When the management gets weaselly…
Trivariate has scanned through all the earnings call transcripts for the top 3000 US equities since 2017 and counted the occurrences of "weasel" words (i.e. words associated with uncertainty, such as “maybe”, “could”, “almost”, “sometimes” and “depends”) in the answers from the executives on these calls. Trivariate found it to be an effective signal in distinguishing winners from losers in the lowest quality quartile of their substance model (“Junk”). The return differential between Junk stocks with declining usages of weasel words vs. those increasing their quarterly usages has generated a 50% cumulative return since 2017. This figure climbs to 85% when combining Value and Junk stocks.
Value / Junk stocks that have recently used less weaselly language (Buy ideas) include Truist Financial Corp, Stanley Black & Decker and OneMain. Sell ideas include Annaly Capital Management, AGNC Investment Corp and Zions Bank.
Edition: 183
- 05 April, 2024
Banks confront interest rates, regulators and credit entering earnings season
Financials
Bank stocks sold off on multi-decade highs in long term interest rates last week, while investors prepare for a host of key events over the coming months. Charles Peabody believes banks could rally on 3Q23 earnings results as investors see some relief from regulatory rulings and deposit betas while AOCI and credit deterioration remain front of mind. However, the fundamental trends for banks will continue to deteriorate into 1H24. Markets are differentiating between banks with the capital, liquidity and funding to take advantage of opportunities - and those without. Charles favours JPMorgan, Wells Fargo and PNC, while shunning US Bancorp and Truist Financial.
Edition: 171
- 13 October, 2023
Bank stocks continue to roar in January, defying “the recession”
Financials
Charles Peabody recommends fading capital markets names as the outlook is based on hope but continues to be bullish banks (as he has done since the summer lows) as NII forecasts are restrained by fear. The most predicted recession in history is being pushed out and bank prices are responding to the powerful revenues and stable asset quality on display, buttressed by the resumption of stock buybacks. Charles continues to favour Wells Fargo, JPMorgan, PNC and Truist Financial Corp.
Edition: 152
- 20 January, 2023
Bank Stocks: PPNR is accelerating!
Pretax, pre-provision net revenues, the most powerful dynamic driving bank stocks, are projected to grow 7% in Q3’22, 15% in Q4’22, and 31% in Q1’23. These revenue and net income comparisons improve from near last in early 2022 to near best in 2023 for all S&P sectors. Obviously, top line revenue growth is almost assured given the shift in the yield curve, yet not so obvious is that credit quality appears quite stable through year end. When markets conclude that a recession is not inevitable, or that credit costs are manageable, Charles Peabody believes that bank stocks should respond quite favourably. Top picks include PNC, Wells Fargo, JPMorgan and Truist.
Edition: 143
- 02 September, 2022
Financials
Quality on sale - Charles Peabody sees positive operating leverage emerging, capital being rebuilt, and management earning its spurs as the culture of SunTrust blends with that of BB&T. As cost cuts meet the impact of higher interest rates, TFC will generate some very impressive returns with premium valuations to follow. Re. the wider banking sector, Charles has urged caution over the past half year having officially turned bearish last October. However, he has recently been selectively upgrading names with TFC joining JPMorgan and Wells Fargo as Buy recommendations.
Edition: 135
- 13 May, 2022