Ally Financial Inc. (NYSE: ALLY) saw its stock plummet by as much as 18% today following comments from Russell Hutchinson, the company’s Chief Financial Officer.

Hutchinson attributed the sharp decline to escalating credit challenges driven by rising inflation and a higher cost of living.

In recent months, delinquencies in Ally Financial’s retail auto segment have exceeded expectations by 20 basis points, causing concern among investors.

Additionally, Hutchinson highlighted a “weakening employment picture” that has begun to impact the company’s borrowers, as revealed at a financial conference on Tuesday.

The NYSE-listed firm is also grappling with a class action lawsuit related to a data breach, adding to its troubles. As a result, Ally Financial’s stock is down approximately 30% from its year-to-date high on July 31st.

RBC sees an upside in Ally Financial stock to $49

Ally Financial noted an increase in net charge-offs that exceeded its own estimates by 10 basis points in July and August.

The management had previously guided for an up to 15 basis points of margin expansion for the third quarter but now expects that metric to decline sequentially as well.  

Still, there’s reason to believe that the sell-off in its stock price this morning may be an opportunity to buy. To begin with, RBC analysts continue to see upside in ALLY to $49 that indicates potential for a more than 50% gain from here.

Today’s update, the investment firm agreed, is a disappointment but reiterated its bullish view as “this all seems manageable”. RBC’s optimism on Ally Financial stock is shared by Warren Buffett as well who currently has a 9.5% stake in the consumer lender based out Detroit, Michigan.

ALLY pays a healthy dividend yield of 3.59%

In July, Ally Financial reported 97 cents a share of earnings for its second financial quarter that handily topped Street estimates.

The New York listed firm added 54,000 net new deposit customers to end its recent quarter with 3.2 million customers in total – up 11% on a year-over-year basis that indicates solid demand for its services.

ALLY is the largest in the league of all-digital US banks, which gives it a meaningful benefit over the conventional banks that are only beginning to step into digital services.

Lastly, Ally Financial is a dividend stock that yields a rather impressive 3.59% at writing. Investing in it on the weakness today will, therefore, position you for reliable total returns even if the US economy slows down in the months ahead.

It is also noteworthy that this financial services company has not missed a dividend payment since 2016. Since then, it has increased its dividend by a whopping 275%. So, it’s track record with dividend payments is brilliant compared to other financial stocks.

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The USD/JPY exchange rate continued its downward trend ahead of the upcoming Bank of Japan (BoJ) and Federal Reserve interest rate decisions. The pair retreated to a low of 141.50 on Wednesday morning, its lowest level since January 2nd and by almost 13% from its highest point this year.

Bank of Japan decision

The USD to Japanese yen continued its downward trend after a Bank of Japan (BoJ) official hinted to more interest rate hikes. In a statement, Junko Nakagawa said that conditions in the country would remain easier even if these hikes come.

This statement came as the BoJ prepares to deliver the next interest rate decision on September 20th. This will be a crucial meeting because the bank delivered a surprise 0.25% hike in its last meeting, triggering a shock in the financial market.

In recent statements, officials, including Kazuo Ueda, have hinted to another hike because of the stubbornly high inflation. The most recent economic numbers showed that the headline Consumer Price Index (CPI) rose to 2.8% in July, higher than the median estimate of 2.7%. 

The CPI figure was significantly higher than the year-to-date low of 2.2% and the BoJ’s target of 2.0%. Therefore, the rate cuts are meant to help lower inflation, partially by reducing the pace of wage growth and strengthening the Japanese yen.

Still, there are risks to more BoJ rate hikes. First, there are signs that the Japanese economy is not doing all that well. A report released this week showed that the economy expanded by 0.7% in the second quarter after contracting by 0.6% in Q1. This growth translated to an annualised growth rate of 2.9%. 

While these numbers were better than those in the first quarter, they were lower than the expected growth of 0.9% and 3.1%, respectively. The Japanese statistics agency attributed the weakness to weaker external demand, which dropped by 0.1%. 

Private spending and capital expenditure rose by 0.9% and 0.8% in the second quarter, missing the expected growth of 1.0% and 0.9%. 

Still, there are some positives for the Japanese economy. For one, the price of most commodities, including crude oil, has dropped sharply recently. Brent and West Texas Intermediate (WTI) dropped to $69 and $66, respectively.

Japan does well when energy prices are falling because it is one of the biggest importers globally. 

Federal Reserve decision

The USD/JPY pair retreated because there are signs that the Federal Reserve will continue cutting interest rates next week. 

Recent economic numbers have shown that the US economy was slowing. Two reports by S&P Global and the Institute of Supply Management (ISM) showed that the manufacturing PMIs remained below the growth phase of 50 in August. A PMI figure of less than 50 is a sign that a sector is contracting.

