What a month.
No sooner had we started to dream about using up those 2020 airline vouchers next year than we had to chuck them back in the drawer.
The latest fears of a new Covid spread dented markets in the short-term and made them that bit more coy heading into the festive period.
But, while similar wobbles in February sent tech investors towards UK value stocks, we haven’t seen the same fervour for unloved parts of the market just yet.
It may be that we’ve got a thicker skin now when it comes to new spreads, or maybe those huge valuations coming down somewhat means we’re less concerned.
Whatever the mood music, we’re not out of the woods and there could be a volatile period ahead before we manage this wave effectively.
Before we get stuck in, it’s important to highlight 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 blend a bit clearer for you and our guide on how to invest in stocks is a great start for first-time investors. And if you are still unsure of how to pick investments, speak to a qualified financial advisor.
We certainly got both sides of Elon over November.
Cast your mind back to the start of the month and the Tesla boss was asking 62.8m of his closest friends on Twitter whether he should sell £15.5bn in shares to pay a proposed billionaires’ tax.
With the polls giving the thumbs up, the market immediately gave the stock a thumbs down.
The pantomime coincided with a lift in US bond yields, as the idea of an interest rate rise in summer 2022 gathered steam.
That took the shine off some headline tech stocks, including Tesla. Investors seemed to be asking why they’d stay put in the tech trade if there may be less risky gains in bonds and cash coming down the road.
But the beast didn’t stay asleep for long, with investors pouncing on what they saw as a near-term buying opportunity.
Helping the stock towards the end of the month was an altogether more pragmatic Musk, who asked employees to focus on minimising costs over rushing out last-minute orders.
Musk said, “What has happened historically is that we sprint like crazy at end of quarter to maximise deliveries, but then deliveries drop massively in the first few weeks of the next quarter.
“In effect, looked at over a six month period, we won’t have delivered any extra cars but we will have spent a lot of money and burned ourselves out to accelerate deliveries in the last two weeks of each quarter.”
The stock still isn’t back to where it was entering November but hopes that its first European factory in Brandenburg, Germany, is about to begin production could provide a bit of Christmas cheer for investors.
Away from individual stock picks, the market is banking on the ability of the US to come out of the pandemic swinging.
Even with emerging reports of a new wave, it has been the best performing region since last year’s pandemic lows, thanks in large part to its thriving tech sector.
Valuations have mostly risen since then so the opportunity for broad market exposure away from that tech concentration might explain flows into S&P 500 ETFs like VUSA.
While the UK looks the cheapest of the lot, investors still can’t warm to an index without much tech represented.
Investors have favoured the income-distributing share class here. That can be useful to supplement an income or if you have regular expenses you need help with.
For those eager to rack up dividends over time and reinvest them to take advantage of the power of compounding, an accumulation share class (Acc.) could help.
According to Hartford Funds, an initial £10,000 invested in the S&P 500 over the 60 years from 1960 to 2020 would have grown to $627,161 in price terms, or $3,845,730 with dividends reinvested.
Dividends are incredibly important to the value of total returns.
If we ever needed clarity on the investment world’s fascination with electric vehicles, November gave it to us in spades.
But, looking at the valuation put on electric carmaker Rivian following its IPO last month, it’s hard not to think the market’s getting a bit carried away.
As of the end of November, Rivian was worth over $100bn, despite the fact it hasn’t actually sold any cars.
This is normally when Tesla fans get ready to talk about everything their company is doing beyond cars, flamethrowers and, well, Earth.
But Rivian bosses haven’t waxed lyrical about Mars just yet. It very much is an out-and-out auto manufacturer so it’s worth reminding ourselves of the competition already out there.
Volkswagen oversees its own eponymous brand, as well as through numerous subsidiaries, like Audi, Bentley, and Porsche.
It made about $255bn in sales last year and has a market cap of around $120bn. Do the maths and you’ll see Rivian is, according to the market, worth around 80% of this.
Rivian may well have a bright future thanks to significant order volumes from the likes of Amazon. And these types of operations do need a decent cash pile to get off the ground.
But investors need to remember the difference between the company itself and the valuation the market tacks onto it.
Buying the narrative without a firm grasp of whether or not it actually provides value isn’t likely to turn out well.
And suddenly, another EV maker appeared.
Lucid is back among Freetrade users’ top buys after delivering its first suite of luxury electric sedans.
Its Air Dream Edition model sold out its 520 reservations. Selling for $169,000 each, even the relatively low number of customers signals promising revenues to the start-up.
The US Environmental Protection Agency (EPA) confirmed the Air Dream Edition is the first EV to exceed a range of 500 miles on a single charge.
Its 520 mile range compares to the 405 miles which Tesla says its Model S long-range edition can achieve.
That’s clearly piqued investors’ interest and it might have come just at the right time.
In a Pew Research survey conducted in June, 39% of Americans said “the next time they purchase a vehicle, they are at least somewhat likely to seriously consider electric.”
In the US, Lucid could benefit from Joe Biden’s goal of making sure 50% of all new vehicle sales are electric by 2030.
Although investors might be trying to diversify away from tech, they should keep in mind just how dominant those firms are in the overall index.
Over 26% of this ETF was invested in Microsoft, Apple, Amazon, Tesla, Alphabet, Meta and Nvidia as of the end of October.
