Gold, silver prices slip; key economic data due this week
Market Scorecard
Yesterday we pondered if the markets are getting into a holding position until after the election. We now know the answer to that question is - "No". The market has shifted the election to a secondary factor and the primary focus seems to be on the second wave sweeping the Northern Hemisphere. Markets are back at where they were at the end of September or before that, the end of July. Okay, so not too bad then? It is a reminder that the market doesn't rise in a straight line. If this stock owning thing was easy, everyone would be doing it. Keep calm, carry on, and keep your eye on the long term prize.
As expected, the budget presented by our Finance Minister yesterday was an ugly one. Our debt will continue to rise over the medium term, where the debt to GDP ratio is hoped to stabilise at around 90%. To do that though, the Government has to make some big spending cuts. As you can imagine, any spending cut will result in backlash from the affected parties - good luck with the cuts. What we desperately need is GDP growth. Growth means improved tax collections and a bigger economy to carry our current debt load.
Yesterday the JSE All-share closed down 3.28%, the S&P 500 closed down 3.53%, and the Nasdaq closed down 3.73%.
Byron's Beats
On Tuesday night Microsoft (NASDAQ:MSFT) released Q1 results which smashed the already high expectations. Revenues came in at a whopping $37.2bn, ahead of the expected $35.8bn, thanks to outperformance in all three of their main segments. Earnings per share also comfortably beat the street, coming in at $1.82 versus expectations of $1.54. Gross margins came in at 70.4% and operating cash flow reached $19.3bn. Mouthwatering stuff.
Productivity and Business Processes which includes commercial Office, LinkedIn (NYSE:LNKD) and commercial cloud services increased 11% to 12.3bn. Intelligent Cloud, which is mostly Azure cloud services, increased 20% to $13bn and Personal Computing increased 6% to $11.8bn.
Rockstar CEO Satya Nadella had the following to say. "The next decade of economic performance for every business will be defined by the speed of their digital transformation. We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility, and reduce costs."
We couldn't agree more, the world is digitising fast. The recent epidemic has made that shift happen even faster. Microsoft has positioned themselves to be at the forefront of digital workplaces, cloud computing, gaming, video conferencing and online job networking (LinkedIn).
Microsoft is now a $1.6 trillion company and the shares are trading near all-time highs. Considering their incredible financial position, their dominant place in the digital world and their exciting growth prospects, it makes sense to be such a valuable company. Even so, the shares trade at 26 times next years earnings which we think presents plenty of potential upside. Buy this one and hold it for decades.
One Thing, From Paul
It's earning season, and the quarterly numbers are rolling in. Our big-cap biotech holding Amgen (NASDAQ:AMGN) was out with results just after 22h00 SAST last night. They were excellent, with reported profits of $4.37 per share, well ahead of expectations at $3.80 per share.
Revenues were bang in line at $6.4 billion. Interestingly, that number was 12% higher than the same quarter back in 2019, demonstrating that people still need to take their meds, regardless of a global pandemic.
Enbrel (for the treatment of chronic arthritis) remains a top seller, as does Prolia (for osteoporosis) - those two alone account for a third of total sales.
New products grew by 18% including Otezla (for the treatment of psoriasis), Mvasi (biosimilar for cancer), Kanjinti (for breast cancer) and Repatha (lowers cholesterol).
Their drug pipeline is also very promising. The outlook for the full year was lifted slightly and the quarterly dividend maintained at $1.60 per share.
We back Amgen to go from strength to strength in the years ahead. They are benefiting from an older, richer global customer base, most of whom have health insurance. We like the fact that the company is very big and stable, with a wide array of products, and is thus less risky. A good buy at current levels.
Amgen stock moved higher after thier numbers hit the wires. If you are interested, you can dive into the detail here: Amgen Reports Third Quarter 2020 Financial Results.
Michael's Musings
There are currently around 2.7 billion gamers globally, and the number is expected to increase to 3.1 billion over the next few years. In other words, it is a massive market! Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL) all have gaming divisions because of that potential in the industry. Now Facebook (NASDAQ:FB) is getting in on the action too. Well, can we say back into the industry? Who remembers FarmVille?
It makes sense that Facebook moves into gaming too. They already have a massive user base, many who are gamers already - making it relatively easy for mass adoption of this new gaming product. For now, the games will be free to play and will appear in your timeline. The idea is to keep the games simple, so that you can play them inside your Facebook timeline, without needing to go to a separate service.
Facebook will make its money from selling advertising linked to the games. If you are a game developer, you could make your game free to play on Facebook for a limited period of time and hopefully drive up excitement. Who knows, maybe Facebook will start their own gaming studio?
Bright's Banter
About a year ago, I wrote about the Saudi Aramco (SE:2222)'s IPO, which was the biggest at the time, as it raised around $29.4 billion at a valuation of $2 trillion. I still can't wrap my head around the zeros. Well Ant Group's IPO is going to beat Aramco's capital rise efforts with an IPO that will raise over $34.5 billion. Sit down Aramco, the adults have entered the room!
Ant Group (HK:6688) is said to have cut its capital raise roadshow short because the book-building process has been met with massive demand from institutional investors. Jack Ma, who's the co-founder of China's number one payment app Alipay, must be thrilled to know that investors want a piece of the action, and they want it right now!
Our friends from Statista posted a cool infographic showing the biggest IPOs of all time. South East Asian businesses are dominating the top ten when it comes to money raised on IPOs, with Visa (NYSE:V) and Facebook being the exception.
Signing Off
Today is a massive day for US earnings - it's 'Big Tech Thursday'. Here is the list of companies out with numbers today - Apple (NASDAQ:AAPL), Amazon(NASDAQ:AMZN), Google(NASDAQ:GOOGL), Facebook(NASDAQ:FB), Starbucks (NASDAQ:SBUX), Stryker (NYSE:SYK) and Illumina (NASDAQ:ILMN). Asian markets are mixed this morning, but European and US futures both point to a strong open later today. The Rand got hammered yesterday as investors flocked into the Dollar, it currently sitting at $/R16.36.