The stock market habitually ignores fundamentals completely when the mood is at either the greed or fear extreme. And Alibaba (NYSE:BABA) and Amazon (NASDAQ:AMZN) as simply the latest examples as you can see from the following chart. Not that long ago (around 2021), both stocks had been trading at immense valuation premiums. To wit, BABA demanded a P/S multiple of around 10x and AMZN around 5.0x. Then the bubbles burst quickly and now BABA is trading only at 1.73x P/S ratio and AMZN at 1.97x, both at only a fraction of the market average of 4.61x represented by the NASDAQ 100 index.
Thus, it is the thesis of this article to examine if the above valuation correction is overdone (an almost 6x P/S ratio contraction for BABA and almost 3x contraction for AMZN). And you will see that my conclusion is yes.
It is true that both businesses have faced strong headwinds (some common and some unique to each of them) as you can clearly see from the following chart. BABA suffered a large decline in EBIT profit margin since 2021 both due to the macroeconomic slowdown of China's economy and also the tightened regulations. Its EBIT margin dropped from an average of 24% to a bottom of around 0% in the first half of 2022. Its margin has recovered to a healthy 13.5% in the most latest quarter, but still a far cry from its long-term average (only about ½ of its long-term average). The picture of AMZN is quite similar, although less dramatic. Its EBIT margin has been in a nosedive since ~2021 too. Its EBIT margin has been consistently above its average of 5.25% (except for two quarters) before 2021. However, it dropped to below 0% in the first of 2022. Its margin has recovered to a positive 2.8% in the most latest quarter, but still only ½ of its long-term average.
However, in the remainder of this article, I will argue that despite such profitability headwinds, the overvaluation correction is overblown. The current valuations in both stocks have ignored the growth curve from the secular e-commerce penetration and also their various high-growth initiatives. Their current profitability headwinds could persist but are ultimately temporary the way I see things. And furthermore, I see the price volatilities created thy such headwinds to be entry opportunities for long-term investors. To wit, for AMZN, near-term headwinds such as shipping congestion and inflation persisting could cause its prices to be stuck in a $90~$95 trading range, providing a reasonable entry point. For Alibaba, its current valuation is already very attractive, and China's ongoing protest and Zero COVID policy could create an even better entry point for long-term holdings.
First, let me start with what's comparable and what's not between these two businesses. I view BABA and AMZN as the bellwether stocks in the e-commerce sector - that is why this article picked them to gain a more vantage view of the current status of the e-commerce sector. And both stocks are comparable, or even identical, in many of their operation details and initiatives (e.g., both are leaders in the cloud space).
However, the elephant in the room is that BABA faces a "China risk" that AMZN does not. I won't dive too much into the "China risk". It is a broad and vague concept. Different readers and authors seem to interpret it differently. As the title of this article suggests, I will focus more on business fundamentals rather than geopolitics.
For the "China risk", I would refer readers to Ray Dalio and his writing. In particular, I highly recommend his book, The Changing World Order (a few quotes are provided below from this book). I read all of his books (not that many anyway) and follow his writings closely. And I view him as a leading expert on both China and the U.S., and especially their interplays.
- "I urge those of you who have not spent considerable time in China to look past the caricatured pictures that are often painted by biased parties and rid yourself of any stereotypes you might have that are based on what you thought you knew about the old "communist China" - because they are wrong."
- "Triangulate whatever you are hearing or practicing with people who have spent a lot of time in China working with Chinese people."
- "As an aside, I think the widespread medium distortions and the blind and the near-violent loyalties that stand in the way of the thoughtful exploration of our different perspectives are a frightening sign of our times."
As detailed in my earlier writings, for "new-economy" stocks like BABA and AMZN, a key business fundamental aspect I always check is their R&D: especially the sustainability and yield.
Therefore, let's first see how sustainable BABA and AMZN have been funding their new R&D efforts. The chart below displays their R&D expenditures in the past 10 years as a fraction of their total sales. As you can see, both BABA and AMZN have been consistently and also aggressively investing in R&D. In AMZN's case, it has been only spending a minimal amount on R&D before 2016 (less than 1% of its revenues). But after 2016, it cranked up its R&D substantially to a level of 12.0% of its total sales and has maintained it at this level since then. In BABA's case, it has been spending on average 10.0% of total revenues on R&D efforts systematically.
After establishing their R&D sustainability, let's examine how effective their R&D processes have been. The examination in this article follows a method detailed in my earlier article. The essential idea is to apply Buffett's $1 test on R&D expenditures. More specifically:
- The purpose of any corporate R&D is obviously to generate profit. Therefore, this analysis quantifies the yield by taking the ratio between profit and R&D expenditures. We used the operating cash flow as the measure of profit.
- Also, most R&D investments do not produce any results in the same year. They typically have a lifetime of a few years. Therefore, this analysis assumes a 3-year average investment cycle for both BABA and AMZN's R&D expenses. As a result, we used the 3-year moving average of operating cash flow to represent this 3-year cycle.
And the results are shown in the chart below for BABA and AMZN. As you can see, their R&D yields are different qualitatively, with BABA's yielding about $3.31 per $1 of R&D expenses and AMZN yielding only about $0.90. However, note that despite the qualitative differences, both BABA and AMZN have been demonstrating consistency in their R&D yield, signaling an efficient and sustainable process.
Also, to put things under a broader perspective, the next chart compares BABA and AMZN against the rest of the FAAMG stocks. As seen, the FAAMG stocks as a group feature an average R&D yield of $2.94. And BABA's $3.13 is only behind Apple and Facebook (or Meta Platforms).
We've examined their profitability above by the EBIT margin. Here, I will use ROCE (return on capital employed) as the main metric to take a closer look. As detailed in my blog article, ROCE is the most fundamental metric because:
ROCE considers the return of capital ACTUALLY employed and therefore provides insight into how much additional capital a business needs to invest to earn a given extra amount of income - a key to estimating the long-term growth rate. Because when we think as long-term business owners, the growth rate is "simply" the product of ROCE and reinvestment rate, i.e.,
Long-Term Growth Rate = ROCE * Reinvestment Rate
The ROCE results for BABA and AMZN are shown in the chart below. It is no secret that BABA's profitability has suffered tremendously in the past few years, and this is clearly shown in its ROCE data. Even just a few years back in 2019~2020, its ROCE has been astronomical, exceeding 100% (rivaling that of AAPL, the one with the highest ROCE in the FAAMG pack). But as aforementioned, due to the slowdown of China's macroeconomic growth and also the tightened regulation controls since 2021, its ROCE has suffered immensely. To wit, its ROCE has been on average 79.5% since 2020. And it currently hovers around 62.4% based on its most latest 2022 Q3 TTM financials as shown in the 2nd chart below.
AMZN's ROCE in latest years has unfortunately followed a similar trend as seen, except with a less dramatic decline. AMZN boasted a superb ROCE in the earlier part of the decade too, between 50% and 100%. In latest years since 2020, AMZN's ROCE has contracted substantially to an average of 29.0%. And its most latest 2022 Q3 TTM ROCE is even below this average as seen.
However, when we broaden our view a bit wider, both AMZN and BABA still enjoy robust ROCE. As a reference point, the overall economy's ROCE is around 20%. And as I will argue next, AMZN and BABA enjoy far better growth potential than the overall economy thanks to the secular shift towards e-commerce.
As aforementioned, I see BABA and AMZN as the bellwether stocks in the e-commerce space, and I also see both of the best-positioned stocks to capitalize on the secular growth of e-commerce. With all the online shopping apps installed on our smartphones, it is sometimes easy to form the misconception that e-commerce penetration is already toward an end. But the reality is nothing but. The global e-commerce penetration is at ~20%. Thus, the majority (80% of it) of commerce is still offline. Global retail e-commerce sales only reached $4.2 trillion in 2020. The bulk of the growth curve is still yet to come, with retail e-commerce projected to double in size by 2026, hitting $7.4 trillion.
Another key growth area for both BABA and AMZN is could. AMZN is the leading cloud provider in the U.S., with a market share far higher than MSFT and GOOG as seen from the following IOT report. In particular,
The cloud market has seen revenues grow at high double digits for years according to the report. The global public cloud market reached $157 billion in 2021and is expected to grow into a $2 to $10 trillion industry in a few years according to another.
