Reader feedback on Salesforce; Indexes are at all-time highs, but is there a crash on the horizon?; Short seller Andrew Left is trying to beat SEC charges; Attending the Laver Cup
1) Yesterday, I took a first look at Salesforce (CRM). Due to its outstanding financial characteristics and a below-market valuation, I concluded that "I'm definitely interested in the stock" especially after the recent pullback.
But I acknowledged that this isn't a company or sector I've followed closely over the years. So I invited my readers to share any insights they might have about Salesforce's sell-off and whether it's warranted.
Thankfully, many did...
Doug H. shared some headwinds the company is facing:
My insider says Salesforce is a long-term winner but in the short term has to deal with agentic [autonomous] AI complexity, sales team evolution, internal business unit competition, and go-to-market process.
Some areas are generating great profit now, and it's hard to argue with the massive installed base. I'm investing a small amount now and keeping watch as it goes through the next few quarters.
Rachit D. elaborated on the AI threat:
Salesforce is facing challenges in achieving future growth. Their AI-powered bots are struggling to deliver significant cost savings (particularly in labor) for the companies that use them. Additionally, there's a growing concern that AI could disrupt the enterprise software market, potentially affecting Salesforce's valuation due to concerns over future growth.
I'm a bit uncertain myself, but I think it might be difficult for newer AI solutions to completely replace the established legacy enterprise software systems anytime soon. Plus, many of these legacy companies are already integrating AI into their products. The key question is whether they can effectively upcharge their customers and expand their market share.
Jonathan M. added:
I'm a fairly recent shareholder (for myself and clients) from the June 2024 selloff to $215. I recently added a little more here at $240. I, like you, have always been very careful of when to add or get into these names because of the valuations, but the cash flow and income CRM puts off at a 19x forward [price to earnings] (below-market multiple) was just too much for me to ignore.
The selloff in CRM is similar to that of Adobe (ADBE), which I know you are very familiar with. The story is AI cannibalization and competitors like ServiceNow (NOW) and monday.com (MNDY) potentially taking share.
Maybe it's valid, but it's not showing up in the numbers yet for me – and because of that I thought it was worthwhile to add a little CRM.
Biron C. also sees that similarities with Adobe:
I believe the Salesforce selloff in recent months has been in part due to the perception that the business is under threat from AI – like Adobe.
And like Adobe, I think this threat is overblown, as Salesforce has relatively high switching costs and a strong moat due to this.
I'm long CRM. Great business with a share price that's been unfairly beaten down.
Finally, one reader who runs a company that does training on Salesforce's products (and therefore wishes to remain anonymous) shared his negative views:
They were awful to do business with. Arrogant, no respect for the vendor's time...
Many of the leadership team came from [Oracle (ORCL) co-founder] Larry Ellison's orbit. Enough said.
I don't own CRM and won't because of our experience but mostly because of the CEO [Marc Benioff].
I place significant weight on the CEO. Find a good one, you can make money.
He is brash. Not credible in his forecasts, and sells vaporware.
We still partner with them because our clients force us to.
Their AI "thing" which they have advertised heavily didn't work for three quarters. The CEO found a parade and ran in front of it and called that leadership.
No thanks for me. The numbers don't matter.
Thank you all for your insightful comments! My Stansberry's Investment Advisory team and I will incorporate them into our analysis.
Subscribers will be the first to know if we decide to add Salesforce to our model portfolio. (If you're not already an Investment Advisory subscriber, you can learn how to become one right here.)
If anyone else has feedback, I would love to hear from you. As always, you can send me an e-mail by clicking here.
2) All three major indexes – the S&P 500 Index, Nasdaq Composite Index, and Dow Jones Industrial Average – hit an all-time high yesterday.
