Market Scorecard
US markets fell after Jerome Powell left the market slightly confused as to when the Fed would pivot their interest rate hikes. It felt like a smack on the nose with a rolled-up newspaper. As was expected, the central bankers raised rates by 0.75% for the fourth time in a row, bringing the top of its target range to 4%, the highest level since 2008.
The market initially rallied based on an official statement accompanying the rate hike announcement. The wording seemed to imply that the Fed was very near pausing their rate hikes. Fed Chair, Jerome Powell, then stood up and said that he expects interest rates to go higher than initially forecast. This sapped risk appetite and traders fled for safety and all eleven sectors of the S&P 500 declined more than 1%.
In company news, Match Group (NASDAQ:MTCH) shares rose 4.3% after it posted stronger-than-expected revenue and profit. Elsewhere, after the close, Qualcomm (NASDAQ:QCOM) said it sees the smartphone market slump worsening, its shares fell more than 6%. Lastly, Robinhood (NASDAQ:HOOD) reported narrowing losses, pushing its shares up more than 3% after hours.
In summary, the JSE All-share closed down 0.43%, the S&P 500 dropped 2.5%, and the Nasdaq was 3.36% weaker.
Byron's Beats
On Monday night, Stryker (NYSE:SYK), the medical device business, released their numbers for the third quarter of the year. My son had his tonsils taken out the other day. Whilst in the theatre I was pleased to see a Stryker surgical monitor (like the picture below), which was linked to Stryker equipment used to perform the surgery. All went well.
Ok back to the numbers. Organic sales, up 9.9%, beat expectations despite supply issues. Net sales increased 7.7% to $4.5 billion. Earnings per share decreased by 3.3% thanks to a stronger dollar and margins that were under pressure due to inflation.
Having now seen 3 out of the 4 quarters, they have adjusted their sales expectations for the full year, to growth of 8.5%-9%. The stronger dollar at current levels will have a 4% impact on sales growth. Earnings per share is expected to come in at around $9.20. The stock, which dropped 4% on the day of the release, now trades at $212 a share or 23 times 2022 earnings.
The company is expected to grow around 10% per annum and operates in a sector that is constantly gaining clients (old people). They have exposure to knees, hips, spine, instruments, endoscopy, emergency care, neurovascular and more. The stock is down 19% so far this year, which is slightly better than the S&P. We think the share is fairly priced and should have a medium-sized (around 5%) weighting in your portfolio.
Michael's Musings
Pick n Pay (JO:PIKJ) made headlines yesterday on the news that 39 of their stores will accept Bitcoin payments. The biggest issue with crypto payments has been the volatility in price and the lag between payments. Pick n Pay's solution has been to partner with CryptoConvert, who does all the hard work in the backend, locking in a conversion rate and guaranteeing settlement the next day. For the customer, they get an instant alert of how much Bitcoin they have spent and a printed till slip in Rands.
The whole process seems rather simple and cheap. There is a very small transaction fee charged, which you don't have when using your card. I wonder how much the service costs Pick n Pay? Is it cheaper or more expensive than what banks charge for accepting cards?
Pick n Pay expect to roll out the service to all their stores in time. Even though paying with Bitcoin is now quick and easy, I'm still not sure why anyone would want to do it? Convert Rands to Bitcoin, so that you can convert it back to Rands to make purchases. I suppose if you believe that the global monetary system is about to collapse, then you can leave all your money in Bitcoin, and only convert it to a usable currency as you need to do grocery shopping. I might not understand it, but it is exciting to see innovation and change nonetheless.
Bright's Banter
Johnson & Johnson (NYSE:JNJ) has made an offer to buyout Abiomed for $16.6 billion in cash, as it looks to boost growth in its medical devices business before the planned separation of its consumer unit. The deal is at a 50.7% premium over Abiomed's closing price before the announcement.
Abiomed develops medical technology that provides circulatory and oxygenation support (they make heart pumps). In its most recent fiscal year, the company generated $1.03 billion in revenue, suggesting that management is paying a 15+ revenue multiple which sounds steep.
However, this is seen as a growth sector in the medical devices space. Management will also have plans to extract synergies when incorporated into their larger business. This deal kind of makes sense as J&J wants to drive medtech to become a best-in-class performer. Only time will tell if they overpaid or not.
Signing Off
Asian markets echoed western sentiment and fell in tandem. The Hong Kong Hang Seng was the biggest loser, down 2.8% at the time of writing, the Shanghai Composite slid as hopes of a Chinese post-Covid reopening waned.
US equity futures are in the green in early trade - I hope we can hold on to these gains. The Rand is trading at around R18.24 to the US Dollar.