Author: The INO.com Team

Costly Gas and Extensive Summer Traveling: 3 Stocks to Keep Tabs On!

Posted on by The INO.com Team

2022 was an exceptionally good year for the energy sector, with most companies in the industry finishing the year off in the green, while the technology, communication services, and consumer cyclical sectors predominantly sported red. The energy sector was the S&P 500’s top performer last year, with a 58% spike.

Last year, an impressive run of energy stocks was supported by high oil and gas prices fueled by solid demand and tight supplies aggravated by Russia’s invasion of Ukraine.

Although energy prices have retreated from last year’s record highs, strong demand from extensive summer traveling, the reopening of the Chinese economy, and constrained supply amid recently announced production cuts by top exporters could significantly boost oil and gas prices.

Gasoline futures climbed past $2.8 per gallon, the highest in three weeks, driven by a bigger-than-expected inventory draw amid an improvement in domestic demand. Based on the new data from the Energy Information Administration, gas demand increased from 9.306 to 9.599 million b/d in the final week of last month.

In sync with gasoline prices, West Texas Intermediate (WTI) crude futures have been increasing toward two-month highs, boosted by output cuts by Saudi Arabia and Russia for August.

Energy stocks jumped sharply Friday afternoon while the S&P 500 struggled for direction, as U.S. oil prices witnessed their largest weekly gain since early April. The S&P 500’s energy sector grew 2.3% heading toward the closing bell Friday, while the broader stock market was mixed, according to FactSet data.

Moreover, WTI crude for August delivery increased 2.9% on Friday to settle at $73.86 a barrel on the New York Mercantile Exchange, the highest closing price since late May.

Several factors are putting upward pressure on gas and oil prices:

Increased Summer Travelling Boosts Demand for Gas

Gas and oil prices historically go up during the summer, starting around Memorial Day. More people traveling, especially on family vacations and road trips, boost demand for fuel. Approximately 85% of American adults intend to travel this summer, with nearly 42% of adults planning to travel more than last summer.

Also, approximately 39% of American adults, representing 100 million, intend to take a road trip more than 250 miles from their home.

Tight Fuel Supply in Spring Due to Refinery Maintenance

During the spring months, energy companies conduct maintenance on their refineries, shutting them down and limiting capacity until late May. US fuel production is likely to be affected by a heavy refinery maintenance schedule, and a stretched supply is expected to increase oil and gas prices considerably.

China Reopening Boosts Oil Demand

According to the latest International Energy Agency (IEA) Oil Market Report (OMR), global oil demand is expected to grow by 2.4 million barrels per day (mb/d) this year to a new record of 102.30 mb/d driven by substantial demand from China. The nation’s rebound remains persistent, with its oil demand reaching an all-time high of 16.3 mb/d in April.

Furthermore, Wood Mackenzie said in the report that China will make up roughly 40% of the world’s recovery in oil demand in 2023, driven by the reopening of its economy.

“A return to normal mobility in China is the single biggest demand driver, accounting for 1.0 million barrels per day (b/d) of the 2.6 million b/d increase this year,” a team of analysts led by Vice President Massimo Di Odoardo said in the report.

Recent Production Cuts

Supply cuts from top exporters, Saudi Arabia and Russia, would help to build a supportive environment for oil and gas prices this year. Saudi Arabia said last Monday that it would extend a cut in oil production of 1 mb/d that was announced in June through at least August to push up oil prices.
The Saudis were joined by Russia, whose deputy prime minister Alexander Novak said Moscow would cut output by 500,000 barrels in August. Together these cuts could amount to 1.5% of global supplies.

Last month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, announced that it will stick to its 2023 oil production targets and will limit combined oil production to 40.463 mb/d over January-December 2024. Earlier, the alliance agreed to a 2 mb/d output cut in October 2022.

Also, in April this year, some OPEC+ members announced voluntary cuts to their oil production of approximately 1.16 mb/d in a surprise move.

