Etailing – Page 4 – ReportWire

This fund beats the S&P 500 by using just 75 of its components. Here’s how it works.

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What worked well during the years-long bull market through 2021 — a focus on growth, regardless of price — has ground to a halt this year. The rebirth of the value style of investing — and modest valuations overall — has taken hold.

The approach taken by the Invesco S&P 500 GARP ETF has paid off through both bull and bear markets.

Let’s begin with a 10-year chart comparing total returns with dividends reinvested for the Invesco S&P 500 GARP ETF
SPGP,
+0.67%
and the SPDR S&P 500 ETF Trust
SPY,
+0.78%,
which tracks the benchmark S&P 500:

FactSet

So far this year, SPGP is down 12%, while SPY is down 16%. But the long-term chart shows significant and consistent outperformance for SPGP, even during the bull market.

The S&P 500 GARP Index

GARP stands for “growth at a reasonable price.” SPGP tracks the S&P 500 GARP Index, which is reconstituted and rebalanced twice a year, on the third Fridays of June and December. The next change occurs Dec. 16.

S&P Dow Jones Indices assigns a growth score to each component of the S&P 500 by averaging the three-year compound annual growth rate (CAGR) for earnings and sales per share.

The top 150 components of the S&P 500 by growth score are eligible for inclusion in the GARP index. Those 150 are ranked by “quality/value composite score,” which is the average of these three ratios:

Financial leverage — total debt to book value.
Return on equity — trailing 12 months’ earnings per share divided by book value per share.
Earnings-to-price — 12 months’ earnings per share divided by the share price.

The top 75 of the 150 by QV rankings are then included in the GARP index and weighted by the growth score, with portfolio weightings ranging from 0.5% to 5%.

There is a weighting limitation of 40% to any one of the 11 S&P sectors.

Addressing concentration risk

The benchmark S&P 500 Index
SPX,
+0.75%
is weighted by market capitalization, which means it is more heavily concentrated than you might expect — success is rewarded, with rising stocks more heavily weighted over time.

That can backfire during a bear market, with Amazon.com Inc.
AMZN,
+2.14%
down 47% and Tesla Inc.
TSLA,
-0.34%
down 51% this year, to name two prominent examples.

Looking at the SPDR S&P 500 ETF Trust
SPY,
+0.78%,
which is the first and largest exchange traded fund and tracks the benchmark index by holding all of its components, six companies (Apple Inc.
AAPL,
+1.21%,
Microsoft Corp.
MSFT,
+1.24%,
Amazon, both common share classes of Alphabet Inc.
GOOGL,
-1.30%

GOOG,
-1.26%
and Berkshire Hathaway Inc.
BRK.B,
+0.06%
) make up 19.2% of the portfolio.

That percentage has come down this year, but a lot of risk remains concentrated in a handful of companies. (Apple alone makes up 6.4% of the SPY portfolio. Tesla is now the ninth-largest holding, making up 1.4% of the portfolio.)

One way to address high concentration in an index fund is to use an equal-weighted approach, which Mark Hulbert recently discussed.

For the Invesco S&P 500 GARP ETF, the underlying index’s selection methodology has resulted in much less portfolio concentration than we see in SPY, with the top five holdings making up 10.9% of the portfolio.

Here are the 10 largest holdings of SPGP:

Company	Ticker	Share of portfolio
Regeneron Pharmaceuticals, Inc.	REGN, +0.15%	2.49%
Cigna Corporation	CI, +0.39%	2.26%
Everest Re Group, Ltd.	RE, +0.24%	2.21%
Vertex Pharmaceuticals Incorporated	VRTX, +1.18%	1.98%
D.R. Horton, Inc.	DHI, -0.39%	1.97%
Expeditors International of Washington, Inc.	EXPD, +0.23%	1.96%
Incyte Corporation	INCY, +0.10%	1.92%
Goldman Sachs Group, Inc.	GS, -0.51%	1.83%
Ebay Inc.	EBAY, +1.67%	1.81%
Pfizer Inc.	PFE, +3.07%	1.73%
Source: FactSet

Click on the tickers for more information about any company, ETF or index in this article.

You should also read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

Don’t miss: 10 Dividend Aristocrat stocks expected by analysts to rise up to 54% in 2023

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December 8, 2022

Apple, Alibaba, NIO, and More Stock Market Movers Monday

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Stock futures traded lower Monday as investors remained keyed on interest rate policy from the Federal Reserve and as a surge in China stocks over a loosening of Covid-19 restrictions in the country failed to boost U.S. equities.

