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Chart o? the Day: Bond Fund Flows are Hilarious
This is BlackRock?s chart of the week, it shows you how fearful fund investors have become about the potential for rising rates ? they?re voting with their mutual fund inflows / outflows:
That?s quite a change of pace from this beauty of a contrary indicator, posted weeks before the bond market top in July of 2012 (flagged by Barry):
Profit From The Rise Of Mobile Video With This Stock
Even with the rapid rise in new and exciting technological devices, one thing's for sure: People love watching TV. It doesn't matter when or where -- or on what device.
The companies that provide the infrastructure for viewing content across a large and growing variety of devices are frequently overlooked. Harmonic (Nasdaq: HLIT), a market leader in video-on-demand services, is one such company.
Harmonic has many opportunities to expand its market share, especially with the proliferation of video on demand and high-definition TV. Yet the biggest opportunity for Harmonic is in the expansion of pay-TV services in international markets. The emergence of the global middle class is leading the demand for pay-TV services, which has compelled providers to expand their content offerings.
Harmonic sells high-performance video infrastructure products that enable content providers to efficiently create and deliver a full range of video services to consumer devices, including TVs, PCs, tablets and smartphones. Its revenues are generated from selling video processing solutions to various media companies and providers, including broadcasters (HBO, NBC, ESPN), satellite providers (Dish (Nasdaq: DISH), DirecTV (Nasdaq: DTV)), telcos (SingTel, Vodafone (Nasdaq: VOD)), cable providers (Charter (Nasdaq: CHTR), Cox, Comcast (Nasdaq: CMCSA)) and new media (Amazon.com (Nasdaq: AMZN)).
International satellite, cable and telco providers are increasing their capital spending to expand their video offerings. In the grand scheme of things, there are thousands of media and broadcast companies around the world, many outside the U.S. Most need to upgrade their infrastructure -- particularly to HD -- and that's where Harmonic comes into play.
Harmonic counts three of the top five broadcasters in the U.S. as customers. In terms of providers, Comcast, the largest cable company, already accounts for 16% of total revenue. Its competitors Time Warner Cable (NYSE: TWC), Cox, Cablevision (NYSE: CVC) and Charter are all Harmonic customers.
Harmonic is also tapping the $2 billion market of so-called converged cable access platforms, which seeks to put all services -- video, data and so on -- on the same IP platform. Harmonic's first product in the space, the NSG Pro, is nearly set for release, and the company already has its first multi-million-dollar order.
Harmonic has a pristine balance sheet, with $169 million in cash, or $1.68 a share, a
Merrill Lynch Quant Strategy Names Their Top 10 Stocks for 2014
Merrill?s quant strategy group unveils their favorite ten stocks for 2014, one from each sector?
Our favorite stock ideas for 2014
We provide a list of 10 S&P 500 stocks for 2014 ? one from each of the 10 GICS
sectors. These stocks align with our themes for the year-ahead 2014 and our
quantitative work. This list is intended for the full year, meaning we do not provide
updates intra-year. To come up with our stock ideas, we used the following criteria:
1. S&P 500 stocks which are Buy-rated by BofAML fundamental analysts
2. Review of metrics for favorable valuation, quality, dividend growth or cash
deployment, foreign exposure, GDP sensitivity, fund ownership vs. S&P 500
weighting, BofAML vs. consensus EPS expectations, and/or qualifications
based on other themes in our Year Ahead outlook, such as the potential for
self-help via operational turnarounds, divestitures, etc.
3. After identifying the stocks consistent with the criteria above, we also considered
the views of our fundamental analysts in choosing the stocks for the list.
See the table below for details on our 10 stocks.
Ride This Overlooked Biotech's Pipeline To 45% Upside
They say investing in the stock market is all about forward thinking. That's certainly the case with the biotech sector. A biotech's pipeline can mean the difference between boom and bust.
The Medicines Co. (Nasdaq: MDCO) is a global biotech company with seven drugs in the pipeline that could prove to be big hits in the acute and intensive care hospital product market. The company's key legacy product and top revenue generator, Angiomax, continues to bring in profits, and in addition to its robust in-house development pipeline, the company also recently teamed up with two major drug companies and made a key acquisition -- all of which should only further accelerate its growth.
The biggest factor keeping Medicines below what I consider its fair value is its ongoing lawsuit with Hospira (NYSE: HSP). In 2010, Hospira sued to market its generic version of Angiomax before Medicines' patents expire. A decision is expected next year, but regardless of the outcome, Medicines could lose its Angiomax exclusivity as soon as mid-2015.
