Is Value Investing Dead?

Dear Reader,


Since 2009 technology, biotechnology and growth stocks in general have outperformed by a wide margin value stocks like financials, energy, consumer staples and consumer discretionary.

Is value investing dead? No. Why? Because like all growth stocks cycles in the past the current growth stocks, namely technology stocks are overvalued and near their peak. Certain comparisons to the Dot Com bubble in 2001 can be drawn. Yes, now the leading growth technology stocks have revenues, while back then most of them did not. But they are trading at lofty valuations. Just look at the most valuable company in the USA - Microsoft. Microsoft is trading at near 9 times Price/Sales and Price/Earnings multiple of 28, which is basically pricing extraordinary growth. To grow in its valuation Microsoft has to grow revenue and profit at 20% for 5 to 10 years. Basically, Microsoft needs to grow like a star startup.

Many other technology companies are pricing in lofty valuations. Value investing will again become the best investing strategy when the next economic recession ensues. And that is not far off. China listed its slowest yearly GDP growth since 27 years, Italy suffered a recession recently, Germany avoided a recession just barely. European new car sales are falling  3.1% year on year up to June 2019. All signals point that we are in the middle of an economic slowdown. Only America is showing above average growth, but soon the tax cuts effect will wear out and the USA economy might still slip into recession in the next 2-3 years. I think Donald Trump will do his utmost to keep the US economy humming until he is reelected in November 2020. However, I think the US economic slowdown will have started in 2020.

Value stocks like financials, consumer staples and traditional pharmaceutical giants should do better in the coming economic malaise, albeit falling less than the overall market and especially technology stocks. But 20-30% difference in performance in a year is still a huge margin. I expect when the next recession comes value stocks will fall by 20-30%, while technology stocks could well drop 40-60% in general.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

The Price of Gold. How High Can it Go?

Dear Reader,


The price of gold crossed the 1400 USD per ounce mark. Will the price of gold continue rising?

Yes. In the next 1 year the price of gold, according to my humble opinion, will rise above 1500 USD per ounce. Why?

Mainly because of the pending quantitative easing by the European Central Bank and the lowering of the Federal Funds Rate by the Federal Reserve. The price of gold has reacted to many factors in the past. However, most of the time gold is seen as a store of value. By continuing to print money the European Central Bank, Bank of Japan and the Federal Reserve by easing credit and providing cheaper liquidity the leading Central Banks will go on debasing the United States Dollar, the Euro and the Yen.

Gold's price has languished in the past five years due mainly to the quantitative tightening and raising of the interest rates level by the Federal Reserve. What is more, the gold price bubble seems to have pricked in 2011. The price of spot gold climbed above 1700 USD before falling abruptly in the space of two years.

What next for the price of gold? The price of gold should rise above 1500 USD in the near term due to the money creation of leading global central banks. If a full blown recession ensues, however, gold will suffer a sell off as will stocks and other commodities. In a global economic downturn cash is king, government bonds also. But for the next 1 or 2 years the prospects for gold are excellent. The stocks of different gold miners are, of course, a leverage bet on the price of gold. The stocks of major gold producing companies should rise along with the price of gold. Silver should also perform well, but its future appreciation potential is limited due the waning economic activity as of late.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Why Snap, the Maker of Snapchat, Keeps Rising?

Dear Reader,


Snap Inc., the maker of the Snapchat video chat application, has enjoyed a significant rise in its stock market price since 21 December 2018, when was the last major trough of the US stock markets measured by the main indices DJIA, S&P 500 and Nasdaq Composite.

Why? The first reason that comes to mind is that Snap's stock market price rise is a byproduct of the rising prices of US stock markets since December 2018. But there seems to be a deeper reason. Snap's stock is currently priced at 15.61 USD a bit more than half than the 27.09 USD at which Snap made its public debut on the 3rd of March2017. Then Snap was marketed as the new Facebook and the US market did price it in this fashion valuation wise  for a short while. Then Snap's stock market price crashed to 4.99 USD on 21 December 2018.

