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Trade Ideas: Oil, AT&T, LightPath Technologies
04/16/2018 3:50 pm EST
There are three areas that we have generally been optimistic about or are interested in during the expected declines and/or doldrums this Summer: Oil, telecom (AT&T), the optical sector (LightPath Technologies), writes Gene Inger over the weekend in IngerLetter.com.
I have emphasized Oil (more so Oil itself than Oil stocks), but given gains as forecast that sector generally becomes a Hold more than a Buy now. I was bullish every time it dropped into the 40s. This is precisely opposite most of the commodity-crowd, who tended to talk it lower or dismiss the future due to changing power evolution, to which I said nonsense for now.
I did have a projected cap of the rally from the 40s/50s (per bbl. of WTI). I lifted that ahead of a potential conflict-related spike higher (with the realization if it were to suddenly thrust up we might be a seller).
Another area favored looking forward is selected telecom.
You know our assessment of AT&T (T) as more than a relatively safe holding (with the dividend being important to many). We’ve liked it in the low 30s while at 40 it was not seen as a Buy.
So now if the market tanks and it erodes to a lower level, that’s going to be a relatively safe (primarily domestic) investment again (new or to add as we have said in the past).
What’s of interest are the new government related security contracts that don’t seem considered by analysts, as well as the prospect of being the front-runner to establish a solid USA 5G foothold in the coming year.
It will increasing be appealing as (or where) AT&T offers gigabit fiber, and as a transformative in the cloud version of DirecTV Now launched in the months just ahead. It will combine satellite with high-speed broadband.
So, sure, there are competitors, but AT&T doesn’t carry the multiple they do, which leaves room for a P/E expansion-based gain later this year and next, especially if T commands a multiple recognizing business changes.
Finally, we remain bullish on the optical sector, with a focus on LightPath Technologies (LPTH). It continues to shuffle along around the 2 area and might not be exciting until the sector and autonomous driving improvements are better recognized as forthcoming (not to mention their role if 5G as well).
In this case, with no particular debt challenges, insiders who buy not sell; and relationships seemingly-developing with companies like Luminar. (It’s not public but associated in unspecified ways, but probably LIDAR as the heart) and virtually all major commercial and military sensor customers.
I just see it as under the radar, but attracting gradually-rising institutional interest as well.
They probably prefer it’s not in-play until accumulation is greater over time. Many of the companies considered as optical stocks, are actually customers of LightPath for gradient glass, and both optical and infrared sensors.
Markets do not yet appreciate the impact sensors will have in automotive in the years ahead, nor the transformative nature of the automobile industry itself.
Besides going to a subscription basis we're expecting familiarity with vehicles will become less significant from what everyone has focused on: autonomous driving. I note that Mercedes plans that too, not just General Motors (GM) or Ford (F).
I suspect acceptance of future automobiles as technology platforms (not so much cars) is the evolving aspect. For now they worry about actual impact with tragic accidents, rather than aside from autonomous driving itself, focusing on where the industry is aiming with sensors, electronics, and safety gains, regardless who is the driver.
As to LightPath’s guidance last time, they estimated it would take maybe a quarter or two until new orders should become more evident, and for which LPTH has expanded facilities to be prepared to meet.
We see it as a short-term boring Hold for long-term gains of significance as I have consistently viewed it as an investment not a trading stock.
One day if it moves over 5, that’s when I’ll suspect we’ll see more excitement.
That may seem ridiculous. LightPath can move rapidly if there is a favorable report or news cycle, plus many funds simply won’t buy stocks under 5. So oddly they’ll likely pay more later. That's why I once said it probably will be easier to see it advance from 5 to 10; than from 2 to 5. We’ll see.
As for stocks we liked at a fraction of current prices, like Facebook (FB) or for sure Apple (AAPL) or somewhat lower, like Intel (INTC), IBM (IBM) or Exxon/Mobil (XOM) or even for an ongoing view of bitcoin (BTCUSD) for which I called a bubble to crash from 20,000 and a basing pattern in the 6,000s).
Technical trading alternates as markets continued to be embattled by a perception that issues (like politics and social media or geopolitical risk alone) are the challenge.
Sure, the market has to juggle all these balls on a daily basis. What’s really going on is a market depending upon itself shy of breakdown levels It’s the important 200-day moving average, for the June S&P, while cheerleaders try to pretend all would be swell if not for the ancillary influences that indeed do shuffle things day-to-day.
In a sense those talking of the meaning of any break of the 200-DMA are essentially arguing a tail-wagging-the-dog approach to future movements.
That’s because amidst all of this, a sell signal for S&P 500 (SPX) was generated way back in January when right in the middle of a Caribbean cruise. I looked at very limited leadership in an already-parabolic blow-off thrust to proclaim crash alert conditions. (My concern is not that the market will crash as such, but that conditions were at that point favorable for greater risk of a breakaway downside move.)
The actual forecast was for a breakdown of the S&P no later than early in February, and then some sort of ragged efforts resulting in Spring rally prospects, but ideally no higher highs for some time to come.
Incidentally once we got the purge (the February flash crash) we called for stability in the form of an automatic rally (a technical term some are familiar with). It was a series of alternating moves I simply called Hail Mary rebound attempts to forestall reckoning with ultimately lower downside prospects and hence I absolutely departed from the consistent optimism shown since just before the 2016 election, when I projected market to the moon if Trump won.
To this day the overall pattern evolution persists. This is just a summary bringing new members to the present time, with a basic snapshot of our ongoing perspective. Plus, to emphasize we have not been calling (nor do we now) for awful catastrophes as most permabears or some hedge guys expected. At the same time, analytically there is an overriding concern.
Markets are extended. Bulls seriously are fighting the Fed, as they’d rather not focus on monetary policy and just view the 10-year yield.
More notably they generally ignore the even shorter-duration paper, suggesting what they Fed says they’re doing: draining liquidity and letting paper roll off the balance sheet. Yet solid auctions (foreign buyers mostly) dull this a bit and give an illusion of the Fed going the opposite way of markets. (It is to a degree.) But it doesn't mean that will persist. In fact, the FOMC has a unanimous view about the trend towards higher rates in their minutes.
That historically makes this market a decent time to retain core positions but not a good time to be trading with a bullish bias for more than bounce events.
The big bulls say this is a great time to buy stocks. And actually, it is history that argues vehemently against that (even seasonally), perhaps even in a more favorable backdrop with fewer barbs impacting sentiment.