Core Viewpoint - Ally Financial is facing rising loss ratios due to increased delinquencies and net charge-offs in its consumer automotive loans, leading to a significant drop in its stock price, which fell nearly 20% to around $33 after the announcement [1][3] Group 1: Financial Performance - Delinquencies and net charge-offs for Ally's automotive loans increased by 10 to 20 basis points in July and August, translating to a rise of approximately 0.1%-0.2% in loss metrics [3] - Ally's annualized net charge-off rate was 1.81% of loans outstanding last quarter, indicating that even a slight increase in defaults can significantly impact earnings [3] - The company's net income has declined from over $2.5 billion in 2021 to $823 million in the past 12 months due to short-term headwinds from rising interest rates [6] Group 2: Business Model and Long-term Outlook - Despite recent challenges, Ally's business model remains strong, with a total of $142 billion in retail deposits and a consistent history of profitability, having never posted an annual net loss in the past decade [5] - The company added 54,000 depositors last quarter, bringing the total to 3.2 million, which supports its ability to continue making automotive loans [5] - Management indicated that the company would still be profitable if recent trends persisted, suggesting that the current issues may be a short-term blip rather than a long-term trend [4] Group 3: Investment Considerations - Ally's stock is currently trading at a price-to-earnings (P/E) ratio of 14.6, which is about half of the S&P 500 index's average, indicating potential undervaluation [6] - If Ally's annual net earnings revert back to the $1 billion to $2 billion range, its P/E could fall to 10 or lower, presenting a buying opportunity for long-term investors [6] - The recommendation is to consider buying the dip on Ally stock, as it appears to be undervalued and has the potential for recovery in the long term [7]

Core Viewpoint - Ally Financial's shares experienced a significant decline of 16.6% last week, which is notably higher than the industry's decline of 0.4% [1][2]. Company Performance - The stock price of Ally Financial dropped sharply on September 10, following comments from CFO Russ Hutchinson regarding deteriorating credit conditions among borrowers [2]. - Delinquencies in Ally's retail auto-loan business increased by approximately 20 basis points above expectations in July and August, with net charge-offs (NCOs) also exceeding expectations by 10 basis points [3]. - The company is expected to see further increases in NCO rates, particularly in the 61-plus-day delinquency category, due to a challenging economic environment [3]. Financial Guidance - Despite the recent stock decline, Ally Financial's 2024 guidance remains unchanged, focusing on managing capital levels and expenses [5]. - Loan losses are projected to rise in 2024, with retail auto NCO rates expected to increase to approximately 2.1% from a previous estimate of 1.9% [6]. - The company's net interest margin (NIM) is anticipated to expand in the third quarter, with projections of reaching 3.45-3.50% by the fourth quarter of 2024 [6]. Sales and Earnings Estimates - Current sales estimates for the upcoming quarters are $2.09 billion for Q3 2024 and $2.16 billion for Q4 2024, with year-over-year growth rates of 6.08% and 4.26% respectively [7]. - Earnings per share (EPS) estimates for Q3 2024 and Q4 2024 are $0.84 and $0.99, with a year-over-year growth estimate of 1.20% for Q3 [8]. - Recent revisions indicate a downward trend in earnings estimates due to anticipated increases in loan losses [9]. Market Position - Ally Financial's stock is currently trading below its 50-day simple moving average, which is often interpreted as a bearish signal [9]. - In comparison, peers such as Capital One and SLM Corporation have shown positive stock performance, with increases of 6% and 11% respectively year-to-date [4].

