Should We Declare Victory Over Inflation?

[CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS]( Hello investor, Should We Declare Victory Over Inflation? The last two inflation data sparked newfound optimism on Wall Street. Does this mean inflation is behind us? Maybe, maybe not. The biggest issue about the last two data points were the comparison. We saw a monster inflation during this period, especially after skyrocketing oil prices as Russia invaded Ukraine. For example, energy plummeted by nearly 17% over the past year. So, the current inflation is significantly lower when compared to last year’s unusually high figure. In fact, if we compared the CPI from where it was three years ago, the number is up by about 18%. In the graph below, you can see how the headline inflation (excluding food and energy) plummeted at a faster pace than the core inflation. (Source: CNBC) But there is still some evidence of strong inflation in the economy. The housing market is at a standstill. Fuel prices are rising again. The labor market remains historically tight. - “No victory laps. No mission accomplished. Our work is not done,” Jared Bernstein, chair of the White House’s Council of Economic Advisers, said. “But we’re very happy to see some breathing room for American households.” Citigroup economist Andrew Hollenhorst warned that strong economic data likely lead to higher rate hikes. He said if there were no further tightening, inflation could “reaccelerate in early 2024.” - “Tight labor markets, elevated wages, and upside risks to shelter and other services inflation mean we do not share this optimism,” Hollenhorst said. “Absent a tightening of financial conditions, inflation may reaccelerate in early 2024.” Jared Bernstein, chair of the White House’s Council of Economic Advisers (Photo: REUTERS/Jonathan Ernst) The upcoming retail sales (due today) will be key. If retail sales grew more than 0.5% -- as the economists expect – it would be inflationary since it is above the CPI’s number. - “With the Fed’s temporary pause in rate hikes, the U.S. economy has proved to be resilient through continued consumer spending, but continuing that trend [at] the current rate could create an elevated new normal level of spending,” said Kavan Choksi, managing director at KC Consulting. - “The reality is that current inflation rates still hold a negative impact on consumers,” he added. “So, even though we are on the right trajectory, we still have a long way to go.”  Top Dividend Stock To Boost Your Returns In A Choppy Market Today’s Stock Pick: OneMain Holdings Inc ([OMF]() Warren Buffett repeatedly talked about Berkshire Hathaway’s number one competitive advantage: Financial strength. For its insurance operations, the best days come when the financial conditions deteriorate so badly that competitors are forced to leave the market due to the lack of financial resources. As a result, Berkshire can underwrite insurance contracts at an attractive margin. Today’s stock pick is in a similar situation. OneMain Financial is the largest nonprime installment lender which targets consumers with subpar credit. That’s where big banks (such as JPMorgan Chase or Citi) won’t touch. However, thanks to the rise of artificial intelligence and machine learning, non-prime lending has turned into a lucrative business. You can predict a person’s likelihood of missing payments with frightening accuracy. That’s one competitive advantage for OneMain Financial. And the next advantage is its financial strength. OneMain generally operates in nonprime segments, but more competitors are pulling out from lending to consumers with higher credit. Why? Lack of financial resources. OneMain began backing off its lending to the low end of the credit scores due to economic uncertainties as early as late 2021. It reduced assumptions of collateral values and require more verifications on certain new loan applicants. And then, Christmas arrived early for the lender. It ended up finding a better market (where competitors backed out) for its loans. The opportunity exists because OneMain is sitting on a fat balance sheet. - “…we've seen some competition pull back even with better credit quality customers, presumably due to a lack of balance sheet funding for loans. This has created opportunity for us to originate higher credit quality business and continue to drive receivables growth despite the credit adjustments we've made,” said CEO Douglas Shulman. - “We like this competitive positioning using our incredibly strong balance sheet to move our overall portfolio to higher ground as we are starting to see some challenges in the lower credit quality consumer.” OneMain is sitting on a $7.3 billion in undrawn bank capacity, and more than 24 months of liquidity to stay in business even if they earn zero revenue. (Source: OneMain Financial) Attractive valuation: We haven’t told you the best part about OneMain. You wouldn’t believe the dividend yield it’s currently trading at. The dividend yield is now at about 8.50%! Wall Street is not a fan of OneMain because of its highly leveraged balance sheet. (More than 5x.) This risk delivers an extraordinary opportunity to buy low on the company. Moreover, OneMain is now trading at a 7.64 P/E. But that’s only a small piece of the incredible opportunity. The next big thing is in credit cards. Right now, OneMain focuses on personal loan, but it released two new credit cards under the Brightway Card brand. This is a biggie because the TAM for credit cards are five times bigger than personal loans. (Source: OneMain) So, we are not talking about investing in OneMain just because of its 7 P/E and a 8% dividend yield. There is also a major growth catalyst in credit cards over the next decade. When OneMain did the first rollout of its credit cards, it tested dozens of different risk models, offers, and channels. They ended 2021 with about 66,000 accounts across a range of “test cells” (with different variables of risk models, offers, and channels). CEO Douglas Shulman described the testing process in three steps: - “In late 2021, we tested the product value proposition and marketing, and we had excellent take rates, confirming that we had a unique card product to bring to market.” - “We then tested activations, line usage, digital adoption and other key metrics.” - “Our last data point to test was credit. Most of the key metrics to date have been in line with it or better than our initial expectations.” Throughout 2022, OneMain monitored the performance of these test accounts across a range of metrics, such as spend, balance build, revolve rates and credit. OneMain began a targeted rollout into select segments that they liked from their test cells, and it is the perfect time to buy the stock. (Source: OneMain) Bottom line: OneMain Financial is trading at an absurdly low P/E because Wall Street doesn’t like any whiff of risk since lower-income consumers are the first ones to pull out on spending. Naturally, this stock is trading below its fair valuation. However, it brings an opportunity because OneMain is just rolling out its new vertical in credit cards. And it found a new customer segment with higher credit scores due to competitors pulling out. If you buy this stock, you could enjoy a 8% annual return in dividends immediately. This is a stock worthy of your attention.   [CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS](     © All Rights Reserved, Trade Alliance If you no longer want to receive these messages, you may [click here]( to unsubscribe.