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Financial Fitness & Life Planning

February Update

The rally continued in February as the stock market reacted positively to the Fed’s dovish pivot, progress toward a potential trade deal with China, strong fourth quarter earnings and prolific corporate buyback activity.  My outlook, nevertheless, remains cautious and conservative.  The market is overbought today just as it was oversold two months ago (meaning it has gone up too far too fast in an unsustainable manner).  High-risk and cyclical stocks are leading the rally.  Meanwhile, earnings growth appears that it will turn negative in the first quarter while valuations remain expensive.  Interest rate policy and trade negotiations remain fluid and unreliable, and the prospect of a no-deal Brexit could prove disruptive.   

This month I purchased a new position in Chevron for my fund.  The price of oil has advanced this year as OPEC has stuck to its production cuts and Venezuelan supply has been severely disrupted.  Most importantly, after years of losses in all oil price environments, funding is finally being cut off for smaller fracking operators.  This development should greatly benefit the large, integrated oil companies.  I presently prefer Chevron over Exxon because it has been enjoying the payoff from its previous investments as its production grows.  Exxon’s production has been declining and therefore requires greater capital expenditures.  Chevron can be more conservative and/or shareholder-friendly with its capital going forward. 

I also recently added to my fund’s positions in JPMorgan Chase and Wells Fargo.  These large banks trade at a considerable discount to other sectors of the market despite possessing good economic characteristics and being well-capitalized.  I believe this discount will shrink over time.

~~~~Michael Berlin can be contacted at mberlin@mhbpartners.com and at (631) 629-4928 .

The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.
 

~~MHB Equity Management LLC
119 Brandywine Lane
Melville, NY  11747
(631) 629-4928
mberlin@mhbpartners.com

 

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