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Dec 17, 2018

Top 10 Stock Picks for 2019

Andrew Bary


Even if investors have reason to be wary after a rocky few months in the market, U.S. stocks still look appealing as 2019 approaches.
S&P 500 companies are poised to deliver a 22% gain in earnings this year, leaving the benchmark index trading at 15 times forward earnings. That multiple is low compared with past years.
For investors looking to next year, an important issue is whether to go with defensive stocks (utilities, real estate investment trusts, health-care companies, and consumer staples), economically sensitive issues (banks, retailers, and industrials), or growth stocks (mostly in technology).
Where do some of the best values lie? Barron’s offers 10 favorite stocks for the coming 12 months—the ninth year we have done so.
Our list tilts toward more economically sensitive issues and value. Value managers see some of the best opportunities in years, and most of our stock picks trade for 10 times forward earnings or less.
The Barron’s picks include mostly familiar companies: Alphabet , Apple ,  Bank of America , BlackRock , Caterpillar , Chevron , Daimler , and Delta Air Lines .
Rounding out the list are Energy Transfer , a leading energy pipeline operator, and Toll Brothers . Alphabet and Delta are holdover selections from last year.
Admittedly, our record has been mixed. The 2018 picks returned negative 2.2%, four percentage points behind the S&P 500, but the 2017 selections topped the index by seven percentage points.
*Includes dividends
Source: Bloomberg
Here are the 10, in alphabetical order:
Alphabet
The parent of Google remains one of the best megacap growth stories, thanks to a dominant and lucrative search-advertising platform that is unlikely to be impaired by regulatory action from Washington.
The company (ticker: GOOG), which also owns YouTube, Android, and a cloud-computing business, has defied the law of large numbers. It continues to record quarterly revenue growth of 20% or more, despite a large annual sales base of more than $100 billion.
The stock, now about $1,062, looks reasonably priced at 23 times projected 2019 earnings of $47 a share. The price/earnings ratio overstates Alphabet’s valuation because the company sits on $102 billion of net cash, or about $145 a share. And Alphabet is losing about $3 a share annually in its Other Bets businesses, which includes Waymo, the leader in autonomous vehicle technology. The losses in Other Bets do not capture the value in the segment. Waymo, which plans to start commercial service later this year, could be worth $50 billion or more, analysts estimate.
RBC Capital Markets analyst Mark Mahaney calls Alphabet an “internet staple” supplanting traditional staples like Coca-Cola (KO) and Procter & Gamble (PG) that have been laggards in the past decade. He and other bullish analysts value the company at about $1,400.
Apple
How much worse does it get for Apple stock? Probably not a lot.
The shares (AAPL) are down more than 20%, to $171, in the wake of a disappointing earnings report for the September quarter. Wall Street has reacted to weak guidance for the current quarter, production cutbacks at iPhone suppliers, and the company’s move to stop disclosing unit sales of iPhone, iPad, and Mac devices—an indication that critical iPhone sales may be headed lower.
The stock is finding support because its valuation looks attractive and there appears to be limited risk to current-year earnings even if one assumes a 5% to 10% decline in iPhone sales. Apple now trades for 13 times projected earnings of $13.30 a share in its fiscal year ending in September. The P/E ratio is about 11 when Apple’s $25 a share in net cash is stripped out.
“It is difficult to see earnings declining below fiscal-year 2018 levels of $11.91, due to strong year-over-year contributions from services, wearables, and buybacks,” Bernstein analyst Toni Sacconaghi wrote recently. And Piper Jaffray analyst Michael Olson wrote last week that “international iPhone weakness and disappointment over future unit disclosure are largely baked into the stock.” He maintained an Overweight rating but cut his price target to $222 from $250.
Apple’s high-margin services revenues—including App Store, Apple Music, and Apple Care—rose 24% in the latest year, to $37 billion, and are on track to hit $50 billion by 2020. In Barron’s cover story last week, we suggested that the company could package some of its services, or iPhones and services, into an attractive monthly subscription service.
One big buyer of the stock in the coming year will be Apple itself. It has the world’s largest repurchase program and is expected to buy back about $70 billion of shares in the current fiscal year, or 8% of those outstanding. Investors also get a 1.8% yield.
Bank of America
Large-bank valuations look enticing after a sharp fourth-quarter selloff driven by concerns over the health of the economy and the financial markets.
The worries look overdone because the Big Six—Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), and Wells Fargo (WFC)—should be able to increase earnings even if economic growth slows and markets remain rocky.
Bank of America is a standout thanks to a top U.S. consumer banking franchise, a lucrative wealth management business anchored by Merrill Lynch, and an underappreciated management team led by CEO Brian Moynihan.
Its shares, at $25, are off 16% so far this quarter and trade for only 10 times projected 2018 earnings of $2.58 a share and less than nine times next year’s expected profits of $2.87 a share.
