🚀 Analysts say "buy the dip"

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Hi John, here's what you need to know for August 17th in 3:08 minutes.

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Today's big stories

Analysts are historically sweet on stocks, but you may want to take that with a pinch of saltThe rise of electric vehicles should see sugar prices fall, and that creates an investment opportunity – Read NowMining giant BHP is looking to sell off its oil and gas business, and it may not struggle to find a buyer

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What’s Going On Here?

Investment bank analysts are the most positive about stocks they’ve been in almost 20 years, and their enthusiasm could prove infectious.

What Does This Mean?

As things stand, around 56% of analysts’ ratings on US S&P 500 stocks are “buys” – the highest percentage since 2002. In the Stoxx Europe 600 index, meanwhile, some 52% of recommendations are buys. That’s a 10-year high, but it’s nothing compared to Asia: 75% of all analysts’ recommendations there advocate buying as bullishness reaches levels unseen since at least 2010.

Analysts could be forgiven for fancying stocks’ chances: second-quarter company earnings are proving even more positive than expected, governments have extended economic support packages, and low interest rates seem unlikely to disappear anytime soon. That’s feeding through to increased targets for stock markets overall: the average strategist now expects US stocks to sit 11% higher in a year’s time, European stocks 9% higher, and Asian stocks 21% higher (tweet this).

Why Should I Care?

For markets: Monday could have been a blip.
After last year’s lockdowns, this year’s second-quarter earnings growth was always going to be historically high. But analysts are also pretty optimistic about the quarters to come. That may be why they didn’t balk at Monday’s slight S&P 500 drop, which came as new data showed weaker-than-expected Chinese retail sales. With the global economy heavily reliant on China for growth, investors would prefer to see the country’s consumers spending on all cylinders.

For you personally: It doesn’t pay to say “sell” on Wall Street.
Investment bank analysts are famously upbeat in their stock recommendations. While independent, the analysts’ employers do a lot of business with these companies – and an outright unfavorable opinion could see banks lose out on lucrative deals. Some investors therefore treat “neutral” or “hold” recommendations for stocks as “sells”: after all, that may be about as negative as an analyst is willing to go.

You might also like: How to go beyond analyst recommendations and pick your own stocks.

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2. Analyst Take

Electric Vehicles’ Rise Spells Trouble For Sugar

What’s Going On Here?

The US president recently called for half of all vehicles sold in the country to be electric or plug-in hybrid by 2030.

Alongside similar goals in many European countries, that’s expected to displace a lot of oil demand.

But unknown to many investors, the rise of electric vehicles will also spell bad news for another, often overlooked commodity: sugar.

So that’s today’s Insight: the not-so-obvious link between electric vehicles and sugar – and the investment opportunity you can profit from as a result.

Read or listen to the Insight here

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Oil Is Dead. Long Live Oil

What’s Going On Here?

The world’s most valuable mining company is closing in on a sale of its oil and gas business – but BHP’s move is unlikely to be a nail in the coffin for fossil fuels.

What Does This Mean?

While BHP’s main business is extracting raw copper and iron ore, it also has a side hustle getting oil and gas out of the ground. At 9% of last year’s revenue, however, that activity’s classed as “non-core” – and with shareholder pressure mounting on the company to grow greener, selling the business seems like an easy win. It could also net BHP a handy $15 billion.

But not every company is embracing such green-sky thinking. Having recently reaffirmed its commitment to a gloopy black future, Saudi Arabian oil giant Aramco is currently in advanced discussions with India’s Reliance Industries to buy a 20% stake in the latter’s oil refining and chemicals business for $25 billion. After failing to get the deal over the line a year ago, both companies now appear keener than ever to seal some synergies.

Why Should I Care?

The bigger picture: Aramco is running its own race.
While many of the world’s oil-exposed firms scramble to clean up their acts, Aramco’s getting its hands dirty: the publicly listed company plans to expand its oil production capacity to 13 million barrels a day, up from 12 million currently. That may fly in the face of a recent landmark climate change report calling for immediate action on carbon emissions – but with the Kingdom of Saudi Arabia owning 98.5% of Aramco’s stock, activist investors are unlikely to be a concern.

Zooming out: Greasing the wheels.
French auto part supplier Faurecia agreed to buy Germany’s Hella for $8 billion over the weekend in one of the industry’s biggest-ever deals. With annual sales of $27 billion, the combined company should be well placed to benefit from the future of transportation – whether gas-guzzling, electric, or autonomous.

You might also like: Spotting opportunities in the fast-changing oil and gas industry.

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💬 Quote of the day

“Be happy for this moment. This moment is your life.”

– Omar Khayyam (a Persian mathematician, astronomer, philosopher, and poet)

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