I like this common (sense) barometer from Andy Kessler writing at The Wall Street Journal: Wall Street’s most successful players get ahead of the news, understand a CEO’s mind, and figure out where the company is going. To do this, I often use what I call the “HQ Indicator.” It’s for those playing long ball, not day traders, but it is simple. When a company announces it is moving its executives into a lavish palace, it’s often time to get out. Consider the Frank Gehry-designed IAC Building in Manhattan, completed in 2007. It’s the deconstructivist-style headquarters for InterActiveCorp , … [Read more...]
GE: The Company of Thomas Edison to Sell its Lightbulb Business
In a push to "get deeper not broader," GE CEO Jeff Immelt wants to follow the sales of the company's media, plastics and insurance businesses with the sale of its lightbulb business. The GE business has certainly moved in a new direction over the last 16 years, but tearing out one of the roots of the company is jolting reminder of how the business has changed. On GE's web site there is a section dedicated to Thomas Edison and the founding of the company. The story reads: 1876 was also the year that Thomas Alva Edison opened a laboratory in Menlo Park, New Jersey, where he could explore the … [Read more...]
In Search of a Better Burger: McDonald’s Goes Fresh
Facing heavy competition from upstarts like Five Guys and old rivals like Wendy's that use fresh beef in their burgers, McDonald's has announced the roll out of fresh beef patties to it's restaurants in the 48 contiguous states. Since adding an ingredient to its menu usually makes McDonald's one of the world's largest buyers of that ingredient, there probably isn't enough fresh beef available to make every McDonald's burger. The company is rolling out fresh beef to its Quarter Pounders first. Daniel Victor writes at The New York Times that the change is one customers have been asking … [Read more...]
Bubble Stocks Dominate the First Quarter
Stocks overall had a strong first quarter, with the S&P 500 gaining 6%, but it is the FANG stocks and shares of similar companies that performed best over the last three months. In the chart below we show the YTD performance of the NYSE composite index relative to the Young Research Bubble Basket. Our bubble basket is an equally weighted index of Facebook, Amazon, Apple, Netflix, Google, and Tesla. The bubble basket is up over 22% YTD compared to a 4% gain in the NYSE composite. Raging bullish sentiment among the investing public and compelling stories from many of these firms are no … [Read more...]
This is Why You Buy Companies in Strong Competitive Positions
Imagination Technologies shares plunged as much as 69% in London trading today. Imagination Tech develops and licenses silicon and software intellectual property for system-on-chip devices. Shares are down on news that Apple decided to cease using the company’s graphics technology for new products including phones, tablets, and watches in 15 months to 2 years. Why did the stock crater so much on the loss of a single customer? Apple accounts for about half of Imagination’s revenue. At Young Research, we favor durable businesses with strong competitive positions. That isn’t am easily … [Read more...]
Is The Trump Boom Already Over?
President Trump's victory in November set off a monster rally in big stocks, small stocks, stocks with high tax rates, and infrastructure stocks among others. It also led to a sell-off in sectors that were perceived losers from a Trump victory. But as the WSJ explains in a power-packed chart (below), the Trump trade appears to be fading. What's the takeaway for you? Markets, and the investors who make up those markets, have a tendency of over- and under-reacting to news. … [Read more...]
Is the Indexing Bubble about to Pop?
The move toward index-based investing has been relentless in recent years. Investors have pulled billions from actively managed funds and put them into index funds and index-based ETFs. Ned Davis of Ned Davis Research thinks the trend toward passive investing is a bubble that may be ready to pop. Barron's summarizes his views. Meanwhile, Ned Davis of Ned Davis Research thinks we’re in the late stages of a bubble in passive investing. “Not only have index funds outperformed, but the crowd has noticed,” he writes. Over the past year, investors have yanked billions from actively managed funds … [Read more...]
Can Wal-Mart Conquer the Amazon?
Despite recent headwinds in Brazil, Wal-Mart is fighting hard to win in the country of over 200 million as it looks for growth in its business overseas. At The Wall Street Journal Samantha Pearson and Sarah Nassauer write: Wal-Mart has said it plans to spend 1 billion reais, or some $320 million, over three years on upgrades to its hypermarkets in Brazil, mostly sticking with a strategy it has followed here for two decades. Wal-Mart’s net sales in the country have been sluggish in recent years compared with its other international markets, falling 4.1% for the three months ended Jan. 31, … [Read more...]
What Happens When This Bull Market Ends?
The bull market in stocks turned 8 years old last week. This is the second longest bull market in stock market history. The longest was the bull market in the S&P 500 that ended in March of 2000 at the height of the dotcom blow-off. We all know what happened when that bull market ended. It doesn’t offer much encouragement for what’s to come when this bull market ends. Nor is it encouraging that since the March 2009 lows, the S&P 500 has increased by nearly 250%, but earnings have only doubled. The other 150% gain in prices is purely a function of investors’ willingness to pay an … [Read more...]
Is 30,000 the next stop for the Dow?
That's the opinion of at least one analyst who points out that if stocks reach the same valuation level they reached during the two greatest stock market bubbles in U.S. history, the Dow could hit 30,000. I don't know if that should make one optimistic or frightened. MarketWatch has the story. In a note to clients, McMillan asks the obvious: Where does the Dow go from here, after cracking that 21,000 ceiling? Given stocks are in uncharted waters, he looks for a steer in the Shiller’s CAPE ratio, which compares equity prices with earnings over the past 10 years to gauge frothiness in the … [Read more...]
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