And just AMZN is the dominant cloud provider in the U.S., BABA is the dominant player in China and other overseas markets. With the rapid growth potential in the could space, I anticipate AMZN and BABA to enjoy the support of this secular trend for many years to come.
As aforementioned, there are definitely headwinds for both stocks in the near term. For BABA, China's COVID-19 restrictions are still impacting many parts of the country's economy (with ripple effects to other countries). Customer growth in its China Commerce division (TaoBao and Tmall in particular) could take time to recover depending on the macroeconomic conditions. AMZN faces a range of near-term uncertainties such as inflation, supply chain pressures, and also currency exchange rates. The profitability of AMZN has been pressured by these headwinds in latest years as mentioned above and I see them persisting into 2023. These headwinds have created a challenging environment for its retail operations, which reported operating losses in latest quarters (as seen from the EBIT margin earlier). In response, AMZN has been dealing with cost control issues. For example, it had to shut down its subsidiary, fabric.com (which sold fabrics for almost 30 years), as a way to slash costs.
All told, I see the market sentiment toward the eCommerce sector has shifted from extreme greed to extreme fear in the past 2 years, as represented by the tremendous valuation contraction in BABA and AZMN stocks. However, business fundamentals still matter and will always matter. As you can see from the table below (which summarizes the key fundamentals and valuation metrics discussed throughout the article), both are still excellent businesses if you just look past the immediate headwinds. In particular, the PE of BABA (around 10x) is so low that it implies a permanently stagnating business despite the tremendous growth opportunities mentioned above. In particular, its cloud segment and International Commerce Retail segment, including Lazada and AliExpress, offer plenty of growth potential.
What's the best way to buy diversified value? The default answer is usually Vanguard's Value ETF (VTV), at least judging by assets under management of $153 billion, but you can make a pretty good case that the Schwab Fundamentals U.S. Large Company ETF (NYSEARCA:FNDX) will do better over the next ten years. While the term "value" is not included in its name, it's clear that the "fundamentals" methodology gives this ETF a strong tilt to value. This methodology also explains why FNDX is also likely to outperform both the Vanguard S&P 500 Index ETF (VOO). Why should this be so?
The Schwab FNDX is in effect both a broad large cap index and the value version of that index. The one index ETF it does not compete with is the Growth Index (VUG). It will trail the Growth ETF when tech and other high growth companies are hot, as they have been over most of the last 15 years, but they're very much not hot right now. It's in the midst of a severe correction based on rates, growth and a few operating factors. The growth correction may well be part of a multi-year tilt to value it's entirely possible that over the next few years the Schwab Fundamentals ETF will beat all three cap-weighted index ETFs: VOO, VTV. and VUG. This article will attempt to explain its likely ascendence.
The last decade up until late 2021 was a period of growth dominance, and in the process the growth leaders grew to such size that they came to dominate the performance of the Total S&P 500 Index. This powerful influence was owed in large part to the fact that all three Vanguard ETFs are all based on indexes weighted by market cap. There's an ongoing debate about the relative virtues and defects of market cap weighted indexes and "smart-beta" indexes. It starts with the fact that cap-weighted indexes are shaped by market prices while "smart beta" indexes ignore market prices and base their index weightings on such measures as sales, earnings, book value, cash flow, and dividends (sometimes including buybacks). Jumping over market opinion to underlying economic value is very much a Benjamin Graham value investing approach.
Cap weighted indexes are organized by the total market capitalization of their constituent elements. For the S&P 500 index and its Value and Growth partial indexes, all market indexes are updated at the end of daily trading. Companies which win growing favor in the market thus become more important parts of the index while companies losing favor shrink in importance. The major argument in favor of cap weighted indexes is that they automatically get investors into outstanding growth companies as their operating results and future prospects improve. Ultimately, however, it's the market opinion which causes them to rise. The positive argument is that the market in aggregate is always right because prices represent the "Wisdom of Crowds." It's like guessing how many peas are in a barrel or how much an ox weighs. You and I may be very wrong in our guesstimates, but the guesses of a very large number of people tend to average out to a number that's very close.
This principle of "crowd wisdom" was discovered by Francis Galton in 1906 at a livestock fair while watching 800 people bet on the weight of an ox. While estimates varied wildly, the median and mean estimates were both extraordinarily close to the animal's actual weight. This principle works much of the time for many estimating problems. The problem is that from time to time the crowd is very wrong, as when various stock markets became extremely overvalued on crowd enthusiasm. Well known examples include the bubbles in the U.S. market leading up to 1929 and 2000 Crashes as well as the Japanese bubble leading up to Crash starting in 1989. In many cases what begins as the Wisdom of Crowds eventually overshoots and displays the Madness of Crowds.
Cap-weighted indexes have an obvious vulnerability to these bubbles and crashes, and the current bear market led by former tech favorites may be an example of such a correction (so far not a crash). The wisdom of crowds got index investors into growth stocks as they began to emerge and kept investors in them as they grew into dominant companies while the critical faculties of the crowd diminished. The madness of crowds may ultimately tell you that a single tulip bulb is worth tens of thousands of dollars, and who are you to say it isn't. The South Sea Bubble got Isaac Newton in, then out when prices got ridiculous, then back in when the crowd continued to push prices higher.
One determined value investor concluded that the solution to the radical overvaluation problem is to use an index grounded in economic fundamentals instead of crowd opinion. In 2002 Rob Arnott founded Research Associates and in 2004 brought out the RAFI Fundamental Index based on sales, profits, book value, free cash flow, and dividends. In this interview with Robert Stowe in 2015 noted the success of the PowerShares Fundamental ETF, now PRF, which had beaten iShares Russell 1000 ETF by .98% annually over its first 10 years, with growth in AUM which he attributed to the fact that investors were frustrated from being "pulled into one bubble after another" by the cap weighted indexes.
Jumping over market opinion to underlying economic value is a very an extension of Benjamin Graham value investing principles to an index. In Graham terms, cap weighting reflects the view of the market as what Graham called a "voting machine." while weighting based on underlying metrics of value corresponded to Graham's characterization of a "weighing machine." At the time Graham wrote his great investment books, Security Analysis and The Intelligent Investor, Graham dealt only with individual stocks as index funds would not appear for another 40 years. The problem this posed by individual stocks was that it was necessary to sell a stock when it reached or exceeded fair value and find another to replace it. The smart beta RAFI index solved this problem by using the ratio of price to a variety of value measures in order to rebalance within the index. Overpriced stocks don't go away, they simply shrink in importance within the index.
The groundwork for creating the RAFI index comes from two articles Arnott published in the early 2000s. The first, coauthored with the legendary Peter Bernstein, argued that even after the 2000 dot.com Crash, the risk premium investors assigned to stocks was much too high, producing overblown expected future returns of 12% or more. The Arnott/Bernstein forecast of zero was matched by the actual zero return of stocks for the decade of the 2000s. This 2003 article with Clifford Asness argued further that dividends actually correlated to faster growth as managements did not use cash not paid out in dividends to make investments which added to growth. This observation has been borne out by the actions of many of the top tech companies over the last decade which have proved unable to invest surplus free cash flow profitably. This study undoubtedly provided some of insight that makes dividends an important factor in smart beta portfolios.
In this article with William J Bernstein published in 2019 Arnott pulled together these views arguing that investor expectations that earnings growth could exceed growth in GDP was misplaced. Money saved by not paying dividends was not profitably plowed back into investments which increased growth. In the slow motion crash of tech stocks currently in progress this problem afflicts companies like Meta (META) and Alphabet (GOOG, GOOGL) whose investments of gushing free cash have been described as "science projects." It's worth a look at the methodology which led cap weighted indexes to become so top-heavy in a few tech and new business model companies.
