Financial Answers

Single Stock ETFs Are Here

In July, AXS Investments debuted US-based investors’ first single stock Exchange Traded Funds. These ETFs allow investors to gain leverage on certain individual stocks.
However, because you are using leverage, there is more risk involved, and the authorities want investors to understand these risks before purchasing these new products.
The risks are associated with the leveraged exposure these new ETFs offer and the risk associated with investing in individual stocks. But since leverage is being applied, the risk level multiplies.
For example, one of the new ETFs being offered is the AXS 2X NKE Bull Daily ETF (NKEL) which provides investors 2X leverage to Nike (NKE) stock. This would mean that if you owned NKEL on a day when Nike stock increased by 0.50%, the NKEL ETF, which is 2X leverage, will go up 1.00%.
But, the opposite is also true. So if Nike stock fell by 1%, the NKEL ETF, which tracks Nike stock at a 2X leveraged ratio, would lose 2%.

Leverage is a very nice thing to have when it is being applied in the direction you want it to move. But leverage can be deadly when it is going against you.
Hence why the Securities and Exchange Commission is warning investors of the dangers associated with any single stock ETF, even if it is not marketing itself as leveraged.
One example of a new single stock ETF that is not marketing itself as leveraged is the AXS TSLA Bear Daily ETF (TSLQ). This ETF only tracks Tesla, but to the downside with just 1X leveraged exposure.
This essentially means that the TSLQ is shorting Tesla. But, unlike having to short a stock, which would require approval from your broker, a margin account, and the risk of not losing more than 100% of your investment, you simply have to buy this one ETF and not worry about the other things.
AXS currently has eight single-stock ETFs:
The AXS TSLA Bear Daily ETF (TSLQ), shorts Tesla.The AXS 1.25X NVDA Bear Daily ETF (NVDS) is short NVDA.The AXS 1.5X PYPL Bear Daily ETF (PYPS) which shorts PayPal.The AXS 1.5X PYPL Bull Daily ETF (PYPT) which is long PayPal.The AXS 2X NKE Bear Daily ETF (NKEQ) which is short Nike.The AXS 2X NKE Bull Daily ETF (NKEL) which is bullish Nike.The AXS 2X PFE Bear Daily ETF (PFES) is short Pfizer.The AXS 2X PFE Bull Daily ETF (PFEL) is long Pfizer.
The leveraged ones have the amount of leverage they are providing in the name of the ETF. But all the funds currently charge a 1.15% expense ratio and are intended to be held one day at a time due to the contango effect caused by gaining leverage or the inversion.
More single stock leveraged and inverse ETFs are coming to the market as Direxion, GraniteShares, and Kurv Investment Management all have filed with the SEC to be permitted to offer their own single stock ETFs.
The filing shows that roughly 35 stocks will have a corresponding ETF, with some being blue chip stocks, some in the technology world, some in energy, and even some that are just very volatile stocks.

Investors are and will continue to be given a lot of opportunities to invest with leverage and make ‘bets’ on the direction of individual stocks.
But, just because you can do something does not always mean you should do it.
Learn more about the risks of investing in these ETFs and how contango will affect your investment if you hold these ETFs for longer than one day at a time before owning these single stock ETFs.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

gray and red industrial machine

This Shale Pioneer Refocusing on Natural Gas

Forget oil—the real money is in natural gas.

Or at least that’s the message coming from a pioneer of the U.S. shale revolution, Chesapeake Energy (CHK).

From Prince to Pauper to Prince Again?

Once upon a time—when its stock was valued at more than $35 billion and its CEO, Aubrey McClendon, had the biggest pay package of any CEO of a listed firm—Chesapeake Energy was America’s best-known fracker.

But those glory days disappeared quickly, and Chesapeake became the poster child for the shale sector’s excesses.

About a year and a half ago, in the autumn of 2020, Chesapeake was in the midst of bankruptcy proceedings after the coronavirus pandemic-led crash in energy demand proved to be the final straw in the company’s fall from grace.

