The Mission Report

The MissionIR Report - January 2016

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Low Oil Prices Have OPEC Considering Emergency Action

Crude oil prices have tumbled by more than 65 percent in recent months, reaching a 12-year low, and OPEC may be ready to do something about it. Emmanuel Kachikwu, Nigeria's top official and OPEC President, recently stated that the group is considering an emergency meeting for as early as next month. The topic of discussion is expected to be whether or not OPEC will agree to cut production, a move that could play a key role in correcting the crude price freefall.

When OPEC previously met in Vienna, Austria, the group was divided and refused to cut output, despite falling prices. While the next ordinary meeting won't occur until June 2, 2016, member countries could be preparing for emergency measures. In 2014, OPEC decided to initiate a price war with low cost producers in the United States, as well as other countries, to defend their enormous market share. The results of this move have led to hundreds of thousands of lost jobs and greatly decreased investment budgets.

Even as other countries have slowed production, the global surplus of oil has continued to grow. Tumbling prices, in combination with China's slowing economy has fueled the slump. The strength of the dollar, which makes oil more expensive in foreign markets, has also played a role. On Tuesday, oil prices fell toward $30 a barrel, marking a plunge of 16 percent since the beginning of 2016.

Despite the low prices, many OPEC nations are still making money, but other are facing dire straits. Nigeria's production costs, for example, are about $31 a barrel, making margins at current prices nonexistent. Even countries that are still making a profit are suffering huge squeezes on government revenue. According to Kachikwu, most OPEC members are currently watching their economies "being shattered," meaning that something will have to give.

Although an increasingly vocal contingent of OPEC nations favor emergency action, a proposed meeting is no guarantee that OPEC will move to restrain supply. Iran, for example, is eager to increase production after Western sanctions are lifted later this year, and it's unlikely that Saudi Arabia will agree to work with its Mideast rival to support oil prices.

Just last week, Saudi Arabia broke off diplomatic relations with Iran after its embassy in Tehran was attacked. The attack was a result of Saudi Arabia's execution of a prominent Shiite cleric. However, the OPEC president is still optimistic that an agreement of some form is a possibility.

Kachikwu stated that, while the amount of barrels that can be produced following a policy change won't be dramatically different, the symbolism of the agreement will play a key role in stabilizing the global market.

U.S. Jobs Market Posts Additional Openings in November

November's results are in, and the strengthening jobs market continued to post signs of recovery. U.S. employers advertised slightly more jobs than they did in the previous month, and overall hiring rose as more Americans decided to quit their jobs as a result of a healthier environment for workers.

According to statistics from the Labor Department, the number of job postings rose 1.5 percent to a seasonally adjusted 5.4 million. That figure peaked last July at 5.7 million, but the result is still an 11 percent year-over-year improvement. This increase shows that employers remain confident of the economy's strength despite the financial turmoil in China, lower oil prices and a slow recovery for the European economy.

Over the past 12 months, only manufacturers have decreased their number of job openings, a result of a strong dollar and weak international growth. Jobs that are insulated from the global economy enjoyed healthier results. Advertisements for health care jobs rose by 34 percent over the last year to more than a million, and those in the hospitality sector surged by 22 percent to 698,000.

Following suit, overall hiring recorded a rise of 3.4 percent from a year ago to 5.2 million. As confidence regarding the jobs market continues to rise, people are quitting their jobs in seek of better-paying work. In November, the number of people who quit their jobs rose by 6.3 percent over the same period of the previous year.

A direct effect of people quitting jobs is a broad lift of wages. Most employees who quit have a better-paying job lined up before doing so, forcing employers to provide raises for their existing workforce to avoid high turnover rates. Although quits remain below the pre-recession level of about 2.9 million, the 2.83 million people who quit in November were a huge improvement over just 1.6 million who quit in August 2009, months after the recession ended.

The unemployment rate remained at a low five percent, and the Labor Department estimated that employers have added an additional 292,000 jobs in December. However, the creation of these positions hasn't done much to boost wages, which have risen just 2.5 percent in the past year.

Dividend Payouts Expected to Slow in 2016

Investors hoping for a larger slice of corporate profits this year are likely to be left disappointed, at least if a new report by research firm Markit proves correct. The financial data provider suggests that some may struggle to get a higher payout in 2016 as total global dividend growth is forecast to land at roughly five percent. Over the past four years, dividend payout growth has averaged approximately 9.3 percent.

A major factor in slow dividend growth is the ongoing slump in commodity prices. According to an analyst with Markit, some of the market's most generous payers around the world have been forced to cast payouts aside in an effort to cope with falling commodity prices. In both Australia and the U.K., mining company BHP Billiton is expected to decrease its payments by as much as 50 percent in an effort to protect its credit rating. Other blue chips from sectors such as pharmaceuticals and banks are likely to hold payouts flat in 2016.

Despite the bad news, distributions in the U.S. look much less gloomy, according to the report. The 500 largest U.S. firms are expected to payout roughly $425 billion in 2016, representing a growth rate of 6.9 percent from 2015. Although this greatly outperforms other regions, it's still the lowest annual growth rate in five years. Markit suggests that the best performers will likely come from real estate, autos and banks.

The rising rates from the U.S. Federal Reserve may lead to dividend paying stocks falling out of favor. As the rate continues to rise, government bonds will likely become more attractive to institutional investors than dividend paying stocks.

Outside of the U.S., South Korea is expected to be one of the biggest dividend growth stories as conglomerates act on government instructions to unlock cash piles. As a result, aggregate payments made by the country are expected to balloon by 20.9 percent, more than ten times the growth seen throughout the rest of the region.

China, for example, is expected to record dividend growth of just 5.3 percent. While this performance would be an improvement over last year, it would fall far short of the double-digit growth achieved between 2012 and 2014.

Low Oil Prices Could Force a third of U.S. Oil Firms into Bankruptcy

On Monday, crude oil prices plunged by more than five percent to inch ever closer to $30 a barrel. Along with this fall, the prospect of bankruptcy for a significant chunk of the U.S. oil industry became more apparent.

Three major investment banks – including Morgan Stanley, Goldman Sachs and Citigroup – now expect the price of oil to fall below $30 and well into $20 territory following China's slowdown, the U.S. dollar's appreciation and the ongoing production by drillers around the world. Despite the intensifying oil glut, both OPEC and U.S. drillers are refusing to let up.

The result could be catastrophic for American oil and gas producers. According to Wolfe Research, as many as a third of American producers could tip toward bankruptcy and restructuring by mid-2017. In order for survival, most producers would need oil to rebound to at least $50 a barrel, according to industry analysts. Crude oil prices are currently settling around $31.41 a barrel, setting a 12-year low.

Currently, more than 30 small companies collectively owe in excess of $13 billion and have filed for bankruptcy protection since the beginning of this downturn, according to law firm Haynes & Boone.

In any case, Morgan Stanley recent described the current energy environment as "worse than 1986" for energy prices and producers. This references the last big oil bust, which sent prices crashing for years. However, the current downturn is now deeper and longer than each of the last five oil price crashes since 1970.

March Rate Hike Unlikely

Following the Fed's first interest rate hike in nearly a decade in December, investors are now turning their collective attention toward the next step in what has been described as a gradual tightening of policy. On Monday, Atlanta Federal Reserve President Dennis Lockhart described the prospects for future hikes.

In particular, Lockhart noted that there may not be enough fresh data on inflation to support a second U.S. interest rate hike by March. Additional global risks, including a slowdown in China and continued low oil prices, are now identified as the primary concerns to what is otherwise a promising outlook for the U.S. economy.

Despite these concerns, he remains "mildly optimistic" that strong domestic consumption will spur GDP growth by as much as 2.5 percent in 2016, pushing the economy toward full employment and moving prices in the direction of the U.S. central bank's two percent inflation target. With China's slowing economy and tensions in the Persian Gulf looming large,

Lockhart stated that he expects U.S. households and businesses to spend at a strong enough pace to sustain the ongoing economic recovery, allowing the Fed to continue raising interest rates over the coming months. Lockhart suggested that addition rate hikes will come no more frequently than every other meeting, and that they will be contingent on "hard evidence" that inflation is on the rise. Although Fed officials have expressed confidence that inflation will increase following the stabilization of oil prices and the value of the U.S. dollar, the speed with which those things occur will play a key role in policymakers' discussions moving forward.

The Fed currently has eight policy meeting scheduled for 2016, with the first set to take place later this month. At its last meeting, the central bank raised rates from the near-zero level at which they were held following the 2007-2009 financial crisis and recession, marking the first move in over seven years. Another rate hike is likely to occur this year, and some analysts suggest that this could happen as soon as March or April if economic performance continues to improve.

