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December 3, 2018
MARKET FOCUS
Futures Higher
• This morning, S&P 500 index futures are pointing to a positive market opening
OVERNIGHT UPDATES when trading begins today.
• U.S. equity market stocks were higher at the end of trading on Friday, with the S&P
Europe higher. Tokyo rose 500 index settling at 2,760.17 for the close. The index saw an increase of 0.82
1%. Hong Kong rose percent for the day.
2.55%. Shanghai rose
2.57%. • SECTOR WATCH: After gaining more than 9% in price year to date through
September 20, the S&P 500 is in correction mode after falling more than 10% on a
closing basis through November 23, accompanied by 10 of its 11 sectors. Some
BONDS: 10-year notes at
investors now fret over just how low prices could go, while others wonder if the
3.039%, 30-year bonds at
bottom is at hand. Well, this argument might be answered in short order, since the
3.325%.
S&P 500 recently closed within 1.4% of the average NTM P/E ratio recorded at the
conclusion of the five most recent market declines in excess of 5%. The U.S. equity
FOREIGN EXCHANGE: market’s advance was stalled by a post-election, end-of-year profit-taking session,
Euro at $1.1363, Sterling at triggered by a wall of worry that includes concerns over debt, rates, gridlock and
$1.2774, Dollar at 113.44 profits, with trade being the keystone in this arch of agita. But bull markets don’t die
yen. of old age, they succumb to fright, and are usually most afraid of recession. At
CFRA, we don’t see a recession on the horizon and think there is a very good
PRECIOUS METALS: Gold chance that this selloff is near its conclusion. A moderation in the Fed’s rate-
at $1,236.30. tightening tone, a willingness by the U.S. and China to resume trade negotiations,
and the possibility that analysts have become overly skeptical about 2019 EPS
ENERGY: WTI crude at growth estimates could trigger the start of a traditional end-of-year rally. Should we
$53.29, London Brent crude be premature in our call, however, and the market needs an even deeper dive to
at $61.95. reset its dials, history warns us that the S&P 500 could see an additional decline of
almost 12% from the 11/23 close. /Sam Stovall, CFRA Chief Investment Strategist
U.S.
11/30/2018
• When the stock market becomes more volatile, as it has in the fourth quarter, it helps to have
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some cash on the sidelines. Most mutual funds tend to be almost fully invested and it is rare
to find equity managers willing to hold 10% or more in cash while waiting for better buying
opportunities. Fortunately for investors some of these patient management teams have a
strong track record that should earn them trust..
• Active equity managers usually put shareholder money to work into their best stock ideas.
Some likely fear that they will underperform in the current bull market by trying to time the
market. However, a periodic healthy cash balance can offer protection on the downside when
a stock market correction occurs. Further, cash enables management with liquidity to add to
favored stocks when trading at a discount to their perceived fair value.
This is an excerpt of the story, for the rest please visit the Trends & Ideas page on MarketScope
Advisor at http://advisor.marketscope.com.
DECEMBER 03, 2018
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analyst judgment, and the extent to which some types of data
Glossary is disclosed by companies.
STARS
Since January 1, 1987, CFRA Equity and Fund Research 12-Month Target Price
Services, and its predecessor S&P Capital IQ Equity Research The equity analyst's projection of the market price a given
has ranked a universe of U.S. common stocks, ADRs security will command 12 months hence, based on a
(American Depositary Receipts), and ADSs (American combination of intrinsic, relative, and private market
Depositary Shares) based on a given equity's potential for valuation metrics, including Fair Value.
future performance. Similarly, we have ranked Asian and
European equities since June 30, 2002. Under proprietary CFRA Equity Research
STARS (STock Appreciation Ranking System), equity CFRA Equity Research is produced and distributed by
analysts rank equities according to their individual forecast of Accounting Research & Analytics, LLC d/b/a CFRA ("CFRA
an equity's future total return potential versus the expected US"). Certain research is distributed by CFRA UK Limited
total return of a relevant benchmark (e.g., a regional index (together with CFRA US, "CFRA"). Certain research is
(S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® produced by Standard & Poor's Malaysia Sdn. Bhd ("CFRA
Index)), based on a 12-month time horizon. STARS was Malaysia") under contract to CFRA US.
