The August Place Not To Be; Internet; Apple
As the racing season at the Saratoga Thoroughbred Track enters August, many of us are aware of the slogan “Saratoga, The August Place To Be.” However, unlike Saratoga, over at least the past decade the stock market has not been the place to be during this month. Volume is low as many investors, professional and amateur alike, take vacations resulting in heightened volatility. In addition, while six of the last ten Augusts have produced positive returns for investors, in the aggregate returns are negative. This comes despite a more than doubling in the S&P 500.
Our advice regarding the above is to always remain committed to your investment objectives with your long-term capital while keeping any dollars you might need over the shorter-term in bonds and cash. That said, we just thought we’d give you a heads up regarding what we believe will be a volatile month of August.
At The end of our radio show on Sunday, July 22, we began to talk about the role semi-conductors will play going forward. Semiconductors are used for many functions, but when we are talking about semiconductors in this aspect, we are talking about semiconductors in electronic devices. With the computing power of microchips increasing every day, semiconductors are used to store memory, cool down chips, as well as many other things. Semiconductors are known to be a cyclical play (a stock whose price is affected by the ups and downs in the overall econ- omy). However, going forward will that be the case?
The impact of the advancement of the microchip has resulted in it becoming a part of our everyday life which, and has at its backbone, the “Internet of Things” (IOT). This Internet of Things connects hardware devices to software devices and then stores the data, thereby creating a link between the physical world and computer-based systems. Consider the Amazon Alexa or the Google Home. Both of these devices (hardware) transmit questions posed to them to the internet via the cloud. When you ask Amazon Alexa “can you buy more paper towels” it transmits this to a server at an Amazon data center which then orders your products. This order is then stored on your Amazon account. Semiconductors enable the transmission of this data. Different types of semiconductors have different capabilities.
We believe semiconductors will be more and more functional and therefore potentially more beneficial to humanity in the future. The example noted above is more than likely just the tip of the iceberg in terms of the importance that semiconductors will play in our lives. Consider e-sports, driverless cars or any other application that requires semiconductors to transmit data from hardware to software. Despite the run-up in the stock price of many semiconductor companies such as Nvidia, we believe that we are in a secular rather than cyclical trend leaving more room to run as the need for seamlessly connecting our hardware devices to the cloud and our smart phones seems insatiable.
This past Tuesday Apple Computer delivered solid earnings per share of $2.34 per share on revenue of $53.3 billion, both of which exceeded the consensus estimate. Shares rose more than five percent higher on trading this past Wednesday and then tacked on half of that gain again on Thursday pushing the market capitalization of this juggernaut above $1 trillion in market capitalization, the first American company to have ever reached this mark.
Despite the run-up, we still believe shares of Apple are a compelling buy as in addition to impressive sales of the iPhone, iPad and iMac, the company saw its service revenue rise 28% to $9.55 billion. We believe Apple is just beginning to ramp up the services side which will provide for growth in shares of the company over time.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call (518) 279-1044.