Market Radar 27. October 2022

Swing Long Chance in SPY at 380 ?

With yesterday’s closing price, the IPO ETF again receives the daily stamp “wait and see or speculate on sell off” for today. I assume that this gradation is only temporary. In terms of factors, Value (IWD) currently receives the daily stamp “bottoming or sideways” and Growth (IMF) still receives the daily stamp “Under observation”. Growth could also be upgraded to “bottoming or sideways” tomorrow. Momentum (MTUM) continues to be the “buy or top-up” factor that has recently yielded the highest return. Momentum rankings are dominated by stocks from the oil and gas industry.

In the SPY, much will now depend on whether the 380 mark can serve as support. Swing traders could speculatively use reaching this mark for swing trades on the long side. 

Preopen, the SPY is trading almost unchanged, but the RSP (S&P 500 equally weighted) is down just under 0.6%.

What did we notice under the radar of the major US stock indices?

Of the 56 industries I observe, only four industries still receive the daily stamp “wait and see or speculate on sell-off”. These are “Gaming & Sport” (ESPO), “Social Media” (SOCL), “China Internet” (KWEB) and “REITs for Data Center and Digital Infrastructure” (VPN).

Yesterday we saw a strong rally in Chinese internet stocks. As a result, these stocks (listed as ADRs in the USA) were able to catch up yesterday as a weak industry what other weak industries had already achieved on Tuesday: for a change, they led the top lists instead of the down lists.

Continue to wait for “Data Center” and “Digital Infrastructure” equities despite attractive REITs models for investors?

Let’s look at the four largest stocks in the VPN ETF (“REITs for Data Center and Digital Infrastructure”). These are weighted in the ETF together with about 45%: Equinix (EQIX), American Tower (AMT), Crown Castle (CCI), Digital Realty Trust (DLR).

American Tower (AMT) and Crown Castle (CCI) operate and lease, among other things, cell towers, fiber optic tracks, i.e. everything that has to do with the infrastructure of telecommunications and 5G.

Equinix (EQIX) provides the digital infrastructure for enterprises and Digital Realty Trust (DLR) operates data centres.

Let’s take a closer look at such REITs models using the example of American Tower: Currently, American Tower operates and leases over 200,000 transmission towers that transmit data in about 25 countries.
American Tower works together with the US states but also, for example, the federal states and municipalities in Germany to ensure a nationwide expansion of mobile networks.

Due to the REIT structure, 98% of the income is currently recurring from the rental of real estate, fiber optic cables, data centers and telecommunications facilities. This ensures a high level of planning security.

Since mid-August, the stock has lost 30% of its value. Is it cheap to have? By no means! The P/E ratio 2022e is still 35 and the P/E 2022e enormously high 9. Taking into account the high debt ratio (over 1000 %!), which should also continue to rise rather than fall, some things that look quite crisis-resistant at first glance are put into perspective.

The problem with American Tower and the other three highly weighted stocks in the VPN ETF seems to be the high valuation.


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