One thing is clear after yesterday's Fed meeting...
Bond investors think the Fed - which kept rates unchanged - may still be talking a good game about raising rates in the future. But the think the central bank is done - finito - when it comes to raising rates any further.
That's why those same investors today are buying bonds (which lowers the market interest rate of the bond) to get ahead of the curve. (Remember that when the market price of a bond goes up, the interest rate for that bond goes down).
That's why we're seeing the 10-Year Treasury Note - with a plummeting interest rate yield - in today's trading:
The point being that any company carrying a ton of debt on its balance sheet...is getting a nice boost today as investors breathe a sigh of relief - no more rate hikes, even if the Fed is still stating otherwise.
But there's really very little celebrating to do, in actuality.
The Fed hiked rates from basically zero, to 5.33% in about 18 months (if we use the official Fed Funds Rate as our guide). Those rate hikes are going to weigh down all sorts of consumption - for iPhones, cars, homes, business loans, you name it.
We're only at the beginning of this process. That may be why key sectors like most retailers - are only up by small amounts today. Likewise, oil prices - though up today - are in the low $80s, down 10% from a month ago.
All of which is another reason why investors like bonds again.
The general thought process is that if the Fed isn't going to hike interest rates any further, then what's the Fed's next move in a year or two? Logically, it may want to start cutting rates to put some life back in the economy again.
In the meantime, I like what we're seeing with utility stocks.
Our recent addition to the goodBUYs portfolio, Essential Utilities (WTRG), finally broke into the green today.
I'm going to raise my "sell at a loss" price from $28 to $32, and add a second position to my holdings, on the bet that if interest rates are through going up, then the price of a grade-A utility like WTRG is through going down and could work its way higher from here.
Lately, nothing has been working for me. Most stocks have been headed lower. The megacap tech stocks have been choppy. Short-selling has been a spotty endeavor as well.
With that in mind, I'm covering 2 of the 3 short positions in the goodBUYs portfolio:
- Winnebago (WGO) at the market. It will exit the portfolio with a small 5% gain.
- Toll Brothers (TOL) at the market will exit the portfolio with an 11 % loss.
I'm keeping Nvidia (NVDA) for now. Apple (AAPL) reports its quarterly numbers after the close of trading today, and its results will likely set the pace for the market for tomorrow and for the early part of next week.
Everspin Technologies (MRAM)
Everspin's share price fell as much as 9% early in today's session. The next-gen memory chip maker reported strong results - but not strong enough for some on Wall Street.
So it looks like the stock is getting the "buy the rumor, sell the news" treatment from investors.
The company reported profits of $0.11 a share for the period - at the high end of analysts' estimates. Cash flow was higher, and so were the company's gross profit margins. MRAM continues to operate completely debt-free, with $34 million in cash on its balance sheet (compared to $30 million in the year-ago period).
But I think what pushed the stock lower was its revenue number of $13.5 million for the quarter. That's only a smidge above the second quarter this year, and roughly $2 million less than analysts predicted.
If I'm reading executives' comments accurately, it sounds like the dip in revenue is related to the easing of supply constraints in the semiconductor market (i.e. few shortages, unlike prior quarters). Things are getting back to normal. But "normal conditions" means that MRAM's customers are no longer pre-ordering or "front-loading" - ordering more chips than they need at the moment - out of fear they can't get them later.
So I'm actually glad MRAM's stock price is down. If it's down a little more tomorrow I'll likely put out a buy alert for the shares. The reason should be pretty clear if you look at this chart, which shows what analysts are projecting for MRAM's profits over the next few years:
If we apply a normal P/E level of 30 or 40 (for a growth stock) and multiply by 2025 or 2026 estimated profits...we're looking at a stock that could be in the high $20s or mid $30s, for a stock that can be bought today at $8 and change.
Best of goodBUYs,