Market cap weighting is straightforward and indisputable. It's all you need for an index like the S&P 500. Just establish market cap by multiplying shares outstanding by that day's closing price, then rank the constituent elements in descending value. You then calculate the percentage each stock represents and tweak the index holdings to match these percentages. Easy peasy, like estimating peas in a barrel. Where it gets a little tougher is deciding what you mean by "growth" and "value." The University of Chicago Center For Research Into Security Prices (CRSP) used by Vanguard has the following criteria for Growth and Value:
GROWTH FACTORS USED IN MULTI-FACTOR MODEL
The estimates for both long- and short-term growth are sourced from I/B/E/S (Institutional Brokers' Estimate System) which derives data from over 18,000 analysts. This, again, is highly dependent upon the wisdom of a crowd - in this case a very specific crowd which is known to make errors from time to time. Many studies have shown that estimates of future sales, earnings, and cash flow tend are often wrong. The above section on smart-beta lays out a few of the reasons. Estimates of future growth thus hang upon conjecture, the very stuff of crowd wisdom, which is right until it's wrong. Perhaps even more important is the complete absence of anything involving price or valuation. It's as if there is never too much to pay for growth.
The Value model below is different in that price and valuation are involved in all five criteria. Note that the terminology reverses common practice. Price-to-Book Value, for example, becomes Book Value To Price, making both comparable to Dividend Yield. Here are the five factors.
While price is a factor for the Value model, it's important to note that it's used only for classification of stocks for placement in Growth and Value indexes. They play no part in weighting, however, as that is done entirely on the basis of capitalization.
It should not be surprising that the criteria for Fundamental weighting has some similarities to the CRSP criteria for Value. There are only so many ways to measure "economic footprint." The major difference in weighting, where market cap means nothing and weighting in the Fundamental index is driven entirely by rankings assigned on the basis of sales, book value, dividends plus buybacks and free cash flow. Instead of future earnings, a single number is assigned to Profits. Some or all of the above numbers become the raw data for stock weightings. This data is then compared to stock price. The market capitalization has no role at all.
These subtle shifts serve to pull so-called "value" and "growth" into a single large index drawn not from the S&P 500 but from the larger Russell 1000 or an index of large and mid caps. For this reason, FNDX, the Schwab Fundamental U.S. Large Cap Index, can be compared to both the universe of large cap stocks and the large cap value index. It includes all the stocks in the former while the reduction of the influence of growth stocks makes it comparable to a Value index like VTV. It's very similar to the Invesco FTSE RAFI U.S. 1000 ETF (PRF) which holds about a third more stocks, all smaller caps.
Here's a table comparing the important metrics:
Vanguard Value ETF (VTV)
|Schwab Fundamental U.S. Large Company Index (FNDX)||Invesco FTSE RAFI US 1000 ETF (PRF)||Vanguard S&P 500 ETF (VOO)||Vanguard Growth ETF (VUG)|
|Number of stocks||341||719||999||503||249|
|Median Mkt Ca[||$119.5||$93.4 billion||$76.7||$147.0||$222.0|
The numbers which stand out here are P/E, P/B. and earnings growth. The PRF Index ETF in particular is cheaper as measured by P/E and P/B ratios, yet enjoyed faster growth than Vanguard's Value. It also pays a much higher dividend. In all cases this was aided by the fact that it includes more mid-cap and small-cap stocks in its 999 stock portfolio. Small cap stocks, like the 7% covered in the Morningstar Small Cap Index, now trade at a P/E ratio of 12.6 as compared to the 20.2 P/E ratio of large caps while mid caps trade around a 13.5 P/E. While P/E ratios and earnings growth are pulled higher in VOO, and higher yet in VUG (Growth) by the large tech winners, the deep value stocks among small and mid-caps surprisingly pull earnings growth higher than the numbers for large cap value.
The larger number of stocks included in two fundamental index funds also contributes to the higher level of turnover. This a factor in their higher expense ratios, while the much cheaper Vanguard expense ratios are aided by their larger Assets Under Management.
The table below shows relative representation in key market sectors. The important numbers include the fact that HealthCare is almost three times the weight in VTV (Value) as in VUG (Growth), while there's five times as much Tech in (VUG) as in (VTV). Both Fundamental Indexes contain more HealthCare than VUG and more Tech than VTV, reflecting the fact that some HealthCare and Tech companies omitted from the Value and Growth ETFs are included though in smaller size in the Smart-Beta format, which also includes smaller Tech and Health Care companies. The massively larger P/E and P/B ratios of the Growth ETF (VUG) suggest the degree to which positive market opinion, the supposed "Wisdom of Crowds," exceeds fundamental factors. The fundamentalist perspective is that future growth is a matter of conjecture and often not borne out by facts.
Since inception in 2005 the Invesco FTSE RAFI US 1000 ETF (PRF) has trounced Vanguard's Value Index ETF (VTV) as shown in the chart below, and that's before the impact of dividends which are higher for PRF. This first few years were friendly to small cap stocks, but the period following the Great Recession featured large caps. A similar comparison to the Large Cap Growth index (VUG) would show growth winning narrowly on price before dividends. Dividends would Strengthen the performance of the Fundamental index by more than 1% annually and make the two indexes in a dead heat.
The Schwab Fundamentals Large US Company Index ETF (FNDX) has only been around since 2013 but here's the chart showing that the Fundamentals Index also trounced the cap weighted Value Index over that period.
One might well wonder whether the Smart Beta indexes actually beat a simple equal-weight index. There is a similarity in the fact that both lack the growth behemoths on cap weighted scale. Here's the chart:
The chart confirms the fact that Smart Beta beats equal weight. It does so, by the way on all time frames, with the gap widening as time increases. The factors which make the Smart Beta approach beat Equal Weight are apparent after a bit of thought about the implications of the following table:
|1. Apple 3.72%||1.ExxonMobil 2.79%||1.AristaNetworks. 52%|
|2. ExxonMobil 2.78%||2. Berkshire Hathaway 2.46%||2. AT&T .52%|
|3. Berkshire Hathaway1.99%||3. Apple 1.88%||3. Arista Networks .51%|
|4. Microsoft 1.92%||4. Chevron 1.80%||4. Cisco Systems .50%|
|5. JP Morgan 1.85%||5. JP Morgan 1.78%||5. Motorola .49%|
|6. Chevron 1,75%||6. AT&T 1.68%||6. Comcast A .48%|
|7.AT&T 1.64%||7. Microsoft 1.60%||7. T-Mobile US .47%|
|8.Walmart 1.34%||8. Johnson & Johnson 1.26%||8. Ciena Corp .46%|
|9. Wells Fargo 1.31%||9, Wells Fargo 1.20%||9. Charter Comm ..45%|
|10. UnitedHealth 1.28%||10. UnitedHealth 1.18%||10. Ubiquiti .44%|
|723 Holdings||1003 Holdings||999 Holdings|
The key numbers are the percentages of the individual stocks and the total percentage of the top 10 stocks. The fact that the top 10 stocks in both Smart Beta indexes contain upwards of 20% of the total index shows that the criteria for selection were very much able to pick companies with outstanding "economic value." While the weight of the top 10 is nothing like their 48% of the Growth Index (VUG), it's not far short of the 27% in the S&P 500 (VOO). The short answer as to why the Fundamentals Indexes beat the equal-weight index is that while they bear some similarity to equal weight, their weightings leave room for overweighing companies which are superior on underlying measures of value.
The majority of the top ten in both Fundamentals ETF are value stocks ranging from Berkshire Hathaway (BRK.A)(BRK.B) and UnitedHealth (UNH) to more out of favor stocks such as two large integrated large-cap oil companies, Exxon Mobil (XOM) and Chevron (CVX). What this communicates to individual investors is that these stocks are undervalued by the cap weighted indexes. Put more precisely, XOM and CVX rank quite a bit higher when ranked by fundamentals than when ranked by the aggregate opinion of the crowd.
Even more intriguing is the fact that Apple (AAPL) and Microsoft (MSFT), which do not appear in Value indexes but are ranked No. 1 and No. 2 in both the Total S&P 500 Index and the Growth Index were also ranked in the top four of both Smart Beta indexes. One effect is that the 3.72%% representation of Apple in the Schwab Index (FNDX) is about seven times its weighting in the equal weight index. The second takeaway is that fundamental weightings go a long way in assessing how much of the high rankings of rapid growth stocks stems from market opinion and how much stems from underlying fundamentals.
