TDI Podcast Highlights: Frank Curzio (#537)

This week’s highlights is from TDI Episode 537 with guest Frank Curzio. Make sure to check out his latest newsletter HERE.

Market Update:

  • S&P 500: 1.60%
  • Dow: 2.80%
  • NASDAQ 100: (1.10)%

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What’s Happening with the Markets? Andrew and Frank Curzio’s take:

  • Believes we are at a final push higher in domestic equities.
  • Tax plan proposal is continuing to keep a floor on stock prices with anticipation.
  • Due for a pull back.  Everyone thinks it, but it just doesn’t seem to be happening.
  • Hedge funds are underperforming as they are taking on less risk then buying overvalued stocks.  Their models are weighing the risk/reward scenarios and thus not buying some of the riskier stocks due to valuations.
  • Stock valuations are getting out of control.

In Economics:

  • Economics look really good across the board.
  • However, Frank is seeing a lot of troubling numbers out of auto and truck sales.

In Equities:

  • Frank is seeing a lot of disconnect in oil and gold stocks vs. their respective commodities.  The commodity prices continue to increase, yet the companies mining, servicing and producing are staying stagnant.
  • Value stocks have lagged dramatically against their Growth counterparts.  Frank and Andrew both are thinking there could be a major shift of this throughout 2018.
  • Frank really likes Diebold:  Diebold Nixdorf (DBD) is an American financial self-service, security and services corporation internationally engaged primarily in the sale, manufacture, installation and service of self-service transaction systems (such as ATMs and currency processing systems), point-of-sale terminals, physical security products (including vaults and currency processing systems), and software and related services for global financial, retail, and commercial markets.
    • Dropped from $40 to $16. Around $19 at the time of the interview.
    • Pays solid dividend
    • Think that companies will need to replace / upgrade ATM machines where Diebold could benefit.
    • Andrew thinks there is a lot of alternatives to cash and ATMs as we move toward a digital age of Venmo, PayPal, Apple Pay, etc… which could continue to be a headwind for this company.

On Underlying Fundamentals (Frank’s Take):

  • More stocks down this year then up within the Russell.
  • Within the Top 50 performing stocks this year from the Russell there were only 2 that generated earnings and less then 10% that generated revenue. This year you had to take a lot of excess risk in order to produce returns.

On Algo Trading:

  • Algorithms are working so well for companies that more and more of them are employing these types of strategies.
  • When Frank was working for Cramer:
    • Lists were sent out via email about what was to be discussed that night and before Frank could even read, the algos would be able to trade 500,000+ shares in a matter of milliseconds on the positions that were to be mentioned on Cramer’s show.
  • Fundamentals don’t seem to matter in the age of Algos. All is trading off the news of the moment.  Trading news items is being factored in so quickly that it’s shoot first ask questions later.

On Cryptocurrencies:

  • There is a very large appetite for the cryptocurrency market.  Is it a trend or a fad?
  • Frank and Andrew are both equating cryptocurrencies to the dot com bubble of 2000.
  • All you have to do now is put Crypto Currency, BlockChain or some other buzzword in a stocks name or description and you can easily get a big boost in your stock price similar to putting Dot Com after your company name in 2000.

On Global Investing / Economics:

  • Global PMI:
    • Trend globally has done very well.
    • From 53 to about 56 over the last couple of months.
    • Seeing Europe and other nations still pushing stimulus vs. the U.S. now backing off.
  • Many of the countries globally are growing a lot internally vs. relying on external investment and revenue.

On the Tax Plan:

  • Lots of amendments were cobbled together and changes made at the very last minute.
  • S&P 500 companies have an average effective tax rate of about 21%.
    • Companies due quite a bit of financial manipulation to get their tax rate down to 21%.
    • Frank thinks that if we are to pass this bill, revenues and recognition of revenues will be utilized to a greater extent.
    • Frank also believes that the tax bill will bring in a lot of repatriation of assets.  However, he believes that this will be utilized to buy back stocks rather then reinvesting back into the business.
    • Earnings and revenue should get a boost from these changes to the tax plan.
  • Net positive to the markets but believe that a lot of that upside is already baked into the market.

Frank’s Final Thoughts:

Fundamentals will eventually begin to matter.  While they didn’t matter this year, watch for value investing to come back into vogue as valuations continue to get stretched.  He thinks there are some great bargains right now.  Likes JC Penney (JCP) as they own their own real estate, so there is a bit of a floor for the security. They have $1.5 billion in debt due over the next 3-5 years but they also have $3 billion of liquidity.  Doesn’t see them going bankrupt.  Likes Kohl’s (KSS) as well.

Other Stocks to Watch:

Oil Space (Likes Oil Services companies) – Pioneer Natural Resources (PXD), Schlumberger (SLB), Superior Energy Services (SPN) (Highly Volatile).