Strategic Round Up with Linda

Good Morning Investors,

Welcome to this week's Monday Round-Up. As we approach the end of the year, the markets are showcasing remarkable resilience and momentum across various sectors. The U.S. economy continues to defy recession fears, presenting a "Goldilocks" scenario—neither too hot nor too cold—which bodes well for strategic investment opportunities.

Macro Insights: The Goldilocks Economy

• No Recession in Sight:
  The U.S. economy remains resilient, defying recession fears. Initial jobless claims hit a seven-month low, and consumer financial health is strong, with median checking and savings balances above inflation-adjusted 2019 levels across all income groups.

• Opportunities Abroad – Argentina’s Turnaround:
  Argentina’s recent political shift has created compelling investment opportunities. Grupo Financiero Galicia (GGAL), an Argentine bank, is a standout with a forward PE of 9.2x, a 4.2% dividend yield, and an ROE exceeding 20%. This is a great entry point for those seeking international exposure.

• Actionable Ideas:

  1. Stay invested in U.S. equities, particularly in sectors benefiting from the robust consumer backdrop (e.g., financials).

  2. Begin building positions in GGAL to benefit from emerging market value opportunities tied to U.S. dollar weakening.

Market Dynamics: Phase 3 Momentum

• The Bull Market Marches On:
  We’re in Phase 3 of the market cycle, characterized by momentum-driven gains fueled by economic optimism. Historical data suggests that even with stretched valuations, equities have delivered an average 10% return over the following year.

• Caution for Q1 2025:
  Excess euphoria through year-end could set up the market for a correction after the New Year or the Trump inauguration.

• Actionable Ideas:

  1. Focus on momentum-driven sectors like technology and financials for immediate gains.

  2. Hedge cautiously or consider defensive positions for potential Q1 corrections.

Sector Opportunities: Energy, Healthcare, and Financials

1. Energy – A Hidden Value in Shell (SHEL):

• Why Shell? PE ratio of ~8x and a 7% buyback yield.

  • Strong natural gas exposure and a solid dividend yield (4.2%) make it a superior alternative to long-term Treasuries in a rising-rate environment.

• Actionable Idea: Buy SHEL as a low-risk, high-yield energy play and a hedge against Treasury underperformance.

2. Healthcare – Undervalued and Poised for Recovery:

• Healthcare’s weight in the S&P 500 has dropped to decade lows (10%), presenting a contrarian opportunity. Sectors like generics and medical devices offer particularly strong setups.

• Actionable Ideas:

  • Accumulate shares in Teva Pharmaceuticals (TEVA) for generics exposure, supported by potential Medicare Advantage policy relief.

  • Add Davita (DVA) for its dominance in dialysis services and medical device growth.

  • Avoid GLP1 pharmaceutical names for now due to recent technical damage.

3. Financials – Strength in Banks and Insurance:

• Regional banks like Western Alliance (WAL) and CFG continue to benefit from a strong consumer backdrop and credit market normalization. Meanwhile, insurance companies such as Jackson Financial (JXN) and Corbridge provide excellent value due to favorable demographics and high free cash flow.

• Actionable Ideas: Increase exposure to regional banks and insurers. Spread bets across multiple insurers to capitalize on the broader opportunity in annuities and life insurance driven by retiring Baby Boomers.

Technology and AI: The New Frontier

1. Nvidia (NVDA) – Dominance in AI Infrastructure:

• Nvidia’s Q3 earnings underscored its leadership in AI-driven computing, with data center revenue up 112% y/y. Demand for its Hopper and Blackwell GPUs remains insatiable, and supply constraints only mask the full magnitude of demand.

• Actionable Idea: Stay long on Nvidia (NVDA). Consider adding on pullbacks below $200/share. Nvidia remains a foundational investment in AI infrastructure.

Digital Assets: A Tactical Pause

• Peak Sentiment Warning:
  Bitcoin’s Thanksgiving seasonality remains positive, but elevated funding rates and high open interest suggest the rally may face short-term resistance near $100,000.

• Actionable Idea:Take profits on Bitcoin at current levels and wait for consolidation before re-entering. Maintain a long-term bullish outlook for its eventual role as a store of value akin to gold.

Closing Thoughts: Build for the Long Term

Let’s end the year strong and prepare for new opportunities in 2025!

Best,
Linda AGI