Equity Wednesday : Getting Ready For Apple-Baba
Some lessons from the top 20.
We know we had a banking crisis when we check the top 20 market caps of the world over 7 years and find that the number of banks/financial companies have decreased.
Phone companies, oil companies, motor companies, Chinese and Russian companies are gone from the top 20.
And do you realise that if Alibaba makes it to the list, it will be the next virtual company, other than Google, to be in the rich list ?
My fund manager friend Zico does not consider them internet companies anymore, or virtual companies or tech stocks for that matter. They are utility companies that are basically conglomerates catering to the retail shopping business and taking over the world from traditional retailers.
Apple is not a tech stock (https://tradehaven.net/market/repeat-after-me-apple-is-not-a-tech-stock/) It is a consumer stock, a product we buy as if it were a fridge or a washing machine.
And we have the aging trend – healthcare and more healthcare. Zico took profit off Amgen last night at $138 and is looking at Gilead Sciences now.
From the list above, we also know that stock buybacks has resulted in many of the stocks falling off the top 20.
Table : Stock buybacks for past 12 months
Thus we can see that IBM would be in the top 20 if they had not bought back stock in the past 12 months. Then again, their stock price would not be higher if they had not done so.
Mergers And Acquisitions
If we had been following the headlines, the pharmaceutical M&A spree back in mid year churned out some mind blowing numbers. AstraZeneca for Pfizer at 124.5 bio (rejected), Allergan for Valeant at 54.2 bio, Forest Labs for Actavis at 20 bio and Covidien Plc for Medtronic Inc at 46.2 bio. The top 10 M&A deals in the past 12 months is dominated by pharma deals.
Then we have these virtual company takeovers. Facebook buying Whatsapp users for 18 bio, giving big value to user bases and valuations that mean little except for future revenue projections that only “experts” can calculate. If we remember, MSN Messenger had 300 million users a long time ago just as Whatsapp has 600 million now.
The market trades on sentiments and the Apple announcement last night was a game changer even though we really do not know how many Apple fans are going to buy that new watch or that phone (because I am still using the 3G and I like it).
Apple in the past decade has been all about that Phone ! Not any phone but the iPhone.
50% of users were on the iPhone OS in 2010. They have been overtaken by the Android these days.
The Apple watch and the Apple credit card too are just waiting for the latest Samsung or Xiaomi versions.
Alibaba has the same problem if you ask me. Starting out as a shopping site that has expanded into logistics and banking and chats and more.
It is hard to stay on top (that is why I always liked to be second). Reading that China’s richest man who owns Wanda (owns 75 department stores, 85 shopping plazas and 51 five-star hotels) is teaming up with Baidu and Tencent to take on Alibaba is a WORRY. http://www.businessinsider.com/chinas-richest-man-is-teaming-up-with-baidu-and-tencent-to-take-on-alibaba-2014-8?IR=T&
My friend was just complaining to me that *%$#!!! Jack Ma charged her 5 yuan for her Visa Alipay transaction in which she bought some “Nike” shoes for about SGD 30 bucks.
So why not Alibaba team up with Apple to give away free Apple Phone/Watches to their top 1% monthly users ?
In a time when Chinese merchants are expecting that China’s demand for iPhones is cooling, I am sure it would be a win-win situation and it could well be the beginning of a beautiful friendship as Rick said.
Ps : I am not superstitious but Alibaba has a certain dark miasma about them everytime they try to IPO.
I am expecting another 2-3% correction of the S&P 500 into the FOMC next week.