All Eyes On The September Jobs Report

All Eyes On The September Jobs Report

Today’s Big Picture

US market futures point to a modestly lower open Friday morning. After the disappointing manufacturing and services data this week, all eyes will be on today’s Nonfarm Payrolls report, which is expected to see 145,000 jobs added in September, up from 130,000 in August with the unemployment rate holding at 3.7% and wages gaining +0.2%. Keep in mind that the General Motors (GM) strike will add some confusion to the data as striking workers aren’t counted in payrolls.

We’ll also be looking for any updates on the previous downward revisions to payrolls. In August the BLS cut job gain estimates for 2018 and early 2019 by about 500,000, the largest such downward revision in the past decade. Overall we’ve seen downward revisions for around 17 months – a sure sign that labor market dynamics ...

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Adding downside protection and naming a new Thematic Leader

Adding downside protection and naming a new Thematic Leader

Key points inside this issue

  • As more investors reassess coming growth expectations, we are adding ProShares Short S&P500 (SH) to hedge both the Thematic Leaders and the Select List. While not a thematic position but one that will limit near-term downside, we will evaluate this position on as needed basis in the coming weeks.
  • Calling Nokia up to the Thematic Leaders
  • Adding Skyworks Solutions to the Contender’s List
  • Cannabis rumors swirl around Altria

 

Adding some downside protection with SH shares

It’s not often we get a mid-week break for the stock market, and the reason behind yesterday’s stock market closure was a solemn one. It did offer a respite from the wild swing we saw in the market between Monday and Tuesday, which resulted in a demonstrable move lower for all the major market indices. As I shared on Monday, despite the seeming forward motion on US-China trade, there remains much work to be done and a number of headwinds that, as expected, are leading investors to question 2019 EPS growth prospects.

Yesterday, China’s Commerce Ministry released a statement calling trade talks between Presidents Xi and Trump at the G20 Summit in Argentina “very successful.” The statement said the Chinese and U.S. trade and economic delegations will “actively advance the work of consultation” in 90 days in accord with “a clear timetable” and “road map” but offered little concrete details. Odds are this will add to the uncertainty that led Monday’s rally to finish the day off its highs and helped drive the market lower on Tuesday.

In my view, this will keep the market on pins and needles as we digest the coming economic data points to be had that I shared on Monday as well as those for next week that include November reports for inflation, Retail Sales and Industrial Production. As more investors question earnings growth prospects vs. the current stock market multiple, the risk is we could see more downside, especially if those same investors suspect tariffs will indeed be eventually raised to 25% from 10% along with further interest rate hikes. A recent survey of 500 institutional investors by Natixis showed that 65% see a change coming, with the biggest threats being geopolitical tensions and rising interest rates. Between the wage data to be had in Friday’s Employment Report and next week’s PPI and CPI reports, we also run the risk of seeing potentially hawkish comments following today’s latest Fed Beige Book. That report showed tariff driven price increases have spread more broadly through the U.S. economy.

As we get these and other data points ahead of the Fed’s essentially baked in the cake rate hike on December 19, I’ll continue to heed the Thematic Signals we collect each week. Given the market mood, however, I’m adding some downside protection to help insulate subscriber assets in the near-term in the form of ProShares Short S&P500 (SH), an inverse ETF for the S&P 500.

  • As more investors reassess coming growth expectations, we are adding ProShares Short S&P500 (SH) to hedge both the Thematic Leaders and the Select List. While not a thematic position but one that will limit near-term downside, we will evaluate this position on as needed basis in the coming weeks.

 

Samsung set to bring 5G into the prime time

Amid the trade news between the United States and China out of the G-20 summit, there was other news that we’ve been waiting on patiently. Subscribers know that one of our core investment thesis for our positions in Dycom Industries (DY),  AXT Inc. (AXTI), Nokia (NOK) and to a lesser extent Applied Materials (AMAT) shares is the deployment of 5G networks and devices. In the last few months, we’ve heard of beta rollouts from both AT&T Inc. (T) and Verizon Communications Inc. (VZ) as well as fixed wireless testing that could be a replacement for broadband to the home. The thing that has been missing is the to-date elusive announcement on a 5G smartphone that will ride 5G networks and their data speeds, something that will make the speed of the current 4G LTE network look something out of the dial-up days. If you remember those days, you know what I’m talking about — all that’s missing is the wonky connect garble noise.

