PANIC SELL OR OPPORTUNISTIC BUY?
October has been quite a volatile month for investors. After a strong Q3 markets have virtually gone straight down for the bulk of October. How negative has October been thus far? Here’s a stat from market research provider Sentimentrader. If you want to get great timely market data, try this site, they offer a suite of inexpensive subscriptions. (https://sentimentrader.com)
“If the S&P 500 loses ground today (looks likely), it will be the 27th day since it had back to back gains. This does not happen often”. Here’s a chart of the S&P 500 going back to 1928 with the red dots highlighting the other times this has happened. Nothing is guaranteed but this last bout of “panic selling” sure does feel very capitulatory and being opportunistic and buying some high-quality brands serving our spending needs sure does seem like a wise thing to do. There’s some great blue-chip brands on sale right this minute. I don’t know about you but the stores in San Diego are still quite full and people continue to spend money on their favorite Brands.
Buy Over-sold (Green)
Yes, there’s heavy selling.
Yes, there’s fear in the air.
Yes, there’s been significant damage to prices and investor sentiment.
Yes, the economy is still strong.
Yes, the consumer is still spending.
Here’s a simple chart from Bespoke highlighting how wicked-oversold the current market is, notice what tends to happen when the S&P is firmly in the green territory. In fact, the line is under the green area, that’s a rare event. There can always be further downside but unless you are in the “recession in 6 months camp” (we are not), these dips are a gift for long-term investors.
A Positive Divergence via Market Internals:
The below chart highlights an interesting set-up that few are talking about. While prices continued lower from the wash-out low on October 11 where we had only 5% of the S&P 500 companies trading over the 20 day moving average, the number of stocks over the 20 day moving average has stopped going down and since risen. That’s a positive divergence to watch closely. That means that inside the market MORE stocks are trading over their 20DMA than you might otherwise think given that the S&P 500 is lower than October 11. It’s time to be opportunistic folks.
What to buy? Brands we spend our time & money on:
Microsoft – Windows, X-Box, Linked-In, Skype, Bing, Surface
Microsoft is firing on all cylinders. Quick facts from their most recent quarterly report:
Revenue $29B, +19% year/year
All segments growing +14% y/y
$10B of free cash flow
$136B in total cash, yes $136BILLION – having all that cash offers a lot of optionality.
Gaming revenue +45% y/y
Amazon – Whole Foods, Alexa, Prime, AWS, Kindle, Audible, Zappos
Quick facts from their most recent quarterly report:
Operating cash flow increased 57% to $26.6B for the trailing 12 months
Free cash flow increased to $15.4Billion
Net sales increased 29% to $56.6billion – that’s $56B in sales in 90 days!
Amazon is in a spending cycle which is what you want if future growth is the goal.
Double-digit growth in payments volume
10% growth in cross-border payments volume
12% growth in processed transactions as consumers continue to use their visa cards Returned $2.1B and $9.1B of capital to shareholders in the form of share repurchases and dividends for Q4 and full year, respectively Increased the quarterly cash dividend by 19%
Paypal – Venmo
Revenue growth of 14%
254 million active paypal accounts, up 15%
2.5 billion payment transactions, up 27%
$143 billion in total payments volume, up 24%
Venmo, processed ~$17B of transactions in the quarter, growing 78% with $54b over 12 mos.
I’ll bet you consume some of these great brands: Corona, Modelo, Ballast Point, High West, Robert Mondavi, Ravens Wood, Clos de Bois Latest earnings highlights:
Increased fiscal 2019 EPS outlook
Reported EPS increased 136% y/y
Generated $1.3B in operating cash flow, up 12% y/y
Generated $968m in free cash flow, up 62% y/y
Quarterly revenue of $43.4 billion – that’s a lot of shoppers & spending for 90 days!
Net sales for the trailing 12 months was $138.4 billion an increase of 9.7% y/y.
Membership fees rose 5.7% to $997 million – talk about a recurring revenue machine
Now has 762 warehouses in operation: 527 in the U.S. & Puerto Rico, 100 in Canada, 39 in
Mexico, 28 in the UK, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, 2 in Spain, 1 in France and 1 in Iceland. You think there’s significant room for more warehouse growth outside the U.S.? Yes indeed. China is coming.
Quarterly revenue $32.6 billion
Operating cash flow YTD of $26.2B with strong debt reduction
5G roll-out beginning which is a huge development for consumers who use a lot of bandwidth
Consumer spending is large and predictable. It doesn’t stop because the stock market is volatile. Even in recessions, we continue to spend even if our spending patterns shift. The news channels like CNBC are in the business of selling ads and when they drag on doomand-gloom guests and run “Markets in Turmoil” specials it’s meant to keep you glued to the channel, so they can generate more ad revenue versus giving you solid insights into how to take advantage of market dislocations. Don’t lose sight of a few simple facts:
• We spend our money on something every single day.
• Collectively, the brands we spend our money on the most tend to generate significant revenues and cash flow.
• Significant revenues and cash flow tend to be highly correlated to strong stock performance.
• The best time to buy stocks is often when there’s panic in the air and when stocks are very oversold.
• Today we have those conditions and many great brands are on sale.
• BUY FEAR, SELL EUPHORIA
This information was produced by and the opinions expressed are those of Accuvest as of the date of writing and are subject to change. Any research is based on Accuvest proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however
Accuvest does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios of clients of Accuvest, and do not represent all of the securities purchased, sold or recommended for client accounts.