by Louis Navellier
December 28, 2921
This is a good time to remind everyone why I am so obsessed with only selecting stocks with strong sales and earnings growth plus positive analyst revisions – especially near market tops. Because of these superior fundamentals, every three months I count on quarterly earnings to drive these stocks higher.
After each earnings season, institutional buying pressure becomes the primary component propelling my stocks higher, but whenever this buying pressure ebbs, stocks typically become more volatile and fall in rank in my quantitative grading system, so then we often sell these “good” stocks to buy better stocks.
I expect a higher market in January because virtually all the current stock market fears are expected to diminish in January. First, growth is returning and will be reported in late January. The Atlanta Fed is currently estimating 7.2% fourth-quarter GDP growth. Also, crude oil prices are now moderating, and Treasury bond yields have meandered lower. On top of that, Omicron virus fears should abate soon.
President Joe Biden will be addressing the nation tonight, and naturally I expect him to tell Americans to stay safe, as well as vaccinated, but it will be interesting to see if he also addresses the failure of his “Build Back Better” (BBB) bill in the Senate or makes a new proposal. There was an editorial in The Wall Street Journal that said that Senator Joe Manchin (D-WV) may have saved the Biden Administration by killing the BBB bill, and thereby forcing them to regroup and tack back to the center by proposing a new, more moderate and popular infrastructure bill. The only glitch they will face is that 2022 is a mid-term election year, so passing any bill will become more difficult as we get closer to the November elections.
Regarding the port bottlenecks, major European ports, like Hamburg and Rotterdam, are “roughly flat or lag behind 2019 levels,” according to The Wall Street Journal, while the major U.S. ports are processing almost 20% more container volume than they did in 2019. The bottom line is that U.S. consumers continue to boost their spending on goods, while European consumers remain much more cautious.
According to the Bank of England, the U.S. accounts for almost 90% of a 22% worldwide surge in durable goods orders since the end of 2019. Overall U.S. GDP growth is forecasted to grow at a nearly 6% annual pace in 2021 and 4% in 2022. The primary reason that the U.S. dollar is strong is due to this higher GDP growth as well as higher absolute interest rates than anything offered in Europe or Japan.
A strong U.S. dollar will eventually help suppress inflationary pressure, since almost all commodities are priced in U.S. dollars. Furthermore, since approximately half of the sales in the S&P 500 are outside of the U.S., many multinational companies will be posting better-than-expected sales due to a “currency tailwind.” As a result, it is hard to not be optimistic about 2022, since the U.S. is driving global growth.
The Economic News is Mostly Encouraging Going into 2022
The economic news released last week was mostly very encouraging. First, the Conference Board announced on Wednesday that its consumer confidence index surged to 115.8 in December, up sharply from a revised 111.9 in November. Most notably, the Expectations component surged to 96.9 in December, up from 90.2 in November. Obviously, this bodes well for the outlook for the New Year.
Also on Wednesday, the National Association of Realtors reported that existing home sales rose 1.9% in November to an annual pace of 6.46 million. Although absolute home sales were down 2% compared to October, year-to-date existing home sales have risen 10%. The inventory of existing homes for sale in November declined 9.8% from October to only 1.11 million, which represents a 2.1-month supply at the current sales pace. In the past 12 months, median home prices have risen 13.9% to $353,900.
The National Association of Realtors also noted that in the past 12 months, the more expensive home sales have risen even faster. Those between $500,000 to $750,000 have risen 31%, while homes between $750,000 and $1 million rose 37% and homes above $1 million have surged 50%! Median home prices are expected to continue to rise due to tight inventory as well as strong sales for more expensive homes.
The Commerce Department on Thursday announced that new home sales rose 12.4% in November to an annual pace of 744,000, which is the fastest pace in seven months. In the same report, October new home sales were revised down to an annual pace of 662,000, down from the 745,000 rate previously reported.
The inventory of new homes for sale rose to 402,000 in November, up from 392,000 in October. The average median new home price is now $416,900, 18.8% above a year ago. New home sales in November surged 53.2% in the West, 15.6% in the Northeast and 2.7% in the South, but declined 25.4% in the Midwest. (This time of year, weather can impact new home sales, especially in colder regions.)
Turning to the weekly labor news, the Labor Department reported on Thursday that unemployment claims in the latest week were 205,000, which was identical to a revised 205,000 in the previous week. Continuing unemployment claims in the latest week declined to 1.859 million compared to a revised 1.867 million in the latest week. Overall, the four-week average of unemployment claims remains near the lowest level in 52 years, so in my opinion, the Fed has fulfilled its unemployment mandate.
