Another earnings season… Looking for ‘cheap’ stocks today… Keeping an eye on Hurricane Milton… The almost quartz shock… A few more words about China…

Another earnings season is getting started…

Amid the constant discussion about interest rates, central bank monetary policy, and other “macro” concerns like war in the Middle East and rising oil prices, it’s easy to lose track of the fundamentals.

I’m talking about earnings… growth (or not)… balance-sheet health… shareholder rewards… and the many other factors that our Stansberry Research editors and analysts cover every single day.

But if you’re interested in investing for the long haul, I (Corey McLaughlin) urge you to pay attention.

Third-quarter earnings season starts in earnest this week – with the big banks kicking things off at the end of the week.

As usual, we’ll share what corporate America is reporting about its financials in these pages, along with what CEOs are saying about how business is going… and what factors they’ll be watching moving forward.

The S&P 500 Index’s consensus year-over-year estimated earnings growth rate for the third quarter is 4.2%, according to FactSet.

Eight of the major 11 S&P 500 sectors are projected to report year-over-year earnings growth, with three expected to show double-digit percent growth: information technology, health care, and communication services.

Of the three sectors expected to report losses, energy has the lowest expectations, with analysts expecting a double-digit decline in earnings. On the surface, that might sound concerning. However, our longtime readers know to think differently…

Looking for ‘cheap’ stocks today…

We’ve repeatedly warned readers in these pages about buying expensive mega-cap tech stocks at high valuations. Instead, we’ve recommended buying quality companies at reasonable valuations. These are the types of companies that will protect and grow your wealth over the long run.

So you’re likely wondering what “cheap” stocks are worth buying today…

One great opportunity is energy stocks.

In the latest issue of our flagship Stansberry’s Investment Advisory, published last Friday, lead editor Whitney Tilson and his team shared why the energy industry is a great opportunity today… and recommended one energy industry leader that’s trading at a “bargain” – even cheaper than at its IPO years ago.

Whitney and the team explained the ongoing trends in U.S. and global oil production and how this month’s recommendation has positioned itself to benefit with smart capital allocation.

They also explained that there’s a good case for higher energy prices ahead, including ongoing wars in the Middle East and Ukraine, continued OPEC production cuts, and rising demand for power due to artificial intelligence…

Today is a great time to buy oil and gas stocks. Fears of a recession have pushed oil prices – and energy stocks − down.

As you can see below, energy has been one of the worst-performing sectors in the market this year. And based on its enterprise value (its market cap plus debt minus cash) versus [earnings before interest, taxes, depreciation, and amortization], it’s by far the cheapest sector. Take a look…

Until [last] week’s escalation in the Middle East, it was the worst. But energy stocks are still trading at the lowest valuations of any sector by far, which makes now a fantastic time to get in.

That might seem counterintuitive to some. But, again, regular readers know we preach owning shares of high-quality businesses and buying them at reasonable prices if you’re interested in building and protecting your wealth over the long term.

You’ll be happy you’ve bought cheap, quality stocks when the expensive stuff loses its shine. This month’s recommendation, and four other oil and gas companies already in the Investment Advisory model portfolio, remain under their recommended buy-up-to prices.

Whitney and his team also provided detailed updates on Nike (NKE) and several other holdings in the model portfolio. Existing subscribers and Stansberry Alliance members can find the full issue here. And if you don’t already subscribe to the Investment Advisory, click here for details about how to get started.

As for today…

The U.S. market appeared more optimistic today following yesterday’s “risk off” affair. The benchmark S&P 500 moved up roughly 1%, pulled higher by mega-cap names like Nvidia (NVDA), which was up about 4%. The index is now within a fraction of its all-time high set last week.

The equal-weight S&P 500 was only up 0.2%, though it is trending higher above its 50-day and 200-day moving averages, just like the market-cap-weighted U.S. benchmark.

Oil prices fell by about 4% with the status quo in place in the Middle East and additional Chinese stimulus hopes waned (though this may be an overreaction, as we will explain momentarily).

