FICO and the Fed

19 thg 9

Now that UNH has started to pick up due to the shares acquired by many large names, we need to turn our attention to companies not yet in the news cycle. One of these companies is FICO, which handles credit worthiness scores. But why, in a time where home buyers and consumers are being crushed at every turn, would a credit solutions agency be a good buy? The answer is because it is forward looking, and we are looking toward a time of, more likely than not, lower interest rates.

First let’s look at the charts...



As you can see, from the all-time high, FICO is at a 40% discount. So, we are following the universal rule of buying low. Now all we must do is sell high. Based on Powell's speech at Jackson Hole, we can see that the Fed is gearing up to cut interest rates. You can also see this is the case with the amount of debt-buying taking place in the bond market...



So, the problem is not IF they'll cut rates, but WHEN and by how much. In agreement with what most people see coming, expect the next meeting to lead to a 25 bps drop in the $FRED:FEDFUNDS. When this happens, you can also expect the credit agencies to blast off onto the horizon. (Written before Sep 16-17 meeting)

Before we get to the exit plan, we do have some housekeeping. It should be noted that FICO, in the practical sense, is no longer a monopoly. Equifax has been approved for its rating system by the government, so this trade does not come without risk. The good news is that as rates get lowered we can expect more people to take on more debt (because it is cheaper), which will boost the demand for FICO's rating abilities. We should aim for a timeframe before the next earnings call to get out of this trade, but the usual target of 3 to 6 months remains as the timeframe for holding this position. A longer period can be justified based off any unusual performance. The price target will be set at $2,000.

19 thg 9

Giao dịch đang hoạt động

This Idea was written before the Sep. 16-17 FOMC meeting but still remains relevant.

2 thg 10

Đóng lệnh: đạt mục tiêu

Shocker, I got it right again..... Exited at $1800 will look for re-entry.

2 thg 10

Ghi chú

CAUTION: THIS TRADE CAN CONTINUE TO RUN AS I HAVE NOT SOLD EVERYTHING