added and this fourth quarter easily tops that number.  Earnings exceeded expectations.

Netflix is on a journey to transform from targeting subscriber growth to focusing on profit, using price hikes, password crackdowns, and ad-supported tiers to boost revenue.  Furthermore, the company is going the extra mile by making its ad tier more attractive to advertisers, - by bolstering its sales teams and ad operations to “meet brands where they need us and how they need us.”  Long-term revenue is their focus. 

Boeing (BA) opened at $202.63 and closed at $206.30 on January 17, 2024.  (This was another stock I recommended on January 17).

Boeing (BA) closed at $211.50 on January 23, 2024.

Berkshire Hathaway (BRK/B) closed at $368.06 on January 22, 2024.  My newsletter focused on the stock that day and recommended buying in.

Closing price on January 23, 2024, = $372.14.

These are just some of the stocks I have recommended since last week.  All of them are higher in price after recommendation.

Even though we may get a pullback or some choppy sessions, keep buying on the dips.

Enjoying Gold Coast beaches in the late afternoon.

Cheers,

Jacquie