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I keep getting asked about buying energy stocks—"Because they're so cheap, Bob!"—but I'm very nervous about recommending them here. I do think that six months from now it's less likely that oil will be in the $30s than the $50s or $60s or even higher, but it seems to me the big stocks are still not cheap. Look at these 2015 P/Es:
Big Energy (2015 forward P/E)
Remember, the S&P 500 is trading at a little over 15 times forward earnings.
I do see some cheaper names among some, but not all, of the shale plays:
Oil Stocks (2015 forward P/E)
My problem is this: Even with lower P/Es for some shale plays, I'm not sure that's the right way to look at it, that the value guys aren't chasing the wrong tiger by looking for low P/Es. That seems a far less useful metric than capital expenditures and production estimates (supply side), as well as the future price of oil and the state of global demand (demand side).
The "official" start of the Santa Claus Rally is this Wednesday. For those who forgot, the Santa Claus rally is the tendency for the S&P 500 to rise in the last five trading days of the year, and the first two of the new year. This has been good for an average 1.5 percent gain since 1950, according to the Stock Trader's Almanac.
This is different from:
1) The tendency for stocks to rise in general this time of year. December is the no. 1 month for the S&P 500. During the month, the index is up 1.7 percent on average since 1950, also according to the Stock Trader's Almanac.
2) The "Free Lunch" that is served before Christmas. Tax-loss selling usually results in several stocks and sectors selling on or near their lows around December 15th; those stocks and sectors will usually outperform the market by February 15th in the following year.
3) The "January Effect," the tendency of small-cap stocks to outperform big-cap stocks in January.
The IPO business: This year was huge for initial public offerings, and 2015 may be even better.
With Juno Therapeutics' IPO on Friday, we will end one of the biggest years ever for IPOs, the biggest since 2000, which was the record year.
This year we saw:
1) The biggest IPO in history: Alibaba;
2) the biggest real estate investment trust (REIT) IPO ever: Paramount;
3) the biggest master limited partnership (MLP) IPO ever: Antero; and
4) we end the year Friday with a biotech company that will have the largest market cap ever bitoech: Juno Therapeutics.
Next year could be even bigger, with well-known names like Uber, Airbnb, Pinterest, and Box all waiting in the wings.
This year saw 275 IPOs, the most since 406 companies went public in 2000, according to Renaissance Capital, which manages the IPO ETF (IPO), a basket of roughly 60 IPOs. Total proceeds were $85.2 billion, with Alibaba roughly a quarter of that total ($22 billion).
Despite the spate of new issues, it's hard to argue the IPO market was overpriced—40 percent of IPOs priced below the expected range.
What stood out? That's easy: Health care, led by biotech (the most issuances in a decade), and technology, where words like cloud computing, big data, and social media all became common terms. China also thawed out with the Alibaba blowout, and Israel stayed in the game with MobileEye, one of the largest tech deals of the year. At the end of the year we saw new models in lending in the form of Lending Club and OnDeck.
What about 2015? The IPO market is fairly simple: It's the Church of What's Happening Now. Wall Street wants to take public companies that are growing.
Where to find that in 2015? It's technology again. I already mentioned some of the big names waiting to go public: Uber, AirBnB, Pinterest, and Box.
Other candidates for 2015: Yodle, Spotify, and Palantir.
That's just in technology; other potential IPO candidates include:
1) First Data, an electronic payments processor (owned by KKR);
2) Roku, owner of the famous set-top boxes;
2) Univision, a Spanish-language based media company; and
3) Ferrari (a spinoff of Chrysler).
In the consumer business, fast casual did well in 2014, with Zoe's Kitchen and Habit Restaurants. Several likely candidates for 2015 are high-end burger joints Smashburger (a candidate for several years) and Shake Shack, as well as Blue Buffalo, the largest maker of all-natural dog and cat food.
