The market chat on this side of the pond may be all about the UK market flirting with the 7,000 mark. But, judging by Freetrade investors’ top buys in April, the UK recovery is still playing second fiddle to the stock stories playing out in the US.
The most traded shares and ETFs on Freetrade last month were mostly US market constituents and reflect demand for Covid winners as well as those taking part in developing investment themes like the rise of electric vehicles and cryptocurrency.
It’s important to call out that this is a wrap-up, not a suggestion or recommendation that you buy or sell any of the securities mentioned. Remember that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk and time horizon, should inform the mix of assets in your portfolio. Our resource hub for investing in the stock market might be able to help make that mix a bit clearer for you. And if you are still unsure of how to pick investments, speak to a qualified financial advisor.
There seems to be an entrenched division developing in the investment community surrounding Tesla. Namely, those who see it as a car company with an eye-watering valuation and those who see it as a revolutionary firm that just happens to make vehicles for the moment.
For the second cohort, that valuation is less important than the opportunity to guide the future of our use of energy and battery power far beyond the electric vehicle sector.
The first rung on that ladder remains cars though. And Elon Musk’s EV giant reported its latest set of quarterly results at the end of April.
Revenue for the first three months of this year hit $10.4bn. That’s up substantially on last year’s $5.99bn but down from the prior quarter’s $10.7bn.
From that, the firm was able to generate a record net income figure of $438m. Selling tax credits to other carmakers and trading Bitcoin helped prop up the bottom line.
These are two elements that have split the pack even further, as auto investors want to see profits derived from vehicle sales whereas the firm’s super long-term holders seem happier to see revenues in any form for now.
The cryptocurrency platform started trading on the Nasdaq on 14 April. Rather than opting for a regular initial public offering (IPO), Coinbase used a direct listing to go public.
And despite talk of rocketing towards a $100bn valuation, shares have lost that initial excitement and are currently sitting below their listing level.
As an exchange, Coinbase is a volume-driven business and relies on people transacting on its platform to make money.
Last year the company managed to capitalise on the surge in crypto trading and rake in $1.3bn in revenues and net income of $322m. That was compared to revenue of $534m and a $30m loss in 2019.
The firm now has 43m users, 2.8m of which are active on a monthly basis. The company also has 7,000 institutional customers, which includes hedge funds and asset managers.
But of last year’s total revenue, 96% came from transaction fees. That is a huge proportion and shows how susceptible the company will be to a downturn in trading.
This is something Coinbase CEO Brian Armstrong acknowledged in the group’s prospectus.
Armstrong said, “You can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn’t faze us, because we’ve always taken a long-term perspective on crypto adoption. We may earn a profit when revenues are high, and we may lose money when revenues are low, but our goal is to roughly operate the company at break even, smoothed out over time, for the time being.”
The poster child of the meme stock mania has left an indelible mark on this year’s market narrative but, short squeezes aside, why are investors hanging onto the stock?
One reason might be the hope of a turnaround in light of activist investor Ryan Cohen joining the GameStop board in June.
The incoming chair is part of the firm’s reshaped leadership and has made it very clear where he sees the future of the company. Cohen’s focus will be on driving digital sales and services, drawing on gamers’ knowledge and relationship with the GameStop brand, but in a manner that minimises heavy costs like store footprints.
A revamped strategy is not necessarily a quick fix to release immense value though. Turnarounds can take time no matter who is conducting them. Investors used to a thrill ride in the stock should ask themselves whether they are truly ready to stay in for the next chapter.
Even with their individual stock picks, Freetrade investors are clearly leaving room for broad market indices in their portfolios.
The US has been one of the best performing regions since last year’s pandemic lows, thanks in large part to its thriving tech sector. Valuations in the space have largely risen since then so the opportunity for broad market exposure away from that tech concentration might be behind flows into S&P 500 ETFs.
Investors have favoured the income-distributing share class here. For those eager to rack up dividends over time, reinvesting them to take advantage of the power of compounding, an accumulation share class (Acc.) could help.
Apple’s Q2 earnings demolished analysts’ predictions as the pandemic prompted a hike in iPhone, iPad and Mac sales.
Last week’s quarterly update revealed a 54% leap in revenues, with iPhone sales coming in $6.4bn higher than predicted. Mac revenues were up 33% and sales in the important Chinese market doubled.
The result was a huge boost for profits, up to $23.6bn from $11.3bn for the same period last year.
It’s been a great year for companies kitting us out to work and learn from home but the big challenge now is the ongoing global chip shortage which many are predicting could last into 2022.