Here are some stocks that could make moves Monday:

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December 5, 2022

Amazon CEO says more layoffs are coming in 2023

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Amazon.com Inc. plans more layoffs, but employees will have to wait until 2023 to see if their jobs are affected.

Chief Executive Andy Jassy said Thursday that while Amazon
AMZN,
-2.34%
already confirmed that it was eliminating jobs in its devices and books businesses, an unknown number of layoffs impacting other teams are still to follow.

See more: Amazon confirms layoffs, becoming latest tech powerhouse to slash roles

“Our annual planning process extends into the new year, which means there will be more role reductions as leaders continue to make adjustments,” he said in a blog post on the company’s corporate site. “Those decisions will be shared with impacted employees and organizations early in 2023.”

While Jassy doesn’t know “exactly how many other roles will be impacted,” he does know “that there will be reductions in our Stores and PXT organizations.” The company already announced a “voluntary reduction offer for some employees” working in PXT, or People Experience and Technology Solutions.

The Wall Street Journal reported earlier this week that Amazon could end up slashing 10,000 jobs.

Jassy took over as Amazon’s CEO in July 2021 and said Thursday that “without a doubt,” the move to cut staff is “the most difficult decision we’ve made” since he’s been in the role.

“It’s not lost on me or any of the leaders who make these decisions that these aren’t just roles we’re eliminating, but rather, people with emotions, ambitions and responsibilities whose lives will be impacted,” Jassy said.

He added that Amazon “has weathered uncertainty and difficult economies in the past, and we will continue to do so.” Jassy emphasized that Amazon will continue to plug away on more established areas like stores, advertising and cloud computing, as well as newer initiatives like Prime Video, the Alexa voice assistant and healthcare.

Amazon joins other technology companies including Meta Platforms Inc.
META,
-1.57%,
Snap Inc.
SNAP,
-1.36%,
Shopify Inc.
SHOP,
-2.05%
and Twitter in recently eliminating jobs. An activist investor earlier this week urged Alphabet Inc.
GOOG,
-0.49%

GOOGL,
-0.50%
to cut positions as well.

See more: Here are the companies in the layoffs spotlight

Shares of Amazon were up 0.3% in after-hours trading Thursday after declining 2.3% in the regular session.

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November 17, 2022

Black Friday surprise: Jeff Bezos tells people NOT to buy cars, refrigerators and other big-ticket items. Critics call him out.

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Billionaire Jeff Bezos, who founded the e-retail behemoth Amazon, has some spending tips as Americans gear up for a holiday shopping season — amid four-decade high inflation and recession worries.

Here’s what he said:

“‘If you’re an individual and you’re thinking about buying a large-screen TV, maybe slow that down, keep that cash, see what happens. Same thing with a refrigerator, a new car, whatever. Just take some risk off the table.’”

Bezos made the comments in a CNN
WBD,
+0.46%
interview that aired this week, the same interview where he pledged to give away most of his fortune in his lifetime.

Why did Bezos offer the tip for consumers and small business to go easy on big-ticket items? He gave one big reason.

“If we’re not in a recession right now, we’re likely to be in one very soon,” he said in the interview, picking up on his cautionary tweet last month that “the probabilities in this economy tell you to batten down the hatches.”

Bezos is currently executive chair at Amazon
AMZN,
-2.34%,
transitioning to the role last year as Andy Jassy took the reins as CEO.

Later this week, Amazon confirmed it was laying off some of its staff in its device and services business — joining a growing list of tech companies, including Facebook parent Meta
META,
-1.57%
— that is laying people off. Amazon’s job cuts could number around 10,000, according to the Wall Street Journal.

“Critics have taken aim at these words of thrift coming from a man — now worth approximately $120 billion — who built Amazon into the online shopping bonanza.”

To be sure, Bezos is not alone is his worries about a potential recession as the Federal Reserve and other central banks fight higher costs by hiking interest rates.

But his advice prompted some guffaws on social media. In a nutshell, critics say these are words of thrift coming from a man — now worth approximately $120 billion — who built Amazon into the online shopping bonanza that lets consumers seamlessly spend money.

