Keep An Eye On Financials And Tesla This Week; FedEx Beats
Brian Gilmartin | Dec 21, 2020 12:04AM ET
With the news Friday night about the Fed allowing share repurchases by banks again, a possible fiscal stimulus agreement being reached yesterday, Sunday, December 20th, 2020 and a Barron’s article this weekend talking about the possibility for more bank mergers in 2021, today, Monday December 21, 2020, could be a big day for banks and Financial stocks. (Here's what I wrote yesterday.)
This s/sheet is worth noting: it will be updated this week after the Street updates their Financial sector EPS estimates for 2021:
The data is from IBES by Refinitiv. The first two columns show “expected” EPS growth for calendar years 2020, and 2021.
The 6 columns to the right were added to show weekly changes in the sector’s “expected” EPS growth from Q4 ’20 through Q3 ’21.
This s/sheet will be updated this week after the sell-side updates their 2020 EPS estimates. Readers should see nice bumps in 2021 estimates.
Financials as a percentage of the S&P 500’s market cap closed Friday at 10.4%, just above the low of 9.9% this summer. (10.6% is the lowest percentage I personally saw reading the IBES data by Refinitiv reports, but it night have been lower at some point this summer early fall, before October, ’20.) Schwab (NYSE:SCHW) and JPMorgan Chase & Co (NYSE:JPM) are the 5th and 6th largest individual stock positions when aggregating client accounts.
The Chicago Merc, CME Group (NASDAQ:CME) and Goldman Sachs (NYSE:GS) are ranked 15-17th in terms of largest positions, or basically mid-teens.
David Aurelio at Refinitiv wrote an interesting analytical piece late last week as part of Refinitiv’s S&P 500 market cap and earnings analysis.
The above table shows the S&P 500 “pre-Tesla” and “post-Tesla.”
That’s a pretty big influence for one single stock.
Tesla (NASDAQ:TSLA) traded 222 ml shares on Friday, December 18, over 4x average, and now has a $658 billion market cap.
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What worries me is that Jim Chanos of Kynokos still thinks Tesla is a “fraud.” That is strong language.
We're long some Tesla for client accounts at much lower prices. The stock is up 730% this year in terms of its “trailing” YTD return as of Friday, December 18th, 2020. It’s gotten to be a bigger position in some client accounts even though it started out well down the “weighting” stack, given the return.
FedEx Corporation (NYSE:FDX) reported fiscal Q2 ’21 financial results last Thursday night. I typically wait 24-48 hours before checking S&P 500 estimate revisions after companies report. Upon updating the forward EPS and revenue estimates for FDX yesterday, all buckets saw higher EPS and revenue estimates.
The big fundamental news though was the sharp increase in “4-Q trailing free-cash-flow” which reached $2.85 billion. FedEx has not had a quarter come close to that figure in the last 20 years, but that is what happens when you get a dramatic jump in volume through a high-fixed-cost, operating-levered, business model.
An estimated guess is that, while free-cash-generation could remain high for the next quarter or two, the growth will begin to taper again as tough comp’s are faced mid-’21.
Ground margins were less than what was expected by the Street, but that might ease after the holiday period.
Summary / conclusion: There was lots to write about this week, but not the time. Watch the Financial sector this week. Since the March 23rd lows, Mondays have typically seen big green opens as it is, and with the Fed releasing share repurchase activity Friday night after the close, Financials will likely be green Monday for several reasons.
There are two weeks left in the calendar year and roughly 7-8 trading days.
The real reason for my writing every week is to impose a discipline to constantly stay abreast and focus on market fundamentals.
Have a wonderful holiday. More posts will be coming this week. Remember too take all content with skepticism. There is no person, one style, one methodology, one system, or one firm that beats the market 100% of the time.
The market is way overdue for a correction with the sentiment indicators really elevated.
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