Why these pricey growth stocks are worth keeping, according to UBS
Source: marketwatch.com
Wednesday, Jul 17, 2019 08:33 by InvestingPie

After Tuesday’s trade-tweet related hit for equities, investors should be ready for a distraction.

That may come from some big names out later, including Netflix, whose shares have soared 6,000% over 10 years. Netflix is a classic example of a growth stock – offering above-average returns, but with the potential of higher risk for investors.

But some on Wall Street are concerned that the cost of those stocks, or valuation, is expensive, and indeed, this UBS chart shows that to be the case:

That leads us to our call of the day, also from UBS, whose equity strategists Francois Trahan and Samuel Blackman say we are “potentially at a very important point for growth investments.”

They offer up a second chart, which shows how the S&P 500 Pure Growth Index -- compiled of those types of companies -- tends to “go nowhere fast” once the Institute for Supply Management’s (ISM) survey of purchasing managers dips below 50. That key data point is right at 50 currently.

As the strategists explain, the reason those stocks stall out is because investors shift out of growth stocks to other themes such as defensive names as they get wary on the state of the economy. But their research shows that not all of those stocks fade, and that top performers tend to do well even as the ISM drops under 50. UBS has tried to identify the top stocks

 
What does seem to be the key, UBS finds, is how volatile a particular stock tends to be compared to the overall stock market. The measurement of that volatility is referred to as beta. And lower-beta stocks, as their chart shows, tend to perform better even in the worst of times.

 

The market

U.S. stocks opened a little bit on the weak side, with the Dow Jones Industrial Average DJIA, -0.22%   down 15 points.

Gold GCQ19, +0.88% and oil US:CLN19 US:CLN19 rose while the dollarDXY, -0.17% fell.

Europe stocks SXXP, -0.30% are steady and Asia ADOW, -0.31% was mostly weaker.

The chart

For those rattled by the pullback for stocks Tuesday, our chart of the day may calm your nerves. It’s provided by Michael Kramer, founder of Mott Capital Management, who has his eye on one index that not only isn’t faltering, but offers evidence that the S&P 500 is probably OK.

Kramer sees a “clear uptrend” for the Philadelphia Stock Exchange Housing Sector Index HGX, -0.35% which tracks dozens of housing development companies that work across the sector in the U.S. He’s watching for that index to break higher at the 325 level - illustrated in chart below - which has been a “powerful leading indicator to the S&P 500 in the past,” he notes.

The buzz

A small but chunky group of companies will report Wednesday, kicking off with Bank of America BAC, +1.03% and healthcare group Abbott Labs ABT, +3.81% ahead of the open. Streaming giant Netflix NFLX, -0.76% (see preview), online marketplace eBay  EBAY, -0.16%  and IT firm IBM IBM, -0.56%  are due after the close.

Shares of chipmaker Qualcomm QCOM, +1.36%  are up after the Justice Dept. backed its efforts to hold off enforcing an antitrust ruling.

Two days after President Trump tweeted that four Democratic freshmen should “go back” to their home countries, House Democrats voted to condemn what they called “racist comments.” But those tweets may have just bumped the president’s popularity, judging by this poll.

Tesla TSLA, +1.50%  CEO Elon Musk says his neuroscience startup Neuralink announced big advances towards a therapeutic device to link human brains and machines. Meanwhile, here he is on Twitter insisting his electric cars will appreciate in value over time. 

Housing starts, and permits, fell in June, with the Federal Reserve’s Beige Book of economic conditions due later.

The stat

$62 billion — That was how much retail money flowed into exchange traded funds for June, marking the highest monthly inflows since January 2018, and reverses outflows of $14 billion in May, according to Jefferies.

 
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Very informative
05-03 04:23 by Liam
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