Tech giant earnings; Tech's Influence Over Markets Eclipses Dot-Com Bubble Peak; Another value fund closes down; Update on Loop Industries; NYSE finally delists Hertz; Rapper arrested
1) When we launched our first newsletter, Empire Investment Report, on April 17, 2019, we told our subscribers to build a solid foundation for their portfolio before they started buying the higher-risk-but-hopefully-higher-return smaller stocks that we'd be recommending.
This core consisted of large positions in four of our favorite big-cap stocks: Berkshire Hathaway (BRK-B), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB).
As you can see in this table, these stocks have, collectively, nearly tripled the return of the S&P 500 Index since then (using prices as of 9:45 a.m. this morning):
The three tech giants reported exceptionally strong earnings after the close yesterday: Facebook's earnings per share ("EPS") of $2.71 handily beat analysts' estimates by $0.80... Amazon's EPS of $12.37 beat estimates by nearly $5... and Alphabet's EPS of $16.40 also beat estimates by $5.
Since our initial recommendation, both Facebook (excluding the one-time $5 billion payment to the Federal Trade Commission for its role in the 2018 Cambridge Analytica scandal) and Amazon have grown their trailing-twelve-month free cash flows by more than 50%, which makes Google's robust 19% growth look weak!
And it doesn't look like they're slowing down anytime soon...
Amazon is on pace for $375 billion in revenues (a growth rate of 33% year over year) in 2020... Google for $175 billion (9% year-over-year growth)... and Facebook for a (measly) $84 billion (19% growth year over year).
The chart below shows Amazon's third-quarter revenue since 2009 (blue bars), with the percentage growth (red line). It's astonishing to see revenue growth accelerating as such a large company!
I remain as bullish as ever on these stocks... and we'll update subscribers further in our next issue of Empire Investment Report. If you aren't already a subscriber, you can sign up right here.
2) In light of the performance by these three tech titans and their peers, it's not surprising that "technology companies are set to end the year with their greatest share of the stock market ever, topping a dot-com era peak," as this Wall Street Journal article notes: Tech's Influence Over Markets Eclipses Dot-Com Bubble Peak. Excerpt:
Companies that do everything from manufacturing phones to operating social-media platforms now account for nearly 40% of the S&P 500, on pace to eclipse a record of 37% from 1999, according to a Dow Jones Market Data analysis of annual market-value data going back 30 years. Apple (AAPL), which earlier this year became the first U.S. company to hit a $2 trillion market capitalization, accounts for more than 7% of the index on its own. Early last month, it accounted for 8% of the S&P, the largest share ever for any stock in data going back to 1998.
3) It's also not surprising in a market dominated by tech and growth stocks that value-oriented funds are struggling. Here's a CNBC article about another one closing down... As famed value investor closes his fund, market analysts talk how long growth's dominance may last. Excerpt:
Even the top value investors are struggling.
The theme's longtime underperformance relative to growth has now led famed investor Ted Aronson to close his $10 billion value-focused fund, the latest in a series of hits to the value trade.
Value, tracked in part by the iShares S&P 500 Value ETF (IVE), has lagged growth substantially over the last 10 years. The iShares S&P 500 Growth ETF (IVW) is up some 283% while IVE is up just above 109%.
This year, the IVW has climbed nearly 23% while the IVE is down more than 10%.
4) In my October 14 e-mail, I wrote:
Nate Anderson of Hindenburg Research – who wrote the report that exposed the electric-truck developer's deception – released another short report yesterday on plastics recycler Loop Industries (LOOP), which crashed the stock by 33%. Here's a link to it: Loop Industries: Former Employees and Plastics Experts Blow the Whistle on This "Recycled" Smoke and Mirrors Show.
On Thursday, Anderson tweeted this:
Here's a link to the article: L'inventeur de la technologie de Loop poursuivi par ses anciens employeurs. It's in French, but you can read it in English if you open it using a Chrome browser, which has Google Translate built in.
5) Much too late, the New York Stock Exchange has finally decided to delist the stock of bankrupt car-rental company Hertz (HTZ), which is what it deserves: NYSE Announces Decision to Suspend and Remove Hertz Global Holdings, Inc. (HTZ) From the List
Naïve speculators will still be able to trade the stock on the pink sheets, but hopefully its presence there will warn some of them to stay away.
6) You just can't make this stuff up! Feds Arrest Rapper Who Bragged About Getting Rich From Filing EDD Claims In Music Video. Excerpt:
A rapper who bragged in a YouTube music video about getting rich from an unemployment scam was arrested Friday on federal charges of fraudulently applying for more than $1.2 million in jobless benefits, the Department Of Justice officials said.
Best regards,
Whitney