News and analysis

Shares of The Bank of America (BAC) scrambled above the $40 technical resistance level in late April. However, the price gained more than 6.5% in the first three trading sessions since the publication of the Q1 2022 financial report of the bank, which turned out to be perhaps the best among all the largest U.S. banking institutions that have already reported. This may be especially valuable due to the fact that the banking sector as a whole has been consistently declining since February due to ongoing concerns of the investment community about the steadiness of loan portfolios in the face of a potential threat of stagflation, which is increasingly being mentioned by various economists. 

A pick-up in lending activities, as well as beating market expectation on both the top and bottom line, including 80 cents of equity per share vs the average Wall Street estimates of just 75 cents and the best-ever result in first quarter revenues of $23.23 billion, helped to attract some dip buying as the Bank of America was trading with an almost 25% discount against the highest price of the beginning of the year. The BAC’s CEO Brian Moynihan encouraged investors with his prediction of a "significant NII [net interest income] improvement through the next several quarters". He also told CNBC’s Jim Cramer on "Mad Money" that spending is healthy despite roaring inflation. U.S. consumers "are a very strong force" and "their loan balances are down, they have plenty of borrowing capacity and they have plenty of spending capacity... In the month of March ’22 versus March ’21, the consumers … spent about 13% more than they did last year, but importantly, in the first couple weeks in April, that numbers moved back to 18%, indicating faster spending in consumers", he added. 

The Federal Reserve’s (Fed) plans of rising interest rates fuel expectations of higher banking income when loan rates will also rise for consumers and businesses, but the ultimate consequences of this process are not yet clear due to possible side effects on the economy and therefore on the loan portfolio's stability. Different stocks of the banking sector also have a good chance to resume their bullish trend at some moment thanks to the rising yield of U.S. Treasury bonds, which is now close to 3% for the benchmark 10-year public debt securities. This may increase the total income from bank reserves invested in such assets. However, a wide understanding that yields are still far away from their maximum values and will soon grow much stronger following inflation, gives the demand a strange form of rather postponed or protracted demand, so the market is still very selective in relation to bank stocks and tends to choose the best options.

The story of the recent market moves for Johnson & Johnson (J&J) is very similar to that of Procter & Gamble, as are the fundamental drivers behind the growth. The outer difference of the technical character is that the price of J&J has already managed to rewrite its historical highs above $185 per share. J&J's capitalisation growth since January 2021 is about the same at 17.5%. The big difference is that the turnaround of J&J's consumer health care production, which include trademarks like Aveeno, Clean & Clear, Carefree, Dabao, Johnson’s Adult and Johnson’s Baby, Le Petite Marseillais, Listerine, Lubriderm etc, was about $14.6 billion in 2021 while the pharmaceutical branch of the company's sales, including drugs for many different diseases, such as pulmonary hypertension, prostate cancer, attention deficit/hyperactivity disorder (ADHD) and psoriasis, made $52 billion. 

The company creates about 0.8% of the world's entire healthcare products, and still has a lot of space to expand. From the geographical point of view, its U.S. related first quarter numbers increased 2.8% while overseas global revenue added 13%. The pharmaceutical branch generated a sales increase of 9.3% while the MedTech segment gave 8.6%. J&J CEOs provided a solid full year’s outlook even after its equity per share of $2.67 showed its best-ever result since the company's foundation in 1886, also mentioning that 2022 should be the 11th consecutive year that the pharmaceuticals business has grown faster than the global market. 

J&J still has an anti-COVID vaccine department, which is currently in a most uncertain stance because of both the demand's structural changes and the excessive supply of other shots, like Pfizer and Moderna. Therefore, J&J which previously tried to forecast its sales at $3.5 billion of its single-dose vaccine, now says it can no longer predict the particular income size. The J&J vaccine, which sold at the so-called "not-for-profit" price, provided the company with $457 million of its revenue in the Q3 2022, much less than its peers did. Pfizer’s sales forecast for 2022 is $32 billion of its COVID vaccine developed with BioNTech, while Moderna gave a $21 billion forecast. "The slight miss was really around the COVID-19 vaccine and quite frankly it met our internal expectations. There was just a disconnect in how the Street assumed it was going to play out over the year," Chief Financial Officer Joseph Wolk remarked during a conference call on April 19. Anyway, this is not a key component of J&J’s activities in the financial terms.