The other notable report came from ADP and the Bureau of Labor Statistics (BLS). According to ADP, the private sector created less than 100k jobs in August. The official NFP Jobs data revealed that the unemployment rate remained above 4.2% as the economy created 141k jobs. 

There are signs that the country’s inflation was falling. The upcoming US Consumer Price Index (CPI) data is expected to show that the headline figure softened from 2.9% in July to 2.6% in August while core CPI moved from 3.2% to 3.1%. 

Historically, inflation numbers are important for the Federal Reserve because they form part of the dual-mandate. In this case, however, these numbers will not have a big impact on the USD/JPY pair since the Fed has already hinted that it will cut interest rates in the next meeting. 

Fed rate cuts and BoJ rate hikes will narrow the spread of Japanese and US yields, leading to more concerns about the carry trade. 

A carry trade is a situation where investors borrow in a low-interest rate country to invest in a high-interest rate country. In this case, investors used low rates in Japan to invest in the US, meaning that the reversal has now started to happen. 

USD/JPY technical analysis

USD/JPY chart by TradingView

The USD/JPY exchange rate peaked at 161.98 in July and then suffered a harsh reversal after the BoJ rate hike. 

Most importantly, the pair has formed a death cross, where the 200-day and 50-day Exponential Moving Averages (EMA) have crossed each other. In most cases, this pattern leads to more downside. 

The pair has also dropped below the key support level at 141.75, its lowest swing on August 5, invalidating the double-bottom pattern that has been forming. Also, the MACD has remained below the neutral point while the Relative Strength Index (RSI) has moved below the neutral point of 50.

Therefore, the path of the least resistance for the pair is bearish, with the next point to watch being the psychological point of 140. 

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Icahn Enterprises (NASDAQ: IEP) stock price is falling apart as concerns about its dividend safety continues. It has crashed to $10, down by over 40% this year and by over 53% in the last 12 months. 

Most notably, IEP has dropped in the last four consecutive weeks and is down by over 73% from its highest point in 2023. This crash has brought its market cap from last year’s high of over $18 billion to $4 billion.

Perils of yield chasing

Icahn Enterprises is a good example of the perils of yield chasing as the company has a dividend yield of 38%, making it one of the biggest yielders in Wall Street.

A 38% yield means that a $10,000 invested in the company should pay about $3,800 in a year, if it remains constant. 

However, while this is a good return, investors are often exposed to a big risk, with default and bankruptcy being the biggest ones. As a result, what the stock gives you in dividends, it takes it back in the lagging stock performance. 

In Icahn’s case, the total return, which includes the stock price action and dividends, has dropped by over 41% in the last 12 months. In the same period, the S&P 500 index has jumped by over 22.4%

This happens because of how a dividend yield is calculated. It is calculated by dividing a company’s annual dividends per share and the stock price per share and then multiplying the result by 100%.

Why Carl Icahn’s company is imploding

The IEP stock price action brings the sad reality to one of the most prominent players in Wall Street. Born in 1936, he grew to become one of the top corporate raiders in the United States, especially after his takeover of Trans World Airlines, which filed for bankruptcy during his ownership.

Over time, he transformed from a corporate raider into a highly-feared activist investor, where he bought small stakes in companies and advocated for changes, including the firing of CEOs. Some of his most popular activist plays were with companies like Cheniere Energy, CVR Energy, and Xerox.

Most recently, however, Carl Icahn has been fighting to save his company, which owns stakes in several large companies in the US. Some of the top companies in the portfolio are CVR Energy, where he is the biggest shareholder, Southwest Gas, International Flavors & Fragrances, Bausch Health, Dana, JetBlue, SandRidge Energy, and American Electric Power.

Most of these companies are not doing well. Bausch Health, formerly known as Valeant Pharmaceuticals, has crashed by over 82% from its highest point in 2021 and is hovering near its all-time low.

CVR Energy shares have plunged by over 40% from their highest point this year while JetBlue has fallen by 74% from its 2021 highs. The company has come under pressure following its botched attempts to buy Spirit Airways.

Southwest Gas Holdings has also dropped by almost 10% from the year-to-date high. While International Flavors has bounced back this year, it remains 28% below the highest point in 2021.

Other companies in Carl Icahn’s portfolio like Caesars Entertainment and Centuri Holdings have all plunged. 

Carl Icahn’s debt and fine

The Icahn Enterprises stock price was doing relatively well until 2023 when Hindenburg Research published a scathing attack of the company. 

In the report, Hindenburg accused Icahn Enterprise for operating like a ponzi scheme. He also noted that Carl Icahn had borrowed substantial sums of money by using the IEP stock as collateral and failed to disclose them. 

