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Today's big stories

Goldman Sachs thinks a few groups of US stocks are in a bubble
Emerging markets have been on a tear recently, but there are three that could still have a lot further to climb – Read Now
Philips announced better-than-expected quarterly earnings, and it’s expecting strong demand this year too

Risky Business

What’s Going On Here?

Goldman Sachs said over the weekend that certain US stocks are in bubble territory, and one wrong move now could set off some serious alarms.

What Does This Mean?

There are three groups of stocks that Goldman thinks have attracted unsustainably high interest from investors. First, there’s special purpose acquisition vehicles, or SPACs: that is, listed companies that merge with unlisted companies to help them join the stock market. SPACs have raised more money so far this year than they did in the whole of 2019 (tweet this). Then there’s stocks of loss-making companies, which have outperformed the US stock market by 40% on average over the last twelve months.

Still, Goldman isn’t too worried about those bubbles: neither group of stocks is big enough to do any widespread damage if investor enthusiasm suddenly dries up. But there is one group the bank's nervous about: high-growth and expensive stocks. They account for almost 10% of the entire US stock market value, and they’re involved in almost a quarter of all US stock trades. So if that bubble bursts, you can bet it’ll leave investors’ ears ringing…

Why Should I Care?

For you personally: It’s lose-lose.
Even if you believe these bubbles are some way off bursting, history suggests it’s not actually in your interests to buy in. After all, the median company whose value exceeds 20x its revenue has seen its share price drop 1% in the twelve months afterward. Compare that to the median US stock without such a high valuation: that’s risen 6% over the same time period.

The bigger picture: A matter of perspective.
US stocks are, by most metrics, looking expensive right now. But Goldman has pointed out that relative to ultra-low interest rates, they’re actually pretty cheap. The bank even reckons American companies’ strong earnings growth will drive the stock market higher still – 12% higher, to be precise.

You might also like: Why SPACs’ popularity has rocketed recently.

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2. Analyst Take

Where On Earth To Find The Best Value in 2021

What’s Going On Here?

As one of the most widely shared investment ideas for 2021, it’s no surprise that emerging market (EM) stocks have surged recently.

But even as their popularity and prices increase, last week saw analysts from Goldman Sachs, UBS, and Wells Fargo all agree that EM stocks still have further to rise.

Goldman drew attention to one potential short-term catalyst in particular: investors significantly reduced their exposure to EM stocks in 2019 and 2020, and they could now be bundling back in.

Still, if you’re selective about where you look, we reckon there are still some bargains to be had out there.

That’s today’s Insight for you: which emerging markets have unscoped potential, and why they’ve flown under the radar till now.

Read or listen to the Insight here

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A Clean Phil Of Health

What’s Going On Here?

Philips announced better-than-expected quarterly earnings on Monday, and the healthcare tech giant is starting to feel much better about this whole pandemic thing…

What Does This Mean?

Philips saw its revenue increase by 7% last quarter compared to the same time the year before, thanks to the ongoing – and unsurprising – demand for its respiratory machines and remote medical care equipment. Compare that to the average European company – which is expected to see its earnings drop by 26% versus the year before – and you can see why investors initially pushed Philips’ stock up 3%.

The company’s expecting to keep growing this year too. Hospitals put off investing in new equipment and infrastructure at the start of the pandemic, but now they’re ready to go again. That might be why Philips signed a record number of contracts to upgrade hospital equipment last quarter – which could be just the jab in the arm the company’s future growth needs.

Why Should I Care?

The bigger picture: Virtual reality.
Remote care has been on the up and up amid all these lockdowns, and the demand for related equipment has been going with it. In fact, the number of US patients using so-called “telehealth” rose from 11% in 2019 to 46% by the middle of 2020. And McKinsey, for one, has high hopes for the market: the consulting firm reckons it could be worth as much as $250 billion.

Zooming out: Temperature check.
This is another busy week for earnings announcements, and things are already looking promising. Of the US companies that have reported fourth-quarter results so far, 86% were better than analysts expected – comfortably above the five-year average of 74%. Earnings are still down compared to last year, mind you, so maybe it’s not the time to get too excited…

You might also like: How to profit from the healthcare boom.

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💬 Quote of the day

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– Dizzy Gillespie (an American jazz trumpeter, bandleader, and composer)

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Finimize - 🛁 Goldman's worried about the bubbles

Today's big stories

Risky Business

What’s Going On Here?

What Does This Mean?

Why Should I Care?

Where On Earth To Find The Best Value in 2021

☕️ If it’s good enough for JLo…

A Clean Phil Of Health

What’s Going On Here?

What Does This Mean?

Why Should I Care?

Older messages

Is no tech company safe?

🤭 Apple ain't worth $2 trillion

😮 US banks.

🤓 How to trade this earnings season

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