Tag Archives: Apple

S&P 500 P/E ratio is 24,34 and the bull market is similar to the 50`s

The bull market continues and the S&P 500 went up in April, May, June and July. So, «Sell in May and go away» would be a disaster for any investor on this planet this year. Just like it was in the 50`s under president Eisenhower. This is not a normal situation in the midterm election.

As you can see from the chart below, similar situation happened in 1954 and 1958. Apple Inc is a big contributor to the bullish market right now, and it just hit a $1 trillion market cap. A milestone we have never seen before for a U.S publicly traded company.

Not only Apple Inc are hitting milestones. Many of the stock exchanges around the world are also hitting now all-time highs. But how expensive are the U.S stocks? The P/E ratio of the S&P 500 has fluctuated from a low of around 6x in 1949 to over 120x in 2009.

The long-term average P/E for the S&P 500 is around 15x, meaning that the stocks that make up the index collectively command a premium 15 times greater than their weighted average earnings.

The trailing P/E ration will change as the price of a company`s stock moves, since earnings are only released each quarter while stocks trade day in and day out. Current S&P 500 PE ratio are down -0,13 percent on Thursday 2 August 2018 (based on trailing twelve month) to 24,34.

Some investors prefer forward P/E which is similar to the trailing P/E, but uses estimates of projected future earnings, typically forecast over the next twelve months. If the forward P/E ratio is lower than the trailing P/E ratio, it means analysts are expecting earnings to increase. If it is higher, analysts expect a decrease in earnings.

These measures are often used when trying to gauge the overall value of a stock index, such as the S&P 500 since these longer term measures can compensate for changes in the business cycle.

A business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using rise and fall in real inflation-adjusted GDP, which includes output from the household and nonprofit sector and the government sector, as well as business output.

Output cycle is therefore a better description of what is measured. The business or output cycle should not be confused with market cycles, measured using broad stock market indices; or the debt cycle, referring to the rise and fall in household and government debt.

To put it into perspective. Apple`s P/E is 18,04. Facebook; 24,56. Netflix; 144,43. Amazon; 165,60. Yelp; 625,17. Groupon; 230,15. Godaddy; 227,27. Under Armour; 136,36. Alibaba; 48,25. S&P 500 is 24,34, so how expensive are they all?

It looks like Amazon are expensive, but that company is up 84,75 percent YoY, while Apple with its 18,14 is up only 35,26 percent. Facebook has lost a lot of money in a few days, and the stock is up only 5,45 percent YoY. Estimated P/E for Tesla in 2019 is – 177,68. The stock went up over 16 percent on Thursday.

Investors need to be aware that the P/E ratio can be misleading a lot of times, especially when the underlying business is cyclical and unpredictable. Cyclical businesses have higher profit margins at the peaks of the business cycles. Their earnings are high and P/E ratios are artificially low. It is usually a bad idea to buy a cyclical business when the P/E is low. A better ratio to identify the time to buy a cyclical businesses is the P/S ratio.

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The European Union rose “only” 0,4 percent in Q1 of 2018

Last week I talked about America`s fantastic growth of 4,1 percent on quarter in Q2 of 2018, and this is only the beginning. It is no doubt; President Trump must be doing something right. But, what about the European Union?

GDP in the European Union rose «only» 0,4 percent on quarter in the first three months of 2018. Not much to write home about. But the growth have never been above 1 percent since the financial crisis in 2008.

The European Union reached an all time high of 1,30 percent in 1999 and that is right before the tech bubble burst. Since then it has been a dead fish, reaching an all time low of -2,60 percent in the first quarter of 2009.

At the same time we can see that the unemployment rate reached a record low of 6,80 percent in February of 2008, and that`s right before the financial crisis. It reached an all time high of 11 percent in February 2013, but in May this year it fall down to 7 percent again.

This isn`t good enough if we are living in a capitalistic world.

The European Union in Brussels are nothing more than unelected bureaucrats. Draghi and the ECB have, just like Japan and the U.S «printed» a lot of money, and will continue to do so. If they can`t turn around the ship, they need to consider a strong cheerleader.

European Commission President Jean-Claude Juncker had a meeting with President Trump last week. They were talking about trade, free trade and tariffs. Mr Trump`s goal is to make better deals so both the U.S and the EU can take more profit and prosper.

I think that the EU should be glad for that and they need to hurry up. The U.S is the world`s third biggest exporter, yet exports account «only» for 13 percent on GDP. Exports in the U.S reached an all time high of 215328 USD million in May this year, which is pretty impressive.

The EU has 28 member states and the biggest among them all is Germany (21 percent of total GDP), the United Kingdom (15 percent), and France (15 percent).

