Looking for the next apple? This is the orchard.
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Join Salem Media (SALM) CFO Evan Masyr at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 19&20, 2021. Following a formal presentation, a seasoned Wall Street research analyst will join Evan to moderate a LIVE Q&A session. If you want to be added to the roster of presenters… or if you would like to join the virtual audience of investors, at no cost, go to nobleconference.com. NobleCon 17 Complete Presenting Company Schedule
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Thursday, December 31, 2020
Vectrus Inc is a U.S.-based company that provides services to the U.S. government. It operates as one segment and offer facility and logistics services and information technology and network communications services. The information technology and network communications capabilities consist of communications systems operations and maintenance, management and service support, systems installation and activation, system-of-systems engineering and software development, and mission support for the department of defense. The facility and logistics service include airfield management, ammunition management, civil engineering, communications, emergency services, life support activities, public works, security, transportation operations and others.
Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
OMDAC-SWACA Award. Tuesday evening, the U.S. Army announced Vectrus was awarded an $882.5 million cost-plus-fixed-fee contract for operation, maintenance, and defense of Army communications (OMDAC-SWACA) with an estimated completion date of December 26, 2025. This is another major win for Vectrus, as OMDAC-SWACA accounted for approximately 15.6% of the Company’s 2019 revenues.
Details. The OMDAC-SWACA award of $882.5 million over the next five years is similar in value to what the contract provided Vectrus over the 2016-2020 period, which we estimate to have contributed a total of $932 million of revenue. The entire $882.5 million was obligated at the time of the …
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
Oil well production and improved drilling efficiency could keep the price per barrel low, even as demand picks up. Although today’s lower oil price range is largely demand-related, the result of pandemic related slowdowns, technology has been improving well output, this is also a culprit. The trend is also impacting natural gas. Technology is not likely to reverse itself and reduce the capacity to bring oil to the surface. From a supply standpoint, oil prices could be stuck in a lower range, even in a booming economy.
Where the Growth in Oil Production is Greatest
A recent study by the U.S. Energy Information Administration shows that technology improvements in the last decade have not only increased the overall production of oil and gas in the United States they have also dramatically increased production rates per well. To show this graphically, the EIA separated production into categories based on the size of the well. The graph below shows that the growth in oil production has occurred primarily from wells producing 100-1600 barrels of oil equivalent (BOE) per day. Interestingly, there has not been much growth in the number of production of large wells producing more than 3,200 BOE/day. The limited growth from “mega wells” reflects a decreased emphasis on drilling in the Gulf of Mexico and searching for giant discoveries. It is also worth noting that there has been little growth among smaller wells. These largely represent existing wells that have been in production for many years at steady rates.
Where the Growth in Natural Gas Production is Greatest
A similar story can be told by looking at natural gas well production. The growth has come from the middle size wells and not the largest or smallest producing wells. Notably, the production growth has come during a period of low natural gas prices and does not yet reflect the impact of a rebound in natural gas prices in the second half of 2020.
Improved Drilling Methods
The growth in oil and natural gas production should come as no surprise. Horizontal drilling and fracking have improved initial productivity rates of middle-size wells. What is perhaps a surprise is the fact that improvements seem to be accelerating in recent years. Horizontal drilling began in the ‘70s, and fracking has been done for over 150 years, but it wasn’t until ten years ago that the use of horizontal drilling and fracking surged in the United States. Importantly, drillers continue to improve well production rates by finetuning the number and spacing of fracks per well, and the amount of pressure and viscosity used to frack a well. To complicate matters, the ideal drilling formula in one land formation may not work in another land formation. This has lead to a growth of producers that specialize in specific drilling locations.
It is a common theme among producers to report well production that surpasses expected “type curves”. At the same time, managements report a reduction in the number of days it takes to drill a well and thus its overall drilling cost. The result of reduced well cost and higher production has meant a higher return on investment. Higher returns have helped offset lower energy prices in 2019 and the first half of 2020.
