Morgan Stanley’s Record Results Boosted By Massive Private Equity Coup In China

Morgan Stanley sign in New York

With Trump’s Phase 1 trade deal with China now complete after a lengthy signing ceremony on Wednesday cheered on by Wall Street luminaries such as Blackstone cofounder Stephen Schwarzman, hedge funders Ken Griffin and Nelson Peltz, and Mary Callahan Erdoes of JPMorgan, investors now have a new reason to try and play growth in the country. Record earnings released by investment bank Morgan Stanley the morning after trade negotiations wrapped up reveal the profits that can be made by smartly investing in the world’s second-largest economy.

Morgan Stanley’s fourth-quarter earnings revealed strength across the firm. Revenues surged 27%, propelled by growth across important divisions such as trading, underwriting and wealth management. Overall, Morgan Stanley posted $10.8 billion in revenues for the quarter and $2.2 billion in profits, and for the full year, the investment bank generated a record $41.4 billion in revenue and a $9 billion profit, underscoring the success CEO James Gorman has had in managing its vaunted investment bank, building up its wealth management operations and refitting its trading desks to boost profits.

One line item in the results, however, uncovered a new story for Wall Street watchers to follow. Morgan Stanley’s investment management division booked an almost unprecedented investment windfall in Asia, which reflects the potential China and the rest of the region holds to both the firm and its Wall Street peers in banking and private equity.

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In 2013, Morgan Stanley’s Asian private equity division helped take Chinese baby-milk producer Feihe International private, working with the company’s controlling family, led by CEO Leng Youbin. The company, founded in 1962, had listed American Depositary receipt shares on the New York Stock Exchange in 2008. After generally languishing in the wake of the listing, shareholders like Youbin and his family trusts looked to privatize the business, working Morgan Stanley’s Asian private equity arm on a $147 million deal to buy out the public shares listed on the NYSE. Morgan Stanley contributed $28.1 million of equity on behalf of its limited partners, Feihe’s CEO ponied up a further $8 million, and the consortium raised $50 million in debt financing from Wing Lung Bank Limited and Cathay United Bank to get the deal done.

This past fall, they re-listed Feihe, now the leading baby-milk seller in China, by selling 893 million shares in Hong Kong and raising about $900 million to pay down debt and make acquisitions. Since the listing, China Feihe’s shares have skyrocketed from about HK$7.5 to KK$10.98, per Sentieo data, as investors gained interest in its 15% market baby formula share and revenues and profits of $1.5 billion and $317 million, respectively.

For the participants, the 2013 deal has turned into one of the big windfalls of this era. The Leng family’s shares are now worth $5.2 billion according to Forbes calculations and Morgan Stanley’s shares are worth some $2.3 billion. When Morgan Stanley released full-year earnings, the deal even moved the needle for the 60,000 worker investment bank.

The firm’s investment management division saw revenues more than double to $1.4 billion, led by $670 million in quarterly investment revenue versus $82 million in the year prior. Of the windfall, Morgan Stanley said its investment revenues “increased from a year ago on accrued carried interest related to an underlying investment’s initial public offering, subject to sales restrictions, within an Asia private equity fund managed on behalf of clients.” The carry and gains appear have boosted the firm’s overall earnings by at least 15% for the quarter. Typically half of private equity investment fee revenue will go back to employees in the form of earned carried interest.

On a conference call with analysts, CFO Jonathan Pruzan elaborated about China Feihe, “The company has been quite successful and grown quite nicely. … To give you some sort of context around the round numbers, the investment that we made was less than $50 million, and the current investment value is approximately $2 billion.” (Morgan Stanley declined to comment further.)

China is the preeminent driver of wealth in the world. When Forbes released its 2019 list of China’s wealthiest people, reporters uncovered 60 new billionaires in the country, many of whom are building businesses domestically that may one day resemble companies like Procter & Gamble, Starbucks, Pfizer and Nike. Wall Street has to pay attention, especially with domestic markets richly valued after a decade-long bull run.

For years, dealmakers like Blackstone’s Schwarzman, JPMorgan’s Jamie Dimon and Blackrock’s Larry Fink have been studying ways to build their presence in the region and either bank, partner or invest on behalf of the country’s growing business elite. While groundwork is mostly still just being laid, deals like Morgan Stanley’s recent coup underscore the potential remaining in China.

The Phase 1 trade deal signed on Wednesday signaled China’s intention to continue opening its financial system to foreign banks and investors. Vice premier Liu He, carrying a note from premier Xi Jinping, said at the Phase 1 signing China is transitioning from a high-growth economy to one more focused on quality increases. Presumably, that pertains to consumption, financial products and markets, and the capitalization of corporation. Some new developments reached in the deal appeared to make headway for U.S. firms excited about this potential.

The deal further opened Chinese markets to U.S. credit rating agencies, distressed debt investors and foreign financial firms seeking to fully own and manage subsidiaries in the region. Bankers have long wanted to own subsidiaries in the region and mostly unwound joint ventures that helped build China’s state-owned banking giants like ICBC.

