Note from Barron’s from 2/17/2014. We encourage readers to purchase Barron’s for the complete set of news, some of which are highlighted very briefly below.
Up & Down Wall Street – Stephanie Pomboy of MacroMavens says the markets capitalization has hit 200% of GDP, compared to 204% during the dot-com-bubble and 183% at the peak of the housing bubble.
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Review
DJ +2.3% to 16,154
SP500 +2.3% to 1,838
Comcast is buying Time Warner cable for $45b.
Congress increased the debt-ceiling limit through March 2015, February 27 was when borrowing capacity would have run out.
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PREVIEW
| DAY | EVENT | CONSENSUS | ACTUAL | LAST PERIOD |
| W | JANUARY HOUSING STARTS | 950K | 999K | |
| W | JANUARY PPI | 0.2% | 0.4% | |
| TH | JANUARY CPI | 0.1% | 0.3% | |
| TH | JANUARY LEADING INDICATORS | 0.4% | 0.1% | |
| TH | FEBRUARY PHILA. FED SURVEY | 10.0 | 9.4 | |
| F | JANUARY EXISTING HOME SALES | 4.77M | 4.87M | |
| Source: Bloomberg/FactSet | ||||
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Buckle Up!
This could be the hottest economy since the late 1990s according to Applied Global Macro Research based on strong outlook for housing. They are currently invested in consumer discretionary and home builders indexes. This outlook differs from consensus which has 2014 at 2.7% followed by 3% in 2015.
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Gulf Driller’s Shares Look Ready to Rally
EPL – $27.35 – trades for less than the value of reserves. Asset value is $41 per Stephan Berman of Canacord Genuity assuming $90 per barrel. Share count reduced by 3% over last three years.
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A New American Team Goes for the Gold
AAL could gain 50% or more in time.
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New Strategies for MLP Investors
Streak of MLPs beating the SP500 ended at 12 years last year. Payouts average 5.7% now. They finance construction and other infrastructure management by borrowing which will be impacted if interest rates rise. Companies need to generate real returns. Group has 60% of the volatility of the market. Returns equal yield plus distribution growth or 6% + 7% = 13% (about) but interest rates and commodity prices are the wild cards.
Stephen Marasca – top pick is LNG. Most upside and least downside. Current price ignores two new projects. TRGP – 28% growth this year. OKE – dividend hike.
John Edwards – PAA is best-in-class operator. MMP – strong balance sheet, solid management and low commodity price risk.
Rise in rates prices will go down in a knee-jerk reaction but if rates are rising due to a better economy spreads should tighten.
Always be careful of distribution coverage – what MLP can pay out divided by what they are paying out. EPD has a strong coverage ration of 1.4.
No gap standard for measuring maintenance capex.
Maresca arrives at price targets by taking expected cash flow and dividends and discounting it back. Discount rates based on commodity exposure and credit quality of customers.
Edwards likes MWE. Located in good areas.
Maresca likes ETE and ATLS.
Greg Reid likes WGP, NGL and RGP.
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HEALTHY GAINES AHEAD FOR CVS
13.9x next year’s earnings. David Larsen of Leerink Partners thinks shares could hit $85 (from about $70) in a year. Recently been beating estimates.