As Joshua Becker, a proponent of minimalism wrote on Twitter: “I didn’t hear him mention refraining from Amazon’s Prime Day deals or Black Friday offers, but I recommend adding those items to your list as well.”

Regardless of how anyone feels about hearing spending advice, particularly from one of the world’s richest people, there are some things to consider as events like Black Friday and Cyber Monday approach.

For one thing, maybe there are discretionary expenses where people can cut back. Many Americans are still spending briskly, as Walmart
WMT,
-0.34%
third-quarter earnings and October’s retail-sales numbers recently affirmed. Holiday-spending projections paint the same picture.

Americans will spend between $942.6 billion and $960.4 billion on holiday-season sales this year, according to projections from the National Retail Federation. Last year’s holiday sales totaled $889.3 billion, the trade association said.

“During the third quarter, Americans’ credit-card balances climbed to $930 billion, the biggest annual increase in more than 20 years, according to the National Retail Federation.”

But Americans are planning for the holidays while credit-card balances are increasing — likely because credit cards are helping them keep up with rising costs.

During the third quarter, Americans’ credit-card balances climbed to $930 billion, the biggest annual increase in more than 20 years, according to Federal Reserve Bank of New York data.

While balances grow, so do credit-card interest rates. The annual percentage rate (APR) on new credit-card offers averaged 19.14% in mid-November, according to Bankrate.com. That beats the old record on APRs for new cards, set at 19% three decades ago.

The holiday shopping season is typically when Americans accumulate credit-card debt, pay the debts in the early part of the coming year and repeat the holiday-season debt the following year.

This year, the stakes could be higher if high credit-card bills arrive and a recession-induced job loss follows.

“It’s not the time to overspend and have a problem with paying your bills later,” Michele Raneri, vice president of financial services research and consulting at TransUnion
TRU,
-4.94%,
one of the country’s three major credit bureaus, previously told MarketWatch. “We know the economy is sending mixed messages.”

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November 17, 2022

Alibaba, Tencent, lead Hong Kong tech stocks higher after upbeat China online retail sales data

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Shares of Chinese internet giants jumped in Hong Kong, after official data showed better-than-expected October retail sales in the world’s second-largest economy.

Alibaba Group Holding Ltd.
BABA,
+0.79%

9988,
+10.63%
jumped 9.8%, Kuaishou Technology
1024,
+10.71%
surged 8.7%, Tencent Holdings Ltd.
700,
+10.28%
rose 8.0% and Meituan
3690,
+5.88%
was up 5.8%. The Hang Seng Tech Index
HSXTCHINDXXX,
+7.08%
has gained as much as 7.7% and was last up 6.1%

The sector’s sharp upturn came after China’s National Bureau of Statistics said online retail sales of physical goods rose 7.2% in the first 10 months of the year. The number, closely watched by investors as an indicator of the country’s consumption trends, outpaced a 6.1% rise in the January-to-September period.

Jefferies analysts estimate that online retail sales grew more than 15% in October, accelerating from the three consecutive months of below-10% growth seen since July.

Write to Yifan Wang at yifan.wang@wsj.com

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November 14, 2022

Tim Cook has been an excellent leader for Apple — these numbers prove it

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How good is a company’s chief executive officer at investing your money most efficiently? This is an important question for long-term investors. It may underline the difference between a steady long-term performer and a flash in the pan.

And Apple Inc.
AAPL,
-4.24%
now makes up 7% of the SPDR S&P 500 ETF Trust
SPY,
-1.03%,
the first and largest exchange-traded fund (with $360 billion in assets), which tracks the benchmark S&P 500
SPX,
-1.06%.
That’s close to an all-time record, and the iPhone maker has a whopping 14.1% position in the Invesco QQQ Trust
QQQ,
-1.95%,
which tracks the Nasdaq-100 Index
NDX,
-1.98%.
Looking at the full Nasdaq Index
COMP,
-1.73%,
which has 3,747 stocks, Apple takes a 13.5% position.

Apple now makes up 7.3% of the S&P 500 by market capitalization, close to the 8% record it set late in September.

FactSet

This is very much an Apple stock market, with the company topping the broad indexes that are weighted by market capitalization. You are likely to be invested in the company indirectly. You also might be feeling Apple’s impact in other ways. Apple’s App Store ecosystem drives more than $600 billion in annual revenue for developers.