And the bank has one of the most aggressive capital return plans among its peers. It could return almost 10% of its current market value to investors in stock buybacks and dividends in the year ending in June 2019, mostly through repurchases. The shares yield 2.5%.
“Bank of America is getting the job done,” says Mike Mayo, the banking analyst at Wells Fargo. A bullish Mayo sees strong earnings gains in the coming years despite the possibility of a weakening economy as the bank continues to hold expense growth below revenue gains.
“To us, it’s not a close call about higher earnings,” he says. “The question is only the magnitude.” Mayo sees $4 a share in potential earnings in 2022, up more than 50% from the current-year projection. He carries an Outperform rating and a $37 price target.
Warren Buffett is a Bank of America believer, as Berkshire Hathaway added $5 billion of the stock in the third quarter, at above the current market price, to a holding now worth $22 billion. That put Berkshire near an effective 10% ownership cap.
BlackRock
Asset managers are having a terrible 2018, with many down 40% or more. Wall Street is worried that the active equity management business is dying.
Many of the stocks look cheap with single-digit P/E ratios, but it probably pays to stick with quality in industry leader BlackRock (BLK) . Its shares, off 25% this year, to $387, look appealing, trading for 14 times projected 2018 earnings of about $28 a share, and yielding 3.2%.
BlackRock is well positioned because it owns iShares, the top exchange-traded fund platform with more than $1.8 trillion in assets. BlackRock operates a growing and lucrative alternative-asset business, is a leader in active bond management, and has developed a profitable risk-management platform called Aladdin used by investment managers.
Investors reacted negatively to a sharp slowdown in BlackRock’s net inflows in the third quarter and nervous equity markets globally. Next year’s earnings could be little changed from this year if markets don’t rally.
When stocks advance, BlackRock should benefit. KBW analyst Robert Lee is bullish on BlackRock’s long-term prospects thanks to “unmatched product breadth, technological capabilities, distribution footprint, scale, and demonstrated ability to generate operating leverage.”
BlackRock’s management team, led by CEO Larry Fink, just may be the industry’s best. Lee carries an Outperform rating and price target of $485.
Caterpillar
Shares of Caterpillar (CAT), the leading U.S. machinery maker, have slumped 20%, to $126, this year despite reporting what’s likely to be a 70% rise in earnings.
The decline reflects the company’s status as a prime play on the global industrial economy. As Wall Street worries about the outlook for growth, Caterpillar stock has been hit. The shares, as Barron’s noted last week, look inexpensive. They now trade for 10 times projected 2019 earnings of $12.87 and yield 2.7%. The forward P/E has dropped from about 16 at the start of 2018.
Caterpillar’s three main divisions—construction, resource industries, and energy—are all reporting higher profits, and mining in particular is benefiting from pent-up demand after many years of slow sales. CEO Jim Umpleby has emphasized “profitable growth,” and the company is aiming to do that with 1% to 4% price increases at the start of 2019.
J.P. Morgan analyst Ann Duignan sees a “prolonged up-cycle” for Caterpillar and has an Overweight rating and $188 price target. A trade deal between the U.S. and China would almost certainly boost the stock.
*Sept. fiscal year. **Oct. fiscal year. Note: data as of 12/13/18.
Source: Bloomberg
Chevron
It’s a standout among major integrated energy companies because of its dividend security, balance sheet, and production outlook.
Chevron (CVX) has finished a major capital spending program, highlighted by the completion of two large liquefied natural-gas facilities in Australia, and it is producing a lot of free cash flow. The company has one of the best positions in the prolific and desirable Permian Basin of Texas and New Mexico.
Shares of Chevron, which are off 7% this year, to $116, trade for 13 times projected earnings of $9 a share and yield 3.9%. Its biggest rival, Exxon Mobil (XOM), was highlighted by Barron’s favorably in a cover story earlier this year. Since then, Exxon has bested Chevron in the stock market, and Chevron’s relative appeal has increased.
With a 30% drop in crude-oil prices in the past two months, investors are again worried about dividend security, and Chevron stacks up well. The company aims to cover its dividend even if Brent crude, the international benchmark, falls to $50 a barrel from its current $60. Analysts expect Chevron to make small annual increases in its dividend while continuing a modest share repurchase program that it started in the third quarter.
“Chevron has an attractive global asset base with the potential for solid production growth and best-in-class cash margins versus global integrated peers,” J.P. Morgan analyst Phil Gresh wrote last week. He has an Overweight rating and a price target of $144.
The integrated oils have lagged behind the S&P 500 for six of the past seven years, and Chevron shares have barely appreciated since 2011. That could change in 2019, especially if oil prices rally.
Daimler
In a rocky year for major auto stocks, Daimler (DAI.Germany) has been the worst performer with a decline of 33%.
The maker of Mercedes vehicles has a rock-bottom valuation based on sales and profits. Its European shares, now at 47 euros, trade for just six times projected 2018 earnings of €7.67 and at a similarly low multiple on estimated 2019 earnings of €8.30. Daimler’s U.S.-listed shares (DDAIF) change hands at $54.