3 Energy Stocks to Benefit from Strong Demand and Constrained Supplies

Cheniere Energy Partners, L.P. (CQP) is positioned to benefit from the demand and supply dynamics. Through its subsidiaries, the company offers liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies globally.

On February 23, CQP announced that certain of its subsidiaries initiated the pre-filing review process under the National Environmental Policy Act with the Federal Energy Regulatory Commission (FERC) for the proposed Sabine Pass Stage 5 Expansion Project (the SPL Expansion Project) adjacent to the existing Sabine Pass Liquefaction Project (the SPL Project).

The SPL Expansion Project, designed for a production capacity of 20 million tonnes per annum of liquefied natural gas, would utilize the existing infrastructure at the SPL Project and include improvements such as optimized ship loading at the marine facilities. This would enable the company to meet the growing demand for LNG, expand its market share, and generate higher revenue.

Also, in April, certain of the company’s subsidiaries signed a contract with Bechtel Energy Inc. to provide the Front End Engineering and Design (FEED) for the SPL Expansion Project.

For the first quarter that ended March 31, 2023, CQP reported total revenues of $2.92 billion, while its LNG revenues were $2.11 billion. Its income from operations rose 488.1% year-over-year to $2.13 billion. The company’s net income was $1.94 billion, up 1,117% from the prior year’s quarter.

In addition, CQP’s net income per common unit came in at $3.50, compared to a net loss per common unit of $0.11 in the previous-year period.

Analysts expect CQP’s EPS for the fiscal year (ending December 2023) to increase 35.1% year-over-year to $5.47. Furthermore, the company’s EPS is expected to grow 4.4% per annum over the next five years.

Another prominent energy stock, NuStar Energy L.P. (NS) , stands to profit from high fuel demand in the summer. NS engages in the transportation, terminalling, and storage of petroleum products and renewable fuels and the transportation of anhydrous ammonia in the United States and internationally. The company operates through Pipeline; Storage; and Fuels Marketing segments.

On May 4, NS and OCI Global (OCI) announced an agreement that would involve NS transporting ammonia on a new segment of NuStar Pipeline Operating Partnership L.P.’s Ammonia Pipeline System to OCI’s state-of-the-art ammonia products.

Under the deal, NS would install a new 14-mile pipeline segment connecting OCI’s Nitrogen facility in Wever, Iowa, with NS’ existing 2,000 miles anhydrous ammonia pipeline.

“We expect this healthy-return, low-capital project will meaningfully increase utilization of our Ammonia System,” said NS’ Chairman and CEO Brad Barron. “And we expect this project to be just the first of several, as we are actively working with a number of potential customers interested in connections to our system, across our footprint, for a variety of different opportunities.”

NS announced solid results for the first quarter of 2023, driven by strong volumes in its refined products and oil pipelines. The company’s Service revenues grew 7.5% year-over-year to $285.27 million. Its operating income was $159.99 million, an increase of 173.8% year-over-year. Also, its adjusted EBITDA rose 7.9% from the year-ago value to $187.03 million.

Furthermore, NS reported a net income of $106 million for the first quarter of 2023, or $0.61 per unit, compared to a net income of $12 million or a $0.22 net loss per unit for the first quarter of 2022. The company’s adjusted distributable cash flow (DCF) was $100.74 million, up 10.6% from the previous year’s period.

For the fiscal year 2023, NS’ EPS is estimated to increase 240.4% year-over-year to $1.23. In addition, analysts expect the company’s EPS and revenue for the fiscal year 2024 to grow 7.5% and 5% year-over-year to $1.32 and $1.65 billion, respectively
The third energy stock well-placed to capitalize on high demand during hot summer weather is MPLX LP (MPLX). The company owns and operates midstream energy infrastructure and logistics assets primarily in the United States. MPLX operates through two segments: Logistics and Storage and Gathering and Processing.