Looking toward the rest of the week, like a lot of people, I’m keeping an eye on Hurricane Milton approaching the west coast of Florida. Our thoughts are with our readers and everyone in the region.

The Tampa Bay area hasn’t had a direct hit from a major hurricane since 1921.

The population then was in the low hundreds of thousands. Today, the region is home to roughly 3.3 million people – with about 20% living in flood-prone areas. And there are a lot more structures, businesses, and infrastructure near the Gulf Coast than a century ago.

Now, the track of the storm could still change, but if it hits Florida with its forecast strength, the storm’s surge and winds will devastate the west coast of the state, with hurricane impacts extending to the state’s east coast.

The damage and bills for cleanup will likely be significant, leaving the federal government and insurers to pick up the tab – again.

Plus, Milton is churning toward the Florida coast only two weeks after Hurricane Helene made landfall near the state’s panhandle. Folks in the southern Appalachians are in the early recovery stages from record rain and flooding from that storm.

According to Moody’s Analytics, the total impact of Helene could be more than $34 billion, including property damages estimated between $15 billion and $26 billion, as well as productivity losses between $5 billion and $8 billion.

As many people in the world learned, one of towns impacted by Helene – Spruce Pine, North Carolina, with a population of around 2,000 people – is home to America’s largest source of high-quality quartz, which is used to make microchips. These chips are the building blocks for electronics around the globe.

The almost quartz shock…

Last week, subscriber Norman B. wrote in about this story with his observations.

He acknowledged that despite living in North Carolina for more than 70 years and traveling extensively all over the mountains of the state, even he didn’t realize Spruce Pine’s impact on the tech industry.

The town received 24 inches of rain from Hurricane Helene, which caused a river that runs through it to flood, devasting its downtown. Fallen trees and washed-out roads also left the town isolated, and railroad lines in and out were damaged.

Fortunately, the Quartz Corporation and Belgium-based Sibelco, two quartz mining companies that operate in Spruce Pine, have indicated that global supply shouldn’t be affected, at least for now.

The Quartz Corp., which is part of the Canada-based Quartz Mountain Resources, also has operations in Norway, for example, so Spruce Pine isn’t the company’s only source for quartz. The company said last week…

We operate a long supply chain and like many organizations, we added more focus on our resilience planning post-COVID.

As a result, we have established strong levels of feed stock in Norway to supply our purification operations.

Coupled with safety stocks of finished products and those that exist at different levels throughout the supply chain, we do not anticipate any critical situation for our downstream industries in the short or medium term.

Sibelco’s mine sustained “minor damage,” it said. But these companies have indicated that their U.S. businesses are far from returning to normal. The situation in the region remains dire. The Quartz Corp. stopped operations on September 26 and, on October 2, said…

It is still too early to assess when [The Quartz Corp.] will resume operations as this will also depend on the rebuilding of local infrastructure.

I reached out today to The Quartz Corp. for an update, and a spokesperson told us it has brought in numerous experts to assess damage to its three different plants in the town…

All our three plants in Spruce Pine are affected, though in different ways. They are situated in different locations and the consequences for production will likely vary.

Based on the expert assessment we will communicate a status and restoration plan when ready. Our restoration plan will however depend on the surrounding infrastructure such as power, water, roads, and railway.

Meanwhile, on Sunday, Sibelco announced a $1 million donation to recovery efforts and ongoing support for the Spruce Pine community, families, and small businesses.

This is all to say you never really know how Mother Nature will impact the U.S. and global economy, so we’ll watch what happens over the next few days in Florida.

A few more words about China…

The world’s second-largest economy and its stock market giveth and taketh.

Yesterday, we wrote about the Chinese stimulus effect. Chinese stocks have pushed higher after the People’s Bank of China announced major stimulus plans late last month.

Today, mega-cap Chinese stocks were down 11% after investors didn’t like what they heard from the Chinese government regarding possible additional stimulus plans, on top of the monetary moves already announced.