The Securities and Exchange Commission (SEC) then started investigating the company, and this month, agreed to a $2 million settlement. Icahn also agreed to avoid future violations. 

Meanwhile, the soaring dividend yield means that investors worry that the Icahn Enterprises may be forced to sell stakes at a big loss or even file for bankruptcy. Looking at its balance sheet, we see that the company has total liabilities of over $12.6 billion against total assets of $17 billion. 

Its liabilities include $6.5 billion in long-term debt and $598 million in capital leases. Most notably, the company faces some heavy maturities in the coming years that will need to be paid. It has $6.37% senior unsecured notes worth $749 million maturing in 2025, $1.2 billion in 2026, and $1.4 billion in 2027. The next maturities will be $708 million and $698 million in the next two years. 

IEP stock technicals

Worse, the Icahn stock price has some weak technicals. It has crashed from last year’s high of $38 to just $10. Most recently, the stock has plunged below the key support level at $12.67, its lowest swing in December last year. 

IEP has remained below the 50-day and 100-day Exponential Moving Averages (EMA), meaning that bears are in control. Therefore, the path of the least resistance for the stock is downwards, with the next point to watch being at $8.

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Tata Motors stock has done well this year as it outperformed most automakers. The stock soared to a record high of ₹1,180 in July, up by over 1,800% from its lowest point in 2020. It has risen by over 31% this year, outperforming the companies like Toyota, Ford, General Motors, Stellantis,  and Volkswagen, which have dropped this year.

Tata Motors strong demand 

Tata Motors strong performance has made it the 12th biggest automaker in the world in terms of market cap. It has become a bigger company than the likes of Stellantis, Hyundai, Ford, and Suzuki. 

This growth happened because the company has had strong demand for its commercial and passenger vehicles. The most recent data shows that the number of registered vehicles in India rose to over 326 million in 2020 from less than 110 million in 2008. The number has likely grown since then.

India’s growth is important for Tata Motors because it is its biggest market. Other large Indian automakers like Mahindra & Mahindra and Maruti Suzuki have all jumped for the same reason.

Most notably, unlike its Western peers like VW, BMW, Ford, and GM, Tata Motors has mostly focused on selling Internal Combustion Engine (ICE) vehicles. While Tata has invested in electrifying its business, most of its energy has remained on the ICE segment.

Most traditional companies that pivoted to EVs have had to scale down their operations in the past few months because of the waning demand and soaring losses.

Tata Motors is also highly diversified. It sells commercial vehicles like trucks, passenger vehicles, and luxury ones through its Jaguar Land Rover (JLR) brand.

Tata financial results

The most recent results by Tata Motors and Jaguar Land Rover were strong. Its total revenue rose bu 5.7% to ₹108k crore or $13 billion while its EBITDA was over ₹15.6k crores. 

This growth happened as the company increased the number of vehicles it sold more vehicles than it did in the same quarter in 2023. It sold 330.3k units, a big increase from the 322.2k it sold in the same period in 2023.

Tata Motors EBITDA remained stagnant at ₹14.4k crore while its profit before tax was ₹8.8k crore. 

These numbers demonstrated that the company was doing modestly well in a tough market for vehicles. Jaguar Land Rover sold 97,755 vehicles in the quarter, generating over £7.2 billion in revenue and a profit of £693 million. 

As a result, JLR received credit upgrades from S&P Global and Moody’s, which is a positive sign that will result in lower borrowing costs. 

Growth and valuation concerns

Still, there are concerns about Tata Motors valuation and growth prospects, which explains why the stock has moved into a correction after falling by over 15% from its highest point this year.

Some of the sell-off happened on Wednesday when analysts at UBS downgraded the company, citing the substantial discounts being offered by Jaguar Land Rover. UBS maintained its sell rating on the stock with a target of ₹825, down by over 16% from the current level. 

UBS is one of the most bearish analysts covering Tata Motors. Jefferies, a leading Wall Street company, has a target of ₹1,330, meaning that they expect it to jump by over 30% from the current level. 

Nomura, however, has a buy rating on Tata Motors stock and recently upgraded the stock’s outlook from ₹1,294 to ₹1,303. Altogether the average stock target for Tata Motors shares is ₹1,176, up by 20% from the current level. 

A key concern about Tata Motors is that it is trading at a higher valuation compared to its global peers. It trades at a forward P/E ratio of 15.8 and a 2026 multiple of 12.7. In contrast, most global automakers have P/E multiples of less than 5. Ford has a 2025 P/E ratio of 5.6 while GM has a multiple of 4.76. 

Therefore, Tata Motors will need to continue growing to justify a higher valuation than its global peers. The challenge, therefore, is where this growth will come now that there are signs that the Indian economy was slowing.