Let me rephrase: That announcement was elusive until this past Monday when Verizon shared that smartphone users in the United States will be able to use Verizon’s 5G wireless network in the first half of 2019 starting with devices from Samsung. While details of the devices were scant — no models or price points — it is expected that Samsung will be revealing a proof concept this week at the annual Qualcomm Inc. (QCOM) Snapdragon Summit in Maui, Hawaii. Given the location of the unveiling, it seems like a sure bet Qualcomm and its chipsets will be powering the device. No surprise, considering that Samsung long has been a core customer of Qualcomm.

The key point here is the largest smartphone company by volume will be debuting its first 5G market in the coming months.

 

Calling Nokia up to the Thematic Leaders

From our perspective, I see this development as confirming our view on a few levels. Operators are not ones to launch a network unless devices are available for them to monetize that network and all the investments that led to it. That’s a positive for Nokia as it confirms the pending multi-year upswing in 5G infrastructure demand is firmly in front of it, as is the opportunity for its IP licensing business. Second, given Verizon’s timetable of “the first half of 2019,” it means the supply chain soon will be firing up to deliver the components necessary for these devices, including the incremental number of RF (radio frequency) semiconductors needed for 5G. That means incremental wafer demand for AXT during what is a seasonally slow period for smartphones.

As a result, I am calling shares of Nokia up from the Select List to the Thematic Leaders to fill the Disruptive Innovatorsvoid. With Samsung, AT&T, and Verizon having now laid out a timetable for 5G deployments for both networks and devices, we now have a far firmer timetable for a pick up in demand for mobile infrastructure business as well as high margin licensing business. My price target on NOK shares remains $8.50.

  • We are adding Nokia (NOK) shares to the Thematic Leaders for our Disruptive Innovators investing theme. Our price target remains $8.50

 

Adding Skyworks Solutions to the Contender’s List

That incremental RF semiconductor demand for 5G I mentioned a few paragraphs above also means more power amplifiers, switches, filters and other components that will once again increase the dollar content per device for Skyworks Solutions (SWKS) and its competitors. We’ve owned SWKS shares before, and more recently they’ve been battered around as more signs of stalling smartphone demand have emerged leading suppliers to cut their forecasts.

I’ve no intention in jumping into that fray ahead of the seasonally slowest time of the year for smartphone demand – the first half of the calendar year. Rather, we’ll put a pin in SWKS shares, add them to the Contender List and look to revisit them as a Disruptive Innovator play as we either put the March quarter behind us or a new US-China trade deal is inked.

 

Cannabis rumors swirl around Altria

After we published Monday’s Tematica Investing issue, there was much chatter suggesting that Guilty Pleasure Thematic Leader Altria Group (MO) could be interested in acquiring Cronos Group (CRON), a Canadian cannabis company. That speculation sent CRON shares 11% higher on the day and also lifted MO.

As you know, I have held the view that Altria would look to diversify its business away from tobacco and ride the wave of cannabis legalization in the U.S. The key here is legalization across the entire U.S., which would ease manufacturing, distribution, sales and marketing efforts by Altria rather than being an ad-hoc effort. Until the federal ban is lifted, there are also issues with how a company such as Altria would deposit its revenue and profits.

For those looking at Cronos as a positive for Altria’s U.S. business, I think that is a bit presumptuous as the timing of U.S. cannabis legalization remains tenuous. A potential acquisition such as this, however, would give Altria a toehold in the cannabis space, which is legal in Canada, and allow it to learn the business and test market product for an eventual launch in the U.S. when the time is right.

For now, a potential acquisition of Cronos is just speculation, but in principle, it fits with our long-term view of where Altria is likely headed. Now we have to see what Altria does next.

 

 

Amazon and Qualcomm put Alexa assistant in more headphones

Amazon and Qualcomm put Alexa assistant in more headphones

It looks like we are approaching an inflection point with digital assistants as Qualcomm looks to expand where and how they are used by focusing on the wireless earbud market. The most recognized adoption of that technology for that purpose, which is in keeping with our Disruptive Innovators investing theme, has been Apple’s AirPods, which include connectivity with its own digital assistant Siri. To say the AirPods have been a hit would be an understatement, and while there are competitors in the wireless earbud market, it would appear the competition is only now going to heat up as Qualcomm brings Amazon’s Alexa into the playing field in a meaningful way.

