Bitcoin, Novavax (NVAX), Generac (GNRC) and Utilities as an investment

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Thoughts on Bitcoin, Novavax (NVAX), and utilities as an investment during a period of rising interest rates.

Bitcoin, Novavax (NVAX), Generac (GNRC) and Utilities as an investment

03/01/2021

Podcast Transcript


Hey this is Jeffrey with another edition of Stock Smart, March 1st, 2021 edition. Hope you’re doing well, market is moving up today. We got a bit oversold on the S&P 500 oscillator last week. Smart buyers came in late Friday, when we reached some critical moving averages and saw some bounces. VIX is falling today, makes sense, down about 12% and the 10-year note is down slightly. Remember the 10-year is going to be key to watching what happens in this market, but we’re still a ways away from it being a major concern. 10 year is up 50% in nearly three months and once investors can get a safer return but I’m talking about 2-2.5 percent interest on that 10 years. That’ll be the key number somewhere in the two and a half percent range.

[00:00:43]
That’s when you’ll really want to take notice has moved greatly slightly under 1.5% right now, but as investors get a safer return they will move into more fixed income positions. Let’s talk about materials and inflation. So what we see all the time, you’ll see the gradual rise in interest rates going up with inflation and we’re getting inflation. Let’s talk about materials. Lumber doubled in nearly a year, copper up 50% in a year. Housing demands, yes and interest rates low. So interest rates are going to move up, write a report today, expectation is by the end of the year. So if you want to refinance and you haven’t done it yet. You should take a look now, but interest rates on mortgages generally could be in the three and a half percent range towards the end of the year.

[00:01:31]
And again as the bonds don’t move or not directly associated with the interest rates in your mortgage. They are competing products. So the collateralized debt obligations and the collateralized loan obligations that back your mortgage are similar because they’re backed by similar investors. So I want to talk about the podcast. Thanks. Again, 10% a week is the growth rate so far, really appreciate it, really amazing so thanks all the listeners and thanks for sending the questions. You can send them to Jeffrey@JeffreyKamys.com. We’re going to have a huge announcement upcoming couple months away. I want to tease you with it. It’s going to be really exciting going to bring a whole level of new content and different things we talked about on the show.

[00:02:13]
Let’s talk about Bitcoin, is Bitcoin negatively correlated with the S&P 500 or the overall market and no it is not. Watched it all weekend again, I’m an investor. I took a position because I wanted to learn more about it, all weekend and last week bitcoin down big, down about 22% last week. We see futures, futures go up, Bitcoin went up 8% this morning or overnight I should say. So as the market moves now, the S&P 500, we’re seeing that it’s positively correlated with Bitcoin. And as I did that study before, about 70% of the time when Bitcoin goes up the market goes up. So again, it’s not a hedge as gold is, it’s different, it’s positively correlated with the market. Not negatively correlated. So if the market goes up Bitcoin goes up.

[00:03:02]
FDAA has approved Johnson & Johnson’s Covid vaccine which is amazing. That’s really great news for the nation in general as people get back out and go to work and restaurants and people will live their lives again. It’s a one dose vaccine just needs to be stored at refrigerator temperatures and will last for months. So keep an eye on stocks like Moderna MRNA and Novavax. Moderna getting sold off a little bit today, the MRNA technology that’s really important. This is not just the Covid stock there are reports about this MRNA being able to potentially bring a vaccine for some forms of cancer in the near future. It’s a long term holding. It’s not directly associated only with the Covid vaccine so keep an eye on it.

[00:03:48]

STOCK WATCH

Let’s take a look at a stock, let’s talk about what they do first, and see if we can guess it. We engage in the design and manufacturing of power generation equipment and other power products. Now, if your neighbor got one of these and they used it, you might be annoyed because there’s loud. The company we’re talking about is Generac GNRC. Generac makes generators, power sources, alternative power sources, when you lose your power. In California where I live that’s a major concern because our power company PG&E. Let’s just say that they are shutting off priority now

[00:04:25]
when they get anything like high winds and fires to avoid what happened in the years past when we had these gigantic fires in California. Generac has had a massive move but into its last earnings, the stock was bought heavily into the earnings, reached an all-time high about 330. The stock fell about 8%, but you know again running hard in earnings and it’s not always a great sign. Sometimes it’s better if a company sells off sort of in earnings and get to neutralize a little bit, expectations get too high and no matter what company delivers sometimes in their earnings, they will go down just on the overbought conditions of the stock.

