Weekly Report / April 30 – May 4, 2018

The General Market

Balancing Optimism and Skepticism

 

ALL three main U.S. benchmarks ended in green territory although trading was relatively subdued. Despite the optimism about strong first-quarter earnings and improving economic growth, investors are trying to grapple with the timing of interest rate hike by the Feds and skepticism on striking a favorable deal with China.

The blue-chip Dow Jones Industrial Average advanced 332.36 points on Friday but lower compared with the previous week’s close. The broader S&P 500 Index advanced by a slight 33.69 pointed and likewise finished lower versus last week. The tech-heavy Nasdaq Composite Index pushed forward by 121. 47 and improved its close from April 27.

https://www.marketwatch.com/story/us-stock-futures-tip-lower-in-countdown-to-jobs-data-2018-05-04?dist=markets

News Highlights

Disney scores big with the Avengers: Infinity War

The Walt Disney Co. (DIS) announced on Saturday that the earnings of the movie Avengers: Infinity War of Disney-Marvel Studios reached under $975 million in global box office through Friday. The film earned nearly $70 million on Friday alone. The latest movie of the superhero saga is poised to pass the billion-dollar mark on Saturday or just 11 days since release.

“Star Wars: The Force Awakens” took on 12 days to make $1 billion and that record is about to be erased. The movie Avengers: Infinity Wars made an estimated $630 million at the worldwide box office for its opening weekend. That shatters the record for biggest worldwide opening held by Universal’s “The Fate of the Furious,” which made $541 million for its global opening last year.

http://business.financialpost.com/pmn/business-pmn/infinity-war-to-set-record-fastest-to-surpass-1-billion

Trump Extends Tariff Exemptions for Key Trade Partners

On Monday, U.S. President Donald Trump extended the steel and aluminum tariffs exemptions of Canada, the European Union and Mexico. The temporary exemptions were due to expire on May1. Trump’s postponement is until June 1.

Meanwhile the White House also announced the agreements for permanent exemptions with Argentina, Australia and Brazil.  The three countries are finalizing the details of the deals.

U.S.-China Begin Trade Talks

U.S. Treasury Secretary Steven Mnuchin flew to Beijing along with members of the American delegation that will begin wide-ranging talks with Chinese representatives. The White House is looking to focus on three major issues: intellectual property, key technology secrets, and currency manipulation.

April Jobs Report

The U.S. Labor Department released on Friday the jobs report for April. The economy added 164,000 jobs as  the unemployment rate drops from 4.1% to 3.9%, matching its lowest level since 2000. Last month’s job gains did not meet the 190,000 but the job growth is still good because the three-month average is above 200,000.

Information Technology Sector

 

Apple Inc. (AAPL) – The Best Week of APPLE

 

It was the best week of Apple Inc. on Wall Street after six and half years. The world’s largest technology company owned the week. Warren Buffet, the celebrated value investor, also boosted the shares with an endorsement.

A new growth engine emerges

Apple still beat profit and revenue expectations in the first quarter despite the adverse feedbacks on iPhone sales. Actually, sales have picked up but a new growth engine helped save the day.

The software and services segment bears fruit, growing by a remarkable 31% during the first quarter. The revenue from app purchases and subscriptions made through the App Store as well as Apple’s own services like Apple Music, iCloud and Pay Apple reached $9.19 billion, beating analysts’ $8.3 billion estimates.

Shares of the technology giant jumped as much as 5.1% on Wednesday after the company released its fiscal second-quarter earnings. The bullishness of investors AAPL reflects the company’s better-than-expected revenue, earnings per share, and guidance.

https://www.fool.com/investing/2018/05/02/why-apple-inc-stock-popped-5-wednesday.aspx

Apple gives back to shareholders

Apple Inc. also made history as it spent $23.5 billion in the first quarter of 2018 to buy back its own stocks. No company has spent that much in a quarter for the purpose of a stock buyback. The company is already earmarking an additional $100 billion for the succeeding rounds of stock buybacks.

The size of the allocation is about twice the $50 billion market capitalization of electric car maker Tesla Inc. (TSLA). Some investors are suggesting that the company utilize the funds in other strategic investments and not just buybacks. As to dividend payments, the company plans to increase its dividend rate from last year’s 10.5% to 16%.

Not entirely dependent on the iPhone

The actual iPhone sales of $52.2 million bested the $50.7 million total sales last year. Apple Inc. is forecasting the revenue by the end of June could range somewhere between the $51.5 to $53.5 billion range. That is within Wall Street’s $51.6 projection.

Apple’s CEO Tim Cook believes the top of the line iPhone X is still their Super Bowl winner. Although there’s a muted demand, it was the most popular model every week during the March quarter. It remains the top draw but the tech giant can depend on their software and services to bear fruit regardless of the season.

https://www.cnet.com/news/iphone-x-was-best-selling-smartphone-in-early-2018/

Berkshire Hathaway buys more Apple shares

Billionaire Warren Buffett used to call Apple’s iPhone as “a very sticky product.” However, Buffett changed his tune late Thursday. He disclosed to CNBC that, “It is an unbelievable company.” He added, “If you look at Apple, I think it earns almost twice as much as the second most profitable company in the United States.”

