The first rumbling of “recession” … Louis Navellier thinks we’re flirting with one, but will avoid it … one of Louis’ holdings explodes on a huge earnings-beat
You may not guess it based on the strength of today’s market, but people are starting to use the “R” word.
No, not “rebound.”
From The National Review:
There’s a hugely consequential story coming down the pike that is getting much less attention: Evidence pointing to a coming U.S. recession is starting to pile up.
One of the biggest pieces of evidence behind this is the screeching slowdown to economic growth we’ve seen recently.
Buffeted by the delta variant, supply shortages and inflation, the world’s largest economy is projected by economists to have expanded by an annualized 2.8%, amid a sharp slowdown in spending by American consumers. That’s less than half the 6.7% gain of the previous three months.
News out this morning is that even this projected 2.8% annualized growth rate woefully missed the mark.
The Commerce Department’s third-quarter numbers revealed that U.S. GDP grew at just 2% annualized, far short of the projected 2.8% annualized forecast, and miles short of Q1 and Q2’s growth rates (6.3% in Q1 and 6.7% in Q2).
Months ago, forecasts were for a similarly-robust rate in Q3, but then the Delta variant and supply chain issues smacked the economy in the face.
So, with growth running into a wall and supply chain problems showing no signs of being resolved in the immediate future, are we on a crash course with a recession?
From The National Review:
Federal Reserve chair Jerome Powell said Friday that “Supply constraints and elevated inflation are likely to last longer than previously expected and well into next year, and the same is true for pressure on wages.”
So at least the first quarter of 2022 is probably going to be bad — and maybe the second and third quarters, too.
What is it called when the gross domestic product declines for two quarters in a row?
***Legendary investor, Louis Navellier, believes we’re flirting with a recession…but will avoid it
Louis was the featured analyst on Fox Business News earlier this week.
When asked about his take on inflation and consumer spending, Louis replied:
Well, we have stagflation. That’s very, very clear. Obviously as food and energy take more money out of your pocketbook, it’s going to hurt the rest of the economy…
The Atlanta Fed revised their GDP estimate down to only 0.5% for the third quarter, so we are tip-toeing on a recession here right now.
So, this is not good news, all this stagflation.
Now, before you liquidate your portfolio and batten down the hatches, let’s get Louis’ broader commentary, which he provided to his Accelerated Profits subscribers earlier this week.
We’ll pick up with Louis discussing the Atlanta Fed’s third-quarter GDP downgrade:
Part of the downgrade came on the heels of a disappointing industrial production report last week.
The Federal Reserve revealed that industrial production declined 1.3% in September after a revised 0.1% dip in August. This marked the largest drop in industrial production since February.
The steep decline can be attributed to the 7.2% plunge in motor vehicle production in September, as supply chain glitches continue to curtail automotive production.
Economists now anticipate that supply chain issues will persist through much of 2022. Until the port bottlenecks and supply chain glitches are resolved, industrial production will remain stressed.
Complicating matters further is the steep increase in the price of virtually everything. Despite a 25% increase in food stamps and a 5.9% increase in 2021 for Social Security, Americans are not used to empty store shelves, gasoline prices more than doubling, or the prices of most food staples rising exponentially.
As the prices for food, energy and household goods increase, it will continue to account for a larger percentage of consumers’ pockets. As a result, some economists are now grumbling about the possibility of the dreaded “r” word: recession…
In my opinion, I don’t think the U.S. economy will slip into a recession like much of the rest of the world. Instead, I expect Americans will do what they always do: innovate and learn how to prosper, regardless of the underlying environment.
And one of the key ways to prosper in a more inflationary environment is to invest in the stock market, especially in growth stocks.
For the fourth quarter, Louis predicts the stock market will grow narrower and more selective as investors seek out recession and inflation resistant companies.
This echoes a point we made here in the Digest earlier this week – looking forward, outperformance in the market will boil down to strong earnings.
***On this note, Louis’ Accelerated Profits subscribers just saw a massive earnings-beat with solar leader, Enphase Energy (ENPH)
Enphase is a California-based solar energy company that announced blowout numbers two ago.
Here’s Louis with the details:
Third-quarter revenue jumped 97% year-over-year to $351.52 million, up from $178.5 million in the same quarter a year ago.
Earnings soared 100% year-over-year to $0.60 per share, compared to $0.30 per share in the third quarter of 2020. The consensus estimate called for earnings of $0.48 per share on $343.09 million in revenue, so Enphase Energy topped earnings estimates by 25% and sales forecasts by 2.4%.
In the wake of this blockbuster report, Enphase’s stock shot up more than 28% before ending the day at a 25% gain.
It’s up again as I write mid-day on Thursday. This brings Louis’ official return from Enphase to 315% since opening the trade in March of last year.
A quick congratulations to the Accelerated Profits subscribers who’ve been a part of this rocket ship.
Bottom-line, Wall Street is rewarding great earnings today, but punishing weakness. That’s why anchoring your portfolio to fundamentally strong stocks is critical. Regardless of what happens in the broader economy, your portfolio remains recession-resistant.
***If you’re unsure the extent to which your stocks are rooted in fundamental strength, check out Louis’ free tool, the Portfolio Grader
As a quantitative investor, Louis has strict investment rules that are rooted in cold, impartial numbers. When these rules trigger a buy, he buys. When they trigger a sell, he sells. It’s that black-and-white.
Fortunately for you and me, Louis has codified much of his proprietary system, and now offers it to the investment community in the form of his free Portfolio Grader tool.
Think of the Portfolio Grader as a diagnostic that gives investors an instant snapshot of a stock’s financial strength. It focuses on eight metrics:
- sales growth
- operating margin growth
- earnings growth
- earnings momentum
- earnings surprises
- analyst earnings revisions
- free cash flow
- return on equity
It’s a fast, free, easy way to get a professional-level “report card” on your stocks.
This is all the more important today given the headwinds facing our economy.
Wrapping up, don’t be surprised if you begin hearing the R-word thrown around. While we don’t expect one to materialize in the near future, the greatest protection for your portfolio is fundamental earnings strength.
Have a good evening,