Tuesday, February 14, 2017

Valuing Trump

        On November 7, 2016, Bloomberg reported that the value of all United States equities was $23.742 trillion.  By the close on February 14, 2017, the value had risen more than $2.375 trillion dollars.  Quite a specular dividend for the American people.  The increase, furthermore, was based on little fundamental economic news other than the election of a new President.
        Needless to say, there has been a good deal of speculation as to why Donald Trump appears to have created $2.375 billion in new stock market wealth.  One hypothesis is that the run-up is due to the expected passage of tax reforms and a cutback in costly regulation.
        Another theory, not so flattering to Mr. Trump, is that his administration is sufficinetly disorganized that little will be accomplished but that slowing things down in Washington is bullish for American business.
         Whatever view you take to explain the Trump value creation it should give Democratic leaders pause.  They have pillored Trump as incompetent, uninformed, dishonest, and on and on.  But if they are right, and Trump is the disaster they say he is, then how do they explain the wealth creation?  It seems to suggests that even a disaster like Trump is good for American business if he gets the country off the regulatory road the Democrats were following.  It might be a good time Deomcratic leaders to rethink some of those policies before another election rolls around.

Tesla has almost caught Ford

     Given its run-up in the last few weeks, Tesla's market capitalization is within a hair's breath of Ford.  (Note, however, that market capitalization is not enterprise value because it is based only on equity value.)  This run-up, once again, has occurred without there being any meaningful fundamental news.  What has soared, is what has soared in the past, belief that Mr. Musk is about to deliver something sensational.  This time, however, there may be finally be a resolution.  As the year, wears on Mr. Musk will either produce the Model 3 and sell it at a profit or he will not.  For the first time in its history, Tesla will begin to trade, at least in part, on the basis of its actual financial performance, not its future growth options.  When it does so, I still find it hard to believe it will command a market cap equal to that of Ford.  But we shall see.

Wednesday, February 1, 2017

Fitbit - Valuation is the ultimate question

       In this blog, I have gone on and on about how Fitbit did not have adequate barriers to entry.  But that begs the question, what is meant by adequate?  The answer is adequate to rationalize the valuation.  At valuations of $50, as it was long ago, or even $40, $30 or $20, the answer in my view was not adequate.  At $10, however, the answer becomes I don't know.  And below $6, where Fitbit is trading now, the answer is yes.  Fitbit has become a value stock.  It trades at a P/E well less than the market.  For that reason, I can finally reverse myself and say that Fitbit, which I picked on for so long, looks like a good investment as long as you pay less than $6.