For Apple and Microsoft investors that's good news, as the two stocks are ranked high in the factors used by both fundamentals indexes. In short, they rose to the top on concrete results rather than market infatuation. For investors interested in these companies it may further suggest that their position in the Vanguard indexes is grounded in real value as well. Neither AAPL nor MSFT are necessarily cheap buys, but their prices seem closer to a fair value based on results than other growth leaders. Investors in the integrated oils might also take comfort in the knowledge that crowd conjecture seems to be overruling solid fundamentals.
Every method from the comparative metrics to price charts suggests that the two ETFs constructed on fundamentals, FNDX and PRF, are likely to outperform cap weighted indexes for a period of years. They may, in fact, also outperform cap weighted growth which is burdened with growth stock valuations which have not yet come down to earth. They also should continue to outperform equal weight indexes which appear somewhat more similar than they really are.
Both fundamentals indexes have their points. FNDX has performed slightly better than PRF (1-2%) in Vanguard tables of 1, 3, 5, and since origin tables. It also has the lower expense ratio, .25% versus .39% for PRF. PRF might be the choice of some investors because of its larger 3.12% dividend. My choice is FNDX, and it is a Buy.
The MarketWatch News Department was not involved in the creation of this content.
Dec 02, 2022 (The Expresswire) -- Final Report will add the analysis of the impact of Russia-Ukraine War and COVID-19 on this industry.
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Global Online Books Scope and Market Size
Online Books market is segmented by company, region (country), by Type, and by Application. Players, stakeholders, and other participants in the global Online Books market will be able to gain the upper hand as they use the report as a powerful resource. The segmental analysis focuses on revenue and forecast by Type and by Application in terms of revenue and forecast for the period 2016-2027.
Online Books Market is further classified on the basis of region as follows:● North America (United States, Canada and Mexico) ● Europe (Germany, UK, France, Italy, Russia and Turkey etc.) ● Asia-Pacific (China, Japan, Korea, India, Australia, Indonesia, Thailand, Philippines, Malaysia and Vietnam) ● South America (Brazil, Argentina, Columbia etc.) ● Middle East and Africa (Saudi Arabia, UAE, Egypt, Nigeria and South Africa)
This Online Books Market Research/Analysis Report Contains Answers to your following Questions● What are the global trends in the Online Books market? Would the market witness an increase or decline in the demand in the coming years? ● What is the estimated demand for different types of products in Online Books? What are the upcoming industry applications and trends for Online Books market? ● What Are Projections of Global Online Books Industry Considering Capacity, Production and Production Value? What Will Be the Estimation of Cost and Profit? What Will Be Market Share, Supply and Consumption? What about Import and Export? ● Where will the strategic developments take the industry in the mid to long-term? ● What are the factors contributing to the final price of Online Books? What are the raw materials used for Online Books manufacturing? ● How big is the opportunity for the Online Books market? How will the increasing adoption of Online Books for mining impact the growth rate of the overall market? ● How much is the global Online Books market worth? What was the value of the market In 2020? ● Who are the major players operating in the Online Books market? Which companies are the front runners? ● Which are the latest industry trends that can be implemented to generate additional revenue streams? ● What Should Be Entry Strategies, Countermeasures to Economic Impact, and Marketing Channels for Online Books Industry?
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Our research analysts will help you to get customized details for your report, which can be modified in terms of a specific region, application or any statistical details. In addition, we are always willing to comply with the study, which triangulated with your own data to make the market research more comprehensive in your perspective.
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Detailed TOC of Global Online Books Market Insights and Forecast to 2028
1 Online Books Market Overview
1.1 Product Overview and Scope of Online Books
1.2 Online Books Segment by Type
1.2.1 Global Online Books Market Size Growth Rate Analysis by Type 2022 VS 2028
1.3 Online Books Segment by Application
1.3.1 Global Online Books Consumption Comparison by Application: 2022 VS 2028
1.4 Global Market Growth Prospects
1.4.1 Global Online Books Revenue Estimates and Forecasts (2017-2028)
1.4.2 Global Online Books Production Estimates and Forecasts (2017-2028)
1.5 Global Market Size by Region
1.5.1 Global Online Books Market Size Estimates and Forecasts by Region: 2017 VS 2021 VS 2028
1.5.2 North America Online Books Estimates and Forecasts (2017-2028)
1.5.3 Europe Online Books Estimates and Forecasts (2017-2028)
1.5.4 China Online Books Estimates and Forecasts (2017-2028)
1.5.5 Japan Online Books Estimates and Forecasts (2017-2028)
1.5.6 South Korea Online Books Estimates and Forecasts (2017-2028)
2 Market Competition by Manufacturers
2.1 Global Online Books Production Market Share by Manufacturers (2017-2022)
2.2 Global Online Books Revenue Market Share by Manufacturers (2017-2022)
2.3 Online Books Market Share by Company Type (Tier 1, Tier 2 and Tier 3)
2.4 Global Online Books Average Price by Manufacturers (2017-2022)
2.5 Manufacturers Online Books Production Sites, Area Served, Product Types
2.6 Online Books Market Competitive Situation and Trends
2.6.1 Online Books Market Concentration Rate
2.6.2 Global 5 and 10 Largest Online Books Players Market Share by Revenue
2.6.3 Mergers and Acquisitions, Expansion
3 Production by Region
3.1 Global Production of Online Books Market Share by Region (2017-2022)
3.2 Global Online Books Revenue Market Share by Region (2017-2022)
3.3 Global Online Books Production, Revenue, Price and Gross Margin (2017-2022)
3.4 North America Online Books Production
3.4.1 North America Online Books Production Growth Rate (2017-2022)
3.4.2 North America Online Books Production, Revenue, Price and Gross Margin (2017-2022)
3.5 Europe Online Books Production
3.5.1 Europe Online Books Production Growth Rate (2017-2022)
3.5.2 Europe Online Books Production, Revenue, Price and Gross Margin (2017-2022)
3.6 China Online Books Production
3.6.1 China Online Books Production Growth Rate (2017-2022)
3.6.2 China Online Books Production, Revenue, Price and Gross Margin (2017-2022)
3.7 Japan Online Books Production
3.7.1 Japan Online Books Production Growth Rate (2017-2022)
3.7.2 Japan Online Books Production, Revenue, Price and Gross Margin (2017-2022)
3.8 South Korea Online Books Production
3.8.1 South Korea Online Books Production Growth Rate (2017-2022)
3.8.2 South Korea Online Books Production, Revenue, Price and Gross Margin (2017-2022)
4 Global Online Books Consumption by Region
4.1 Global Online Books Consumption by Region
4.1.1 Global Online Books Consumption by Region
4.1.2 Global Online Books Consumption Market Share by Region
4.2 North America
4.2.1 North America Online Books Consumption by Country
4.2.2 United States
4.3.1 Europe Online Books Consumption by Country
4.4 Asia Pacific
4.4.1 Asia Pacific Online Books Consumption by Region
4.4.4 South Korea
4.4.5 China Taiwan
4.4.6 Southeast Asia
4.5 Latin America
4.5.1 Latin America Online Books Consumption by Country
5 Segment by Type
5.1 Global Online Books Production Market Share by Type (2017-2022)
5.2 Global Online Books Revenue Market Share by Type (2017-2022)
5.3 Global Online Books Price by Type (2017-2022)
6 Segment by Application
6.1 Global Online Books Production Market Share by Application (2017-2022)
6.2 Global Online Books Revenue Market Share by Application (2017-2022)
6.3 Global Online Books Price by Application (2017-2022)
7 Key Companies Profiled
7.1 Company 1
7.1.1 Company 1 Online Books Corporation Information
7.1.2 Company 1 Online Books Product Portfolio
7.1.3 Company 1 Online Books Production, Revenue, Price and Gross Margin (2017-2022)
7.1.4 Company 1 Main Business and Markets Served
7.1.5 Company 1 latest Developments/Updates
8 Online Books Manufacturing Cost Analysis
8.1 Online Books Key Raw Materials Analysis
8.1.1 Key Raw Materials
8.1.2 Key Suppliers of Raw Materials
8.2 Proportion of Manufacturing Cost Structure
8.3 Manufacturing Process Analysis of Online Books
8.4 Online Books Industrial Chain Analysis
9 Marketing Channel, Distributors and Customers
9.1 Marketing Channel
9.2 Online Books Distributors List
9.3 Online Books Customers
10 Market Dynamics
10.1 Online Books Industry Trends
10.2 Online Books Market Drivers
10.3 Online Books Market Challenges
10.4 Online Books Market Restraints
11 Production and Supply Forecast
