Marcus' Friday big buys: automotive is not a safe place to put your money
Friday is the day when traders pray. Let me take you to church and see if we can't make you some money next week.
Whilst there's no way you could possibly celebrate the carnage brought upon the financial world over the past 3 weeks, I feel like there is finally some cause for celebration. Because if you had enough cash to take advantage of the lows last week you're going to be on a high by the end of this week. And you're especially going to be feeling the high if you bought the stocks I recommended last Friday at their lows. NVDA and AAPL are both sitting up at around the 3-4% mark at Thursday close despite a rocky and volatile week. That just speaks to the strength of some of these technology stocks when they are sitting at their lowest.
Herman Miller saw a dip this week but I think you have to have faith in the COVID19 economy there. Remember, stocks react to results and results aren't reported until the quarter is over. We saw Herman Miller soar after their lows in July/August thanks to some really strong results from the COVID19 economy and I think if you stay long on that stock you'll be happily seeing some sweet spot returns thanks to those home office purchase trends continuing. Herman Miller struggled to find a rhythm at first in the new world order but they seem to be finding a rhythm now and the big institutions agree.
But what's happened this week that affects the market and therefore your money? Let's take a look at environmental factors that makes up the totality of the week in review.
Microsoft spent $7.5 billion on a gaming studio
And it did absolutely nothing for its investors or for its share value. To compare when NVIDIA acquired arm for about 6 times when Microsoft spent on ZeniMax Media last week their share price rocketed about 30%. Video games right now are the holy pinnacle of the US share markets. They're resistant to downward pressure and continue to report results double of previous quarters with or without a COVID19 pandemic overbearing. But what happened when Microsoft's acquisition was announced? Well there was a bit of reaction from the market, about a 2% uplift, followed by the entire gains being erased the very next day. Now we've got Microsoft and XBOX executives hyping even more studio acquisition deals. This should be a lesson to Microsoft, smaller gaming studio acquisitions will not make up for the lack of volume expected on the XBOX Series X.
Donald Trump claimed the markets were doing fine
The problem with venture capitalists and people who invest in property or privatised business is that by-en-large their world is reduced to just themselves. They don't see the broader effect their actions have on the economy. This is so very true of Donald Trump right now. While Trump has held multiple press conferences this week the one that stood out to me happened on Wednesday. Where he told the press that a Johnson & Johnson COVID19 vaccine trial had reached the last stage of testing and the economy was doing fabulously. I mean we had a good run, but the last 3 weeks have been as volatile as it gets for economy growth. And congress holding a new American stimulus package up doesn't help that volatility either.
BMW released a car, and it was slow and ugly
I drive a BMW M235i Xdrive Gran Coupe as my daily and I love that car. BMW make really really good cars. But this week I have got to say I think they buggered the M3/M4 up totally. And not only do prospective customers online agree with me? But traders in Europe do as well. BMW shares sunk at the start of the week from 64 EUR all the way down to 60 EUR on Tuesday, the launch of two cars which makes up for around 10% of their worldwide volume did nothing to help that lul either with stock continuing the volatile ride sitting at 60 EUR during Thursday's session.
I think that's a good point I want to make before moving on to my buys this week. Automotive right now is not a good place to be on the stock market. That's not to say I don't think it will be but right now it's just not performing. Ford and GM have experienced stock slides on the US market this week along with Audi experiencing mediocre results eversince June.
You'll find once economies and travel properly return worldwide automotive is going to be a fantastic place to be. At this second though they're just way too reactive to lockdowns and a lack of need to commute. Electric technology isn't saving the market values either with stocks like Tesla and Nikola still being the most volatile of all stocks on the US market. But here's the thing. You're going to be surprised by one of my buys this week after I slammed them earlier last week. There's a very good reason for the slight change of heart though and there are conditions attached to the buy.
I was complaining last week that Tesla wasn't doing enough to be innovative in this market. I was also complaining that they weren't taking advantage of their home solar product the Powerwall.
"Battery day" this week changed all of that. Tesla are planning on expanding their automotive market to 20 million units worldwide by 2030. That's ambitious and it's double what the world's leader, Toyota, does now. They said they were going to get there by manufacturing a car that will sell at $25,000USD. How? They've figured out how to make more efficient and effective batteries and that means that the price of the Powerwall will similarly start to come down in the coming years.
What are the conditions to this play? You're going to have to be long, very long, like a couple of years long. You're also going to have to buy Tesla on a low because I still think the Robinhood traders are pushing Tesla stock upward and not allowing it to correct as it should be. Be patient on this one, the stock pricing will draw back to an attractive level and purchase then.
Exxon Mobil (XOM)
Bloody hell it's been a tough year for oil. Exxon is down 51% YTD and they got kicked out of the Dow Jones in favour of Salesforce a couple of weeks ago. Problem is no-one has needed fuel during COVID19 so Exxon has essentially all but had to shut down worldwide operations. Even the wars in the Middle East aren't getting reported on right now thanks to the pandemic. And ironically it means that the last 10 months in the Middle East have been relatively peaceful.
I've got a mate who works as a chemical engineer at Exxon though and he thinks that there's a play here longterm and I think we're almost at a point where we can enact the play. Exxon have an emergency restart procedure which is essentially like hitting a big red button. It's so effective in fact that they believe they can go back to full operations well within a week.
Energy in general has suffered a heap over the past 3 weeks as a result of the tech selloff and Exxon are no different but we're now nearing the initial lows of the COVID19 pandemic crash and logic has to say once oil production restarts to a full bore point again that stock is going to rebound as well. It's a long play and it may look like you're losing money initially but it's a play that will benefit from a Trump reelection and as long as the US Government wants to keep the country out of lockdown? It's sure to react positively.
The Coca Cola Company (KO)
When we talk about COVID19 stocks we talk about stocks that benefit from a stay at home economy. Office furniture, tech, SAAS are all good examples of companies that benefit from that economy. But another sector which benefits from stay at home economies are fast food are FMCG.
I wanted to throw The Coca Cola company in here today because I very nearly hit the button on buy myself last night even though the company didn't fit in with my own investment strategy. Part of this had to do with a lack of results during Q2 of this year which made no real sense to anyone who follows the stay at home economy. When people don't go anywhere they drink or eat snacks in their fridge or panty and Coke tends to be at the top of the list of pantry items that just always hang around.
That tells me that Coke are gearing up for what should be a very positive quarter. Up until Q2 Coke had been posting higher than YOY projected earnings per share for three quarters in a row. Not just that but Coke is now trading at around -11% on their pre-COVID19 pandemic highs. Coca Cola is a good short term play for the leadup to the end of the COVID19 economy and subsequently their next earnings call.
What's happening in the week to come then? Well not much really. Hopefully the market rallies again tonight and we start entering that second bull we saw after the first COVID19 crash. But no-one can really tell when this selloff is going to end. Casual investors and big banks alike seem to be finding new ways to drive the stock down, like for example the IPO madness we saw last week where everyone threw money at the Snowflake IPO and took money away from the FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks (causing the market to overall decline).
Just hang in there and be patient though. The majority of the FAANG and the technology stocks which aren't penny stocks are genuinely good companies with very strong earnings who are not double what their value should be. As long as you're confident in the company maybe go a bit longer than you would've before? It's likely once the selloff ends the stock will pay off anyway.
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