Daimler is the No. 1 luxury-car maker and a leading producer of heavy-duty trucks, including Freightliner in North America. The company’s variable annual dividend, payable in early 2019, could fall from the €3.65 paid this year, reflecting lower profits. But analysts expect the payout to be at least €3. That would mean a 6%-plus yield—before withholding taxes for U.S. investors.
Highlighting the glaring disparity among auto makers, Daimler is valued at $57 billion, compared with Tesla (TSLA) at $63 billion, even though its annual sales are about 10 times Tesla. Daimler should earn $10 billion this year, against nothing for Tesla. And Daimler’s core automotive business has $15 billion of net cash and equivalents against $9 billion of net debt at Tesla.
Daimler shares have been hit by weak third-quarter profits that reflected disappointing sales at Mercedes and the cost of compliance with diesel regulations in Europe. The company, wrote Morgan Stanley analyst Harald Hendriske last month, is “very cheap” with “brand value” and a generous dividend.
Still, investors are shunning Daimler, fearful that it is too late in the economic cycle to buy auto stocks. One knock against the stock is that there are no likely catalysts. An ultracheap stock, however, can create its own catalyst.
Delta Air Lines
A recent selloff in Delta Air Lines (DAL) leaves the best-managed U.S. airline trading for just eight times forward earnings.
Delta’s recent 2019 guidance calling for $6 to $7 a share in earnings disappointed investors because the midpoint was below the consensus of $6.70 a share. Delta shares fell almost 5% following the news, to $53.59, leaving them 13% below their late-November high of $61.
Delta has the best balance sheet among the mainline U.S. carriers and the highest margins, a result of initiatives to get travelers to pay more for extra legroom in coach, bag fees, and a highly efficient maintenance operation. Delta now gets more than half of its revenue from outside the economy part of the cabin.
The company plans $4.5 billion in capital expenditures in 2019, mostly for new planes as it seeks to replace 35% of its fleet by 2023. It is also spending $3 billion to lead an upgrade of New York’s decrepit LaGuardia Airport. And it aims to return $2.5 billion in cash to shareholders in 2019, including a 2.6% dividend yield, the highest among its peers.
In initiating coverage of Delta with an Outperform rating and $71 price target, Credit Suisse analyst Jose Calado recently said Delta has an “excellent balance of strong execution, efficient and disciplined capacity growth, and a pipeline of initiatives to sustain its revenue and margin premium to network peers,” among other attributes.
Buffett is a fan of the industry, as Berkshire Hathaway holds almost 10% of Delta—and a similar amount of other major airlines. There remains speculation that Berkshire would be happy to buy an entire airline. If it does, Delta and Southwest Air are the most likely candidates.
Energy Transfer
Master limited partnerships in the U.S. have been getting their act together by setting sustainable distributions (equivalent to dividends) rather than maximizing them, and by ending investor-unfriendly structures that hurt MLP holders and made institutions reluctant to buy.
The moves have had limited success because the sector is off 11% this year. Investors view MLPs as energy proxies, and oil prices are down to $51 a barrel from $76. Industry profits, however, have little exposure to commodity prices.
Reflecting the current disfavor, Energy Transfer (ET), one of the country’s largest energy pipeline operators, trades around $14. The units looks appealing with an 8.4% distribution yield that is well covered by the company’s cash flow. Energy Transfer cleaned up a complex structure in October by combining its general-partner and limited-partner units into a single security—a move that has long been sought on Wall Street.
Chairman and top shareholder Kelcy Warren thinks the units are cheap. He bought three million units in the open market last month at an average of more than $15—above the current price.
Energy Transfer trades at a discount to peers at about nine times projected 2019 earnings before interest, taxes, depreciation, and amortization, or Ebitda. At a peer multiple, its stock could trade around $25, according to Morgan Stanley analyst Tom Abrams.
The company is prudently emphasizing debt reduction over higher distribution or unit buybacks, with its $3 billion annual excess cash flow above what’s needed for distributions. By the middle of next year, the company could be in a position to lift the payout, according to Morgan Stanley.
Toll Brothers
Wall Street is valuing Toll Brothers (TOL) and its home-building peers as if the housing market is heading off a cliff.
Toll shares, at about $32, are off 32% so far this year and trade around book value, underscoring the pessimism around Toll.
If its earnings were collapsing, such a valuation would be understandable, but the luxury home builder remains highly profitable. Earnings are expected to be little changed in its current fiscal year ending in October from the $4.85 it earned last year.
The stock has been helped of late by a drop in mortgage rates. And the company is expected to continue repurchasing stock after buying back 8% of its shares in its latest fiscal year. The dividend yield is 1.4%.
“The business is not in crisis mode,” wrote Wells Fargo Securities analyst Stephen East, relaying management’s reassuring tone on Toll’s recent earnings conference call. East is among a small group of analysts still bullish on Toll. He carries an Outperform rating and $45 price target. •
Write to Andrew Bary at andrew.bary@barrons.com