This is following last week's all-high time in the long-suffering Russell 2000 Index, as Charlie Bilello shared in a recent post on social platform X:
But here's a worrisome sign of market foolishness... As Charles Schwab (SCHW) chief investment strategist Liz Ann Sonders shared yesterday on X, UBS's (UBS) meme-stock basket is up 73% over the past 12 months (though it remains far below its 2021 highs):
In light of all this, I wasn't surprised to see this article in today's Wall Street Journal about Mark Spitznagel, who runs a fund that profits during market crashes. Excerpt:
"I'm the crash guy – I remain the crash guy," says Mark Spitznagel, who earned $1 billion in a single day for his clients during 2015's "Flash Crash." A protégé of "Black Swan" author Nassim Nicholas Taleb, his hedge fund, Universa Investments, also scored major gains when Lehman collapsed and when Covid-19 sparked a meltdown.
He's predicting a 1929-type crash... but not yet. He thinks the Federal Reserve's rate cuts will result in a further 20% gain in the market, and then it'll collapse.
Generally speaking, I ignore prognosticators like this. As Warren Buffett famously said, "The only value of stock forecasters is to make fortune tellers look good."
That said, I don't think Spitznagel is crazy.
In fact, just last Monday, I cited three examples of bull markets that had blowoff tops before crashing: the tech stock/Internet bubble of the late 1990s, the Roaring '20s bubble that ended on Black Tuesday, October 29, 1929 (triggering the Great Depression), and Japan's stock market bubble in the late 1980s.
As a result, I concluded:
I haven't been – and am still not – predicting a wild market melt up. However, I think it's more likely than a market meltdown.
So, if you own good stocks and/or index funds, my advice is the same as it has been the rest of this year...
Sit tight, stay the course, and keep expectations modest (I would guess the S&P 500 compounds at 4% to 5% over the next five years). However, hope to be surprised to the upside!
3) Last week, the WSJ reported on how famed activist short seller Andrew Left is trying to beat the charges the U.S. Securities and Exchange Commission ("SEC") filed against him last year. Excerpt:
Going to prison is a real risk for Andrew Left. Every day he thinks the Trump administration wouldn't want him to be there...
Left's hopes have been stoked by President Trump's role as an absolver of last resort for defendants and convicts complaining they were unfairly prosecuted, issuing a number of white-collar pardons and commutations...
How to obtain this kind of mercy is something of a mystery, even to wealthy people like Left, who is based in Boca Raton, Fla. He and his lawyers say they will press the Justice Department in a meeting scheduled for this month to drop the case.
I know Andrew personally and was once an activist short seller myself. I first covered this story on July 26, 2024, writing:
I believe in freedom of speech and freedom of trading. I think market participants should be free to speak and write about stocks they like or dislike – and everyone who listens to them should be aware that a person praising or criticizing any stock might have a position in it – and could exit all or part of their position at any time, even if it's only five minutes later.
The thing that should be banned (and prosecuted) is someone spreading information that they know to be false.
Meanwhile, as I've said time and time again over the years, activist short sellers in general are healthy for the markets. (If you missed it, I encourage you to read my July 3 e-mail on "why investors should celebrate short sellers.")
Then I followed up a few days later, adding:
I believe Left pushed far into the gray area of what's legal or not. That said, I think the government will likely have a hard time convicting him.
From what is public information so far, I haven't seen any evidence that he ever did a trade or said anything that was contrary to what he believed. When he publicly said he thought a stock was a buy, his private correspondence and trading were consistent with that. And when he said he was short the stock of a company because he thought it was a fraud (many of which, in fact, were), his private correspondence and trading were similarly consistent.
The fact that Left often did a ton of short-term trading around his positions and his disclosure was sometimes lacking isn't, in my opinion, likely going to be enough for the government to win this case.
My views remain unchanged.
4) Yesterday, I shared that I had visited my friends and cousins in San Francisco last weekend, where I took my first Waymo ride.
I also attended the Laver Cup for two days. I'm a huge tennis fan, and I love this tournament between Europe and the rest of the world.
I went to the inaugural Laver Cup in Prague in 2017 and became hooked – I've also been to ones in Boston and London.
This year's was especially dramatic. During the last match, the world's No. 5 player, American Taylor Fritz, beat the No. 3 player, German Alexander Zverev, to clinch the title!
Best regards,
Whitney