ContentChecked Holdings (CNCK)

For individuals with dietary restrictions, a trip to the grocery store can be a real headache. ContentChecked Holdings, Inc. is making things simpler by offering an innovative suite of apps designed to help users navigate their local supermarkets without fear of running afoul of food allergies. ContentChecked, MigraineChecked and SugarChecked are the first applications with comprehensive and accurate content information and in-depth allergen and migraine definitions for most U.S. food products. In recent weeks, the company has been featured in a collection of food-related blogs and articles outlining ways to make the holidays more accommodating to those with allergies and dietary restrictions.

"Our corporate goal is to introduce to consumers technology that improves lives, contributes to greater health and, overall, makes the world a better place," Kris Finstad, chief executive officer of ContentChecked, stated in a news release. "Each time we, as a company, are featured in a publication, we live out that mission."

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International Stem Cell Corp. (ISCO)

International Stem Cell Corporation recently entered into a master clinical research agreement with the Florey Institute of Neuroscience and Mental Health, one of the world's leading brain research centers, to conduct phase I/IIa clinical trials for human parthenogenetic stem cell-derived neural stem cells (ISC-hpNSCs) in Parkinson's disease patients. Preclinical studies in rodents and non-human primates have demonstrated improvement in Parkinson's disease symptoms and an increase in brain dopamine levels following the intracranial administration of ISC-hpNSCs.

"We recently received authorization to initiate phase I/IIa and now we are moving forward toward formal engagement of the clinical site to conduct this study," Dr. Russell Kern, executive vice president and chief scientific officer at International Stem Cell Corporation, stated in a news release. "We are excited to work together with the Florey to conduct the clinical trials of ISC-hpNSC at the Royal Melbourne Hospital. We expect to enroll all patients into the clinical trial in Q1 2016 and provide interim results in October 2016."

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Moxian, Inc. (MOXC)

Moxian, Inc. recently announced the formation of a new corporate subsidiary located in the Dongcheng district of Beijing. Moxian Technologies (Beijing) Co. Ltd. is expected to focus on growing Moxian's sales in the capital of the People's Republic of China while driving local merchants and users to its social marketing and promotion platform. To date, Moxian Beijing has been staffed with 15 employees, but the company anticipates expanding its in-house Beijing sales team to 50 salespeople in 2016 as it continues to pursue maximum market penetration.

"We're proud to set up our Moxian subsidiary company in Beijing – an impressively developed economy city with numerous opportunities for small and medium businesses like ours," Tan Meng Dong James, chief executive officer of Moxian, stated in a news release. "The establishment of a Beijing office represents a qualitative leap… [toward a] bright future for Moxian."

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Oakridge Global Energy Solutions (OGES)

Oakridge Global Energy Solutions, Inc. recently unveiled its new corporate image, branding and media communications tools in conjunction with its ramp up to full production of its best in class lithium-ion batteries and energy storage products. A key part of this rebranding centers on the company's new-look website, which reiterates Oakridge's corporate mission of becoming the leading 'Made in the U.S.A.' producer of lithium-ion batteries and energy storage products. In addition to a new design, the updated website also contains easy-to-access product details for the reference of both wholesale consumers and direct customers.

"Having successfully completed a total revamp of the company's business and products during 2014 and 2015, Oakridge continues to improve every aspect of its business, and media and communications tools like these are no exception," Steve Barber, chief executive officer of Oakridge, stated in a news release. "Investors and customers demand easy access and good communication, and we again lead the industry by delivering these tools."

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Our Pet's Company (OPCO)

OurPet's Company recently announced the appointment of Dean Tsengas to the position of chief operations officer. Following this appointment, Tsengas began overseeing operations, global logistics, quality assurance and product development for the company. Tsengas previously served as the vice president of OurPet's Company, and he played a key role in the launch of the company's pet products venture following its founding in 1994. Under his managerial guidance, the company has developed extensive supply chain management, sourcing, warehousing and quality assurance capabilities.

"This action was taken in recognition for Dean's past contributions and to further improve the interface and effectiveness between product development and operations," Dr. Steven Tsengas, president and chief executive officer of OurPet's Company, stated in a news release.

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