Wall Street Is the Most Bullish on Stocks in Almost Two Decades
(Bloomberg) – It’s been two decades since Wall Street analysts were this upbeat.
About 56% of all recommendations on S&P 500 firms are listed as buys, the most since 2002. It’s one more data point that shows the extent of the euphoria sweeping markets after a blockbuster earnings season.
While analysts are historically a bullish bunch, they’re turning even more optimistic in the face of relentless stock-market gains and corporate earnings that topped even the highest expectations. For all the concerns about the delta variant, China’s regulatory crackdown or waning Federal Reserve stimulus, it hasn’t made much of a dent yet on stock prices.
“It’s not just financial conditions and low rates fueling the appetite for risk assets – tremendous fundamental improvement is forecast into 2022,” Todd Jablonski, chief investment officer at Principal Global Asset Allocation, said in a note.
U.S. companies aren’t the only ones feeling the love. In Europe, about 52% of recommendations on Stoxx 600 firms are buy or equivalent, a 10-year high. In Asia, that number jumps to 75%, the highest proportion since at least 2010.
The second-quarter earnings season was one of the strongest in history, even if helped by comparison with a period last year when many parts of the world were in the grip of pandemic lockdowns. U.S. profit growth of 90% was 17 percentage points better than expected, while a 71% rise in Europe surprised positively by 16 percentage points, according to JPMorgan Chase & Co.
In both regions, results were stronger than implied by the acceleration in growth momentum during the period, JPMorgan strategists said in a note.
Price Targets
While some of that earnings optimism has been priced into markets, analysts see scope for more gains. Converting aggregated 12-month price targets for Stoxx 600 members implies about 9% upside for the index from current levels, while for the S&P 500 the implied gain is about 10% and for Asia 21%.
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For Ben Laidler, global markets strategist at Etoro Ltd., the reopening trade “hasn’t even started yet.” For companies like restaurants, tour operators, airlines and hotels, earnings are still down 85% from where they were coming into this crisis, he said on Bloomberg TV, leaving clear scope for a rebound.
Luc Aben, chief economist at Kempen & Co., has a positive view on value equities. “These are over-represented in sectors that were greatly affected by the coronavirus pandemic,” he said in a note. “If the recovery persists, the style rotation could get going again.”
Yet such bullish sentiment doesn’t come without a hint of exuberance and it wouldn’t be the first time that investors were caught on the wrong foot.
“I’m a believer that the market moves in whatever direction hurts the most participants,” said Dave Lutz, head of ETFs at JonesTrading Annapolis. “If all the analysts on the Street are bullish, I’d be very cautious,” he said in a note.
Right now though, markets are in no mood for a correction. The last time the S&P 500 Index saw a peak to trough decline of 5% or more was 193 days ago, about twice the long-term average.
“There is a lot of dip-buying power on the sidelines and any correction that might be justified could also be short-lived,” Salm-Salm & Partner portfolio manager Frederik Hildner said by phone.
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My 2019 Report Card: Up 319%
As I approach my two-year anniversary of writing for the Fool, I thought it would be interesting to go back and look at all of the bullish calls I made in 2019. In sorting the data, I assumed readers of my articles bought the shares in question at the open of the next trading day. Of course, in real life nobody did that (not even me). But if you had invested an equal dollar amount in every stock I suggested, overall you would have quadrupled your money.
While I’m happy, and I hope you’re happy, several of my stocks have underperformed the market, and nine have lost money for shareholders – so that’s humbling. I was wrong multiple times, and I will probably be wrong multiple times this year, too. Sometimes my crystal ball is on the fritz. Anyway, let’s dive in and see how I did.
- First, some numbers
Here are all of my bullish calls in 2019, and how the stocks performed from the time of the hypothetical purchase through Aug. 9, 2021.