Source: Barrons

Perspective | Retirement regrets: What retirees would say to their younger selves.

By Michelle Singletary Michelle Singletary Personal finance columnist 





One bit of financial advice to a younger self: Skip the timeshares. (iStock/iStock)
I’ve spent my whole life talking to myself.
“No, Michelle you don’t need to stop and get food. Go home and cook and save money.
“No, Michelle you shouldn’t buy that dress. You can wear what you have to the party.”
“No, Michelle you can’t spend that raise. Put it toward your retirement savings.”
I’m pretty good at fussing at myself. And yet, I still have some regrets. I would have more in my 401(k) had I not been so afraid of investing in equities. For years, my retirement account was too conservative overloaded with fixed income investments with low returns compared to the S&P 500 Index. I could just kick my scared younger self.
With the help of a financial planner and increasing my retirement savings over the years, my 401(k) is doing well. But my portfolio would probably be worth 20 percent to 30 percent more had I not been so risk-adverse.
Last week I asked: If you could, what retirement planning advice would you give to your younger self based on what you know now?
I’ve been overwhelmed with comments from retirees who wish they could go back and talk to themselves. But the advice doesn’t have to be wasted. There’s still time for others to learn from our mistakes. Here’s what some retirees say are their biggest regrets.
John Heenehan of Madison, N.J., would give a lot of advice to his younger self. “Though that jerk surely wouldn’t listen, even to me," he wrote.
Here’s his lecture list. It’s all in his words, but well worth reading to the end.
-- Resist the siren call of credit cards. We quickly racked up credit card debt totaling $16,000 – nearly $34,000 in today’s dollars. No names but one of us had to give up our credit cards, leaving us to spend only the cash in our purse. That’s a hard discussion we should have had early in our marriage. Like, on our first date.
-- Don’t buy more house than you need. A house isn’t an investment. It’s a home.
-- Subscribe to some reputable investing publications and learn how to invest. If you take an investment class, it might be bait the teacher uses to get customers. Assume the teacher, no matter how affable, is not worthy of handling your life savings.
-- Invest in good stocks or stock funds and leave them alone. For years. You don’t need bonds until you’re within a decade or so of retirement.
-- Never, ever try to get rich overnight. Remember the adage: “Bears and bulls make money. Pigs get slaughtered.” Instead think, “grow rich slowly.”
-- When you change jobs, transfer your 401(k) into an IRA – not into your new company’s cramped and probably crummy 401(k) plan. Then your investment choices aren’t limited to a few funds.
-- Work at being good at your job to maintain income and savings continuity. Continuously develop your career and your network by joining a professional organization – and serve on its board. (Since 1978, I’ve had nine jobs, 10 if I count working for myself. This includes five friggin’ layoffs and moving through five states across most of the country. Moves are costly. Still, I reached my retirement saving goal at 62 and retired because we stayed true to our savings plan and invested wisely. But I likely could have retired years earlier with fewer moves.)
-- Learn how to laugh at yourself. Being self-effacing goes a long way to making friends at work, including with your boss and even some of the office jerks.
-- Learn what you really need. And experiences with loved ones beat out a lot of stuff you really don’t need, even if your neighbors feel they can’t live without it.
-- And no timeshares! (Yep, we fell for it.)
Markus Berber of Mering, Germany, has two major regrets. “I started saving too late,” he said of his first regret. “As drivers we have mastered the skill to maneuver around a blind corner. No one questions the need to slow down even though you don’t see the danger yet. The retirement sign is posted at the end of that blind corner. My second regret is not having started earlier with a healthy lifestyle that gives me daily happiness. ‘Health is not everything. But without health everything is nothing.’ (A tag line for a health insurance company in Germany.)”
Ray Villegas of Maumee, Ohio, also has two major regrets --- trying to time the market and not putting money in a Roth IRA.
“I had just started a new job and my employer matched up to 5 percent of my pay,” he wrote. “About five years after I started investing the market had a correction and I got out. But I got out somewhere near the bottom. I did get back in but long after the market recovered so I entered paying a premium. I should have just stayed in and dollar cost averaged at market lows. My second regret was not understanding the financial benefits of a Roth IRA compared to the traditional IRA. A lesson that I’m reminded of each time I make a withdrawal and pay the taxman.”