Tim Cook’s tenure as Apple’s CEO has been nothing short of breathtaking when measured by the company’s financial performance. Apple is not one of the fastest-growing companies when measured by sales or earnings — it is too big for that. But its excellent stock performance has reflected Cook’s ability to deploy invested capital with improving efficiency. Cook has also been a market trendsetter in other important ways. He has Apple repurchasing $90 billion of its shares annually, setting the pace for stock buybacks in the market. Cook’s steady hand has also helped Apple withstand the market’s tech wreck and remain a stable pillar for the teetering Nasdaq Composite index generally. For all these reasons, Cook has earned a spot on the MarketWatch 50 list of the most influential people in markets.

Apple keeps improving by this important measure

Investors in the stock market are looking for growth over the long term. The best measure of that is whether or not a company’s share price goes up or down. But Cook isn’t just managing Apple’s stock. Digging a bit deeper into the company’s actual operating performance can provide some insight into what a good job Cook has done.

What should a corporate manager focus on? The stock price? How about the most efficient and most profitable way to provide goods and services? There are different ways to do this, and Apple has focused on quality, reliability and excellent service to build customer loyalty.

Apple’s commitment can be experienced by anyone who calls the company for customer service. It is easy to get through to a well-trained representative who will solve your problem. How many companies can say that at a time when it seems many companies cannot even handle answering the phone?

Getting back to actual performance, Cook took over as Apple’s CEO in August 2011 when Steve Jobs stepped down. The chart below shows the company’s quarterly returns on invested capital from the end of 2010 through September 2022.

Apple’s returns on invested capital have increased markedly over the past six years.

FactSet

A company’s return on invested capital (ROIC) is its profit divided by the sum of the carrying value of its common stock, preferred stock, long-term debt and capitalized lease obligations. ROIC indicates how well a company has made use of the money it has raised to run its business. It is an annualized figure, but available quarterly, as used in the chart above.

The carrying value of a company’s stock may be a lot lower than its current market capitalization. The company may have issued most of its shares long ago at a much lower share price than the current one. If a company has issued shares recently or at relatively high prices, its ROIC will be lower.

A company with a high ROIC is likely either to have a relatively low level of long-term debt or to have made efficient use of the borrowed money.

Among companies in the S&P 500 that have been around for at least 10 years, Apple placed within the top 20 for average ROIC for the previous 40 reported fiscal quarters as of Sept. 1.

As you can see on the chart, Apple’s ROIC has improved dramatically over the past five years, even as the wide adoption of the company’s products and services has led to an overall slowdown in sales growth.

A quick comparison with other giants in the benchmark index

It might be interesting to see how Apple stacks up among other large companies, in part because some businesses are more capital-intensive than others. For example, over the past four quarters, Apple’s ROIC has averaged 52.9%, while the average for the S&P 500 has been a weighted 12.1%, by FactSet’s estimate.

Here are the 10 companies in the S&P 500 reporting the highest annual sales for their most recent full fiscal years, with a comparison of average ROIC over the past 40 reported quarters:

Company	Ticker	Annual sales ($mil)	Avg. ROIC – 40 quarters	Total Return – 10 Years
Walmart Inc.	WMT, -0.02%	$572,754	11.0%	142%
Amazon.com Inc.	AMZN, -3.06%	$469,822	6.8%	693%
Apple Inc.	AAPL, -4.24%	$394,328	33.0%	721%
CVS Health Corp.	CVS, +1.03%	$291,935	6.8%	161%
UnitedHealth Group Inc.	UNH, +0.03%	$287,597	13.7%	1,031%
Exxon Mobil Corp.	XOM, +1.36%	$280,510	9.9%	85%
Berkshire Hathaway Inc. Class B	BRK.B, -1.94%	$276,094	8.2%	233%
McKesson Corp.	MKC, -0.61%	$263,966	6.6%	353%
Alphabet Inc. Class A	GOOGL, -4.07%	$257,488	16.6%	405%
Costco Wholesale Corp.	COST, +0.57%	$226,954	16.2%	558%
Source: FactSet

Among the largest 10 companies in the S&P 500 by annual sales, Apple takes the top ranking for average ROIC over the past 10 years, while ranking second for total return behind UnitedHealth Group Inc.
UNH,
+0.03%
and ahead of Amazon.com Inc.
AMZN,
-3.06%.
UnitedHealth has been able to remain at the forefront of managed care during the period of transition for healthcare in the U.S., in the wake of President Barack Obama’s signing of the Affordable Care Act into law in 2010.

