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Moving Markets
Issue // April 18, 2023
UPDATE
🌤️ Good Morning, and Happy Tuesday
We hope you had a great Monday. Today is Tax Day: the federal individual tax filing deadline. Although you likely completed your taxes earlier in the year, you officially have until 11:59 PM tonight to mail or submit your taxes online.
This year, the day was moved from its usual April 15th to the 18th, as the traditional date fell on a weekend.
We have a great issue for you to read this Tuesday. Take care have a great week!
WEEK IN REVIEW
📈 Market Performance
Răzvan Băltărețu, via flickr
Last week was a generally green one for the S&P. From Tuesday to Monday's market close, the index saw a humble 1% increase with only a small dip on Wednesday. We have a detailed breakdown of why we use the S&P for our market performance updates in our MARK IT. Explained section below.
The higher Monday close is a welcome sign for many on Wall Street as the Q1 2023 earnings season begins. With several notable stocks at risk of missing their earnings estimates, a healthy market may help to counter any negative effects.
🖥️ Search Engine Troubles
Continuing our discussion of tech stocks from the past two issues, Google saw a whopping 4% or roughly $4.50 decline in its stock price over the weekend. The stock was trading around $109.50 after hours on Friday but opened near $104 on Monday.
The dip is likely a result of a report that phone manufacturer Samsung may opt for Microsoft's Bing as the default search engine on its devices. Google is currently the default search engine on Samsung internet apps.
Samsung and Google’s deal provides approximately $3B in revenue for Google and switching to Bing would be a major shift from the usual pairing. (Source: CNBC)
WEEKLY WATCHLIST
📆 Short Term Wins
Trafigura Images, via flickr
This week, we're bringing only one stock to your attention with short-term potential. As the Q1 2023 earnings season starts in the coming weeks, many stocks are expected to see drastic changes either up or down which may interfere with our analysis.
As a result, we're taking our time to find stocks that may move for specific reasons, as opposed to relying on general market volatility or swings.
STOCK #1
JetBlue Airways (JBLU)
With summer break and family vacations due to start in mid-May, airlines will be busy. After the holiday season, June is when most Americans travel; during these times, airline and transportation stocks usually see slight bumps in their share prices.
As seen in the stock chart below, December and February-March were both times when the price of JBLU stock shot up rather drastically. This is likely related to holiday and spring break travels.
We're bringing JetBlue to your attention as a short-term stock pick, which may see a payoff in the early summer months. We examine the valuation below, but we also observe JBLU's RSI is around 38, meaning it's relatively oversold.
JBLU (6-month), via Google Finance
⚠️ Recovering cash flows: Leading up to 2020, JetBlue was seeing slowly rising cash flows. With COVID lockdowns putting a massive strain on the travel industry, JetBlue's free cash flows decreased substantially, and have been choppy ever since.
🛑 No dividend: At this time, JetBlue does not currently pay a dividend. This is common among airline stocks.
✅ Undervalued according to DCF: According to our DCF model, a single JBLU stock is over 30% undervalued at the time of reporting.
🛑 High debt: Of the total Enterprise Value (EV) of JetBlue, debt is approximately 66% (4.38B) compared to a market cap of 34% (2.23B).
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via Grammarly media
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MARK IT. EXPLAINED
💲US Stock Market Indices
Katrina.Tuliao, CC BY 2.0, via Wikimedia Commons
When investors gauge market performance, much of their analysis starts with stock indices. A stock index is a standardized collection of equities that help investors compare market price levels over time.
Big names such as Apple, Exxon Mobil, and Ford can be aggregated into a single index, allowing investors to diversify their risk and limit excess allocation toward a certain sector. The three most prominent indices in the United States are the Dow Jones Industrial Average, S&P 500, and the Nasdaq Composite. Let’s break them down.
📈 Dow Jones
The Dow Jones Industrial Average, otherwise known as the Dow, was created in 1896 and comprises 30 large-cap, household name stocks. The Dow fixates on slower-moving, stable stocks, shying away from riskier growth names that may lead to a market bull run. The Dow’s heavy weighting of companies such as McDonald’s, United Healthcare, and Cisco Systems enables it to be the least volatile of the three indices.
Thanks to the Dow’s risk profile, the Dow will usually lag the S&P 500 and Nasdaq in market uptrends, and be a haven for sector rotation in downtrends. One other distinction is that the Dow weighs their holdings on equity price rather than market capitalization, meaning that stocks with higher prices are weighted heavier than stocks with lower prices.
📈 S&P 500
The S&P 500, made in 1962, arguably serves as the broadest measure of the American markets due to their inclusion of 11 sectors including Technology, Finance, and Energy, representing 69 industries in total. Compared to the Dow, the S&P 500 will include riskier, high-growth names such as Roblox and Block, leading to more volatile price movements over time.
The S&P 500 weighs stocks by market capitalization, meaning that companies with greater market capitalization are weighted heavier than stocks with lower market capitalization.
Quick note, market capitalization is simply the product of a company’s price of the stock by the total number of outstanding shares. For example, Apple’s market capitalization is 2.6 trillion, making it the S&P 500’s highest-weighted holding.
📈 Nasdaq
Finally, there’s the Nasdaq Composite, the largest index of non-financial companies on the Nasdaq exchange. Made in 1985, the Nasdaq Composite also weighs stocks by market capitalization but weighs heavily on technology companies.
Technology-based companies such as Microsoft, Google, and Meta account for nearly one-half of the Nasdaq Composite’s holdings, making this index nearly synonymous with the performance of the Technology Sector.
Therefore, the Nasdaq Composite can be highly sensitive to price swings in a few Technology stocks, making it the most volatile index of the three. With Q2 earnings for many technology companies around the corner, expect pronounced moves in the Nasdaq Composite versus the Dow or S&P 500.
Stock indices play a pivotal role in gauging the markets, giving investors insight into the health of certain sectors or the market as a whole. In addition, the diversified state of indices enables millions of investors to use them as stable pools for passive investment over time.
The S&P 500’s performance is commonly used as a benchmark for many firms and traders, as over time, the index has returned an average annual return of nearly 12% for the last 65 years. Visit this site to learn more about the indices’ holdings and their weightings: https://www.slickcharts.com/sp500
ONE MORE THING
🤝 Keep in Touch
This week's issue was edited and published by Abbas Akhtar. Our MARK IT. Explained section was written by contributing editor Mario Montero-Ruberu.
For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar
Also, we want to hear your feedback! Send any comments or suggestions to [email protected]
Thanks again for reading!
