The bull market that started on October 2022 is still intact. It may change, but it hasn’t changed yet. The bond market still continues to show a bullish setup and so far, it is wrong to be on the bearish side. A soft landing is still a strong possibility. The investors are still extremely bearish. Per JP Morgan’s survey, 95% of investors think the stock market will fall for the rest of the year, and 5% think that the prices will remain the same. None (NONE!!) believe that the market may go up. This is usually a pretty good contrarian indicator.

The fund managers are also extremely exposed to defensive equities such as bonds, staples, utilities, cash, or healthcare stocks. What does this tell us? Well, at some point, there will be a moment of reallocation, namely when these fund managers realize that they are behind and will be required to show performance. As the market continues crunching higher, their current positions will hurt them. FOMO is nearby.

Nevertheless, this adds to the choppiness of the market. The market goes higher, bears buy defensive positions, mostly put options, and market makers must hedge against these positions, and that creates the rocking boat we are in right now. I saw this clearly last week in the Optionstrat flow. It was extraordinary to watch how many investors were extremely bearish, buying puts on all underlying equities like crazy. And guess what, many of these positions expired worthless this last Friday. Investors lost millions. Add to it the losses of retail investors trying to day trade 0DTE options. They lose $358,000 per day!

We are still seeing weak economic data, though. So that still may turn into a recession! However, the labor market is still extremely strong, contributing to the expectations of a soft landing.

Some market analysts say that the rate hikes already induced a mild recession, and the economic bottom has already happened. That is why we see the stock market defying the skeptics, and it keeps rallying despite their doom and gloom predictions. They say that the recession started in 2022 and is pretty much ending. Honestly, I am in the same camp.

A Bloomberg model indicates that the market (and the US economy) bottomed out in December 2022. And today, the less bad is a strong bullish force. But to know for sure, we need to wait. And while waiting, we need to approach the market carefully and with caution. This uncertainty will continue contributing to higher volatility. We saw it last week. The markets opened low almost every day (usually -0.13% to -0.65%) and then rallied the rest of the day and erased the early morning losses. This may continue.

How will it translate to our trading? Keep higher cash. Trade small, only a few positions per week, ideally one position a week, depending on your account size. And trade only after the old trades are gone. If they are not gone, close them, roll them or otherwise adjust based on your strategy, and do not open any new trade. If you just buy stocks, buy small and buy dividend stocks only. Do not buy high-flying, risky stocks. There will be plenty of opportunities once this uncertain time passes.
 

This post was published in our newsletter to our subscribers on Saturday, April 23rd, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.
 

JXN is in stage #2. The stock bounced at 200-day MA support. The recovery from the recent “banking crisis” selloff continues. The price is “hugging” the 200-day MA and the upward-moving trend line. At the current level, the stock is extremely undervalued, but it may take several years before we see the stock reach its valuation (the valuation may also drop before the price gets there). The stock pays good dividends and at the current price, it is a buy.

The company is a spinoff of Purdue insurance company, so its revenue track record is short and so far, somewhat choppy. Despite the choppiness, the company seems to be growing its revenue:

Free cash flow is also growing:

The company pays 2.48 annual dividends (6.75%) and despite its short history, increased the dividend twice:

Since the spinoff, the company also reduced shares outstanding significantly:

The company has plenty of cash and very little debt, so it is not affected by the current interest rates. This is very good news. With rising interest rates, we want to be investing in companies that have little to no exposure to debt (leveraged). JXN is one of them:

The stock is well undervalued, and it offers an astounding 745% rate of return by 2025 (119% annualized return). The question is when investors recognize it and start buying this stock up.

The stock is now AGGRESSIVE BUY
 

This post was published in our newsletter to our subscribers on Saturday, April 15th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.
 

NVEI is in stage #2. NVEI is my new addition to the portfolio. I was resisting investing in fintech companies as I couldn’t find any diversified enough to give me the comfort of not investing in companies exposed to cryptocurrency only. It is a purely speculative trade. I plan on holding this and selling options against this position (spreads). The stock is now under pressure from a short seller (Spruce Point) who claims a few issues with the company. First, they brag about their correct prediction that the stock would drop by 35% (they called it in December 2021). Then they posted a few issues with the company, such as that Ryan Reynolds didn’t disclose his investment properly and the management had ties to FTX. I think this is not a reason for the additional 50% drop. But I am competing against a bunch of analysts who do nothing the entire day but dig out anything they can about a company of their interest, so I may be utterly wrong. Nevertheless, on the chart, the stock is in stage #2 and may continue recovering if the report turns out to be bogus just to push the stock down (note, short sellers usually post their reports after they open their short positions. And just because they were right once doesn’t mean they will be right again. It may easily be that they remained short and now trying to prevent a short squeeze as the markets, tech, and fintech stock start recovering.

The weekly chart also indicates potential, and the stock may, in fact, recover to the previous levels of $100 – $120 a share. Will it happen? No one knows, but if we take a look at the fair value correlated to the adjusted operating earnings, we see that the stock’s fair value should be around $100 a share by 2025. Today’s fair value is at $63.92 a share, so the stock is undervalued:

However, Spruce Point claims that the stock value is inflated by the company’s buybacks to “channel cash out of business.” If we look at the shares outstanding, this claim doesn’t seem to hold water much. The company was diluting shareholders for years, though nothing significant, just about 2.2% 5-year average dilution. In 2022 it started buybacks at a rate of 1.09%. I do not think that is a reason for fraudulent money drainage claims, and Spruce Point might be just inflating a problem that isn’t there.

The company is increasing its revenue every year. There was a small hiccup in 3Q 2022, but then the revenue improved. The revenue chart below indicates total revenue, not revenue per share, so buybacks do not impact the numbers.

Another claim is that Nuvei’s acquisition of Paya, exposure to cryptocurrency, and inflating customer base will hurt the company and fail. Where does the free cash flow come from if that is the case?

The company has more cash in hand than the debt, and it is paying it off. I consider this a good sign. So, if we summarize the claims of Spruce Point that the company:
1. Was draining money from the coffers by questionable buybacks.
2. Was inflating customer base.
3. Was involved in questionable acquisitions
4. Had questionable ties to failed FTX

Where did it get the cash needed to show positive and growing free cash flow and could keep its debt at a reasonable level without borrowing more money? Consider that this is a fintech company in the realm of high-flying tech stocks that are usually leveraged.

So, yes, the company is new, in an interest rates sensitive territory, in the same category as the PayPal company, it may be fraudulent, and yes, it crashed during the latest bear market (which company didn’t crash?). Still, I think the Spruce Point report is not a very convincing one. I have seen better reports.

I still think that the Spruce Point report is to keep the stock price suppressed as they maintain a short position, and they may want to close it at a better price. I don’t think the stock will drop another 50% (though it may, if I am wrong). So I am taking a small position and will see what happens next. I am also placing a stop loss. If the company drops, I will be kicked out. If it keeps moving higher, I will make money. But I think the company offers a good opportunity.

The stock is now MODERATE BUY
 

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