What many investors are missing is that Medicines appears to have a bright future despite its legal fight over Angiomax, thanks to the clinical successes within its pipeline. When Angiomax does lose exclusivity, Medicines will already be a diversified biopharma company.
What's more, over 90% of Medicines' sales come from the U.S., so there is considerable opportunity for international expansion. Medicines is focusing its sales and marketing efforts to faster-growing markets overseas, establishing operations where it can commercialize its other legacy products as well as other products in development.
Its pipeline is where the company's greatest growth potential lies, and Medicines has a couple of promising candidates in clinical trials. The company plans to file for FDA approval for its oritavancin drug, designed to fight acute skin infections, in the current quarter and for European Medicines Agency approval next year. Medicines has already filed for FDA approval of its anti-platelet cangrelor drug -- which is expected to be one of the company's biggest sellers next year and in 2015 -- and is hoping for approval by mid-2014. The company will file for approval of Cangrelor in Europe this quarter, with approval also expected next year.
Beyond Medicines' in-house pipeline, the company also recently partnered with two major drugmakers. As part of its global collaboration agreement with AstraZeneca (NYSE: AZN), Medicines will co-promote the oral tablet anti-platelet medicine Brilinta in the U.S. Its other partnership is a collaboration with Alnylam Pharmaceuticals (Nasdaq: ALNY) to develop and make therapeutic products targeting the proprotein convertase subtilisin/kexin type 9 (PCSK9) gene, which plays a prominent role in the body's production of cholesterol.
On the acquisition front, Medicines completed its purchase of ProFibrix in August after reviewing the Phase III clinical trials of ProFibrix's lead product, Fibrocaps, This product, still being developed, is expected to help stop bleeding during surgery. Medicines paid $90 million in cash, with another $140 million contingent on hitting development milestones. Medicines estimates Fibrocaps could produce peak sales of $300 million; this figure could rise if Medicines receives approval of a spray device it's developing for delivering Fibrocaps.
So Medicines is making progress in diversifying revenues. The company projects its new products can deliver revenue growth of 20% through 2018. Its newly launched products currently account for less than 5% of revenues, but this number is expected to jump above 45% in just a couple of years.
Risks to Consider: Shares have rallied more than 70% in the past year on anticipation of these new drugs coming to market, so most of MDCO's potential gains may have already been realized. There's also Medicines' possible early loss of exclusivity on Angiomax, its biggest earner, to consider.
Action to Take --> Based on a 2016 sales estimate of roughly $1 billion, Medicines is trading at an enterprise value-to-sales ratio of 2, compared with the industry average of over 3. Given the company's robust pipeline, there's no reason to believe it won't be trading in line with the industry in a couple of years. Analysts expect Medicines' earnings per share to grow at a compound annual growth rate of 31.5% over the next five years, compared with an expected average CAGR of 20% for the industry. An EV/sales multiple of 3 on 2016 sales estimates puts the upside at $55 a share.
Hot Links: Sleeping Giant
Stuff I?m Reading this Morning?
November Non-Farm Payrolls comes out this morning at 8:30 am. It will be the most important jobs report of all time, as usual. The only preview you need is here: (BusinessInsider)
Commodities suck, time to buy? (FT)
Everyone calls bullshit on Mulally not joining Microsoft. (Barrons)
Sheila Bair looks at the $4.1 trillion BlackRock and sees nothing but systemic risk. (Fortune)
Is the sleeping giant finally awakening? Some ETFs to play China with. (ETFTrends)
Stop giving yourself opportunities for failure. (AbnormalReturns)
Richard Bernstein?s latest: The biggest themes of 2014. (BusinessInsider)
On the insanely competitive guest-booking environment on financial TV (who the fck are these guests that are being fought over? I can?t even imagine.) (BusinessInsider)
Top Ten Highest Paid CEOs of 2013 (TIME)
For a trader, Jerry sure knows an awful lot about how the economy works. Great primer here: (ArmoTrader)
Meb Faber unpacks a well-known quantitative sector rotation model, is impressed with its simplicity. (MebFaber)
Jon Stewart vs Blackstone is kind of interesting? (Fortune)
Nelson Mandela Becomes First Politician To Be Missed (Onion)
My book, Backstage Wall Street, available at Amazon
The Bond Crash Has Only Just Started
When I was a little kid in the early 1950?s, my grandfather used to endlessly rail against Franklin Delano Roosevelt. The WWI veteran, who was mustard gassed in the trenches of France and was a lifetime, died in the wool Republican, said the former president was a dictator and a traitor to his class, who trampled the constitution with complete disregard. Candidates Hoover, Landon, and Dewey would have done much better jobs.
