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How the markets have responded to President Biden's first few days in the White House; Couche-Tard could be a buy; and is Tesla the next Big Short?
“The second-biggest surge was from late 1960 to early 1961, when John F. Kennedy defeated Richard Nixon, and the S&P 500 rose 8.8%. The market continued to rally during JFK’s first 100 days in office, rising another 8.9%.”
Four years ago, U.S. stocks also cheered the Trump election victory, increasing 6% from victory to inauguration. Indeed, stocks performed well during the Trump presidency, gaining more than 16% per year. Here’s an interesting tweet from James Piscerno, comparing the stock performance during various presidents’ first terms…
“Thematic ETFs had a massive 2020.… [T]hematic ETF assets grew 78% in the fourth quarter from about $60 billion to $105 billion. In Canada we’ve seen not quite the same level of growth, because Canadian ETF investors can but those U.S. ETFs.… But even in Canada we have about $5 billion now in thematic ETFs across 40 products.”
Two of the big themes discussed were those marijuana stocks, up 60% in 2020—and blockchain stocks, up an eye-popping 1000%. Ruth Saldhana of Morningstar asked Noble about investors taking on those risky themes such as blockchain and bitcoin. He offered…“Are thematic ETFs a higher risk/reward proposition than a broad equity ETF? So, let’s take that blockchain example. If I buy blockchain equities, is that a higher risk/return proposition than buying the S&P 500? Absolutely, no question. But I don’t think there’s anything wrong with investors taking what we call a core and explore approach, which is that you build a portfolio with core asset classes that are designed to meet your long-term risk/return objectives.”
While it’s not for everyone, I am a fan of the core and explore approach. A core portfolio might be represented by an investment mix such as the one-ticket asset allocation ETFs. The explore component may be built by way of a sector or thematic ETF. An investor might also use those explore monies to buy a collection of individual stocks. The “explore” in my RRSP account consists of two U.S. stock picks: Apple and BlackRock. Those two companies have greatly outpaced the market returns. On the thematic ETF side, I’d also be willing to pick up some of that HMMJ. But I would consider it a speculative exploration. The sector is not flush with profits and there’s the risk of great losses. Noble suggests you keep your explore funds to 5% to 15% of portfolio assets.“A merger would have created a retail powerhouse, combining Couche-Tard’s North America-focused network of 14,200 convenience stores with Carrefour’s sizable European operations, which include hypermarkets and smaller outlets. Carrefour has more than 7,000 convenience stores and gets almost all of its revenue from Europe and Latin America.”
Couche-Tard is down nearly 14% in 2020, and the stock price is down over the last one-year period as well. But this is still an incredible company as I wrote in September after Couche-Tard had reported very strong quarterly numbers. And perhaps it offers incredible value with a PE ratio below 13. A lower PE ratio means you are buying a higher level of current earnings. For context, the PE ratio for the Canadian composite is 15, according to iShares. The U.S. market is drastically more expensive compared to Canada. Dividend Stocks Rock calls Couche-Tard “crazy cheap” by historical standards. And now that the hype is over, they’ll go back to making money in the manner they did before this acquisition attempt. And they might be well-positioned for a robust summer driving season, if we can get the pandemic more under control.“Tesla’s stock price jumped 8% that day alone, adding $60 billion to its market capitalization— equivalent to “1 GM, 2 Hersheys, 3 Etsys, 4 Dominos, 10 Vornados,” he continued.
This will be interesting to watch. Tesla’s valuation does not appear to make sense. It is a wonderful company (and story), but perhaps not a wonderful stock in 2021. We’ll see if this short tests Burry’s patience—and wallet. There is the famous expression from economist John Maynard Keynes that the markets can remain illogical longer than you can remain solvent. Dale Roberts is a proponent of low-fee investing who blogs at cutthecrapinvesting.com. Find him on Twitter @67Dodge. MORE ON INVESTING:Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
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