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​OCTOBER NEWSLETTER 10

PRICE OF GAS GOING UP

​RECOMMENDED BANK STOCKS

Crude oil futures have taken off and stand at $54 a barrel, compared to less than $47 at the end of August. That 15% increase means gasoline prices will rise. Many analysts believe oil is headed even higher, which means year-end holiday travel will get much more expensive. That in turn may change the financial fortunes of companies that rely on foot traffic for their success, especially retailers.The average price for a gallon or regular nationwide is $2.47, according to AAA Fuel Gauge. That is up from $2.22 a year ago.The AAA reports that gas prices have dropped from an increase during the hurricane season, but the improvement is only relative. Jeanette Casselano, AAA director of public relations, said:

 Despite recent declines, the residual impact of last month’s hurricanes linger. Drivers continue to pay in excess of 20 cents more for a gallon of gasoline than they did in 2016, which may prove challenging for those looking to put away some extra cash for the holidays.The effects will be mixed by region. While the average price of a gallon of regular in California is over $3, it is $2.20 in Mississippi. To complicate matters further, when experts try to measure how gas prices will change consumer spending habits, the cost of living and incomes are very high in California compared to the rest of the nation. By similar comparison, the living costs and income are near the bottom of the country based on numbers state to state.

The relationship between consumer spending and gas prices is as old as the gasoline-powered car. The holiday quarter at the end of each year is when many retailers make most of their money and post a large portion of their sales. And many retailers are already deeply troubled by sales that have fallen, often because of their war with e-commerce. The success of Amazon’s recently released earnings and those of J.C. Penney show the sharp contrast. And, of course, people can shop Amazon without a car or gas.

Gas prices will rise this holiday season, and with that, some businesses will be challenged

​BMW has been in the high-end “electric” car business for some time. Its BMW i8, a sports supercar, which sells for $150,000, is really a hybrid. BMW sells about 50 units a month, and those sales are collapsing

BMW has not offered any explanation why sales of the i8 coupe have imploded. BMW has only sold 331 of them in the first nine months of 2017 vs 1.089 in the same period a year ago–a drop of 70%.

BMW calls the i8 an “electrified vehicle” which means in reality it is a hybrid. For wealthy buyers who want a real high end electric vehicle sports car, this will not due. BMW promotes the engine configuration:

When a car looks this fast, it better live up to its appearance. The BMW i8 does exactly this with its innovative electric motor that sits on the front axle and the TwinPower Turbo 3-cylinder engine that drives the rear axle. When combined, they deliver a total output of 357 horsepower, 420 lb-ft of torque, and can reach 0 to 60 mph in 4.2 seconds.

Even though the charging system for one engine works similarly to a Tesla (NASDAQ: TSLA), the 3-cylinder engine makes the car both gas powered and electric.

Without debate, the i8 is a supercar. It has an extraordinarily luxurious interior, futuristic construction with some parts of the car build from carbon fiber, and a zero to 60 mph performance of 4.2 seconds.

What are people in the market likely to buy if they bypass the hybrid i8 because they want a fully electric car? Probably the high end Tesla Model S, the P100D. The $135,000 car has comparable features to the BMW i8 and has a zero to 60 mph performance of 2.5 seconds.

Like every other major car company, BMW has ambitious electric car plans and aspirations. The i8 has been a very poor start, so BMW has a long way to go

Amazon.com Inc. (NASDAQ: AMZN) seems to be able to do no wrong, for customers and investors. It is a dominant player in many fields, namely in cloud with Amazon Web Services (AWS) and online sales of just about everything imaginable. And its Amazon Prime service keeps piling on new members. The company is now even the proud owner of Whole Foods and may even have ambitions of getting into selling items or services in health care.

What is happening is that Amazon is the biggest retail spending dollar target of them all now, and while the company is well known in every aspect of its businesses, CEO Jeff Bezos is turning this ship in a direction whereby Amazon is quietly becoming the biggest conglomerate the world has ever seen.

