Young Research & Publishing Inc.

Investment Research Since 1978

Where’s the Value in Tech?

By

IBM reported quarterly results this week that weren’t to Wall Street’s liking. The company beat earnings estimates, but the Street didn’t care. As is often the case in the tech sector, Wall Street is more focused on financial metrics that don’t translate into shareholder value. Revenue growth is where the brokerage community tends to focus, but it is free cash flow, dividends, and share buybacks that create shareholder value. Over the last 12 months, IBM generated $14 billion in free cash flow, paid dividends of $5.6 billion, and repurchased $3.6 billion in stock. Today, IBM is trading at less … [Read more...]

This Chart Has a Concerning Look

By

Is the Smart Money Index sending a signal of caution? While the Dow has rebounded from its lows, the Smart Money Index hasn’t been able to stage a sustainable rally. The Smart Money Index measures the performance of the market at the start of trading and the end. The "smart money" is believed to trade more heavily at the end of the day. The index isn’t infallible, but the big divergence between the Dow and the Smart Money Index isn’t a bullish signal. … [Read more...]

This Book is a Fixture in My Office

By

“The more flippant the investing cliché, the more you should question it. Consider ‘the bigger they are, the harder they fall.’ At their lows this week, the technology shares that have until recently been the stock market’s darlings — Facebook, Amazon.com, Netflix, Google’s parent company Alphabet and other giants — had fallen more than 17% since March 13. Over the same period, U.S. stocks overall fell 8%,” writes Jason Zweig in his weekly column The Intelligent Investor. A fixture in my office is the book Security Analysis written in 1934 by Ben Graham and David Dodd. Zweig notes, “As the … [Read more...]

Netflix Now Bigger than GE

By

The market capitalization of Netflix shares is now greater than those of America's most storied blue chip industrial company, General Electric (GE). For comparison's sake, in 2017 GE generated free cash flows of $5.6 billion, and Netflix had negative free cash flows of $2 billion. Despite that disparity in actual business success, GE is going through management and legal turmoil, while Netflix is riding high on its status as one of the FAANG stocks. Time will tell whether investors care more about potential future cash flows, or those that actually exist today. … [Read more...]

Facebook Feeding Frenzy

By

Traders are swarming Facebook shares, buying options to take advantage of the tech company's volatile stock prices. Gunjan Banerji reports in The Wall Street Journal: The tumble in Facebook Inc.’s FB -1.45% shares has triggered frenzied trading of the company’s options, including contracts that pay out if the stock falls more than 30% or regains most of its losses. The social-media company’s shares rose 0.7%, to $169.39, Wednesday but have slumped 8.5% this week after reports that the data of up to 50 million users was transferred to an analytics firm tied to President Donald Trump’s … [Read more...]

Is the Goldilocks Market Being Chased Away by Bears?

By

For years now the markets have been in what participants called the 'Goldilocks zone,'' not to hot, not too cold, just right. Well, with increased volatility, and some worrisome inflation numbers, that may be changing. Riva Gold and Georgi Kantchev write that after nine years, Goldilocks conditions may be gone. Nine years into a roaring stock bull market, fund managers are paying their last respects to Goldilocks. Investors broadly remain bullish on stocks and other investments, aided by an upbeat U.S. jobs report on Friday. But repeated bouts of market volatility in 2018 and signs of a … [Read more...]

Where’s the Value in this Market?

By

Value may be difficult to spot if you load your portfolio with market capitalization weighted exchange traded funds like those that track the S&P 500. Apple, Amazon, Facebook, Microsoft, and Google, the top five components of the S&P 500, trade at an average P/E of 84X and a median P/E of 29X earnings. One way to think about P/E is the number of years it would take to earn back your investment at the current rate of profit. Worse than the elevated P/E of the S&P 500 and its top constituents is the average dividend yield of the top five. America’s five biggest companies pay an … [Read more...]

A Bet on Emerging Markets is a Bet on Asia

By

MSCI is revamping the rules for inclusion in the widely followed MSCI Emerging Markets index. MSCI plans to cut the weight of stocks with unequal voting rights. If implemented, the rule would increase the weight of Asian stocks in the index to over 75% while lowering the weight of Latin American stocks to about 11%. The biggest country weights in the MSCI Emerging Markets index are China, South Korea, and Taiwan. Like most market capitalization weighted indices, the MSCI Emerging Markets index is top heavy. The top five countries (out of 24) account for 73% of the weight of the index. If … [Read more...]

The Market for Natural Pet Food is Taking Off

By

General Mills has announced an agreement to acquire Blue Buffalo pet food company. Blue Buffalo makes natural pet food the company calls "super-premium pet food using only the finest natural ingredients starting with real chicken, lamb or fish." The American market for pet food has been strong, with Blue Buffalo delivering "compound annual net sales growth of 12 percent," over the last three years, according to Bloomberg's Eric Pfanner. He continues: The buzz around the pet-food sector means another suitor may emerge for Blue Buffalo, said Pablo Zuanic, an analyst at Susquehanna International … [Read more...]