Stock Market Video
Sell Apple, Buy Facebook? Thoughts on Momentum and Market Timing
This Week's Fortune Cookie
In Case You Missed It
In this week’s Stock Market Video, Mike Cintolo discusses the market's recent bounce, pointing out the good (some stocks are separating from the pack during earnings season) and bad (the overall bounce in the indexes has been weak) of the past two weeks. Overall, Mike remains defensive, and while he's prepared for any buy signal that comes (possible within five to 10 trading days if things go right), he's definitely sticking with a defensive stance today, while he builds his watch list of potential new leaders of the next bull move. Click below to watch the video.
Sell Apple, Buy Facebook? Thoughts on Momentum
Apple and Facebook are huge, global brands, Apple with a market cap of $533 billion and annual sales of $235 billion and Facebook with a market cap of $250 billion and annual sales of just $18 billion.
Each company has fanatical users (full disclosure: I’m typing this on my iMac and using my iPad for research and my iPhone 6s in my pocket and I’ve already checked my Facebook account today) and angry critics.
Institutional investors love both stocks, with more than 5,000 whales on board with Apple and over 2,000 in Facebook. As I write this, AAPL is trading at about 96 and FB is trading just above 108. Apple’s P/E ratio is 10 and Facebook’s is 47. AAPL pays a dividend that yields about 2.2% per year; Facebook doesn’t pay one. The numbers could go on forever.
But let’s look at the reality principle. Here are a couple of charts that show how AAPL and FB have performed over the last three months. I think the difference will be clear.
I won’t rehash the news stories that have run about each company; they’re pretty easy to find, especially headlines about Apple’s Q4 sales miss on January 27 and Facebook’s big beat on the same day.
It’s obvious that FB has momentum right now, even though the stock has given back about a third of its exuberant gains. The stock defied a grumpy market to stage that big rally, which is also impressive. (The 25-day moving average in red and the 50-day in blue, help tell the story.)
The big question in investors’ minds is always: what will be driving earnings in the future. The only big news expected from Apple is the iPhone 7, which may help to revive iPhone sales, which have disappointed lately, and were the story behind the story in Apple’s earnings report.
Facebook, on the other hand, has multiple brands that are expected to continue to deliver massive earnings growth. In addition to the 1.6 billion monthly active users (MAU) whose eyeballs Facebook is getting increasingly good at monetizing, the company has WhatsApp and its nearly one billion MAU, Messenger and Instagram, all of which are in the early stages of exploitation for their revenue potential.
I’m always reluctant to write Apple off. The company has always had new fabulous products up its sleeve that surprised analysts and made consumers glad to open their wallets. But I’m also not sure whether Tim Cook’s sleeves are going to be as full of surprises as Steve Jobs’ were.
But right now, if I had to bet, I’d bet that Facebook’s potential for revenue and profit growth is greater than Apple’s.
With that said, there is one more momentum observation I want to make.
The trend of the broad market is down, which increases the pressure on every stock. Having the market in retreat (see the three-month chart of the S&P 500) means that every earnings miss will be punished more severely and every earnings beat will lose a little of its enthusiasm. The momentum of the market itself is the single-greatest factor in the price performance of stocks. It’s hard to swim against the tide.
The bottom line for investors, at least for investors who follow the Cabot principles of market timing, is that the choice of whether to buy AAPL or FB is a secondary consideration. The primary question is whether to be buying at all. And I’d say that the default setting right now should be set to Don’t Buy.
All this will change when the market bottoms, of course. Investors would give a great deal to predict when that will happen (hint: it’s impossible) and what to do when it does happen. That second part is very possible, and it’s one of the things I will be talking about in my Lunch with the Analyst webinar on February 17 at 1:00 pm ET.
No, I won’t be predicting any bottoms. But I will be talking in depth about how to recognize a bottom when it appears and how to prepare for that event.
Lunch with the Analyst is a monthly chance for Cabot’s analysts to share their thoughts on the state of markets, strong and weak stocks, buying and selling techniques and how to stay in step with what’s going on today.
I will also take questions from webinar attendees on any stock-related topics that interest them. I’ll give buy/sell/hold opinions on any stocks at all (sorry, no sound effects!) and plain answers to other investing questions. Best of all, it’s free, but I think I can guarantee that it will be worth much more than that. Sound interesting? Click here to register.
And if the state of the market and the state of the February weather are both getting you down, here’s a happy thought: the Cabot Investors Conference will be held once again in beautiful Salem, Massachusetts from August 10 through August 12.
The Investors Conference is a literal breakfast, lunch and dinner with every one of Cabot’s analysts. Each year we present a rich and intense program of stock picks, market analysis, investing tips and techniques and a chance for face-to-face Q&A with some of the savviest investors around. I’ll be MC-ing again this year, seeing that things keep moving and that everyone gets a chance to add their questions, opinions and wisdom to the mix. We will also have great social activities for attendees such as cruising Salem harbor and visiting local historical sites.
For more information on this uniquely useful investing event, you can visit the Cabot Investing Conference site by clicking here. You can also sign up at reduced Early Bird rates, which seems like a bargain to me.
---Here's this week's Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
Tim’s comment: In this crazy political season, it’s important to remember that despite the millions of dollars being expended by both billionaires and PACs, the individual voice and the individual vote still matter.
Paul’s comment: Corporations, unions, PACs and political parties can all tell people how they ought to vote, but it’s still just ordinary citizens who go into the voting booth alone and make their own decisions. And sometimes they surprise even themselves.
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Cabot Stock of the Month’s Chief Analyst, Tim Lutts, takes a scalpel to AAPL to see what’s making it tick and why it might be in for a long hard time. Or not. Tim also looks at one candidate for “the next Apple.” Stock discussed: Facebook (FB).
Jacob Mintz, the options genius behind Cabot Options Trader, explains how he follows the trades being made by big investors to identify opportunities for individual investors. He shows an example of his Daily Order Flow list to illustrate.
In this issue, I look at the performance numbers for developed market and emerging markets in 2015, noting that EM volatility is always higher, both on the downside and the upside. Stock discussed: China Biologic Products (CBPO).
Chief Analyst of Cabot Emerging Markets Investor
and Editor of Cabot Wealth Advisory