It could be the enemy of my enemy is my friend given how Apple competes with Amazon in the digital assistant space, and Qualcomm is at odds over chips and royalties, but odds are it will foster more wearable digital assistant powered devices at better price points and hopefully foster far greater innovation as well. Underneath it all, Qualcomm is sticking with the strategy that made it a formidable mobile phone and smartphone chip company – being a merchant arms dealer that wins no matter who wins the war.

 

Microchip firm Qualcomm is joining Amazon.com to spread the use of Amazon’s Alexa voice assistant in wireless headphones, the companies said on Monday.

Under the deal, Qualcomm will release a set of chips that any maker of Bluetooth headphones can use to embed Alexa directly into the device. When the headphones are paired to a phone with the Alexa app on it, users will be able to talk to the voice assistant by tapping a button on the headphones.

The functionality would be similar to Apple Inc’s AirPods wireless earbuds, which enable users can tap the devices to talk to Apple’s virtual assistant, Siri.

Amazon and Alphabet’s Google, whose voice assistants have most often been found in their respective smart speakers for the home, are rushing to partner with headphone makers.

Models from Bose and Jabra feature Alexa built in, and Sony said earlier this year that a software update will make some of its headphone models work with Alexa. Google Assistant can be used on headphones from Bose, JBL and Sony, along with Google’s own Pixel Buds.

The Qualcomm partnership could expand that lineup. Qualcomm has developed a pre-made circuit that headphone makers can drop into their device to imbue it with Alexa.

Source: Amazon.com, Qualcomm to put Alexa assistant in more headphones

One step closer to 5G as Nokia shares standard-essential patent licensing rates

One step closer to 5G as Nokia shares standard-essential patent licensing rates

We are nearing the commercial deployments of 5G, one of the next-gen technologies that fall under our Disruptive Innovators investing theme. By sharing its 5G essential patent licensing rates, Nokia is offering one of the firmest signals that 5G devices will soon be a reality. Initial shipments are expected to begin in 2019 and reach more than 1.5 billion by 2025, which means not only vibrant outlook for Nokia and other core 5G IP holders but a powerful upgrade cycle that will benefit Digital Lifestyle and Digital Infrastructure companies.

 

With 5G NR devices set to hit the market next year, and supporting networks under construction around the world today, Nokia this week detailed the expected licensure rate for standard essential patents that the infrastructure vendor controls. The company said it will cap fees at €3, $3.46 based on current exchange rates, per 5G NR device.“

Nokia innovation combined with our commitment to open standardization has helped build the networks of today and lay the foundations for 5G NR,” Ilkka Rahnasto, head of Patent Business at Nokia, said in a statement. “This announcement is an important step in helping companies plan for the introduction of 5G NR capable mobile phones, with the first commercial launches expected in 2019.”

Qualcomm is another major 5G NR patent holder, and the company derives significant income from licensing its standard essential patents. Last year the San Diego-based chipmaker laid out its fee structure

.OEM branded handsets will have an effective run rate of 2.275% of the selling price for single-mode handsets, and 3.25% of the selling price for multi-mode devices. To give some hypothetical pricing, a patent licensing for a $100 multi-mode device would cost an OEM $3.25, while a $200 multi-mode device would cost the OEM $6.50. The company capped royalties at a $500 selling price, which equates to $16.25 for a multi-mode device.

Source: Nokia details licensing rates for 5G NR standard essential patents

With new antennas, Qualcomm signals 5G smartphones are coming “soon”

With new antennas, Qualcomm signals 5G smartphones are coming “soon”

We’re also looking for confirming data points for our investment themes, especially those that are poised to disrupt existing business models. In the case of 5G mobile technology, one of the meaningful questions is when we will see commercial deployments of both 5G networks and 5G devices. After all, a 5G network is pretty hard for AT&T or Verizon to monetize unless it has a service offering and that hinges on having 5G devices to deploy on its 5G network.