[00:05:00]
Here’s the interesting thing about generators and people who buy them. My neighbor did put one in, but home buying research says that if you install a generator and the key word here is legally it can increase the resale value of your home and substantially. So, if you invest $12,000 on a generator, they’re not cheap, $12 to 15 depending on the install, you’ll make about 30-35% on that generator when you sell your house, so the value would be up to about $18,000 and that is true in California. I would tell you that we’ve had so many power outages in the last two or three years because of these fires and PG&E trying to be proactive and shutting things down that generators became more of a priority, but I will tell you my neighbor who put one in and put the money in did not get to use it last year.

[00:05:40]
So we did not have power outages where I am living but he has it and he’s a great guy. He told me I can run a power line in that generator anytime I want but they are a value to a home if you purchase one, so that’s interesting, Generac, I like the company. I like what they’re doing. A lot of people wanted to have alternative sources of power, so it’s been a big boom. It’s pushed up their price targets in it. And so it’s been pumped up heavily. Generally most people think that it’s going to continue to go up. I want to say one thing about this because I think this falls into another category of stay-at-home stocks. Generac, you wouldn’t think of it as a stay-at-home stock like some of the other ones, the media companies.

[00:06:16]
But again, it’s the concept of people spending money to improve their homes and that’s what’s been going on the last year, and I think Generac again will be a company that over the long-term. I do believe this is a great company, but I think that over the long-term, I think this stock is going to see some declines and I think the stock will go down. You know, I see it being a buy somewhere in the 250-270 range right now. Right now it’s trading at 336 and had a nice move today of 2% but I’d watch for the stock to settle in a little bit again. People are going to spend money on travel. That’s what’s going to happen. The next year is going to be about travel reclaiming those memories, who has a memory from the last year?

[00:06:55]
It’s so hard to mark time when you haven’t done anything. I’ve been home. You’ve been home. We’ve all been home, hard to mark time. People are going to go after memories again. That’s what this is about. So you’re going to see more travel. So people may not want to fork over the $15 to 20 thousand or whatever they need to spend at the buy a generator. I like the stock, great company, fundamentals are good, technical chart is okay right now, I do think there’s going to be a correction in the stock. So be a little bit careful on Generac. But again, I think it could be considered a stay-at-home stock because investors are spending a lot of their money on their homes this past year.

THE AVERAGE INVESTOR

So again, I got a question from Laura.

[00:07:38]
She wants to know if she should stay invested in utilities. Well Laura thanks for the question. Rising interest rates can generally impact utilities more than other stocks and other sectors. A lot of people who invest in utilities are fixed income investors. So they’re looking for the dividend and when bonds become more attractive because interest rates rise, generally, you will push it’ll push people out of utilities and into the bonds because it’s a similar type of investor. That’s something you have to watch for. So there’s only a certain amount of investors in each pie and the investor who wants to be in utilities generally is a conservative investor who wants the dividend. And one thing we know about utilities is you have to pay your energy bill or you lose your power.

[00:08:16]
It’s a simple thing so they have a reliable dividend except of course for PG&E which does not have a dividend anymore and it’s why the stock trades at $10 to 12, but you’ll see and we held PG&E for a long time, but we sold the stock off last week because again of rising interest rates, so utilities are not quite as sexy when it’s rates go up because bonds become even more reliable and better investments because you don’t have the risk because again, there’s no risk on a bond the government always pays, but also you have another issue too. High cost of capital to borrow money for the utilities because they have debt, they have massive debt, you think about the infrastructure that PG&E has to pay for? All the power lines.

[00:09:00]
One guys who has a house a hundred miles from the power grid that they have to run a line for? It’s expensive to run utility. So it increases their powering cost with the rates of interest rates rising, you know, so that’s a problem for utilities was well, you know all businesses are affected by this but utilities have major capital expenditures. So again are utilities good when interest rates go up. No, I don’t think so. Like I said, we’ve been a long-term holder of PG&E but recently have exited the position, we anticipated at some point like many people are holding that stock and a lot of hedge funds were in it. They were saying hey, well they’re filing a bankruptcy and maybe they’ll reinstate the dividend. I don’t know.

[00:09:40]
It doesn’t seem like it’s getting any closer to that happening. PG&E, which is around $10, 11, 12, if there were was a dividend in place, that stock would go back up 25, 30, though it does have more risk than most other utility companies, it’s why electric is a pretty interesting utility if you’re interested in utilities. Hey, thanks for the questions. Keep them coming and we’ll see you again on Stock Smart.

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