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Hero to Zero
Issue // March 14, 2023
UPDATE
Daylight Losing (An Hour)
By The MARK IT. Team
🌤️ Good morning, and happy Tuesday. We hope you had a restful weekend and a productive Monday. Saturday night/Sunday morning was when Americans set their clocks forward an hour for daylight savings. For most, this means losing out on an hour of sleep, but science shows there’s a technique to still wake up refreshed.
To best adapt to the one-hour difference, sleep researchers say you should treat the time change as you would traveling across time zones (hoping to avoid jet lag). Dr. Harneet Walia recommends you start a few days early by going to bed 15 to 30 minutes earlier and exposing yourself to bright light in the morning to jump-start your system. Source: Cleveland Clinic
Whether or not you eased into daylight savings, or are hoping to brute force it until November, we wish you a great rest of your week.
WEEK IN REVIEW
We’re Not Banking on That, Right?
By Abbas Akhtar
You’ve likely been hearing the name Silicon Valley Bank, or SVB, in the news for the past few days. Before the bank’s collapse last Friday, SVB was primarily active in the tech and startup sector, as it provided loans and banking services to several tech firms.
The collapse of the bank didn’t happen in one weekend, although it did happen fast. As is normal in the banking industry, some assets are put into US government bonds as a safe bet against inflation and volatility. However, as the Federal Reserve began raising interest rates in 2022 to fight inflation, the price of these bonds decreased significantly, causing SVB’s bond portfolio to yield much less than the average 10-year US Treasury bond.
When SVB announced on Wednesday that several securities from earlier trades were sold at a loss, many customers began to panic. This caused a bank run, which led to any remaining capital that the bank had to disappear as customers ran to withdraw their funds. From Wednesday to Thursday, SVB’s stock dropped an estimated 60% before the FDIC stepped in and began to liquidate the bank’s assets to pay back depositors.
Since Wednesday, the S&P as a whole has seen a significant drop as a decrease in bank sector stocks dragged down the index. Before the SVB news broke, the index was sitting near the 4000 point mark, however, a 3.31% decrease since, has the index at 3,855.76 as of Monday’s market close. Sources: New York Post, CNN
WEEKLY WATCHLIST
Reporting Financials
Last week was also when Chairman of the Federal Reserve Jerome Powell testified in front of Congress about monetary policy. Given the recent economic data and Powell’s hopes to keep growth high, he noted that “the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”
Because of this news, our stock picks for this week are likely for those looking long-term and have a tolerance for volatility in the short run. Both of these stocks are also within the banking and finance sector, however, their exposure to the SVB collapse has been found to be limited to none.
STOCK #1
American Express Company (AXP)
âś… Increasing cash flows: The past 10 years have seen steadily increasing cash flows for American Express, a great sign for value investors.
âś… Sizable dividend: With a 1.52% dividend yield, American Express has a sizable and consistent dividend.
✅ Undervalued according to DCF: Based on our discounted cash flow model, a single AXP stock at Monday’s market close price of $157.63 is 15-20% undervalued.
âś… Low debt: Of the total Enterprise Value (EV) of American Express Company, debt is approximately 27% (43.9B) compared to a market cap of 73% (117.3B).
While we give American Express all green marks for the data that we researched this week, this isn’t conclusive “buy” by any means. Value investors should do their own discounted cash flow calculations and research before deciding to buy. Worries about a recession or further interest rate hikes in mid 2023 might not make this a profitable stock in the short run.
STOCK #2
Bank of America Corp (BAC)
🛑 Decreasing cash flows: The past 10 years have seen slowly decreasing cash flows for Bank of America except for a slight bump up in 2018 and 2019.
âś… Solid dividend: With a 3.09% dividend yield, Bank of America has a higher yield than the S&P average yield.
✅ Undervalued according to DCF: Based on our discounted cash flow model, a single BAC stock at Monday’s market close price of $28.51 is more than 40% undervalued.
⚠️ Higher debt: Of the total Enterprise Value (EV) of Bank of America Corp, debt is approximately 57% (302.9B) compared to a market cap of 43% (228.05B).
ONE MORE THING
Keep in Touch
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Thanks again for reading!