During the fiscal 2023 first quarter, MPLX reported total revenue and other income of $2.71 billion, up 4% year-over-year. Net income attributable to MPLX was $943 million, compared with $825 million for the same quarter of 2022. In addition, adjusted EBITDA attributable to MPLX was $1.52 billion, an increase of 9% from the prior year’s quarter.

Furthermore, during the quarter, the company generated $1.23 billion in net cash provided by operating activities, $1.27 billion of distributable cash flow, and adjusted free cash flow of £1.01 billion. MPLX returned $821 million to unitholders and announced a first-quarter 2023 distribution of $0.775 per unit, resulting in a distributable coverage ratio of 1.6x for the quarter.

Michael J. Hennigan, MPLX chairman, president, and CEO, said, “Our business continues to grow and generate strong cash flows. We are advancing our growth projects anchored in the Marcellus, Permian and Bakken basins.”

“These disciplined investments in high return projects, along with our focus on costs and portfolio optimization, are expected to grow our cash flows. This will allow us to reinvest in the business and return capital to unitholders,” he added.

Analysts expect MPLX’s revenue and EPS for the fourth quarter (ending December 2023) to increase 2.2% and 15.7% year-over-year to $2.72 billion and $0.90, respectively. The consensus revenue and EPS estimates of $10.98 billion and $3.64 for the fiscal year 2024 indicate a growth of 1.8% and 4% year-over-year, respectively.

From Overstock to Bed Bath & Beyond Inc. (BBBYQ): What Investors Need to Know

Posted on by The INO.com Team

After months of scrambling for survival and frantic efforts to stage a turnaround, the struggling omnichannel retailer of domestic merchandise and various juvenile products, Bed Bath & Beyond Inc. (BBBYQ), succumbed to gravity earlier this year. Despite securing a financing deal on February 7, it filed for Chapter 11 bankruptcy protection on April 23.

With Holly Etlin, a longtime retail turnaround expert and a partner and managing director with advisory group AlixPartners, at the helm, BBBYQ set about liquidating assets by committing to close all of its Harmon FaceValue stores while keeping 360 namesake stores and 120 Buy Buy Baby locations open and filing motions in New Jersey bankruptcy court asking permission to auction the two brands.

However, since Buy Buy Baby, often considered a crown jewel of BBBYQ’s portfolio, was garnering the most attention and interest to unlock maximum value, BBBYQ, in a rare move, chose to run separate sale processes for its two chains. According to the company, a different method was selected to find a bidder willing to keep the banner’s stores open without the headache of taking on the assets of the namesake stores.

On June 21, online retailer Overstock.com, Inc. (OSTK) won the auction and agreed to buy Bed Bath’s intellectual property and digital assets for $21.5 million. However, the deal does not include keeping the chain’s brick-and-mortar presence alive.

Moreover, the sale price is the same as OSTK’s stalking horse bid on June 13, indicating Bed Bath didn’t receive higher or more attractive bids.

On the other hand, Buy Buy Baby, which sells baby clothes, furniture, and other goods, had courted attention from buyers even before BBBYQ threw in the towel. Consequently, since the sale began, the chain had interested buyers, such as retail investment firm Go Global and online registry platform Babylist, with the former even considering keeping its physical footprint alive.

However, given the rising costs (including leases, overhead costs, and salaries) and waning interest in keeping Buy Buy Baby’s stores open, BBBYQ decided to split the auction process further to secure a higher bid price.

On June 29, Dream on Me, a little-known baby retailer based in Piscataway, New Jersey, which sells cribs, strollers, and other baby goods through a host of retail partners, tentatively won the auction with a bid price of $15.5 million for the intellectual property, business data, internet properties, and mobile platform.

The Aftermath

OSTK, which acquired Bad Bath’s intellectual property assets but opted out of acquiring stores and inventories, has decided to change its website name by moving under the Bed Bath & Beyond domain name in the coming weeks.

The website, post its rebranding, has been relaunched in Canada. This is expected to be followed by a rollout of a website, mobile app, and loyalty program in the U.S. “weeks later.”

