Microsoft Corporation (MSFT) | Daily Alert February 18
While reviewing both the holdings in this portfolio and the performance of the market as a whole, the one striking difference between the two is the absence of four of the biggest darlings on Wall Street. Microsoft, Amazon, Alphabet, and Apple have had an extraordinary time of it over the past few years. So much so, these stocks have almost become the stock market.
My shock at realizing that I have failed to include any of these stocks in the portfolio was tempered by the fact that our stocks managed to perform just as well as the market as a whole in 2019, with much less risk. The question I found myself asking was simple: Can such a performance be matched in 2021 without at least some of these companies in our portfolio?
After studying each company closely, I have decided that the answer to that question is probably no. All of these companies have outperformed the market during the past two years. The S&P 500 Index is up some 17% during that past 24 months. During that same period, Alphabet is up 26%; Amazon is up 45%; Apple is 77%, and Microsoft is up 82%.
If you were crazy enough to put all your money into just these four stocks over the past two years, you would have made three times the money of those who played it safe and just bought the S&P 500.
However, let us not forget the lawyerly warning about investments, past performance is no guarantee of future results.
Of these four darlings of Wall Street, I am of the opinion that Microsoft Corporation (MSFT) is the best of the bunch. The company has been a star performer for much of the past four years, and I see little that will stop it. Although the stock price has tripled over the past three and a half years, the stock multiple sits at thirty. That may seem high, but not for a company playing such an important role in cloud computing.
This company is quite capable of producing annual sales growth rates of 15% or better. If you are concerned about going all-in after the run-up in price, I suggest you feed money into the stock slowly over the course of the year. This should help if we suddenly get that correction everyone on Wall Street is so worried about.
David C. Jennett, The Investment Letter, P.O. Box 6170, Holliston, MA 01746, 800-542-5018, January 16, 2020
*Aptiv PLC (APTV)
The marketplace for electric vehicles (EVs) is miniscule. Established automakers will need to prove they can compete with Tesla, while finding a way to make the economics work. That means multiple vehicles rising out of similar platforms.
But you shouldn’t chase this car maker, or that one. After all, the tech behind them will be the same. So, instead of risky bets on GM or Tesla, I have a different approach. The best way to play this trend is Aptiv PLC (APTV). The Irish firm builds greener, safer and more connected software solutions for the next generation of automobiles.
Vehicle makers intend to launch 45 new high-voltage platforms by 2022, spanning hundreds of vehicles and 13% of global vehicle production. Aptiv has booked $4.5 billion in new orders since 2016. However, high-voltage electrification system sales are expected to climb to $1 billion annually by 2022, a 40% compound growth rate.
During 2019, Aptiv won contracts for the Tesla Model Y and Model 3, launching in China. The company also won the contract to supply the low-voltage battery system for the Fiat 500 BEV.
Shares trade at 16.4x forward earnings and 1.5x sales, for a market capitalization of $22.7 billion. Given the potential size of the vehicle electrification market, these metrics look inexpensive. Aptiv Shares recently traded at $85.00, but I’m still looking for a new entry level. Investors should keep watch for weaknesses.
Jon Markman, Pivotal Point, firstname.lastname@example.org, 1-800-291-8545, January 31, 2020
*Inphi Corporation (IPHI)
Inphi Corporation (IPHI) has released its new Capella SerDes IP solution for data center environments, which promises better performance and lower power consumption in data centers and AI-powered devices. The company recently reported another fine quarter. While sales (up 19% from a year ago) and earnings (up 4%) didn’t wow, they both topped estimates. But more important were management’s comments that confirmed the demand environment for the company’s various high-speed wares should pick up meaningfully going forward. The fact that the accretive buyout of eSilicon closed in early January was also a plus. At this point, analysts see earnings now surging 40% this year and another 48% in 2021 as upgrade cycles and further telecom/data center buildouts accelerate. The stock was all over the place before (virus selloff) and after (up, down, then back up) the report, which isn’t ideal. We’re watching the action closely, but right now, shares remain in an overall uptrend (50-day line is near 76.5) so we’re fine staying on Buy.
Michael Cintolo, Cabot Growth Investor, www.cabotwealth.com, 978-745-5532, January 30 and February 6, 202010
*Lam Research Corporation (LRCX)
The shares of semiconductor processing equipment specialist Lam Research Corporation (LRCX) are outperforming in a big way thanks to the company’s earnings release.
This brings the shares’ one-year gain to almost 86%, and this recent outperformance comes despite recent rockiness in the semiconductor space. This could be why some options traders were showing caution ahead of the event. LRCX received a flurry of bullish analyst notes this morning. Of the handful of price-target hikes that have come through, the highest was $400 from Susquehanna. There’s still room for more positive analyst attention for the stock, however, since eight brokerage firms had “hold” or worse ratings in place today, so watch for upgrades on Lam Research going forward.
Bernie Schaeffer, Schaeffer’s Investment Research, http://www.SchaeffersResearch.com, 800-327-8833, January 30, 2020
StoneCo Ltd. (STNE) | Daily Alert February 19
StoneCo Ltd. (STNE) is the Square of Brazil. It’s a payment processor that gets a piece of each transaction and it focuses on the mostly unserved market of small to medium-sized business.
Wealth Advisory Earnings Grade: B+
StoneCo kept the rally alive in December. Management reported stellar numbers in November and sent shares spiking up. We’re now well above my new limit (which is just $10 shy of my original target price). So, I’m boosting that to make sure we’ve all got a chance to get in. Now that shares are above $40, I see them cruising over $50 in short order. So, let’s boost the limit to $45 and see if we can capture some more gains.
StoneCo Ltd. is now a “Buy” anywhere under $45. The 12-month target is staying at $75.
Brit Ryle and Jason Williams, The Wealth Advisory, www.angelpub.com, 877-303-4529, January 2020