That was how the stock began to decline. Then, as if that were not enough, at the end of February came the Russian invasion of Ukraine, causing the prices of commodities and energy shoot up, due to a considerable contraction in supply. Shortages were not the only concern at this point. An increase in food and energy prices had a direct impact on global inflation expectations, and put even more pressure on the Fed and other central banks to raise rates.
The greater uncertainty regarding the magnitude of these rises drove equity crazy, which showed a volatility worthy of periods of crisis. Finally, China joined. Through its Covid-zero policy, it has imposed strict lockdowns in its big cities (such as Shenzhen and Shanghai), calling into question the supply chain of large corporations. The joint consequences were evident. The main indices fell in a few months, and accumulated losses of between 10% (Dow Jones) and 24% (Nasdaq).
However, in this scenario that seems to be extremely adverse and unwanted for any investor, we see how giants in the field move like a fish in water. Far from departing from a bear marketthe legendary Warren Buffetwho has complained for years about the lack of opportunities in a market that he saw as overvalued, has taken advantage of the enormous liquidity of Berkshire Hathaway to position himself in various companies in which he saw an opportunity in full swing. In fact, the amount of his acquisitions for the first quarter of the year only finds precedents in 2008, the year of the Great Recession. Movements like these should alert us, wake us up. Perhaps not everything is as bad as it seems. Maybe it’s time to seek opportunity in panic.
In November 2021, Alphabetowner of Googlecame to be worth more than $3,000 per share. At that time, each paper was trading at 27.1x Your results. Today, then suffer a drop of approximately 22% from its historical maximum and having increased the results of the last 12 months by 5.6% since said date, it finds itself with a multiple of 20.6x Your results. Valuations like these are unusual for leading tech stocks like this one, which has a ratio price-to-earnings history above 30x. We must not forget that we are referring to the fourth company with the largest capitalization in the world. A company that has grown at an average rate of 23.7% per year in its sales for the last five years, even reaching a sublime 41.2% during 2021. Its operating income increased in the last fiscal year by 90.9 % after having advanced between 20% and 25% the previous two years. Their profit margins are excellent and stable, improving remarkably in the last year. Also noteworthy is the ambition of Google for continuing to grow in different areas.
Although in the last year around 80% of its income came from advertising within the ecosystem of Google and YouTube, point to greater growth in their other lines of business, such as the sale of hardware (Fitbit accessories, Google Nest devices, Pixel phones, among others), sales on Google Play, subscriptions to YouTube and their cloud services that have been increasing their participation quickly. At the same time, Alphabet has been positioning itself in several technology companies which could result in long-term growth potential.
Anyway, Finding opportunities in the technology sector is not as difficult as it was in previous years, and not surprisingly the risk that its share prices will swing before taking off can be difficult to tolerate for more conservative investors who appreciate countercyclical trades. The problem during these months is that the portfolio rotation process that began in November 2021, from technology to stable consumption, led many companies to trade at levels higher than normal.
We talk about actions like Walmart, Target, Home Depot, Costco. However, in recent weeks, several of them stumbled. After posting results that fell short of market consensus, Walmart fell 20% in the following four days, falling 27% below its all-time high, and Target plunged 30% on five wheels, to finish 46% below its all-time high. its all-time high. These projections shook the retail world, but since then a slight rebound has been seen. Currently, its price is equal to that of March 2020, and stands at 21.9x its adjusted net results per share.
Additionally, in the face of consumption that seems to concentrate on the most basic products, and away from discretionary ones, due to the erosion of the consumer’s purchasing power, Walmart still seems like a good refuge. It is also necessary to consider that your business is extremely comprehensive, encompassing the world of retail, eCommerce and even subscriptions.. Altogether, under its motto of low prices every day With which they seek to help people live better with lower expenses, WMT captures approximately 230 million weekly consumers throughout 24 countries. Likewise, The investor will be interested in the fact that throughout the 2023 financial year it plans to distribute quarterly dividends, in addition to the annual repurchase program that the company has, increasing shareholder remuneration. For these reasons, WMT could be a good stock to buy taking advantage of his stumble.
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In short, at PPI we seek to take the current scenario and turn it in our favor, as the best investors in history have done. Quoting the Oracle of Omaha, “be afraid when others are ambitious, and be ambitious when others are afraid”. It can be a great time to be ambitious. In Google and Walmartwe found two interesting assets, in two completely different industries and with very different purposes for our portfolios.
The fear of a market full of uncertainties made possible attractive valuations for these papers for investors with medium and long-term investment horizons. It is up to each one to venture into the financial world in search of opportunities. What we are sure of at PPI is that we will continue working to bring our clients the most attractive investment vehicles.
IPP Analyst.
Source: Ambito
