STATE OF THE MARKETS
Stocks mixed despite stellar banks’ earnings. US stocks still traded mixed on Wednesday as S&P500 (-0.41%) and Nasdaq (-0.41%) pared previous gains, while Dow (+0.16%) climbed higher; despite stellar earnings reports from the Money Center banks – Goldman Sachs (GS), JP Morgan Chase (JPM) and Wells Fargo (WFC). Investors seemed to return to worry about the equity overvaluation as inflation is now past Feds’ target of 2%. Feds continued dovish stance capped the US10Y yield around 1.63% for now, but it won’t be for long said some analysts.
Crude surged higher, past the $63/bl as EIA lifted demand expectations as well as reduced US inventories reports at Cushing. Gold on the other hand, remains range bound within the $1,730 – $1,750/oz range as investors weigh on Feds stance to keep inflation running high for a while before raising rate. Any indication of tapering bond purchases would send yields higher, hence a pressure on the non-yielding precious metal.
In the FX space, King Dollar sell-off eased in the short term while remain relatively unchanged in the medium to long term accounts. Aussie and Kiwi seized the helm of demand in the short to medium term, while remain under offers in the long terms with the Loonie. Safe haven Swiss and Yen were running on the back foot in the short to medium term, but remain in demand for the long term. Investors seemed to be at a tipping point as earnings season has just begun, with more heavy weights to come.
OUR PICK – APACHE CORP (APA, NASDAQ)
Improving cash flows and stable dividends. The pandemic has brought many energy companies to its knee as demand concerns sent crude oil prices to an unprecedented negative territory, putting companies profitability to jeopardy. Nevertheless, some companies are doing better than others, thanks to cost cutting and investment activities that generate returns from non-oil business. Apache is one of them. Despite its falling stock price, from $60/share in 2015 to $10 last year, APA’s strong cash flows keep the company afloat with price to cash flow ratio (PCF) of 3.21 times last year compared to 3.60 in 2015.
This stocks is liked by many institutions as evident in the 85% holdings, which includes Dodge & Cox, BlackRock and Vanguard among others. Falling oil prices has forced the company to slash dividends, from $0.25 to $0.025 in April last year as the pandemic took center stage. The ex-date is April 22 and payable on May 21 for a little over 1/2% yield for now. A buy above $17 in our view and an open target maybe used to reflect average price target of $23.40 by 28 analysts that cover this stock.
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