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Today's big stories

Caterpillar’s quarterly results beat analysts’ expectations, which is good news for cyclical stocks overall
A major investment manager thinks you should try a new way to safeguard your portfolio in these troubled times – Read Now
5G-aficionado Ericsson reported better-than-expected earnings

Big Dig Energy

What’s Going On Here?

Caterpillar has a certain swagger in its tracks, and it’s easy to see why: the construction equipment maker reported better-than-expected quarterly earnings on Friday.

What Does This Mean?

As global economies started to recover from the pandemic-driven slump last quarter, so did the essential infrastructural work that’ll get them back on their feet. Enter Caterpillar, which reported earnings that came in well ahead of analysts’ expectations. And sure, it was 22% lower than the same time the year before, but that’s a whole lot better than the 54% and 70% drops in the second and third quarters of last year.

All this is important because Caterpillar’s an economic bellwether. In other words, strong demand for its equipment is generally a good sign for the global economy as a whole. And demand does seems to be on the rise – enough that the company’s expecting stronger sales this quarter than the same (coronavirus-lite) time last year.

Why Should I Care?

For markets: Vaccination seemed so simple on paper.
Caterpillar’s stock is a "cyclical" one, which means its fortunes are closely aligned with how the wider economy is doing. Cyclical and cheap-looking “value” stocks have been surging in the last three months, but that’s stalled in recent weeks – probably because of (yep, we’re bored of saying it too) the pandemic. After all, a full-blown economic recovery is more likely to be delayed in light of all the new variants and vaccine difficulties. Investors, then, might be waiting to see real evidence of successful vaccination campaigns before they’re willing to go all in on cyclicals like Caterpillar.

Zooming out: Oil isn’t back yet.
Caterpillar’s investors might be hoping its oil company customers – which last year suffered the double-whammy of falling demand and lower prices – will bounce back soon too. But Chevron’s latest earnings don’t bode well: America’s second-biggest oil company reported weaker-than-expected results as lockdown restrictions continued to hammer consumption of the slippery elixir.

You might also like: How to find the best cyclical stocks out there.

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2. Analyst Take

A New Way To Weather Market Storms

What’s Going On Here?

With the stock market so high right now, “defensive stocks” – those that tend to do well no matter how the wider economy’s doing – are a must-have for shrewd investors.

One major investment manager, though, thinks you should reconsider exactly what counts as a defensive stock.

See, until last year, consumer staples and utilities – two sectors with defensive traits – had outperformed the global stock index in every one of the previous eight 10%+ market declines.

But in 2020, utilities turned out to be one of the most volatile industries of all during the pandemic, and consumer staples stocks saw wild price swings too.

That’s why Capital Group – which manages $2 trillion of client assets – is proposing a new definition of “defensiveness”.

And that’s today’s Insight: Capital Group’s new definition, and which companies the firm sees as the new defensive stalwarts.

Read or listen to the Insight here

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That’s All, Hoax

What’s Going On Here?

Ericsson reported better-than-expected earnings on Friday thanks to a particularly successful – and… wait… suspiciously coronavirus-adjacent – 5G rollout.

What Does This Mean?

There’s been a rush to upgrade mobile networks to new, faster 5G technology lately, which has turned Ericsson’s mobile networking equipment into the hot ticket about town. Throw in the business it’s poaching off Nokia and Huawei, and you’ve got the recipe for expectation-busting results. It’s even earning more from every sale too: the company reported a jump in its profit margin, hitting its goal two years early.

Still, the company didn’t let itself get carried away: it opted not to up its forecasts for 2022. That’s grated on at least one activist investor, which said the company should aim higher after nailing last quarter. So now it might not matter if Ericsson beats its targets: investors like the activist will sell off their shares if it falls short of their own expectations.

Why Should I Care?

Zooming in: Politics and business don’t mix.
Maybe Ericsson’s right to be cautious. See, Sweden’s banned Chinese companies from building 5G networks, and those political restrictions – along with plenty of others – are hampering rival Huawei. That’s good news for Ericsson in the short term, sure, but there’s no guarantee that China – which makes up 8% of the company’s sales – won’t retaliate in kind…

The bigger picture: Europe might be wasting its opportunity.
5G networks are seen as critical infrastructure by most governments, and key to modernizing factories, transport, and healthcare. But new research out late last week showed that only a quarter of Europeans could connect to a 5G network as of September last year. That’s up from the 13% of users in 2019, but a long way off the 76% of 5G-connected Americans (tweet this). As for why, it’s as simple as it is complicated: Europe’s so fragmented and its regulations so inconsistent that the return on 5G investments is a lot lower.

You might also like: How to pick a winning telecom stock.

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💬 Quote of the day

“Challenges make you discover things about yourself that you never really knew. They’re what make the instrument stretch, what make you go beyond the norm.”

– Cicely Tyson (an American actress and fashion model, who passed away late last week at the age of 96)

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Investengine (UK) Limited is Authorised and Regulated by the Financial Conduct Authority FRN [801128]

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🌎 Finimize Community

🥊 The rumble in the crypto jungle

In the red corner, the OG cryptocurrency and weighing in at 0 pounds: bitcoin. And in the blue corner, the young upstart with a hungry look in its eye: ethereum. Which one will come out on top, and which one should you think about investing in? All will become clear at Friday’s event, Bitcoin vs Ethereum. Ding ding ding.

🚀 Future of Fintech in Latin America: 6pm UK Time, February 2nd
🏡 Crowdfunding US Real Estate: 12pm NYC Time, February 3rd
👾 Bitcoin vs Ethereum: 7pm France Time, February 5th
✌️ Dimensional Investing vs ETFs: 9pm Singapore Time, February 9th
🤖 What’s next for Crypto?: 9pm Hong Kong Time, February 11th
🙋 Developing a Framework to Invest in Women: 6pm UK Time, Februaury 25th

📚 What we're reading

Boo to vaccine nationalism (Mic)
The relaxed response to the GameStop saga (The Onion)
So bread bowl gloves exist now (Elite Daily)

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Finimize - 😬 5G did it

Today's big stories

Big Dig Energy

What’s Going On Here?

What Does This Mean?

Why Should I Care?

A New Way To Weather Market Storms

💵 Want to boost your investment returns?

That’s All, Hoax

What’s Going On Here?

What Does This Mean?

Why Should I Care?

Revitalize your income

🥊 The rumble in the crypto jungle

Older messages

📉 Tesla’s got it all wrong

🌤 Microsoft’s on cloud nine

🛁 Goldman's worried about the bubbles

Is no tech company safe?

🤭 Apple ain't worth $2 trillion

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