Ticker Reports for November 24th
2 Finance Stocks With Competitive Advantages You Can't Ignore
In business analysis, finding key competitive advantages helps identify firms that can sustain their market position over time. Competitive advantages can come from many sources. This includes things like network effects, where the value a service provides to users increases as the number of users increases. Social media applications are a great example of this. The more people who use social media services like Facebook, Instagram, or X, the more information users can access.
This makes these platforms more valuable to users than new social media networks that are still building their user bases. Over time, businesses controlling a massive market share become the standard. Their acceptance and usage by the masses give new users less reason to try a burgeoning competitor.
The network effect competitive advantage extends to the two financial firms discussed below. Their mass adoption by players in capital markets affords them advantages that are hard for competitors to overcome.
Financial Markets Are S&P Global’s Middle Name
The first company is S&P Global (NYSE: SPGI). Readers would rightfully understand that this company is worth over $150 billion and is the creator of the S&P 500 Index. This index provides the company with an incredible network effects competitive advantage. The S&P 500 Index serves as a ubiquitous benchmark against which people and institutions measure stock market and investment performance. Investment professionals compare the returns of a U.S. stock portfolio to the returns of the S&P 500 Index like the sun rising in the east.
Maybe no better indication of its importance is the fact that the S&P 500 and “the market” are often used as synonyms for each other. The sheer volume of people using the words “S&P 500” serves as a massive source of free marketing for S&P Global that is hard to overstate. S&P Global generates fees from companies that create investment products linked to its indexes. The top five largest mutual funds or ETFs that track the S&P 500 have approximately $3.5 trillion in assets under management. S&P Global also owns the rights to arguably the world’s second most well-known index, the Dow Jones Industrial Average.
S&P Global also controls a massive market share when it comes to the bond rating industry. The company actually makes around three times more revenue from this part of the business compared to its index business. Here, the company evaluates the creditworthiness of businesses and governments looking to issue debt for funding. Their ratings hold significant sway in how financial markets view these organizations.
This industry is essentially a three-horse race between S&P Global, Moody's (NYSE: MCO), and Fitch Ratings. These three control nearly the whole market in both the U.S. and Europe. S&P is generally thought to have the largest market share of the three.
MSCI: The Master in Global Indexes
Next is MSCI (NYSE: MSCI). Although generally less well-known than S&P, this $45 billion company is another crucial player in capital markets. MSCI also has a large network of market indexes like S&P. This makes up a significantly larger portion of the company’s overall revenue at over 50%. Investors use MSCI’s indexes more when measuring global stock market performance than the United States. Likely, the most well-known index the company controls is the MSCI All Country World Index, often referred to as the ACWI. Investors use this index to gauge global stock performance. It covers 85% of the world's stocks.
Like the S&P 500 with U.S. stocks, MSCI indexes are the go-to source when developing products for international stocks and referencing performance. This creates similar network effects. This is evident when we consider that over $16 trillion in assets is a benchmark for MSCI equity indexes. MSCI has also established itself as a leading provider of environmental, social, and governance (ESG) data and analytics for investors who incorporate those factors.
Two metrics signal MSCI’s dominance. Its forward price-to-earnings ratio is 35x, higher than 94% of U.S. financial services companies. This shows that investors will pay more for each dollar of the company's future earnings due to its advantages. Its operating margin is higher than 80% of U.S. financial services stocks. This shows that it can withstand cost increases better than others and remain highly profitable.
Tech funds are hemorrhaging cash: Sell this stock now
Something very strange is happening to U.S. stocks following President Trump's victory...
And this could spell disaster for some of America's favorite tech companies.
Tesla Investors Continue to Profit From the Trump Trade
Tesla Inc. (NASDAQ: TSLA) stock has been up 56.2% since Donald Trump was elected president of the United States. But the recent move of 6.6% the week of November 18, 2024, has investors thinking that the stock may be going to $400 or even higher.
