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JANUARY NEWSLETTER 5
WASHINGTON (MarketWatch) - The U.S. expanded at a 2.6% annual pace in fourth quarter, extending one of the best stretches of growth during the current eight-and-a-half-year-old upturn. GDP fell short of MarketWatch's 3% forecast, however, owing to lower inventory production and a bigger trade deficit. Consumer spending, the main engine of the economy, rose a strong 3.8%, the biggest increase in almost two years. Investment in new housing increased 11.6%, business spending on equipment surged 11.4% and outlays on structures edged up 1.4%, according to Commerce Department data. Yet the value of inventories declined by $29.3 billion. Trade was an even bigger drag on GDP. Imports jumped 13.9%, doubling the 6.9% rise in exports. Inflation as measured by the PCE price index increased at a 2.8% annual rate, the highest pace since 2011. Core PCE rose at a slower 1.9% clip, however.
ADDS DIGITAL CURRENCY
In what can only be described as a mammoth surprise, the U.S. International Trade Commission (ITC) decided Friday that The Boeing Co. (NYSE: BA) was not harmed by the sale of 75 Canada-manufactured Bombardier passenger jets to Delta Air Lines. The decision eliminates the nearly 300% antidumping and countervailing duties that the the U.S. Commerce Department recommended be imposed on each plane that Bombardier exports to the U.S.
Boeing filed the trade case early last year after Delta agreed to purchase 75 CS100 passenger jets from Bombardier. In every step leading up to Friday’s decision Boeing had prevailed.
In a terse statement the ITC said:
100- TO 150-SEAT LARGE CIVIL AIRCRAFT FROM CANADA DO NOT INJURE U.S. INDUSTRY, SAYS USITC
The U.S. International Trade Commission has made negative determinations in its final phase antidumping and countervailing duty investigations concerning 100- to 150-Seat Large Civil Aircraft from Canada.
Note to Users: This bulletin will be replaced by the news release when the release is available. News releases are generally issued approximately three hours after a Commission vote.
The ITC was expected to determine that Boeing was indeed harmed by Bombardier’s sale to Delta and the duties were expected to be upheld. While it’s tempting to speculate on the reason or reasons for the ITC’s decision, we’ll have to wait another couple of hours to get the details.
For now, that’s all there is.
Boeing stock traded down about 0.3% shortly after the announcement at $342.16 in a 52-week range of $160.82 to $352.23.
Following a delay that caused the company to miss the holiday buying season, Apple Inc. (NASDAQ: AAPL) announced this morning that its HomePod voice-controlled speaker will be available to order in the United States, the United Kingdom and Australia beginning Friday and will begin shipping to customers on February 9. The company also said that the device will be available in France and Germany later this spring.The HomePod speaker is Apple’s answer to Amazon.com Inc.’s (NASDAQ: AMZN) hugely popular Echo line of voice-controlled speakers and Alphabet Inc.’s (NASDAQ: GOOGL) Google Home device.The big question is whether the HomePod is enough better than its two main competitors to justify its $349 price. Amazon’s Echo has a list price of $99 and the Echo Plus sells for $149. The smaller Echo Dot currently sells for $49.99 but was available for $29.99 for holiday shoppers.Smart speakers have reached a “critical adoption threshold” according to comScore. Analysts at eMarketer project the number of U.S. smart speaker users to reach 35.6 million in 2017 (13% of internet users) and 52.8 million in 2019 (18.8% of internet users).Apple’s goal for the HomePod — and the reason the company gave for the delay — was tight integration with the rest of Apple’s iOS ecosystem. That may push some Apple true believers to pay the extra money, but Spotify subscribers, for example, won’t be able to use the HomePod’s voice controls — those are reserved for use only with Apple Music.Apple stock traded up fractionally just after the opening bell at $177.66, in a 52-week range of $119.50 to $177.78. The stock’s 12-month consensus price target is $189.34.
GOAL IS SMOOTH
GDP 4TH QUARTER
OUTLOOK FOR 2018
BOMBARDIER CASE REVERSED
MoneyGram International Inc. (NASDAQ: MGI) saw its shares make a handy gain on Thursday after the company announced that it has partnered with Ripple, a digital payment network as well as a cryptocurrency. The partnership is meant to pilot XRP (Ripple) in MoneyGram’s payment flows.This strategic partnership will allow Moneygram to understand how blockchain technology and XRP can improve the efficiency of its global treasury operations and consumer experience. Also as part of this agreement, both companies also will explore MoneyGram’s integration into Ripple’s ecosystem through xVia.XRP is one of the most efficient digital assets for payments, with its transaction fees at just fractions of a penny, which compares to bitcoin fees of about $30 per transaction. Similarly, the average transaction time for XRP is two or three seconds, with other top digital assets ranging from 15 minutes to an hour.Ripple provides one frictionless experience to send money globally using the power of blockchain. By joining Ripple’s growing, global network, financial institutions can process their customers’ payments anywhere in the world instantly, reliably and cost-effectively. Banks and payment providers can use the digital asset XRP to further reduce their costs and access new markets.