Take-Away
Improved profitability is clearly positive for individual energy companies. As a whole, however, it means lower energy prices. Drilling can continue at lower energy prices than before, and drilling will increase sooner when prices rise. If the natural trading range of oil was previously $40-$70 per barrel, perhaps the new range is now $30-$60 per barrel. And, for natural gas, perhaps the range has shifted from $2.50-$3.50 per mcf to $2.00-$3.00 per mcf. If true, current prices of $48 for oil and $2.40 for natural gas do not represent depressed levels but levels in the middle of the new trading ranges. And technology continues to improve. Ten years from now, we may be talking about even lower trading ranges. Technology is not going to reverse itself and cause trading ranges to rise.
Suggested Reading:
Small-Cap Energy Underperformance During the Drop in Oil is Unwinding
Are we headed to Another Oil Collapse?
Sources:
https://www.hartenergy.com/news/history-horizontal-directional-drilling-52314., Hart Energy, September 1, 2005
https://www.nrdc.org/stories/fracking-101#history, NRDC, April 19, 2019
Thursday, December 31, 2020
Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.
Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Strong December stock price performance proved catalyst for debt conversion into equity. ATM program updated for opportunistic use. In the updated ATM equity prospectus, we learned that the convert debt was fully converted into equity after strong stock price performance in December and 5.67 million shares were issued to Whitebox to retire the convert debt, including PIK interest and a make whole payment. About $14 million of cash was preserved and current cash is $79 million. In 4Q2020, ATM equity issuance raised $6.2 million and warrant exercises added ~$0.4 million.
Potential milestones/catalysts over the next year: Expanding the supply contract portfolio with new industry/financial partners; Identifying engineering firm performing FEED work; Identifying equity and debt project financing partners; Awarding an EPC (Engineering/Procurement/Construction) contract to a construction firm; Financial closing of project debt/equity financing that allows the …
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
Thursday, December 31, 2020
Indonesia Energy Corp Ltd is an oil and gas exploration and production company focused on Indonesia. It holds two oil and gas assets through its subsidiaries in Indonesia: one producing block (the Kruh Block) and one exploration block (the Citarum Block). The Kruh Block is located to the northwest of Pendopo, Pali, South Sumatra. The Citarum Block is located to the south of Jakarta.
Michael Heim, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
The shares of INDO rose 47% on December 30 on heavy volume. The shares of INDO opened at $5.74 and quickly rose to $15.33 before ending the day at $7.11. The company did not report any news that might account for the rise in its stock. We would note that management gave an update on operations on November 23 and presented at a conference for microcap stocks on December 10. The shares of INDO are thinly traded with less than 1 million shares traded on average. More than 50 million shares were traded on Wednesday with most of the trades executed before noon.
Oil prices have been rising. Brent oil prices have been rising since the beginning of November and are now above $51 per barrel. The price INDO receives for oil production follows a complicated formula but generally tracks Brent oil prices. Current prices are above that assumed in our models which call for an average price of $45 in 2021 and $50 in 2022 and beyond. Drilling has been delayed into …
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
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Join Aurania Resources (AUIAF)(ARU:CA) CEO Keith Barron at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 19&20, 2021. Following a formal presentation, a seasoned Wall Street research analyst will join Keith to moderate a LIVE Q&A session. If you want to be added to the roster of presenters… or if you would like to join the virtual audience of investors, at no cost, go to nobleconference.com. NobleCon 17 Complete Presenting Company Schedule
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Join Endeavour Silver (EXK)(EDR:CA) CEO Bradford Cooke & CFO Dan Dickson at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 19&20, 2021. Following a formal presentation, a seasoned Wall Street research analyst will join Bradford and Dan to moderate a LIVE Q&A session. If you want to be added to the roster of presenters… or if you would like to join the virtual audience of investors, at no cost, go to nobleconference.com. NobleCon 17 Complete Presenting Company Schedule
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Wednesday, December 30, 2020
Vectrus Inc is a U.S.-based company that provides services to the U.S. government. It operates as one segment and offer facility and logistics services and information technology and network communications services. The information technology and network communications capabilities consist of communications systems operations and maintenance, management and service support, systems installation and activation, system-of-systems engineering and software development, and mission support for the department of defense. The facility and logistics service include airfield management, ammunition management, civil engineering, communications, emergency services, life support activities, public works, security, transportation operations and others.
Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Zenetex Acquisition. Monday evening, Vectrus announced it was acquiring Zenetex, accelerating its converged infrastructure strategy. Vectrus is paying $123 million, or $112 million, net, after $11 million of expected tax benefits, or approximately 8.4x 2020E adjusted EBITDA. The deal is expected to be accretive to VEC’s adjusted diluted EPS and adjusted EBITDA margin. The deal is expected to close before the end of 2020.
Who is Zenetex? Zenetex is a leading provider of technical and strategic solutions focused on enabling mission readiness, performance, and enhanced protection for defense and national security clients globally. For 2020, the Company is expected to generate revenue in excess of $200 million and we estimate around $13 million of adjusted EBITDA. The Company is at the front end of significant new …
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
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Join Voyager Digital (VYGVF)(VYGR:CA) CEO Steve Ehrlich at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 19&20, 2021. Following a formal presentation, a seasoned Wall Street research analyst will join Steve to moderate a LIVE Q&A session. If you want to be added to the roster of presenters… or if you would like to join the virtual audience of investors, at no cost, go to nobleconference.com. NobleCon 17 Complete Presenting Company Schedule
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Wednesday, December 30, 2020
Eagle Bulk Shipping Inc. is a US-based drybulk owner-operator focused on the Supramax/Ultramax mid-size asset class, which ranges from 50,000 and 65,000 deadweight tons in size; these vessels are equipped with onboard cranes allowing for the self-loading and unloading of cargoes, a feature which distinguishes them from the larger classes of drybulk vessels and provides for greatly enhanced flexibility and versatility- both with respect to cargo diversity and port accessibility. The Company transports a broad range of major and minor bulk cargoes around the world, including coal, grain, ore, pet coke, cement, and fertilizer. Eagle operates out of three offices, Stamford (headquarters), Singapore, and Hamburg, and performs all aspects of vessel management in-house including: commercial, operational, technical, and strategic.
Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Fleet renewal continues with another Ultramax acquisition. The fleet renewal program, which began in April 2016, continues. Another SDARI-64 Ultramax (to be renamed Stockholm Eagle), which was built in 2016 at Chengxi Shipyard and is outfitted with scrubbers, will be acquired for $17.65 million. The acquisition adds to two Ultramax acquisitions slated to close in 1Q2021. We believe that these moves represent a shift to growth after selling a total of five older Supramaxes with an average age of 18 years since mid-2020. The impact is positive from the perspectives of age profile and fuel consumption. Pro forma for the pending transactions, the fleet will total 48 vessels with an average age of ~8.8 years.
Fine tuning 2021 EBITDA estimate to reflect new transaction. No change to 2020 EBITDA estimate of $55.4 million based on TCE rates of $9.9k/day. The new transaction has a slight positive impact and our new 2021 EBITDA estimate is $77.2 million (up from $75.6 million). Forward cover is light into next year, but TCE rates have moved higher after firmer market fundamentals kicked in late 2Q2020 …
This research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
ELKO, Nevada, Dec. 29, 2020 /PRNewswire/ — U.S. Gold Corp. (NASDAQ: USAU) (the “Company”), a gold exploration and development company, is pleased to announce additional results of the recent twenty-nine hole drilling program for its CK Gold Project, an advanced stage gold and copper exploration and development project located just outside of Cheyenne, Wyoming.