OSTK has also been suffering from a shift in consumer spending from discretionary household purchases to out-of-home experiences, such as traveling and dining out. According to its earnings release for the first quarter of the fiscal year, the online retailer reported revenue of $381 million and a net loss of $10 million.

However, given that OSTK has still managed to surpass estimates and the rebranding post the Bed Bath & Beyond acquisition is expected to lift its sagging sales, the stock has popped nearly 5% after it won the auction. As a result, the stock has gained 33.1% over the past month and 55.5% year-to-date.
According to OSTK CEO Jonathan Johnson, “The combination of our winning asset-light business model and the high awareness and loyalty of the Bed Bath & Beyond brand will improve the customer experience and position the Company for accelerated market share growth.”

Regarding Buy Buy Baby, Dream on Me’s win for the former’s intellectual property is only tentative. However, the cancellation of the July 7 auction for the chain owing to the failure to secure a buyer willing to keep its stores running means that Dream on Me Industries is in the pole position to secure its ownership.

Road Ahead for BBBYQ

BBBYQ has been the victim of inflationary pressures and online retail altering brick-and-mortar stores in today’s economy, resulting in widespread store closures, as we discussed in our posts on May 25 and June 14.

According to Neil Saunders, a retail analyst and consultant who works as managing director of GlobalData, “If there is a single point of failure of Bed Bath and Beyond, it’s that the company stopped being relevant to consumers. Arguably, this goes back a long way, thanks to the rise of online and the improvement of home offers at rivals like Target. Against this increased competition, Bed Bath and Beyond’s approach to retail – which lacked inspiration – was found wanting.”

After the acquisition of both its brands and associated intellectual property, which were together valued at $13.4 million but have individually fetched more than double the amount, BBBYQ is left with its employees, empty stores, leases, and leftover inventory.

Any firm willing to take over will likely have to shut the stores down for a couple of months to restock and get them back up and running. Hence, without qualified and interested buyers, the leftovers appear to be more liabilities than assets.

Moreover, BBBYQ had loans with TJP Morgan Chase & Co. (JPM) and Sixth Street that were reduced in late March after its second stock offering was announced. At the time, its total revolving commitment decreased from $565 million to $300 million, and its revolving credit facility was reduced from $225 million to $175 million.

Bottomline

OSTK seems to have derived the maximum value from a distressed sale of an iconic brand.
However, with significantly greater debt to service than proceeds from the sale and its once-instrumental physical assets still weighing it down, BBBYQ seems to have got the short stick in the bargain and is unlikely to have any residual value that could make holding on to the stock worthwhile for its shareholders.

Will United Parcel Service (UPS) Stock Hold Strong Against Strike?

Posted on by The INO.com Team

Last month, United Parcel Service, Inc. (UPS) and the Teamsters union, representing 340,000 full-and part-time UPS employees, reached a tentative deal to equip more trucks with air conditioning systems. Under the agreement, UPS said it would add air conditioning to all larger delivery vehicles, smaller sprinter vans, and brown package vehicles purchased after January 1, 2024.

Existing vehicles wouldn’t get that upgrade, but they will have other additions like two fans and air intake vents.
However, negotiations broke down last week between UPS and its Teamster-represented workers, just weeks before their contract is set to expire on July 31.

Negotiations Collapse Between UPS and Teamsters

Talks between the shipping giant UPS and the union fell apart Wednesday last week, increasing the possibility of what would be one of the largest strikes in U.S. history. Representatives from UPS and the Teamsters failed to reach a deal on a new contract, blaming each side for walking away.
“Following marathon negotiations, UPS refused to give the Teamsters a last, best, and final offer, telling the union the company had nothing more to give,” the Teamsters said in a statement.

The union claimed that UPS “walked away from the bargaining table after presenting an unacceptable offer,” which the UPS Teamsters National Negotiating Committee “unanimously rejected.”

