Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Monday, July 22. The Bottom Line segment of today’s podcast starts at (4:03) for listeners who want to skip ahead. Be sure to check out the brand new ‘Stocks on the Contrarian Radar’ segment at the bottom of this page and (5:25) on the podcast.
State of Play
President Biden finally quit the presidential race yesterday, endorsing Vice President Harris. This does not appear to have affected betting markets any. For our purposes it doesn’t have much of an economic impact either, seeing how a Harris administration would likely just carry on the lion’s share of Biden’s policies and Harris (like Biden) trails Trump in the polls. As we look at our board of indicators for signs of direction at 0645, risk appetite appears to be awakening a bit:
Stock index futures are pointing to a higher open, led by tech — a welcome change over the past two weeks. The Nasdaq is up 0.9%. S&P 500 futures are 0.5% to the good. Small caps are largely unchanged with the Russell 2000 up 0.2%;
Commodities are moving lower. WTI crude oil is down 0.3% to trade around $78.40/barrel. It was in the $80s all of last week. Copper is down 0.4%;
Cryptos aren’t doing much, with Bitcoin up less than 1% to trade around $67,500;
Bonds are unchanged. The 2-year yields 4.52% whilst the 10-year yields 4.22%.
Today’s Known Events
There are no economic data releases to speak of today, but there are a few earnings:
Ryanair (RYAAY 0.00%↑) reported disappointing numbers overnight after the European budget airline warned of a drop in revenues. That stock is down 12% in London trading;
Verizon Communications (VZ 0.00%↑) reported mixed results but importantly reaffirmed full-year guidance. The stock is still down a bit in the pre-market, to the tune of 2% at the time of this writing;
NXP Semiconductors (NXPI 0.00%↑) is the main draw after the close, due at 1610;
Bank of Hawaii (BOH 0.00%↑) is due to report before the open at 0930;
After the close at 1600 we’ll also hear from Cleveland Cliffs (CLF 0.00%↑), Nucor (NUE 0.00%↑), and Logitech (LOGI 0.00%↑), among others.
The Bottom Line©️
Last week was actually the worst for the S&P 500 since April. Damage was even worse to tech stocks. It will be interesting to see how things unfold this week. Earnings should be the major driver, with Tesla (TSLA 0.00%↑) and Google (GOOG 0.00%↑), two of the ‘Mag 7’ stocks, reporting tomorrow. We’ll get a first look at first-quarter GDP on Thursday and the always-important PCE Deflator, the Fed’s preferred inflation gauge, on Friday morning.
Would not expect the Biden/Kamala news to impact markets for the aforementioned reasons. Donald Trump remains the front-runner, which may have played a role in spooking investors a bit as reported last week.
Stocks on the Contrarian Radar
Is Ryanair (RYAAY 0.00%↑) a buy after this earnings sell-off? The stock trades at <11x forward earnings. Airline stocks have had a rough time of it lately and Ryanair is just the latest here. It is not down as much as Delta Air Lines (DAL 0.00%↑) or Southwest (LUV 0.00%↑) over the last month, so there may be some catching up to do from a strict momentum basis. The guidance is not a great sign either. One suspects this thing might get cheaper still. The great travel consumer trend may have peaked this summer. We’ll see. The Contrarian is very cautious about any airline stocks due to the industry’s paper thin margins and general beta properties (trailing consumer spending) so he will not be looking to buy.
Lamb Weston (LW 0.00%↑), which sells potatoes and other food stuff, is down 30% over the past year and now trades at 14x forward earnings. The Contrarian likes consumer staples companies a great deal, though a 30% drawdown may speak to something more secular affecting this stock. One suspects it is the slowdown in China, which has impacted other food staples and soft commodities like wheat and soybeans. There is also McDonald’s (MCD 0.00%↑), a major purchaser of potato products which has taken on water lately. On a 1.7x price-to-sales ratio and 6x price-to-book, LW is not yet cheap. Nor does it appear to be much of a bargain when compared to peers Tyson Foods (TSN 0.00%↑) or Dole (DOLE 0.00%↑).
Finally, Verizon (VZ 0.00%↑) is a late addition after the stock dropped due to earnings. This too is another staples stock that can be expected to outperform during a downturn (people are not going to cancel their cell phone contracts). At the time of this writing, VZ is down 6%. An overreaction to earnings? Management reaffirmed its outlook for the year. Revenue figures fell a little short of forecasts. Sounds like an overreaction. VZ trades at <10x forward earnings but is still relatively expensive for a staples stock on a price-to-sales basis, at 1.3x forward sales. Also, the stock is still positive for the year (barely, at +3.5% at the time of this writing). The 6% dividend yield is certainly enticing. The Contrarian will be watching this one very closely. It may just be worth adding to the portfolio…
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Biden Quits Race, A Big Week for Earnings