Today’s news that Qualcomm is shipping 5G antennas to its customers for testing and stands ready for “large-scale commercialization” likely means 5G devices are just quarters away instead of years away. As we move through 2Q 2018 earnings season, we’ll look for more timing signals for the launch of commercial 5G networks and devices.

 

Qualcomm today unveiled what it says is the world’s “first fully-integrated 5G NR mmWave and sub-6 GHz RF modules for smartphones and other mobile devices.” These are the QTM052 mmWave antenna module family and the QPM56xx sub-6 GHz radio frequency (RF) module, and they’ll pair with the company’s previously announced Snapdragon X50 5G modem — making next-gen phone networks a reality very soon.

If you recall, a bunch of major smartphone makers, including Samsung, LG, Sony, HTC and Xiaomi already said they’ll be working with Qualcomm, and most of them commited to delivering X50-powered phones by the first half of 2019. Those devices will likely use the new antenna and RF modules announced today. Qualcomm told Engadget it has already shipped samples out to its device partners, and will be working with them to figure out the best placement to minimize signal interference due to hand blocking.

According to the company’s statement, “a working mobile mmWave solution … was previously thought unattainable.” Now, however, Qualcomm said it is “ready for large scale commercialization,” which means we are that much closer to seeing 5G devices in the real world soon.

Source: Qualcomm’s 5G antennas are primed for next year’s phones

WEEKLY ISSUE: The Cherry on Top of Apple’s Quarter Earnings Beat

WEEKLY ISSUE: The Cherry on Top of Apple’s Quarter Earnings Beat

 

Key Points from this Alert:

  • After March quarter earnings that shut down the doomsayers, an upsized capital return program and ahead of the upcoming WWDC 2018 event in June, our price target on Apple (AAPL) shares remains $200.
  • What’s the Fed likely to say later today?
  • We are scaling into AXT (AXTI) shares on the Tematica Investing Select List at current levels and keeping our long-term $11 price target intact.
  • We are also adding to our position in LSI Industries (LYTS) shares at current levels, and our price target remains $11.

 

Apple delivers for the March quarter and upsizes its capital return program

Last night in aftermarket trading, Apple (AAPL) shares popped more than 3% after closing the day more than 2% higher as Apple delivered a March quarter that was a sigh of relief to many investors. More specifically Apple served up results on the top and bottom line that were ahead of expectations, guided current quarter revenue ahead of expectations and upsized not only its share repurchase program, but its dividend as well. Heading into the earnings report, investors had become increasingly concerned over iPhone shipments for the quarter, particularly for the iPhone X, following recent comments on high-end smartphone demand from Taiwan Semiconductor (TSM), Samsung and others. That set a low sentiment bar, which the company once again walked over.

What Apple delivered included iPhone shipments modestly ahead of expectations – 52.2 million vs. 52.0 million – and an average selling price that fell $70 to $729. Down but certainly not the disaster that many had fretted for the iPhone X. iPad shipments were also stronger than expected and Apple continued to grow its Services business with Mac sales in line with analyst forecasts. Looking at the Services business, Apple is well on track to deliver on its $50 billion revenue target by 2021 and that’s before we factor in what’s to come from its recent acquisitions of Shazam and Texture as well as its burgeoning original content moves. In my view, that original content move, which replicates a strategy employed by Netflix (NFLX) and Amazon (AMZN), will make Apple’s already incredibly sticky devices even more so.

Think of it as Tematica’s Content is King investing theme meets Connected Society and Cashless Consumption… and yes, I need a better name for that three-pronged tailwind combination.

On the guidance, Apple put revenue ahead of consensus expectations and signaled a modest dip in gross margins due to the memory pricing environment. Even so, the sequential comparison for revenue equates to a quarter over quarter drop of 12.5%-15.5%, which likely reflects a mix shift in iPhones toward non-iPhone models. Pretty much as expected and far better than the doomsayers were predicting.

The bottom line on the March quarter results and June quarter outlook was investors fretted about the iPhone X to an extreme degree… an overreactive degree… forgetting the company has a portfolio of iPhone products as well as other products and services. Some may see the report as giving investors a sigh of relief, but I see it more as a reminder that investors should not count Apple out as we move into an increasingly digital lifestyle.

