hit counter

Obsessed with CPI? They may be missing bargain stocks that offer long-term returns, these fund managers say

By Steve Goldstein

Critical information for the US trading day

You might also get to the biggest event of the day first – the Labor Department is due to release US July CPI data at 8:30 am ET. A slight slowdown in the annualized rate to 8.7% from 9.1% is expected, but a sharp rise in the core CPI that would push the 12-month rate down to 6.1%. Read the preview of the CPI report

If anything, the risk for the market appears to be inflation surprisingly high as the S&P 500 is up 13% from its mid-June lows.

In a recent letter to investors, RGA Investment Advisors’ Jason Gilbert and Elliot Turner say these are the very markets that can produce big returns.

“The average market participant’s time frame is shrinking from years to days. People isolate themselves on the most recent data point and extrapolate it ad finitum. To some extent, this type of overextrapolation has been around since the beginning of the COVID crash, but today we’re at a point where extending the timeframe is the key avenue to inevitably deliver solid long-term returns,” they say .

Fund managers identified a few stocks that the market has thrown out the window, the most notorious being Facebook parent Meta Platforms (META). Without Reality Labs’ investment, the core properties of Facebook, Instagram, and WhatsApp would increase their revenue by 23%.

“This would drop the company’s P/E by about 2.5. Realistically, there’s no sign that Mark Zuckerberg would stop investing entirely. However, we think Zuckerberg is realistic about its stock price and could very well defer much of the investment until core earnings pick up again,” they said. Even at Reality Labs, the stock is too cheap to ignore , they say.

Some of the lesser-known companies discussing them include orthodontics provider Align Technology (ALGN) and biotech instrument makers Cytek Biosciences (CTKB) and MaxCyte. But they emphasize that of their top 17 US holdings, 13 are constituents of the Russell 1000 Value Index and another 8 of that group are in the growth index. In addition to Meta, its dual growth and value components include Alphabet (GOOGL), PayPal (PYPL), Regeneron Pharmaceuticals (REGN) and Roku (ROKU).

“There has never been a period in our career where so much growth can be purchased at such a bargain price. Therein lies both the problem and the opportunity. The problem is that market periods are shrinking and growing at the same time in the very short term. These companies’ estimates are being lowered, with few buyers wanting to get in, but the opportunity is there for those who can see to a day when the economy either avoids a recession or overcome, where the dual forces of growth and value amplify will lead to particularly favorable outcomes,” say Gilbert and Turner.

The market

There was a bit of optimism in the air as US stock futures rallied ahead of the CPI report. The 10-year government bond yield was 2.80%.

The Buzz

Elon Musk sold nearly $7 billion worth of shares in Tesla (TSLA) as he was unsure if he will be forced to buy Twitter (TWTR). Tesla shares are up 2% in premarket trading, while Twitter is up 3%.

Wednesday’s earnings calendar includes media group Fox (FOXA) and post-close Walt Disney (DIS).

Coinbase Global (COIN) slumped 6% in premarket trading after the cryptocurrency exchange reported a worse-than-expected $1.09 billion loss from around $2.5 billion but costs close to $5.5 billion U.S. dollar. He added that Coinbase’s recent job cuts could change the cost picture and that a broader cryptocurrency recovery would offer major benefits.

Advertising technology company Trade Desk (TTD) rose 16% after both revenue and guidance beat expectations. Roblox (RBLX) shares tumbled 14% after reporting a second straight quarter of decline in bookings.

The best of the web

The FBI’s search of Trump’s home brings a long conflict to the fore.

How cloud storage provider Dropbox transformed its work culture.

How to keep California from burning.

The graphic

So-called meme stocks are having their best quarter since the original rally, as shared in this chart by Liz Ann Sonders, Charles Schwab’s chief investment strategist.

top ticker

Here are the most active stock tickers on MarketWatch as of 6 a.m. Eastern.

Ticker  Security name 
TSLA    Tesla 
AMC     AMC Entertainment 
GME     GameStop 
BBBY    Bed Bath & Beyond 
MEGL    Magic Empire Global 
TWTR    Twitter 
NIO     Nio 
COIN    Coinbase Global 
AAPL    Apple 
NVDA    Nvidia 

Random Reading

Gold bug and crypto hater Peter Schiff is liquidating his bank in Puerto Rico.

Laws are changing when it comes to pet custody disputes.

Nearly 4,000 Beagles need a home after being rescued from a Virginia breeder.

Need to Know starts early and will be updated by the opening bell, but sign up here to have it delivered to your email inbox once. The email version will be sent around 7:30 AM Eastern.

-Steve Goldstein

 

(ENDS) Dow Jones Newswires

08-10-22 0724ET

Copyright (c) 2022 Dow Jones & Company, Inc.

Leave a Comment