Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, Jan. 8. Today’s Stock on the Contrarian Radar©️is HSIC 0.00%↑ (see the bottom of the page).
State of Play
Stocks dropped yesterday after hotter-than-anticipated economic data brought fears of higher-for-longer interest rates. As we eye our board of indicators for signs of direction at 0645, things are pretty quiet:
Stock index futures are pointing to a slight uptick at the open. The Nasdaq and S&P 500 are up 0.3%;
Cryptos are continuing to drop after giving up several percent in yesterday’s sell-off. Bitcoin is down 5% to trade below $96,000;
Commodities are flat. WTI crude oil trades around $74.50/barrel, roughly unchanged. Copper prices are unchanged;
Bonds aren’t doing anything either. The 10-year yields 4.69%.
Today’s Known Events
Some more economic data awaits before today’s open:
ADP nonfarm payrolls at 0815. Economists who were surveyed expect 136,000 new jobs, down a bit from the 146,000 recorded last month. This ADP figure has little bearing on the government’s non-farm payrolls figure due on Friday. As such the market rarely reacts to it;
Initial jobless claims at 0830. The expectation here is for 214,000 new claims, up a bit from the 211,000 recorded last week but well below the four-week average of 223,000. This is normally out on Thursdays but seeing how markets are closed tomorrow for the Carter funeral, it will be out today instead.
One Fed speaker this morning: Governor Chris Waller at 0830. Waller is a full FOMC voting member. He is seen as one of the more hawkish members of the FOMC.
Speaking of the Fed, minutes from the last FOMC meeting are due at 1400 this afternoon.
The Bottom Line
The Fed meeting minutes will be closely scrutinized thanks to these newfound fears of higher interest rates. Remember how we told you that the economist estimate for yesterday’s PMIs might be too ambitious? Turns out it wasn’t ambitious enough. Both PMIs and JOLTS — the other economic datapoint from yesterday — printed well ahead of estimates. This means the economy might be healthier than previously thought, which means the Fed may continue to have an inflation battle on its hands. And that means there could be higher interest rates a-coming.
Having said all that, the minutes capture a point in time that took place well before any of this data was available. That kind of makes it irrelevant. So if the market (over) reacts to this either way, chances are it will correct in due time.
That is, assuming it even gets a chance. Markets are closed tomorrow but important new information will be flying at us left and right come Friday morning. Non-farm payrolls but also several earnings. We’ll deal with that more on Friday.
Stocks on the Contrarian Radar©️
Henry Schein (HSIC 0.00%↑), which supplies health care providers — mainly dentists — is the biggest loser in the S&P 500 overnight, down 3% for no reason that is immediately obvious. The Contrarian had admittedly never heard of this company before, but he is certainly familiar with some of the torture devices dental products it sells, as will anybody who has ever sat in a dentist’s chair.
Anyway, the stock has gone nowhere all year, missing out on the entire S&P rally:
At first glance, HSIC sounds like the kind of business that is enticing: easy to understand and supplies products to an industry with pretty inelastic demand features. True, when the economy sours so do some people’s dental care, and certain dental services will likely see a drop in demand. But overall, it’s a decent set-up.
The valuation seems to check out. HSIC trades at 22x forward earnings, below the health care sector median of 28x. The price/sales multiple, at 0.7x forward sales, is even more compelling. Less so the cash flows at 14x, though that too is below the sector median. The balance sheet is pretty clean with $3 billion in total debt versus a market cap of almost $9 billion.
One will need to look into this further to determine if it presents a legitimate buying opportunity. Who are the competitors? Who are the clients? What is the management team and its strategy? Etc. etc. The overnight sell-off is strange because there is no apparent catalyst. The most recent news appears to have been an analyst upgrade from Bank of America.
Bottom Line: Worth exploring at more depth. The Contrarian will add this to the watch list.
Housekeeping
Markets in the US are closed tomorrow due to the state funeral for Pres. Carter. As a result, there will not be a briefing or podcast. We will return on Friday morning;
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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