As Brendan Ahern, the chief investment officer of KraneShares and our guest this week on the Stansberry Investor Hour, wrote in his daily market note – China Last Night – this action shouldn’t be surprising after the huge run-up in Chinese stocks over the past two weeks…

It is important to note that the rally has been massive, leading the government to want to manage expectations. Regulators are cautious of overheating the market and are guiding banks not to direct loans or leverage to the stock market.

The big event overnight was the press conference held by the National Development and Reform Commission (NDRC). The conference disappointed investors because it did not provide enough detail on the new fiscal stimulus… However, it is important to note that there will be a series of meetings in the coming days and weeks where the full fiscal stimulus package will be outlined.

One disappointing press conference doesn’t mean more “help” isn’t on the way from the Chinese government, but the market’s reaction today does show how volatile and sensitive the Chinese market is right now.

New 52-week highs (as of 10/7/24): Atmus Filtration Technologies (ATMU), Carlisle (CSL), Fair Isaac (FICO), Comfort Systems USA (FIX), Generac (GNRC), Cheniere Energy (LNG), PayPal (PYPL), Sprouts Farmers Market (SFM), Texas Pacific Land (TPL), Trane Technologies (TT), United States Commodity Index Fund (USCI), Viper Energy (VNOM), Vertiv (VRT), ExxonMobil (XOM), and ProShares Ultra FTSE China 50 (XPP).

In today’s mailbag, feedback on yesterday’s edition, which touched on the Federal Reserve briefly, but apparently enough to spark a conversation… Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

“Hi Corey, in which world are these [Federal Reserve] folks living? Fed lowers rates and the bond market says WRONG. Nearly all rates (not IRX [13-week T-bill]) have risen fairly dramatically. Various unions have either gotten large raises or are arguing to get them. Have you ever seen a strike settle this quickly? AND it truly wasn’t settled, just deferred until after election and before coronation. According to most, although $ are very important, the main contention was a guarantee of no or limited automation.

“Oil has risen about $12 since 9/9/24 low. A large part of new hires in latest report were FED GOV employees. Interest rates rising, oil, and wage demands are all inflationary. Hiring more FED Gov employees is inflationary, because [they’re] adding rules, regs, minimal tax collection… Jobs were revised down annually by over 800K… [The labor force participation rate] has still not reached the 2020 high.

“Only one Fed voter said no to rate increase. She’s a keeper. The Fed has 1000s of employees spread across the nation, and most are well educated, Accts, CPAs, Econs and quants. They are working with supercomputers and the best operating systems and have instant access to info we get a month or 12 later. Somehow, they continue to miss on their numbers by orders of magnitude. I think most sentient peeps might be suspicious regarding claims of being apolitical…” – Subscriber C.H.

“I’ve heard of the inverse Cramer fund. Maybe Stansberry should start an inverse Fed fund.” – Stansberry Alliance member Bill G.

Corey McLaughlin comment: I like the way you’re thinking, Bill! If it existed, first, we’d need a ticker. (Suggestions welcome.) And second, right now, said fund might be heavy on bets on lower long-term Treasury bond prices and rising yields.

Shorting government bonds is actually one of the big bets famed investor Stanley Druckenmiller has on right now, as our friend and Ten Stock Trader editor Greg Diamond wrote to his subscribers yesterday.

Druckenmiller said at Grant’s annual fall conference last week that short bets on U.S. government bonds make up around 15% to 20% of his portfolio.

He didn’t reveal specifically how he’s expressing this trade – and I’m not making a formal recommendation here – but we’ll see the details when Druckenmiller’s next quarterly 13-F disclosures for his Duquesne Family Office portfolio are published next month.

Druckenmiller has already indicated why he’s bearish bonds. One reason is what the Fed is doing. “GDP above trend, corporate profits strong, equities at an all-time high, credit very tight, gold new high. Where’s the restriction [in policy]?” Druckenmiller told Bloomberg late last week.

He’s also bearish on bonds because of the fiscal (debt) situation of the U.S. government. “Bipartisan fiscal recklessness is on the horizon,” Druckenmiller said. True, and I’d say the recklessness has already been in place for a while.

All the best,

Corey McLaughlin
Baltimore, Maryland
October 8, 2024