What was worse, FDR had run up such enormous debts during the Great Depression that, not only would my life be ruined, so would my children?s lives. As a six year old, this disturbed me deeply, as it appeared that just out of diapers, my life was already pointless. Grandpa continued his ranting until a three pack a day Lucky Strike non-filter habit finally killed him in 1977. He insisted until the day he died that there was no definitive proof that cigarettes caused lung cancer.
What my grandfather?s comments did do was spark in me a permanent interest in the government bond market, not only ours, but everyone else?s around the world. So what ever happened to the despised, future ending Roosevelt debt?
In short, it went to money heaven. And here I like to use the old movie analogy. Remember, when someone walked into a diner in those old black and white flicks? Check out the prices on the menu on the wall. It says ?Coffee: 5 cents, Hamburgers: 10 cents, Steak: 50 cents.?
That is where the Roosevelt debt went. By the time the 20 and 30 year Treasury bonds issued in the 1930?s came due, WWII, Korea, and Vietnam happened, and the great inflation that followed. The purchasing power of the dollar cratered, falling roughly 90%, Coffee was now $1.00, a hamburger $2.00, and a cheap steak at Outback cost $10.00. The government, in effect, only had to pay back 10 cents on the dollar in terms of current purchasing power on whatever it borrowed in the thirties.
Who paid for this free lunch? Bond owners, who received, minimal, and often negative real, inflation adjusted returns on fixed income investments for three decades. In the end, it was the risk avoiders who picked up the tab. This is why bonds became known as ?certificates of confiscation? during the seventies.
This is not a new thing. About 300 years ago, governments figured out there was easy money to be had by issuing paper money, borrowing massively, stimulating the local economy, and then repaying the debt in devalued future currencies. This is one of the main reasons why we have governments, and why they have grown so big. Unsurprisingly, France was the first, followed by England and every other major country.
The really fascinating thing about financial markets so far this year is that I see history repeating itself. Owners of bonds have had a terrible start, and things are about to get much worse.
The 30-year Treasury bond suffered horrific losses during the May rout, with yields rocketing from 2.5% to 4%. That means it has already lost its coupon for the year, and then some. Bondholders can expect to receive a long series of rude awakenings when they get their monthly statements. No wonder Bill Gross, the head of bond giant, PIMCO, says he expects to get ashes in his stocking for Christmas this year.
The scary thing is that we could be only six months into a new 30-year bear market for bonds that lasts all the way until 2042. This is certainly what the demographics are saying, which predicts an inflationary blow off in decades to come that could take short term Treasury yields to a nosebleed 18% high. That scenario has the leveraged short Treasury bond ETF (TBT), which has just leapt from $58 to $79, soaring all the way to $200.
Check out the chart below, and it is clear that the downtrend in long term Treasury bond yields going all the way back to April, 2011 is broken, and that we are now headed substantially up. The old resistance level at 1.95% now becomes support. That targets a new range for bonds of 1.90%-2.90%, possibly for the rest of 2013.
There is a lesson to be learned today from the demise of the Roosevelt debt. It tells us that the government should be borrowing as much as it can right now with the longest maturity possible at these ultra low interest rates, and spending it all. In effect, it never has to pay it back, but enables us to reap immediate benefits.
If I were king of the world, I would borrow $5 trillion tomorrow and disburse it only in areas that create domestic US jobs. Not a penny should go to new social programs. Long-term capital investments should be the sole target. Here is my shopping list:
$1 trillion ? new Interstate freeway system
$1 trillion ? additional infrastructure repairs and maintenance
$1 trillion ? conversion of our transportation system to natural gas
$1 trillion ? construction of a rural broadband network
$1 trillion ? investment in R&D for everything
The projects above would create 5 million new jobs quickly and end the present employment crisis. Who would pay for all of this? Today?s investors in government bonds, half of whom are foreigners, principally the Chinese and Japanese.
How did my life turn out? Was it ruined, as my grandfather predicted? Actually, I did pretty well, as did the rest of my generation, the baby boomers. My kids did OK too. Grandpa was always a better historian than a forecaster. But did have the last laugh. He made a fortune in real estate, betting correctly on the inflation that always follows borrowing binges.
