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Today's big stories

UBS believes companies’ earnings growth will be more important to stocks’ performance than valuation
Goldman Sachs has laid out what you can learn from 820 hedge funds, including how to beat them at their own game – Read Now
Lowe’s reported stronger-than-expected quarterly results, and the home improvement retailer is still outperforming Home Depot

One-Track Mind

What’s Going On Here?

A report from investment bank UBS suggests global investors will only have one thing on their agenda in the second half of the year: stocks with the strongest earnings growth.

What Does This Mean?

Yields on long-term US government bonds are on the rise, which means returns-hungry investors are more likely to buy into them. That might encourage those investors to make room for them in their portfolios by selling off some relatively risky stocks, which UBS reckons will slow down the months-long rally in global stock markets – ultimately leading to lower returns.

Still, UBS says there are still returns to be had. In the near term, those might be found in cheap-looking “value” stocks whose earnings growth is set to rebound from last year’s lows. But in the longer term – as investors continue their hunt for earnings growth in favor of cheap valuations – "growth" stocks should reclaim the number one spot.

Why Should I Care?

Zooming in: When rates rise, investors shift gears.
Between record-low interest rates and negative government bond yields (adjusting for inflation), investors have been seeking out riskier but higher-returning assets. But as yields – and eventually rates – rise, money will become more expensive and stocks less attractive no matter what their price (tweet this). Instead, investors will have to shift their focus to companies’ “fundamentals” – like sales, profit, and cash flow growth – and take companies’ big promises with a pinch of salt if the numbers don’t back them up.

For you personally: Think long term.
The current sky-high stock market won’t last forever, so you’ll want to make sure you’re investing in companies with earnings growth – and, by extension, a share price – that’ll hold steady for more than just the next couple of quarters. A good way to assess this is to ask yourself if the company is growing its sales faster than the overall industry, or if it has a clear advantage over its competition.

You might also like: How to pick the perfect stocks for the long term.

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2. Analyst Take

If You Can’t Join Hedge Funds, Beat Them

What’s Going On Here?

You might be a fan of hedge funds or you might really, really hate them, but it pays to know what they’ve been buying and selling.

Because whether you want to buy into or bet against their favorite trends, they aren’t unbeatable.

You might, for instance, want to know just how optimistic they are about stock prices, and which stocks might be ripe for another GameStop-like short squeeze.

And you’ll probably want to know which recent stock market craze has earned some hedge funds almost 50% so far this year.

A recent report from Goldman Sachs looked at 820 hedge funds – managing $2.8 trillion worth of stock market investments alone – to answer those questions and more.

So that’s today’s Insight: hedge funds’ favorite trends, and how you can use them to beat the heavy-hitters at their own game.

Read or listen to the Insight here

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Mulch Obliged

What’s Going On Here?

Lowe’s isn’t your garden variety retailer, you know: the DIY giant announced stronger-than-expected quarterly earnings on Wednesday.

What Does This Mean?

With homeowners spending more time at home than ever last year, there was a leap in demand for tools and timber to spruce up home and garden alike. That much was clear from Lowe’s update: sales in existing stores were up by a higher-than-expected 28% from the same time last year, and the company’s quarterly profit beat analysts’ forecasts.

Lowe’s did strike a cautious note about the year ahead, saying it thinks the overall home improvement market will shrink as life goes back to normal. But the retailer still reckons it’ll gain market share and improve its profit margin no matter what. That’s in stark contrast to nemesis Home Depot, which refused to make a forecast altogether – suggesting it might not have what it takes to catch up with its rival.

Why Should I Care?

For markets: Here’s the slowdown they warned you about.
Lowe’s fortunes are closely tied to the housing market, and there wasn’t good news on that front on Wednesday. New data showed US mortgage applications were down 11% last week compared to the week before, while 30-year mortgage rates hit their highest since September. According to some analysts, the apparent drop in house-buying is down to the recent disruptions in Texas and should be short-lived. But Lowe’s investors weren’t willing to bet on it: they sent the company’s stock down 3%.

The bigger picture: Some retailers will come out of this stronger than others.
Wednesday was a tough day for other retailers too: mattress company Casper Sleep’s stock dropped 8% after its disappointing earnings release, while Office Depot-parent ODP’s fell 5%. TJX was the outlier: the TJ Maxx owner missed earnings expectations but its stock rose – probably because investors think vaccinated shoppers are poised to return to its stores and give the company a much-needed boost.

You might also like: Why now might be the perfect time to invest in property.

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💬 Quote of the day

“What you risk reveals what you value.”

– Jeanette Winterson (an English writer)

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Finimize - 📈 UBS backs growth stocks

Today's big stories

One-Track Mind

What’s Going On Here?

What Does This Mean?

Why Should I Care?

If You Can’t Join Hedge Funds, Beat Them

The best things in life are free

Mulch Obliged

What’s Going On Here?

What Does This Mean?

Why Should I Care?

A less risky crypto investment

🤔 I think, therefore I invest

Older messages

🌱 How green are your investments?

🐘 How to size up your investments

🔥 The hot new financial trend

🤭 Buffett ditches Apple

🤫 Palantir's in for a bumpy ride

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