Investors do not even fret that Amazon’s growth has come at the cost of its competitors and without much profit in many aspects of its growing empire. 24/7 Wall St. covered Amazon’s earnings report in depth, but what stood out in Friday’s top analyst upgrades and downgrades was how many analysts decided to chase their price targets on Amazon even higher.

While the stock was at $972.43 ahead of earnings, Amazon shares were far higher afterward. The old consensus analyst target price of $1165.68 was up at $1,212.14 late on Friday. It is one thing for analysts to get excited about a company they have loved for so long, but sometimes it feels like there is a zenith building in the analyst excitement.  As you will see, analysts were just stepping all over themselves to get their Amazon price targets higher and higher.

Raymond James raised its rating to Outperform from Market Perform and raised its price target to $1,200.

Merrill Lynch, which has a Buy rating and a $1,220 price objective, said of Amazon:

We think Amazon’s focus on the customers and the buyer experience is right for the Internet, and we consider Amazon a transformational company. We think Amazon is well positioned to capitalize on the global growth of eCommerce and other secular trends such as cloud computing, online advertising, connected devices, and mobile commerce.24/7 Wall St.
13 Spin-Offs Set to Radically Change Top Companies in 2017 and 2018

Other key analyst calls were see as follows:

Barclays raised its target price to $1,210 from $1,150.
Benchmark raised its target to $1,300 from $1,150.
Merrill Lynch raised its price objective to $1,220.
Canaccord Genuity raised target from $1,200 to $1,250.
Cantor Fitzgerald raised its target to $1,360 from $1,150.
Citigroup raised its target to $1,250 from $1,200.
Credit Suisse raised its target to $1,385 from $1,350.
Deutsche Bank raised its target to $1,195 from $1,175.
Jefferies raised its price target to $1,350 from $1,250
JPMorgan raised its target from $1,180 to $1,220.
Loop Capital raised its target to $1,300 from $1,200.
Mizuho raised its price objective to $1,300 from $1,250‍​.
Morgan Stanley raised its target to $1,250 from $1,150.
Oppenheimer raised its target to $1,165 from $1,135.
RBC Capital Markets raised its target to $1,200 from $1,100.
Stifel raised its target from $1,100‍ to $1,313​.
SunTrust Robinson Humphrey raised its target to $1,270 from $1,190.
UBS raised its target price to $1,250 from $1,200.
Wedbush Securities raised its target to $1,285 from $1,250.
Wells Fargo raised its target to $1,430 from $1,400.

Amazon shares were up more than 13% at $1,100.95 on Friday’s close, and the trading volume was about five times normal volume. That put Amazon’s market cap at nearly $529 billion.I'm interested in the  Newsletter
 


​ANALYST PREDICTIONS

Microsoft Corp. (NASDAQ: MSFT) reported fiscal first-quarter 2018 results after markets closed Thursday. The software behemoth reported diluted earnings per share (EPS) of $0.84 on revenues of $24.5 billion. In the same period last year the company reported EPS of $0.72 on revenues of $21.93 billion. The consensus estimates called for EPS of $0.72 on revenues of $23.56 billion.During the quarter, Microsoft returned $4.8 billion to shareholders in the form of share repurchases and dividends.
Intelligent cloud revenue rose 13% and Windows OEM revenue rose 4% both nominally and in constant currency. The company now claims 28 million subscribers to its Office 365 Consumer subscription base. Revenue growth in the company’s Azure platform rose 90% year over year.Microsoft did not offer guidance in its press release, but said that it would provide guidance during its conference call later this afternoon.The consensus estimate for the company’s 2018 second fiscal quarter calls for EPS of $0.83 on revenues of $28.15 billion. For the full fiscal year ending in June 2018, EPS is forecast at $3.19 on revenues of $101.6 billion.
The company’s CFO, Amy Hood, said:
Our strong start to the fiscal year reflects the impact of our continued investment in product innovation and sales capacity to capture expanding market opportunities.Revenue from sales of the company’s 2-in-1 Surface rose by 12% and search advertising revenue rose 15%, excluding traffic acquisition costs.
LinkedIn contributed $1.1 billion to first-quarter revenue.
Shares traded up about 4.2% at $82.05 in after-hours trading. The stock closed at $78.76 after posting a new 52-week high earlier in the day of $79.42. The 52-week low is $57.28. Prior to the earnings announcement the 12-month consensus price target on the stock was $81.83