designed to meet the needs of investors looking to put their
investment decisions in perspective. Data used to assist in Abbreviations Used in Equity Research Reports
determining the STARS ranking may be the result of the CAGR - Compound Annual Growth Rate
analyst's own models as well as internal proprietary models CAPEX - Capital Expenditures
resulting from dynamic data inputs. CY - Calendar Year
DCF - Discounted Cash Flow
S&P Global Market Intelligence's Quality Rank DDM - Dividend Discount Model
(also known as S&P Capital IQ Earnings & Dividend EBIT - Earnings Before Interest and Taxes
Rankings) - Growth and stability of earnings and dividends EBITDA - Earnings Before Interest, Taxes, Depreciation and
are deemed key elements in establishing S&P Global Market Amortization
Intelligence's earnings and dividend rankings for common EPS - Earnings Per Share
stocks, which are designed to capsulize the nature of this EV - Enterprise Value
record in a single symbol. It should be noted, however, that FCF - Free Cash Flow
the process also takes into consideration certain adjustments FFO - Funds From Operations
and modifications deemed desirable in establishing such FY - Fiscal Year
rankings. The final score for each stock is measured against a P/E - Price/Earnings
scoring matrix determined by analysis of the scores of a large P/NAV - Price to Net Asset Value PEG Ratio - P/E-to-
and representative sample of stocks. The range of scores in Growth Ratio PV - Present Value
the array of this sample has been aligned with the following R&D - Research & Development ROCE - Return on Capital
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STARS Ranking system and definition:
★★★★★ 5-STARS (Strong Buy):
Total return is expected to outperform the total return of a
relevant benchmark, by a wide margin over the coming 12
months, with shares rising in price on an absolute basis.
★★★★★ 4-STARS (Buy):
Total return is expected to outperform the total return of a
relevant benchmark over the coming 12 months, with shares
rising in price on an absolute basis.
★★★★★ 3-STARS (Hold):
Total return is expected to closely approximate the total
return of a relevant benchmark over the coming 12 months,
with shares generally rising in price on an absolute basis.
★★★★★ 2-STARS (Sell):
Total return is expected to underperform the total return of a
relevant benchmark over the coming 12 months, and the share
price not anticipated to show a gain.
★★★★★ 1-STAR (Strong Sell):
Total return is expected to underperform the total return of a
relevant benchmark by a wide margin over the coming 12
months, with shares falling in price on an absolute basis.
Relevant benchmarks:
In North America, the relevant benchmark is the S&P 500
Index, in Europe and in Asia, the relevant benchmarks are
the S&P Europe 350 Index and the S&P Asia 50 Index,
respectively.
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DECEMBER 03, 2018
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Disclosures About CFRA Equity Research's Distributors:
S&P GLOBAL™ is used under license. The owner of this This Research Report is published and originally distributed
trademark is S&P Global Inc. or its affiliate, which are not by Accounting Research & Analytics, LLC d/b/a CFRA
affiliated with CFRA Research or the author of this content. (“CFRA US”), with the following exceptions: In the
UK/EU/EEA, it is published and originally distributed by
Stocks are ranked in accordance with the following ranking CFRA UK Limited, which is regulated by the Financial
methodologies: Conduct Authority (No. 775151), and in Malaysia by
Standard & Poor’s Malaysia Sdn. Bhd., which is regulated by
STARS Stock Reports: Securities Commission Malaysia, (No. CMSL/A0181/2007)
Qualitative STARS recommendations are determined and under license from CFRA US. These parties and their
assigned by equity analysts. For reports containing STARS subsidiaries maintain no responsibility for reports
recommendations refer to the Glossary section of the report redistributed by third parties such as brokers or financial
for detailed methodology and the definition of STARS advisors.
rankings.
General Disclosure
Quantitative Stock Reports:
Quantitative recommendations are determined by ranking a Notice to all jurisdictions:
universe of common stocks based on 5 measures or model
categories: Valuation, Quality, Growth, Street Sentiment, and Where Research Reports are made available in a language
Price Momentum. In the U.S., a sixth sub-category for other than English and in the case of inconsistencies
Financial Health will also be displayed. Percentile scores are between the English and translated versions of a Research
used to compare each company to all other companies in the Report, the English version will control and supersede any
same universe for each model category. The five (six) model ambiguities associated with any part or section of a
category scores are then weighted and rolled up into a single Research Report that has been issued in a foreign
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quantitative recommendations refer to the Glossary section of accuracy of the translation. The content of this report and the
the report for detailed methodology and the definition of opinions expressed herein are those of CFRA based upon
Quantitative rankings. publicly-available information that CFRA believes to be
reliable and the opinions are subject to change without notice.
STARS Stock Reports and Quantitative Stock Reports: This analysis has not been submitted to, nor received approval
The methodologies used in STARS Stock Reports and from, the United States Securities and Exchange Commission
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Reports") reflect different criteria, assumptions and analytical in compiling this analysis, CFRA AND ALL RELATED
methods and may have differing recommendations. The ENTITIES SPECIFICALLY DISCLAIM ALL
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research analysts of CFRA and its affiliates and
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