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Weekly Research Report – 1 April 2019

Clay Carter

Another generally positive week for global equity markets. The appreciating Aussie dollar created a minor headwind for local investors however. Market drivers remain trade news (China said it will continue to suspend retaliatory tariffs on U.S. autos and car parts) and of course a “wait and see” Federal Reserve.

Weekly returns to 29 March 2019
(AUD 5-day return far right- hand column)

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Source: Bloomberg

Rates/Commodities

  • 10-Year Treasury yield: -4bp to 2.40%
  • Gold: -1.2% to $1,297/oz
  • Natural gas: -2.9% to $2.672
  • WTI crude oil: +2.0% to $60.2/bbl
  • AUD/USD: +0.5% to 71.20
     

Notable company news

Apple (NASDAQ: AAPL)

On 26 March 2019 Apple announced that Apple TV and TV+ will be available this fall and will feature original content. Users can subscribe to and watch Apple TV channels (including HBO, Starz, CBS All Access, sports, news from cable/satellite providers, movies purchased or rented from iTunes) a’la carte and on demand. The app will offer over 150 streaming apps, including Amazon Prime and Hulu. Apple also announced the Apple Credit Card partnering with Goldman Sachs (issuing bank) and Mastercard (global payments network). The Card offers no fees and attractive rebates (3% for Apple purchases in the AppStore, 2% rebates for payments made with Apple Pay and 1% for every other purchase made with the Apple Card.

Apple announced Apple Arcade, a game subscription service that will feature 100+ new games. Apple Arcade will launch in fall 2019. And finally, Apple announced Apple News, a new subscription service that offers some 300+ magazines, newspapers and digital publishers into a curated app. Available in the US and Canada so far, it is now available in the US for $9.99.

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Source: Bespoke

Apple is held in Macrovue’s Tech Stars and Warren Buffet Top Ten share portfolios.


McDonalds (NYSE: MCD)

McDonald’s announced it has acquired (for US$300m) an AI Startup called Dynamic Yield, an Israeli company that helps businesses leverage their data for personalised recommendations, A-B testing and conversion. This is McDonald’s largest acquisition in the past twenty years. In early trials, Dynamic Yield selected menu items based on a combination of weather, time, traffic, and local event data.

McDonalds is held in Macrovue’s High Quality share portfolio.


Lyft (NASDAQ: LYFT)

On Friday Lyft shares soared 21% in their first day of trade on the Nasdaq. Lyft is of course the first ride-hailing company to go public in 2019. With over $2B raised so far, Lyft priced shares at $72 (at the high end of its range), putting its valuation at over US$24B. Can investors continue to ignore the steep losses the firm has been reporting so far? Time will tell, but the Lyft price action is positive for the next round of high- profile IPOs that may come in 2019 - Uber, Pinterest and perhaps AirBnb.

The week ahead

Key releases out of the US will include:

  • Tuesday:
    • The Commerce Department releases data on retail sales for February. Economists surveyed by The Wall Street Journal forecast retail sales will increase 0.2%.
    • The Institute for Supply Management releases its manufacturing index for March. Economists expect the manufacturing index at 54.4 in March.
  • Thursday:
    • The Commerce Department releases durable-goods data for February. Analysts see a 1.8% decline in durable-goods orders for February.
  • Saturday:
    • The Labor Department releases the March jobs report. U.S. nonfarm payrolls rose by only 20,000 in February, a big shortfall. However economists expect the U.S. economy will have added 170,000 to payrolls in March and they expect the unemployment rate held steady at 3.8%.

Markets will also focus this week on the announcement made on the past weekend that China’s manufacturing PMI rose to 50.5 in March from 49.2 in February. Factories showed a pickup in activity almost across the board, from new orders to production, according to the official purchasing managers index released Sunday. The index rose to a six-month high of 50.5 in March from 49.2 in February, well ahead of economists forecasts. China recovery is good for global markets.
 

Charts of the week

1. Reasons to sell...

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2. Buffett's next elephant

In his latest letter to investors Warren Buffett remarked “We continue, nevertheless, to hope for an elephant-sized acquisition”. Using Warren Buffett's takeover criteria here are, courtesy of Bloomberg, 20 U.S. companies with market values >$20b that meet his stringent criteria:

✔️consistent earning power
✔️ good ROEs
✔️ relatively cheap shares
✔️ little to no debt

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