Here’s a chart showing 10-year total returns for Apple, UnitedHealth Group, Amazon and the S&P 500:

Apple is only slightly ahead of Amazon’s 10-year total return. But what is so striking about this chart is the volatility. Apple has had a smoother ride. During the bear market of 2022, Apple’s stock has declined 18%, while the S&P 500 has gone down 20%, the Nasdaq has fallen 32% (all with dividends reinvested) and Amazon has dropped 45%.

The broad indexes would have fared even worse so far this year without Apple.

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November 3, 2022

Amazon closes below $1 trillion valuation for the first time since 2020

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The swift recent decline in Amazon.com Inc.’s stock has brought the company’s closing market value below $1 trillion for the first time in more than two years.

Amazon shares
AMZN,
-0.82%
fell 5.5% in Tuesday action, finishing with a market value of $987 billion. This marked the first time since April 6, 2020 that Amazon closed out of trillion-dollar territory, according to Dow Jones Market Data.

Amazon’s valuation fell below the trillion-dollar milestone Tuesday.

Dow Jones Market Data

Amazon shares have tumbled 19.74% over the most recent five-session stretch. That five-day decline was the worst five-day loss for Amazon since its 22.03% plunge during the period that ended Nov. 20, 2008.

The e-commerce giant has come under recent pressure after the company’s latest earnings report highlighted a slowdown in AWS cloud-computing revenue growth. Additionally, Amazon disappointed with the forecast it offered for the holiday quarter.

“Combined with wobbles on revenue momentum for both AWS and retail, and suddenly the Amazon hiding place doesn’t look good,” Bernstein analyst Mark Shmulik wrote following Amazon’s earnings report last Thursday. “The good news here is that the story isn’t broken, it’s just pushed out into 2023, while Q4 may get worse before it gets better.”

When looking at companies worth more than $200 billion, Amazon is currently closest to seeing its stock hit its pandemic-era low, according to Dow Jones Market Data. Amazon shares closed Thursday at $96.79, 15.5% above their pandemic low of $83.83. Only shares of Meta Platforms Inc.
META,
-2.30%
have actually plunged below their pandemic low, among this grouping of the largest U.S. companies.

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November 2, 2022

Amazon stock sinks after holiday forecast and cloud growth, profit disappoint; $150 billion in market cap at risk

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Amazon.com Inc. predicted Thursday that holiday sales and profit would come in well lower than analysts expected as cloud growth slowed and Amazon Web Services profit missed expectations by nearly $1 billion, sending shares south in after-hours trading.

Amazon
AMZN,
-4.06%
executives guided for fourth-quarter operating profit of break-even to $4 billion and holiday sales of $140 billion to $148 billion, while analysts on average were expecting operating income of $5.05 billion on revenue of $155.09 billion, according to FactSet. AWS sales of $20.54 billion grew 27.5% from the year before, the lowest growth rate for the pioneering cloud-computing product in records dating back to the beginning of 2014, and lower than analysts’ average estimate of $21.2 billion; AWS operating income of $5.4 billion handily missed analysts’ average estimate of $6.37 billion, according to FactSet.

“As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as increased foreign-currency headwinds … and we expect these impacts to persist throughout the fourth quarter,” Chief Financial Officer Brian Olsavsky said in a conference call Thursday afternoon. “As we have done in similar times in our history we are also taking action to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.”

Shares dove as much as 20% in after-hours trading immediately following the release of the results, after closing with a 4.1% decline at $110.96, but ended the extended trading period down 13%. After-hours prices could chop roughly $150 billion from Amazon’s market capitalization and send it lower than $1 trillion for the first time since April 2020 if they were to persist through Friday’s regular trading session, according to FactSet.

Amazon reported its first quarterly profit of the year for the third quarter, and easily beat analysts’ expectations for the back-to-school period that included the company’s first Prime Day of the year, but earnings still declined from last year. Executives reported third-quarter profit of $2.87 billion, or 28 cents a share, down from 31 cents a share in the year-ago quarter after adjusting for Amazon’s 20-to-1 stock split.

Revenue grew to $127.1 billion from $110.8 billion, in the middle of executives’ forecast for $125 billion to $130 billion but slightly missing analysts’ expectations; executives said revenue would have been $5 billion higher without the effects of the strengthening dollar. Analysts on average expected earnings of 22 cents a share on sales of $127.39 billion, according to FactSet.