And for the industry more broadly, the prospects for liquefied natural gas (LNG) exports were looking bleak after a $7 billion contract to supply the French utility Engie went down the tubes on concerns over the emissions profile of U.S. natural gas.

Fast forward to 2022 and the picture has changed dramatically. Natural gas exports are booming!

Thanks to the Russian invasion of Ukraine and subsequent sanctions, Europe is in the middle of an energy crisis. It is buying up as much American LNG as it can. Those concerns about emissions are long forgotten.

In the first four months of the year, the U.S. exported 11.5 billion cubic feet a day of gas in the form of LNG, an 18% increase from 2021. Three-quarters of those exports went to Europe. And European leaders have pledged to ratchet up their imports by the end of the decade. There is also a massive opportunity in Asia, where LNG demand is set to quadruple to 44 billion cubic feet a day by 2050, according to a recent report released by think-tank, the Progressive Policy Institute.

And even here in the U.S., natural gas supplies look set to be tight this winter. Hot summer weather and high demands for power generation are sucking up supplies and leaving storage precariously low.

The investment bank Piper Sandler believes U.S. storage is on pace to fill just 3.4 trillion cubic feet of gas by the time winter arrives. That would be short of the 3.8 trillion cubic feet buffer usually needed to heat the country through a cold winter season. That could send already-elevated natural gas prices even higher in the months ahead.

These factors combined were behind the decision by Chesapeake Energy management to ditch oil in favor of gas.

Chesapeake: All in on Gas

OnAugust 2, Chesapeake announced its plan to exit oil completely and return to its roots as a natural gas producer. The company said it would offload oil producing assets in south Texas’s Eagle Ford basin, allowing it to focus solely on gas production from Louisiana’s Haynesville basin and the Marcellus Shale in Appalachia.

Its CEO Nick Dell’Osso said the company made the decision because of better returns from its gas assets—it has had more success driving down costs and improving efficiency there when compared with oil.

Chesapeake emerged from bankruptcy in February 2021, vowing to shift from its previous model of growth at all costs to one of capital discipline and higher shareholder returns.

The company has expanded its natural gas portfolio of assets since its emergence from bankruptcy. It bought gas producer Vine Energy for $2.2 billion last August to bolster its position in the Haynesville, which sits close to gas-export facilities on the US Gulf Coast. And in January, it bought Chief Oil & Gas, a gas operator in north-eastern Pennsylvania’s section of the prolific Marcellus shale field, for $2.6 billion. Chesapeake also recently offloaded its Wyoming oil business to Continental Resources, the company controlled by shale billionaire Harold Hamm.

In summarizing Chesapeake Energy’s strategy, Dell’Osso said, “What’s different today than the past… is that we are allocating capital in a way that maximizes returns to shareholders, rather than maximizing [production] growth.”

Speaking with the Financial Times, Del’Osso added: “The industry was built on [oil and gas production] growth expectations, and company stocks were valued on growth expectations. That all had to get broken down.” The “reset” had been painful, but management teams would stick with the new model, the CEO said.

The strategy seems to be working. In May, Chesapeake reported record-high adjusted quarterly free cash flow of $532 million from the first three months of 2022.

Also in the second quarter, it announced an agreement to supply gas with the Golden Pass LNG facility. Golden Pass LNG is a joint venture company formed by affiliates of two of the world’s largest and most experienced oil and gas companies: QatarEnergy (70%) and ExxonMobil (30%).

The company now plans to pay $7 billion in dividends over the next five years. That is equivalent to well over half of its current market capitalization!

Chesapeake boasts of its best-in-class shareholder return program. It has completed about a third of its $2 billion share and warrant repurchase program, and it raised the base dividend by 10%, to $2.20 per share annually.

The company has a juicy variable dividend as well. Its next quarterly dividend will consist of the $0.55 per share base dividend and a variable dividend of $1.77. Management projects that, in the third quarter, it will pay out total dividends of $275 million to $285 million. The total dividend payout for 2022 should come in at between $1.3 billion and $1.5 billion.

