People are scared about the Corona virus and investors are not exempted. This is normal, because we know China is the world’s factory.
Manufacturing and workers play a huge part of the economy and the world’s biggest firms rely on Chinese production. If factory workers cannot go to work due to the virus, companies who are customers will suffer.
Some of the biggest firms like Starbucks and Mc Donalds have closed lots of their branches in China temporarily. Apple and Tesla have stopped their production in China as well.
Amidst the chaos and fear, there are some companies that were not affected that much. These three companies continued to rally and investors are very confident they will remain to be bullish this year.
Despite the pandemic fear, Amazon joined the Trillion Market Cap club where Apple, Microsoft and Google are now all members. Having a trillion market cap means there is a gigantic volume of investors who believe in the potential of a company so much.
Last week Amazon shares jumped to 12.5% upon their earnings release for Q4 of 2019. What we’re interested in is what caused this and how they got to this point.
Amazon’s earnings significantly beat analysts’ expectations. Not even just beating it, but totally blowing it out of the water. The company posted profits of $3.3 billion — or $6.47 per share — compared to analysts’ expectations of $2 billion and $4.03 per share. This is over 50% greater than what people were expecting. Amazon’s (AMZN) revenue shot up 21% to $87.4 billion for the three months ending in December.
Another contributing factor is their Prime subscription. They revealed that they now have 150 million customers in their Prime programme, a YoY increase of 50%.
A key area of investment for Amazon at present is its short-term delivery options, and it plans to spend $1bn to expand that capability in Q1 2020. They are particularly keen on delivering added value through their one-day shipping. They plan to expand the selection of products for one day shipping in Europe and Japan.
As we all know, Amazon also has AWS, which powers Netflix’s servers. Well, Net sales in North America grew by 22% to $53.7 billion in the three months, and Amazon Web Services was up 34% to nearly $10 billion.
Amazon is actually in fierce competition with Microsoft’s Azure offering, which posted 62% growth in the same 3 months.
One of my favorite stocks, as I discussed on “5 Reasons Why I Invest Microsoft Stocks.” Take a quick look into MSFT stock price chart here. I must say, it’s even better than Amazon’s to be honest.
That chart is just majority from 2019 as you can see. And it’s at an all-time high.
Microsoft also released earnings at the same time as Amazon and again, they beat expectations. I won’t go into the numbers, but basically,
Revenue: $36.9 billion (compared to analyst estimates of $35.67 billion), up 14 percent from the same quarter last year.
Earnings per share: $1.51 per share. Wall Street expected $1.32 per share. Shows how much money a company makes for each share of stock. A higher EPS indicates more value because investors will pay more for a company with higher profits.
Profit: $11.6 billion, up 38 percent year-over-year.
Microsoft had so many wins in their earnings report but some to highlight are:
- Surface line: 2% up YoY
- Azure up: 62% YoY
- LinkedIn up: 24%
Aside from this, what drives these numbers?
Microsoft office: it is a cash cow. Office 365 subscription has 37 million paying subscribers, but sales in comparison to enterprise, 200 million monthly active users. Office revenue grew by 16%.
As always, Azure is the big talking point, but diving deeper, Intelligent cloud (AI services) up 27%, Server products and cloud services revenue grew by 30%.
Now, no conversation right now would be complete without covering Tesla. To be completely honest, I did not see this coming, and I think not even insiders would have expected this.
Tesla Dec 2, 2019 – $330
Tesla Dec 31 – $417.
This is nothing to scoff at. The stock gained 26% of its value in a month!
Where was it 1 month later?
Jan 31 – $649 (55% in 1 month)
If you compare to $330 in Dec, 2 months period (97% in 2 months)
Feb 5, – $880 (another 36% growth in less than 1 week)
From $330 – (160% growth in 2 months)
It is nothing short of astounding and has all of Wall Street talking about it. This is not normal. For comparison, The electric car company’s current stock price gives it a market capitalization — a rough proxy for what you could sell the company for — of $160 billion, making it now in league with the value of Salesforce, McDonald’s, Citigroup, and Netflix. That’s also approximately equivalent to the GDP of Algeria. (goosebumps here)
What Might Have Caused This Tesla Surge?
A very big short squeeze
Tesla is a favorite stock for short sellers, investors who make money by betting the stock price is going to go down. Indeed, it’s the most-shorted US equity. But when these investors realize a stock might continue to rise — say, due to a very good earnings report — they’re forced to close out their position and buy the stock to stop further losses. Added demand from Tesla’s short sellers caused what is called a short squeeze, which drives the price of the stock even higher.
A very good earnings report
Tesla’s fourth-quarter earnings report last week beat analysts’ earnings expectations. It’s forward-looking estimates were sunny, too, with the electric car company promising to grow sales by a third this year. A month earlier, the company had announced record vehicle sales and deliveries, which had been a continual worry for shareholders who questioned whether the company could meet its lofty production goals. Altogether, these amount to reasons for shareholders to expect the stock to be worth more in the future.
A pleasant surprise with Model Y
Tesla announced last month that it’s going to deliver its crossover SUV, the Model Y, months ahead of schedule. Originally slated for fall 2020, Tesla expects the highly anticipated Model Y to ship next month.
A very good TV spot
On Tuesday, major Tesla investor Ron Baron went on TV to say he thought the company could reach $1 trillion in revenue in 10 years. For context, Tesla’s 2019 revenue was $24 billion. Baron, whose investment firm already holds almost 1.63 million Tesla shares, said in the interview that if it were up to him, he’d buy even more.
Mainstream popularity attracts inexperienced investors
Remember when everyone and their grandmother was talking about bitcoin at Thanksgiving dinner? That level of widespread popularity for an investment causes serious demand. It’s also a serious warning sign that things are getting too heated. CNBC reported that lots of new investors are buying Tesla stock at its now very high price, with 12,000 accounts on consumer stock trading app Robinhood buying it for the first time yesterday. It’s currently the fastest-growing stock holding on the site.
It remains to be seen how Tesla will fare, and everyone should be aware of the risks, but it is available to trade for the adventurous investor. I just have to say that in eToro, you can invest in Tesla with just $50. Yes, PHP 2500 pesos.
Invest During Turbulent Times
Want to invest excellent stocks? You can test it out with eToro’s free virtual account where they give you $100K to test. Even better, you can copy me and other experienced traders who know how to navigate the markets during chaotic times as well.
Stock Market Tips: