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February 2023 update - Inflation fails to slow down. Stock spotlight on Evercore

After a strong start to the year, financial markets hit a patch of volatility in February. While it’s not uncommon for stocks to be up one day and down the next, there’s also been big intraday swings. On February 23rd for instance, US stocks started the day up 0.8%, then were down to -0.6% by mid-day, then rebounded to finish the day up 0.5%. Then on the 24th, stocks reversed course sharply and dropped around 1%. Bleak economic data is the cause for the recent turbulence. Inflation in the US didn’t slow down in January, remaining at 6.4% from a year ago. By some measures, it may have even accelerated. The personal consumption expenditures index, one of the Federal Reserve’s favorite gauges of inflation, climbed to 5.4% over the year instead of going down as expected. If inflation doesn’t come down quickly enough, chances are the Fed will have to keep raising rates for longer than expected, which is more than reason enough for the markets to be spooked. At the same time, there are cracks in other areas. US homes lost 4.9% of their value in the second half of 2022, the largest drop since the financial crisis in 2008. The median sale price of a home plunged 11.5% from its peak. Many homeowners are still ahead due to the boom in home values when the pandemic hit. But the continued cooling housing market is another red flag for the economy and, by extension, the stock market.


Meanwhile, in a new feature to this blog, here’s an introduction to a stock in one of my model stock portfolios. The company is called Evercore Inc. and it trades under the symbol EVR on the New York Stock Exchange. Evercore is an independent investment bank with about 80% of its revenue coming from advising on mergers and acquisitions, restructurings, and other strategic corporate transactions. The remainder of its revenue comes from investment management and institutional equities. The company reported net income of $11.61 per share for the full year of 2022. That is down from $17.08 in 2021, but that was an exceptionally strong year for business activity due to the recovery from the pandemic. Business is likely to slow even further in 2023, as economic activity cools down. But Evercore’s strong profitability compared to peers should insulate it partially from the worst effects. Evercore is included in my “dividend growth” model portfolio as it has several consecutive years of growing its dividend per share. It recently announced a quarterly dividend of $0.72 per share, which it is expected to increase after the first quarter of 2023. The company is very profitable, with a return on assets of 19% (near the top of all US stocks and its industry), while being reasonably inexpensive, with a price-to-book ratio of 3.5 and a dividend yield of 2.2%. I believe this is a stock that is worth investigating further for your portfolio.




Evercore Inc.

Essential stats

Ticker

EVR (NYSE)

Market Capitalization

$4.9B USD

Return on Assets

19.7%

Price to Book

3.5x

Dividend Yield

2.2%



Sample portfolio for a Canadian investor

Asset class

ETF ticker

Weight

Canadian stocks

VCN

2.25%

US stocks

VUN

11.25%

Foreign stocks

VIU

9.00%

US corporate bonds

ZSU

0.00%

Canadian corporate bonds

XSH

0.00%

Global high yield bonds

MHYB

0.00%

Emerging markets bonds

ZEF

0.00%

Global real estate

TGRE

2.50%

Canadian mortgage-backed bonds

ZMBS

30.00%

Canadian government bonds

CLF

15.00%

Global government bonds

XGGB

15.00%

Gold

KILO

15.00%



Sample portfolio for a US investor

Asset class

ETF ticker

Weight

US stocks

SCHX

11.25%

Non-US stocks

SCHF

11.25%

US corporate bonds

SPIB

0.00%

Non-US corporate bonds

PICB

0.00%

US high yield bonds

SPHY

0.00%

Non-US high yield bonds

IHY

0.00%

Emerging markets bonds

VWOB

0.00%

Global real estate

REET

2.50%

US mortgage-backed bonds

MBB

30.00%

US government bonds

VGSH

15.00%

Non-US government bonds

BWZ

15.00%

Gold

GLDM

15.00%



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