Is the company still primarily tied to the iPhone? Yes, but it is more than just the iPhone and that is something that will become more apparent in the coming year. We’re apt to see more of that in a month’s time at the company’s annual World-Wide Developer Conference, which several months later will be followed by what continues to sound like an iPhone product line up with refresh with several models at favorable price points.

The added cherry on top of the company’s meet to beat quarter and outlook was the incremental $100 billion share repurchase program and the 16% increase in the dividend. That dividend boost brings the company’s annual dividend to $2.92 per share, which equates to a dividend yield of 1.7%. Looking at dividend yields over the last few years applied to the new dividend supports our $200 price target for Apple shares.

  • After March quarter earnings and ahead of the upcoming WWDC 2018 event in June, our price target on Apple (AAPL) shares remains $200.

 

What’s the Fed likely to say later today?

While many were focused on Apple’s earnings, others, like myself, were also getting ready for the Fed’s latest monetary- policy meeting, which concludes today. Market watchers expect the FOMC to leave interest rates unchanged, but recent data (as well as some comments that company executives have made this earnings season) suggest that we’re seeing a pickup in U.S. inflation.

For example, Caterpillar (CAT) last week shared that its margins likely peaked during the first quarter due to rising commodity prices, most notably steel. Meanwhile, the April IHS Markit Flash U.S. Composite Purchasing Managers Index report last week showed that average prices for goods and services “increased solidly. The rate of input price inflation was the quickest since July 2013.”

And on the manufacturing side, the report noted that “price pressures within the factory sector intensified, with the rate of input-cost inflation picking up to the fastest since June 2011.” Markit also wrote that the services sector “witnessed its average cost burdens climbing month over month as well.”

We also learned just this week that the U.S. Personal Consumption Expenditures Price Index (which happens to be the Fed’s preferred inflation metric) rose 2.4% year over year. While that’s down a few ticks from February’s 2.7%, the PCE came in well above the Fed’s 2% inflation target for the second month in a row.

And lastly, the April ISM Manufacturing Index’s price component edged up to 79.3 from 78.1 in March, easily marking 2018’s highest level so far.

All of these figures have likely caught the Fed’s eyes and ears. Make no mistake about it — the central bank will review them with a fine-toothed comb. The FOMC came out of its last policy meeting rather divided as to the number of rate hikes it expects for 2018. Some FOMC members preferring the three hikes that markets widely expect, but others on the committee increasingly leaned toward four.

In the grand scheme of things, four vs. three rate hikes isn’t a “yuge deal” (as President Donald Trump would say). In fact, more investors are likely expecting the higher numbers of hikes given the recent inflationary economic data. But that’s just the investor base. Odds are that any language in the FOMC’s post-meeting communique that points to an upsized pace of rate hikes is bound to catch the mainstream media and others off-guard.

And one way or another, the Fed’s comments are bound to make the wage data that we’ll be getting in this Friday’s U.S. April jobs report a key focus. A hotter-than- expected headline number will boost the odds that we’ll see a fourth rate hike this year.

But between now and then, expect to see lower-than-usual trading volumes as investors wait to see the latest economic figures while also digesting this week’s litany of earnings reports. Things could get a little wonky, as investors reset expectations for corporate earnings and FOMC hikes, but I’ll continue to let our thematic tailwinds be our guide.

 

Scaling into AXTI (AXTI) shares …

Last week was a challenging one for shares of AXT Inc. (AXTI) and LSI Industries (LYTS), and while that is painful and frustrating in the near-term, I view this as an opportunity to scale deeper into both positions at better prices. The silver lining is this will improve our cost basis for the longer term.

With regard to AXT, the smartphone industry has been currently transfixed on comments from Taiwan Semiconductor (TSM), Samsung and SK Hynix that all warned on demand for high-end smartphones. As we saw last night, those comments were not necessarily indicative of Apple’s iPhone shipments for the March quarter and as I pointed out above Apple has a portfolio of smartphones and a growing services business. Also, given comments from mobile infrastructure company Ericsson (ERIC) and chip-supplier Qualcomm (QCOM), 5G smartphones should be hitting in 2019, which we see fostering the beginning of a major upgrade cycle for the iPhone and other vendors.