One sector worth watching again in the new year is health care, specifically biotech. Most sectors are driven by revenue and a real financial business, if not profits. That's not the case with biotechs; they are bought on hopes of breakthroughs and buyouts, and in 2015 cancer therapies of all kinds debuted practically every week.
Another reason we saw so many biotech IPOs is that the prices held up. The strong stock market is an important reason, but here's another: While we saw dozens of biotech IPOs, many (43 percent, according to Renaissance) came to market at prices below their expected range. That's good news for buyers.
Is anything in trouble? With yields potentially rising, that makes yield-oriented names such as master limited partnerships less attractive. There were plenty of MLPs in 2014, mostly in the oil and gas pipeline business, and I think the chances are we will see less of them in 2015.
Trying to pick a bottom in energy stocks: is this the time to go long?
A lot of traders seem to think so. It's a huge day for energy stocks, with many up double digits. Not surprisingly, ETFs associated with energy and commodities are seeing heavy volume.
Since this is the first notable up day since energy stocks started falling out of bed a little over two months ago, this is a good time to review how an investor might play a bounce in energy.
Fortunately, the ETF world has an ample supply of investment opportunities in energy.
We are approaching the end of the year for the IPO business with a bang.
Overnight, OnDeck priced 10 million shares at $20, above the price talk of $16 to $18. Alternative lenders are hot. Last week's LendingClub IPO was also successful. LendingClub, however, is a peer-to-peer lender in the consumer space, while OnDeck is a lending platform for small businesses. Unlike LendingClub, it lends using its own money.
Rice Midstream Partners, a limited partnership that owns natural gas pipelines in the Marcellus Shale, priced 25 million shares at $16.50, below the price talk of $19 to $21. Energy prices are down, and all the Marcellus shale plays are falling. In theory, companies like Rice Midstream just collect a toll for moving oil through their pipelines. But the concern is that less oil might flow, and they may have to drop their prices.
By the way, there is one final IPO pricing tomorrow night for trading Friday. Juno Therapeutics is looking to price 9.3 million shares at $21 to $23, from price talk of $15 to $18. The company specializes in cancer immunotherapy, and what makes it interesting is it's proposed market cap: $2 billion. That would make it the most highly valued biotech IPO ever.
This has been quite a year for the IPO business. It's been the busiest since the record year of 2000. On Friday morning, I will have a summary of this year's IPO activity and a look ahead at 2015.
Overnight the Russian Central Bank hiked its benchmark rate to 17 percent, a move designed to stem the big drop in the ruble. So much for that strategy. The ruble has continued to drop, now at 72 to the dollar; it was roughly 50 rubles to the dollar at the start of the month.
It stabilized as a Russian banking official said the central bank will take more measures. Are capital controls coming?
Still, the Russian stock market was down another 12 percent—and down 35 percent this month—though bear in mind this is quoted in dollar terms.
More worrisome is the rise in the yen. The yen carry trade is the classic safe haven play. So much money is invested in borrowing cheap yen and re-investing it all over the world that any reversal in the trend is a sign traders are covering bets.
That is what's happening, with the yen down to 116 to the dollar, from a little over 120 a week ago. Now, that is not a huge drop—on a percentage basis we saw a bigger move in early October—but it's enough to get everyone's attention.
Other emerging markets are also weak. The stock markets in Abu Dhabi, Saudi Arabia, and Dubai are all down roughly 6 to 7 percent. The Philippines, Indonesia, and Vietnam have fallen roughly two percent.
Russia's stock market is down 8 percent at the U.S. open, adding to the roughly 25 percent declines we have seen this month.
The problem is a simple one. With oil down 40 percent, investors are asking how the Russians are going to pay for the all the stuff they import. They are huge importers of everything from cars to computers to meat, but oil is far and away their biggest source of revenue.
Russia Export Revenues (source: EIA)
So crude oil and petroleum products are roughly 50 percent of the country's export revenue. See the problem?
This is a very powerful rally. The S&P 500 has moved from 1,992 at the bottom two days ago to 2,055, a 3.3 percent move, and is now positive for the year.