Exports of goods and services account for 46 percent of GDP while imports account for 42 percent, adding 4 percent of total GDP. But this is about to change. If the UK contribute with 15 percent of the total GDP in the EU, then what will happen to their growth after Brexit?

That being said; nor is the UK a success story. The British economy grew by 0,1 percent in the first three months of 2018 and well below 0,4 percent in the previous period. It is the lowest growth rate since a 0,1 percent contraction in Q4 2012.

The largest contribution to growth in the UK was from household spending at 0,2 percentage points. From the production side, the service industries made the largest contribution to GDP growth, followed by production.

Agriculture, the smallest component within the output approach of GDP made no contribution to growth to one decimal place, while construction deducted from GDP growth. The service industries increased by 0,3 percent.

Positive growth was recorded within all sub-sectors of the services industries; distribution, hotels and restaurants (0,1 percent vs -0,1 percent).

President Trump have repeatedly said that the EU have treated the US very bad. I have written many articles about that long before Mr Trump`s inauguration. The European Commission has fined Google €4,34 billion for breaching EU antitrust rules this month.

In May 2009, Intel was imposed with a 1,06 billion euro fined for abusing its market dominance on central processing units. Microsoft has been in trouble with the Commission on several occasions. In 2004, the Commission ruled that Microsoft had abused its market dominance.

In 208, the Commission fined Microsoft nearly 900 million euros for charging «unreasonable» royalty fees. In 2013, another fine of 561 million euros was imposed on Microsoft. This time for failing to comply with the Commission`s ruling that it had to allow users to more easily choose a prefered web browser.

The European Commission fined Facebook for 110 million euros in May this year in relation to its takeover of WhatsApp. Facebook acquired the messaging service in 2014 for $19 billion, but provided the Commission with misleading information about the acquisition.

In August 2016, the Commission ruled that tech giant Apple had received illegal tax benefits from Ireland worth up to 13 billion euros. Ireland was ordered to recover the unpaid tax from Apple, plus interest.

As early as 1966, British Politician Tony Benn said that «Communism run by commissars from Moscow did not work, and nor will capitalism run by commissioners in Brussels. Both deny people their right to develop in their own way.»

Now, under President Donald Trump, big companies like Apple are moving home to the United States with billions of dollars. Apple alone, are bringing in $230 billion. They will build new plants and a magnificent campus.

They will spend their money wisely and the money will be in the U.S. All this is possible because of Trump`s tax cuts and reforms. This is how you make growth.

 

 

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The Chinese smartphone giant Xiaomi will go public in Hong Kong in July

The fourth-largest smartphone maker Xiaomi are planning to go public, and the company will start a roadshow in the U.S and Europe in a few weeks. After a collaboration with institutional investors in the U.S and Europe to value the firm at no less than $70 billion, the Chinese smartphone giant will go public in Hong Kong in July.

In my recent article I talked about Foxconn and their plans to go public a week ago, and more Chinese companies are on the way, One of them is Xiaomi, and their IPO is the biggest IPO so far in 2018 which is good for Hong Kong.

(Xiaomi`s profit is “only” $2, but their biggest market is India)

 

Hong Kong is on the way to be the destination of choice for global companies seeking to raise capital. Hong Kong marks the 21st anniversary of the citys return to Chinese sovereignty on July 1, and Xiaomis IPO can be a great birthday present to Hong Kong.

Xiaomi went from a start-up to surpass $16 billion in seven years, and their founder Lei Jun decided to make a smartphone brand selling handsets at “honest” prices. Eight years later, Lei Jun and the seven other co-founders have made a company that wants to challenge the global industry dominance by Apple, Samsung and Huawei.

Xiaomi are the cheapest smartphone on the market with the biggest market share in India. About 70 percent of their 2017 sales of 114,6 billion yuan came from smartpones, but there is a huge difference between Xiaomi and Apple.

Lei Juns profit from his low-budget price smartphone is "only" $2 per handset. Tim Cooks margin is between $151 and $250 on each iPhone.

Xiaomi more than doubled its overseas shipments to 27 million handsets in 2017. Its revenue skyrocketed to 32,1 billion yuan. There is no doubt that the global market is where their ambitions lie, and this is globalization at its best.

Xiaomi opened its first European sales outlet in Paris and plans to open additional Mi stores in France, Spain and Italy later this year.

Xiaomi do not only have a big potential with its smartphones but also from smart devices, better known as the Internet of Things (IoT). Industry revenue may balloon every year at a 13,3 percent compounded growth rate to $6,2 billion by 2021, according to IDC.

Their innovative products will make a tremendous change in every industry.

Xiaomis valuation can be $100 billion and it will be the biggest IPO since Alibaba in 2014. Alibabas IPO was the biggest IPO of all time with its 25 billion IPO in New York. Facebook went public in 2012 with an $16 billion IPO.

