Market Averages Churn in Place While Tech IPOs Party

It was a broadly flat week for stock markets across the board, with the Dow Jones up 0.04%, the S&P 500 gaining 0.17% and the NASDAQ rising 0.75%. The MSCI Emerging Markets Index also ended the week 0.83% higher.

Big gainers in your Alpha Investor Letter portfolio included PayPal Holdings (PYPL), which popped 8.74%, and NVIDIA Corporation (NVDA), which jumped 7.90%. Both positions also hit new 52-week highs, along with Google Inc. (GOOGL).

BYD Company, Ltd. (BYDDF) moved back to a BUY. Intuitive Surgical, Inc. (ISRG) fell below its 50-day moving average to become a HOLD.

With October closing out pretty much where it started, it may seem that the market is not doing much.

But there is more going on beneath the surface than meets the eye.

Despite the Nasdaq Composite continually flirting with an all-time high in recent weeks, more stocks on the exchange have been sitting at new one-year lows rather than one-year highs. That situation suggests a weaker market than currently seems the case.

The last time a similar divergence happened was right before the correction last summer.

Still, NASDAQ has been strong enough that the number of technology initial public offerings (IPOs) coming to market has risen this year. Moreover, the median first-day return of tech IPOs is 26%. That jump just about matches the 27% average gains recorded in 2013, but falls far short of the 58% one-day returns during the 1999/2000 bubble days.

Finally, you may recall that, last week, I highlighted Harvard’s investment woes.

In yesterday’s edition of The Global Guru, I wrote a more detailed analysis and highlighted how a lone manager at the Nevada State Pension fund had outperformed Harvard’s staff of over 200 Wall Street veterans during the last decade, managing an identically sized portfolio.

Portfolio Update

Berkshire Hathaway (BRK-B) dipped 0.61% over the last five trading days. Warren Buffett just may be the ultimate “buy & hold” investor, and one reason is dividends. Mr. Buffett purchased $1 billion worth of Coca-Cola (KO) nearly 30 years ago — a position that pays him $500 million in annual dividend payments. This annual dividend pays out his original investment amount every two years. BRK-B is a HOLD.

Google Inc. (GOOGL) rose 0.86% last week to hit a new 52-week high. Google will report earnings on Thursday after markets close. Consensus estimates are for $8.63 earnings per share (EPS) on revenue of $17.91 billion. Analysts at BK Asset Management believe Google is prepared for a “second resurgence” and see its new foray into artificial intelligence as the catalyst. Speaking of new artificial intelligence, Google’s new mobile phone, the Pixel, is now sold out, with orders pushed out until late November. GOOGL is a BUY.

PayPal Holdings (PYPL) popped 8.74% to an all-time new high last week on the back of a strong earnings report. PayPal reported Q3 2016 EPS of $0.37 on revenue of $2.7 billion, beating consensus estimates of $0.35 EPS on revenue of $2.7 billion. Revenue also jumped 18.1% year over year. PYPL put out next-quarter guidance, calling for earnings to rise to between $0.40 to $0.42 EPS with revenue also increasing to between $2.92 billion and $2.99 billion. PayPal is a BUY.

KraneShares CSI China Internet ETF (KWEB) moved 0.56% higher last week. KWEB has been a solid performer in your portfolio and is currently up over 22%. KWEB has outperformed the most similar U.S. Internet exchange-traded funds (ETFs) by more than 7% — and all without the benefit of tech behemoths like Amazon.com or Facebook as its holdings. KWEB is above the 50-day moving average (MA) and is a BUY.

Illumina Inc. (ILMN) fell 4.85%. ILMN will report earnings on Tuesday Nov. 1 after markets close. Consensus estimates are calling for EPS of $0.87 with revenue coming in at $627.98 million. ILMN is a HOLD.

Apple Inc. (AAPL) traded flat last week, adding 0.66% as investors readied for Apple’s earnings report. Apple reported EPS of $1.67 on revenue of $46.9 billion after hours, beating estimates of $1.66 per share on revenue of $46.6 billion. The shares traded down 3.45% on the news. AAPL remains a BUY.

Phillips 66 (PSX) climbed 1.47%. Phillips 66 will report earnings on Friday morning before market open. Consensus estimates are calling for EPS of $0.89 on revenue of $25.48 billion. With oil prices moving higher in recent weeks, PSX could report solid numbers. PSX is a BUY.

BYD Company, Ltd. (BYDDF) rose 2.16%. The China Passenger Car Association (CPCA) reported Chinese automobile deliveries rose a whopping 29% year over year, as of last month. That was the largest growth rate since January 2013. Year-to-date auto sales are up 15% through September. Your bet on this Chinese automaker rose above its 50-day MA to become a BUY.

Intuitive Surgical, Inc. (ISRG) fell 5.85% over the past week, despite beating earnings estimates. ISRG reported earnings of $6.13 EPS on revenue of $682.9 million. Consensus estimates called for $5.09 EPS on revenue of $647.6 million. Revenue grew 15.8% year over year. Analysts at Canaccord Genuity also pushed their price target from $750 to $800 and maintained a “Buy” rating. However, ISRG dipped its 50-day MA to become a HOLD.

Sincerely,

Nicholas A. Vardy