The most important catalyst has been modest stability in oil in the last two days, with WTI in the $47-$48 range, as well as more stability in global fixed income.
Other fundamental factors helping have been a series of strong holiday sales reports, with five companies raising guidance: American Eagle (AEO), Aeropostale (ARO), Stage Stores (SSI), Cato (CATO), and Zumiez (ZUMZ) up 8 percent.
There are non-fundamental reasons for the rally as well. Charles Evans of the Chicago Fed—who is now voting member of the FOMC—moved S&P futures 15 points last night when he reiterated that the Fed should not be in a hurry to raise rates.
Here's what I see:
1) This is the third pullback since September. And each time we keep making new highs, but the amount of time before pullbacks gets shorter. We keep getting these "V" shaped rallies. There is much more volatility, and while that may be fun to cover, not many people are making money.
2) Earnings are starting next week. I see weak growth overseas, a strong dollar, an energy ripple effect, and bond yields much lower than they should be. I see upward revisions in retailers today, which is good news, but it is being dwarfed by the downward revisions in energy.
What's all this mean? It argues for lower earnings growth. Instead of 9 percent to 10 percent earnings growth in the S&P 500, you are looking at maybe 5 percent to 6 percent. Is that bad? No, but it is a deceleration.
As we approach the end of the year, the push is on to get IPOs through the door. The problem: market conditions are not cooperating.
Overnight, Polar Star Realty, a REIT that manages office and industrial properties in Scandinavia, got postponed due to "market conditions."
The Renaissance Capital ETF, a basket of roughly 60 recent IPOs, is down more than 4 percent this month.
It's going to be a big night for IPOs. Seven deals are trying to price tonight, including four software companies.
Read More What will be hot for 2015 IPOs?
The most interesting one is software analytics company New Relic, which helps companies improve website experiences. The government hired New Relic to fix problems consumers were having on healthcare.gov .
The company is trying to sell 5 million shares, but the terms were increased from $18 to $20 to $20 to $22. That's a good sign.
Workiva is a cloud platform to help companies with their SEC filings. It sounds pretty specialized, but the company has $100 million in revenue. Workiva is seeking to raise 7.2 million shares at $13 to $15.
On the Nasdaq, Connecture manages medicare.gov and many of the top health plans. It aims to raise 5.8 million shares at $12 to $14.
Database software firm HortonWorks, which runs the Hadoop system, is seeking to raise 6 million shares at $12 to $14. Though well known in the enterprise data space, its has never made money.
There is a little bit of relief because two big names did price overnight. LendingClub, the largest peer-to-peer lending service, priced 58 million shares at $15, above the price talk of $12 to $14.
We are heading into the end of the year, and this week we will see a spate of IPOs get pushed through the door.
On Wednesday night, LendingClub, the largest peer-to-peer lending service, is seeking to price 57.7 million shares at $12 to $14 a share, which is up from $10 to $12 just two days ago. Peer-to-peer lending has grown dramatically in the past few years as consumers and small-business owners are using it to bypass traditional lenders like banks.
Since LendingClub launched in 2007, it has facilitated more than $5 billion in loans, including more than $1 billion in the second quarter of 2014. That's growth. And it's turning profitable. LendingClub's competitors, of course, are banks, but in many cases they are hamstrung by regulations.
The flip side is equally interesting; investors use LendingClub to earn returns. I've seen considerable interest in investing in peer-to-peer lending platforms as an alternative to, say, high-yield investments.
The downside is that should the consumers whose loans you are investing in default, you have very little recourse. For personal loans, you do not have a claim on any assets, so you can get burned if the economy suddenly turns down.
The currency war is getting out of control. Here's a snapshot of the week so far in central banking.
Banks no longer are the center of the market universe, Meredith Whitney said at a conference Wednesday.
Investments by academic institutions did well in 2014, boosting long-term performance records hit during the financial crisis.