So what is driving the current increase in Snap's market capitalization. In my opinion, the revenue rising by more than 30% in the last quarters year on year is the main reason for Snap's improving prospects. Snapchat's user growth has somewhat stalled or is growing slowly, but Snap Inc. is monetizing very successfully its platform. As far as I know, Snap charges for advertisements less than Facebook or with other words Snapchat is somewhat of a discounter. This strategy seems to work well for increasing revenue. And since Snapchat is basically an application, its business model is highly scalable. As long as Snap keeps growing revenue briskly by something like more than 20% year on year quarterly growth the company could soon become profitable. Which is what investors ultimately like. Wall Street too.

So for now it is still not clear if Snap will become the new Facebook, but Snap is on a growing trajectory, in terms of revenue, at least. As long as that continues, Snap's stock price could keep rising, barring a stock market crash.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Is the Economic Cycle Turning?

Dear Reader,


The US economy grew 3.1% on a quarterly annualized basis in the first quarter of 2019. The fastest first quarter growth since long time ago. In previous years US GDP in the fist quarter of the year grew very slow or even contracted on a quarterly annualized basis.

So is a global recession coming soon?

Yes. In 1 to 3 years the global economic cycle will turn and world GDP will contract on an yearly basis. The current strong growth offshoots in America are actually, according to my opinion, the top of the current economic cycle. Basically, it is as good as it is going to get. Financial markets give other kind of evidence of the coming economic slump. 2019 is shaping up to be a banner year for technology IPOs. Private technology firms have waited for higher valuations, but they too seem to think it is as good as going to get and cashing out. Uber, Lyft, Slack are just some of the high profile names that went to public markets recently.

What will cause the recession? This is the million dollar question. I believe it will be just plain fear of not cashing out early enough, so you can collect your money before the economic cycle really turns to a recession. The trigger could be anything - leveraged loans, China, fund redemptions, large bank falling into trouble, the current technology bubble bursting. If one takes a look at the past, too few analysts actually expected anything like the Lehman Brothers default and the ensuing crisis. It is the proverbial frog in boiling water argument. The water will slowly boil the frog and because the process is slow and protracted the frog will not be able to escape. Or as the former CEO of Citigroup Charles Prince famously said: "As long as the music is playing, you've got to stand up and dance".

The next recession will be caused by the plain old thing that caused the previous - greed and fear. Greed to amass the fortune and fear of losing it before cashing out.

I forecast the next economic recession will be long, protracted and shallow one if looked by yearly contractions. But if you look at the total world GDP contraction, the fall in GDP will be close to the level of the Great Recession in 2008-2009.

As usual, during the upcoming recession defensive sectors like consumer staples, pharmaceuticals, utilities will fall less than technology stocks, financials, real estate, commodities, outside gold. Actually, one of the most likely triggers for the coming economic contraction could be a popping of the current dot com bubble. The current technology bubble is smaller than the previous one in 2001 if measured by valuation gauges like Price/Earnings or Price/Sales ratios. Actually, nowadays the leading technology companies have huge yearly revenues, but they are simply overvalued.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Slack Valuation!

Dear Reader,

Here I am going to present my view on the valuation of Slack Technologies, Inc., the owner of the corporate messaging app Slack, which made a direct listing on the New York Stock Exchange trading under the stock ticker WORK.

In short, I believe Slack is worth currently or will be  worth in 1-3 years around 10 billion USD  or a bit more than half its current market capitalization of 18.92 billion USD. This implies a fair stock market price of Slack of around 18 USD.

Why? Slack will go down the route of other firms like Snap, Box, Dropbox, Twitter, Spotify some of which listed at more than 20 times Price/Sales(Market Capitalization/Last Year's Revenue). Some of the corporations mentioned above like Snap, the owner of Snapchat, listed at around 40 times Price/Sales. Actually, Slack is trading at a price sales ratio of 41.63. Slack is simply grossly overvalued in the short term. Year on Year Slack's yearly revenue grew by 82% from 220.544 million USD in fiscal 2018 to 400.552 million USD in fiscal 2019. Slack's last quarter's year on year growth actually slowed to 67%. Even if Slack goes on to grow revenue at 20% for the next 10 years, revenue will be somewhere around 2.5 billion USD in 2029. If we assume net profit margin of 20% Slack under those assumptions would have made 500 million USD in net profits in fiscal 2030. If we assume Price/Earnings ratio of 30, which is high in 2029 Slack would be worth 15 billion USD under the above assumptions, which is roughly 25% below the current market capitalization of Slack.