11.1 Global Forecasted Production of Online Books by Region (2023-2028)
11.2 North America Online Books Production, Revenue Forecast (2023-2028)
11.3 Europe Online Books Production, Revenue Forecast (2023-2028)
11.4 China Online Books Production, Revenue Forecast (2023-2028)
11.5 Japan Online Books Production, Revenue Forecast (2023-2028)
11.6 South Korea Online Books Production, Revenue Forecast (2023-2028)
12 Consumption and Demand Forecast
12.1 Global Forecasted Demand Analysis of Online Books
12.2 North America Forecasted Consumption of Online Books by Country
12.3 Europe Market Forecasted Consumption of Online Books by Country
12.4 Asia Pacific Market Forecasted Consumption of Online Books by Region
12.5 Latin America Forecasted Consumption of Online Books by Country
13 Forecast by Type and by Application (2023-2028)
13.1 Global Production, Revenue and Price Forecast by Type (2023-2028)
13.1.1 Global Forecasted Production of Online Books by Type (2023-2028)
13.1.2 Global Forecasted Revenue of Online Books by Type (2023-2028)
13.1.3 Global Forecasted Price of Online Books by Type (2023-2028)
13.2 Global Forecasted Consumption of Online Books by Application (2023-2028)
13.2.1 Global Forecasted Production of Online Books by Application (2023-2028)
13.2.2 Global Forecasted Revenue of Online Books by Application (2023-2028)
13.2.3 Global Forecasted Price of Online Books by Application (2023-2028)
14 Research Finding and Conclusion
15 Methodology and Data Source
15.1 Methodology/Research Approach
15.1.1 Research Programs/Design
15.1.2 Market Size Estimation
15.1.3 Market Breakdown and Data Triangulation
15.2 Data Source
15.2.1 Secondary Sources
15.2.2 Primary Sources
15.3 Author List
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Artificial intelligence, or AI, is everywhere right now. In truth, the fundamentals of AI and machine learning have been around for a long time. The first primitive form of AI was an automated checkers bot which was created by Cristopher Strachey from the University of Manchester, England, back in 1951.
It’s come a long way since then, and we’re starting to see a large number of high profile use cases for the technology being thrust into the mainstream.
Some of the hottest applications of AI include the development of autonomous vehicles, facial recognition software, virtual assistants like Amazon’s AMZN Alexa and Apple’s AAPL Siri and a huge array of industrial applications in all industries from farming to gaming to healthcare.
And of course, there’s our AI-powered investing app, Q.ai.
But with this massive increase in the use of AI in our everyday lives, and algorithms that are constantly improving, what are the pros and cons of this powerful technology? Is it a force for good, for evil or somewhere in between?
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There’s no denying there are a lot of benefits to using AI. There’s a reason it’s becoming so popular, and that’s because the technology in many ways makes our lives better and/or easier.
Humans are great. Really, we’re awesome. But we’re not perfect. After a few hours in front of a computer screen, we can get a little tired, a little sloppy. It’s nothing that some lunch, a coffee and a lap around the block won’t fix, but it happens.
Even if we’re fresh at the start of the day, we might be a bit distracted by what’s going on at home. Maybe we’re going through a bad breakup, or our football team lost last night, or someone cut us off in traffic on the way into work.
Whatever the reason, it’s common and normal for human attention to move in and out.
These lapses of attention can lead to mistakes. Typing the wrong number in a mathematical equation, missing out a line of code or in the case of heavy duty workplaces like factories, bigger mistakes which can lead to injury, or even death.
Speaking of tiredness, AI doesn’t suffer from sugar crashes or need a caffeine pick-me-up to get through the 3pm slump. As long as the power is turned on, algorithms can run 24 hours a day, 7 days a week without needing a break.
Not only can an AI program run constantly, but it also runs consistently. It will do the same tasks, to the same standard, forever.
For repetitive tasks this makes them a far better employee than a human. It leads to fewer errors, less downtime and a higher level of safety. They’re all big pros in our book.
This is a big one for us here at Q.ai. Humans simply can’t match AI when it comes to analyzing large datasets. For a human to go through 10,000 lines of data on a spreadsheet would take days, if not weeks.
AI can do it in a matter of minutes.
A properly trained machine learning algorithm can analyze massive amounts of data in a shockingly small amount of time. We use this capability extensively in our Investment Kits, with our AI looking at a wide range of historical stock and market performance and volatility data, and comparing this to other data such as interest rates, oil prices and more.
AI can then pick up patterns in the data and offer predictions for what might happen in the future. It’s a powerful application that has huge real world implications. From an investment management standpoint, it’s a game-changer.
But it’s not all roses. Obviously there are certain downsides to using AI and machine learning to complete tasks. It doesn’t mean we shouldn’t look to use AI, but it’s important that we understand its limitations so that we can implement it in the right way.
AI bases its decisions on what has happened in the past. By definition then, it's not well suited to coming up with new or innovative ways to look at problems or situations. Now in many ways, the past is a very good guide as to what might happen in the future, but it isn’t going to be perfect.
There’s always the potential for a never-before-seen variable which sits outside the range of expected outcomes.
Because of this, AI works very well for doing the ‘grunt work’ while keeping the overall strategy decisions and ideas to the human mind.
From an investment perspective, the way we implement this is by having our financial analysts come up with an investment thesis and strategy, and then have our AI take care of the implementation of that strategy.
We still need to tell our AI which datasets to look at in order to get the desired outcome for our clients. We can’t simply say “go generate returns.” We need to provide an investment universe for the AI to look at, and then give parameters on which data points make a ‘good’ investment within the given strategy.
We’re on the fence about this one, but it’s probably fair to include it because it’s a common argument against the use of AI.
Some uses of AI are unlikely to impact human jobs. For example, the image processing AI in new cars which allows for automatic braking in the event of a potential crash. That’s not replacing a job.
An AI-powered robot assembling those cars in the factory, that probably is taking the place of a human.
The important point to keep in mind is that AI in its current iteration is aiming to replace dangerous and repetitive work. That frees up human workers to do work which offers more ability for creative thinking, which is likely to be more fulfilling.
AI technology is also going to allow for the invention and many aids which will help workers be more efficient in the work that they do. All in all, we believe that AI is a positive for the human workforce in the long run, but that’s not to say there won’t be some growing pains in between.
AI is purely logical. It makes decisions based on preset parameters that leave little room for nuance and emotion. In many cases this is a positive, as these fixed rules are part of what allows it to analyze and predict huge amounts of data.
In turn though, it makes it very difficult to incorporate areas such as ethics and morality into the algorithm. The output of the algorithm is only as good as the parameters which its creators set, meaning there is room for potential bias within the AI itself.
Imagine, for example, the case of an autonomous vehicle, which gets into a potential road traffic accident situation, where it must choose between driving off a cliff or hitting a pedestrian. As a human driver in that situation, our instincts will take over. Those instincts will be based on our own personal background and history, with no time for conscious thought on the best course of action.
For AI, that decision will be a logical one based on what the algorithm has been programmed to do in an emergency situation. It’s easy to see how this can become a very challenging problem to address.
We use AI in all of our Investment Kits, to analyze, predict and rebalance on a regular basis. A great example is our Global Trends Kit, which uses AI and machine learning to predict the risk-adjusted performance of a range of different asset classes over the coming week.
These asset classes include stocks and bonds, emerging markets, forex, oil, gold and even the volatility index (VIX).
Our algorithm makes the predictions each week and then automatically rebalances the portfolio on what it believes to be the best mix of risk and return based on a huge amount of historical data.