Stock Number of Articles Stock Price on the First Trading Day After Article Was Published in 2019 Stock Price at the End of Trading on August 9, 2021 Percentage Gain Afterpay 2 $20.00 and $20.55 $99.02 388% Altus Midstream 1 $49.60 $66.13 33% Amarin 4 $21.82, $20.65, $20.70, and $14.32 $4.85 (74%) Apple 2 $71.17 and $67.50 $146.09 111% Arrowhead Pharmaceuticals 1 $49.39 $62.78 27% Autodesk 1 $179.31 $332.77 85% Blue Prism 1 $13.17 $11.62 (12%) Blueprint Medicines 1 $77.38 $94.50 22% BridgeBio Pharma 1 $24.83 $53.39 115% Carvana 1 $67.28 $356.34 430% CrowdStrike 1 $47.25 $263.56 458% Datadog 3 $37.30, $32.64, and $36.00 $130 269% Denali Therapeutics 1 $15.35 $53.49 248% Disney 1 $147.14 $176.72 20% Enphase Energy 1 $19.97 $185.56 829% Farfetch 3 $9.56, $8.38, and $8.82 $47.22 431% InMode 1 $44.01 $114.26 160% Innovative Industrial Properties 1 $91.45 $227.86 149% Ionis Pharmaceuticals 1 $56.27 $38.56 (31%) Iovance Biotherapeutics 1 $23.66 $24.24 2% Malibu Boats 2 $39.32 and $38.13 $81.66 111% MeiraGTx 2 $15.01 and $18.81 $14.71 (12%) Mirati Therapeutics 1 $104.59 $148.21 42% MongoDB 2 $139.92 and $117.57 $380.38 206% Novavax NASDAQ:NVAX) 2 $4.46 and $4.00 $213.13 4,954% Personalis 1 $10.40 $20.78 100% RegenXbio 1 $39.96 $32.50 (19%) SciPlay 1 $9.46 $17.31 83% Sea 1 $37.08 $307.14 728% Shopify 2 $402.76 and $336.00 $1,549.99 327% SmartSheet 2 $43.93 and $40.49 $71.96 71% SmileDirectClub 3 $8.05, $11.78, and $13.04 $6.70 (36%) Solaris Oilfield 1 $12.51 $7.87 (37%) Square 1 $63.20 $279.73 343% StoneCo 1 $41.06 $58.15 42% Ubiquiti 1 $193.75 $310.28 60% Ubisoft 1 $11.92 $11.80 (1%) Veeva Systems 1 $148.61 $332.34 124% Vir Bio 1 $13.80 $40.10 190% Virgin Galactic 1 $7.33 $35.21 380% W&T Offshore 1 $4.74 $3.12 (34%) Zillow 2 $41.15 and $30.13 $101.69 192% Zoom Video 1 $66.50 $383.34 476%
If you count all those up, it’s 61 bullish calls. The final two are Immunomedics and Glu Mobile. Both companies have been acquired, so they don’t exist anymore. Immunomedics in particular had a nice run, jumping from $16 at the time of my article to $88 one year later. But neither stock exists now, so I’m excluding those numbers.
What we’re left with is 61 bullish calls on 43 stocks. And what are the lessons we might learn?
- Let your winners run
Of course my Novavax calls on Nov. 2 and Nov. 26 had a massive effect on my returns. At the time, shares were going for $4 and pennies. Now Novavax is trading for $213 a share. Obviously in 2019 I had no idea that COVID-19 was about to hit, or that all the vaccine stocks would soon skyrocket.
If you sold Novavax after a double or a triple or a quadruple, that means you sold at $8 a share, or $12 a share, or $16 a share. Think about this for a second. This whole hypothetical port is up 319%, a quadruple in two years. That’s an excellent return. But you only get that excellent return if you hold your Novavax shares for the full 4,954% return.
- Diversify!
