Financial Briefing - Thursday, January 11th 2024
Morgan Stanley: Very Close To Being A Sell
In this analysis of Morgan Stanley, the author presents two valuation models to determine whether the company is a good investment. The first model, based on analysts' estimates, predicts a fair price per share of $66.83, indicating a -28.5% downside from the current stock price. The second model, using market revenue growth projections, suggests a fair price per share of $120.91, signaling a 29.5% upside. The author concludes that Morgan Stanley should be rated as a "hold," as it lags behind its rivals Goldman Sachs, JPMorgan Chase, Bank of America, and Wells Fargo. Morgan Stanley's business is composed of trading operations (which contribute 28.05% of its revenues) and asset management (36.30% of revenues). These segments are sensitive to market fluctuations, making the stock volatile. The company also earns interest through lending operations, with a focus on stock-based loans and residential mortgages. The global investment banking revenue is projected to grow at a slow rate, while asset management and wealth management show more growth potential. Morgan Stanley has demonstrated strong performance in terms of revenue growth, operating income, and net income. It also has a conservative approach to debt management and has increased its cash reserves. However, free cash flow has been negative. In summary, the two valuation models offer different perspectives on the fair price of Morgan Stanley's stock. Overall, the company is seen as a "hold" due to market conditions and competition with other financial institutions.
Impact Of Gene Therapies And Casgevy On Crispr AG And The Industry
CASGEVY, a gene therapy developed by CRISPR Therapeutics AG and Vertex Pharmaceuticals, has gained FDA approval for the treatment of sickle cell disease (SCD). CASGEVY utilizes CRISPR/Cas9 gene-editing technology to modify patients' own blood stem cells, enhancing the production of fetal hemoglobin (HbF) to prevent the sickling of red blood cells. The treatment process involves collecting stem cells, manufacturing CASGEVY, conditioning the patient's bone marrow, and administering the therapy. Common side effects include low platelet and white blood cell levels. The companies are working on developing a less toxic conditioning agent to expand eligibility for the treatment. In the medium to long term, the focus will be on developing in vivo editing techniques for hematopoietic stem cells within the bone marrow. CASGEVY's approval validates CRISPR Therapeutics' pipeline, which includes therapies for hemoglobinopathies, immuno-oncology, autoimmune diseases, Type 1 diabetes, and more. The company has a strong financial foundation and anticipates significant clinical outcomes in the coming years.
TMFG: Boom Bust Global Fund
The author discusses their analysis of the Motley Fool Global Opportunities ETF (TMFG), a low-cost and convenient way to access high-conviction Motley Fool global stock picks. While TMFG has shown strong returns in 2023, outperforming the S&P 500 Index and the MSCI World Index, the author is turned off by its boom/bust returns profile. The ETF has historically underperformed passive global funds and exhibits greater volatility. The TMFG ETF is managed by Motley Fool Asset Management, which grew out of The Motley Fool's investment education/newsletter business. The fund invests in high-quality global companies with strong market positions and attractive valuations, with at least 40% of its assets invested outside of the United States. The TMFG ETF has a sector allocation that is overweight in Industrials, Consumer Discretionary, and Financials, and underweight in Information Technology, Health Care, and Consumer Staples compared to the iShares MSCI World ETF. The TMFG ETF pays an annual distribution with a trailing yield of 5.5%. However, its longer-term returns have been more modest, and its boom/bust returns profile makes it a challenging recommendation for investors seeking global exposure.
TC Energy: May Be A Value Trap
TC Energy, a Canadian energy infrastructure company, may be a value trap for investors, according to Hunting Alpha. The author argues that TC Energy's negative free cash flow generation is expected to continue, with the company spending all of its future cash flow on capex until 2026. Additionally, TC Energy's debt profile does not directly benefit from expected rate cuts and carries high interest costs. The company's plan to spin off its struggling Liquids Pipelines business into a separate entity also lacks a clear rationale and raises doubts about the company's overall strategy. While TC Energy's low valuations and high dividend yield may attract some investors, the author suggests that the company's weak financial performance and uncertainties surrounding its debt and spinoff plans make it a risky investment. Overall, TC Energy is rated as a "Neutral/Hold" by Hunting Alpha.
VCLT: Long Term Corporates Now Yield Less Than Cash
The Vanguard Long-Term Corporate Bond Index Fund ETF (VCLT) has been performing well, rising 7% since May. However, the yield to maturity on the index has fallen below cash for the first time on record, making long-term corporate bonds and the VCLT unattractive. The fund holds a portfolio of long-term investment-grade corporate bonds and tracks the Bloomberg US Long-Term Bond Index. With a weighted average yield to maturity of 5.4%, a weighted average maturity of 22.7 years, and a duration of 12.7 years, the fund is highly sensitive to interest rate changes. Despite charging a low expense fee of 0.04% and having a market capitalization of $6.8bn, the current market conditions and expected rate cuts by the Fed make the VCLT risky. The recent rally in the VCLT has been due to the drop in long-term bond yields and the narrowing of credit spreads. However, for the VCLT to outperform cash in the coming years, the Fed would need to lower rates without a significant rise in default rates and credit spreads. The risks outweigh the rewards for the VCLT at present, but it is still likely to outperform US stocks unless there is a sustained rise in inflation. The 5.4% yield of VCLT is higher than the 1.5% dividend yield on the S&P 500, making it a more appealing option for investors.