“I planned for retirement,” wrote Susan P. from Honar, N.Y. “I have a Roth and a 401(k) and I started in my 20s. My regret -- I didn’t expect to be completely disabled at age 52. There went my short-term savings, my health insurance and my earning potential. I had disability insurance, but it ends at two years if they think you can do anything -- even if it’s unlikely that you actually can do something. The devil is in the details. I should have had my own disability insurance rather than an employers only policy.”
Wendy Rice from Colorado wrote, “Set joint financial goals early on for younger self and spouse to commit to. Understand the miracle of compound interest and auto pay self (pay yourself first). Even if only $5 to $10 to start with from every paycheck, it won’t be missed or noticed.”
Alan K. Homer of Mesa, Ariz., wrote, "To my younger self, I would give the mantra, ‘Save early, save often.’ The matching of the contributions from your employer and the compounding effect of time and average annual stock market returns will make retirement attainable and with a sustainable income. Good thing I listened. I can retire at 60 at my discretion. More likely I will still be working, but on my own terms.”
Nancy Johnson of Fresno, Calif. wrote, “Don’t ‘save’ experiences for retirement. Travel now, spend more time with friends, enjoy hobbies, read challenging books, go to concerts and plays, see great art, volunteer time, find enjoyable regular exercise, donate to causes that touch the heart and help the earth – whatever enriches your inner life. Savor as many of these experiences now, even on a limited budget. Accidents, unexpected illnesses, family obligations and other unanticipated crises may completely change what’s possible in retirement.”
If you’re a good saver but have trouble spending read: How to live it up without going broke before you die
Your thoughts
What’s the biggest pre-retirement mistake you made? Send your comments to colorofmoney@washpost.com. Please include your name, city and state. Put “Regrets” in the subject line.
Retirement rants and raves
I’m interested in your experiences or concerns about retirement or aging. What do you like about retirement? What came as a surprise?
If you haven’t retired yet, what concerns you financially?
You can rant or rave. This space is yours. It’s a chance for you to express what’s on your mind. Send your comments to colorofmoney@washpost.com. Please include your name, city and state. In the subject line put “Retirement Rants and Raves.”
Ross from Arlington, Va., had some great observations about a column I wrote earlier this year: This is how it feels to be a millionaire and still feel broke
“You mentioned a middle-aged woman who had a sizable nest egg and yet she was still suffering retirement anxiety, wondering whether she had saved enough," he wrote. “I can empathize (And no, I’m not looking for sympathy) as I occasionally feel the same way. My wife and I are both professionals, in our early 60s. Retirement is near. We have, I believe, done well managing debts and saving. Our home will be paid off in about two to three years. We have no other debt – zero, no car payments, no student loans, etc. All are paid off. We own a couple of rental condos. In both cases the rent covers the mortgage, condo fees and taxes. We have a long term nursing care insurance plan. No children to worry about. And our brokerage account is in the mid-seven figure range.”
But even having saved well he has doubts.
"Sometimes I think, ‘Have we done enough?’ Will we be able to maintain our lifestyle? What cuts will we need to make? I know 99 percent of people out there would call me nuts and tell me to shut up. But still, it gnaws at me. The problem with retirement as I see it, unless you are so wealthy as to be part of the uber rich class, you’re bound to wonder about whether you made the right choices. And you’ll never find out until it’s too late if you made the wrong choices. That’s the nature of saving and retirement. The best analogy I can come up with is a baseball game. If you are leading by one or two runs going into the 9th inning, you may think you have done well, but are you winning or are you at risk of losing? But if you are leading by, say, 15 or 20 runs, then you are definitely winning (and part of the uber rich) and have no worries. That’s the dilemma. Maybe you think one or two runs ‘should’ be enough to win, but you won’t know until it’s too late.”
Read more:
Note to readers: The personal finance and retirement newsletters won’t be sent out on the Dec. 24, 27, and 31. The newsletters will return starting Jan. 3. Happy Holidays.
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Read and share Michelle Singletary’s Color of Money Column on Wednesdays and Sundays in The Washington Post. You may also see the column in your local newspaper.

