The lack of security features on Internet of Things (IoT) devices could have fatal consequences, according to expert testimony at a recent House Energy and Commerce Committee hearing. As reported by Technology Review, computer security experts testified that computers used in hospitals and other sensitive facilities to control elevators and ventilation systems feature poor security. As a result, these connected devices are vulnerable to hacking, like the webcams, camcorders, and baby monitors that were attacked to cause a widespread Internet outage in the eastern U.S. in October. However, an attack on a hospital could have far more serious consequences than lost Internet access,
and result in the loss of life. While the Dept of Homeland Security and National Institute of Standards and Technology have issued guidelines on securing IoT, some believe the government needs to create a regulatory body to test and approve IoT devices and set universal device standards. The growing adoption of IoT devices will continue to underscore the importance of security, thus benefiting IT hardware and supply chain companies with strong security offerings, including HPE and IBM, as well as those companies manufacturing IoT devices.
December 5, 2016
2017 Outlook – The Trump Playbook
Trump On Rally
Interest rates and inflation expectations have jumped over the past five months on the back of a tight labor market and the promise of Trump’s pro-growth policies. While the market’s recent rotation might seem abrupt, the S&P 500 is up only 3% since election day, leaving it with substantial potential upside.
2017 S&P 500 Price Target of 2,500
In our post-election report “A Whole New World – Biggest Paradigm Shift Since Reagan”, we wrote, “we believe that rising earnings and multiples will push equity returns into the double digits from our previous high-single-digit baseline.” Consistent with this view, we are initiating a 2017 price target of 2,500, representing 12.4% potential upside (before
dividends) from our current target of 2,225. See pages 4–5 for details.
EPS to Reaccelerate (2016: $119, 2017: $128, 2018: $140)
Following two years of near-zero growth, we expect profits to re-accelerate. A better
operating environment for Financials and Energy should contribute to faster growth in 2017 (+7.6%). 2018 EPS growth (+9.4%) assumes a 2–3% impact from Trump policies. This place holder for changes in taxes, regulation, and spending is quite modest, in our view, as an adjustment to corporate taxes alone could easily double this impact.
Upside to Multiples
Our 2017 year-end target is predicated on a 17.9x multiple on 2018E profits. 2016’s target
assumes 17.4x on 2017E EPS. We believe multiples will advance more quickly than earnings over the near term, as analysts wait for clarity on Trump policies before adjusting estimates. Markets Advance/Rotation in the Early Innings Small Caps and Financials are leading the broader market, up 10.6% and 12.3%, respectively, since the election. The market has been quick to reward low-P/E stocks and those with higher price volatility, as well as names with higher effective tax rates and more domestic business models.
10-year Treasury yields are up 53 bps since election day, 102 bps since July’s low. Bund and
JGB yields have not kept pace with Treasuries, resulting in a stronger dollar.