One of the ironies of my 2019 performance was that my most bullish stock pick (by number of articles written) was Amarin – but Amarin was my worst performer by far, losing 74% of its value. In my hypothetical portfolio, I invested twice as much in Amarin (four articles = $4,000) as Novavax (two articles = $2,000). In real life, I invested more in Amarin, too. I had more faith in Amarin. I felt it was a sure thing while Novavax was a risky micro cap.
Overall, I had 11 stock picks do better than my 319% overall return: Afterpay, Carvana, CrowdStrike, Enphase, Farfetch, Novavax, Sea, Shopify, Square, Virgin Galactic, and Zoom Video. That means the other 50 stocks were actually dragging down my returns. And of course it’s not easy for a stock to quadruple in two years. Shopify, my favorite stock, barely did it (up 327%). Ditto with Square, my second favorite stock (up 342%).
It might be a good idea to look at your portfolio and ask yourself whether any of your stocks can go up 10,000% from these levels. If none of your stocks can go that high, you might be risking underperformance. It’s really nice – and sometimes, financially rewarding – to invest small amounts in high-risk companies with significant upside.
Stock market roundup: Nifty has been extremely bullish; expect to test 16,700 levels next week
The Nifty has been an extremely bullish close, and it has managed to breach both previous resistances of 16,000 and 16,300 over the past two weeks. We expect this trend to continue to the next week. What is most promising is that this rally is led by stocks across most sectors. Nifty has strong support in 16,330 and 16,280 range and we can expect Nifty to test the 16700 levels over the next week.
Nifty Bank
Bank Nifty has been consolidating within a very tight and narrow range in the week that has gone by. We expect it to breakout above its resistance around 36,200 levels. We can see a bullish sentiment buildup on the charts since the past three days. We can expect Bank Nifty to touch 37,000 over the course of the next week. Bank Nifty has good support around the 35,850 and 35,700 levels.
Nifty FMCG
The FMCG sector has been consolidating for a while, but we maintain a bullish bias for this sector as the charts suggest good accumulation being built. Friday’s (August 13) closing has been very encouraging. We expect this index to breach the 37,000 levels which is also its all-time high. There is very good support at 36,000 levels.
NIFTY IT
The IT sector has been bullish since 2020 now and we see no reason or any sign for the trend to change course. We maintain our bullish stance on this index for the upcoming week and expect it to test its all-time high of 32,900 levels. The nearest support zone for this index is around the 31,800 levels should there be a retracement on the cards.
NIFTY Pharma & Nifty Auto
Just like last week, we maintain a mildly bearish stance on both these indices as the charts look weak. Should the 13,800 levels on the pharma index or the 10,000 levels break down, we should see further downside in both these sectors.
Derivative Outlook
In the current month, Nifty future closed with a discount of 10 points to its spot. Next month’s future is trading at a premium of 20 points. We saw open interest addition of nearly 7.1 percent in Nifty and considering the price action, it clearly hints strong buying during the week.
Long Formation
The following stocks saw OI build up with a corresponding increase in price, suggesting a bullish sentiment:
Short Formation
The following stocks saw OI build up with a corresponding decrease in price, suggesting a bearish sentiment:
Top five recommendations for the next week
HDFC
HDFC has broken its resistance of 2,660 levels and is poised to move higher in the coming week.
Titan Industries
The stock has breached its all time high at the 1780 level which was also a significant resistance, we feel that the stock should move significantly higher over the coming weeks.
Jubilant Foodworks
The stock is trading in a tight trading range and we expect the same to breakout over the coming week, this would be a good buying opportunity and traders could see a good upside on this counter.
Mindtree
Mindtree has been very bullish over the past 12 months and is around its all time high, we believe this stock could break out and breach these levels which could prove to be good bet for traders.
Godrej Properties
Godrej Properties is another high conviction idea for us over the coming week, it has not only taken the support at its 30 day moving average but is also at a crucial support zone.
(Gaurav Udani is founder and CEO, ThincRedBlu-a technology driven, retail broking firm)
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Published on: Saturday,August 14, 2021, 09:57 AM IST