Weekend Update #459 - November 27th, 2021
[Stocks: JNJ, GPN, FISV, MA, MSFT, ORCL]
Dear Friends of Purple Chips,
Happy US Thanksgiving! At Wednesday the Dow Jones index was at 35,700 on a slow news week.
In this video, we look at:
Diverging stock values;
The drop in payments companies and rising multiples of some tech stocks;
Johnson & Johnson, Global Payments, Fiserv, Mastercard, Microsoft and Oracle;
Please click on the icon below to view the video.
Transcript forUpdate 459:
This week, we recorded our video on Wednesday because the US markets were closed on Thursday for Thanksgiving and Friday was only a half day. On Wednesday the Dow Jones was at 35,700 and there wasn’t a lot of news this week. The big concern is still inflation and the possibility of rising rates.
Slide 3 – Liz-Ann Sonders
Here’s a slide by Liz-Ann Sonders that shows that Nasdaq stocks have been powering higher but there are also many non-NASDAQ stocks that are making new 52 week lows.
To me, I see 2 things happening here – 1. Investor sentiment is becoming a little less positive 2. Tax loss selling is pushing a lot of non-tech stocks to new lows.
Slide 4 – Valuations
On Wednesday, the low valuations were Amgen, Fiserv, Checkpoint, Chegg, Omnicom, Alibaba, Walgreen Boots, Global Payments, Cigna, Fresenius Medical, Teleflex, Universal Health, Bristol Myers, Jazz Pharma, Tencent and AT&T.
On the TSX there was CCL, Stella Jones and Saputo.
Slide 5 – Spotlight
In the Spotlight this week, the Scotia analysts look at consumer spending which seems to be keeping up with inflation and this is because wages have been going up. Please pause your video to read this.
Slide 6 – Satellite Holdings
There were no changes in our satellite positions.
Slide 7 – Core US
In our US holdings, on Monday, we increased our position in Amgen to overweight at 202.56
Slide 8 – JNJ
Also, here’s a chat of Johnson & Johnson, I am watching this one carefully and may add to it if I see some weakness. The valuation has come down recently and it’s starting to look interesting.
Slide 9 – Core CAD
No changes here
Slide 10 – Reflections
This week, I look at the extremes of this market. Some stocks in the tech sector have been flying and some other stocks have been floundering. I think this is partly due to year end tax loss selling.
Slide 10 – GPN
Here’s a chart of Global payments. Payment stocks have been getting killed because there’s a lot of talk about increased competition in the space from new entrants and from Buy Now pay later companies.
Based on my experience, this looks like an exaggerated move down, especially given the quality and track record of this company.
Slide 11 – Fiserv
Next up is FISERV, another payments company. This company has an unbeatable track record. Think about, in the last 2 years earnings are up over 50% and the stock is trading 20% lower then it’s high.
Slide 12 – Mastercard
Here’s Mastercard, it’s also off 15% from its high. When I see good companies going on sale like this, it makes me think of reversion to the mean. Valuations can stay low for a while, but if a company keeps producing good earnings, more money will flow towards these bargains. Now let’s move on the other extremes, some of the tech stocks.
Slide 13 – Microsoft
Here’s Microsoft. It’s had a stellar move based on great earnings growth. However, when a stock is trading at 40X earnings, you have to question how long this can stay at a high valuation like this.
Slide 14 – Fiserv
Here’s a chart of Oracle. It’s trading at 19.5X earnings. In previous growth periods, this stock would trade around 15X earnings on the low side and 17.5X on the high side. When you look at these, you have to wonder if we aren’t in a period of irrational exuberance.
I’ll finish on that note and I’d like to wish all my friends that are south of the border a Happy Thanksgiving!
END –
I’m John Schwinghamer, the author of Purple Chips have a great weekend!