George Bee, President and CEO of U.S. Gold Corp. commented, “We believe that hole CK20-04cB results returned an outstanding intercept of higher-grade gold and copper mineralization from the core of the CK Gold deposit. Perceptions in the past have been that CK Gold is just a low-grade deposit but our drilling to date verifies a higher-grade component, with attractive grades at the core of the deposit. As detailed in our previous releases, this is some of the first material that would be mined in any potential future mining operation and could lead to a quicker payback period after mine construction, should a positive PFS and FS be produced for the project. Metallurgical work is currently in progress on a composite created from holes CK20-04cA and 04cB at KCA of Reno, Nevada.”
CK Gold Project 2020 drilling results summary table:
Assumptions: Grades quoted represent contained metal as assayed. The calculation of equivalent gold grade assumes the spot prices for gold, silver and copper as quoted at Kitco.com on December 10, 2020 and does not account for metallurgical recoveries. Future press releases will utilize these same metal prices for all gold-equivalent value calculations.
3D Visualization
A VRIFY 3D model of the CK Gold Project including the drill results announced today is available through the following
https://vrify.com/embed/decks/2020-12-29-US-Gold-Copper-King-PR
CK20-04cB assay intervals:
www.usgoldcorp.gold/properties/ck-gold-project/2020-drilling/hole-4b-assay-intervals
Comments on hole CK20-04cB results:
Image 1: Native copper in core from CK20-04cA
Image 2: Hole CK20-04cA core is similar to the top 100 feet of CK20-04cB (shown
Geologic observations:
Results from hole CK20-04cB continue to demonstrate the continuity of attractive gold and copper mineralization within this part of the CK Gold Project deposit. The higher-grade material starting at surface to approximately 100 feet depth is characterized by strongly foliated-gneissic granodiorite showing abundant iron oxides, native copper and green secondary copper minerals. This is followed at depth by a thin zone of mixed iron oxides, pyrite, chalcocite and chalcopyrite, and gives way at further depth to primary mineralization dominated by chalcopyrite with some bornite. Previous operators interpreted this highly sheared zone to be silicified but the Company’s work shows much of the silicification to be quartz segregations in gneissic fabric. To date, intensity of shearing seems to visually correlate with sulfide content. See the links above which provide a cross section of hole CK20-04cB and a link to U.S. Gold’s VRIFY deck which shows all holes released to date relative to historical drilling.
QA/QC Procedure
U.S. Gold Corp. employs a rigorous QA/QC protocol on all aspects of sampling and analytical procedure. Drill core is checked, logged, marked for sampling and sawn in half. One-half of each drill core is maintained for future reference and the other half of each drill core is sent to Bureau Veritas an ISO 17025 accredited laboratory in Reno, Nevada to complete all sample preparation and assaying. Samples are analyzed employing fire assaying with atomic absorption finish for gold and four acid ICP-MS analysis for silver and copper. For QA/QC purposes, certified standards, blank samples and sample duplicates are inserted into the sample stream. U.S. Gold Corp. also periodically submits sample pulps to another independent laboratory for check analysis.
COVID-19 Policy
U.S. Gold Corp. recognizes the heightened health risks associated with the current pandemic. At this stage of the CK Gold Project development, focusing largely on the gathering of information from the field, our personnel, contractors and consultants do not need to come into close contact with others apart from work within individual pods such as the drill crew and core logging personnel. Much of our work is conducted outdoors and physically separated. Meetings are conducted from remote locations using available video conferencing software. When it is necessary for individuals to meet or visit facilities, health guidelines are followed to avoid and minimize the risk of spreading the COVID-19 virus. We take the health and safety all those associated with our activities very seriously. If necessary, we will suspend activities and observe quarantine regimens until any health uncertainty passes.
Note on Qualified Person
QP Review: This statement has been reviewed by Kevin Francis, P Geo, SME Registered Member, Principle of Mineral Resource Management LLC who has inspected the data furnished in this announcement and has knowledge of the activities outlined in the CK Gold Project update. Acting within the scope of his expertise, Mr. Francis as a Qualified Person, has reviewed the information provided and finds it to be accurate and reflecting facts.
About U.S. Gold Corp.
