Displaying items by tag: Amazon
No matter how good you may feel about stock indexes being back near all-time highs, one fact cannot be ignored: the market seems to be heavily overweight on the five largest tech stocks— Microsoft, Facebook, Google, Apple, and Amazon (the new acronym, named by Goldman is FAAMG). These stocks have been powering the market, but the whole situation feels like past peaks where their outperformance could not go on forever. Concentration in the S&P 500 is now at its highest in decades, with those five names accounting for 22% of the total capitalization, up from just 16% a year ago. According to Barron’s “Simple arithmetic limits the continued outperformance of the biggest names, the Goldman team observes, because many portfolio managers have 5% limits on holdings of any given stock. The strategists’ analysis shows that the average large-cap mutual fund already has a 5% position in Microsoft and about 4% positions in the other big four names.”.
FINSUM: It seems these stocks are reaching their institutional allocation limits, which mans retail needs to power them higher. The whole situation feels ripe for a correction.
If Biden wins the presidency and Democrats take the House and Senate, tax hikes look inevitable. Biden is already publicly planning for them, and the way the polls are going, advisors would be wise to give the eventuality some thought. Even if Democrats don’t win the Senate, there may still be a tax overhaul. With that in mind, these are the stocks likely to be the hardest hit by a Democrat-led tax package. Based on Biden’s plan, it looks like a 10% rise in overall corporate taxes. Zion Research is leading the charge into the analysis, and here is an overview (quote from Barron’s): “Zion notes that 117 companies [in the] S&P 500 have over $100 million in net income that had cash tax rates less than 15%. Biden’s plan for a 15% minimum tax on book income would mean that group combined pays another $37 billion in taxes. According to Zion, nearly half of that would come from five companies: Berkshire Hathaway (ticker: BRK.B), Intel (INTC), AT&T (T), Duke Energy (DUK) and Amazon.com (AMZN). Biden called out Amazon specifically during his speech, when he said, ‘The days of Amazon paying nothing in federal income tax will be over’”.
FINSUM: This is quite astute analysis as these are stocks that are benefiting in a very significant way from the current tax regime. Amazon seems to have a big risk here that is not properly understood by the market.
One of the things that makes Amazon such an extraordinary company is that it is always on the look out for the next great business opportunity, and always seems to be one step ahead in executing it. AWS anyone? Now the champion of Seattle may be eyeing a new target—ride-sharing. Amazon is considering the acquisition of Zoox, a well-known autonomous vehicle company. If it were to acquire Zoox, it would immediately be in competition with Uber and Lyft in the soon-to-be autonomous ride-sharing market.
FINSUM: We assume Amazon also has some yet-to-be-understood purpose for this beyond just competing with Uber and Lyft. For instance, autonomous delivery/logistics vehicles?
Investors might be growing a little uneasy if they have been paying attention to market leaders. A number of stocks that have led the big market rally are starting to falter, and that could be a sign of a major pullback to come. Amazon, Zoom, Netflix and other leaders of this rally have recently plateaued or dipped, which could be a sign that the rally has lost strength. If those stocks start to lose ground, a lot of the gains the market has seen are at risk because of the chance that investors could capitulate once the indexes loses leadership. One equity strategist at BTIG put it this way, “We’d suggest that the ability for the broad market to build on its recent gains is contingent on names like Zoom, Moderna, Netflix and Amazon and other highflying ‘shelter-in-place’ names whose momentum has waned in recent days, to at least sustain their meteoric advances as leadership passes off to the more cyclical areas and themes”.
FINSUM: We think there is a degree of truth in this. If the big gainers start to fade, it is hard to imagine the laggards will suddenly start holding the market up.
You may or may not have heard of Shopify, but if you haven’t, it is probably time to take a hard look. Shopify is a Canadian e-commerce company—a fact which has meant it has been somewhat overlooked by those outside the tech space—that makes offering ecommerce and in-store payment collection easier for small businesses. The idea is to offer the scale and robustness that large companies have to small businesses selling online. It makes its money from subscription fees and add-on services. After initially falling during the lockdown, it has nearly doubled in value and is now worth around $100 bn.
FINSUM: This has been a big run higher, but Shopify sits at the intersection of ecommerce and fintech and may be the long-term competitor to Amazon.