ERShares In The News

Babson College Professor Dr. Joel Shulman discusses Best Buy earnings and compares their margins and relative valuation to Wall Mart and Game Stop. He also discusses the recent news on China trade talks and suggests that perhaps the Trump administration should use negotiating leverage (potential incentives) with the MITI-V (Malaysia, India, Thailand, Indonesia, and Vietnam) as a way to encourage China to agree to good terms (with the US) faster. Once the supply chain diverts from China to an alternative country, China will have lost that revenue forever. Dr. Shulman believes that rather than request that US companies move away from China, the current administration should consider economic incentives to do so.

Babson College Professor Dr. Joel Shulman discusses a variety of topics including Apple’s new product cycle, losses at The Limited and an Op Editorial in the New York Times that addresses compensation and job issues. He mentions that entrepreneurial companies create jobs at a much faster pace than bureaucratic companies (14% growth vs 3% last year). Dr. Shulman discusses the strong pace of current mergers & acquisitions activity and how companies have the incentive to borrow at low-interest rates and cut costs through layoffs. He notes that the Market has $1.4 trillion in pending M&A deals (5,800+ deals).

Babson College Professor Dr. Joel Shulman discusses Walmart earnings and contrasts them with Amazon. He notes that Walmart has generated significant growth in revenues, particularly food services and offers superior pricing compared to Amazon. However, Amazon has more significant margins and has grown jobs while Walmart, net of mergers and acquisitions, has not. The growth of jobs at Amazon is consistent with the growth of jobs at other entrepreneurial companies.

Babson College Professor Dr. Joel Shulman discusses recent Uber earnings and valuation issues relative to Lyft and other Companies. He mentions the significant increase in R&D (up 750% from prior periods) and additional ancillary businesses. He also notes increased competition in the industry. The discussion also includes comments regarding Boeing’s litigation and a separate comment regarding the risk exposure many companies now face with a few rogue employees.

Babson College Professor Dr. Joel Shulman discusses Apple's earnings and contrasts them with the other $1 trillion market cap company, Microsoft. He notes that Microsoft has 10x the revenue growth of Apple and higher margins. He also mentions that the CEO at Apple earns $140 million per year, which is at least 3-4x larger than CEO at Microsoft. In the interview, he also discusses GE, Boeing, the Federal Reserve rate cuts and Beyond Meat. Dr. Shulman describes Beyond Meat as an over-priced food company that doesn’t trade anywhere close to basic fundamentals. He mentions that the company has 60 million public shares authorized/outstanding but only has 11 million available of “free float” that can trade in the marketplace. High volume and the high percentage of short sellers create extreme volatility for investors. He contrasts Beyond Meat valuation metrics with other food companies such as Kellogg and notes they are 30x higher! He states that the food industry is so hungry for the growth opportunity that they may over price some securities in the short term.

Babson College Professor Dr. Joel Shulman discusses earnings from Google, Amazon, Twitter, and McDonald's. He notes that Google exceeded EPS estimates of $11.30 vs. $14.21 actual and grew its Cloud revenue to an $8 billion run rate. He also notes that Google increased its Advertising click revenue by 16% and other revenue by 40%. Despite missing its earnings guidance, Amazon has grown its R&D spending by 27.5% and has also increased its employee base from 117,000 to 648,000 during the last five years. A potential concern for Amazon shareholders is the competitive AWS category (Amazon Web Services) in which the percentage of total revenues has grown from 10.7% to 12.9%, although AWS's profit margin has dropped from 72.7% to 50.3%. As a final comment, Dr. Shulman discusses how Twitter increased its user base by five million customers, its biggest jump in several years, and how McDonald's has 30% lower sales today than five years ago but has achieved higher profits.

Babson College Professor Dr. Joel Shulman discusses Netflix's missed guidance, IBM’s continued deterioration and expectations for Microsoft after-hours announcements. He notes that Netflix had a decline in U.S. subscribers and a slow down with international growth. He believes these two factors coupled with increasing competition and an aggressively priced stock will create headwinds on performance for the near future.

Babson College Professor Dr. Joel Shulman discusses last week’s Fed announcements and the effect on the Markets. He notes that publicly traded entrepreneurial companies have concentrations in IT, Healthcare, Consumer Discretionary, and Communication Services and are not likely to be strongly affected by modest changes in interest rates.

Babson College Professor Dr. Joel Shulman discusses the drop in mortgage rates and the valuation of Entrepreneurial startup Beyond Meat. He notes that the Beyond Meat stock price has appreciated approximately 600% in the five weeks since the IPO. The market capitalization is valued at 64x revenues in an industry that averages 2x. While he recognizes that the stock appears significantly overvalued, Dr. Shulman cautions that the stock does not trade like a typical stock. For starters, the available share float available for purchase is only 11m shares out of the 60m shares authorized. This availability is very small since 49m shares are “Locked-Up” by insiders and unavailable for purchase or sale for 180 days. Notably, 1/2 of the 11m shares have been sold “short” by investors who expect the stock price to drop. These “short sellers” hope to profit in the future with a lower purchase price (which they need to complete their transaction). Given the high borrow costs of this stock (up to 134% annualized rate) and high trading volume (up to 25m shares of 11m available float), short sellers may panic, thus pushing the price up even higher. This is known as a “short squeeze” and can create significant losses for even highly sophisticated investors. Casual investors are strongly encouraged to avoid this stock for the immediate future.

Babson College Professor and EntrepreneurShares Founder & CIO Dr. Joel Shulman discusses US Small Caps and their potential for further appreciation. He notes that historically Entrepreneurial Small Caps have enjoyed an additional 2% risk-adjusted excess return based on M&A activity. Dr. Shulman cites the current market with pending deals approaching $1 Trillion that is approximately 4x ahead of last year’s record numbers. Further, he mentions that proposed deals are above $550B and 4x ahead of last year. This growth coupled with low levels of terminated deals and low-interest rates suggest more deals will go through. When pressed for insight on how to identify potential acquisition targets, Dr. Shulman listed a few key traits of a CEO that might signal an opportunity such as: concentrated ownership, rising cash compensation, sell-off of stock, long tenure, approaching retirement age, low corporate debt and a recent reduction to an otherwise appreciating stock price. He believes given the recent drop-off in stock prices in May 2019 and Fed comments, this may be an attractive time to buy small caps.