Everything is about cycles
Not financial advice. Full disclaimer available here.
We are witnessing the unwind of the stay-at-home trade before our eyes. Pinterest is a great example of that. The stock came into 2020 trading at around 10 times enterprise value to sales on a trailing twelve months basis. At its peak last year, that same multiple was over 30. Today, we are trading at about 6 times EV/S (TTM).
Pinterest, PayPal and many others have been in a downtrend for a while, which is why the visual discovery engine was on my radar since the very start of the year. What's really interesting is that even the market darlings of the last decade are now showing signs of weakness, with Facebook and Netflix notably dropping more than 20% in a single day.
The media blamed those loses on disappointing earnings numbers 1 but I doubt that's the real story. Investors are watching oil march towards $100/bbl and wondering if it's really worth holding on to big tech at such rich valuations. The market reaction to Facebook's earnings release earlier this week is what led me to ask: is winter coming?
If it can happen to Facebook, why can't it happen to the other trillion-dollar companies? If it does, we ain't seen no volatility yet! It's time for caution, especially with US growth stocks (cannabis might be an exception). That's why I favor a put selling strategy over outright stock ownership of names like Playboy and Pinterest. They dramatically overshoot to the upside in 2021, they can dramatically overshoot to the downside in 2022.
To be clear, I am bullish on those businesses long term and I think they're cheap right now. However, I also think it's time for other parts of the market to shine. For instance, did you notice that Nintendo was up 7% year to date while the Nasdaq is down 11%? The Japanese gaming giant just reported terrific software sales. Contrary to Facebook, the stock trades at around 10 times EV/EBIT so it did not crash when management cut Switch outlook on chip shortage, again.
Nintendo, and Japanese equities in general, have actually performed very well over the past decade. Therefore, there are better examples. Lukoil is one them. The Russian energy producer is up 20% in USD terms since I first bought it. Meanwhile, oil is up 60% and the Rubble has not moved. There is no way the stock price is reflecting the futures curve over the next 2 years; and, I believe the back end will eventually catch up if we don't see more capex going into the sector.
That said, investors' sentiment in the energy sector is super bullish currently so I would not be surprise to see a short term correction. Fundamentally though, I don't see a reason for oil prices to come down.
Also, I think emerging markets will do very well in the coming years and I haven't let go of my Ashmore shares. The asset manager basically holds a third of their market cap in cash and pays dividends consistently (6% yield at the moment).
Lastly, here is my north star for the 2020s:
commodities over equities, got uranium?
equities over credit
emerging over developed markets
real estate: countryside over cities, residential over commercial
precious metals will have their day
crypto? Bitcoin is the easiest bet but I am sure the entire space will continue to grow at an incredible pace