Berkshire Hathaway Inc. (BRKA) bought an additional 75 million shares of Apple during the first-quarter of 2018. Buffett’s total investment in Apple is now at 240.3 million shares ($42.5 billion).

https://www.investopedia.com/news/buffetts-berkshire-hathaway-buys-75-million-more-apple-shares/

Finance Sector Highlights

Berkshire Hathaway Inc. (BRKA) – Mecca of Investors

 

Shareholders, loyal investors, financial advisors, and fans of billionaire Warren Buffet trooped to Omaha, Nebraska on Saturday to attend Berkshire Hathaway Inc.’s (BRKA) annual general meeting (AGM) and hear the illustrious Warren Buffett impart his nuggets of wisdom. The affair is considered as the biggest company event in Corporate America.

A show like no other

 

Year in and year out, executives of the Berkshire group of companies serve and take care of guests and their families. It’s the company’s way of showing appreciation to the people who have supported and continue to support the conglomerate. Berkshire is known for investing in companies that produces the household brand names in the U.S.

https://www.cnbc.com/2018/05/06/check-out-what-was-on-display-at-berkshire-hathaways-annual-meeting.html

The atmosphere is light, fun, and entertaining. There’s no formal suit and tie or dress code to gain entry. Product mascots like Mr. Kool Aid and others are all over the place. Booths and commemorative exhibits showcasing the various products have been set up. Naturally, Dairy Queen’s Dilly bars were in abundance.

Buffet made it the best week for Apple

 

Prior to the weekend gathering, the well-known value investor boosted the stock of Apple Inc. (AAPL). On Thursday, Buffet himself told CNBC that Berkshire Hathaway bought an additional 75 million shares of Apple in the first quarter. AAPL jumped 3.9% instantly and even posted a record-high. It was Apple’s best week on Wall Street after six and half years.

Berkshire started with a small investment in the iPhone maker. Buffet said it was one of his deputies who made the investment. But with the recent purchase of more stakes, their Apple shares ballooned to at 240.3 million, valued at about $42.5 billion. Berkshire is now Apple’s third largest shareholder, behind Vanguard Group and BlackRock Inc.

When asked about Apple’s buyback plan during the AGM, Buffet approves of it. The legendary stockholder intimated he would buy even more shares of Apple Inc. at the right price.

https://www.reuters.com/article/us-berkshire-buffett/buffett-craves-more-apple-shares-endorses-its-buybacks-idUSKBN1I60MF?il=0

Shift to tech stocks

 

Buffett was not to too happy with his investment in International Business Machines Corp. (IBM). He ditched the IBM shares at the same time Berkshire was buying shares of Apple.  Berkshire has positions in Bank of America (BAC), Coca-Cola (KO), Kraft Heinz (KHC), and Wells Fargo.

Tech stocks were never on Buffett’s radar. He is known to buy only businesses that he knows about. Besides, he finds tech stocks as too expensive. But now, Apple is the biggest investment in Berkshire’s treasure chest.

https://www.marketwatch.com/story/this-is-what-the-warren-buffett-empire-looks-like-in-one-giant-chart-2018-05-03

Process Industries Sector Highlights (Cannabis Industry)

Canopy Growth Corp. (TWMJF)Best Bet in the Cannabis Industry 

 

With just a month away from the voting on the Cannabis Act or Bill C-45 in the Senate hall of Canada, growers have been frantically expanding their growing capacity at a searing pace.

The key to securing long-term supply deals is to have large inventory and production. Once the law is enacted, sales of recreational marijuana could begin by August or September. About $5 billion annual sales or more could be added to the current sales revenue stream of  medical marijuana, including exports to medically legal foreign countries.

In the mad scramble for cultivation and obtaining sales licenses from Health Canada, only one company stands above the rest from a market cap standpoint. This past week, the valuation of Canopy Growth Corp. is already $4.35 billion. Its size is too far away from the highest among pure-play pot stocks.

Key reasons why the Canopy Growth is a good weed stock investment

  1. Only a select few of growers can equal Canopy’s peak annual production potential
  2. Canopy’s distribution channel is in place and beyond compare
  3. Key partnerships with Bank of Montreal and Constellation Brands Inc. (STZ) will allow Canopy Growth to establish prominence in the marker
  4. The focus on the power of the brand and margins should pay dividends
  5. Funding will never be a problem for activities such as construction of greenhouses, marketing campaigns, research & development, launching of new products, and other business-related expenses.

https://www.fool.com/investing/2018/05/02/5-reasons-canopy-growth-corp-is-the-biggest-pot-st.aspx

The Week Ahead

 

The reported first-quarter earnings are reassuring because the average revenue growth of 81% of the S&P 500 companies that presented came out to 8.5%. It was during the third-quarter of 2010 when the outcome was this strong.

The increase in sales is reflecting an improving economic milieu and rising confidence in the market. Looking in the near-future, a 19.5% profit growth in 2018 seem achievable and would set a stage for a stronger bull market.

The earnings season is almost coming to a close with only about 9% of the S&P 500 companies reporting. The highlights on the economic front next week would be the inflation report on Thursday and the consumer sentiment report on Friday.

https://www.edwardjones.com/market-news-guidance/recent-news/weekly-recap.html

 

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