Core Viewpoint - Ally Financial's shares have dropped 16.5% this week due to management's concerning update on the company's credit profile at an industry conference [2][3]. Group 1: Company Performance - Management indicated that losses in the retail auto portfolio are higher than expected, attributed to rising living costs and unemployment [3]. - Delinquencies in July and August increased by 20 basis points compared to expectations, with loan losses anticipated to rise in the coming months [3][4]. - The retail auto loan loss rate forecast for 2024 was initially set at 1.9%, revised to 2.1% during the Q2 2024 earnings call, and is expected to increase further [3]. Group 2: Financial Implications - Higher delinquencies will necessitate increased provisions for credit losses, impacting earnings negatively [4]. - Most issues stem from loans originated in 2022, and there is uncertainty regarding the performance of 2023 vintages despite tighter credit standards [4]. Group 3: Future Outlook - Management remains committed to achieving a 15% return on tangible common equity (ROTCE) and anticipates margin growth when deposits reprice in a lower interest rate environment [5]. - The stock is currently trading at approximately 93% of tangible book value, suggesting potential value for investors willing to accept short-term volatility [5][6]. - Caution is advised until there is more clarity on the company's credit outlook before making significant investments in Ally Financial [6].

Group 1: Market Performance - Bank stocks were among the worst performers, with significant declines in shares of JPMorgan Chase, Goldman Sachs, and Ally Financial due to concerns raised by executives about income statements and balance sheets [1][2] - JPMorgan Chase's stock closed 5.2% lower after a forecast for 2024 net interest income (NII) was deemed "not very reasonable" by bank president Daniel Pinto [2] - Goldman Sachs fell 4.4% after CEO David Solomon indicated a likely 10% decline in trading revenue for Q3 due to a challenging macro environment [2] - Ally Financial's shares tumbled 18% following warnings about rising auto loan delinquencies and net charge-offs [2][3] Group 2: Regulatory Developments - The Federal Reserve announced a watered-down version of capital requirements, increasing them by about 9%, which is less than half of the originally proposed 19% increase for global systemically important banks [4][5] - The regulatory changes were met with substantial opposition from the financial industry, which argued that the original rules would impose excessive costs on banks [4] - Despite the regulatory win, the warnings from bank executives overshadowed the positive news, leading to a decline in the financial sector by 1% [3][4]

Core Insights - Ally Financial's shares dropped significantly after the CFO indicated that the company's auto loan portfolio is facing challenges due to rising delinquencies and net charge-offs [1][2] - The CFO highlighted that consumers are struggling with inflation and a weakening employment situation, which has intensified credit challenges for Ally [1] Auto Loan Portfolio Performance - Delinquencies in Ally's auto loan segment rose by approximately 20 basis points above expectations over the last two months [3] - Net charge-offs were about 10 basis points higher than anticipated for July and August [3] - The company expects net charge-offs to continue increasing in the coming months due to a significant number of borrowers struggling, particularly those with loans over two months past due [3] Strategic Adjustments - Ally has reduced its exposure in the lending sector by selling its Ally Lending arm to Synchrony Financial earlier this year [3]

Group 1 - Ally Financial's borrowers are facing increased pressure due to high inflation, rising cost of living, and a weakening employment situation, leading to concerns about the health of the consumer lending market [2] - The company's Chief Financial Officer, Russ Hutchinson, indicated that credit challenges are intensifying, which may result in underperformance in upcoming quarters [2] - Following these warnings, Ally's stock experienced a significant drop of 17.7% [1] Group 2 - Investors should anticipate that Ally may need to increase its reserves for bad loans, which could negatively impact earnings and lead to a reduction in guidance [3] - Despite potential earnings impacts, Ally is considered healthy and capable of managing the cyclical nature of the lending business [3] - At its current share price, Ally offers a dividend yield exceeding 3.5%, presenting a potential buying opportunity for investors willing to endure upcoming volatility [3]

Core Insights - Ally Financial Inc. has appointed Hope Mehlman as the chief legal and corporate affairs officer, effective December 2, 2024, to lead a newly established Legal & Corporate Affairs Office [1][2] - Mehlman brings over 20 years of experience in retail and commercial banking, having previously served as chief legal officer at Discover and held various legal roles at other financial institutions [2][3] - The new office will oversee regulatory and legal matters, compliance, government relations, environmental sustainability, and community reinvestment [1][2] Company Overview - Ally Financial Inc. is a financial services company with the largest all-digital bank in the U.S. and a leading auto financing business, serving approximately 11 million customers [4] - The company offers a comprehensive range of online banking services, including deposits, mortgage, credit card products, and investment advisory services [4] - Ally Financial is committed to its mission of "Do It Right" and aims to be a relentless ally for customers and communities [4]