In fact, a good way to gauge whether the Phase 1 trade agreement did in fact make substantial inroads, will be to watch how the largest U.S. financial firms respond. New action from the likes of JPMorgan’s Jamie Dimon and Blackstone’s Schwarzman would signal the effectiveness of Wednesday’s deal.

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I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a part of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara

Source: Morgan Stanley’s Record Results Boosted By Massive Private Equity Coup In China

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These 4 Low P/E Stocks Trade Below Book And Pay Dividends

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Despite the highest stock market prices in history and Presidential tweets proclaiming the wonder of the economy, it’s still possible to identify equities coming in at under book value and with price/earnings ratios actually somewhat close to earth.

Right now, the p/e of the S&P 500 stands at 24.13 and the Schiller p/e sits at 30.88. The price of the index is 3.6 times book value.

The price/earnings ratio of the NASDAQ Composite index is 34.16. The NASDAQ is trading at 3.3 times its book value.

What if — under these conditions of over valuation — you could find stocks trading with price/earnings ratios of below 15 and at less than their book value? You know, like Warren Buffett used to do it.

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Instead of falling in love with Tesla, now trading with a forward p/e of 75, at 12 times book and with more debt then equity, what if you could consider old-school valuation techniques and identify what they used to call “cheap.”

Are there still such things as actual value stocks?

Here are 4 possible candidates:

WestRock is a New York Stock Exchange-listed stock in the “packaging solutions” business with headquarters in Atlanta.

The stock trades with a price/earnings ratio of 12.65 and at a 7% discount to its book value. The record of earnings is quite good for this year and looks in the green over the past 5 years. Investors receive a fat 4.68% dividend. That long-term debt exceeds shareholder equity is a concern — however, the current ratio is positive.

Metlife is the brand name life insurance firm that’s been around for 145 years. Based in New York, the stock trades on the NYSE.

The price/earnings ratio of Metlife is an amazingly low 6.85. You can buy shares at the current price for 70% of the company’s book value. Shareholder equity is greater than long-term debt. The dividend payment comes to 3.43%. With an average daily volume of 5.3 million shares, no need to worry much about liquidity.

AXA Equitable Holdings is an NYSE-listed insurance brokerage founded in 1859 and headquartered in New York.

The p/e is 14.73 and it trades at an 18% discount to its book value. Long-term debt is less than total shareholder equity. Investors receive a dividend of 2.41%. Earnings this year are excellent and the 5-year track record of earnings is very good.

Amplify Energy is an independent oil and gas company that trades on the New York Stock Exchange.

This one requires closer inspection than those listed above. With a price/earnings ratio of 6.46 and trading at just half its book value, the stock is definitely “cheap.” One concern is that long-term debt exceeds shareholder equity. Also, it’s odd that the dividend yield is 11% — how likely can that high of a payout be sustained? Meantime, Amplify’s earnings this year are excellent and the 5-year record is good. Average daily volume is relatively low at just 248,000 shares.

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Stats courtesy of FinViz.com.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.

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My Marketocracy work is profiled in The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of by Forbes Investments Editor Matt Schifrin. I’m a 1972 graduate of the University of North Carolina

Source: These 4 Low P/E Stocks Trade Below Book And Pay Dividends

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Stocks Rise On Solid Economic Data, Despite Looming China Tariff Deadline

Topline: Wall Street is rallying on the back of solid economic data, with Friday’s blockbuster jobs report showing that the labor market is still a bright spot for the U.S. economy, which could help the stock market finish off the year strong despite ongoing uncertainty over the looming China tariff deadline on December 15.

  • The S&P 500 is up more than 1% while the Dow Jones Industrial Average has risen 1.24% so far on Friday, a rally which helped both indexes recover losses from earlier this week, when markets struggled with mixed signals on U.S.-China trade.
  • The Labor Department’s November jobs report showed that the U.S. labor market grew at its best rate since January, adding 266,000 jobs, easily beating the 187,000 expected by Wall Street and suggesting that the economy’s momentum can continue into next year.
  • Stocks also surged on news that the unemployment rate ticked down to 3.5% from 3.6%, which matches the lowest level since 1969.
  • As the Federal Reserve prepares to meet again next week, strategists see November’s strong jobs report making another interest rate cut less likely (the Fed has cut rates three times so far this year), according to CNBC.
  • Despite solid job growth and steady consumer spending dampening recession fears, the big remaining variable is the looming tariff deadline, with the Trump administration  poised to tax another $156 billion of Chinese goods on December 15.
  • If Trump imposes tariffs, which China has asked to be canceled as part of a phase one trade deal, that could cause tensions to escalate and threaten the stock market’s year-end run.

Crucial quotes: “Markets are fairly confident we will see President Trump pass on the December 15 tariff threat,” says Edward Moya, senior market analyst at Oanda.

“If China tariffs go into place on December 15, we’ll see some real volatility and it won’t be as cheerful holiday season,” predicts Mark Freeman, chief investment officer at Socorro Asset Management. “If Trump holds off on tariffs, we’ll see the stock market’s positive momentum carry into year-end.”