This is a great example of focusing on the long-term drivers rather than short-term share-price movement. Later this week two of AXT’s customers — Skyworks Solutions (SWKS) and Qorvo (QRVO) — will report their quarterly results. I expect those reports to reflect the short-term concerns as well as the longer-term opportunity as wireless connectivity continues to move past smartphones. With AXT’s substrates an essential building block for the RF semiconductors, let’s remain patient as I keep our long-term price target at $11, following the company’s first-quarter 2018 results that beat expectations but also call for sequential improvement in both revenue and earnings per share.

  • We are scaling into AXT (AXTI) shares on the Tematica Investing Select List at current levels and keeping our long-term $11 price target intact.

 

… and buying more shares of LSI Industries (LYTS) as well

Now let’s turn to LSI Industries. Concerns about a sudden management change last week, just days ahead of the company’s quarterly earnings report, led LYTS shares to plummet 20% but rebound a bit later in the week even as LSI reported March-quarter results that missed both top-line and bottom-line expectations. While the search for a new CEO is underway, what was said during the earnings conference call was favorable, in my opinion, and supports my thesis on the shares.

First, let’s tackle the elephant in the room that is the sudden CEO departure. As one might expect, such a late in the quarterly reporting game resignation is bound to jar investors, but the near 29% move lower over the ensuing few days was more than extreme. That said, a sudden CEO departure raises many questions, and when it’s in a market that has been registering Fear on the CNNMoney Fear & Greed Index, investors tend to a shoot first and ask questions later mentality.

What I saw on the earnings conference call was a calm management team that is looking for a next-generation CEO. What I mean by that is one that understands the changes that are happening in the lighting market with increasing connectivity in lighting systems and signage. This to me says the desired CEO will be one with a technology background vs. one with a legacy lighting background. Much the way the lighting technology being used is being disrupted with LEDs and soon OLEDs, LSI needs a forward-thinking CEO, not one that only thinks of traditional light bulbs.

Second, the company’s lighting business is nearing the end of its transition to light- emitting diodes (LEDs) from traditional lighting solutions. During the March quarter, LSI’s LED business grew 14% year over year to account for 92% of the segment vs. roughly 80% in the year-ago quarter. Despite that success, the legacy lighting business continues to decline, with sales of those products falling by more than 55% year over year in the March quarter.

With one more quarter left in its transition to LEDs, the weight of the legacy lighting business likely won’t be a factor much longer, and that should allow the power of the LED business to benefit the bottom line. The LED business is riding the combined tailwinds of both environmentally friendly green technology as well as the improving nonresidential landscape.

Alongside its earnings report, LSI’s Board of Directors declared a regular quarterly cash dividend of $0.05 per share that is payable May 15 to shareholders of record as of May 7. The annualized dividend equates to LYTS shares offering a dividend yield of 3.4% at recent levels, well above its historical range of 1.5%-2.5% over the 2015-2017 period. Applying those historical dividend yields to the current annualized dividend yields a share price between $8-$13. The stock market liked this as LYTS shares rallied some 10% over the last several days, but we still have ample upside to my long-term $11 price target.

This tells me that there is much further to go fro LYTS shares in the coming months as LSI finds a CEO and gets its story back on track. Let’s remain patient with this one.Helping with that patient attitude was yesterday’s March Construction Spending Report, which revealed private nonresidential construction rose 3.8% year over year for the month on a non-seasonally adjusted basis.

  • We are adding to our position in LSI Industries (LYTS) shares at current levels, and our price target remains $11.

 

 

Yahoo is selling its search technology, patents – a repeat of Nortel’s auction or InterDigital’s failed effort to sell itself?

Being able to monetize patent portfolio is a key strategy in our Asset-Lite business model, but that can take many forms. From an outright sale to a highly profitable licensing business model like we’ve seen at Qualcomm, Dolby and Rambus, patents can drive significant cash flow. Of course this hinges on the competitive position and time to patent expiration. Ever since Nortel sold its patent portfolio to a host of companies including  Apple, Microsoft, Blackberry, EMC, and Sony, we’ve seen some high attempts at patent sales, but not all have hit expected sale price levels. With some reports putting Yahoo’s patent portfolio at $1.5 billion with others at $4 billion, odds are there will much made of this in the coming weeks, but the proof will be in the winning bid. 

