Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Monday, Oct. 21. The Bottom Line segment of today’s podcast starts at (2:30) followed by Stocks on the Contrarian Radar©️ feat agricultural producers BG 0.00%↑ and ADM 0.00%↑ for listeners who want to skip ahead.
State of Play
Stocks closed at fresh record highs again on Friday. As we eye our board of indicators for signs of direction at 0650, things are a bit all over the place:
Stock index futures are down a bit, led by tech. The Nasdaq is down 0.5% with S&P 500 futures down 0.3%;
Commodities are gaining ground however. WTI crude oil is up 2% to trade north of $70/barrel again. Copper is up 1%. Silver is up almost 3%;
Bond are dropping a bit. The 2-year yield is up 3 basis points to 3.99% whilst the 10-year is up 5bps to 4.13% (yields move inversely to prices);
Cryptos aren’t doing anything. Bitcoin is unchanged, trading around $68,300.
Today’s Known Events
It’s a slow start to a busy week of earnings. IMF meetings kick off today. The Conference Board’s Leading Indicators Index for September is out at 1000. Economists who were surveyed expect a month-over-month drop of 0.3% after a 0.2% decline last month.
One Fed speaker this afternoon: Minneapolis Fed President Neel Kashkari is participating in a town hall with the Chippewa Falls (Wisc.) Chamber of Commerce at 1230. Kashkari is not an FOMC voting member this year.
The HLTH conference, an event focused on healthcare tech, takes place this week in Las Vegas. Nvidia (NVDA 0.00%↑), Google (GOOG 0.00%↑), and Microsoft (MSFT 0.00%↑) are some of the companies presenting, apparently to tout AI tools and their role in healthcare. So more AI coverage in the media then? Yeah, probably.
The Bottom Line
It’s now been six straight weeks of gains for stocks. It’s hard to see how anything can upend this rally, which from a contrarian perspective means it’s time to pay very close attention.
Geopolitical events are still out there and nobody seems concerned about the US election, now just two weeks away. This latter topic will be discussed tomorrow with our next podcast guest, Flip Pidot of the American Civics Exchange, which has a trading platform dedicated to, apparently, trading political risk. Flip will certainly have a good idea of the kinds of things institutional investors are looking to hedge ahead of the election, which should allow for a fresh perspective. Stay tuned!
You can get your questions in now (including by commenting here) and if your question is read on the air you get a free Contrarian mug sent to you!
Stocks on the Contrarian Radar©️
Agricultural producers Bunge (BG 0.00%↑) and Archer Daniels Midland (ADM 0.00%↑) have been dropping since Friday as lower crop prices and and an analyst downgrade are weighing on the sector. As you can see both stocks have trailed the S&P 500 this year:
A lot of the recent news gets into harvest statistics (and expectations therefor), which is above The Contrarian’s paygrade. But he can tell you that from a valuation perspective, both stocks are cheap:
BG trades at 12.5x forward earnings, 0.2x forward sales, and 6.5x forward cashflows;
ADM’s multiples of the above are 10.7/0.3/8.1.
Bunge is in the process of an acquisition, which will hurt its stock price. ADM has no such issues. Both companies benefited from higher grains prices brought about by the 2021 to 2023 inflation scare. Now that that’s over they have returned to earth. They still trail the S&P if you zoom out to the five-year chart:
That kind of set up gets The Contrarian interested. BG is maybe not the best choice just because of the merger implications. But ADM could be positioned nicely. Ideally the earnings multiple would drop just a little more. At that point this thing might be screaming ‘buy.’
There is a catalyst on the horizon this week. ADM reports earnings on Friday before the open…
Full disclosure: The Contrarian purchased ADM in his retirement account after the stock plunged on first-quarter earnings. That has done nicely — even accounting for the latest sell-off. It was largely an income play (ADM has a 3.5% dividend yield at current prices), which The Contrarian does not like to do in his (taxable) brokerage account.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
Read this month’s portfolio update letter here. The Substack chat tracks The Contrarian’s trades in (almost) real time.
If this daily thing is drowning your inbox and/or you CBF to bother with it and prefer to just get the guest feature or actionable highlights — you can control these settings on your account page.
Finally, if you enjoy this and want others to experience it, please gift a subscription to your friends (or even your enemies).
Share this post