Source: The Washington Post


Michael Flynn’s business partner charged with illegally lobbying for Turkey

By Rachel Weiner




FILE - In this Tuesday, July 10, 2018 file photo, former Trump national security adviser Michael Flynn leaves federal courthouse in Washington, following a status hearing. Flymnn’s business partner is being charged with acting as an agent of a foreign government and conspiracy for attempting to get Turkish cleric Fethullah Gulen extradited from the United States. (Manuel Balce Ceneta/AP)

Rachel Weiner
Local reporter covering federal court in Alexandria, Va. and local court in Arlington and Alexandria.
A former business partner of Michael Flynn is being charged with acting as an agent of a foreign government and conspiracy for attempting to get Turkish cleric Fethullah Gulen extradited from the United States.
Bijan Kian made his first appearance in Alexandria federal court Monday morning. According to the indictment, Kian conspired with Turkish businessman Ekim Alptekin to illegally lobby U.S. government officials and influence public opinion in the U.S. against Gulen.
Turkish businessman Ekim Alptekin is accused of directing and funding Kian and Flynn’s work, and then lying in U.S. filings about his role. He is charged with the same crimes as Kian, as well as making false statements, but he remains in Turkey.
Flynn, who served as President Trump’s national security adviser during his first weeks in office, is identified in the indictment as “Person A.” Flynn is soon to be sentenced for lying to FBI agents as part of the special counsel investigation into Russian interference in the 2016 elections. Prosecutors asked for no prison time for Flynn, citing his “substantial assistance.”
The Turkish government blames Gulen, who is living in exile in Pennsylvania, for instigating a failed coup in 2016.
“I just finished in Ankara after several meetings today” with Turkish ministers, Alptekin wrote to Rafiekian and Flynn, according to the indictment. “I have a green light to discuss confidentiality, budget, and the scope of the contract.”
Kian was allowed out on a personal recognizance bond, with the only condition that he keep the probation office abreast of his movements. Defense attorney Robert Trout told a magistrate judge Kian was currently in the process of relocating from California to the D.C. area. Trout declined to comment after the proceeding.

U.S. Virgin Islands GDP Decreases in 2017 | U.S. Bureau of Economic Analysis (BEA)




Today, the Bureau of Economic Analysis (BEA) is releasing estimates of gross domestic product (GDP) for the U.S. Virgin Islands (USVI) for 2017, in addition to estimates of GDP by industry and compensation by industry for 2016.1 These estimates were developed under the Statistical Improvement Program funded by the Office of Insular Affairs (OIA) of the U.S. Department of the Interior.

