The Markets Are Only Waiting For One Thing
Aug 11, 2021Good morning!
The markets are down in early going following more Chinese bloodletting in the Hong Kong market. Contrary to what many people want to believe, events taking place thousands of miles away DO have an impact on our financial system because they are so interlinked.
Use the distraction to your advantage!
Here’s my playbook.
1 – The markets will move when they see what big tech does
This is a very simple proposition and it’s easy to understand why.
The big five tech titans:
- Make up more than 1/5th of total market capitalization for the S&P 500 Index as of the end of Q2 at 22%.
- Are decreasing in influence which means other companies are catching up! According to CNBC, the proportion of profit provided by Big Tech actually decreased from 2020, when the five companies provided nearly a quarter of the index’s full-year earnings, 23.8%.
We talk about the importance of picking winners frequently but it’s numbers like these that reinforce staying with ‘em. Especially when nearly 85-88% of companies are beating top and bottom line.
**Note: If you’re a member of the One Bar Ahead™ Family please expect a full earnings breakdown and price targets later this morning in the weekly update!**
2 - Which Big Tech Companies to buy ahead of even BIGGER earnings
Tesla’s Monday then Apple, Alphabet, and Microsoft on Tuesday. Later in the week, it’ll be Amazon and Facebook. The pattern the last few quarters has been to sell on good numbers following a strong run into earnings, so I’ll be looking to add shares if that happens. I’d encourage you to do the same thing if you’re following along and interested in big-picture bling like I am.
The profits these companies have created to date pale in comparison to what they will do in the years ahead. Plus, they’re an outstanding way to protect your money from the ravages of inflation.
Big tech will, as I told Ashley Webster earlier this morning on Varney & Co., “knock the leather off the ball.”
Not to beat a dead horse here as the old expression goes, but take Apple for example.
Team Cook is growing at 50% a year, net income up 100%, net profit margins 30%-40%. My back of the envelope calculations suggest an $85+ billion top line and I think $1.25 bottom line. The street, by comparison, is at $72.94 and $1 which I think is hopelessly conservative.
Apple may just be the ONE company that rises above looming (and punitive) big tech regulation.
3 – Team Powell has lost the plot.
Inflationary pressure is mounting and companies like Kimberly Clark and General Mills are raising prices to maintain profit margins. I don’t own the former but do own the latter.
The Fed has a serious credibility problem, not that it didn’t before. I don’t expect much from the FOMC statement other than more jawboning about how temporary inflation is, even though we know from our wallets that it’s very real.
4 – China’s most egregious move yet
Chinese education stocks got absolutely whacked last week and the carnage continues.
For those of you who missed the story, the CCP is allegedly forcing for-profit EdTech firms in mainland China to turn into non-profits. To put this in perspective, this is a $100 billion market.
Imagine the US government telling health insurance companies they could no longer do anything for profit. All heck would break loose.
To a point I’ve made repeatedly, the CCP does not care how much money it wipes from the face of the earth. It values control over profits.
Here’s a good primer on the Tencent situation from the BBC
5 – Call me crazy but this could easily go bad for Amazon
I hope Amazon has amazing legal reserves because the company now has “keys” to thousands of buildings in the US. Ostensibly about convenience for package delivery, but I’m more concerned about hacking.
My friend and colleague, the super sharp Ray Wang (CEO of Constellation Research) shares my thinking. I reached out to him this morning for his take and he said simply it’s one thing to protect against “rogue” drivers which seem to be working, but the potential for hacking is on his mind, too.
Bluntly speaking, my fear is that criminals will figure out Amazon’s devices the way they figured out how to hack garage door openers back in the day. There’s simply too much opportunity if they can “get in the front door.”
Bottom Line
People talk frequently about stocks they could have bought and how much $ they'd have if they did. I don't have a lot of patience for that.
Finding the next great winner is something you can do something about immediately.
As in, RIGHT NOW.
Use today’s drop to go shopping using LowBall Orders, Sell Cash-Secured Puts, use the “Fence” … always play offense!
And, of course, MAKE it a great day!
You got this – I promise!
Keith