Tata Motors share price analysis

The daily chart shows that the Tata Motors stock price peaked at ₹1,180 in July and has now moved into a bear market after falling by over 15%. It has dropped to its lowest point since July 2023. 

The stock has also moved below the 50-day and 100-day moving averages and the key support level at ₹1,057, its highest point in March. Also, the MACD and the Relative Strength Index (RSI) have pointed downwards.

Therefore, the stock will likely continue falling as sellers target the next key support level at ₹900, down by 9% from its current level.

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Stanley Druckenmiller, the former money manager for George Soros, has one of the best track records in Wall Street. He has rarely had a negative year and has become a billionaire with a net worth of over $6.9 billion, according to Forbes and $9.9 billion, according to Bloomberg.

At Duquesne Capital, he averaged annual returns of over 30% until he closed it in 2010 and returned funds to clients. Today, he still runs Duquesne but as a family office.

Data by Whale Wisdom places his total assets in the fund at about $3 billion. So, here are some of the best stocks owned by Druckenmiller.

Kinder Morgan | KMI

Kinder Morgan is one of the biggest players in the energy industry in the United States, but unlike ExxonMobil, Chevron, and Marathon, it is not a household name.

That’s because the company operates as a Master Limited Partnership (MLP), where it gathers, transports, and processes crude oil and natural gas. It owns over 79,000 miles of pipelines and 139 terminals.

Kinder Morgan stock has jumped by over 26% in the last 12 months, giving it a market cap of over $46 billion. It has moved to an all-time high even as the price of crude oil and natural gas has dropped. 

This performance is because, as a transporter, the company makes money in transport contracts. This also explains why other MLP companies like Enterprise Product Partners and Williams have done well this year.

The most recent financial results showed that Kinder Morgan’s revenue rose to over $3.57 billion in the second quarter from $3.46 billion a year earlier while its net profit fell slightly to over $575 million. Stan Druckenmiller owns 6.75 million Kinder Morgan shares worth over $134 million.

Teck Resources | TECK

Stan Druckenmiller owns over 1.45 million shares in Teck Resources, one of the biggest mining companies in Canada.

Teck is a top copper producer, and most recently, it sold its coal business to Glencore, one of the biggest mining firms globally.

Teck is a highly-beloved mining company whose stock has risen by 140% in the last five years, giving it a market cap of over $22 billion. 

It is seen as a good investment for two main reasons. First, it owns vast copper resources, which will become highly valuable as demand continues rising. Most analysts believe that copper will remain in a supply deficit over time as countries change their energy mix. 

Second, Teck Resources is often seen as a good acquisition target, especially if the family that controls it are open to a sale. Glencore attempted to buy it in 2023 and failed and there are rumours that Rio Tinto will place a bid.

Philip Morris | PM

Druckenmiller owns 889k shares in Philip Morris International worth over $90 million. Philip Morris and other tobacco companies like Altria and British American Tobacco have done well this year, with most of them outperforming the broader market.

Philip Morris shares have jumped by over 34% in the last 12 months and by 34.75% this year alone. It has a dividend yield of about 4%.

This growth is mostly because of its strong dividend of about 4% and the fact that it has been undervalued for a while. The company has a forward P/E ratio of 19, lower than the S&P 500 index average 21.

Philip Morris’ business has been doing well, with the most recent results showing that its revenue rose to over $9.46 billion in the second quarter from $8.9 billion a year earlier. Its quarterly profit also jumped to over $2.4 billion. 

Coherent Corp | COHR

Coherent Corp, a company worth over $10 billion, is another big part of Druckenmiller’s portfolio. He owns over 3.59 million shares worth over $260 million, a trade that has been highly profitable since the stock has jumped by over 115% in the last 12 months. 

Coherent is up by 62% this year because it is seen as a top artificial intelligence company. It manufactures communication components like pump lasers, photodetectors, integrated circuits, and optical materials. 

Coherent’s revenue rose from $1.2 billion in the second quarter of 2023 to over $1.3 billion last quarter. It also narrowed its net loss to $47 million from $178 million. 

Seagate Technology | STX

Seagate Technology is another company in the Duquesne Family Office portfolio. It is a leading American company that manufactures data storage solutions that are found in most computers.

Seagate, like Coherent, is seen as a good artificial intelligence play, which explains why the stock has jumped by about 60% in the last 12 months and 85% in the past five years. This rally has brought its market cap to over $20 billion. Seagate Technologies is a relatively cheap company with a price-to-earnings ratio of 15. 

The other top names in Stanley Druckenmiller’s portfolio are Microsoft, Woodward, Zoominfo, Flutter Entertainment, and Mercadolibre.

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