Effects of Hurricanes Irma and Maria on Source Data


The U.S. Virgin Islands suffered extensive damage from two major hurricanes in September 2017. These hurricanes affected the availability of various source data used in the estimation of USVI GDP, including financial statements for the territorial government and its independent agencies.
Real GDP: Percent change from preceding year

Gross Domestic Product for 2017

The estimates of GDP for the USVI show that real GDP—GDP adjusted to remove price changes—decreased 1.7 percent in 2017 after increasing 0.9 percent in 2016 (see Table 1.3). For comparison, real GDP for the United States (excluding the territories) increased 2.2 percent in 2017 after increasing 1.6 percent in 2016.
The decline in the USVI economy reflected decreases in exports of services and consumer spending (see Table 1.4). These decreases were partly offset by an increase in investment spending.
Exports of services, which consists primarily of spending by tourists, decreased 16.0 percent, after increasing for 5 consecutive years. Tourism arrivals decreased 24.1 percent; arrivals fell significantly in the months following Hurricanes Irma and Maria.
Consumer spending also decreased, reflecting widespread declines in household purchases of goods and services, including motor vehicles, food, housing and electricity, and health care.
Partly offsetting these declines was growth in investment spending, by both the private sector and by government. Private sector inventory investment increased, reflecting increased storage capacity at an oil storage terminal on St. Croix. Construction spending by the territorial government increased, reflecting hurricane recovery work.
Federal government spending also increased significantly due to disaster response activities, including a U.S. Army Corps of Engineers' mission to install temporary roofs on homes, schools, and the St. Thomas airport.

Gross Domestic Product by Industry and Compensation by Industry for 2016

The estimates of GDP by industry for the USVI show that the private sector was the source of the growth in real GDP in 2016 (see Table 2.5). The growth in “other services” reflected the reopening of an oil storage terminal on St. Croix; a new operator took ownership of the facility previously owned by Hovensa and began receiving shipments of petroleum.
The compensation by industry estimates, which are measured in current dollars, show trends in compensation for major industries (see Table 2.6). Total compensation increased in 2016, reflecting growth in wages for “other services.”
The accompanying tables present estimates for GDP and its major components, GDP by industry, and compensation by industry. Also included in this release are estimates for the major components of gross domestic income.

Revisions to GDP

Estimates for 2014 to 2016 that were released on December 1, 2017 have been revised in order to incorporate improvements to source data, including:
  • newly available data for territorial government spending from government financial statements and
  • updates to Census Bureau data on exports and imports of goods.
The revised estimates show a similar pattern of inflation-adjusted growth as the previously published estimates (see Table 1.7).

Future directions

Moving forward, an agreement between OIA and BEA will extend and improve the estimates of GDP for the USVI. The information provided by the USVI government will continue to be critical to the successful production of these estimates.
BEA currently plans to release GDP estimates for 2018 beginning in the summer of 2019. GDP by industry and compensation by industry estimates for 2017 will also be released at the same time.

1 These estimates are based on limited source data and are subject to revision.

KITCO NEWS VIDEO: Signals Show Great Upside For Gold In 2019 - Bloomberg Intelligence

Homebuilder sentiment drops in December to the lowest point in more than 3 years

Diana Olick




GP: PulteGroup Inc. Development Construction As Homebuilders Find Reason To Rally 1
Contractors work on townhouses under construction at the PulteGroup Inc. Metro housing development in Milpitas, California.
David Paul Morris | Bloomberg | Getty Images
Homebuilder sentiment dropped in December to its lowest point in more than three years while potential buyers hesitate to purchase new homes even as mortgage rates have pulled back in the past month.
According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder sentiment declined four points in December to 56. That is the lowest reading since May 2015 and well below December 2017′s level of 74. This comes after an eight-point drop in November. Anything above 50, however, is considered positive sentiment.
“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” said NAHB Chairman Randy Noel, a homebuilder from LaPlace, Louisiana. “However, recent declines in mortgage interest rates should help move the market forward in early 2019.”
Mortgage rates jumped at the start of 2017 and then again in September to the highest level in eight years. They fell back slightly in November, but were still nearly a full percentage higher than a year ago. Newly built homes come at a price premium to existing homes, and are thus more sensitive to any changes in affordability. Mortgage rates are widely expected to move higher in 2019.
Homebuilders have been focused on the move-up and luxury sectors, even though demand for entry-level homes is high. Builders say that given the high costs of land, labor and materials, they are unable to build as many starter homes as they might like. Home prices for new and existing homes have soared over the past few years, as demand dramatically outpaced supply.
Of the index’s three components, current sales conditions fell six points to 61, sales expectations in the next six months dropped four points to 61, and buyer traffic fell two points to 43.
Regionally, on a three-month moving average, builder sentiment in the Midwest dropped two points to 55; the West and South both fell three points to 68 and 65, respectively; and the Northeast plunged eight points to 50.
“The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market,” said NAHB chief economist Robert Dietz. “This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”

Source: CNBC