Gold slides as Middle East tensions fuel oil price jump, inflation fears
Market Scorecard
Friday's market move lower was rather disappointing, considering the recent US economic data which showed that consumers have cash to spend and the economy is flying. Added to that, Amazon (NASDAQ:AMZN)'s numbers on Thursday night completed the royal flush for the tech-titan earnings beat. Apple (NASDAQ:AAPL), Amazon, Alphabet (NASDAQ:GOOGL) (Google), Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT) all showed record profits, significantly beating analyst expectations.
The erratic moves from the market are a reminder that short-term moves are driven by emotion and are not rational. In the long run though, company fundamentals are all that matter.
On Friday the JSE All-share closed down 0.68%, the S&P 500 closed down 0.72%, and the Nasdaq closed down 0.85%.
One Thing, From Paul
Google had great results again recently, and the stock is trading close to all-time highs. Google is the gateway to the internet, and whereas it used to be that real life and the internet were separate things, now they are intertwined. Google has a dominant role in steering e-commerce, which is really almost all commerce these days.
According to Felix Salmon at Axios, Google took in $615 million of revenue every day in the first quarter of this year, of which $200 million was pure profit. Profits for the quarter (three months since 1 January 2021) were more than $130 000 per Google employee.
It's one thing to read about these numbers, but a chart is even more telling. The one below is also from Axios.
Byron's Beats
Amgen (NASDAQ:AMGN) released some underwhelming numbers last week after missing expectations on revenue. The share price has also been disappointing of late, it is flat over the last year.
The shining light in the numbers was strong growth in Repatha sales. Repatha helps fight heart disease, a massive killer around the world. Volumes grew by 25% year on year.
Owning Amgen is like owning a focused Biotech ETF. They currently have 20 branded drugs on the market, some are in the early days of patent protection and are growing in sales. Others are older with increased competition and are slowly being phased out. You can see their branded drugs portfolio in the image below (ROW = Rest of World), you may recognise a few.
They continue to sink huge amounts of money into creating new blockbuster drugs. While you wait for that to happen you enjoy a relatively stable share price and a handsome 3% dividend yield. If they hit it big with a new drug, the share price will have solid moves higher.
You shouldn't get impatient with this one. Covid has reminded us all how important pharmaceutical companies are. They apply most of their resources to save lives. And if they didn't make money out of it, they wouldn't do the job half as well. Keep holding Amgen, it's time to shine will come.
Michael's Musings
Over the weekend Buffett and Munger had their annual Berkshire AGM. Instead of renting out a stadium in Omaha, they decided to do a streaming version. Buffett is 90 and Munger is 97, so you can understand why they don't want to risk the usual grand event.
A significant observation made by the pair is that tech stocks still look cheap: "If Treasury rates are really supposed to be this low, those high-flying tech shares are a bargain. The Googles and Apples are incredible in terms of what they earn on capital. They don't require a lot of capital, and they gush out more money."
One of the reasons that the pair are so famous is their ability to take complex subjects and make them simple to understand. Buffett used a nice analogy to describe the centrality of interest rates to the financial industry: "interest rates basically are to the value of assets what gravity is to matter".
The grounding principle for valuing assets is to know the risk-free return from leaving your money in the bank. Once you know that, you can work backward to calculate what riskier assets are worth. High interest rates make leaving your money in the bank appealing and risky assets less desirable, thus lowers their value. Conversely, low interest rates force investors to venture into risky assets to get a return, thus increasing their value.
Bright's Banter
Last week, Endeavor, a talent agency turned entertainment and sports provider listed on the New York Stock Exchange under the share code EDR. The company managed to raise just over $511 million, giving it a valuation of around $10 billion.
The Beverly Hills based company also raised $1.7 billion in a private placement prior to the IPO to use some of those proceeds to buy the 49% stake of the UFC that it didn't own. Dana White, head of the UFC tweeted "It's official, the UFC is now a public company."
The company was formed through a merger of William Morris Agency and Endeavor Agency in 2009. Today it has different assets in media agencies, talent agencies, sports agencies, and some tech investments like a stake in Epic Games. All these form part of the larger group which sees itself as the media company of the future.
This was a very interesting IPO in that it's not a tech company or a SPAC but a traditional IPO without the noise. Unfortunately, this business is mostly personnel driven, and all the value and success lies with a few individuals running, staying part and being the face of the brand. Maybe a little too emotional, like buying WWE and Man U shares?
Signing Off
There are not many Vestact owned companies reporting this week. Well, only Paypal on Wednesday.
Asian markets are red this morning but US futures are pointing very slightly to a green open this afternoon. The Rand is starting the week at $/R14.45.