Chesapeake’s yield is a very impressive 10% and I do not see that changing much as gas prices stay elevated. The stock is a buy anywhere in the $90s.
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chef preparing vegetable dish on tree slab

Which Is The Better Restaurant Stock?

It’s been a volatile year for the restaurant industry group (EATZ), which found itself down over 29% for the year before its recent recovery. This rebound can be attributed to hopes that inflation has peaked combined with short covering, with the small-cap and mid-cap restaurant names having elevated short interest relative to other industry groups.
Following this rally, some investors might be looking for names that haven’t participated in the recovery. However, underperformance is often related to underlying problems with a business, so it’s essential to look at industry trends, sales performance, and other key metrics to ensure one isn’t buying into a value trap.
In this update, we’ll look at two restaurant brands with above-average short interest and see which is the better stock to own – Restaurant Brands International (QSR) or Red Robin Gourmet (RRGB).
Scale, Business Model & Unit Growth
From a scale standpoint, Restaurant Brands International (“RBI”) and Red Robin differ materially. RBI has more than 29,000 restaurants under four different brands (Burger King, Tim Hortons, Firehouse Subs, Popeyes Chicken), and Red Robin has 525 restaurants under one brand: Red Robin Gourmet Burgers.
Typically, the smaller-scale company would be the more attractive one assuming it was a high-growth concept and a similar business model. However, Red Robin is inferior in both categories.

Not only has Red Robin seen its store count decline by 10% over the past three years while RBI’s store count has increased 15%, but Red Robin operates a casual dining concept, and its brand is nowhere near as iconic as RBI’s top-rated brands in the coffee, burger, and chicken category, which are Tim Hortons, Burger King, and Popeyes, respectively.
Meanwhile, only 20% of Red Robin’s system is franchised vs. 100% for RBI, meaning that Red Robin is much more sensitive to inflationary pressures, seeing a sharp decline in earnings when it’s seeing food and labor costs rise.
So, while Red Robin does win from a scale standpoint, benefiting from considerably more whitespace, this doesn’t help if it isn’t growing. In addition, RBI benefits from much higher margins (43% gross margins vs. 16%) and a 5% unit growth rate vs. a declining store count for Red Robin, with no reversal of this trend in sight.
Restaurant Brands – 1 / Red Robin – 0
Positioning In A Recessionary Environment
From a positioning standpoint in a recessionary environment, there are also major differences that must be considered.
While RBI benefits from three quick-service restaurants with average tickets below $7.00 (Popeyes, Burger King, Tim Hortons), and one fast-casual concept (Firehouse Subs), Red Robin has casual dining restaurants.
The latter segment of the restaurant industry tends to massively underperform in recessionary environments, given that consumers are looking to trade down. However, if they are looking for a meal, takeout is the much cheaper option, saving money on alcohol (home vs. restaurant) and the tip. This is not ideal for casual dining names which rely on drinks/appetizers/desserts to boost margins.
Meanwhile, RBI is a go-to name in a recessionary period, with many consumers looking to trade down if they want convenience. Given the similarly priced menu to brands like McDonald’s (MCD), it’s no surprise that while casual dining traffic was down over 6% in June, quick-service restaurants like RBI’s brands were flat year-over-year.
This is related to the sharp rise in energy costs, fuel costs, mortgage rates, and grocery prices, all contributing to shrinking discretionary budgets. So, if we do head into a prolonged recession, RBI’s margins and the fact that quick-service/pizza will allow it to outperform in weaker economic environments give it the edge by a wide margin.
Firehouse Subs is a fast-casual and higher-ticket brand ($10.00+ price per check), but this makes up just ~1,200 of RBI’s ~30,000 restaurants, so I do not see this as an issue. Red Robin benefits from Donatos Pizza being rolled out across its system, but the sales contribution is too small (less than 5% of sales) to make a meaningful difference.
Restaurant Brands – 2 / Red Robin – 0
Valuation
Finally, if we look at both names from a valuation standpoint, RRGB trades at ~8x EV/EBITDA while RBI trades at 13x EV/EBITDA, suggesting that RRGB is much more attractive from a valuation standpoint.
However, one wouldn’t expect to buy a Ferrari for the price of a Ford, and this is a case of RRGB being cheap for a reason. Not only does the company return no capital to shareholders (QSR pays a 4.0% dividend and buys back 2% of stock per year), but it has weaker margins, a declining store footprint, and is in a less attractive segment of the restaurant industry (casual dining vs. quick-service).
So, while the stock is far cheaper strictly on an EV/EBITDA basis, RBI is much cheaper on a PEG basis, trading at a PEG ratio of ~1.6, while RRGB trades at a PEG ratio of ~2.2.