In short, Slack is twice overvalued. Currently, analysts project Slack's total addressable market at 28 billion USD in some years. Slack is going to verify its current valuation, if it truly revolutionizes corporate communications and gets into other corporate stables like the Microsoft Office Software. I put the probability of such a scenario at 10%. Much more possible is that Slack is going to grow into its valuation in 10 years or so if it grows at a healthy 20% year on year revenue. If we truly enter a new genuine dot com bubble, Slack valuation, of course, could go through the roof. But the stock price developments of GoPro, GroupOn, Zynga, Fitbit, DDD, Twitter, Snap, Box, Dropbox show this market is capable of pricking small bubbles in its froth without actually imploding.

I forecast the same will happen to Slack. Slack's market capitalization will fall to around 10 billion USD in 1-3 years and then depending on the company revenue growth and net profit generating ability its market capitalization in 5-10 years could actually start to near its current market capitalization of 18.92 billion USD.

Of course, in the short run, driven by pure speculation Slack's market capitalization could shoot up to even more unfounded values.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Amazon. What Are Possible Future Growth Drivers?

Dear Reader,


Amazon's current market capitalization is 941 bln. USD. Amazon's main driver of future growth in both revenue and market capitalization as assumed by Wall Street research analysts and almost everybody else is its cloud business Amazon Web Services(AWS). AWS is the Cloud Application Services or Software As A Service(SAAS) platform of Amazon.

According to Gartner the global SAAS market reached 80 billion USD in 2018 and is expected to expand to 94.8 and 143.7 billion USD in 2019 and 2022 respectively. Amazon.com Inc. clocked in almost 25.7 billion USD from AWS in 2018 which gives it roughly a 32% of the cloud SAAS market. Amazon made 7.3 billion USD in profit on 25.7 billion in net sales in AWS which makes for a 28.4% net profit margin. Given that Gartner forecasts that SAAS business will grow at around 15% on average for the next four years it is reasonable to assume a Price/Earnings multiple of 30 on AWS, which gives Amazon's AWS business valuation of about 220 billion USD currently. Amazon's main business of online products sales made 207 billion USD in revenue in 2018 growing by roughly 25% in 2018 compared with 2017. Amazon online selling business, however, is notoriously not very profitable. The North America business made around 7.2 billion USD, while its international online merchandising business incurred a loss of 2.1 bln. USD. So, all in all, Amazon's main business of online selling makes about 5 billion USD a year in profit. Given that is growing by 25%, we could place a multiple of Price/Earnings of 50, so Amazon's main business is worth about 250 billion USD. So sum of the parts analysis of Amazon's two main businesses of online sales valued at 250 bln. USD and AWS valued at 220 billion USD gives probable value of Amazon.com Inc. of 470 billion USD.


So why does the market price Amazon at 941 bln. USD, roughly twice my simple valuation of  470 bln. USD? One reason is that Gartner estimates the whole cloud market at 182.4 billion in 2018 as you can see from the table below.

	2018	2019	2020	2021	2022
Cloud Business Process Services (BPaaS)	45.8	49.3	53.1	57.0	61.1
Cloud Application Infrastructure Services (PaaS)	15.6	19.0	23.0	27.5	31.8
Cloud Application Services (SaaS)	80.0	94.8	110.5	126.7	143.7
Cloud Management and Security Services	10.5	12.2	14.1	16.0	17.9
Cloud System Infrastructure Services (IaaS)	30.5	38.9	49.1	61.9	76.6
Total Market	182.4	214.3	249.8	289.1	331.2

Apparently the market thinks that Amazon.com Inc. could win a larger market share of the other types of cloud services or alternatively win an even larger market share of its current domain SAAS.
Another reason for Amazon's high market capitalization is that market participants seem to believe that Amazon could develop other verticals. Amazon recently has had success doing online advertising which brought in around 10 billion USD in 2018. Emarketer puts the size of the global advertising market at 283 bln. and 517.5 bln. USD in 2018 and 2023 respectively as evidenced by the following link:

https://www.emarketer.com/content/global-digital-ad-spending-2019

Amazon.com Inc. nearly doubled its Q4 2018 online advertising revenue to 3.4 bln. USD compared to Q4 2017. Online advertising could turn out to be the new main driver of Amazon's stock.

I think the intrinsic worth of Amazon.com Inc. is 640 billion USD or around 32% discount to its current 941 billion market capitalization.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich