FINSUM + Magnifi: Why the Nasdaq is Really Dropping
(March 2021)
The ten-year treasury yield hit one year high at 1.6% on Friday, just after President Biden signed the $1.9 trillion stimulus package into law. Some are arguing that this is a new equilibrium for a healthy U.S. economy; others are concerned that inflation is on the rise. The rest of the market was mixed as the Dow Rose on open and the S&P fell. The bigger story is tech stocks, as the Nasdaq fell over a percentage point on open. Some are pointing the fingers at increased regulation in China as tighter regulation affects the whole sector. However, others believe it’s the increase in bond yields that point to the reason for technology faltering. Inflation erodes future cash flows and if the Fed raises rates in the short run that could limit growing companies' access to cheap liquidity. Meanwhile, vaccine companies did well among the news of increased effectiveness in the U.K.
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FINSUM + Magnifi: Forget WFH, Here is the Next Asset Class to Jump
(March 2021)
The onset of the pandemic had weak demand for about every good in the U.S. except toilet paper. The traditional energy sector is the basis for so much of the economy that this, in turn, caused a huge oversupply, so much so that oil prices dipped into the negative. Pent-up demand and smaller supply put the traditional energy sector in a good place for a comeback as OPEC members have slowed production. As the economy opens back up, oil and gas will benefit from returning commutes, travel plans, and all the goods circulating the economy as well. Energy ETFs like the SPDR fund XLE, which has holdings of exclusively U.S. energy companies—with its largest holdings being among Exxon Mobil, Chevron, and ConocoPhillips—are in a bullish position to rally from the reopening. VanEck Vectors Oil Services (OIH) SPDR’s Oil and Gas Production ETF (XOP) also hold a collection of major oil and gas companies.
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FINSUM + Magnifi: This New Treatment Spells a Turnaround for Biotech Behemoth
(March 2021)
Vertex Pharmaceuticals was a shining star amongst the already bright biotech industry. In the nearly decade-long stretch between 2012 and 2020, it quadrupled the growth in the S&P 500. But as of late Vertex is slipping, down 25% since October since news broke about the halt of a new drug treatment. A drug intended to treat lung and liver disorder AATD was a bust, which caused the company that made its mark treating cystic fibrosis to slip. However, the fundamentals that allowed Vertex to climb in the 2010s are still present. Vertex continues to innovate in cystic fibrosis, with a new drug entering phase three of research, and Vertex has another play with AATD. It plans to enter the new drug into play for phase two of treatment in Q2. The company has considered acquisitions outside the company, but Vertex has assured investors of a robust development pipeline.
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FINSUM + Magnifi: Chinese Banking Experiences Unprecedented Rally
(March 2021)
The Chinese banking sector has a tighter leash with regulators than most all other countries. For the most part, this oversight keeps investors away, but a new day has come for the Chinese banking sector. Many investors are scouring previously underinvested industries to find value as Chinese mainstays have dipped. China’s cap-weighted index, CSI 300 Bank Index is up 12% YTD, despite fundamentals being relatively unchanged. Investors are veering away from companies that form the CSI 300 consumer staples index, seeing rising price-to-earnings ratios as a warning sign. Many also expect the regulatory burdens facing Chinese banks, who are being asked to support the economy with low-interest rates, to be lifted. Higher interest rates would bolster future earnings for the banking sector.
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FINSUM + Magnifi: Bonds Offer Security for Income Investors
(March 2021)
Bond market investing hasn’t seemed so attractive recently as rates on even long-term government debt such as the 10-year Treasury hit lows of 0.318% nearly a year ago, but the yield curve is sloping upward and it's time to move back into the bond market. For retirement investors, in particular, bonds offer safety and security at least at maturity, and for those looking to hedge, bonds gain in value as the tougher times hit the equity market. While young investors can bear swings in stocks, many don’t consider bonds to offer stability in tumultuous equity and employment markets. For investors getting closer to retirement, increasing bond/equity share is a no-brainer, but all investors can add some diversity to their portfolios. For growth-oriented investors international and corporate bonds ETFs like BND or BWX, income investors can look to inflation-protected securities like TIPS or ETFs like BLV, and short-term government debt is the answer for the most conservative.
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FINSUM + Magnifi: Regulators Stepping into Chinese Fintech
(March 2021)
The Premier of the state council of China, Li Keqqiang, announced plans to increase oversight and regulation in the country’s financial and fintech sectors. This comes as an addition to an over 3-year long saga of back and forth between the government regulators and the inscrutable financial sector. The aims are to create an economy that serves the people and the real economy, but in practice, it will very much curb the growing role of technology companies in finance. Giants in Chinese technology, such as Tencent and Ant Group Co., will be particularly hard hit by the new regulations. Microlending restrictions already shook up Ant Groups' initial public offering, placing it on hold. Regulators are also artificially lowering rates on lending and extending repayment timelines for small businesses.
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FINSUM + Magnifi: Look Out for a Big U-Turn in the Muni Market
(March 2021)
Even before the pandemic and subsequent crisis, the high-yield Muni market failed to deliver the returns after taxes that the corporate bond market did despite most being tax-exempt for investors. However, David Hammer, Exec Vice President of Pimco sees a different direction for muni's moving forward. Hammer says he sees high-yield muni’s value on the rise as tax collection holding increased in 2020 and a perception of less risk in muni’s. Hammer helps run Pimco’s High Yield Muni Bond fund (PHMIX), which has generated a 5-year annual return of 5.82% and ranks among the top 10% for its Morningstar category. PYMAX is another Pimco muni fund that has a lower $1,000 minimum investment. Hammer says he looks for bonds that are “resilient and have secured cash flows, and we can expect spreads to compress further.” Modern high-yield bonds aren’t all funding local governments; many are profitable private companies that are making public goods, such as airlines.
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Waste Management
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While investing in trash might not seem appealing, the predictability of the returns the industry generates should be— especially in a post-pandemic market. Consider that the global waste management market size was $2 trillion in 2019. It is expected to grow to $2.3 trillion by 2027, according to Allied Market Research.
Waste isn’t going anywhere. In fact, it’s projected to increase. Worldwide, municipal solid waste generates approximately 1.3 billion tons per year, which is expected to increase to approximately 2.2 billion tons per year by 2025.
Why So Much Trash?
For one thing, trash is fueled by consumerism. While the US represents just 4 percent of the world’s population, it produces 12 percent of global municipal solid waste (MSW), according to a new report by the research firm Verisk Maplecroft. In fact, the average American is responsible for 1,704 pounds of garbage per year, which is approximately three times the global average.
This is the case for other high-income countries as well. According to the World Bank, high-income countries generate about 34 percent, or 683 million tons, of waste globally, even though they only account for 16 percent of the world’s population.
The projected waste increase is also linked to the increase in the global population and the growth of urbanized populations.
Waste management is vital for the health and sustainability of cities. But, filling landfills isn’t what it used to be. Waste management innovation can actually play a major role in promoting sustainability and reducing the impact of climate change, which presents major opportunities for the waste management industry.
What Is Waste Management?
The waste sector consists of MSW landfills, industrial waste landfills, industrial wastewater treatment systems, and facilities that operate combustors or incinerators for the disposal of nonhazardous solid waste, according to the United States Environmental Protection Agency.
Waste management is “the transportation and disposable garbage, sewage, and other waste products. It involves treating solid waste and disposing unwanted products and substances in a safe and efficient manner,” according to Allied Market Research. The five major categories of MSW— or the waste that gets picked up on the curb— includes paper, food waste, plastic, metal, and glass.
There is some seasonality related to waste management. In the winter, for example, construction slows, and so does construction related waste. After storms, waste removal needs tend to increase.
Why Invest in Waste Management?
First, consider that waste management isn’t limited to trash pickup at your home. Commercial and residential entities have much higher waste needs. In fact, residential waste management accounts for under a third of the waste business.