The Commerce Department reported on Thursday that durable goods orders surged 2.5% in November, which was substantially higher than the economists’ consensus estimate of a 0.7% increase. A 34% surge in commercial aircraft orders was the primary cause of the big increase. Also encouraging was the fact that orders for vehicles rose 1% last month. Excluding transportation, durable goods orders rose 0.8%.
The only “glitch” in the durable goods report was that business orders declined 0.1% after rising 0.9% in October. Perhaps businesses were more cautious since inventories rose 0.6% in November. However, unfilled orders for manufactured goods rose 0.7%, which bodes well for continued strong durable goods orders in future months. As a result, I expect economists to upgrade their fourth quarter GDP estimates.
The Ongoing Economic Struggles of EV Makers and Battery Production
The Wall Street Journal recently featured a very good article on the demand for batteries as California and other states strive to store growing solar energy during off peak hours. In fact, the demand for large battery storage packs, which resemble shipping containers, for electric grid storage is further complicating the automotive industry’s transition to electric vehicles (EVs). For example, Volkswagen Group recently had to halt the production of its EVs at two plants in Germany due to supply shortages. LG Chem primarily supplies Volkswagen Group with lithium-ion batteries from its massive battery plant in Poland, but VW Group is investing in six new European giga factories, while its manufacturing plant in Chattanooga, Tennessee will be supplied by SK Innovation’s new battery plant in Georgia.
Interestingly, Ford’s F-150 Lightening has almost 200,000 orders and new reservations have been temporally suspended due to 200,000 vehicles representing an almost a three-year order backlog. Although Ford has pledged to double the production of the F-150 Lightening and reopen its order books, you might be wondering why its takes Ford three years to produce 200,000 F-150 Lightening trucks, when Tesla is making over 200,000 EVs per quarter. The answer is the shortage of lithium-ion batteries for all EV manufacturers. Tesla has wisely shifted to less efficient, but safer (from fires) iron-phosphate batteries at its Shanghai plant, or it would also be impeded by the shortage of lithium-ion batteries.
General Motors has announced that its new EVs by Cadillac and GMC will be using 75% less cobalt than other lithium-ion batteries. The fact of the matter is that due to a shortage of raw materials to make lithium-ion batteries (like cobalt), new battery technologies and formulas will be necessary, otherwise the EV revolution is expected to stall. Even Tesla has not yet formally revealed its new larger 4680 batteries that it is supposed to use at its new manufacturing plants at Austin and Berlin.
As well as Tesla has done in boosting its EV production with multiple battery suppliers and technologies, I am starting to worry that complications with its 4680 batteries, including the supply of raw materials, may impede Tesla’s ambitious sales growth. As a result, I expect that the EV battery shortage will become big news in 2022, just like the semiconductor shortage has been big news this year.
Overall, the Green Energy Revolution is going to take decades and it will likely depend on new battery technologies that do not excessively rely on cobalt and other rare earth minerals. One reason that fossil fuel prices remain high is a lack of investment in new production as governments try to break away from fossil fuels, which caused acute shortages to emerge, so it will be interesting if any governments try to slow down their transition to EVs and greener energy. For example, the Biden Administration has pledged the federal government to buy 600,000 EVs, but between Ford, GM and Stellantis (formally Chrysler), the Big 3 are not expected to make 600,000 EVs by the end of President Biden’s first term!
Right now, NASDAQ is the primary market barometer in my opinion. Since Lucid was added to the NASDAQ 100, despite the SEC investigation into its SPAC deal, the NASDAQ 100 index is expected to remain volatile. Even though Lucid is getting rave reviews for its electric vehicle (EV), the Air, Lucid is not expected to make money, which means a significant component of the NASDAQ 100 will be volatile.
Navellier & Associates does own Tesla (TSLA), for one client, per client request, General Motors Company (GM) in a few accounts, Inc., Ford Motor Co (F), and Volkswagen Ag. (VWAGY), in managed accounts. We do not own Stellantis (STLA), SK Innovations, or Lucid Group (LCID). Louis Navellier and his family do not own Tesla (TSLA), General Motors (GM), Stellantis (STLA), Lucid Group (LCID), or SK Innovations personally. They do however own Ford Motor Co (F), and Volkswagen Ag. (VWAGY), via a Navellier managed account.