ERShares In The News

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.

Babson College Professor and EntrepreneurShares Founder & CIO Dr. Joel Shulman discusses recent market advances associated with the perceived Fed interest rate policy. He also commented on Game Stop and noted the 90% price decline over the past 5 years, declining margins, rising debt levels, significant losses, extended accrual payments, and recent cash decline of over $1B. He could not understand how the top executives could justify significant pay raises that were 2x to 3x over the prior year.

Babson College Professor and EntrepreneurShares Founder & CIO Dr. Joel Shulman discusses China trade issues as well as news regarding Tesla. He notes that Tesla has been reducing cash by more than $2B, expanding payables, and accruals by more than $2B and has debt coming due. While he does not believe Tesla is at major risk of default, he remains concerned about refinancing risk and the lost potential for future growth initiatives.

Last Thursday, on the day before Uber's IPO, Babson College Professor Joel Shulman compared Uber to other publicly traded companies with a similar $90B market cap valuation such as UPS and Lowe’s. He noted that whereas the latter two companies had over $71B in revenues and profits above $5B, Uber had $11B in revenue and operating losses of approximately $4B. He reminded listeners that Lyft dropped more than 40% from its highs after IPO and that the former Founder CEO, Travis Kalanick has been the “poster boy” of bad corporate behavior. Dr. Shulman was very clear that even though he considered Uber an “Entrepreneurial” company at one time, that he preferred companies with the leaders remaining at the helm and questioned the company culture. He mentioned that he would not touch the stock at IPO and agreed with Mr. Varney. Dr. Shulman also restated his long-standing position that for the past two months the markets had more downside risk compared to upside potential given incomplete US-China trade talks. He expressed concern that if talks ended poorly, the markets could experience a significant correction in the ensuing 1-2 weeks.

Babson College Professor Dr. Joel Shulman discusses yesterday's Fed statement (referring to inflation as “transitory”), and disagrees with the notion that the market is ripe for a “melt-up”. He also mentions that it’s been 20 years since Qualcomm was an entrepreneurial company and that adding CBD to cookies at Mondelez is nothing more than a “gimmick”. He notes that Mondelaz's revenue has dropped from $40B to $25B and that the cookie, cracker, and candy company (maker of Oreo, Cadbury, Tang, etc) has been on a downward decline for many years.

Babson College Professor Dr. Shulman discusses the performance of US Large, Mid and Small Cap publicly traded Entrepreneurial companies. He notes that these portfolios have generated up to 45% since Christmas and agrees that they appear to be fairly valued at this time. He suggests the best opportunities moving forward remain in US and Non-US Small Cap markets. He also comments how the movement of individual stocks, based on good and bad news, is now a more healthy market (then when stocks previously moved in lock-step regardless of company-specific information).

Babson College Professor Joel Shulman discusses Microsoft and Facebook earnings announcements and the merits of Entrepreneurial organizations. Though he differentiates between the two companies, he notes that Microsoft is no longer an entrepreneurial company since Bill Gates left. He agrees that Microsoft has experienced strong growth in Cloud technology and has many attractive attributes, but also recognizes that the company has experienced uneven job growth and inconsistent R&D investment. Babson College Professor Joel Shulman discusses Microsoft and Facebook earnings announcements and the merits of Entrepreneurial organizations. Though he differentiates between the two companies, he notes that Microsoft is no longer an entrepreneurial company since Bill Gates left. He agrees that Microsoft has experienced strong growth in Cloud technology and has many attractive attributes, but also recognizes that the company has experienced uneven job growth and inconsistent R&D investment. As for Facebook, he describes them as currently entrepreneurial but likely headed down a different path. He likes the strong R&D investment, 40%+ annualized growth in revenues, profits, and exceptional job growth. He also applauds the ability for the firm to squeeze cost savings while expanding margins through acquisitions. However, despite Founder/CEO Mark Zuckerberg’s steadfast support in continuing to hold virtually all of his Founder’s stock since inception (worth approximately $66B) the same cannot be said for Facebook COO, Sheryl Sandberg. Ms. Sandberg has been the most highly compensated executive in the world over the past 3 years and has generated approximately $800M in total compensation. Moreover, her compensation does not include the sale of approximately 17.4m shares out of her original 18.5m shares (93% sold). Given the current price of Facebook $193, her stock value would be worth approximately $3.6B today rather than her current value of $230M! The Facebook CTO has also cashed out and has generated approximately $700M compensation in the past 4 years along with sales of 40% from his maximum stock positions. In the video, Dr. Shulman laments that this gluttonous corporate behavior sends a very poor message to all stakeholders associated with Facebook and worries about employee loyalty and aligned incentives going forward.

Babson College Professor Dr. Joel Shulman discusses Qualcomm, IBM, AMZN, the growth in China and the Martha Stewart brand. He notes that China has been the leader in Global markets. On a separate point, he mentions how his firm was an early adopter of Amazon stock.