Brad Garlinghouse, CEO of Ripple, commented:
The inefficiencies of global payments don’t just affect banks, they also affect institutions like MoneyGram. Money transfer companies are incredibly important because they help people get money to their friends and loved ones. We are excited about this pilot and a long-term strategic partnership with MoneyGram. By using a digital asset like XRP that settles in three seconds or less, they can now move money as quickly as information.Shares of MoneyGram were last seen up about 7% to $13.01, with a consensus analyst price target of $13.67 and a 52-week range of $11.26 to $17.92.
It is no secret that stocks are in the middle of one of the greatest bull markets of our lives. The Dow Jones Industrial Average (DJIA) and S&P 500 have risen more than 300% from their March 2009 panic-selling lows, and the gains in 2017 were up over 25% on the Dow and up almost 19.5% on the S&P 500. Now we have seen Wall Street strategists call for even more upside in 2018 on the heels of tax reform and accelerated growth of earnings and gross domestic product.
If there is one stock that captures the love and interest of the investment community as the poster child of the bull market, Apple Inc. (NASDAQ: AAPL) would be the first name that comes to mind. This is by far the largest company by market cap, at $881 billion at the end of 2017. Some analysts are predicting that Apple will be the first public company ever to reach a market value of $1 trillion.
24/7 Wall St. has issued its annualized forecasting tool showing that DJIA at 26,400 and at least 2,855 on the S&P 500 seem to be the baseline targets for 2018. For this to occur, Apple almost certainly will have to play a role in the bull market’s nine-year run. In a bull-bear analysis of Apple, perhaps the real question is whether $1 trillion in future valuation is even enough?
As 2018 kicked off, the Dow hit 25,000 for the first time. The S&P 500 has blown through 2,700 like butter. The S&P 500’s total index market cap is $24.5 trillion, while the Dow’s total index market cap is almost $7 trillion.
Apple had a 2017 year-end price of $169.23, to generate its $881 billion market cap. That price gave it a weighting in the Dow of 4.78%, but despite its highest market cap the Dow’s price-weighted calculation made Apple only the sixth largest component by weight. The S&P 500 is a more realistic calculation due to a market cap-weighting methodology, and Apple was by far the largest weighting in that index. Apple also dominates the Nasdaq 100 for the highest weighting versus the entire index market capitalization of almost $8 trillion.
Apple was expected to generate a return of almost 16% in 2017. It almost tripled that gain with a total return of 46% for the year. And Apple’s year-end closing price came with a consensus analyst target price of $187.58 and a 1.49% yield, for a projected total return of over 12.3% in 2018, if the expectations come true.
So, what has to happen for Apple to become a $1 trillion company? Apple has continually outpaced the pack of analysts on expectations. If it manages to rise just the 12.33% expected in 2018, then the implied market cap would be right under $990 billion.
Apple’s year-end closing price of $169.23 and its consensus analyst price target of $187.58 sound impressive enough, but Apple shares already hit $177.20 back on December 18. After a year-end wave of small profit taking, Apple’s closing price after three days of trading in 2018 of $173.03 was up 2.25%.
Apple is viewed at the start of 2018 with at least some concern. Maybe that concern is misplaced as this stock has climbed the biggest wall of worry in history. The S&P 500 is now valued at close to 19 times expected 2018 earnings per share, but the mighty Apple is somehow valued at less than 15 times expected fiscal September 2018 earnings. Apple is also expected to grow earnings each year through at least 2020, and its dividend is expected to follow with more hikes as well.
The company had $229 billion in 2017 sales, and it has amassed more than $260 billion in cash.
Apple could also be a beneficiary under tax reform taking the corporate rate down to 21% from a nominal 35% for the United States. Apple is already a very international company, but its effective tax rate is closer to 25%. And Apple has well over $100 trillion that it can repatriate from overseas.
That repatriated cash poses a risk in the $1 trillion market cap chase. Apple has 5.13 billion shares outstanding, but Apple has been a massive acquirer of its own shares. That means Apple actually could shrink its float of shares further, and that might prevent the $1 trillion face value from becoming reality.
Another potential drag could be that Apple also said its devices were at risk due to security concerns embedded within its ARM-based and Intel CPUs. And there has been some concern that the Apple iPhone X has been disappointing to mixed since its launch. Instinet and others have voiced concern, but Piper Jaffray and others have been positive for a supercycle in Apple.24/7 Wall St.
10 Large-Cap Tech Stocks Expected to Outperform Apple and Amazon in 2018
The consensus analyst target price of $187.58 has been trumped by many analysts on Wall Street. RBC has a $190 target, Wells Fargo has a $195 target, HSBC has a $193 target and Morgan Stanley had a $194 target.
Apple has been slow to move off of its reliance on iPhone sales. Still, the company has music and content sales, and its Apple Watch is expanding into a health monitoring device. It has launched smart speakers, and Apple has a role of some sort in the coming trends of connected and autonomous vehicles. And Apple’s Mac computer sales have been rekindled.
So, is $1 trillion enough for Apple’s future market value? We shall see, but we may get to find out in 2018 or in early 2019. Apple has a 52-week range of $115.75 to $177.20.
And for those who worry that 2018 could be a bumpier stock market ride than 2017, investors can consider lower volatility strategies in case a big correction looks more likely. The lower volatility might not apply to Apple with such big gains, but it’s hard to find any technology stock fund that does not own Apple