UPS, meanwhile, said in a statement, “The Teamsters have stopped negotiating despite historic proposals that build on our industry-leading pay. We have nearly a month left to negotiate. We have not walked away, and the union has a responsibility to remain at the table.”

“Refusing to negotiate, especially when the finish line is in sight, creates significant unease among employees and customers and threatens to disrupt the U.S. economy. Only our non-union competitors benefit from the Teamsters’ action,” UPS added while calling on the Teamsters to “return to the table to finalize this deal.”

No additional negotiations are scheduled, according to the Teamsters.

Last month, rank-and-file UPS Teamsters authorized a strike, and the union stated that UPS members would not work beyond the expiration of the current contract.

Union’s Demands

The Teamsters are fighting to win an agreement at UPS that “guarantees better pay for all workers, eliminates a two-tier wage system, increases full-time jobs, resolves safety and health concerns, and provides stronger protections against managerial harassment.”
UPS and the Teamsters have made some progress since negotiations commenced earlier this year. The two sides agreed on heat safety that UPS said would equip all newly purchased U.S. delivery vehicles with AC beginning January 1 next year.

Furthermore, both sides agreed to end a two-tier wage system for drivers, establish Martin Luther King Jr. Day as a full holiday, and end forced overtime on drivers’ day offs.

The union is still pushing to raise wages for part-time workers at UPS, with leaders pointing to the company’s increase in profits during the pandemic.
“It’s an extremely tough job. And when you talk about the part-timers, their part-time wage rate right now is about $16 per hour,” Teamsters General President Sean M. O’Brien said. “We want to establish a livable starting wage for part-timers, but also make sure we reward those part-timers who work through the pandemic.”

A Potential Strike by UPS Workers

Members of the Teamsters voted nearly 97% in favor of authorizing a strike to start on August 1 if there is no agreement in contract talks between the shipping company and the union.

Sean M. O’Brien said, “This vote shows that hundreds of thousands of Teamsters are united and determined to get the best contract in our history at UPS. If this multibillion-dollar corporation fails to deliver on the contract that our hardworking members deserve, UPS will be striking itself. The strongest leverage our members have is their labor and they are prepared to withhold it to ensure UPS acts accordingly.”

Regarding this, UPS said it remains confident that there won’t be a strike this time.

“The results do not mean that a strike is imminent and do not impact our current business operations in any way,” the company said. “We continue to make progress on key issues and remain confident that we will reach an agreement that provides wins for our employees, the Teamsters, our company and our customers.”

If a strike does happen, it would be the largest against a single employer in America’s history, as the package delivery company is the biggest unionized employer in the sector and is extremely crucial to the country’s economy.

The last time UPS workers went on strike was in 1997, which significantly damaged the company and the economy. A UPS strike by 185,000 workers brought the shipping giant’s operations to a standstill, costing it $850 million and sending some customers to its rivals.

The strike that lasted for 15 days slashed package deliveries, overwhelmed the United States Postal Service and FedEx Corporation (FDX), and majorly hurt businesses nationwide.

Will The Company and The Economy Take a Hit If a Deal Isn’t Made This Time?

UPS is one of the largest shipping companies in the United States, with a 2022 revenue of $100.30 billion. According to the global shipping firm Pitney Bowes, UPS shipped 5.2 billion U.S. parcels in 2022, representing approximately a quarter of all packages (21.2 billion) delivered nationwide.

Moreover, the shipping giant’s annual profits in the past two years are close to three times what they were pre-pandemic. UPS returned about $8.6 billion to shareholders in the form of dividends and stock buybacks in 2022 and forecasts another $8.4 billion for shareholders this year.

UPS claims it delivers nearly 6% of the country’s gross domestic product (GDP). The company plays a vital role in the smooth movement of goods the economy depends upon. That means if the UPS Teamsters go on a strike, there would be far-reaching implications for the economy, particularly the supply chain, which is still recovering from pandemic-related disruptions.

