Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Monday, Oct. 14. The Bottom Line segment of today’s podcast starts at (2:13), followed by Stocks on the Contrarian Radar©️ feat CAT 0.00%↑ for listeners who want to skip ahead.
State of Play
China overnight reported trade balance statistics that fell short of estimates. That is weighing on commodities markets, as we eye our board of indicators for signs of direction at 0705:
WTI crude oil is down 2.5% to trade below $74/barrel. Copper is down 1.5%;
Stock index futures are effectively unchanged with no major US index moving more than 0.2% from the break-even point;
Cryptos are showing some signs of life with Bitcoin up 3.5% to trade close to $65,000;
The bond market is closed today for whatever Columbus Day is now known as.
Today’s Known Events
Another slow Monday. A couple of Fed speakers, the key one being Fed Governor Chris Waller, who speaks at a Hoover Institution conference on A 50-Year Retrospective on The Shadow Open Market Committee and Its Role in Monetary Policy, Stanford, Calif. It doesn’t appear there is any live coverage of the speech set up. Worth noting that Waller is seen as one of the more hawkish members of the FOMC.
It is a busy week of earnings. Banks report tomorrow and Wednesday, Netflix (NFLX 0.00%↑) on Thursday, Procter & Gamble (PG 0.00%↑) and American Express (AXP 0.00%↑) on Friday.
The Bottom Line
For today we have China’s trade balance to worry about. Will investors take the opportunity to dump luxury goods names? Most of their growth is driven by China…
Stocks on the Contrarian Radar©️
Some of the biggest losers overnight are indeed China proxies: VFC (VFC 0.00%↑), which is a luxury goods maker, and Caterpillar (CAT 0.00%↑) are down 3% each. China ADRs like Alibaba (BABA 0.00%↑) and Pinduoduo (PDD 0.00%↑) are down a little less. We’ve discussed the China ADRs before in this space, so not worth repeating that they are mostly uninvestable.
Caterpillar is more interesting just because it’s the world’s largest manufacturer of heavy equipment. It has a 100-year history and operates in many countries around the world, not just China. It’s just that China has supplied most of its growth this past decade. As you can see from the chart, this 3% pullback still leaves the stock close to all-time highs:
From a valuation perspective, the stock is not exactly screaming cheap either:
Price/earnings (forward) of ~18x;
Price/sales (forward): 3x
Price/cashflows (forward): ~15x
So The Contrarian is going to sit this one out. There may come a time when CAT becomes more compelling as a buying opportunity. One suspects it may take a global recession to make that happen.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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China Trade Balance Weighs on Commodities, Fed Speakers