Zenolytics Goes Full Buy Mode On KKR For Conservative Portfolios
Discussions about KKR on this site have been numerous over the past few years. KKR has all the attributes that an investor should pursue in a conservative investment: Adept management Steady history of producing returns Aligned with shareholders in seeking appreciation of equity through creative corporate manuevering A transformed, long-term shareholder base with their recent conversion from partnership to corporation Almost exactly one year ago KKR was discussed here in an article titled, KKR Has Long-Term Compounder Written All Over It. Zenolytics continues to view KKR as a long-term compounder driven by earnings power levered to low interest rates. The stock has immediate intermediate-term upside to approximately $30 per share for a gain of 20% from current levels. In the recent earnings calls that took place on April 30th, management painted an appealing picture for investors built on acceleration in assets under management, fees derived from those assets and opportunities available given their sizeable amount of dry powder. Among the highlights: Book value of $16.99 has increased by 17% over the 12 months Earnings have increased by 29% over the past 12 months Fee paying assets under management has increased by 23% over the past 12 months Additionally, with the recent steep decline in long-term rates, KKR gains significant advantages in that it allows the company to obtain leverage at more attractive rates AND it further differentiates KKR's overall ability to produce returns, as competitive fixed income yields decline, creating greater demand for enhanced returns. Overall, given the relative weakness in the financial sector, KKR's ability to outperform should be viewed by investors as a reflection of their earnings power in the face of an otherwise difficult operating environment for financial companies, mid to large sized banks especially. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction,...
The Handy Zillow/Redfin Trading Ratio
In March, Zenolytics highlighted Zillow as being one of the best equities to own during the first half of any calendar year, especially in years that saw interest rates decline as they have in 2019. Fast forward to two months later and Zillow is gathering momentum on the upside, running over critics of its Zillow Homes offering in the midst of rapid revenue acceleration. Fulfilling the promise of another stellar first half performance in 2019 seems the least of its concerns at this juncture. There are, however, variant perceptions that should be discussed not involving fundamental arguments of the future viability of being a market maker in residential real estate. One very simple indicator that tells of the extreme disparities in price for Zillow is the ratio in share price between Zillow and Redfin. There is one very simple caveat: If Zillow does truly heat up with Wall Street fully embracing their new business model then it will blow the doors off of any previous acceptable ranges in the ratio between Zillow and Redfin. This condition aside, under normal trading circumstances this gives an objective view of the values between two of the leading players in the quickly evolving "real estate revolution, brokers are inefficient" business model: Recently, Zillow's stock price has quickly accelerated while Redfin has languished despite reporting overall growth in their business. Over the next few months this ratio should continue to be observed as Redfin has a number of offerings that adequately create a competitive product to Zillow despite being a fraction of its overall size, especially in the IBuying market. A rotation at some point away from Zillow into Redfin may be warranted. Stay tuned. ...
A Surly Market
With the market poised to further exhibit its newfound surliness in the week ahead, the following points remain relevant as the week progresses: Post option expiration, there are always some adjustments to be made. Counter-trend rallies should be greeted with skepticism during the first part of the week. The SOX continues to look like a dumpster fire. Until we see some traction there, the markets aren't going anywhere. Financial names look worse than the SOX in that they seem to have lost the will to put together ANY volatility whatsoever. The sector looks rather morose to be frank. A positive aspect to the current decline is that it has obliterated the long end of rates. This acts as an ease in overall liquidity to the market and creates a very real, attractive valuation gap between rates and equities. In other words, equities are cheap here with rates so low. Another positive aspect is that sentiment is quickly turning bearish. While this doesn't guarantee a turnaround, barring an absolute fundamental debacle in the weeks/months ahead, it should slow down the descent somewhat. In the end, it seems that choppy is the tune to sing. Rallies should be sold or used to lighten exposure. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which...
