Recall when Apple (ticker: AAPL), stopped reporting unit sales for its hardware products back in 2019? That's when Apple essentially admitted that it was no longer a growth company. I have a difficult time squaring Apple's muted unit growth with its valuation. Despite Apple's efforts to convince the world otherwise, it remains a hardware company. … Continue reading Apple’s Primary Driver Is Price Increases
The WSJ reports that companies have announced $600 billion of share repurchase authorizations year-to-date. What percentage of that total authorization will be executed? The proof is in the pudding as they say and a share repurchase press release means zero until the company in question starts to execute on the authorization. Announcing share repurchase authorizations … Continue reading How Much of That Share Repurchase Authorization Will Be Executed?
The S&P 500 is approximately at its long-term average P/E multiple of 20x (if one looks back to 1964). However, that multiple could go lower should the Fed hold rates higher for a longer period than what many investors expect. Further, markets tend not to bottom until after the Fed begins to cut rates (we … Continue reading How Low Will Valuations Go?
Irrational valuations still exist, especially in the private market thanks to more than a decade of easy Fed policy. 2023 will be the year that venture firms write down portfolio valuations if they have not done so already. We wrote about OpenAI's natural language offering - ChatGPT - last week. For what it's worth, OpenAI … Continue reading OpenAI’s Rich Valuation
One element to consider when contemplating the forward yield curve and equity premiums is that the yield curve may settle at a level that is higher than what investors anticipate in the out years - say 2025 forward. P/E Multiples are behaving as if a zero percent Fed Funds Rate is the long-term norm, which … Continue reading Positive Real Yields
Quality management teams measure the effectiveness of their M&A programs on a deal-by-deal basis. My favorite measure is Return On Invested Capital or ROIC. There are various ways to calculate ROIC. More important is the discipline of working through the process. Consider Adobe's $21.8 billion acquisition of Figma ($20 billion of cash and stock plus … Continue reading ROIC and M&A. Adobe Gets an “F”.
We were critical of Adobe's (ADBE) acquisition of Figma for a few reasons. These elements can be applied to the analysis of any M&A transaction. Valuation: 50x revenue is a rich valuation no matter how you slice it. I don't care how unique Figma's product offerings may be or how competitive the deal may have … Continue reading Analyzing an M&A Transaction
The Fed's balance sheet declined modestly ending the week at $8.91 trillion, down from $8.93 trillion and up from $8.76 trillion at the beginning of the calendar year and up from $4.17 trillion in January 2020 (just before the unprecedented fiscal and monetary stimulus programs of 2020 and 2021). As we wrote on Tuesday, the … Continue reading QT Has Only Just Begun
While the S&P 500 index is down approximately 21% YTD, it appreciated 44% from its pre-COVID high in February 2020 to its recent high during January 2022. One could argue that the pre-COVID high of February 2020 was a rich valuation for the index which benefited from years of accomodative Fed policy and low inflation. … Continue reading Earnings Estimates Are Too High
We compared the year-over-year percentage change in M2 (measured each month) to the year-over-year percentage change in the NASDAQ Composite (measured each month on a one-month lag) and found a strong correlation as measured by a correlation coefficient of 81.7%. Our analysis covered the percentage change in M2 from April 2020 (when the money supply … Continue reading Strong Correlation Between M2 Growth & NASDAQ Composite Growth