Podcast Summary
Market volatility and potential pullbacks: Despite market growth, investors should prepare for normal market fluctuations and understand historical averages of annual declines and larger pullbacks.
While the stock market has seen significant growth this year, investors should expect market volatility and potential pullbacks. The S&P 500 experienced a rough month in September, with a nearly 5% decline, but the market is still up double digits for 2021. However, it's important to note that markets historically experience downturns, with an average annual decline of 10%, and larger pullbacks every few years. As equity investors, it's crucial to be prepared for market volatility and understand that it's a normal part of investing. Additionally, it's important to note that many large cap and technology companies are currently trading at high valuations. So, while there are still positive signs in the business and equity markets, investors should be aware of the potential for market fluctuations. To improve communication skills, listeners are encouraged to check out the Think Fast, Talk Smart podcast, which offers tips from experts on effective communication.
Market Downturns and Positive Developments in Pharmaceuticals: Expect market fluctuations, find value in small caps and sectors, and stay informed of positive developments like Merck's promising COVID-19 pill.
Markets experience periods of growth followed by breathers, and as long-term investors, it's important to expect and remain calm during market downturns. The market, particularly the S&P 500, is currently considered pricey with a relatively high PE ratio, even when considering forward earnings. Additionally, there are rising interest rates, inflation concerns, and economic fluctuations that can impact profitability. However, there may be more reasonable valuations in small cap stocks and sectors that could benefit from the continuing reopening of the economy. Exciting news came out of the pharmaceutical industry with Merck's announcement of promising results in a late-stage study for its COVID-19 pill. The oral antiviral medicine significantly reduced the risk of hospitalization from COVID-19 by about 50% and no patients who received the drug passed away. Merck plans to submit an application for emergency use authorization to the FDA as soon as possible and will also submit marketing applications to other regulatory bodies worldwide. This news is a positive development, as it provides an additional tool to combat COVID-19 beyond vaccines. Other companies, such as Pfizer and Novartis, also have antivirals under development. Despite the positive news, vaccine companies have seen their shares perform weakly due to the potential of antiviral treatments. Overall, the combination of vaccines and antivirals is a positive development for society.
Merck's Attractive Investment Opportunity vs Bed Bath & Beyond's Challenges: Merck offers a high stock price and reasonable valuation with a dividend yield, while Bed Bath & Beyond faces weak sales and supply chain issues, but has potential for turnaround under new leadership
Merck presents an attractive investment opportunity with its 52-week high, reasonable valuation, and a decent dividend yield. On the other hand, the proposed acquisition of 59 by Zoom Video was rejected by shareholders due to concerns over Zoom's business operations in China, potential stock price volatility, and the lack of a price increase from Zoom. Bed Bath & Beyond, however, had a disappointing Q2 with weak sales due to the Delta variant and supply chain issues, leading to significant stock price declines. Despite these challenges, the company has been undergoing a turnaround under CEO Mark Tritton, and the current stock price may present an opportunity for potential investors.
McCormick's Q3 sales growth driven by restaurant return, but cost pressures impacting margins: McCormick's sales growth in Q3 was fueled by the reopening of restaurants, but investor concerns about cost pressures led to a 15% stock decrease. Warby Parker went public via direct listing, doubling its value with $6B market cap and $400M sales, half online and half offline.
McCormick's sales growth in Q3 was driven primarily by the return of restaurants, but investor concerns lie in the company's comments about cost pressures and their impact on margins. As a result, the stock has seen a 15% decrease in value year to date, making it potentially an attractive entry point for investors. Meanwhile, Warby Parker, an online eyeglasses retailer, went public via direct listing, adding liquidity to the business without raising any capital. With a market cap of $6 billion and sales around $400 million, the stock has already doubled from its private value earlier this year. While the company is known for its direct-to-consumer online business, it's important to note that it's roughly half and half between online and offline sales, with 145 retail outlets. This growth in both online and offline channels, as well as the potential for price increases to offset cost pressures, make McCormick an intriguing investment opportunity.
Warby Parker expanding stores, Dollar Tree adding more offerings: Warby Parker aims to expand its store base while maintaining profitability and differentiating itself, while Dollar Tree introduces Dollar Tree Plus to offer a wider range of products and respond to rising costs
Both Dollar Tree and Warby Parker are making strategic moves to grow their businesses, but they face different challenges. Warby Parker, a smaller player in the eyeglass market, aims to expand its store base while maintaining profitability and differentiating itself from competitors. The company's sales per square foot are healthy but it continues to invest in the business. Dollar Tree, on the other hand, is a discount retailer that is expanding its offerings beyond $1 items with its Dollar Tree Plus initiative. This move allows the company to offer a wider range of products and is a response to rising supply chain and labor costs. The stock price increase can be attributed to both the Dollar Tree Plus initiative and the increased share buyback program. However, Sherwin Williams, a paint company, has faced challenges with raw materials and supply chain issues, leading to lowered sales and profit guidance, which has negatively impacted its stock price.
Exploring the Surge in Online Betting, Stock Trading, and Gaming: In the first half of 2021, online betting, stock trading, and gaming revenue surpassed the previous year's total. These activities have become a daily part of this generation's lives, with sports bars and college campuses being common places for discussions. Despite high advertising revenue, the industry is managing to get it back.