Apple boss Tim Cook was keen to reassure the market that “there wasn’t a material issue with our results due to supply” but if that stops being the case, a long-term hold-up in access to chips could rein in revenues.
And then there is the unwanted attention big tech is getting from US lawmakers. Apple has received criticism lately, most recently in a Senate antitrust hearing last week, that it is abusing its platform power to squash smaller tech companies.
Shares in bitcoin mining company Argo Blockchain hit the high notes in February but it’s been a shakier path since then.
The rise in the price of bitcoin has clearly been a boon for the firm, with many investors piling cash into businesses with exposure to the asset class.
But we all know how volatile the cryptocurrency can be. Investors should be braced for a bumpy ride, as sentiment swings and conversations around crypto regulation continue.
Mining companies are one way investors have chosen to gain access to a hike in interest in general crypto and blockchain technologies without buying the asset directly.
As in traditional miners, that can help spread risk if these underlying assets are uncorrelated and have different external factors affecting their price.
That may be where miners like Argo Blockchain see themselves in the future. For now, that diversification seems limited, given the current correlated nature of crypto assets.
AMC drew a lot of interest amid the flight to heavily shorted stocks earlier this year.
The chain was hit hard by the pandemic, and the resultant shock to trade, but securing some major financing will have been good news for investors.
As we all eye a return to normal, the question will be whether the company can boost profits after hanging on for dear life in 2020.
Similar firms like Cineworld in the UK are facing the same pressures but with high levels of consumer savings banked over lockdown, there is the potential to get bums on seats when silver screens open up again.
A key part in all of this is getting film studios back to full steam and making sure customers have a reason to get back to cinemas.
Streaming services have benefited hugely from populations stuck at home so cinema chains will have to do something special to make sure we see the value in coming back.
Pretender to the Tesla throne is Chinese EV car maker NIO.
Consumers in the country buy about half of all the world’s electric cars every year. But it hasn’t been smooth sailing for the firm in serving the nation over the past 12 months.
NIO was snatched back from the brink of bankruptcy by its local Hefei government in 2020. The episode highlights just how difficult it can be to produce such an intricate new technology, even with an audience the size of China’s.
But with that risk there also comes the opportunity to change the auto world as we know it.
The Chinese government’s $1bn cash injection into NIO fits neatly alongside the country’s bid to become a global green energy superpower.
Last February’s helping hand is a sign there is a greater goal here, one the state will aim to reach ruthlessly. China has pledged that a quarter of all car sales by 2025 must be powered by ‘new energy’, and must not be reliant on petrol or diesel.
And further afield The Economist predicts 3% of cars sold in 2021 will be ‘pure electric or a plug-in hybrid’ - a figure that could rise to 20-25% by 2030, or 20m vehicles per year.
As with any emerging technology, investors are likely to see further volatility but the prospect of growth might entice those with strong nerves to stick around.
Sensor firm MicroVision has changed the focus of its business a couple of times since it was founded in 1993.
Initially set up to develop “information display technologies that allow electronically generated images and information to be projected to the retina of the viewer's eye”, it is now developing a “lidar sensor to be used in automotive safety and autonomous driving applications.”
Notable profits have been hard to come by over the years but the use of its sensor tech in car safety seems to be driving valuations over recent months.
Rather than spearheading a sector on its own, MicroVision might be the beneficiary of general widespread attention to the safety and security of autonomous vehicles.
Whether it actually lives up to that opportunity, and the valuation levels investors have thrust upon it, will be dependent on its ability to supply the EV and autonomous market with a working lidar sensor soon.
MicroVision boss Sumit Sharma recently said, “I expect that a version of this lidar sensor could be available for sale, in initial quantities, in the third or fourth quarter of 2021.”
In its latest results, released last week, the Bezos behemoth saw a 44% surge in sales year-on-year, to $108.5 billion. Profit was $8.1bn, up from $2.5bn a year ago.
And while the firm has made the headlines recently for its forays into grocery stores, online healthcare services, and even a London beauty salon, the big bread winners remain its core offerings.
The company’s online shopping site, Prime streaming platform and cloud-based web-services all demonstrated their worth over the year.
In particular, Jeff Bezos highlighted the contribution of Prime and Amazon Web Services (AWS). He said, "As Prime Video turns 10, over 175m Prime members have streamed shows and movies in the past year, and streaming hours are up more than 70% year over year.”
Often forgotten by investors, AWS now delivers $54bn in annual sales for the group, "competing against the world's largest technology companies" according to the outgoing chief exec.
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