Market scorecard
US markets were mixed last night with the S&P 500 pulling ahead late in the session, while the Nasdaq hesitated ahead of Nvidia's (NASDAQ:NVDA) numbers. Of the eleven S&P 500 sectors, energy and utilities outperformed, while technology cooled off.
In company news, there was no need for anyone to sit on pins and needles as Nvidia beat earnings expectations and raised its sales outlook for the first quarter of 2024, pushing its shares 9% higher in after-hours trading. Elsewhere, Teladoc Health (NYSE:TDOC) shares dropped 24% following a revenue outlook that missed forecasts. Locally, Bidcorp (JO:BIDJ) reported strong growth in their half-year numbers as its business outperformed in Europe and Australasia.
Here's the lowdown, the JSE All-share closed up 0.11%, the S&P 500 rose 0.13%, and the Nasdaq was 0.32% lower.
One thing, from Paul
Successful companies generate new sales. We like our portfolio investments to have accelerating top-line growth, with year after year of booming revenues.
We don't worry too much about valuations or earnings multiples. Often the best companies will command a high multiple throughout their growth trajectory.
In that light, consider the following. Nvidia's results were out last night and their quarterly sales tripled from a year ago. Nvidia chips support almost all of these new AI systems, so they racked up sales of $22.1 billion. That's damned impressive!
Net profit was $12.29 billion, compared with just $1.41 billion a year earlier. Incredible! No wonder the share price went from $230 to almost $750 per share over the same period.
Byron's beats
After the recent US inflation report, which was slightly hotter than expected, all eyes are back on what drives those numbers. We have focused a few times on how the cost of shelter greatly influences the overall number.
Shelter makes up more than 30% of the CPI equation and as you can see from the graph below, is still 6% higher than it was last year. That is well ahead of the overall CPI increase of 3.1%. The graph also shows us the average cost of US rent which has come down substantially and has actually been decreasing since July last year. The reason for the lag in the shelter data is that 12-month leases are still locked in at previously higher prices and will take a while to filter through the system.
The good news is that the downward trend in shelter costs is firmly underway, represented by the red line. The even better news is that if you strip shelter out, CPI only increased by 1.5%. This data makes me feel very comfortable that inflation is under control. That would be good news for interest rates coming down and stock prices going up.
Michael's musings
The core of a Vestact portfolio is comprised of large, well-known multinationals like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Visa (NYSE:V). We are always on the lookout for companies operating in future high-growth industries though. We call these our 'future hero' companies.
Our track record with future hero stocks has been mixed, with some massive winners like Tesla (NASDAQ:TSLA) and Nvidia, and then some duds like Illumina (NASDAQ:ILMN). On the whole though, the gains from the winners far outstrip the losses from the losers.
The latest addition to our future hero list is Eli Lilly (NYSE:LLY). Can a company with a $700 billion market cap be a future hero? Anyway, the global weight-loss drug industry is just starting to take off, and Eli Lilly is expected to have the biggest market share.
A recent WSJ article noted how China's obese population is growing quickly, currently sitting between 80 - 200 million people. That's more than the 70 million obese people in the US. In percentage terms though, 40% of the US adult population is obese! Eli Lilly has partnered with Innovent Biologics, a Suzhou-based drugmaker, to make and distribute its version of the weight-loss drug in China.
For the next two years, at least, these drug companies aren't going to have a demand problem. Their issue is growing the supply chain fast enough to meet all their orders. It is a good problem to have!
Bright's banter
I recently listened to a podcast on the inception of insulin drugs in 1922 and, more recently, the GLP-1 inhibitors. These drugs are central to Eli Lilly and Novo Nordisk's (CSE:NOVOb) portfolio. The podcast is called Acquired - Novo Nordisk (Ozempic) found on all your podcast players.
One of the many takeaways for me are the indications that obesity medicines, particularly GLP-1s like Wegovy and Zepbound, are having positive effects on mental health, potentially alleviating symptoms of anxiety and depression.
Obesity and depression often coexist, and weight loss has been linked to improvements in mental health. GLP-1 drugs may also influence brain function beyond weight loss, affecting reward centres and cognitive function. Formal studies are needed to confirm these effects, but initial findings from health records are promising.
At one point, there was a worry that GLP-1 drugs may lead to increased suicidal thoughts. Research last year showed that theory to be false.
Given the pressing need to address both the obesity and mental health crises, there's growing pressure on governments and employers to support further research and consider incorporating mental health benefits into coverage for obesity medications.
Signing off
Asian markets are mostly higher this morning with the Japanese Nikkei racing past its 1989 record highs as tech companies catch a bid. Benchmarks also rose in Hong Kong, mainland China, and South Korea while India was unchanged.
Japanese shares like chipmaking gear producer Tokyo Electron (TYO:8035) and Screen Holdings jumped 6% and 10%, respectively, following bumper earnings from Nvidia.
US equity futures are in the green pre-market. The Rand is trading around R18.92 to the greenback. Our currency reacted positively to yesterday's budget speech, even though the government is tapping some of our reserves.
Companies, including Intuit (NASDAQ:INTU), Booking Holdings (NASDAQ:BKNG), MercadoLibre (NASDAQ:MELI), and Block (NYSE:SQ), will report their earnings today.
Class 3 Cyclone Eleanor is moving close to Mauritius and all the banks there are closed, sadly our banking capabilities are limited.