But, residential pickup is steady business. Residential accounts are typically negotiated in 3-10 year contracts with municipal governments or homeowners associations. Sometimes, waste management companies have direct subscription services to individual customers. When contracts are renewed, it’s not typical for customers to switch providers, although it’s not unheard of.
Interestingly, the pandemic caused industrial waste to decrease because of various lockdown or shutdown measures. But, because everyone was home, residential waste increased exponentially. The pandemic also caused the demand for recyclables to drop, meaning that more trash was sent to landfills. The pandemic also greatly increased the need for the proper disposal of medical waste, including used masks, gloves, suits, syringes and other medical equipment. It is anticipated that as industries resume full-capacity production, so too will industrial waste management needs resume a greater capacity.
Waste management companies typically own the landfill sites, acting as a landlord for other companies that pay for a portion of landfill capacity.
Take the company Waste Management, for instance, which has 20 million customers in 48 states and Canada as well as a team of 44,900 employees. It may not be the most glamorous company, but its business model is easy to understand. Waste Management owns nearly 400 collection operations, 249 active solid waste landfills, 297 transfer stations, and 104 recycling centers, making it the largest non-hazardous waste operator.
These factors, and the fact that new landfills are hard to establish, make it hard for smaller competitors to gain market share. For investors, that means that major waste management companies can offer stable and reliable dividend stocks.
In general, waste management as an industry provides an essential service. More than 80 percent of its revenue is generated by services provided, which means that its revenues tend to remain stable even if the economy dips. In that capacity, the industry is considered recession-proof in some ways. Even if you lose your job, your trash will still need to be picked up.
While the business of waste management might seem stale, they have the ongoing opportunity for increased margins by increasing efficiency. (Think picking up dumpsters when full instead of half empty.)
In addition to increasing waste, the waste management industry has opportunities for implementing renewable technologies. Waste is linked to greenhouse gas emissions. According to the EPA, landfill gas (LFG) is a natural byproduct of the decomposition of organic material in landfills. It is composed of roughly 50 percent methane, 50 percent carbon dioxide, and a small amount of non-methane organic compounds.
The good news is that waste management companies can do something about it. Waste Management, for example, captures landfill gas and uses it to power residences, businesses and even trucks. Waste is growing, with it, so too will the need for waste management and innovation.
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The information and data are as of the March 8, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
FINSUM + Magnifi: BofA says Big Sell Signs are Flashing
(March 2021)
The post-pandemic bull run has touched the breaks, but not necessarily stopped the momentum. However, Bank of America’s Sell Side Indicator, which informs sell-side strategists how much of their portfolio should be allocated to equity. The Indicator jumped up near a percentage point in February after a rise in January as well. BofA Quant, Savita Subramanian indicated that the indicator is in the shell region, and the last time it reached this high was June 2007. Rising bond yields are also pointing to a let-up in equities. Finally, the Wilkshire 5000 (a total stock market indicator) divided by the annual U.S. GDP is Warren Buffet's favorite aggregator and is pushing to record highs. Rising interest naturally puts pressure on stocks anyway and maybe it gives investors an alternative to equities.
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FINSUM + Magnifi: Walmart is Stretching its Legs in Fintech
(March 2021)
Walmart (WMT) is synonymous with most consumers for their household products, but the retail giant is expanding its frontier of offerings. Walmart hired Omer Ismail and David Stark from Goldman Sachs as part of their new Fintech subsidiary. Ismail and Stark worked for Goldman in their consumer banking business platform called Marcus which brought retail customers higher interest rates on deposits. Walmart plans to launch the retail company with Ribbit Capital. Ribbit is the venture capital firm that helped fund Robinhood, which has brought many retail investors to the stock market and was a major figure in the GameStock frenzy. Walmart believes it leverages its retail investor knowledge with Ribbit’s fintech expertise to make a major statement. Walmart already offers a variety of fintech and banking services: credit cards, cashing checks, money transfers, and financed installments. Walmart's retail customer base is enormous and could be a game-changer in fintech.
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