Wyatt Research Week in Review: July 26-Aug. 1

I spoke too soon last week. Just when it seemed like things were settling down slightly in China, the wheels fell off.
The Shanghai Composite Index nosedived 8.5% Monday, the largest one-day percentage decline in more than eight years. It served as a clear sign that China’s stabilization policies aren’t holding water with investors, despite the Beijing government’s vow to increase its stock purchases through state-owned China Securities Finance Corp.
The China selloff was felt around the globe, with the Dow Jones Industrial Average falling 127.94 points to close Monday at 17440.59 – its lowest closing mark since Feb. 2.
The Dow recovered Wednesday, however, gaining back 112.12 points after the Federal Open Market Committee’s monetary policy statement was released. The Fed left the benchmark federal funds rate unchanged – which was largely expected – but the markets appeared to respond favorably to the Fed’s assurance that interest rates will be raised gradually after the initial hike.
“The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the Fed press release stated.
The Fed meets again in September, giving investors the rest of the summer to mull over the timing of the initial rate increase. Fed Chairwoman Janet Yellen has indicated that she expects rates to be increased this year, although the Fed will have two more opportunities in October and December to pull the trigger if it holds off at the September meeting.
Here are some of my favorite Wyatt Investment Research articles from the week:
The Only Gold Mining Stock to Own Now – Gold is now down about 40% from its 2011 peak. The price dropped for 10 consecutive days and hit $1,088 per ounce, a level not seen since March 2010. The mayhem in China, the Fed’s looming interest rate hike and the strength of the U.S. dollar have all contributed to the plunge. Gold mining companies have been hit hard by gold’s melting prices, with many being dragged down even further by their heavy debt burdens. But one company has no debt and raised its gold output last year by 26% to 1.1 million ounces.
There’s Plenty of Juice Left in Apple’s Stock – Apple’s (NASDAQ: AAPL) stock can leave you bewildered. It’s a growth stock, but it’s priced as a value stock, with shares trading at a discount to the S&P 500. But a bipartisan proposal, to be introduced soon in Congress, would tax the estimated $2 trillion in foreign profits held by Apple and other U.S. corporations at a much lower rate than the current 35%. If approved, and Apple were to gain access to the nearly $180 billion it has stashed overseas, you could be sure buybacks and dividends would rise.
First Data IPO: The Biggest of 2015? – There hasn’t been much hype about the First Data IPO, which isn’t a bad thing for investors. Although it’s a relatively unknown player in the payments business, it’s actually the largest. It processes nearly half of the credit and debit card transactions in the U.S. And as a key partner in the technology behind Apple’s mobile payments platform, Apple Pay, First Data has definite growth potential.
Square IPO Will Test Confidence in Billion Dollar Startups – Things are about to get complicated for Jack Dorsey. News broke this week that electronic payments company Square Inc., which Dorsey founded in 2009, has filed paperwork for an initial public offering. The thing is, Dorsey is currently serving as interim CEO at the beleaguered Twitter (NYSE: TWTR), and his performance there may very well be used to judge the merits of Square’s IPO – regardless of whether such a comparison is fair. The success of the Square IPO may also depend on the continued success of digital payments competitor PayPal (NASDAQ: PYPL), which was spun off from eBay (NASDAQ: EBAY) earlier this month.
Altria Lights Up Earnings Growth – If you could have bought only one S&P 500 stock 55 years ago, tobacco giant Altria Group (NYSE: MO) is the stock. No other S&P stock has outperformed it. And as incredulous as it might sound, cigarette volume is picking up. Altria reported a 3% increase in volume during the last quarter. While price appreciation has reduced Altria’s dividend yield to 3.9%, there’s a simple, but proven, strategy for raising Altria’s income stream.
Gilead’s Earnings Beat Bodes Well for Biotech – A group of earnings reports from several high-profile biotechnology companies is set to shape the direction of this red-hot sector for the coming months. And if the second-quarter earnings report of Gilead Sciences (NASDAQ: GILD) is any indication, that direction will be decidedly positive. Gilead reported earnings of $3.15 per share, a whopping 16% higher than what analysts were expecting.
Introducing the ETMF: A New Fund Alternative – Exchange-traded managed funds are an Eaton Vance (NYSE: EV) creation that it is calling “NextShares.” Like ETFs, these ETMF shares can be bought and sold in real time during the trading day. But like mutual funds, these hybrid securities won’t actually price until after the close at net asset value.
Putin’s Russia: A Contrarian Value Opportunity – According to Bloomberg, the top-performing BRIC emerging-market country in 2015 is Russia, when one looks at risk-adjusted returns. In nominal terms, the Russian benchmark Micex index is up 18% this year. With Western sanctions still lingering and low oil prices weighing on economic growth, Putin’s Russia isn’t for every investor. But with dirt cheap valuations, brave investors should consider dipping their toes in the Russian equity waters.
Have a great weekend!