It’s Time to Get Greedy
Welcome to the Schmoozeletter Blog. Your source for weekly water cooler wisecracks from the world of finance. If you have an opinion different than mine or a topic you want to hear about, let me know!
This week, we’re talking about:
It’s Time to Get Greedy
If there’s one thing President Ballroom Blitz hates, it is senseless, ineffective, never-ending regime change wars.
His whole campaign, he made that very clear:
So now that our Master-Negotiator-in-Chief has failed to strike an Art of the Deal with Iran, investors are fearful.
Rightfully so.
The war has brought seemingly predictable consequences:
The price of oil is up.
Meaning inflation predictions are up.
Meaning the likelihood of interest rates being cut is down.
And the market is tanking.
But as the old saying goes:
Be fearful when others are greedy and greedy when others are fearful.
Personally, I prefer the sayings:
It comes with fries
Or
I’m not going to finish this; do you want it?
But I guess that is a bit off topic.
According to CNN’s Fear & Greed Index, we are now at:
So if my man Warren’s saying is correct, then:
It’s Time to Get Greedy
The great thing about the present is we’ve never had more information about companies so readily available to us. The companies tell you what they’re going to do, and analysts give projections with pretty good accuracy.
And yet people still ignore all this and just go off vibes.
Is the stock price of Microsoft, the company that made $38B last quarter, going to zero?
I’d probably get more engagement if I put an eagle emoji in my name and made bold predictions of companies being worthless based on no data whatsoever… hah
But instead, we’ll do some estimates based on available information and get greedy with it.
Microsoft - MSFT
MSFT grew its earnings per share at 15.59% over the past year. MSFT is expected to grow its earnings per share at 17.24% over the next year and 13.76% over the next five years.
If they do what they’re expected to do and trade at a modest 25 PE multiple, the stock price would average a 16.38% annual return from today’s price.
Google - GOOG
GOOG grew its earnings per share at 34.45% over the past year. GOOG is expected to grow its earnings per share at 18.33%over the next year and 15.29% over the next five years.
If they do what they’re expected to do and trade at a modest 25 PE multiple, the stock price would average a 14.99% annual return from today’s price.
Their earnings are growing at 15% so at the same multiple, the stock would go up 15%.
Meta Platforms - META
META grew its income from operations by 20% last year but, due to a big old one-time tax bill, shrank earnings per share by -1.55% over the past year. META is expected to grow its earnings per share at 12.95% over the next year and 22.42% over the next five years.
If they do what they’re expected to do and trade at a modest 25 PE multiple, the stock price would average a 25.16% annual return from today’s price.
Somebody is wired in!
Amazon - AMZN
AMZN grew its earnings per share at 29.66% over the past year. AMZN is expected to grow its earnings per share at 19.65% over the next year and 18.79% over the next five years.
If they do what they’re expected to do and trade at a modest 25 PE multiple, the stock price would average a 16.29%annual return from today’s price.
Tesla - TSLA
TSLA shrank its earnings per share by -47.06% over the past year. TSLA is expected to grow its earnings per share at 2.09% over the next year and 47.00% over the next five years.
If they do what they’re expected to do and trade at a modest 25 PE multiple, the stock price would average a -12.52% annual return from today’s price.
Don’t buy Tesla if you know how math works.
The Market – S&P 500
The market is at 21x forward earnings. It is not incredibly overvalued. It is not incredibly undervalued. Good companies will grow their earnings over the years, and the market will rise as time goes on. It could go down more for a few years, or this could be the bottom.
The important thing to remember is to stay the course. Don’t panic about your portfolio, and don’t panic sell.
Five years from now, when Trump is burning in eternal damnation out of office, you could think back on how you sold everything to put cash under your mattress or how you scooped up the hyperscalers generating oodles of cash when they were at cheap valuations.