Meanwhile, RBI investors are getting a guaranteed return of 4% per year from dividends alone to help weather general market volatility, boost total returns, and see continued earnings per share growth through opportunistic buybacks.
Restaurant Brands – 3 / Red Robin – 0
Final Verdict
To summarize, I see RBI winning in the valuation category as well, with RRGB being a case of a low-quality name trading at a fair price. Conversely, RBI is a high-quality name trading at an attractive price for investors with a long-term outlook. T
herefore, I see RRGB as an Avoid losing 0-3 to RBI, and I would view any pullbacks in Restaurant Brands International (QSR) below $57.00 as buying opportunities.
Disclosure: I am long QSR
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing.

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Has the Fed Already Whipped Inflation?

To hear Jeremy Siegel tell it, the Federal Reserve has already won its fight over inflation and should start taking its foot off the monetary brakes.
“I think the Fed should be near the end of its tightening cycle,” the ubiquitous market prognosticator and Wharton School finance professor told CNBC last week. According to Siegel, current headline inflation may still be high, “but forward-looking inflation has really been stopped. And I think the Fed should really slow down the rate of hiking, and if we get a snapback in productivity that’ll put further downward pressure” on inflation.
Is he right, or is it just wishful thinking so stocks can resume their decade-long winning streak?
Right now the signals look mixed, based on the two most important and widely-followed economic reports issued last week.According to the Commerce Department, second quarter GDP fell 0.9% at an annual rate, on top of the prior quarter’s 1.6% decline.

Until this year, the mainstream media would have immediately pounced on that as clear evidence that we are officially in a recession, following the traditional definition of a downturn as two back-to-back negative quarters. Now, however, with a feckless president poised to lead his party to an election Armageddon in November, we learn that the old standard simply doesn’t apply anymore, so we can’t use the dreaded “R” word.
Whether that’s pure bias or pure something else that also begins with a B, July’s robust jobs report, which showed the economy added a much higher than expected 528,000 jobs, does create some doubt whether we are in a recession or not, and if so, what the Fed plans to do about it.
Instead of viewing the jobs report as good news being bad news – i.e., the Fed will need to continue tightening to stifle economic growth—and sell stocks, the market instead went up on Friday and continued to rally on Monday morning. Is the recession – if there ever was one – now officially over, the inflation monster slain and no further need for the Fed to continue to raise interest rates?
Not according to at least one Fed official. Noting that the Fed raised interest rates by a steeper-than-expected 75 basis points at both its June and July meetings, Fed governor Michelle Bowman told the Kansas Bankers Association over the weekend that “similarly-sized increases should be on the table until we see inflation declining in a consistent, meaningful and lasting way.”
“Our primary challenge is to get inflation under control,” she said.
The Fed doesn’t meet again until September 20-21, which means a lot of economic statistics are going to come in in the meantime. Depending on what those figures reveal, will the Fed revert to its “data dependent” monetary policy stance, or will it stick with its new “forward guidance” policy and keep raising rates regardless of what the numbers show?If stock market sentiment is any clue, Professor Siegel may be onto something.
Since mid-June, the S&P 500 is up more than 13% and the beaten down NASDAQ is up over 18%. Of course, that could simply be a short-term, bottom-fishing rally that almost always appears during bear markets, sometimes for extended periods (like this one).
Should we take that to mean that the Fed is willing to at least wait and see what happens with inflation before it raises interest rates again in September? Or has it already made up its mind what it wants to do?
It seems overly optimistic to believe that nearly 14 years of massive monetary and fiscal stimulus that inflated the price of goods, services and assets could be unwound after a couple of relatively modest Fed interest rate hikes, with almost no similar restraint on spending by Congress.