​Few industries like to see interest rates go higher. That increases the cost of borrowing and the input costs to many companies. However, one segment that likes increases in interest rates is the top banks. In many cases, the increases help them make more money via net interest income. That is the difference between revenues generated by interest-bearing assets and the cost of servicing (interest-burdened) liabilities. For banks, the assets typically include commercial and personal loans, mortgages, construction loans and investment securities.

With rates creeping higher, and most of the banks finished with third-quarter reporting, the path forward looks good, especially if the administration’s tax proposals are pushed through. Interest rates across the board look to be breaking a long-term downtrend, and a new report from RBC notes that 12 of the top 20 banks exceeded both their estimates and the consensus numbers. The report noted this:

The top 20 banks’ third quarter results reflected strong year over year earnings growth, robust capital positions, strong credit quality, net interest margin expansion, and continued expense management. We believe there are three catalysts that could move profitability meaningfully higher; 1) continued increases in short term interest rates and a steeper yield curve, 2) large bank M&A, and 3) significantly higher returns of excess capital.

Here we focus on four top banks that look like they could have the biggest upside potential. The sector has run hard this year, and with overall market valuations high, these four may hold the best potential now. All are rated Outperform at RBC.

Bank of America

This company posted solid third-quarter results. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally. It operates some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform.

The third-quarter results beat Wall Street expectations despite a slowdown in its fixed-income trading business. Here’s how the company’s results fared against Wall Street expectations: Earnings per share of $0.48 versus $0.45 forecast by Thomson Reuters. Revenue: $22.079 billion versus $21.976 billion.

Bank of America investors are paid a small 1.86% dividend. The RBC price target for the shares is $28, and the Wall Street consensus target is $28.05. The shares traded early Monday at $27.60 apiece.

Citigroup

This top bank has broken out of a long trading range and could push even higher. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 10 times estimated 2018 earnings, the bank looks very reasonable in what has become a pricey stock market. A continuing stock buyback program is a big positive. The company’s institutional clients group appears to be holding its ground and the stock is cheap at this level.

This company also reported better-than-expected quarterly results, as its global consumer business showed further revenue growth. Here’s how the banking giant’s results fared against Wall Street estimates: Earnings per share $1.42 versus $1.32 expected by a Thomson Reuters survey. Revenue: $18.173 billion versus $17.896 billion expected. Plus, fixed income trading was $2.877 billion, versus a projected $2.84 billion.

Citigroup investors are paid a 0.95% dividend. RBC has a $79 price target for the stock. The posted consensus price objective is $76.05. Shares traded Monday morning at $73.35.


​PNC Financial Services

With consistent earnings growth and a very positive and growing loan portfolio, this top pick in the sector at RBC is a premiere super-regional bank stock to own. PNC Financial Services Group Inc. (NYSE: PNC) is one of the country’s largest diversified financial services organizations. It provides retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; and wealth management and asset management.

Wall Street analysts point to numerous positives, including the bank implementing huge cost savings plans. The bank is working on up to $100 million of new savings announced last year, and it is also applauded for outstanding credit/risk management and the limited exposure to the capital markets related areas, while focusing on traditional banking.

The company also posted solid third-quarter results, as total revenue increased 2% to $4.1 billion. PNC continues to generate positive operating leverage. Net interest income grew 4% to $2.3 billion, primarily due to higher loan yields and balances. Net interest margin increased seven basis points to 2.91%.