Moreover, these years since the pandemic have been a stark lesson to what happens to the economy when the supply chains are disrupted or don’t work as smoothly as expected and when a shortage of truck drivers and shipping containers causes massive delays and higher prices for various goods.
So, a strike now will likely cause a logistical mess for suppliers and businesses that rely on UPS, as it did in 1997. In decades since then, the volume of parcels shipped has considerably grown due to the surge in e-commerce, while other players, including Walmart Inc. (WMT), , have entered the industry.

As per Pitney Bowes, UPS delivers about 37% of America’s total parcel volume, which is an average of more than 21 million packages a day. The remaining parcel market comprises FedEx with 33%, the U.S. Postal Service with 16%, and Amazon Logistics with 12%.

In the last strike by UPS workers almost 25 years ago, rivals to the company benefited primarily. The U.S. Postal Service witnessed a $450 million increase in revenue in 1997, and FedEx received an additional 15% of the shipping volume. Even three months following the 15-day strike, UPS volume was down 2% from industry forecasts for the crucial holiday season.

Once the strike was over in 1997, the backlog of 90 million packages met employees. Also, thousands of employees opted not to return at all, even when UPS struck a deal with the Teamsters.

This time around, although there are more shipping alternatives than there were 25 years ago, still the smooth functioning of the U.S. economy is expected to get disrupted.

FedEx issued an advisory last Thursday that there will be limits to how many shipments will get accepted from businesses if a strike commences at UPS.
“In the event of an industry disruption, FedEx’s priority is protecting capacity and service for existing customers,” said FedEx in a memo sent to its sales force. “Over the last six months, we have been actively communicating with current and potential customers and urging them to transition business while capacity is available. Time is now running out.”

Most importantly, this strike would be a massive blow for UPS as it may struggle to recover the volume of packages it would lose to its competitors.

How Should Investors Approach This News?

Shares of logistics giant UPS are under immense pressure lately as clouds of a workers’ strike continue to brew. Investors are taking the threat of a possible strike seriously.

Several UPS insiders ditched their stock over the past year. The biggest single sale by an insider was made when the Executive VP and President of International, Kathleen Gutmann, sold $10 million worth of shares at $190 per share. UPS insiders didn’t buy any shares over the last 12 months.

Insiders own nearly 0.07% of the shipping company, currently worth about $114 million based on the recent share price.

In addition, Hendershot Investments Inc. lowered its stake in shares of UPS by 3.6% during the first quarter, according to the company’s most recent Form 13F filing with the Securities and Exchange Commission (SEC). After selling 2,626 shares of UPS, the investment fund owned 70,434 shares of the logistics company’s stock.

Investors are advised to approach UPS stock with caution as the potential strike of its workers might lead to a significant fall in the transportation company’s revenue and a sharp decline in its market share as it would lose its volume of packages to its rivals.

Bottom Line

With both sides having made some progress since negotiations started earlier this year, including reaching an agreement on heat safety and ending a two-tier wage system for drivers, the union is still pushing to raise wages for part-time workers at the company.
If, at worst, the agreement isn’t made, a massive strike by UPS workers could devastate the overall U.S. economy’s smooth functioning. Also, the logistics company would be at high risk of losing its market share to its competitors and witnessing a significant decline in revenue and earnings.

Bank of America (BAC) Brace for a 'Big Collapse' - Here's Your Plan

Posted on by The INO.com Team

According to recent data released by payroll processing firm ADP, private sector jobs surged by 497,000 in June, coming in at more than twice the expectations and reigniting fears of resumption in rate hikes by the Federal Reserve, which markets have been ignoring during the latest bull run.

Consequently, as the 2-year treasury yield hits a 16-year high amid a broad market selloff, a recent note by Michael Hartnett, chief investment strategist for Bank of America Corporation (BAC), that, rather than seeing a long-lasting bull market, the jump represents a “big rally before big collapse” is seeming more credible than ever.

After ten consecutive and aggressive interest-rate hikes over the past year, the Fed opted for a pause citing concerns regarding economic growth and the need to assess lagged impact of policy.