Key background: November’s blockbuster jobs report comes amid a challenging year for the U.S. economy, with a slowdown in global economic growth and the ongoing U.S.-China trade war weighing on Wall Street investors. But recession fears have been on the back-burner recently, as the stock market reached several new highs, and other economic indicators, like consumer spending, remain solid.

Earlier this week, however, trade tensions appeared to escalate—especially after Trump signed into law a bill supporting pro-democracy protests in Hong Kong, which caused China to retaliate by sanctioning several U.S.-based NGOs. Trump’s approval of the Hong Kong legislation notably “stalled” trade negotiations, according to Axios, which reported that Trump is expected to hold off on his planned December tariffs to keep a phase one deal alive.

Chinese officials have indicated that for a deal to be signed, the U.S. must also remove existing tariffs—and not just halt those planned to take effect on December 15, according to the Global Times. Trump later said on Thursday that the two countries were making progress with a phase one deal, and on Friday, China extended an olive branch by announcing that it would waive tariffs on some U.S. soybeans and pork imports.

What to watch for: Whether or not the president imposes additional tariffs on Chinese goods, starting on December 15, could make or break the stock market’s year-end rally.

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I am a New York—based reporter for Forbes, covering breaking news—with a focus on financial topics. Previously, I’ve reported at Money Magazine, The Villager NYC, and The East Hampton Star. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History. Follow me on Twitter @skleb1234 or email me at sklebnikov@forbes.com

Source: Stocks Rise On Solid Economic Data, Despite Looming China Tariff Deadline

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CNBC’s Bob Pisani looks ahead at the day’s market action.

 

Stock Market Correction – 4 Crucial Steps To Position Your Watch List And Portfolio

Many investors are scratching their heads when it comes to positioning the portfolio in the stock market correction. However, we think that there are four crucial steps that every investor should take into an account. Without further ado, let’s see these steps.

Table of Contents

Stock Market Correction – 4 Crucial Steps To Position Your Watch List And Portfolio

Analyze the Stock Market

Before anything, you should analyze the stock market conditions. The reason for this is that many stocks tend to move in the same direction as the stock market. A stock market correction by the vertical violation or slice below the 50-day line tend to have a very high failure rate for the follow-through day.

Furthermore, the market is, for the big part, driven by news. The investors should always have their mind opened for the new stock market uptrend.

Hedge Your Portfolio

You should manage your trades like a portfolio. After the market turn in the Q4 2018 market correction, IBD’s team added ProShares UltraPro S&P 500 (UPRO). Thanks to this decision, the risk levels were managed against the S&P 500. Let’s not forget that UPRO, when converted to an ETF, corresponds to three times the daily performance of the S&P 500.

Utilize Swing Trading

IBD is constantly scanning for new ideas for its SwingTrader platform. This can be quite an efficient method. For example, we had seven names on the IBD’s swing trading list in September 2018. But, by the end of the month, there weren’t any quality stocks. If the pickings are slim, the general rule is that stock market conditions are weakening.

Make a Watchlist

Finally, make your own watchlist. You need to be able to spot the top stocks and then add them to the watchlist. When you do that, you’ll be able to monitor your selected stocks and carefully choose which one to invest in.

Source: https://www.investors.com/how-to-invest/stock-market-correction-watchlist-portfolio/

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

Source: Stock Market Correction – 4 Crucial Steps To Position Your Watch List And Portfolio – stock market correction 2019, stock market correction 2018

What Is the Best Time to Invest in Stocks? – How to Buy and Sell Stocks

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The worst of times in the market, or at least when it appears that things couldn’t go further below from that point, might actually be the best time to buy stocks and start investing.

We often forget that people actually tend to buy everything when it drops below its original price – think about discounted items in the grocery store for instance – you would rather buy products from your grocery list on a discount, but not the stocks?

This might be a mistake and there are several reasons why.

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Buy Stocks When Below Their Highs – When Is the Best Time to Invest in Stocks?

Ideally, you will decide to buy a stock you are holding interest in when the stock falls below its monthly, quarterly or yearly high, because you will make a profit once the stock starts to show signs of rebounding.

However, perhaps the most ideal time to buy a stock is when the stock comes near -20% below its high price – in addition, you need to make sure that the stock has a proven historical record that supports the theory that the stock won’t go far from -20% dip before it takes a rebound.

Invest in High Beta Scores for Top ROI

Almost as by a rule, whenever a stock that has benevolent, or high, beta score, drops below its initial high value, that same stock tends to take an upward turn against the downside trend.

This behavior should result in flattering returns; however, you need to note that sometimes you need to be patient when buying high beta stocks at lows.

Learn How to Trim Your Stock Positions

Trimming can be a rather favorable strategy for generating more cash through your ROI. You can for example take a quarter or the fifth of the stock you own, you may take tenth even if you will, and sell it when you see a rebound.

You use that cash later on to buy more stocks in that position when the stock hits another low, repeating the process based on the market trends in order to generate cash.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

Source: What Is the Best Time to Invest in Stocks? – How to Buy and Sell Stocks

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