Market Volatility and Investment Strategies - The CBOE Volatility Index (VIX) spiked to its highest level in years in early August and again at the start of September, prompting investors to consider value investing strategies [1] - Value investing focuses on identifying companies with strong fundamentals that are currently undervalued, with the expectation of price corrections leading to increased share value [1] Key Metrics for Value Stocks - Investors utilize metrics such as price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, free cash flow, and debt-to-equity ratio to identify value stocks [2] - Attractive value stocks typically show undervaluation compared to earnings and assets, potential for future growth, and a history of competitive dividend payouts [2] Delta Air Lines Analysis - Delta Air Lines, with a market capitalization exceeding $27 billion, is considered undervalued with a forward P/E ratio of 7.2, significantly lower than competitors [3] - Despite challenges, Delta reported record adjusted operating revenue of over $15 billion, a more than 5% increase year-over-year, while maintaining a competitive double-digit operating margin [4] - Delta is recognized as a leading airline, consistently ranked highly by industry awards, indicating stability for long-term investors [5] Ally Financial Overview - Ally Financial has a forward P/E ratio of 11.7, below the sector average, and a manageable debt-to-equity ratio of 1.4 [6] - The company offers a dividend yield of 3.03% and has shown a 16.45% annualized dividend growth over three years, making it an attractive option for passive income [6][7] T-Mobile US Valuation - T-Mobile US, with a market capitalization of over $231 billion, has a PEG ratio of 0.74, suggesting it may be undervalued despite a 44% return in the last year [9] - The company has consistently delivered better-than-expected financial results, positioning itself as a leader in the 5G space [9]

Company Overview - Ally Financial is a fully digital bank with a market capitalization of approximately $12.7 billion and is among the top 25 US banks based on assets [1] - Major shareholders include Warren Buffet's Berkshire Hathaway, which owns 9.5% of outstanding shares, and Bill Nygren's Oakmark Fund, which holds around 12 million shares [1] Stock Performance - Over the past year, Ally's stock performance has been 75.09%, outperforming the S&P 500 by 23.45% and the SPDR S&P Bank ETF (KBE) by 43.19% [3] - The upward movement in bank stocks is attributed to dovish monetary policy expectations, although banks are currently facing lower net interest income due to higher funding costs [3] Funding Structure - Ally has transformed its funding mix from 41% deposits at the time of going public to 88% currently, minimizing reliance on wholesale funding [4] - As of Q2, Ally reported approximately $152 billion in total deposits, with $103 billion from checking, savings, and money market accounts, and $49 billion from certificates of deposit [4] Customer Acquisition and Services - Ally's deposit costs are higher at 4.21% compared to Bank of America's 2.78%, but this has helped attract new customers who are cross-sold additional products [5] - The bank has a customer satisfaction rate and offers various benefits such as no maintenance fees, no minimum balance, and cashback on debit card purchases [6] Financial Metrics - Ally's net interest margin has decreased from 4.04% in Q2 '22 to 3.27% in Q2 '24, while the net charge-off rate has increased to 1.26% [8] - Despite these challenges, there was a slight quarter-over-quarter improvement in net interest margin, rising from 3.13% in Q1 [8] Market Outlook - The imminent cuts in interest rates are expected to benefit Ally, as many retail customers may delay loans due to high interest rates, potentially boosting Ally's loan initiation once rates normalize [7][8] - However, the current valuation of Ally is considered unattractive, with a return on equity of 6.28% against a cost of equity of 8.3%, leading to a price-to-book ratio of 1.10x, suggesting overvaluation [9][10]

Momentum investing revolves around the idea of following a stock's recent trend in either direction. In the 'long' context, investors will be essentially be "buying high, but hoping to sell even higher." With this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving that way. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.Even though momentum is a popular stock char ...