Former communist China are on the way up. This IPO will make even more rich people in China. Founder Lei Jun and his co-founders will be rich after the IPO. Not only that. 56 of the earliest employees pulled together $11 million to invest in the start-up. Today, they are the lucky 56.

Their stake in Xiaomi may soon be worth about $1 billion to $3 billion, depending on the stock sale. That works out to $36 million each at the midpoint.

Citic-CLSA, Goldman Sachs and Morgan Stanley had been appointed to arrange Xiaomi`s stock offer.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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More than 50% of Apple`s revenue comes from the iPhone sale and Service is a growth sector

More than 50% of Apples revenue comes from the iPhone sale, but for how long will that last? Its dangerous for a company like Apple to think it will last for the next hundred years, and that`s probably why CEO Tim Cook have targeted service as a growth sector.

Iphone is still a very important product for Apple and therefore it will be much talked about, but other products are also good and should be one the plan. Service revenue from iCloud, the App Store and Apple Music can all grow in the future.

We know the evolution of the mobile phone industry. The Swedish company Ericsson was hot during the 90s, before Finlands Nokia took over the throne, but it didn`t last forever. As you may know, Apple launched iPhone and have since then been the king of Smartphones.

Smartphones won`t last forever, and once those phones are “out”, Apple must be prepared and think fast. The way we use our phone as we know it today will change.

Apple`s market cap is $848,35 Billion and so far it has been a great ride for the last ten years. Their multi-hundred billion cash stockpile gives them a great opportunity to spend money on M&A, but also R&D.

Morgan Stanley thinks the company could increase the capital return program by $150 Billion. Earlier this year, Apple said it expects to pay $38 Billion taxes on what it plans to repatriate, implying it will bring back nearly all of its $250 Billion in overseas profits.

The Street are concerned about the iPhone X sale and total revenue based on higher selling prices. Service are growing about 20% YoY, but the revenue from iPhone X can be worse than investors like to think.

The newest generation of iPhones is not as good as the iPhone 7 has a year earlier. Maybe it is because of a stiff price or maybe consumers go for a cheaper phone?

Shares of Apple are flirting with 200 MA and after a jump of nearly 2 percent on Monday it will be interesting to see if the results on Tuesday will send the stock in the bullish territory or down again.

Apple Inc is expected to report earnings on 1 May 2018, after market close, and the report will be for the fiscal Quarter ending March 2018. Earnings for the quarter is $2,69 which is better than last years $2,1.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Netflix`s 43 percent jump in streaming revenue was its best in history

What investor on this planet didnt like Netflixs Q1 2018 revenue growth of 43 percent? Netflix has been one of my favorite stocks in many years and is still a favorite. But what investors are concerned about is their amortization of streaming content that is not keeping pace.

Netflix`s amortization of streaming content is up «only» 33 percent which is still very good, and their earnings growth is up 60 percent YoY. This is absolutely impressive. Despite the fact that their revenue growth is astonishing, CEO Reed Hastings has sold 8 percent of his stock.

 

Netflix is still expanding and according to Financial Times, the company will raise its investment in content across Europe and plans to spend about $1 billion on original productions this year. The revised budget will be more than double that of last year.

Netflix also unveils ten new European projects, and second season of «Glow» which will be released on June 29. Those who criticize their spending should be quiet, because the growth is unbelievable for a tech company that has been on the market for more than two decades.

Netflix added 7,4 million more streaming subscribers with 5 million of them outside the U.S, and higher subscription prices on top of their growing customer base gave them a huge boost for their revenue.

Netflix`s 43 percent jump in streaming revenue was its best in history.

Netflix reported $290,1 million in net income for the first quarter and that alone is more profit in three months than the streaming company had for the entire year of 2016.

Whats really funny is to see how Netflix in their own earnings report every quarter in a shareholder letter are describing their competitors. Netflix has been in the market for a couple of decades, but the competition has changed in the past year.

Last year, they were talking about «skinny bundles» and Amazon.coms sports ambitions, but new they mentioned Amazon, Apple, Facebook, Alphabets Google, YouTube and Walt Disney. Netflix are talking much about the iPhone maker and predicted how Apple will incorporate original content it has begun to purchase.

«Apple is growing its programming, which we presume will either be bundled with Apple Music or with iOS,» Netflix said. More companies are entering the market. Apple has reported that they will invest about $1 billion on original video content.

Netflix pointed out that it doesn`t seem to think Facebook and YouTube are truly competitors, as they are supported by ads instead of subscriptions.

Their biggest competitor may be former partner Disney. They split with Netflix last year, and started its own streaming services. Disney acquired 21st Century Fox and Hulu will also be owned by Disney after the deal with Fox.

Netflix`s market cap is $132 Billion.

 

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