However, in his remarks to Congress a week after the June 13-14 FOMC meeting, Fed Chairman Jerome Powell said the central bank has “a long way to go” to bring inflation back to the Fed’s 2% goal.

Moreover, according to the meeting minutes, almost all Fed officials concurred to indicate further, albeit slower, tightening as inflation remains elevated at 4.6% and job openings outnumber available workers by a nearly 2-to-1 margin.

Gita Gopinath, first deputy managing director of the International Monetary Fund (IMF), also echoed that central bankers “should continue tightening and importantly [interest rates] should stay at a high level for a while.”

Hence, with pent-up demand for travel and leisure during the pandemic responsible for the expectation-crushing employment numbers, with Leisure and Hospitality leading with 232,000 new hires, it would take irrational exuberance to extrapolate it to perpetuity. With a plausible risk of this tailwind losing momentum, the broader economy could be left high, dry, and strangled with increased borrowing costs.

This could intensify the creeping malaise of defaults and bankruptcies. Corporate defaults rose last month, with 41 in the U.S. so far this year. That’s more than double the same period last year, according to Moody’s Investors Service, which expects the global default rate to rise to 4.6% by the end of the year and 5% by April 2024, higher than the long-term average of 4.1%.

There isn’t much optimism to be found away from home, either. With Chinese recovery after years of strict Covid lockdowns fast losing steam, the slump in the country’s real estate forecasted to last for years, and the government unlikely to pursue an aggressive fiscal stimulus package, it’s unsurprising that global commodities have seen a more than 25% slump over the last 12 months as reflected by the S&P GSCI Commodities index, with Brent crude plunging 34.76% year-on-year despite OPEC’s output cuts coming into play.

Moreover, with the 20-member Eurozone bloc reporting GDP growth of -0.1% for the first quarter, with Ireland, the Netherlands, Germany, and Greece reporting an economic quarter-on-quarter contraction, it is difficult to see where the demand that could make the Chinese manufacturing fire on all cylinders and lift the commodity prices is going to come from.

Amid this general doom and gloom, HSBC Asset Management’s warning that a U.S. recession is coming this year, with Europe to follow in 2024, is gaining credibility with each passing day.

Counterpoint

Financial journalists, including yours truly, are often guilty of propagating expert bias in the psychology of human misjudgment by quoting and referring to (undoubtedly well-meaning) economists, who, just like the fabled Chicken Little, convince themselves and others that the sky is falling with every falling acorn.

However, most economists are conspicuously absent from the Forbes list of billionaires and, perhaps even more conspicuously, have not been able to spot a single recession (including the ones in 1990, 2001, and 2008) since the Philly Fed survey started.

Hence, we could attribute their (of late) misfiring forecasts of the recession that’s always around the corner to the tendency of our flawed human minds to first come to a conclusion and then selectively filter facts that strengthen the argument.

Hence, the fact that a resilient economy has been able to successfully weather Covid-19, the bursting of the crypto and the FTX fraud, geopolitical conflicts, a tech bubble 2.0, supply chain shortages, globalization, banking failures, office vacancies, and higher interest rates (just to name a few), is creating a vacuum of cluelessness that narratives such as “rolling recession” and “richcession” are rushing to fill.

In his book Sapiens, historian Yuval Noah Harari interestingly classified chaos into two categories: First-Order Chaos which is unaffected by predictions about it, such as the weather, and Second Order Chaos, which responds and adjusts to predictions about it, such as economics and politics. Therefore, the fact that measuring and forecasting can change the subject makes the latter category infinitely harder to gauge.

Hence, while it is true that some industries are surely shrinking while the overall economy remains above water and major job cuts have been concentrated in higher-paying industries like technology and finance, it might be the widespread cognition about those phenomena that makes the sinking of the broader economy far less likely.

For instance, the federal government and employers in the hotel, retail, and even railroad industries are seeking to hire people who have been laid off by the tech giants.

Bottomline

Howard Marks, in one of his famed memos, wrote about an impressively obvious reply he usually provides whenever he is asked whether we’re heading toward a recession: whenever we’re not in a recession, we’re heading toward one.

However, nobody has any clue when exactly we will bump into one.

Hence, rather than being generals who are good at fighting the last war by building models that incorporate previous problems while being constantly blindsided by new issues, being diligent investors confident enough to increase their stakes in fundamentally strong business when Mr. Market wants to sell his way out could be a time-tested method to navigate the madness.

Storm-Proof Your Portfolio: 3 Stocks for Hurricane Season

Posted on by The INO.com Team

During the late summer, when tropical waters are warmest, thunderstorms cluster to suck up the warm, moist air and move it high into the earth’s atmosphere. As a result, tropical circular winds spin around the eye, which is a low-pressure center 20 to 30 miles in radius characterized by eerie calm.
When the tropical storm’s winds reach 74 miles per hour, these self-sustaining heat engines are called typhoons in the Pacific, cyclones in the Indian Ocean, and hurricanes in the Atlantic.

With June 1 marking the beginning of the hurricane season, these tropical storms are set to ravage the eastern seaboard. In addition to gusty winds that can wreak havoc, storm surges caused by water being pushed to the shoreline by those winds can rise 20 feet above sea level and extend for 100 miles to cause widespread loss of life and property.
Moreover, with the ever-intensifying threat of global warming that’s causing sea levels to rise and the imminent spikes in global temperatures and extreme weather conditions due to the arrival of El Niño, it would be unsurprising to find hurricanes increasing in severity and climbing up the Saffir-Simpson Scale.

While hurricanes, like all natural phenomena, serve a higher purpose by circulating heat from the earth to the poles to regulate global temperatures, they have far-reaching negative implications for the broader economy and the investment world. However, there are businesses out there that thrive amid adversity by helping their customers tide over it.

Repair and restoration of homes in the aftermath of hurricanes could lead to a resurgence in the prospects of home improvement and heavy machinery businesses by deeming most of their offerings non-discretionary and indispensable.

Here are three stocks that could be propelled by hurricanes at their sails.

The Home Depot, Inc. (HD)

The home improvement retailer serves two primary customer groups: do-it-yourself (DIY) Customers and Professional Customers (Pros). Its offerings include building materials, home improvement products, lawn and garden products, repair and operations products, and associated services.
Due to weak demand for big-ticket items and falling lumber prices, as consumers have delayed large projects amid rising mortgage rates and increased expenditure on services, HD missed its revenue expectations during the fiscal first quarter.

However, with the onset of the hurricane season and the tailwind of the switch from gas-powered to battery-powered outdoor tools, fueled by California’s ban on the sale of gas-powered equipment starting in 2024, and the passing of noise ordinances by an increasing number of cities and homeowners’ associations, HD has reaffirmed its fiscal 2023 guidance and established its market stability outlook.

Lowe's Companies, Inc (LOW))

With new home purchases softening amid rising mortgage rates, home improvement projects will keep homeowners of an aging U.S. housing stock busier than usual this summer. Hence, the home improvement retailer is best positioned to make a tailwind out of this turbulence, with more than two-thirds of sales contributed by non-discretionary purchases, such as new appliances to replace broken ones.

As a result, LOW has surpassed its revenue and expectations for the first quarter of the fiscal year. Moreover, as with its peer mentioned above, the ongoing upgrade cycle driving sales of battery-powered outdoor tools has the potential to keep the momentum going.

Caterpillar Inc. (CAT)

The heavy-machinery manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives operates through its three primary segments: Construction Industries, Resource Industries, and Energy & Transportation.

While a boost in U.S. infrastructure spending kept order books full and helped CAT beat Street expectations with a 31% rise in first-quarter profit, increased restoration, relief, and rescue activity during the hurricane season could lead to a surge in demand for its construction industries segment which is engaged in supporting customers using machinery in infrastructure, forestry, and building construction.