News broke that the Trump administration is planning to prioritize the creation of a regulatory framework for fully self-driving vehicles (i.e., autonomous vehicles) at the federal level as opposed to leaving it up to individual states.
The significance to Tesla is that a federal framework could provide Tesla with an easier path for rolling out its autonomous Cybercabs. For existing Tesla owners, this would create a process to sell software across state lines.
Tesla’s Drive to an Autonomous Future
It’s no secret to TSLA shareholders that Tesla founder and chief executive officer (CEO) Elon Musk has made autonomous technology and AI development a cornerstone of Tesla’s business strategy moving forward. In theory, this news makes Musk’s vision much more likely to become a reality.
But investors have wondered how long that might take, particularly for a stock that’s trading at 171x forward earnings. Four years may be long enough. A Trump administration is likely to make the standards for autonomous driving less restrictive. Tesla’s full self-driving (FSD) technology is currently at Level 2 and would likely only have to achieve Level 4 before it could get regulatory approval for its Cybercabs.
Musk Keeps on Winning
Another bit of news that’s helping to prop up TSLA stock is that the incoming Trump administration is widely expected to cancel the Biden administration’s $7,500 EV tax credit. This was put in place to encourage electric vehicle (EV) adoption in the United States. However, ending the subsidy was one of Trump’s core campaign pledges.
Here again, Tesla would likely be a beneficiary because of the company’s position in the U.S. EV market. That is, it’s the market share leader and is one of the only companies that is profitable. This puts the company in a position to produce EVs at a lower cost, which would negate the current subsidy.
Politics Make Strange Bedfellows
Some critics suggest that recent successes may be tied to Elon Musk’s endorsement of Trump’s campaign. Musk, previously popular among the political left, has drawn attention for his evolving views on topics like free speech.
You can’t buy shares in a person, but at least some of the bullish sentiment in TSLA stock since the election is investors using Tesla as a proxy for their belief in what the next four years will mean for Tesla to make good on the idea that it’s more than a car company and should be valued on par with other technology stocks. It is, but that’s not showing up in the financials yet.
Buy the Rumor, Sell the News
Since closing at a price of around $347 on November 18, Tesla stock has sold off to around $329 but has recovered much of that loss. That was to be expected as investors digested the rumor and realized that the payoff to any of this week’s news is still several years away.
Analysts have been raising their price targets for TSLA stock since the company’s earnings report in October. However, it wasn’t until the latest news that one analyst, Dan Ives of Wedbush, stuck his neck out and is now calling for Tesla stock to climb to $400. That would be 16% higher than its price as of this writing. It’s also notably a 73% gain from the consensus price of the analyst forecasts on MarketBeat.
In the final analysis, an investment in Tesla at this moment is an investment by proxy in Elon Musk. Musk’s star may never shine brighter, but like all stars, it will fade...in time. Tesla has always been a heavily traded stock, and that’s likely to continue. Whether the Musk factor is worth paying 171x forward earnings for TSLA stock as an investment is a question only you can answer.
Missed Nvidia? Watch this ASAP
This little-known project that Bill Gates has been quietly working on that's about to unleash an AI breakthrough so advanced, it's going to make ChatGPT look like VHS.
But what's even more unbelievable?
I believe it'll make Nvidia's meteoric rise look like a backyard bottle rocket.
MicroStrategy's Stock Dip vs. Coinbase's Potential Rally
Most of the stock market’s attention has been directed to cryptocurrency, the hottest and most popular niche of the technology sector today. The idea behind most decisions is that, as the price of Bitcoin keeps rallying near an all-time high of $100,000 per coin, most—if not all—of the names related to cryptocurrencies will rally along with Bitcoin. That’s the one flaw most investors are coming to realize today.
