What a difference a month makes (my go-to line, because it’s so true). We all survived last month’s dooms day calls of another Leman Brothers event spurred by Evergrande’s “looming” default and a market apocalypse prophesied, ironically, by my own actual brother in Canada. I’m allowed to tease because we’re related, right? All joking aside, the market (S&P 500) did bounce back, erasing a 5% loss in September to hit new all-time highs by the end of October. Don’t be mistaken, I’m closely watching the Chinese real estate market and China’s slowing economy. But, for all the reasons I mentioned last month, it wasn’t a reason to panic sell. The actual time to be selling/trimming is when the market is behaving, thus enabling investors to make decisions with a clear mind, absent from heightened emotions. Now that the market has recovered to new highs, it is a perfect opportunity to revisit your portfolio and prepare for the next volatile period that is guaranteed to hit again.
It’s been a while since corporate earnings have been this unpredictable, which makes our old friend Forrest Gump’s saying so very suitable – “you never know what you’re gonna get”. The buzz words this quarter included: supply-chain challenges, hiring issues, labor costs, and, the most disruptive, input costs and inflation. We’ve all been hearing about it for months. The question has been – how will these factors affect the bottom line? The answer has, unfortunately, been extremely mixed. Sorry to disappoint. More so than the usual earnings season, we’ve had winners and losers. Also, this time around, the year-over-year comparables and analyst estimates were no slam dunk. CEO’s had to work for their enormous paychecks this earnings season with investors holding their feet to the fire. Some newcomers to the disappointment list this quarter:
Amazon – First miss in six quarters – missing on both revenue and earnings. The stock will continue to lag, but is a long-term buy. Too many positives to list and I’m sure you already agree so enough said, mic drop!
Apple – Six billion dollar hit from supply-chain issues. iPhone sales missed – which is the magic number to watch. Love Apple the company, but I’m lukewarm on its valuation.
Starbucks – Fell short on revenue and a 7% decline in China sales spooked markets. They’ll be in the penalty box for a few quarters, but worth considering if the price continues to dip.
Others shinned and the market cheered:
Microsoft – The market darling did not disappoint as it seems the cloud is immune to supply-chain issues (software vs hardware) with solid beats on both top and bottom lines. This Goliath is no market secret, yet it continues to earn its valuation premium. I am concerned that it continues to be a crowded trade and would be patient to initiate a new position.
Tesla – Congratulations to Elon for becoming part of the Trillion-dollar market cap club! Impressive revenue and earnings beats in a challenging chip supply environment deserve a round of applause, but considering its 181 times multiple of next year’s earnings, I’m happier sticking with Ford which also quietly beat expectations and trades at only 10 times next year’s earnings. With much less fanfare, Ford stock has outperformed Tesla year-to-date by 36%. I’m well aware that in the longer time frame, Ford has been a dog compared to the almighty Tesla. But, I would suggest that all major car companies are now considering themselves EV (Electric Vehicle) companies with each announcing huge EV investments and production targets, throwing down the gauntlet and proclaiming that its game on! The boring CFA analyst in me says Ford wins on a risk reward/tradeoff. With that being said, I do so love watching Elon harness his inner Tony Stark (aka Ironman).
McDonalds – It’s the furthest thing from tech and the cloud. But, this good old fashioned burger flipping company keeps pounding out the earnings. Despite being susceptible to every headwind out there, they beat estimates and raised their dividend for the 45th consecutive year since paying its first in 1976. Side note and potential conflict of interest, although I’m a CrossFit nut, I absolutely love McDonalds and especially enjoy devouring my beloved Big Mac. My fingers are crossed that one day they’ll open up in the Cayman Islands – Ronald McDonald…you are missed.
As a portfolio manager, it’s my job to pay attention to the potential rise of future industries. In biotech, the focus for the last decades has been finding cures to specific diseases and improving treatments. This focus and new advances in technology/science have dramatically been improving our lives through new medical breakthroughs. Immunotherapy, for example, has made advances in the use of substances to stimulate or suppress the immune system to help fight cancer, infection and other diseases. This is just one example of a field that is currently saving lives that would have most certainly been lost before. Medical breakthroughs are also frequent high multiple return windfalls for investors.
Now, what if instead of treating diseases, we were able to postpone them or, even better, stop them from ever occurring in the first place. This is the blossoming field of aging research and it is no longer limited to Sci-Fi movies. Many people dream of being able to live forever, but we all eventually come to grips with our mortality. In today’s world however, billionaires don’t play by the same rules as us normal folks. They’re living the good life and they don’t want the fun to end, so they have invested millions to accelerate the industry forward.
Billionaires Jeff Bezos (Amazon) and Peter Thiel (Paypal) both invested in Unity Biotechnology (UBX:NASDAQ), a company whose mission is to “extend human healthspan, the period in one’s life unburdened by the disease of aging”. Google isn’t missing out either by backing their own ageing research company named Calico (California life company) with the goal of combating aging and diseases of aging.
We’re just in the first inning of this exploding field of science, but something to keep an eye on. Until future innovations take place, there’s always one of my favorite stocks; AbbVie – the owner of Botox. Hey, if we can’t stop aging just yet, might as well age gracefully even if you can’t move your eyebrows. Factoid: Sales of Botox (Q3 2021) rose 22.5% to $645 million, that’s a lot of cash and frozen faces.