Can inflation really go away that quickly? Can you get instant relief from a ferocious hangover by popping a couple of Advils?
Of course, this is something that a lot of other investors would dearly love to believe, but it just seems too painless. But others would argue that we have in fact suffered a lot of financial pain, and that it’s time for the good times to start rolling again. After all, including its latest rally, the S&P 500 is down 13% from its all-time high last December, while NASDAQ is still off by more than 21%.
However, those losses seem too modest compared to previous bear market drops. For example, the S&P plunged more than 50% during the 2008 global financial crisis, a period preceded by reckless regulatory stimulus that ignited the housing crash.
Should we therefore expect more pain to come, or will the next month’s economic statistics show that we’re just fine—inflation is coming down, more and more people are getting hired, and economic growth is only being modestly impacted?It will be interesting to watch what happens between now and the next Fed meeting. But I would keep my guard up.
George YacikINO.com Contributor
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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Strong Jobs Report Abates Fears of Recession

Last week, the jobs report was released. Economists were expecting an additional 258,000 new jobs added last month. The Labor Department’s report revealed that the U.S. economy has had robust job growth last month adding over 500,000 jobs in July.
The exceedingly strong numbers of the report diminished concerns about the United States entering a recession. While this optimistic report bodes well for economic growth, it certainly does not address inflation.
However, it does change market sentiment which had been intensely focused on the last two GDP reports. On July 28 the government released the advance estimate of the second quarter GDP. The report revealed that the GDP had decreased at an annual rate of 0.9% during the second quarter of 2022.
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Earlier this year the BEA reported a decrease in the first quarter GDP of 1.6%. The widely accepted definition of a recession is an economic contraction over two consecutive quarters.

The fear of a disappointing jobs report that pressured yields on U.S. Treasuries and the dollar lower was reversed. The dollar gained 0.8% which is equal to Thursday’s decline. Gold gave up roughly half of the $30 gain Thursday declining by $14.50 on Friday. As of 6:25 PM EDT on Friday, gold futures basis the most active December contract was fixed at $1792.40.
Spot or physical gold lost $15.57 and was fixed at $1776.40 according to the Kitco Gold Index. On closer inspection, the KGX revealed that $13.60 of Friday’s decline of was a direct result of dollar strength, and a fractional decline of $1.20 was the result of traders bidding gold fractionally lower.
Gold futures closed above $1800 Thursday and the 50-day moving average was significant, however, very short-lived. It is also less likely that we will see gold recover quickly in that Friday’s jobs report strengthens the resolve of the Federal Reserve to raise rates by another 75 basis points in September.
This will also be highly supportive of the U.S. dollar as we saw in trading today.
According to Michael Hewson, chief market analyst at CMC markets, “Today’s labor market report is bad news for gold bulls, with next week’s CPI report the next key test,” the bearish sentiment reflected in the above quote was a common theme amongst other analysts.

Bart Melek, head of commodity strategies at TD Securities said, “Gold had recently rallied on the thought that the Fed will shift from hawkish to dovish. But the jobs data shows the U.S. economy is strong, and this can prompt the Fed to be more aggressive, which is not a good story for gold,” Melek added that the “next catalyst for gold prices will be the US CPI print coming out next week.”
The only wildcard is if there is an increase in geopolitical concerns regarding Russia’s war in Ukraine and/or China’s response to Nancy Pelosi’s visit to Taiwan.
For those who would like more information simply use this link.
Wishing you, as always good trading,Gary S. WagnerThe Gold Forecast