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HOLD
Allan Tong’s Discover Picks Walmart stocks and big retail are out of favour on Wall Street. Supply chain delays, hot inflation, higher wages and now product markdowns are plaguing Walmart and its peers. Further, WM’s last report noted a shift in consumer spending from household stuff to experiences. The company lowered EPS guidance as overall revenues in Q1 fell $5 billion from divesting businesses in the U.K., Japan and Argentina, further weighed by another $0.4 million of unfavourable forex. Meanwhile, international net sales slid 13% to $23.8 billion while net sales declined $5 billion. Adjusted EPS in Q1 reached $1.30, down 23.1% from a year ago. Management forecasted another 1% decline in EPS before flattening. That said, the company beat in Q1, but missed in Q2 which caused shares to slide from $148 to below $120. Read 3 gems from the Collision technology conference for our full analysis.
department stores
BUY
Allan Tong’s Discover Picks The amount Meta paid is a drop in the bucket for company worth nearly $500 billion, but it makes shareholders like me shake my head over why the company keeps stepping into unnecessary controversies. It doesn’t help the share price which has tanked by more than half from its 52-week high of $384.33. And it doesn’t attract ESG investors who value good corporate governance. So, why not sell Meta stocks? Read 3 gems from the Collision technology conference for our full analysis.
Technology
BUY
Allan Tong’s Discover Picks Airbnb still leads in market share at 74.6%, followed distantly by Vrbo (Expedia) at 20.8% and Vacasa at 4.6%. In early May, ABNB stocks posted a 70% rise in revenue over 2021 to $1.5 billion beating the street’s $1.45 billion. Further, this revenue is 80% higher than in 2019. Lastly, the company’s average daily rates in Q1 2022 were up 37% over Q1 in 2019. To compare, hotel rates in New York jumped 69% between May 2021 and May 2022. I’ve written about ABNB stocks recently, so I’ll just end this by reiterating the stock as a buy. Read 3 gems from the Collision technology conference for our full analysis.
Technology
COMMENT
People fixate on stock prices and ignore intrinsic value. The markets have fallen 20%, but mostly that's from multiples contraction. In fact, this and next year's earnings have not changed that much. Keep an eye on company earnings coming for signals. We're probably in a recession which will impact earnings which were only 8-10% and could decline. There could even be flat earnings in the next 6-12 months. After 2009 to 2021, there was a compression of the risk premium in all kinds of assets, and that's widening further today. Something has to give in the dichotomy between the stock market and earnings. Expect volatility.
BUY
A CDR allows you to buy a smaller portion of a share, though he's not sure. Shares have fallen because their big positions, like Apple, have fallen, and the US economy has weakened. BRK will continue to do well, because the companies they own will bounce back. US banks may hit a rough patch, but the US economy will bounce back.
insurance
BUY
Trades at a low multiple. Iron ore is their biggest asset. They generate a ton of cash which they use to pay down debt. The key is China which will dictate RIO's demand. Generally, the big miners are safer in you want to be in mining, because they have a lot of free cash and are conscious of return on capital. The dividend is safe with a payout ratio around 50%.
other mines
DON'T BUY
Dividend pays 4.8% and trades at a low PE, but CIX's asets are down in this market. Usually, fixed income offsets weakness in stocks, but not now. They've made lots of acquisitions, some of which are closing soon, and have taken on a lot of debt. They could spin off some US assets, but doubt it can happen in this economy. They need to digest those new companies and not buy more. CIX won't do much for a while.
investment companies
funds
BUY
They're becoming an energy company and not merely oil and gas. They use their large cash flow to pay down debt and increase dividends. As they move into renewables, they concerned what their return on capital is. Oil prices are volatile but remain high, which is a plus. Could be some volatilty, but present share levels are fine.
integrated oils
BUY
Their last quarter was very good, beating the street, but shares have been down. Part of their growth came from Covid testing, which grew well. Their medical devices business was up 8%, though the last two years halted elective surgeries. This hurt ABT but will improve (like JNJ did) because there's a huge backlog of surgeries. Earnings will grow for several years. He owns Stryker, but likes Abbott a lot.
biotechnology
pharmaceutical
PAST TOP PICK
(A Top Pick Jun 17/21, Up 2%) No debt and are increasing free cash flow. Cybersecurity is a good secular growth business among governments and corporations. They're transitioning software as a service which hurt them several quarters ago, but they are creating more products. Trades at 18x earnings.
computer software
processing
PAST TOP PICK
(A Top Pick Jun 17/21, Down 51%) Trades at 12x earnings, a discount to the market. Estimated to have $17 billion free cash flow for 2023. They have a lot of user data. TikTok is a competitor, but Apple's privacy rule change is a bigger problem for them to solve. That's why FB wants to enter the metaverse--so FB can control that platform. FB still has Instagram and Whatsapp that they can grow even more. All the bad news is priced into the stock already, but it will remain volatile. He's holding on.
Technology
DON'T BUY
They've done a good job getting customers to buy up their product chain. BMW boasts good margins vs. peers. But it's difficult for a traditional carmaker to transition to e-cars, due to all the new parts. BMW designs better cars whereas the Volt is not attractive (though Tesla is). This transition will be tough.
Automotive
BUY
Really likes it and has longed it. Very good long term. DIS is unique--has a great brand and its assets to develop them in a modern way. Streaming will have a difficult time, but their deep library of content will help. People forget they bought 20th Century Fox, so they could sell some assets. Also, there are blockbuster movies coming. The theme parks generate a lot of revenue, so they need to return to operation globally. During Covid they did the right thing of cutting their dividend, furloughing employees and watching costs. So, they're in better shape than other media companies.
entertainment services
