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Weekly Research Report – 22 April 2019

Clay Carter

Another good week for global equities. Positive U.S. bank earnings, combined with improving leading indicators (all-time low unemployment claims and March retail sales up 1.6% - beating expectations of 0.9%) provided support for U.S markets. The Mueller Report was also largely a nonevent from a market standpoint. Chinese economic data was encouraging (see comments below). Note the CSI 300 was up 3.6% on the week, trading at the highest levels in a year. Aussie dollar depreciation provided a slight tailwind. 

Weekly returns to 18 April 2019
(AUD 5-day return far right- hand column)

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Source: Bloomberg

Rates/Commodities

  • 10-Year Treasury yield: 2.55% (unchanged)
  • Gold: -1.1% to US$1275/oz.
  • WTI crude oil: +0.2% to US$64.00
  • AUD/USD: -0.25% to US$71.54
     

Notable company news

Qualcomm (NASDAQ: QCOM)

On Tuesday Qualcomm and Apple announced they had reached a six-year license agreement, effective 1 April, and a multiyear chipset supply agreement. The deal includes a payment from Apple to Qualcomm (amount undisclosed) and ends all ongoing litigation between the companies. Previously Apple had said Qualcomm was overcharging for its wireless patents, while Qualcomm said Apple wasn’t paying it the full royalties required. Huge positive for Qualcomm but at the end of the day, Apple needs QCOM’s 5G chipsets. Qualcomm stock up a massive 40% for the week.

Qualcomm is held in two of Macrovue’s thematic share portfolios: 5G and High Quality.

 
Citigroup (NYSE: C)

Citibank reported 1Q 2019 earnings on 15 April 2019. The bank posted a quarterly profit of $4.7 billion, or $1.87 a share. Analysts had expected $1.80 a share. Revenue was $18.6 billion, down 2% from $18.9 billion a year ago. Analysts expected $18.6 billion. Investment-banking revenue rose 20% from a year ago, to $1.4 billion, thanks to a 76% surge in mergers-and-acquisitions advisory revenue. YTD Citi is one of the best performing US banks - up 29% as of 16 April 2019.

Citibank is held in Macrovue’s Bank On It thematic share portfolio.

Bank of America (NYSE: BAC)

Quarterly profit at Bank of America, the second largest bank in the U.S. by assets, was $7.31 billion, compared with $6.92 billion a year earlier, driven in part by a strong consumer lending business. BAC generated EPS of 70 cents. Analysts had expected 66 cents a share. First-quarter revenue was $23 billion, roughly flat from $23.07 billion a year ago. Profit rose 25% in the bank’s consumer business due to higher interest rates, deposit and loan growth. Profit climbed 14% in its wealth-management unit, which added new clients in the quarter. Global banking profits were up slightly. The only negative was investment-banking revenue which fell nearly 7% in the first quarter from a year earlier.

Bank of America is held in Macrovue’s Bank On It thematic share portfolio.

Johnson and Johnson (NYSE: JNJ)

J&J’s world-wide pharmaceutical sales were up 4.1% to $10.24 billion, fuelled in part by solid revenues from anti-inflammatory drug Stelara and cancer treatment Darzalex. Competition from generic drugs pressured sales of arthritis treatment Remicade and cancer drug Zytiga. J&J’s second-biggest business by sales, medical devices, saw a slight sales decline of 4.6% to $6.46 billion. However, ex divestitures, acquisitions and currency effects, J&J said sales grew 4.3%, helped by sales of cardiology devices and contact lenses. Global sales of J&J’s consumer products, which include brands such as Band-Aid and Tylenol, dropped 2.4% to $3.32 billion. Sales of J&J’s baby-care products dropped 14% globally, which the company attributed to inventory changes related to launching new versions of products outside the U.S. J&J rolled out the new versions in the U.S. last year.

Johnson and Johnson is held in Macrovue’s Asian Healthcare thematic share portfolio.
 

Netflix (NASDAQ: NFLX)

Netflix delivered Q1 GAAP EPS of $0.76 which was nicely ahead of consensus by $0.19. Revenue of $4.52B (+22.2% Y/Y) beat by $20M. For Q1, the company reported 1.74M domestic streaming additions vs. 1.38M expected. International streaming additions were a significant 7.86M during the quarter vs. 6.52M consensus. Total streaming adds were 9.60M for the quarter vs. 8.80M predicted in Q4. The company's operating margin increased to 10.2% from 5.2% as some spending was shifted to later in the year. Looking ahead, Netflix expects Q2 total streaming adds of 5.0M vs. 5.4M consensus. A bit light.

Netflix is held in Macrovue’s Entertainment thematic share portfolio.
 

American Express (NYSE: AXP)

American Express Q1 Non-GAAP EPS of $2.01 beat analyst’s estimates by $0.04, however revenue of $10.36B (+6.6% Y/Y) missed by some $100M. Q1 total revenue net of interest expense of $10.4B rose 7% from $9.72B a year ago. This compares with a consensus estimate of $10.46B. AXP affirmed guidance for 2019 adjusted EPS of $7.85-$8.35. Consolidated provisions for losses were $809M, up 4% Y/Y.

American Express is held in Macrovue’s Warren Buffett Top 10 thematic share portfolio.
 

Schlumberger (NYSE: SLB)

Schlumberger Q1 Non-GAAP EPS of $0.30 was in-line with market expectations. However revenue of $7.88B (+0.6% Y/Y) was ahead by $60M. Q1 revenues rose less than 1% to $7.88B, with international revenue of $5B declining 5% Q/Q but increasing 3% Y/Y and North America revenue of $2.7B falling 3% both Q/Q and Y/Y. SLB highlighted its belief that the international markets should grow by 7-8% in 2019 while the North American land market declines some 10% given capital discipline by the Exploration and Production companies.

Schlumberger is held in Macrovue’s BIg Oil thematic share portfolio.

 

The week ahead

U.S

Monday kicks off a very busy week of earnings, with some of the biggest names in the technology, consumer-products and industrial sectors reporting.

Some 155 of the companies in the S&P 500, or 31% of the index, and 40% of the firms in the Dow Jones Industrial Average are scheduled to release their quarterly results. Among them are tech giants like Microsoft, Facebook, and Amazon, industry “bellwethers” like Caterpillar, Boeing, and Intel as well as consumer product names like Colgate Palmolive, and Proctor and Gamble.

The economic calendar is a bit light. Housing data and consumer sentiment will be watched as will durable goods. The 1st Quarter GDP advance estimate will focus attention on the overall economy, but it is “old news” and will be revised twice. The important stories for investors will come from the barrage of corporate earnings due this week.

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Source: briefing.com
 

China

The Chinese economy grew 6.4% in the first quarter, compared with the year-ago period, above the 6.3% rate expected by economists, according to FactSet, and maintaining the pace seen in the final quarter of 2018. Meanwhile, industrial production rose by 8.5%, well above the 6% forecast. 

Exports appear to be in recovery mode as well...

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Chart of the week

T.S. Eliot may have written “April is the cruellest month” but not as far as the S&P 500 is concerned. In fact, the S&P 500 is on track to register the best four month start to the year in 30 years!

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Quote of the week

“Researchers are finding that low inflation is in large part a consequence of globalisation or automation or de-unionisation—or a combination of all three—which undermine workers’ power to bargain for higher wages. In other words, the capitalists killed inflation.”

Did Capitalism Kill Inflation?, Bloomberg Business Week, 18 April 2019.

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