For better or for worse, there is a major divide in the cryptocurrency stock universe today, even after signs from the gold market gave way to a buy signal for Bitcoin and its verticals. Shares of MicroStrategy Inc. (NASDAQ: MSTR) have plummeted by as much as 18.2% in a single day, shedding more than 25% of the company’s market capitalization in the process.
Beyond the MicroStrategy dip, there is one major discrepancy to give investors another way into a potential cryptocurrency-related rebound, this time in the middleman between Bitcoin supply and those looking to get a piece of the popularity and action. This is where shares of Coinbase Global Inc. (NASDAQ: COIN) come into play, as the stock declined by over 7.6% when Bitcoin traded at new all-time highs in the same day.
Why MicroStrategy Stock Is Falling: Challenges Behind Its Decline from Glory
There is justifiable merit behind the parabolic price action in MicroStrategy stock, as its CEO, Michael Saylor, made some smart moves with the company’s capital. Reinvesting any and all free cash flow, mostly into Bitcoin holdings, enriched the balance sheet when and if the price of Bitcoin took off, as it does today.
However, markets are worried that Saylor might become blinded to his hot hand, thinking that whatever happened in the past could continue in the future. The fear arises from the fact that MicroStrategy is continuing to dilute shareholders, this time by raising up to $3 billion to buy more Bitcoin.
This is where investors need to weigh the pros and cons of being diluted in exchange for gaining leverage into having more Bitcoin on the balance sheet. So far, this exchange has proven profitable, judging by the 705% rally the stock delivered over the past 12 months, even after this week’s sharp selloff.
One problem, however, might be that Saylor is raising all of this money to buy Bitcoin at its all-time highs, sort of like buying back stock when it trades at massive valuations; at some point, the returns just won’t make sense. And they don’t make sense for Wall Street analysts, as the consensus price target has fallen behind at $331.1 a share.
From where it trades today, MicroStrategy stock faces a potential downfall of 14.6%, considering the current targets, which might be too much risk for investors to bear.
Coinbase Operates in a League of Its Own: Wall Street’s Take on Its Unique Vertical
Unlike MicroStrategy, which bets on Bitcoin through its balance sheet, Coinbase's advantage is that it will do well no matter where the price of Bitcoin goes—or at least that may be the thinking behind Wall Street's price targets.
Whether Bitcoin is at an all-time high sand on the rise or coming into headwinds and potential selloffs, traders will be there to take advantage of this volatility. The trading activity will be a fee source for Coinbase moving forward. Leaning on this belief, those at Needham & Company decided to reiterate their "Buy" rating on Coinbase.
The surprise came from their price targets, though. Although they were previously at $290 a share, renewed market activity and attention around Bitcoin call for a valuation closer to $375 a share. Coinbase would need to rally by as much as 28% from where it trades today, not to mention a new 52-week high, to prove these new views right.
However, another tailwind is adding to Coinbase stock's potential upside, and this one is coming from a new potential role in the United States economy. News broke out stating that Coinbase's CEO Brian Armstrong is a potential candidate to oversee all things cryptocurrency in the United States for the new administration.
This appointment would give Coinbase access to the information and prowess it needs to become a power player in global financial markets if accepted and formalized. Investors can liken this situation to when the government calls on a big investment bank like Goldman Sachs Group Inc. (NYSE: GS) to oversee and advise.
More than that, BlakcRock Inc. (NYSE: BLK) has already shown interest in Bitcoin by adding it to its asset management program and opening a new exchange-traded fund (ETF). This means that, as Bitcoin becomes more widely accepted by Wall Street, regulations and oversight would have to follow, and that's where Coinbase comes into play.
This is a completely different picture than the risks and volatility coming out of MicroStrategy stock right now, and that investors can take advantage of that distinction before the rest of the market realizes that it's there for the taking.
MarketBeat Media, LLC dba TickerReport
345 N Reid Place, Suite 620, Sioux Falls, SD 57103.
0 Response to "π Tesla Investors Continue to Profit From the Trump Trade"
Post a Comment