The industries of online betting, stock trading, and gaming have seen a significant surge in popularity and revenue in recent times. With the premier of the CNBC documentary "Generation Gamble," host Melissa Lee delves into this topic, exploring the reasons behind this trend and the people who are devoting their time and money to these businesses. In the first half of 2021 alone, sports betting and iGaming revenue have surpassed the total revenue of the previous year. The documentary sheds light on how these activities have become a part of the daily fabric of this generation, with sports bars and college campuses being common places for discussions about betting. While the revenue generated from advertising seems high, the industry is managing to get the revenue back. This trend signifies a shift in attitudes towards money and taking risks, and it's a change that is ongoing.
A generational shift in how people transact: sports betting and trading: Younger generations can easily bet or trade online, with attractive incentives and similar psychological triggers blurring the lines between sports betting and trading.
We are witnessing a generational shift in how people transact, specifically in the areas of sports betting and trading. For younger generations, the friction to use money for these purposes is virtually non-existent, as they can easily do so from their mobile devices, without leaving their homes or even their classrooms. Additionally, the incentives offered by sports betting and iGaming platforms are incredibly enticing, making it an attractive proposition for new users. This ease of use and the associated adrenaline rush are not unique to sports betting, but also apply to online trading. A recent study revealed that over half of retail investors surveyed owned securities like GameStop, AMC, or Doge, demonstrating a willingness to take risks and check their accounts frequently for potential gains. The psychological triggers at play in both activities are similar, making the connection between sports betting and trading more apparent. Despite Robin Hood declining an interview for the documentary, the evidence suggests that the lines between these industries are becoming increasingly blurred.
Regulatory Scrutiny on Zero-Cost Trading Apps: Regulatory bodies investigate potential conflicts of interest in zero-cost trading apps' business models, raising questions about fairness and transparency for retail investors. The future may involve metaverse trading with virtual casinos and frictionless money, but potential risks and changes are on the horizon.
The future of trading apps like Robinhood and Webull, which have gained popularity through gamification and zero-cost trading, faces regulatory scrutiny due to their business model that relies on payment for order flow. This model raises questions about potential conflicts of interest and whether retail investors are getting the best price for their trades. The demand for zero-cost trading is strong, but the retail investor is becoming more savvy and asking questions about fairness and transparency. The next step in this evolution may be the metaverse, where virtual casinos and frictionless money could make gambling and trading even more accessible and convenient, but also potentially more risky. The SEC's investigation into the business model of these trading apps could lead to changes in the industry.
California DMV approves driverless ride-sharing services for Waymo and Cruise: Waymo and Cruise receive permits for driverless ride-sharing, Amazon introduces home robot Astro, significant progress in autonomous vehicles and robotics integration, investors should monitor companies and regulatory landscape
This week saw significant strides in the development and deployment of autonomous vehicle technology, with Waymo and Cruise receiving permits from the California DMV to offer driverless ride-sharing services. While this is an exciting development for investors and those looking forward to the future of transportation, there are valid concerns about safety and consumer comfort. Companies like Waymo, which is backed by Alphabet, may consider offering these services for free initially to build trust with consumers. Additionally, Amazon introduced its new home robot, Astro, for $1,000, marking another step forward in the integration of AI and robotics into our daily lives. This development is a significant step towards the eventual widespread adoption of autonomous vehicles and home robots, and investors should keep a close eye on these companies and the regulatory landscape.
Amazon's new robot Astro and Editas Therapy's gene therapy trial results: Amazon enters robotics market with Astro, a device seen as a step towards home automation and security, while Editas Therapy's gene therapy trial results cause stock drop but hold promise for treating diseases in the future
Amazon has entered the robotics market with the introduction of Astro, a small, wheeled device equipped with a camera, screen, and Alexa capabilities. While some see it as a step towards home automation and security, others believe its true potential lies in bringing more convenience and ordering capabilities inside the house. The device's name, which Amazon denies being inspired by The Jetsons' Astro, has sparked comparisons to Wall-E and Rosie the robot. Meanwhile, in the biotech sector, Editas Therapy's stock saw a 20% drop following the release of initial clinical data for its gene therapy trial treating blindness. Some investors saw this as an overreaction, while others may have been selling on the news after the stock's significant gains earlier in the year. Despite this, Editas' gene therapy technology holds promise for treating certain diseases in the future.
Pubmatic: A Promising Player in Digital Advertising: Pubmatic, a profitable small cap growth company, offers a digital advertising platform used by 1200 publishers and app developers. With an estimated growth rate of 38-40% and a focus on omnichannel and connected TV advertising, it's a promising investment opportunity.
Pubmatic is a small cap growth company specializing in digital advertising technology. With a market cap of $1.3 billion and a profitable business model, Pubmatic offers a platform used by over 1200 independent publishers and app developers. They served 46 trillion ad impressions last year and handle 1 trillion requests daily, making it a valuable player in the large and innovative online advertising space. Despite the presence of many competitors, the need for continued innovation to support businesses in the digital advertising sector remains high. Pubmatic's estimated growth rates of 38-40% this year, coupled with their focus on omnichannel and connected TV advertising, make them a promising investment opportunity.