Investors can take the AI a step further by implementing Portfolio Protection. This uses a different machine learning algorithm to analyze the sensitivity of the portfolio to various forms of risk, such as oil risk, interest rate risk and overall market risk. It then automatically implements sophisticated hedging strategies which aim to reduce the downside risk of the portfolio.
If you believe in the power of AI and want to harness it for your financial future, Q.ai has got you covered.
Download Q.ai today for access to AI-powered investment strategies.
In this article, we will take a look at the 11 best quality stocks to buy now. If you want to see more stocks in this selection, go to the 5 Best Quality Stocks to Buy Now.
During these uncertain times, when the Federal Reserve is on a mission to fight inflation by increasing benchmark interest rates, including the best quality stocks in your portfolio can help protect your savings. The Federal Reserve has increased the benchmark interest rates by 75 basis points (bps) the past four times to a range of 3.75% to 4%. Experts anticipate a further 50 bps hike when the Federal Reserve meets in December. Federal Reserve officials anticipate that the benchmark interest rate will peak around the 4.6% level over the next year. Meanwhile, some hawkish members of the Federal Reserve anticipate the interest rate to peak at around the 7% mark. Experts also believe that earnings could fall by 8% next year due to macroeconomic uncertainty.
Amidst the bearish market momentum, it can be difficult to make investments in stocks with strong upside potential. Many analysts think that the quality of a stock can be gauged by its intrinsic value, returns, and earnings quality. However, there is no consensus on one particular basis to gauge quality. Some experts believe that price multiples like price-to-book (P/B) value, price-to-cash flow (P/CF), price-to-earnings before interest, taxes, depreciation, and amortization (P/EBITDA), and price-to-earnings (P/E) ratios are sound measures to determine the quality of a stock. Furthermore, low volatility in the bottom line, high asset turnover and margins, low level of debt, and low-risk profile can also be considered indicators of high-quality stocks. In line with these metrics, companies like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA) are considered some of the best quality stocks in the market currently.
Photo by Ruben Sukatendel on Unsplash Our Methodology
We have shortlisted the 11 best quality stocks based on their business fundamentals and earnings quality. These companies have shown strong growth in earnings on a YoY basis and are expected to help investors yield decent returns in the long term. Furthermore, these companies are blue-chip stocks with sound business models and industry-leading positions. Most of these stocks also offer attractive annual dividend yields as of December 5. The stocks have been ranked using Insider Monkey's database of 920 hedge funds as of Q3 2022.
Number of Hedge Fund Holders: 53
Lockheed Martin Corporation (NYSE:LMT) is a Maryland-based aerospace, arms, defense, information security, and technology corporation with a global presence.
The maker of the F-35 fighter has emerged as the biggest contract recipient with the US Department of Defense. Lockheed Martin Corporation (NYSE:LMT) received $39.2 billion worth of contracts from the Pentagon over the last year. Following the better-than-expected Q3 2022 results and an expanded share buyback plan, Peter J. Arment at Baird upgraded Lockheed Martin Corporation (NYSE:LMT) stock from a Neutral to an Outperform rating while maintaining a target price of $513 on October 19.
The analyst believes that the company’s ability to generate strong cash flows is still in place, and the strong buyback plan in a volatile market limits the downside potential of Lockheed Martin Corporation (NYSE:LMT). Furthermore, Lockheed Martin Corporation (NYSE:LMT) is expected to be a beneficiary of a ramped-up global defense expenditure at a time when tensions between global powers are high. The stock offers an annual forward dividend yield of 2.48% as of December 5.
Vltava Fund discussed its outlook on Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter. Here’s what the firm said:
“LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.
LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.
In most NATO countries, which are LMT’s customers, defence outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries. A number of countries have also announced significant increases in defence budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defence…” (Click here to see the full text)
Number of Hedge Fund Holders: 59
The Coca-Cola Company (NYSE:KO) is a Georgia-based beverage company with a global footprint. The company claims that over 1.9 billion servings of its beverages are consumed across more than 200 countries every day.
In a research note issued on October 26, Peter Grom at UBS maintained a Buy rating on The Coca-Cola Company (NYSE:KO) stock and increased the price target from $63 to $68. The analyst termed the Q3 2022 results as strong and the increase in financial guidance as impressive. This was due to organic growth that was able to offset the adverse impact of currency fluctuation. The analyst believes that The Coca-Cola Company (NYSE:KO) can trade at a premium against its peers due to the possibility of strong revenue growth in the upcoming quarters. This makes the risk and reward profile of the stock favorable for potential investors. Experts believe that The Coca-Cola Company (NYSE:KO) has a price leadership position in the market and an advanced top-line growth management strategy that is expected to provide impetus to the top line. The Coca-Cola Company's (NYSE:KO) annual dividend yield stands at 2.74% as of December 5.
Aristotle Capital Management, LLC, shared its stance on The Coca-Cola Company (NYSE:KO) in its Q2 2022 investor letter. Here’s what the firm said:
“The Coca-Cola Company (NYSE:KO), the global beverage business, was a leading contributor for the period. Coca-Cola continues to benefit from the refranchising of its bottling operations and realignment of incentives, catalysts we previously identified. These initiatives are demonstrating their strength in an inflationary and supply-chain-challenged environment. Additionally, the company has focused on evolving its customer engagement practices by leveraging digital and social medias for targeted campaigns, such as the design and launch of Coke Byte in the metaverse. Lastly, Coca-Cola has furthered its transformation into a total beverage company, as it debuted its new Jack Daniel’s Tennessee Whiskey and Coca-Cola ready-to-drink premixed cocktail. Although uncertainties surrounding cost pressures, lockdowns and geopolitical conflicts remain, we believe Coca-Cola is uniquely positioned to successfully continue its transition toward a total beverage business.”
Number of Hedge Fund Holders: 69
Costco Wholesale Corporation (NASDAQ:COST) is the third biggest retailer in the world. The Issaquah, Washington-based company operates as a membership-only big box retailer with large warehouses.
Analysts at Bank of America added Costco Wholesale Corporation (NASDAQ:COST) stock to the 'US 1 List' on November 22. The 'US 1 List' comprises the best investment ideas across all the sectors that are covered by the analysts at Bank of America. Experts believe that retailers like Costco Wholesale Corporation (NASDAQ:COST) will perform strongly through their low-priced private label brands as the consumer is trading down and buying fewer items. The holiday season is expected to provide a boost to the company due to higher consumer spending. Given the raging inflation, people will be looking for value, and Costco Wholesale Corporation (NASDAQ:COST) falls under that category. Furthermore, the company’s membership program is also going strong as the annual renewal rate sits around the 90% mark. The stock's annual payout stands at $3.60, translating into a dividend yield of 0.68% as of December 5.
Cooper Investors shared its outlook on Costco Wholesale Corporation (NASDAQ:COST) in its Q3 2022 investor letter. Here’s what the firm said:
“The US economy continues to run hot – the labour market is extremely tight and a number of executives we spoke to described their challenges in retaining staff and preventing competitors from poaching talent. Industrial companies in particular continue to see record backlogs, with the easing of logistics and supply chain constraints only just starting to have an impact on deliveries and lead times.
In terms of inflationary pressures, the vast majority of our holdings have been able to leverage strong market positions and stakeholder relationships to push pricing through in 2022 such that minimal impact to earnings has occurred. Clearly this is not a lever than can be pulled indefinitely but the more experienced management teams have kept some of their powder dry. Our meeting with management at Costco in Seattle was memorable for several reasons but one was their latent ability to increase member pricing which they have not done in over 5 years (and thus likely to do in 2023)…
…To conclude we’ll return to our meeting with Costco mentioned earlier. The business quality is no secret after decades of incredible execution, but the meeting gave us renewed conviction around Value Latencies in terms of the runway for growth, the focus on enhancing customer value, Costco’s vast buying power (it purchases 30% of the world’s jumbo cashews as one example) and management’s feral focus on the business model and cost discipline.”
Number of Hedge Fund Holders: 70
NIKE, Inc. (NYSE:NKE) is a Beaverton, Oregon-based company known for its footwear, apparel, accessories, and equipment with a sports-based theme. The company is at the eighth position on our list of the 11 best quality stocks to buy now.
