Weekly Wrap: Jobs Rebound From Dismal May
The uptick in jobs is a sign that the U.S. economy is holding up. Plus, Walgreens has another mixed quarter.
Jeremy Glaser: A big rebound in jobs; Walgreens continues to look for its footing; and Ventas makes another shrewd move. This time on Morningstar's Weekly Wrap.
Employment rebounded in a big way from a disappointing May by adding 287,000 jobs in June. Our Bob Johnson thinks that both of these months were likely a statistical fluke, but that doesn't mean the market hasn't found nirvana.
Bob Johnson: Well, I think the market is kind of viewing this report as nirvana. I think they were thinking that the May jobs report meant that well, maybe the U.S. economy isn't doing so hot. Well now this just throws that all in doubt. The U.S. economy, and not just the employment data, but a lot of it shows that it has held up, if not actually improved, here in the U.S. So that's great news. And usually that would be offset by "oh well we are going to have better economic news but that maybe means a higher Fed interest rate." Now why I say this is nirvana is that there is better economic activity but they are pinned down by the Brexit and lower interest rates around the world and therefore will really find it difficult to raise rates. And so you have situation with better economic growth and lower interest rates--a phenomenal combination.
Glaser: In earnings news, Walgreens' new management team still seems to be having trouble navigating a changing U.S. pharmacy landscape.
Vishnu Lekraj: Walgreens reported another mixed quarter which has been the case for the company over the past couple of years. There has been a lot of transition within the retail pharmacy sector in the U.S. and Walgreens has struggled to cope with this. We'll see if the new management team can turn it around. But we are skeptical with the stock and with the firm.
The stock is currently trading materially above my fair value estimate which makes it a little overvalued. Thus we believe investors should take a cautious stance toward the firm and toward the stock over the near term.
Glaser: Healthcare REIT Ventas showed itself again to be an exemplary steward of capital by announcing a $1.5 billion deal for Wexford. But that doesn't mean there aren't questions about the transaction.
Edward Mui: This week Ventas announced it is acquiring Wexford's life-science portfolio from Blackstone, who acquired it from BioMed Realty earlier. While we think it is a great play for Ventas to accretively add value and add to its diversification strategy, it remains to be seen whether they will be able to turn it into a real investment platform.
Today we think Ventas is overvalued because we think investors are placing a premium on its best-in-class management team and strong operating performance.
Glaser: Looking to do a midyear portfolio tuneup? This week Christine Benz shared her four traps to avoid.
Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.