U.S. Gold Corp. is a publicly traded, U.S. focused gold exploration and development company. U.S. Gold Corp. has a portfolio of exploration properties. Copper King, now the CK Gold Project, is located in Southeast Wyoming and has a Preliminary Economic Assessment (PEA) technical report, which was completed by Mine Development Associates. Keystone and Maggie Creek are exploration properties on the Cortez and Carlin Trends in Nevada. The Challis Gold Project is located in Idaho. For more information about U.S. Gold Corp., please visit www.usgoldcorp.gold
Safe Harbor
Certain statements in this press release are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “forecast,” “estimated,” and “intend,” among others. These forward-looking statements are based on U.S. Gold Corp.’s current expectations, and actual results could differ materially from such statements. There are a number of factors that could cause actual events to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, risks arising from: the prevailing market conditions for metal prices and mining industry cost inputs, environmental and regulatory risks, risks faced by junior companies generally engaged in exploration activities, whether U.S. Gold Corp. will be able to raise sufficient capital to implement future exploration programs, COVID-19 uncertainties, and other factors described in the Company’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the Securities and Exchange Commission, which can be reviewed at www.sec.gov. The Company has based these forward-looking statements on its current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks, contingencies, and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The Company makes no representation or warranty that the information contained herein is complete and accurate and we have no duty to correct or update any information contained herein.
Cautionary Note to U.S. Investors Concerning Mineral Resources
We may use certain terms on this press release, which are defined in Canadian Institute of Metallurgy guidelines, the guidelines widely followed to comply with Canadian National Instrument 43–101– Standards of Disclosure for Mineral Projects (“NI 43–101”). We advise U.S. investors that these terms are not recognized by the United States Securities and Exchange Commission (the “SEC”). However, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. Note that a preliminary economic assessment is preliminary in nature, and it includes Inferred mineral resources that are considered too speculative geologically to have the economic considerations applied that would enable them to be classified as mineral reserves, and there is no certainty that the preliminary assessment will be realized.
For additional information, please contact:
U.S. Gold Corp. Investor Relations: +1 800 557 4550
ir@usgoldcorp.gold
www.usgoldcorp.gold
SOURCE U.S. Gold Corp.
Tuesday, December 29, 2020
Genco Shipping & Trading Limited, incorporated on September 27, 2004, transports iron ore, coal, grain, steel products and other drybulk cargoes along shipping routes through the ownership and operation of drybulk carrier vessels. The Company is engaged in the ocean transportation of drybulk cargoes around the world through the ownership and operation of drybulk carrier vessels. As of December 31, 2016, its fleet consisted of 61 drybulk carriers, including 13 Capesize, six Panamax, four Ultramax, 21 Supramax, two Handymax and 15 Handysize drybulk carriers, with an aggregate carrying capacity of approximately 4,735,000 deadweight tons (dwt). Of the vessels in its fleet, 15 are on spot market-related time charters, and 27 are on fixed-rate time charter contracts. As of December 31, 2016, additionally, 19 of the vessels in its fleet were operating in vessel pools.
Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Three modern, eco Ultramaxes will be acquired in exchange for six older Handysizes in a transaction designed to modernize and focus the asset base while maintaining liquidity since no capital will be required. A total of nine vessels are involved in the asset swap. Three ~63k DWT Ultramaxes, built in 2014 and 2015 at Jiangsu shipyard, will be acquired and renamed. In return, six Handysize vessels will be delivered to the counter party. The Handys were built in 2010 and 2011, with the first five built at the SPP shipyard and the last built at Hakodate. The cash neutral asset swap will enhance the asset base, complement in-house commercial platform, lower the average age of the fleet by 0.3 years; and avoid drydocking and ballast water treatment system (BWTS) costs of ~$3.6 million on three Handysizes.
