It’s hard to know what the best approach to investing is. Do you pick stable, well-known companies whose value the market has underpriced? Or should you try to find new up-and-comers the market hasn’t come to appreciate yet? We’re not sure either. And with the way the last few months have played out, I’m no expert on the subject. So, for this month’s outlook, we turned to people who actually do know what they’re talking about.
Welcome to the June Lookahead: A Tale of Two Cities. We talked to two avid traders, one each from the Growth and Value investing camps. The things in their crosshairs and on their radar hold some important nuggets for what we all should be looking for. But first, a bit about the folks we turned to this month:
The Big Picture
Q: The $SPY has averaged +2.2% per month over the last 4 months. Do you think June finishes above or below that?
Justin: No clue!
With the chop on the water of the market at large since January, it’s of course forgivable to abstain from answering this question. From negative monthly returns earlier this year to now testing new all-time highs, not to mention macro uncertainty, there are too many factors baked into the direction of the $SPY to make a surefire bet.
Justin: “I don’t think in monthly intervals unless it’s for an individual stock and I see a pattern.”
However, you can still make an educated guess as to the direction if you just trust the major market drivers are heading in the right direction. And with summer coming, and the US opening back up, Joe sees this as necessary and sufficient to put some skin in the game.
Joe: “Consumer confidence and demand is coming back, insane commodities are moving back toward sanity, and good companies are back to positive price reaction to positive news and earnings. All good signs.”
Lining up with what Joe and Justin are saying, the CNN Fear & Greed Index shows Neutral trading sentiment for wide-market activity (S&P 500 momentum and Volatility), but Extreme Greed for the Put/Call ratio. While the compsite score over their 7 indicators gives us a precisely Neutral 50, the greed in options plays display investors’ very selective bullish-ness within their portfolios.
In The Crosshairs
Q: What stock(s) are you most excited about this month?
I need to preface this one in particular with an apology to you, dear reader, for not getting this to you sooner. These fellas are both picked some good ones that moved well in this first week of June.
Joe: “I really like Biogen ($BIIB) this month. The numbers are solid, it seems like the stock should be trading higher than $280. I think they’re onto something with their Alzheimer’s drug. Sure they’ve pushed new drugs through trials that have ended up failing before, but even that just adds to their experience here. I’ve also been trading $BRKS (Brooks Automation) pretty heavily. They do a lot of infrastructure for foundries, and cover a lot of the cold-storage supply chain for the Biotech industry.”
A fatal flaw of mine, apparently, is not blindly listening to Joe here as Biogen announced the approval of its Alzheimer’s drug on Monday and trading halted for the stock once it was up 60% on the day. A reputable pharmaceutical co, trading like a reddit stock… who would’ve thought.
Speaking of reddit stocks, our other analyst is closely watching social media darlings this month, namely Tesla and Gamestop. Justin, who’s got cash ready to deploy this month, will be watching the $GME price action most closely.
Q: What % of your portfolio is in cash currently?
Justin: “About 15% roughly. Soon to be much less depending on what happens with GME.“
Should Gamestop play out the way Justin sees, he imagines he’d take profits into $TSLA calls. Tesla shares have been on a downward trend since hitting a late January all-time high, and the stock’s recovery has lagged behind the growth rebound over the previous weeks, possibly making for an attractive entry this month.
Gamestop, which is up 15% since Monday’s open even after a red Wednesday, continues to rise in market cap, and for some godforsaken reason still continues to be shorted by institutions.
Ihor Dusaniwsky @ihors3
$GME short interest is $2.85BN11.48MM shares shorted20.15% SI% of Float16.77% S3 SI% Float0.79% feeShs shorted down -71K shares, worth $18M, -0.6%, over the last week.Shorts down -$7.13BN in 2021 mark-to-market losses; down -$363M on today's +12.7% move.
June 7th 2021
38 Retweets200 Likes
Joe: “From a value standpoint, there aren’t a lot of places in the market right now that are showing good entries. One possible exception is the Financial sector. There are a lot of borrowers, and the Financial Sector’s recovery has lagged behind its growth while putting up good numbers.”
So what!? How are we supposed to play this??
Joe bestows a few solid options:
First one, find some companies you like in the sector putting up good numbers but underperforming. The outcomes of some of the pandemic policies will be long-lasting and the market may be underpricing some of them. Lots of examples here so I’ll let you get into them on your own, but think $JPM, $ATH, $GS, and the like. Second option, find a Financial Sector ETF you like and wouldn’t mind holding for a while and set it and forget it. Due diligence is important here, find out what the underlying portfolio looks like and see if you like the risk/reward and if the fees are reasonable. Might want to start by looking at $FNCL (Fidelity), $XLF (SPDR), and/or $IYF (iShares) Financial ETS. Thirdly, and not for the faint of heart, check out a leveraged Financial Sector ETF like $FAS. That ETF, in particular, has been flat over the last month, but +116% over the previous 6 months.
So What’s Next?
There are a lot of dynamics at play. On one hand, we have grinding supply chain issues butting against pent-up demand, perfectly capable of inflating the prices of physical goods. This plays well into predictions by LPL Financial made in this Barron’s article which declares this year a candidate for a mid-year trough. More exactly, they forecast a 5-10% downtrend in the S&P 500 between May and October based on previous years with the same setup. However, there are many companies experiencing the same surge in demand while being perfectly capable of handling the traffic. Companies in that slice of the Venn Diagram still provide avenues for optimism and growth. It all just goes to show that when it’s hard to find the winners, good research pays off, and we’re building a tool to help you do just that over at babbl.dev.
This report would not exist if not for both our contributors’ inputs. Big thanks to Justin Tran and Joe Alberg for their time and insight. If they inspire some new positions for you, reach out and say hello to them! This particular issue of babbl’s Market Mood was written by Sam Cartford, co-founder and tech-lead, who hopes he’s held up Ramsey’s journalistic standards and also wishes you all a wonderful Thursday.