On November 15, NIKE, Inc. (NYSE:NKE) increased its quarterly dividend by 11% to 34 cents per share. The company is on track to become a member of the Dividend Aristocrat list as it has been raising its annual dividend for the past 15 consecutive years. On October 13, Rick Patel at Raymond James initiated coverage on NIKE, Inc. (NYSE:NKE) with an Outperform rating and a target price of $99. Although the stock is in the red YTD due to macroeconomic headwinds and industry-specific challenges, the analyst has a long-term bullish take on NIKE, Inc. (NYSE:NKE). Experts believe that the company will continue to grow due to its globally renowned brand, out-of-the-box products, and high growth in emerging markets.
Leaven Partners discussed its outlook on NIKE, Inc. (NYSE:NKE) in its Q3 2022 investor letter. Here’s what the firm said:
“In our last quarterly letter, I briefly mentioned that the consensus estimates for corporate profits appeared to be a bit too sanguine. I referenced a Reuters article that reported, as of June 17, Wall Street expected S&P 500 earnings to grow by 9.6% in 2022, which was up from 8.8% in April and from 8.4% in January. That tune began to change at the end of July and accelerated in August and September, as major players, such as NIKE (NYSE:NKE), has recently issued profit warnings and/or have withdrawn guidance. In response, Wall Street has altered its outlook: lowering third-quarter profit growth to 4.6% from 7.2% in early August and slashing full-year profit growth to 4.5%.”
NIKE, Inc. (NYSE:NKE) was held by 70 hedge funds at the end of Q3 2022.
Number of Hedge Fund Holders: 75
Eli Lilly and Company (NYSE:LLY) is an Indianapolis, Indiana-based pharmaceutical company founded in 1876. The products of the company are sold in over 120 countries and manufactured in seven countries.
Kerry Holford at Berenberg increased the price target on Eli Lilly and Company (NYSE:LLY) from $345 to $375 and maintained a Buy rating on the stock in a research note issued to investors on November 22. The analyst observed that the underlying performance of the large-cap pharma entity is stellar. Furthermore, the early reports regarding the launch of Mounjaro are positive. The injectable for adults suffering from type 2 diabetes has also received a label expansion as a medication against obesity and is expected to roll out by the end of 2023. Experts believe that Eli Lilly and Company (NYSE:LLY) is heading towards a favorable setup with the possibility of donanemab providing more upside in treating Alzheimer's. As of December 5, Eli Lilly and Company (NYSE:LLY) has an annual forward dividend yield of 1.05%.
Eli Lilly and Company (NYSE:LLY) was discussed in the Q3 2022 investor letter of ClearBridge Investments. Here’s what the firm said:
“In the U.S., we initiated a position in pharmaceutical maker Eli Lilly (NYSE:LLY) as it brings out new drug candidates for diabetes and Alzheimer’s disease. New drugs impact diabetes but have also demonstrated significant weight loss for patients who are overweight and have other co-morbidity issues as a result. Lilly is one of the two key players in diabetes care and we believe the potential market opportunity is much higher than the consensus forecasts as we are seeing evidence of accelerating adoption.”
Number of Hedge Fund Holders: 85
Johnson & Johnson (NYSE:JNJ) is a New Brunswick, New Jersey-based pharmaceutical, medical devices, and consumer goods company. The company is focused on spinning off its consumer goods business as a separate publicly listed entity to focus more on the core pharmaceutical and medical devices segment.
To provide impetus to the core business, Johnson & Johnson (NYSE:JNJ) has announced the acquisition of Abiomed, Inc. (NASDAQ:ABMD) for $16.6 billion. The takeover of the Danvers, Massachusetts-based heart, lung, and kidney support device maker reflects the next growth frontier for the company following the success of the COVID-19 vaccine. Experts believe that the spin-off of the consumer division will provide value to the investors. Moreover, Johnson & Johnson (NYSE:JNJ) is targeting to achieve annual revenue of $60 billion through the pharmaceutical and medical devices business by 2025. Experts believe that large-cap pharma stocks provide defensive cover during uncertain times, making Johnson & Johnson (NYSE:JNJ) one of the best quality stocks to buy now. Johnson & Johnson (NYSE:JNJ) is a Dividend King and offers a forward dividend yield of 2.58% as of December 5.
Here's what Mayar Capital said about Johnson & Johnson (NYSE:JNJ) in its Q2 2022 investor letter:
“J&J is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.
Here’s how JNJ make and spend a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopaedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics.
To make that dollar, however, JNJ typically spends about 25 cents to make the products themselves and another 27 cents on marketing and general administrative functions. This leaves JNJ with about 48 cents on the dollar in profit…” (Click here to see the full text)
In addition to Johnson & Johnson (NYSE:JNJ), companies like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA) are also among the best quality stocks to buy now.
Click to continue practicing and see the 5 Best Quality Stocks to Buy Now.
Disclosure: None. 11 Best Quality Stocks to Buy Now is originally published on Insider Monkey.
The internet engineer and entrepreneur Brewster Kahle took a shot at the book publishing industry a few weeks ago by pointing out something well-known to technologists but unappreciated by the general public: that ebooks and other digital artifacts have shorter lifespans than the physical items.
"Our paper books have lasted hundreds of years on our shelves and are still readable," Kahle observed in a post on the website of the Internet Archive, the invaluable historical repository of old web pages and other digital artifacts that he founded in 1996. "Without active maintenance, we will be lucky if our digital books last a decade."
It may be misleading to say that Kahle took a shot at the publishers. More accurately, he took another shot at them. That's because for more than two years Kahle has been embroiled in a bitter court fight with the industry over his effort to make digital copies of copyrighted books and lend them out for free.
We want an ebook to be a book. When you buy an ebook you should have the same rights as a buyer in the physical world.
Brewster Kahle, Internet Archive
Kahle says he's just doing what public libraries do. The publishers who have sued the Internet Archive in federal court in New York — Hachette Book Group, HarperCollins, John Wiley & Sons and Penguin Random House — have a different take.
They say the Archive is engaged in "willful digital piracy on an industrial scale." (HarperCollins is my book publisher.)
What's really happening here is that everyone involved — publishers, online distributors, authors and readers — is trying to come to terms with the capacity of digital technology to overthrow the traditional models of printing, selling and buying readable content.
Publishers and authors are predictably, and rightly, fearful that they'll lose out financially; but it's also quite possible that, properly managed, the technological revolution will make them more money.
To see how this may unfold, let's start with some fundamentals of digitization. Kahle's latest post is a good jumping-off point.
New technologies allow us to convert what's on the printed page into bits and bytes readable by computer. The process can reproduce a printed page exactly, or only the text. Some content begins as a computer file produced by a writer at a keyboard, which can then be used to produce a bound book.
The product can be an ebook, which can appear on the screen exactly like its paper analog, or can provide only the text or a nearly infinite variations of format.
As consumer products, ebooks began to make their mark with Amazon's introduction of its first Kindle e-reader in 2007.
Since then e-formats have proliferated, as have methods for practicing them — dedicated devices, web browsers and apps, smartphones and tablets. What hasn't changed is the turmoil that the digitization of practicing material has produced for publishers and libraries.
That leads us to Kahle's point. It's tempting to regard digital content as eternal, and in some respects it may be — it doesn't degrade as it's recopied, unlike recordings made from masters. On the other hand, as Kahle observed, it's vulnerable to becoming technologically outdated. A digital file produced in one technical format may be unreadable in another; the devices made to read the first version may become obsolete, leaving no way to read content produced for them.
That process can happen with unexpected speed. I have a CD-ROM set of every issue of The New Yorker that can't be read today on my Apple computer, because it was formatted for a Windows operating system that's incompatible with my desktop and Microsoft doesn't even make anymore. (The New Yorker now provides the same archive via the web, but it's available only by subscription, not a one-time purchase.)
By contrast, physical books can survive for centuries, through floods, droughts, heatwaves and deep freezes, and handling by hundreds of readers.
Nevertheless, publishers and librarians persist in thinking of books as perishable and digital files as eternal.
This fundamental error, which prompted libraries all over the world to discard their precious collections of actual books and periodicals in favor of digital facsimilies, was deemed "absolute nonsense" by the novelist Nicholson Baker in his passionate and meticulously researched 2001 exposé "Double Fold."