The latest financial report from the well-known multinational leader in the consumer goods segment on April 20 showed all signs of the company's stable income. Revenue of $19.38 billion exceeded Wall Street's average expectations of expert pools by 3.5%, and it was also about 7% higher compared to the corresponding seasonal period of 2021, although certainly well below pre-Christmas record figures. Contrary to popular concerns that a heavy pressure of incoming costs is reducing the direct benefit of any manufacturer, earnings per share of $1.33 turned out to be 7 cents higher than a year ago. Distribution of health care items, like Oral-B and Pepto-Bismol, soared by 13%. 

Procter & Gamble (P&G) raised its full-year sales forecast confirming that sales for cleaning products and personal healthcare are resilient despite rising prices. For the fiscal year 2022, the company expects "organic revenue growth in the range of 6% to 7%" to beat the preliminary Reuters poll consensus of just 5.5%. P&G price rose by 3% immediately within the first hour after the opening bell on the day of the release and stopped only at 88 cents lower than the previous all-time peak of January 2022. Yet, it clearly will not rest on this height after adding 17.5% since January 2021. P&G chief financial officer, Andre Schulten, said his company might take a hit of one penny per share in the third quarter due to the war between Russia and Ukraine, while the impact may rise to four cents in the fourth quarter of 2022. Those remarks were related to the fact that P&G was ending its new capital investments in Russia and "significantly reducing" its portfolio to focus on basic hygiene, health, and personal care. The share of P&G's deliveries in Russia and Ukraine costs a little bit more than 1.5% of its global sales. 

Businesses which produce staples usually stand on firm ground during the time of severe inflation storms. They sell simple and necessary goods that people have gotten used to over the years. Housewives are unlikely to look for something and refuse to buy Pampers for their babies, for example, or to replace hygiene products like Tampax, Naturella, Always, the usual lines of Pantene, Wella and Head & Shoulders shampoos, Max Factor cosmetics or Fairy, Tide, Lenor, Comet and Mr Proper. If  their husbands use Gillette razors, they would most likely stand by that brand even if the retail price is raised , especially when other trademarks are also adding on extra charges also. Loyal customers of all these easily recognisable products are unlikely to change their behaviour just for the sake of some very small cost discounts which make other rival products cheaper because they have gotten use to taking care of their bodies in their preferred manner and are familiar with the ingredients used in these products.

Shares of this giant computer systems design company, which is also a world leader in graphic processor supplies, are trading with a 20% discount compared to their record peaks of $346.47 in November 2021. Market actions were clearly running ahead of the unfolding of the story at some point amid a global shortage of chips, which created a panic demand. During this time its shares fell below $210 for a few months, providing a good opportunity for a mid-term rally. 

The tailwind blowing with the continuing deficit of chips and rampant inflation worldwide pushed Nvidia shares by 40% above $280. Yet, the price still looks rather attractive. Acceleration of the uptrend was supported by the news that Nvidia and its Intel rival announced their common production plans. Jensen Huang, the chief executive of Nvidia, made a statement that his company is going to use Intel's industrial facilities to source more of Nvidia's designed chips. Intel CEO Pat Gelsinger commented soon after that his company is "thrilled for their interest in using our foundry capabilities", while adding that he had "no particular timeline" but Intel had "ongoing discussions" with Nvidia. The point is that Intel did not manage to distribute more Intel chips over the last two or three years and after this time it then decided to diversify its business by launching the so-called "foundry" projects. Nvidia does not want to miss this opportunity for its global expansion. 

"They're interested in us using their foundries. We're very interested in exploring it," Jensen Huang responded later. He even removed some scepticism about his company's willingness to make Nvidia technology explicit to competitors by saying that "Intel has known our secrets for years" because Nvidia has already been partnering with many companies including Intel, and so "trusting and working with industry partners is key" for Nvidia management. Some organisational aspects and technical details, including mutual coordination of supplies, may still take quite a long time, but that could benefit shares of both companies. The announcement of the co-operation with Intel pushed Nvidia stocks up by almost 10% the next day. However, in April these shares have a good potential to become as hot as they were in March.