Sector Highlight: Single Family Rental REITs – Bullish
Zenolytics is bullish on single family rental REITs for conservative portfolios: AMH - American Homes 4 Rent INVH - Invitation Homes The largest homeowners in the country post financial crisis are private equity firms and corporations. Single family rental REITs purchase portfolios of homes for the purpose of renting them out and capital appreciation on the underlying real estate assets. Rental REITs thrive in a low interest rate environment due to a cheap cost of capital to expand their real estate portfolios and appreciating real estate prices incentivizing consumers to seek out rentals. The 11% decline in the ten year yield thus far in 2019 has created an attractive situation. The negative correlation to rates (rates decline, single family rental REITs appreciate) has been showing up in performance YTD: AMH +21% INVH +26% The uptrend in the sector is set to accelerate. AMH and INVH are conservative, low volatility plays on the sector. Growth at INVH is accelerating while operational efficiencies are taking place: 18% growth in funds from operations in Q1 Highest ever average occupancy of 96.5% in Q1 A 9% decrease in net cost to maintain properties in Q1 In the most recent earnings call the CEO stated: Fundamentals are fantastic. New single-family supply is not keeping pace with demand, especially in Invitation Homes markets where household formations in 2019 are expected to grow at almost 2% or 90% greater than the U.S. average. With the millennial generation aging toward our average resident age of 40 years old, we are convinced more and more people will continue choosing the convenience of a professionally managed single-family leasing lifestyle. He goes on to state: Now our operating teams continue to get more efficient. Our asset management teams continue to enhance the portfolio. And our capital markets teams continue to reduce leverage on our balance sheet. Across the sector, the message is the same: Economic tailwinds Demographics tailwinds Operating efficiencies Portfolio enhancements Reduction in leverage AMH is experiencing much of the same benefits: 11.6% growth in funds from operations in Q1 96.7% occupancy AMH has the most conservative balance sheet in the industry, with no significant maturities until 2024. Additionally, there has been significant insider buying taking place at AMH over a considerable period of time, led by the original founder of the company. The low volatility, income producing nature of INVH and AMH make them a conservative portfolio investment. Zenolytics is adding AMH and INVH to its conservative portfolio with a quarterly review period for further allocation or liquidation. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity...
Zenolytics Goes Bullish On AMD
The SOX has experienced a ruinous decline during May, falling 11% from its April high, while key components within the average such as XLNX and NVDA have been treated like scraps of red meat for the eagerly awaiting, starving population of bears. In what has been a form of subtle bullish signalling, AMD has refused to to participate in this foray of self-loathing behavior among the semiconductor names, instead choosing to pin itself to recent highs, directly beneath a key trajectory point, while there are very obvious signs of accumulation taking place. In the category of technical imagery, this is the equity equivalent of increasing the throttle on the jets before takeoff. In the midst of this bullish technical dance are a symphony of bubbling positive fundamental developments: Data center revenue has doubled year over year Gross margin expansion Market share expansion versus competitors, specifically: INTC and NVDA A growing list of competitive product offerings targeting high growth markets, including gaming and datacenter markets Potential immediate upside catalyst 2019 Computex Conference May 28-June 1, with the CEO of AMD giving the keynote address Zenolytics is bullish on AMD seeing a test of the 2018 highs at $34 as being imminent, with the possibility of further gains entirely dependent on whether the market gains traction away from the current bearish regime. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or...
S&P 2895 Is Everything
There's DNA in certain levels of the market. That DNA is passed on from bull market to bear market. From crashes to booms. From panic to euphoria. The DNA for these events is carried forward in price and through levels that have consequences in the markets for decades. The 2895 level for the S&P is one such level. It holds such magnificent consequence in its blood that how the market treats this level not just this week, but in the months ahead, will mean everything in terms of performance for the remainder of 2019. It's not just one level of importance that lies in the 2900-3000 area, however, it is multiple. Therefore, the potential for chop is extreme. The potential for a top of some importance should also remain on the mind of investors. Chasing performance and buying the dip was a viable strategy from January until May. Going forward, however, rallies should be treated with skepticism and dips should be treated with some measure of caution. As it stands today, the high for the S&P was 2892. The weekly close is more important than the daily so watch how the markets react into the end of the week to what has been a pretty much spot on touch of this point this morning. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding...