The ability to make identical copies of printed materials by digital scanning has been a boon for the cause of distributing the accumulated wisdom of the ages, but also a headache for contemporary publishers.
Digital archives of works that have outlived their copyrights make it easy for researchers to access older material; I'm a devoted user of the HathiTrust Digital Library, an enormous archive that was founded in 2008 by the University of California and other major institutions, built from digitized versions of volumes in their libraries.
But publishers and distributors, fearing that the ability to easily create identical digital copies of their products would open the door to unlimited piracy and copyright infringements, have imposed unprecedented restrictions on ownership rights of ebooks.
The industry argues that the Internet Archive's lending library is exactly what they're trying to fight. Kahle says he initially founded the Archive's Open Library to provide free online access to millions of public domain books that had been digitally scanned by the the Archive and a consortium of other institutions.
Eventually the Open Library included some copyrighted books in its stacks. Kahle said in a court declaration that the Archive generally has made its digital scans from print books it owns and that it avoids lending out books less than 5 years old in order to steer clear of contemporary bestsellers as an "accommodations to publishers."
The Archive maintains that allowing those books each to be borrowed by one user at a time and for limited periods for free like library books, a system it calls "controlled digital lending," falls within the "fair use" exception to U.S. copyright law, which allows copies of books or excerpts to be made for research or artistic purposes.
The publishers maintain that the Open Library's unauthorized scans of copyrighted books steps over the fair-use line.
"What's clearly not allowed is the type of systematic, broad-brush copying and public distributions of huge swaths of copyrighted work that Open Library is doing," says Terry Hart, general counsel of the American Assn. of Publishers.
Authors and publishers are afraid that efforts like that of the Open Library will cannibalize commercial, revenue-producing markets, sapping incentives to create and publish.
The ebook market, however, arguably has given publishers greater control over the dissemination of their products than they have had in the past.
In most cases, consumers don't own their ebooks — they've acquired only a limited license for their money. Although Amazon customers click on a button practicing "Buy Now" to acquire a Kindle ebook, the license terms make clear that "buyers" don't get all the rights of conventional book owners.
They can't sell their ebooks and in many cases can't loan them to friends, as they can do with physical books. They can only read their ebooks on an Amazon device or Amazon applications. If they try to evade those terms, Amazon's proprietary digital rights management software embedded in the ebook will prevent them from doing so.
In a notorious 2009 episode, Amazon remotely deleted ebooks of George Orwell's "1984" and "Animal Farm" from customers' libraries without their permission after discovering the publisher lacked rights to the titles in the U.S. Following an uproar, the company restored the books and pledged not to take such a step again.)
In 2019, Macmillan Publishers announced that it would refuse to sell libraries more than one ebook copy of any new title for the first eight weeks after their publication dates. Other major publishers have imposed their own restrictions on ebooks for libraries, including changing perpetual rights to one- or two-year terms and paid renewals.
Macmillan lifted its embargo in March 2020 during the pandemic. But by then the restrictions had motivated some state legislators to consider laws requiring that publishers license ebooks to libraries on the same terms as those offered to consumers. One such law passed in Maryland was overturned in June by a federal judge who ruled that the law was preempted by federal copyright laws; a similar law passed in New York was vetoed by Gov. Kathy Hochul.
Kahle frankly acknowledges that one motivation of the Archive's lending program is to challenge the publishers' control of practicing content.
The publishers "would like to force libraries and their patrons into a world in which books can only be accessed, never owned, and in which availability is subject to the rightsholders' whim," the archive said in its response to the publishers' lawsuit.
"We want an ebook to be a book," he told me. "When you buy an ebook you should have the same rights as a buyer in the physical world. In the same way that people and libraries bought books in the past, they should be able to buy ebooks."
Kahle is right about that. By downplaying the terms of sale, ebook purveyors such as Apple and Amazon are plainly misleading their customers, law professors Aaron Perzanowski of the University of Michigan and Chris Hoofnagle of UC Berkeley wrote in 2016. "Sales of digital media generate hundreds of billions in revenue, and some percentage of this revenue is based on deception," they wrote.
As digital books mature from a novel technology into a quotidian one, there is no reason why the rights conferred by ownership should be materially different from those that come with a book one can hold in one's hands. None, except that publishers and distributors have been able to get away with quietly shrinking those rights.
Perzanowski and Hoofnagle called on the Federal Trade Commission to force publishers to "align business practices with consumer perceptions." That still hasn't happened. Until it does, insurgents such as Kahle will have an incentive to test the limits of copyright law by taking it into their own hands.
That's not good for anybody.
This story originally appeared in Los Angeles Times.
Despite the global gloom, in India, the Sensex and Nifty have hit all-time highs, inflation has eased, and industrial production has surged.
Behind this sustained performance is the resilience of the country’s retail investors. In October 2022, mutual fund SIP inflows zoomed to Rs 13,041 crore, according to AMFI. Equity-linked schemes had an inflow of Rs 9,390.35 crore, even as debt MFs saw an outflow of Rs 2,817.79 crore.
For those already invested in the equity markets, these are exciting times. NSE’s Nifty50 index has generated ~7.3% returns on a year-to-date basis.
Exciting times in the market can go both ways - it can be a time of temptation to exit and book profits, or it can be a clarion call to participate in a bull run; a constant guessing game of what might happen next.
The answer is actually fairly simple and requires no crystal gazing: ignore abrupt entry or exit temptations and continue to go ‘long’ on the India growth story via SIPs.
Equity investment through SIPs allows for long-term wealth creation. It rewards patient investors who do not make abrupt entry or exit decisions. And it is rare to lose money over a 7-10 year investment horizon.
Based on a 19-year analysis, an NSE whitepaper revealed that anyone investing in the Nifty 50 index for five years, at the minimum, has never faced losses. Anyone who has stayed invested for 10 years has enjoyed over 15% of the annualised return. There is more value in holding on to the investments.
2)India’s fundamentals have never been stronger
India’s fundamentals are well intact. Let’s look at the macros: we have the fastest-growing GDP amongst the large nations in the world. We overtook the UK to become the 5th largest economy in the world, and according to a Morgan Stanley report, are set to become the 3rd largest economy by 2027, overtaking Japan and Germany. By 2031, our GDP is set to more than double from $3.5T to $7.5T.
Take even near-term indicators like indirect tax revenues. The government's GST collections rose to Rs 1.51 lakh crore in October 2022. And the GST revenue has stayed consistently above Rs 1.4 lakh crore for the past eight months. India has also become a popular manufacturing destination for technology giants such as Apple and Samsung.
From ‘Make in India’ it has grown to ‘Make in India for the world’. By producing locally, the country has reduced the import bill and increased exports. This means more affordable products and higher disposable income. Our growth story has just started. It will be fruitful to stay invested and watch the change happen.
3)Time in the market is more important than timing the market
Look at this data put together by our team at Upstox: assume you invested Rs 10,000 in the Nifty50 in 2012, it would have grown to Rs 30,631 in 10 years. However, had you missed investing during the five best days of the market, your returns would have gone down to Rs22,625.
It’s quite impossible to predict when those 5 days will be upon you, so it’s best to stay consistently invested through SIPs to make sure you don’t miss the upside.
4)SIPs take away the stress of what-ifs of wealth creation
SIPs are a popular route to get into stocks. This is because of rupee cost averaging, which allows for a periodic investment of a fixed amount of money, irrespective of the market position.
So, investors buy more units when the market falls and fewer units when the market rises. Either way, investors benefit.
But often, the ‘What If’ scenario scares investors into making hasty decisions. What if the investment falls? What if I exit prematurely and lose potential upside?
There are too many ‘what ifs’ on this list, though, India has witnessed extended periods of ‘what ifs’ and still emerged unscathed.
Through a mix of industry best practices and regulatory support, Indian indices have outperformed global peers such as the S&P and Nasdaq.
India is set to have the 3rd largest stock market in the world by 2030, thanks to key global trends and investments in energy and technology. Investor faith and capital injection into the stock market will only accelerate this progress.
Let compounding work its magic.
(The author is co-founder at Upstox)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)