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Make Way for a Change
Issue // April 4, 2023
UPDATE
Joke's on You (Maybe)
By The MARK IT. Team
🌤️ Good morning and happy Tuesday. We hope your first week of April got off to a great start yesterday. Saturday was April 1st which marked the tradition of April Fool’s Day, and we have to say: this year there were some good ones from sources you wouldn’t expect.
Our favorite was the Eiffel Tower’s official Twitter claiming it would be installing the world’s tallest slide around the tower. On the off chance you think you fell for one of these gags, or just want to see what companies were up to on Saturday, check out the Washington Post “ruins” April Fool’s article here.
Take care and have a great week!
WEEK IN REVIEW
Tick Tock for Tech?
By Abbas Akhtar
Huzaifa Abedeen, CC BY-SA 4.0, via Wikimedia Commons
With the banking industry largely stabilizing since the beginning of last week, the overall market has had time to see breakthroughs in other industries. Several oil stocks rallied throughout the week which helped push the S&P and NASDAQ up around 3.5% each in the past 5 days.
Furthermore, the 4000-point mark for the S&P (which we have mentioned extensively in other issues) was again passed on Wednesday. Since then, the index has seen a steady 2.75% increase and sits at 4,124.51 points as of Monday’s market close.
However, the news is not all good. Tech stocks especially have seen an overall decrease as fears that the long-running tech rally will begin to slow. For example, on Monday AMD saw a 1.32% drop and Amazon saw a 0.85% decline. Morgan Stanley strategist Michael Wilson warns that year-over-year growth for tech stocks isn’t sustainable, and the industry may soon see new lows. Source: Fortune
Lastly, Disney has begun its process of laying off around 7000 employees to refocus the company’s priorities and increase cash flow following a drop during COVID-19. The goal was announced in February, though, the company didn’t immediately begin the process. Last week, CEO Bob Iger released a letter to employees letting them know that the company had begun the first round of layoffs. You can read the letter here.
WEEKLY WATCHLIST
Say Cheese
Whether you’re smiling for a picture in your Sunday best, or just about to dig into a bowl of Mac and cheese, our stock picks this week have you covered. Though the following stocks don’t share the same industry, we believe both companies are critical in the day-to-day lives of consumers.
In investor terms, we see both of these stocks and value stocks because of their concrete usage, and being undervalued at the time of reporting helps their appeal.
STOCK #1
Nordstrom Inc (JWN)
JWN Stock (1-year), via Google Finance
⚠️ Unmoving cash flows: The past 10 years have seen steady cash flows for JWN, with limited increases or decreases. For value investors, this may mean the growth potential is limited.
âś… Great dividend: With a 4.59% dividend yield, Nordstrom has a great dividend for those looking to get into dividend investing.
✅ Undervalued according to DCF: Based on our discounted cash flow model, a single JWN stock at Monday’s market close price of $16.27 is more than 50% undervalued.
🛑 High debt: Of the total Enterprise Value (EV) of Nordstrom, debt is approximately 64% (4.64B) compared to a market cap of 36% (2.64B).
STOCK #2
Kraft Heinz Co (KHC)
Ivan Radic, via flickr
Before the COVID-19 lockdown and a nationwide economic decline, KHC stock had been decreasing from its all-time high of $96.65 in 2017. However, the stock had been trading at around 50 dollars until 2020. Since then, the stock has been trading between $35-40 which could be an opportunity for value investors to buy the stock before a possible correction to pre-COVID prices.
KHC Stock (1-year), via Google Finance
âś… Increasing cash flows: The past 10 years have seen steadily increasing cash flows for Kraft Heinz, except for 2022. Given a recovery in 2023, this can be a great sign for value investors.
âś… Great dividend: With a 4.12% dividend yield, Kraft Heinz has a great dividend for those looking to increase their dividend portfolio.
⚠️ Slightly undervalued according to DCF: Based on our discounted cash flow model, a single KHC stock at Monday’s market close price of $38.85 is approximately 10% undervalued.
âś… Higher debt: Of the total Enterprise Value (EV) of Kraft Heinz, debt is approximately 29% (20.07B) compared to a market cap of 71% (47.67B).
MARK IT. EXPLAINED
Explaining Stock Buy Backs
By Rahul Kannam
Gold Traders, via Blanchard Gold
A stock buyback is when a company buys back outstanding shares of that specified company from investors or markets. This reduces the number of shares in circulation and gives a boost to the stock price of that company. This move from a company allows the company to "invest in itself" or show investors that the company is doing well.
Stock buybacks reduce the number of shares circulating in markets and if demand is constant, the price rises due to the decrease in the supply of shares. They are usually seen as a positive event and a good indicator of what is to come in the economy, hence boosting investor confidence in the company as well as the outlook for the company's performance. Most companies utilize stock buybacks when they have excess cash and management has no other use for the excess cash. Stock buybacks can occur in mass when the economy is booming. For example, the Tax Cuts and Job Act helped corporations shift overseas cash back to America. Part of this excess cash initiated multiple stock buybacks that brought on market momentum in the coming months.
Overall, stock buybacks are a way for companies and corporations to buy back their shares and signal to investors that they have excess cash with a positive outlook for the future. Sources: Investopedia (taxes), Investopedia (terms)
ONE MORE THING
Keep in Touch
For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar
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Thanks again for reading!