That might mean holders are slightly less diversified than they first thought.
Tech is clearly still a big part of how we see companies creating value in the future. While exacerbated by the pandemic, it’s been a theme that’s been playing out since at least around 2013.
The real task for investors now is figuring out how much longer this pure-play thesis has left.
This could mean investors start to look to the firms adopting tech and boosting their businesses with it, rather than the big names behind the tech themselves.
Some users clearly still ‘like the stock’.
The anti-establishment trade might continue drawing in investors hell-bent on sticking it to the man but away from the shorting madness there is a business to be run.
And for those looking past the darting lines, the big hope lies in chairman Ryan Cohen’s plan to make the firm into the “Amazon of gaming”.
But just how possible is that objective?
Shifting models from the place gamers traded in their back catalogue of PS1 games, to an online-first platform will take time and money. And, with Netflix announcing its foray into the gaming world, the space is looking increasingly crowded.
The first step for the turnaround plans seems to be in place though. GameStop recently said it had managed to pay off its long-term debt and its Q1 revenues came in ahead of expectations.
Zoom out, though, and the company fundamentals don’t look quite as rosy. Since 2018, over 1,000 stores have been shut down in a bid to raise margins.
The company’s Q2 2021 earnings report looked impressive on the surface, with a 25% sales increase of $1.3bn compared to Q2 2020. But most stores were shut during Q2 2020.
Compare those earnings to Q1 2019, and sales are actually down nearly 18%.
Palantir has really split the pack since its direct listing last September.
Its supporters love the fact the data-mining firm has the US government as a client and is building out its little black book of corporate names too.
Of its reported revenues in Q1, $208m was from government agencies, both in the US and abroad, with business customers making up the rest.
The firm said in a regulatory filing, prior to going public, it wants to be “the default operating system for data across the US government.”
That suggests the firm could become more akin to a government contractor than a regular software business.
That’s not necessarily a bad thing. Governmental contracts tend to be sticky and can be lucrative the more a country relies on services it can’t provide itself.
But that’s exactly what its detractors don’t like. For them, relying too heavily on government contracts and entering a crowded business-to-business space are reasons to stay away.
If a government has to trim the budget, that could mean a huge hit to forward earnings.
Current investors are more buoyed by plans to grow revenues by at least 30% annually between 2021 and 2025. That forecast implies a rise from its target of $1.5bn this year to at least $4.3bn in four years’ time.
To get there, it will need to grow its client base and strengthen those current relationships while it’s at it.
Nvidia’s always been at the top of the class when it comes to visual graphics. In 1999, it invented graphics processing units (GPU), chips designed to perform thousands of calculations at the same time.
Initially lending themselves well to gaming, Nvidia’s chips are being used more and more in augmented reality, EV data processing and even the metaverse.
And it’s the combination of this widening scope and high demand that led Bank of America to reiterate their buy rating on Nvidia over November.
BoA said a blend of the ongoing chip shortage and an uptick in cryptocurrency mining and console sales could continue to be a tailwind for the firm.
Chip shortage or not though, investors have to contend with an eye-watering valuation.
Nvidia’s price-to-earnings (PE) ratio currently sits north of 90x expected earnings, lofty in anyone’s book.
Investors are still hanging onto AMC.
And after a hike towards the middle of November it’s right back where it started the month.
You get the feeling the stock is trying to find a new rhythm - investors have sent it up and down since the summer and don’t really seem to be comfortable just yet.
Part of that might be down to the uncertainty facing the cinema industry.
In September, Walt Disney CEO Bob Chapek weighed in specifically on the likely path for streaming services after the pandemic.
While Disney's latest Marvel blockbuster Shang-Chi and the Legend of the Ten Rings was a cinema-only affair, Chapek said Disney would mix up its premieres between silver screens and the Disney+ streaming service.
That’s not great news for a firm desperate to get bums on seats again. It seems AMC can’t definitively bank on big releases bringing punters back in, as they might not be able to show the films in the first place.
Given the chain still has a mound of debt to deal with and now can’t rely on a backlog of Hollywood blockbusters to reel us back in, holders might have an uncomfortable ride for a while yet.
Propping up the list is the benevolent grandparent of US tech. And, while a lot of investors will have opted for flashier tech stories over the past few years, it’s one of the stalwarts that has slowly been creeping up in the background.
You could nearly calibrate your ruler from MSFT’s five-year chart but that’s not what investors have been focusing on over the past few weeks.
Instead, attention has turned to CEO Satya Nadella selling more than half of his shares for about $285m on 22 and 23 November.
The market is right to sit up and take notice but there is a big difference between an insider selling in secret and just selling because they want the cash.
In general, it’s more useful to track sales in struggling companies, where a boss might know something you don’t. In this case, Nadella just seems to be turning his pay packet into dollars.
As astronomical as his sale might be to the rest of us, it just represents a big portion of his total compensation that was awarded as stock, not cash.
His entire remuneration package rose by 13% to $49.9m 2021, including a $2.5m salary, $33m in stock, and $14.2m in non-equity incentives.
Hey, those Christmas presents won’t buy themselves.
Past performance is not a reliable indicator of future returns.
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Important Information
This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.
When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
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