“There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” Chief Executive Andy Jassy said in a statement. “What won’t change is our maniacal focus on the customer experience, and we feel confident that we’re ready to deliver a great experience for customers this holiday shopping season.”

Amazon had reported quarterly losses through the first half of the year, largely because of a rapid post-IPO decline in one of its investments, Rivian Automotive Inc.
RIVN,
+0.17%.
But the Seattle-based company has also been looking to cut costs after spending wildly during the first two years of the COVID-19 pandemic to keep up with spiking demand for its online store and Amazon Web Services cloud-computing products.

Amazon’s stock has suffered as it faces comparisons to the headier days of last year, and will do so again in the holiday season, when it faces a comparison with a nearly $12 billion profit from its Rivian investment, which has declined more than 50% from its IPO price and stands at roughly one-fifth its peak post-IPO price.

There were thoughts that Amazon would be cautious with its holiday forecast, as its attempts to cut costs run into the need to keep its giant logistics operation running smoothly. The company is looking to hire 150,000 workers to get through the holiday season, and recently announced increased pay for fulfillment workers.

“On 4Q consensus estimates, we believe AMZN will likely err on the side of being more conservative, given the uncertain consumer spend environment,” MKM Partners Managing Director Rohit Kulkarni wrote in a note. “We believe recently announced wage hike, higher near-term content costs amortization (NFL & Lord Of Rings), and potentially greater merchandise discounting might weigh on 4Q Op Margins.”

Amazon’s e-commerce operations were boosted in the third quarter by the company’s annual Prime Day event in July, and the company tried to replicate the event in October, but analysts saw the second Prime Day as less successful and potentially a sign of weakness.

“We see Amazon’s decision to hold two Prime Day sales in one calendar year as a red flag for weak e-commerce sales; consistent with retailers, in general, holding more sales when their sales are under pressure,” D.A. Davidson analyst Tom Forte wrote in a preview of Amazon’s report.

In the third quarter — with back-to-school sales and the first Prime Day event — quarterly retail sales in North America hit $78.84 billion, while overseas revenue totaled $27.72 billion. Analysts on average were expecting $77.24 billion and $29 billion respectively, according to FactSet. Sales in both locations were unprofitable from an operating perspective for the fourth consecutive quarter, losing a total of $2.88 billion.

Amazon’s profit largely comes from the fat margins of its AWS cloud-computing offering, but there have been concerns about growth leveling off for cloud after rival Microsoft Corp.
MSFT,
-1.98%
reported a deceleration earlier this week and guided for a further decline in growth in the fourth quarter. AWS did provide enough profit in the third quarter to overcome the losses in e-commerce, but the result was the lowest quarterly operating income for Amazon overall since the first quarter of 2018, according to FactSet records.

Opinion: The cloud boom is coming back to Earth, and that could be scary for tech stocks

“The ongoing macroeconomic uncertainties have seen an uptick in AWS customers focused on controlling costs and we are proactively working to help customers cost-optimize just as we have done throughout our history, especially in periods of economic uncertainty,” Olsavsky said in Thursday’s conference call, before adding that revenue growth dipped to the mid-20s late in the period from an overall rate of 27.5% for the quarter.

“So carry that forecast to the fourth quarter, we are not sure how it’s going to play out, but that’s generally our assumption,” he said, suggesting that Amazon expects the AWS revenue-growth rate to decline again in the fourth quarter.

Amazon’s other higher-margin business is advertising, which has grown strongly in recent years as companies seeking to sell products on Amazon pay the company to list their products higher when consumers search for them on the e-commerce platform. Amazon reported third-quarter advertising revenue of $9.55 billion, up from $7.61 billion a year ago and topping the average analysts estimate of $9.48 billion.

The results seemed to spread fears to other e-commerce companies and cloud-focused companies. Wayfair Inc.
W,
+0.37%,
eBay Inc.
EBAY,
+0.71%
and Etsy Inc.
ETSY,
-0.48%
shares all fell roughly 5% or more in after-hours trading, as did cloud-software providers Snowflake Inc.
SNOW,
-0.20%,
MongoDB Inc.
MDB,
-0.35%
and Datadog Inc.
DDOG,
+0.81%
Microsoft’s stock declined about 1.5%.

Amazon stock has fallen 33.5% so far this year, as the S&P 500 index
SPX,
-0.61%
has dropped 19.6%.

