What’s hot: So the silly stock market thinks it can rally (Dow Jones Industrial Average futures were up triple digits early Tuesday) as (1) Trump tariffs on China go into effect on Friday; (2) the yuan blows up; and (3) technical breakdowns in high-flying tech stocks continue. And if you buy into the market’s early exuberance on Tuesday, then I have some Facebook (FB) stock to sell you for $1 a share. The news out there remains generally bearish to stocks. Just look at these investor sentiment disasters I forwarded to myself at midnight. Valuations on China’s benchmark Shanghai Composite Index, spurred by a string of bad macroeconomic data and trade war fears, are now hovering at levels not seen since mid-2015. According to Bloomberg data, these valuation levels have often preceded rallies in Chinese stocks. But with a trade war in play, comparing valuations to prior years is a waste of time. Realistically, a lower low on valuations has to be established before China is viewed as an attractive bet. Staying on the China/trade war theme, the country’s exports to the U.S. expanded 5.4% in the first half, 13.9 percentage points lower than the same period a year ago, the General Administration of Customs said in a statement. Chinese exports to the U.S. in June rose 3.8%, 23.8 percentage points lower than the same month last year. This could be an early sign that the trade rhetoric is starting to take its toll on global demand. Add it to the list of reasons to be bearish.
The bottom line: Ran an interesting poll on Twitter Monday night, asking followers what tech executive they would bet their life savings on. The choices: Michael Dell, Snap’s (SNAP) Evan Spiegel, Twitter’s (TWTR) Jack Dorsey, Apple’s (AAPL) Tim Cook, or Nvidia’s (NVDA) Jensen Huang. The winner was Huang, so hat tip to the Action Alerts PLUS team for continuing to ride the chip giant’s leadership position. Amazon’s (AMZN) Jeff Bezos and Netflix’s (NFLX) Reed Hastings were the top two write-in winners. Who didn’t receive a single vote you ask? Michael Dell, who came out of hiding with the media on Monday to try and drum up excitement for his looming return to public markets. Boy is that telling. At the end of the day, why would you put a single dollar into Dell when it opens for trading compared to some of the other tech companies listed here? First off, Michael Dell will remain largely in control of the company with an estimated 47% to 54% of the voting stock. While that will help fight off the activists Dell has long blasted (see Carl Icahn), it keeps the voices of other investors out of the company if Dell so inclines. Second, Dell’s finances are hardly something to be excited about. According to Dell’s latest annual report, it has racked up about $10 billion in losses from continuing operations due mostly from its EMC (which it bought for $67 billion) operation and pressure in the PC market. Total debt for Dell: roughly $44 billion, almost five times its shareholder equity. The bottom line: Stick with Nvidia and those FANG stocks doing more innovative things — Dell will have too much baggage to warrant a single penny of your investing dollars. Want to play old tech? Go with Microsoft (MSFT) , which has managed to turn itself into a new tech play thanks to CEO Satya Nadella’s leadership.
Stock of the day: In a hat tip to July 4, missile defense player Raytheon warrants a look. Defense stocks have been torpedoed over the last month on trade war fears. Shares of Boeing (BA) , Raytheon (RTN) and General Dynamics (GD) — the top three defense stocks often played by investors — have nosedived about 8% in the last four weeks. It may be time for investors to start wading back into these 2017 high-fliers given their strong financials, solid dividend payouts and bright future prospects. “We view Raytheon as among the most favorably positioned defense companies based on its leading market positions in missile defense systems and missiles, which are seeing intense investment that we expect to continue for the foreseeable future,” said RBC Capital Markets analyst Matthew McConnell. Raytheon’s solid foundation puts it in the catbird seat in two shareholder-friendly areas. First is to continue to notch strong high margin international sales that likely lead to earnings upside. McConnell said Raytheon is pursuing “marquee” programs with Kuwait and Poland, to name a few. That business positioning sets the stage for richer dividends and buyback plans. “We believe Raytheon has the most capital-allocation capacity of the defense primes and is well positioned for a capital-allocation catalyst including further dividend increases or share buybacks in excess of what we currently model,” said McConnell. Raytheon is a holding in Jim Cramer’s Action Alerts PLUS.