Two other asset sales announced. Exiting Handysize sector. Two other vessels will be sold for a total of $15.35 million; the Baltic Cougar (2009-built Supramax) for $7.60 million, and the Baltic Hare (2009-built Handysize) for $7.75 million. The exit from the Handysize sector will be complete after the transactions close and the fleet will be more focused on the Cape, Ultra and Supra sectors …
This research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
With the S&P 500 climbing to a new all-time closing high of 3,735.36, what are the stock market valuation indicators tell us? Although 2020 has been an outlier year in many ways, the S&P 500 is up over 70% from its March 23rd pandemic lows, and year-to-date, the index has risen 15.4%. Notably, the YTD rise, if it were to hold through the end of the year, would rank 2020 as the 46th best performing annualized return for the S&P 500 over the last 95 years. Not a bad accomplishment for such a turbulent year. The 2020 return is nearly double the average annual return of the S&P 500 since the 500 stock index was adopted in 1957.
Economists view the stock market as forward-looking, a leading indicator foretelling future economic pace. So, after the 2020 outperformance, what might 2021 look like?
What are the Odds?
The bad news is that the vast majority of historical valuation measures show a significantly overvalued market. For example, the Bull-to-Bear ratio is 3.7, well above the 1.0 neutral territory. The Consumer Comfort Index is 59.5, near the highest level seen since the late 1990s (what happened in late 1999/early 2000 brought pain to the stock market). The S&P 500 Price/Earnings-to-Growth (PEG) ratio of 1.9 is at its highest level since 1985. Tobin’s Q (or “Q Ratio” compares an asset’s market value to replacement value) for non-financials. Currently, at an adjusted 3.3, it is at its highest level since 1952.
The forward P/E ratios for the S&P 500 (large-cap) and the S&P 400 (mid-cap) are at their highest levels since 2006, while the S&P 600 (small cap) forward P/E is near its highest level since 2006. The Shiller P/E is 33.8x, versus a 20-year average of 25.6x and approaching its 20-year high of 37.3. The S&P 500 P/S ratio of 2.68x is at its highest since 2000 and well above the 1.50x median. Finally, market capitalization to GDP, often termed The Buffett Indicator, shows an overvalued market. The market cap of the Wilshire 5000 to GDP is 1.83, well above the 0.8 median average and the highest level since 1970. Looking at both the S&P 500 to GDP and Dow to GDP ratios, these are both at 70-year highs.
How is the Economy?
While above-normal valuations often go hand in hand with above-average economic growth, that does not appear to be the case this time. According to the U.S. Bureau of Labor Statistics, GDP is projected to grow just 2.6% in both 2021 and 2022. While this is better than the 2.1% average from 2010 through 2019, it falls far short of the 3-4% annual GDP growth experienced over the previous 40 years. Unemployment numbers, while well down from the pandemic highs, seemed to have stalled in the mid-6% range, nearly double the pre-pandemic numbers. While a COVID vaccine should help the economy recover to a more normalized state, how fast and far such an impact will have is unknown.
Bright Spots
On a more positive note: one should take into account the outsized influence of the FAANGM stocks on the P/E multiple. FAANGM stands for Facebook, Amazon, Apple, Netflix, Google, and Microsoft. These six stocks now account for nearly 25% of the S&P 500’s entire market capitalization. Since 2013, these six stocks are up 567.5%, compared to just 103.3% for the other 494 stocks. As mentioned previously, the S&P 500 forward P/E is 22.1x. The forward P/E for the FAANGM stocks is 40.1x. If you remove the FAANGM stocks, the adjusted forward P/E for the remaining 494 stocks falls to 19.3x, which is close to the modern era average CAPE P/E of 19.6x, suggesting, at least from an earnings perspective, the market is not as overvalued as it appears. In addition, according to Yardeni Research, the Fed’s Stock Market Valuation model shows the S&P 500 forward P/E at 21.7x, compared to a 114.9x P/E for bonds, implying, stocks remain the superior investment choice to fixed income.
Suggested Reading:
Will Robinhood be Fined on Charges of Gamification
The Federal Reserve and MIT are Experimenting with Digital Currencies
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