The Most Powerful Moves In The Market Occur When Contrarianism Fails
What is obvious is obviously wrong is one of my favorite sayings in the markets. Contrarianism as a foundation for speculation, just like everything else, is subject to a changing of the locks just when an investor or trader thinks they have in their possession a master key. It's important to realize that when everybody is suddenly right about a scenario and the market agrees with the majority, powerful moves will occur in favor of consensus opinion. We are very obviously being pelted by trade news with China on a near hourly basis as the situation remains extremely fluid. Nearly everyone is concerned about the outcome of the trade negotiations. Nearly everyone has taken some sort of precaution with respect to the negotiations, whether in the form of raising cash, hedging or being net short. Simple because everyone is prepared for the worst case scenario doesn't necessarily mean that market won't react negatively if it comes to pass. I posted last night about the absurd symmetry being demonstrated by the market on the bearish side of things. It's the same kind of technical symmetry that the market was demonstrating at the market bottom in December, only in the opposite direction at present. This type of symmetry when being met by fundamental information confirming the direction of the reaction is rarely coincidental. Leading me to believe that, at a minimum, a defensive stance is warranted through the summer. At maximum, a net short or 100% cash position can be justified. The markets may just be worth avoiding until the September to October time period, with the exception of select opportunities. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe...
The Current Market Pullback Leaves Investors With Only Two Outcomes From Here
Let's take a step back before we begin to understand how I arrive at the conclusion laid out here. On December 31st I put out an article titled: How Everything That Happened In 2018 Makes Technology Names A Screaming Buy In the article I said, "The buying opportunity here for technology, in particular, is one of the best over the past decade. Whether this assessment of risk/reward ends up being something that lasts one quarter or the entirety of 2019, I am not sure yet. However, a buying opportunity it is and I have taken advantage through broad based exposure to leading technology names including NFLX, INTC, BKI and AVGO." Here we are close to mid-year, with the rally that has taken place up until recently exceeding even my ultra-bullish expectations. During May we have crossed a certain threshold that I frankly didn't expect from this market all year. Let me explain: Whereas the market was demonstrating a preponderance of bullish symmetry at the December lows and in the months that followed, it is now showing nearly identical BEARISH SYMMETRY at the recent highs. Just a few weeks ago I watched as the markets approached critical resistance at 2950. In fact, I spoke about the only crucial resistance point for the market in February on Twitter: The recent high for the SPX was 2954. That high not only nearly perfectly matched the substantial resistance point mentioned, but the ensuing "thrust" that occurred created a pattern that results in one of the following two scenarios sticking over the next few months: The markets chop around in a volatile, sideways range The markets have seen their highs for 2019 and will continue to drop into the summer In any case, the time to be offensive has surely passed. It is now time to reign in longs, focusing on defense and capital preservation. Value beats growth. Trading beats investing. Selling short has an opportunistic place in portfolios. Being bearish isn't necessarily a bad thing, whereas it was a cardinal sin in January. On the positive side of things, housing names continue to exhibit inordinate strength and select SaaS names look tremendous, with my personal favorite being PAYC. Tread lightly. Zenolytics now offers a premium service for those who want frequent, actionable analysis. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services...
There Are Few Things As Reliable As Zillow Outperforming During The 1st Half of Any Year
Zillow is a company that has some very defined seasonal characteristics. It makes sense. Real estate is a highly cyclical industry not just from a broad macro perspective, but within any calendar year. Spring and summer are traditionally the busiest month for new residential real estate purchases. Zillow tracks these buying patterns almost perfectly. The stock tracks not just the seasonal characteristics of real estate with uncanny consistency, but it also moves inverse to interest rates. The cost of borrowing to buy real estate as expressed through the ten year yield is just as important a consideration of when and where to buy the stock as the seasonal aspect. On average, Zillow returns 50% during the first half of the year with remarkable consistency. The only time it has been down during the first half of the year was during 2015, a year when rates rose 7.6% from the beginning of the year through the end of Q2. Here is a look at first half performance in each year since the stock went public with the ten year yield plotted (blue) to further demonstrate its negative correlation to rates. Zillow 1st Half 2012 Return +71% Zillow 1st Half 2013 Return +103% Zillow 1st Half 2014 Return +75% Zillow 1st Half 2015 Return -18.08% Zillow 1st Half 2016 Return +41% Zillow 1st Half 2017 Return +33% Zillow 1st Half 2018 Return +47% Zillow 1st Half 2019 Return +19% as of 3-15-2019 Further, the last time Zillow traded at a multiple of 6x revenues was 2016, a year that saw the stock return 41% during the first half of the year. A combination of persistently lower rates, seasonably favorable factors and a relatively low valuation puts the company in a very attractive position with the recent pullback. $50 looks highly likely during Q2, which would put the stock within a frame of the average return of 50% for the 1st half of the year. Should interest rates persistently move lower in Q2, $60+ is not out of the question. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained...