Financials – Conspicuously Underperforming

Underperforming Despite Tailwinds

The financial cohort has conspicuously underperformed the broader market for the majority of 2018. The group didn’t participate in the broader market performance in Q3 where the S&P 500 had its best quarter since 2013. Banks have had domestic and global economic expansion tailwinds at its back while posting accelerating revenue growth, increasing dividend payouts, engaging in a record number of share buybacks and benefiting from tax reform. Augmenting this economic backdrop is a record number of IPOs, a record number of global merger and acquisitions, rising interest rates, deregulation, and tax reform. Banks are benefiting in unique ways due to the consulting fees regarding mergers and acquisitions and trading around market volatility. All of these elements provide an ideal confluence that bodes well for the financial sector. JP Morgan (JPM), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS) and Bank of America (BAC) seemed to be poised to continue to benefit from the favorable economic backdrop. Thus far in 2018 the financials have performed terribly considering the broader market performance and the aforementioned economic tailwinds. There’s negative sentiment that’s placed the financials in a holding pattern for much of 2018 over concerns of rapid interest rate increases and an inverted yield curve.

The Federal Reserve, Rising Interest Rates and Economic Strength

The Federal Reserve expects the economy to continue to strengthen and inflation to rise shortly. The economic strength coupled with the threat of inflation provides an environment that’s ripe for rising interest rates. The Federal Reserve has been very bullish on the domestic front and signaled that rate hikes will continue and may even accelerate its pace of rate hikes contingent on inflation and economic strength. There’s no question that the financials benefit from rising interest rates, and Bank of America(BAC) has one of the largest deposit bases among all banks and serves as a pure play on rising interest rates. Goldman Sachs (GS) has even branched out into consumer banking with its Marcus product so needless to say all big banks will benefit from their deposit bases.

Federal Reserve Chairman Jerome Powell stated that the unemployment rate currently stands at 3.9%, near a 50-year low while core inflation is right around 2%. Powell said that these two metrics are part of a “very good” economy that boasts “a remarkably positive outlook” from forecasters. The central bank approved a quarter point hike rate in the funds rate that now stands at 2.25%, and the committee indicated that another rate hike would happen before the end of the year. 2019 will likely see three more rate hikes and 2020 will see one rate hike before pausing to assess the delicate balance of rising rates in the midst of a strong economy while taming inflation. Continue reading "Financials – Conspicuously Underperforming"

IBM – Blockchain Technology Becoming Ubiquitous

Noah Kiedrowski - INO.com Contributor - Biotech - Blockchain Technology


“What the internet did for communications, blockchain will do for trusted transactions.”
— Ginni Rometty, IBM Chief Executive Officer

Introduction

I introduced International Business Machines Corporation (IBM) as a play on the emerging blockchain technology segment earlier this year to augment its transition away from its dependency on legacy businesses to the future of cloud, artificial intelligence, and analytics. IBM has struggled to restore growth, posting 20+ consecutive quarters of declining revenue however IBM has posted back-to-back quarters of revenue growth as of late. This growth has come on heels of its long-term imperatives beginning to bear fruit in emerging high-value segments that has fundamentally changed its business mix while evolving its offerings to align with new age information technology demands. A new frontier of growth lies in the nascent blockchain technology as IBM is a first mover in this promising, emerging technology. As IBM transitions to quarterly revenue growth, in the backdrop of its evolution to emerging high-value segments (i.e., blockchain) the company presents a compelling investment opportunity considering its suppressed valuation. In addition to the evolving business mix in strategic imperatives, IBM offers a great dividend, share buyback program while continuously acquiring companies to drive the business into the future. Continue reading "IBM – Blockchain Technology Becoming Ubiquitous"

IBM - Blockchain Technology Driving Growth

Noah Kiedrowski - INO.com Contributor - Biotech - Blockchain


“What the internet did for communications, blockchain will do for trusted transactions.”
— Ginni Rometty, IBM Chief Executive Officer

Introduction

International Business Machines Corporation (IBM) has struggled in recent years to transition away from its dependency on legacy businesses to the future of cloud, artificial intelligence, and analytics. Despite this long transition of posting 20+ consecutive quarters of declining revenue, IBM has finally posted its first revenue growth in nearly six years. Its long-term imperatives are beginning to bear fruit in emerging high-value segments that has fundamentally changed its business mix while evolving its offerings to align with new age information technology demands. New talent has driven these long-term business initiatives in these key areas as ~50% of its employee base has been added to the company within the last five years. A new frontier of growth lies in the nascent blockchain technology as IBM is a first mover in this promising, emerging technology. As IBM transitions to quarterly revenue growth, per the recent guidance of low single-digit growth, in the backdrop of its evolution to emerging high-value segments (i.e., blockchain) the company presents a compelling investment opportunity. In addition to the evolving business mix, IBM offers a great dividend, share buyback program while continuously acquiring companies to drive the business into the future.

Blockchain Technology and Applications

Blockchain technology is the architecture that underpins the volatile cryptocurrency markets. This technology applies to enterprise applications since it employs a decentralized database, open ledger, and incorruptible transactional capabilities. Blockchain applies to any transactional business model whether it’s financial or goods being transacted. The open ledger concept within the blockchain makes it incorruptible as any changes need confirmation from multiple parties and any changes can be seen at any time with a permission blockchain. As a function of the decentralization, there’s no central repository or clearinghouse to be hacked or accessed. The blockchain speeds up and by-passes these intermediaries (i.e., a clearinghouse of the bank) to achieve transactions within minutes and not days (Figures 1 and 2). Continue reading "IBM - Blockchain Technology Driving Growth"