PNC shareholders are paid a 2.18% dividend. The $145 RBC price target compares with the consensus target of $140.17 and the most recent close at $138.17 a share.24/7 Wall St.
JPMorgan Has 5 Top Pick Oil Services Stocks to Buy as Crude Shoots Higher

Wells Fargo

Investors now may want to look at this large cap bank as a solid value play. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding.

The company has massively underperformed the banking index this year. Wells Fargo posted quarterly revenue of $21.93 billion, missing the $22.4 billion consensus estimate from analysts polled by Reuters. The bank did report slightly better-than-expected earnings per share of $1.04, excluding 20 cents per share in charges related to litigation for a mortgage-related regulatory case from before the financial crisis. Net interest income rose nearly $500 million from a year earlier to $12.48 billion, but it missed expectations of $13.14 billion projected by FactSet.

Wells Fargo remains a show-me story, but is possibly the cheapest of the banks for investors looking for larger upside potential.

Wells Fargo shareholders receive a decent 2.8% dividend. RBC has set its price target at $60. The consensus price target is at $57.73, and the shares were last seen trading at $55.50.

​Alphabet Inc. (NASDAQ: GOOGL) is set to report its most recent quarterly results after the markets close on Thursday. Consensus estimates from Thomson Reuters are calling for $8.33 in earnings per share (EPS) and $27.2 billion in revenue. In the same period of last year, it posted EPS of $9.06 and $22.45 billion in revenue.So far in 2017, Alphabet shares have done exceedingly well, outpacing all the U.S. broad markets with the stock up over 25%. Also the tech giant has added nearly $150 billion to its market cap this year alone. It’s no wonder analysts have chased this stock higher.In a recent report, Credit Suisse reiterated an Outperform rating for Alphabet and raised the price target to $1,350 from $1,100. The firm points out that its own checks indicate that Google’s search results are trending well and that YouTube is doing better.
Credit Suisse’s new estimates are rolling out to 2018, and the firm said of the company:
Our conversations with advertisers suggest minimal search budget growth deceleration coupled with potentially accelerating spend on YouTube due to multiple factors. For Search we believe the driving factors are: 1) continued increase in mobile search traffic, 2) higher CPCs due to greater usage of location-based targeting for brick and mortar retail operators, 3) ongoing benefits from Expanded Text Ads – particularly for overseas advertisers.
For YouTube, the firm thinks that advertisers that pulled back during the first half of 2017 are back and accelerating budget deployment to the video side of the business. Additional divers for Google are ongoing monetization improvements in search (expanded text ads and individual bid adjustments), a larger contribution from Google’s larger non-search businesses (YouTube, Play and Cloud) and value being created by initiatives such as Maps, Waymo, Life Sciences and more.
A few other analysts were very bullish on Alphabet as well:
Deutsche Bank has a Buy rating.
Goldman Sachs has a Buy rating.
Piper Jaffray has a Buy rating with a $1,150 price target.
Pivotal Research has a Hold rating with a $970 price target.
Macquarie has an Outperform rating and a $995 price target.
Wells Fargo has a Buy rating.
Shares of Alphabet were last seen at $978.77, with a consensus analyst price target of $1,053.50 and a 52-week range of $727.54 to $997.21

LOW COST HOUSING

​BMW

EARNINGS


​Q 3 EARNINGS

Nork City has long struggled with how to help lower income familes buy homes as real estate prices climb further out of reach . A coalition of housing groups has unveiled plans for a  new community land trust tha they say could offer  a model for how the city addresses low income homeownership.  One key feature: The land trust will retain ownership of the land under the homes and resold for preserving affordability for generations to come.. Community land trusts are still in there infancy in major cities. and it remains to be seen how effectively a nonprofit can compete to buy land, especially in a place like New York City where mand land deals are closed quickly and in cash