Yahoo has hired investment bank Black Stone IP to handle the sell-off of its patent portfolio, which includes intellectual property that dates back to 1996. Yahoo confirmed that it was exploring the sale of 3,000 patents, and a source told the WSJ that Yahoo will take bids until mid-June.

Source: Yahoo is selling its search technology, patents – Business Insider

Smartphone data usage to climb to 8.9 GB per month by 2021, driving demand for Connected Society companies

Smartphone data usage to climb to 8.9 GB per month by 2021, driving demand for Connected Society companies

No slowdown expected in mobile data consumption as more smartphones are sold and carriers deploy faster mobile networks globally. A rather compelling view for our Connected Society and its going global. Implication for smartphone vendors, RF chip companies, mobile infrastructure equipment and many more as newer mobile technologies are deployed.

According to the recently published Ericsson Mobility Report, the average smartphone user in 2021 is projected to churn through 8.9 GB of data every single month. In contrast, the average smartphone user today uses about 1.4 GB of data every month. This increase, the report notes, will result from an increase in the number of smartphones in use along with a broader 4G LTE coverage. Also worth noting is that some carriers will begin rolling out support for 5G speeds by 2020.

Source: Smartphone data usage to climb to 8.9 GB per month by 2021 | BGR

Making a move on MBLY and FIT options while swapping on DIS

Making a move on MBLY and FIT options while swapping on DIS

Actions from this post

Ratings changes included in this dated post

  • Buy the Mobileye February $46 calls (MBLY160219C00046000) that last traded at $1.65 and expire Feb. 19.
  • Buy the Fitbit (FIT) February $30 calls (FIT160219C00030000) that last traded at $3.10 and expire Feb. 19.
  • Exit your Walt Disney (DIS) January $115 calls (DIS160115C00115000) and use the proceeds to buy the DIS February $110 calls (DIS160219C00110000) that last traded at $2.07 and expire Feb. 19.

Welcome back and welcome to 2016! By now, I suspect you’ve probably heard how the stock market ended 2015 — the S&P 500 dipped 0.73% for the year while the Dow Jones Industrial Average slipped 2.23% — marking the worst performance since 2008. Looking back, it was a tumultuous year, with wide swings in the indices as investors grappled with the Greek showdown, the realization that China’s economic woes were far greater than expected heading into 2015 (which was reflected in commodity prices!) and the U.S. dollar strengthening and weighing on domestic companies while those in the euro zone benefited. Finally, there was the Groundhog Day-like nature of the Federal Reserve, which finally boosted interest rates in early December. If we include dividends, and who doesn’t love dividends, the S&P 500 returned 1.4% in 2015. By comparison, hedge funds lost more than 3%, on average, according to early estimates from hedge-fund-research firm HFR Inc.

All in all, 2015 is a year that many investors would like to put in the rear-view mirror. While I don’t necessarily disagree and acknowledge the stock market is a forward-looking animal, I’d remind you that the path that starts 2016 is laid at the end of the prior year. For us, that means looking ahead this week to the data about the end of 2015 that will be published in the coming week that starts to form the last economic snapshot of 2015. My suspicion is the rash of data we’ve seen toward the end of 2015 is exactly what we’ll be getting this week when we get the global PMI data from Markit Economics as well as the Institute for Supply Management on the domestic front.

Against that backdrop, as well as the one that surprisingly calls for a reacceleration in earnings from the S&P 500 in 2016 (up 7.7% year over year compared to the 1.4% expected for all of 2015), my plan is to start 2016 off on a far more selective note. I will use both disruptive technologies and pain points to steer us.

On the disruptive technology front, the coming week is also home to one of the most closely watched technology events, the annual Consumer Electronics Show (CES), which runs from Jan. 6 (Wednesday) to Jan. 9 (Saturday). As tends to be the case, I expect a flurry of announcements, particularly in the early days. However, don’t expect a peep from Apple (AAPL) because it does not formally present or attend the event. CES 2016 does feature keynote presentations from Intel (INTC), Volkswagen AG (VLKAY), Netflix (NFLX), General Motors (GM), IBM (IBM), Samsung and Alphabet’s (GOOGL) YouTube. I’d also note “The Future of Urban Mobility” Keynote on Jan. 7 (Thursday) that features presentations from Mobileye (MBLY), Qualcomm (QCOM), Robert Bosch GMBH and the U.S. Department of Transportation. To me, all of this points to fodder for the Connected Car and sets the stage for the North American International Auto Show in Detroit that spans Jan. 11-24.

