Assignment

Analysis of the Market

The financial sector led the Dow Industrial Average to plunge by about 200 points to 16,237 as at 1PM on Thursday compared to the previous day of trading. Examples of such company stocks include American Express and Realogy Holdings. The market on Thursday was mostly affected by the sell-off in the technology sector that is currently underway. The technology stocks in the index under watch here have, however, avoided this trend seeing that they have relatively low valuations. The interesting thing to note is that the markets are still underperforming even after reports reveal that new weekly unemployment claims have dropped by up to 32,000 from 332,000.

This represents the lowest figures of unemployment in almost seven years. We can therefore deduce from such reports that the market and the economy do not reflect complete dependency upon each other. Even further, the economy is experiencing growth steadily with new jobs being created. The markets on the other hand already have much going on in terms of the growth priced in. What’s important to note is that the market also seems to price in some expectations especially in technology and biotechnology sectors.

Investors may react emotionally without regard to the in-depth knowledge of the situation whenever fear arises in the market. It is for this reason that these biotech and tech stocks are worst affected and hit the hardest. A good investor will therefore need to know that stocks may fluctuate in the short term but the main reason for investing will mostly remain to buy good companies at good prices and holding them in the long run for growth opportunities (Dzombak, 2014).

Investors at Wall Street were hoping that stocks could extend their 3-day rally but this was not the case. The stocks plunged while trading on Thursday afternoon. Many stocks dipped into the red and have gotten pricey. This has had the effect of investors selling off their stocks to protect their profits. On Wednesday, the stocks performed well after a meeting by the Federal Reserve which made it known that the short term rates may not be increased any time soon. This is the reason why the Dow Industrial Average rose by over 180 points to close at 16437.18. Unlike the Dow which has mainly been affected by the financial sector, the Nasdaq was mainly affected by 6 of the 10 stocks in the healthcare sector (Krantz and Shell, 2014).

This week has had all but one company stock in the portfolio dived into the red. This once stocks belong to the Coca Cola Company which showed an increase of 1.54%. It has been smooth sailing for the company especially in the developed markets in which the company operates. Most of the consumers here take a keen interest in the amount of calories they consume. Nonetheless, unfavourable fluctuating rates of currencies hinder the true potential of the company in emerging markets where volume is currently expanding at a considerable rate.

The steady growth of the company can mainly be attributed to the level of risks spread by diversifying its products. The company produces sodas, lower calorie sodas, waters, juice and sport drinks. This represents seventeen brands which see the company make annual turnovers of nearly a billion dollars. The company forecasts that nearly 0.8 billion consumers will be enter into the middle class bracket and personal expenditure per capita is expected to increase to 70% by the year 2020. The consumer demand will increase in a relatively similar way in years to come especially in emerging markets. This company will have to adopt strategies to take advantage of the opportunity in order to make profits. The company has consistently raised its dividend payout for 52 consecutive years through thick and thin in economic times (Cardenal, 2014).

As much as the demand for sugary beverages in the United States has declined, people around the world are drinking more soda. The soda accounts for 75% of its global sales by volume. The growing markets are such as Latin America and Asia Pacific. Latin America is currently the largest market for soda. This is according to sales in dollars. The market is expected to grow by about 18% in the next four years. In contrast, the non stable markets lie in North America and Europe. The U.S represent almost a fifth of the company’s global unit case volume. The company is selling most of its sodas in Mexico, Brazil, China and Japan. In a bid to increase its sales the company reiterated the need for advertising and marketing. This explains the reason why the company’s involvement in sponsoring the World Cup in Brazil this year (Wong, 2014).

The biggest losers this week in the portfolio have been Delta Airlines Inc, Microsoft and Realogy Holdings. Other losers were Supervalu, RRD, IEP, and Caesars Entertainment in that order. The sum of the total amount shed off by the stocks in the portfolio was 36.93%. The overall value of the portfolio has dipped into the red which represents a loss of 3.55%.

Delta Airlines Inc lost 8.51% over the week. The stocks in the airlines sector tried to rise on Monday after Goldman Sachs raised its rating on this industry from Neutral to Attractive. We have always been aware that the stocks in this industry have been outperforming the market. The higher ticket prices have not, however, been included in the price of the stocks. In addition, more crowded planes and a recovering consumer have also not been factored into the price of the stocks. Goldman kept a buy rating on Delta Airlines which explains why their stocks rose by 2%. Delta is making arrangements to equip more than twenty thousand flight attendants with the Nokia Lumia 1520 which will serve the purpose of being an on-board manual and for in-flight-sales. Last Thursday represented the Airline’s near historic volatility in its shares.

Microsoft stocks have plunged by up to 5.56% over the past week. On Thursday alone the stocks shed off 2.7%. For early investors of the company who have been enjoying continuous price appreciation over the twenty past years, the stocks right now may seem like a windfall. These investors have seen the stock price rise from $3.64 in 1995 to currently $39.82. The fierce competition the company has with Google has made the company re-evaluate its strategy which has been the cause of the lagging stock prices. As much as more emphasis should be given to analysing the stock in the long term, it may be wise to look out for the short term downsides affecting the stock prices.

Caesars Entertainment shed off nearly 3% of its stock value over the week. On Tuesday, the Standard and Poor’s (S&P) Rating Services lowered its rating on the corporation and its subsidiaries from CCC+ to CCC- whilst recommending that the company should restructure its operations if it is to remain profitable in its business operations. The rating agency anticipates that the company will burn more than a billion dollars in cash and that it may not have adequate liquidity in the coming year to cater for its short term needs without selling more of its assets. The company has been struggling since the recession and it has not posted any report whereby the company has made profits since the year 2009. Worth noting is that the stocks of the company rose by 2.7% even after the downgrade by the rating agency. However, the stocks have fallen by up to 25% so far this year until the start of the week’s trading.

The data chart below shows the previous week’s performance as at the close of trading on Thursday.

Source : https://finance.yahoo.com/portfolio/pf_3/view/v2

References

Cardenal, A. (2014, April 9) Undervalued Companies From Warren Buffett's Portfolio: Coca-Cola, ExxonMobil, and DIRECTV. Retrieved from http://www.fool.com/investing/general/2014/04/09/undervalued-companies-from-warren-buffetts-portfol.aspx

Dzombak, D. (2014, April 10). Why the Dow Jones Has Plunged Today. Retrieved from http://www.fool.com/investing/general/2014/04/10/why-the-dow-jones-has-plunged-today.aspx

Krantz, M and Shell, A. (2014, 10 April). Nasdaq nosedive exceeds 110; Dow off about 200. Retrieved from http://www.usatoday.com/story/money/markets/2014/04/10/stocks-thursday/7542783/

Microsoft Starts To Give Away Windows: Should Investors Give Away The Stock?. Retrieved from http://seekingalpha.com/article/2135563-microsoft-starts-to-give-away-windows-should-investors-give-away-the-stock

News For AAL;JBLU;DAL;UAL From The Last 14 Days. Retrieved from http://www.theflyonthewall.com/permalinks/entry.php/AAL;JBLU;DAL;UALid1989576/AAL;JBLU;DAL;UAL-Airline-stocks-rally-after-Goldman-ups-sector-rating

Wong, V. (2014, April 10). Four Reasons Why Coca-Cola Will Stick to Sweet Sodas. Retrieved from http://www.businessweek.com/articles/2014-04-10/four-reasons-why-coca-cola-will-stick-to-sweet-sodas?campaign_id=yhoo