As you can see from our scorecard, our portfolio rose by 17.49% between 4/30/16 and 5/31/16 !! During the same period, the stock market or the S&P500 index (top 500 companies) rose only by 1.5%. Even our worst pick Twitter rose by 5.95% between 5/1/16 and 5/31/16. In order to have a general idea where we are headed for the market, we have to consider what the technical analysts (chartists who are in to Fibonacci ratios etc.) say and when most of them agree, then it is very credible. For the past 18 months, the market has been range bound. If the market has been range bound for more than a year, and it breaks it to the upside we could have a big gain (i.e. even 20%). Also if the market does not have a break through to the upside, once again we could have another severe correction.
Chartists say that small cap stocks (Russell 2000) is indicating that it is ready to move much higher. However, many money managers are selling their stocks and waiting for the market to make new highs to get back in to the market. I personally think that is a stupid idea. We can buy more as the market moves lower and reduce the average cost. So what is the magic level all these technicians are watching for? It is around 2134 on the S&P500; the S&P500 has to go over 2134 and stay there for a while or else it would be risky to assume that the market is going to go much higher. May 2016 is different from May 2015 as the market is technically stronger. As of now, 75% of the stocks are above their 200 day moving average.
When a stock goes below its 200 day moving average, it is in dangerous territory and most prudent investors would stay away from those stocks. International markets and economies are in better shape now than in May 2015. Oil reaching $50 per barrel in May 2016, is too a very good sign. On the negative side, per Barron’s, Carl Icahn, one of the best activist investors, had a net short position of 149% at the end of first quarter 2016; at the end of 2015, his short position was net 25% and a year ago it was only 4%. So Icahn is betting the farm on a big correction or a crash!
Schlumberger- According to Bloomberg News, on 5/24/16, Goldman Sachs after being bearish on oil for years, added Schlumberger to its conviction buy list. Analyst Waqar Syed reiterated a $94 price target- nearly 30% above the stock price of 5/24/16.
Twitter- On 5/18/16, Ronnie Moas, issued a buy recommendation on Twitter as their cash position is at $3.6B and their market cap was at $10B with a PE of 23. Then on 5/10/16, Bob Peck of Suntrust, stated that the lowest we could see for Twitter should be $12 per share. He also stated that it is a candidate for getting acquired by another and Google is a possible suitor. He expects the price of Twitter to go up during the second half of 2016.
GM and Ford- As analysts have been expecting it was announced that auto sales have peaked. Car sales for some automakers were down as much as 30%. Due to low oil prices, most of the demand is for SUVs and trucks-globally. Hedge funds are getting out of GM. On 5/11/16, GM announced that it has finally turned a corner in Europe. Even though we cannot expect growth from these automakers, the auto market is expected to remain stable and profitable for a long time to come. GM is a PE of 5 and a yield around 5%, the stock is a safe place to park your money.
Apple- Right now this has the biggest risk and the biggest reward. “No risk, no reward”. Day by day, the nay sayers are growing. More and more, pundits are saying that Apple will take the same road as Nokia, Xerox and Eastman Kodak (or even IBM). Latest is that Apple will take 3 years and not 2 to come up with a major change in the IPhone. Shark Tank’s billionaire Kevin O’Leary who used to be a big fan of Apple for years and who also started his own ETFs known as O’Shares states that his new Samsung can do everything but wash his laundry and it will take ages for Apple to come to that stage. The most bearish people on Apple expect the share price to hit $85 by the latter part of 2016. To me, that is not bad at all. It hit $89 in May 2016. If it goes to $85, I suggest you buy 5 more shares and another 5 shares at $75.
Carl Icahn got in to Apple years ago when it was a dud and he got Apple to be more shareholder friendly. During the past few weeks, he sold all his Apple holdings with a net profit of $4 Billion! Carl was worried that Apple might have more problems in China. In fact, one year ago, Carl said that he will never sell Apple.
Then should everyone get out of Apple too? No, not by a long shot. I still have faith in Apple and more than that the greatest investor this world has ever known and the 2nd most richest man on Earth, Warren Buffet just bought $1 billion in Apple shares! For many decades, he avoided technology stocks till he got in to IBM which has been a dud for the longest time. IBM too is showing signs of turning around. On 5/12/16, Apple dropped below $90 for the first time in 2 years giving us another chance to increase our stake in Apple; also after a long time they dropped below Google aka Alphabet in market cap to $496B. On 5/13/16, Apple announced that they were going to invest $1B in China. Their profit margin is at 23% while the profit margin for their competitors is around 7% which could lead to a bigger problem for Apple. Apple makes a big deal about going in to India for the first time and how India is going to take over China as the most populated country; however keep in mind that per capita income of India (GDP/# of people) is US $1,500 per year and the monthly average wage in India is US $295. I cannot see a mad rush to buy a $700 IPhones. People will kill each other to steal an IPhone! On 5/2/16, Tim Cook, CEO of Apple, on CNBC show Mad Money stated the following:
· In China, other smart phone users turning to Apple is huge.
· In 2 years, Apple grew 70% in China.
· The middle class in China is growing from 50 million to 500 million in 5 years.
· India will be the most populous country in 2020 and most young people in India wants to own a smart phone.