Arguably the best stand-alone play on Autonomous Emergency Braking (AEB) mandates across the globe and on the automotive industry adopting semi-autonomous and eventually autonomous driving technologies is Mobileye (MBLY). The shares have been beaten down toward the end of 2015 due, in part, to a short call by Citron Research. However, the company has yet to disappoint expectations, continues to generate cash and has racked up a number of impressive automotive OEM partners and program wins. I see this week’s keynote at CES as a move that will propel the shares higher as the shorts begin to cover their positions. Let’s capitalize on that by adding the Mobileye February $46 calls (MBLY160219C00046000) that last traded at $1.65 and expire Feb. 19.

Turning to pain points, to say that I have indulged in all sorts of cookies and cakes as well as larger-than-usual meals would be something of an understatement. If you don’t put on a few extra pounds around the holidays, you’re just not really enjoying them.

Exiting the holidays, however, I’ve noticed more than few pieces of clothing are… fitting a little more snugly than before. From a PowerTrend perspective, you’d be correct in saying that I’ve personally contributed to the “Fattening of the Population” investing theme these past few weeks. For that reason, as I’ve started 2016, I’m leaning on my Fitbit (FIT) device, a wearable fitness device reminds us to get moving. While some may point to Fitbit’s products as more like an Amazon (AMZN) Kindle than Apple’s (AAPL) Apple Watch, I’d note that I love reading on my Kindle over an iPad or other tablet, and I think the streamlined functionality along with the more affordable price points compared to the Apple Watch and other current wearables, positions Fitbit well for the intersection of my “Always On, Always Connected” and “Fattening of the Population” themes.

According to research firm IDC, Fitbit was the market-share leader for wearables in the September 2015 quarter, with 22% share thanks to its Charge and Surge fitness trackers. What we found most interesting in IDC’s findings was that despite the growth of smart watches, interest in fitness trackers has not fallen. We attribute this to the combination of more affordable price points than smart watches, making products like those from Fitbit more palatable to consumers and corporate wellness programs.

But despite those prospects, as the market closed 2015, FIT shares have fallen 43% since peaking at $51.64 in early August. Already we’ve had positive comments from Morgan Stanley and others that are pointing towards solid holiday season demand for the shares, with Barclays upgrading FIT shares to a Buy rating with a $49 price target coming out of the holiday shopping weekend. With Fitbit’s products on several 2015 holiday gift-giving guides and consumers prone to shedding the holiday pounds come January, the company’s products and shares seem like a natural fit this holiday season. Let’s position ourselves accordingly by adding the FIT February $30 calls (FIT160219C00030000) that last traded at $3.10 and expire Feb. 19.

Unlike the last few weeks of December, the news around Disney was anything but quiet as its “Star Wars: The Force Awakens” was not only the fastest film to surpass the $1 billion mark at the box office. it also rallied the lagging North American box office to exceed $11 billion for 2015, which makes it the highest-earning year at the North American box office in movie history per Rentrak. Making the news even sweeter, per CNBC, Disney’s opening weekend percentage of 60% is above the industry average of around 55% and the higher revenue split is likely to continue throughout the extended run of the movie. Disney also secured a four-week commitment from theater chains instead of the normal three-week arrangement. This strong box office presence and extended run bode well for Disney’s other businesses, and I’d note the latest “Star Wars” installment has yet to open in China. Needless to say, I see the Disney machine capitalizing heavily on the film, as well as its coming Marvel, Pixar and “Star Wars” films in 2016.

Our DIS January $115 calls (DIS160115C00115000) have certainly taken it on the chin, and with the company not likely to report its quarterly earnings until after the January options expire, let’s exit those and reposition ourselves with the DIS February $110 calls (DIS160219C00110000) that last traded at $2.07 and expire Feb. 19. As we execute that trade, remember to hold your Regal Entertainment (RGC) January $20 calls.