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October 27, 2022

Apple Earnings Are on Deck as Consumer Demand Softens

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Apple

shares have been remarkably resilient in the face of this year’s tech stock selloff, falling less than 15% since the end of December, and sharply outperforming rivals

Microsoft

Alphabet

and

Amazon

which are all down from 26% to 28%.

Apple (ticker: AAPL) sits with a $2.4 trillion market valuation—$500 billion more than Microsoft, $1 trillion more than Alphabet, and nearly double the size of Amazon.

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October 26, 2022

Microsoft stock slammed by cloud-growth fears, taking Amazon down with it

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Microsoft Corp. shares fell more than 6% in after-hours trading Tuesday as the company’s cloud-computing growth hit a sudden deceleration and executives guided for holiday-season revenue to come in more than $2 billion lower than expectations.

The Azure cloud-computing business has grown into the largest and most important business for Microsoft
MSFT,
+1.38%,
and there have been concerns about cloud growth as the U.S. faces a potential recession for the first time since the technology became ubiquitous. Microsoft executives said that Azure grew by 35% in their fiscal first quarter, a marked slowdown from Azure’s 40% growth rate in the previous quarter, as well as the 50% growth shown in the same quarter last year; analysts on average were expecting 36.5% growth, according to FactSet.

Opinion: The cloud boom is coming back to Earth, and that could be scary for tech stocks

In the current quarter, Chief Financial Officer Amy Hood suggested a similar sequential decline is in store for Azure, saying percentage growth should decline by five points on a constant-currency basis. Hood also suggested that more cost cuts could be coming to Microsoft, after the company confirmed layoffs of fewer than 1,000 employees earlier this month.

“While we continue to help our customers do more with less, we will do the same internally,” she said. “And you should expect to see our operating-expense growth moderate materially through the year while we focus on growing productivity of the significant head-count investments we’ve made over the last year.”

Microsoft shares slid to declines of more than 6% in after-hours trading following Hood’s forecast, which was provided in a conference call. Shares closed with a 1.4% increase at $250.66.

Concerns about cloud growth immediately spread to Azure’s biggest competitor, Amazon Web Services, as Amazon.com Inc. stock
AMZN,
+0.65%
fell more than 4% in after-hours trading.

Microsoft reported fiscal first-quarter earnings of $17.56 billion, or $2.35 a share, down from $2.71 a share in the same quarter a year ago, when the tech giant disclosed a 44 cent-per-share tax benefit. Revenue increased to $50.1 billion from $45.32 billion a year ago. Analysts on average were expecting earnings of $2.31 a share on sales of $49.66 billion, according to FactSet.

For the fiscal second quarter, Hood guided for revenue of $52.35 billion to $53.35 billion, while analysts on average were expecting sales of $56.16 billion, according to FactSet. Hood said that “Intelligent Cloud” revenue should land from $21.25 billion to $21.55 billion, while analysts on average were projecting $21.82 billion heading into the print; Microsoft’s other revenue-segment forecasts were even further off analysts’ average expectations.

Microsoft has also suffered from the strengthening dollar, as well as a sharp downturn in personal-computer sales, which spiked during the pandemic but are now showing record regression.

For more: The pandemic PC boom is over, but its legacy will live on

Microsoft reported PC revenue of $13.3 billion for the quarter, roughly flat from $13.31 billion a year before and beating the average analyst estimate of $13.12 billion, according to FactSet. While PCs have long been what consumers largely know Microsoft for, their importance to the company’s financials has declined in recent years as cloud computing has grown in importance.

“Historically, Windows was a very large driver of Microsoft revenue and, given its strong margins, a disproportionate driver of earnings,” Bernstein analysts wrote in a preview of the report, while maintaining an “overweight” rating. “Over time other businesses, especially Microsoft’s commercial Cloud, have grown fast while the Windows business has grown quite slower, decreasing the relative impact of Windows.”

The “Intelligent Cloud” segment reported first-quarter revenue of $20.3 billion, up from $16.96 billion a year ago but slightly lower than the average analyst estimate tracked by FactSet of $20.46 billion. Azure’s 35% growth was the slowest Microsoft has reported in records dating back through the prior two fiscal years; Microsoft only reports percentage growth for its Azure cloud-computing product, even as main rivals Amazon.com Inc.
AMZN,
+0.65%
and Alphabet Inc.
GOOGL,
+1.91%
GOOG,
+1.90%
report revenue and profit margin for their cloud-computing products.

Microsoft’s other revenue segment, “Productivity and Business Processes,” reported revenue of $16.5 billion, up from $15.04 billion a year ago and higher than the average analyst estimate of $16.13 billion, according to FactSet. That segment includes Microsoft’s core cloud-software properties such as its Office suite of products — which is being officially renamed Microsoft 365 — as well as LinkedIn and some other properties.

Microsoft stock has declined 25.5% so far this year, as the S&P 500 index
SPX,
+1.63%
has dropped 20.3% and the Dow Jones Industrial Average
DJIA,
+1.07%
— which counts Microsoft as one of its 30 components — has declined 13.3%.

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October 25, 2022

Hong Kong stocks suffer worst single-day rout since 2008 as Xi consolidates power

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Hong Kong stocks suffered their worst single session since the 2008 financial crisis after Chinese leader Xi Jinping tightened his grip on power.

The Hang Seng
HSI,
-6.36%
ended more than 6% lower to a new 13-year low, with tech giants including JD.com
9618,
-13.17%

JD,
-0.02%,
Baidu
9888,
-12.20%

BIDU,
-2.29%,
Tencent
700,
-11.43%
and Alibaba
9988,
-11.42%

BABA,
+0.22%
dropping between 11% and 13% each.

The local Shanghai Composite
SHCOMP,
-2.02%
index fell a less dramatic 2%.

Over the weekend, the 69-year-old Xi secured his third term as general secretary of the Chinese Communist Party. Reporters captured video of former Chinese President Hu Jintao getting escorted out of the closing ceremony. Four of the seven standing committee members were replaced, all of whom are at least 60 years old.

Analysts at Goldman Sachs say most of the new appointees worked with Xi at earlier stages of their careers. “We note that incoming leaders could arguably be more focused on ideological and political subjects while the retiring policymakers appear more economy/market-oriented,” they said.

They added that for valuations to improve, more clarity on the zero COVID policy, stabilization of the property markets, and de-escalation of both cross-straits and U.S.-China tensions would be needed.

China also reported delayed data, saying its economy grew at a 3.9% year-over-year rate in the third quarter, up from 0.4% in the second quarter.

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October 24, 2022

These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

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This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.78%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+6.14%
and Advanced Micro Devices Inc.
AMD,
+3.69%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.79%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.09%,
Microsoft Corp.
MSFT,
+3.88%,
Amazon.com Inc.
AMZN,
+6.63%
and Alphabet Inc.
GOOG,
+3.91%

GOOGL,
+3.73%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.77%,
Danaher Corp.
DHR,
+2.64%
and Linde PLC
LIN,
+2.25%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+2.32%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.12%,
which tracks the PHLX Semiconductor Index
SOX,
+2.29%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company	Ticker	2022 price change	Forward P/E	Forward P/E as of Dec. 31, 2021
Apple Inc.	AAPL, +3.09%	-22%	22.2	30.2
Adobe Inc.	ADBE, +2.32%	-49%	19.4	40.5
Amazon.com Inc.	AMZN, +6.63%	-36%	62.1	64.9
Advanced Micro Devices Inc.	AMD, +3.69%	-61%	14.7	43.1
ASML Holding N.V. ADR	ASML, +3.79%	-52%	22.7	41.2
Danaher Corp.	DHR, +2.64%	-23%	24.3	32.1
Alphabet Inc. Class C	GOOG, +3.91%	-33%	17.5	25.3
Linde PLC	LIN, +2.25%	-21%	22.2	29.6
Microsoft Corp.	MSFT, +3.88%	-32%	22.5	34.0
Nvidia Corp.	NVDA, +6.14%	-62%	28.9	58.0
UnitedHealth Group Inc.	UNH, +1.77%	2%	21.5	23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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October 17, 2022

Tag: Etailing

The S&P 500 GARP Index

Addressing concentration risk

Apple now makes up 7.3% of the S&P 500 by market capitalization, close to the 8% record it set late in September.

Apple keeps improving by this important measure

Apple’s returns on invested capital have increased markedly over the past six years.

A quick comparison with other giants in the benchmark index

Amazon’s valuation fell below the trillion-dollar milestone Tuesday.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Leaders for the stock market’s recovery

Summarizing the declines