The X Factor in US Equities

What makes a good equity investment? The simple answer is making money. But what makes money? What gives a competitive edge? Or as Simon Cowell would say, what is the X-Factor?

Owning an Apple iPhone is about being cool.

Apple sold an incredible amount of iPhones in the quarter starting October and ending in December 2014. Sales of the iPhones contrasted with otherwise lackluster sales of iPads and iPods; the iPod is practically a dead product.

Apple product holders probably share a common trait; that of being image conscious. The new large format phones created a gap that could not be ignored. A small Apple screen suddenly became uncool. Up till end December, it was estimated that 14 percent of iPhone owners have already upgraded to the larger iPhone 6. It is expected that the remaining iPhone users will continue to upgrade their phone in the coming months.

Disney – when a name is more valuable than gold

What do Toy Story, Cars, Star Wars, Frozen, The Lion King, the Avengers and Pirates of the Caribbean have in common with Mickey Mouse? They are all franchises owned by Disney. Each one guarantees consistent revenues through entertainment products and related sales.

The earnings potential of Disney is limited only by imagination and the company leverages on the characters they create; characters that have defined generations and survived the test of time. The world without Disney would definitely be a little bit more boring, and Disney knows.

Delta have learned their bankruptcy lesson well

Delta Air lines, like other airlines may be in for a windfall this quarter due the cheaper price of oil. What is noteworthy is that Delta is insisting that they view the price of oil below $60 bbl. as a short term occurrence. The implication is that Delta is committing itself to acting responsibly despite probable extraordinary profits.

This contrasts with market expectations, especially European Airlines. European legacy carriers have been subject to staff and union pressure for increases in wages for some time. The ‘excuse’ of better fuel market conditions may lead to some airlines caving-in with long term consequences. Delta, this time, will be the exception.

Mastercard – making cash obsolete

Branded payment companies are currently riding the wave that is changing the way we pay for our everyday products. Mastercard, like Visa and others, generate revenues on each transaction that is made.

The world is currently experiencing a shift towards card-based and electronic payments; it has become unthinkable to carry large amounts of cash for daily shopping. Furthermore, online shopping requires the use of electronic payments.

Kroger – the opposite of one size fits all

Many Europeans have probably never heard of Kroger. Kroger is an American retailer competing with Macy’s and Walmart for the American consumer. Kroger is mainly based in the south west of the US, but is expanding rapidly into other US states.

What distinguishes Kroger from other firms is the level of detail into which each store is segmented. Each Kroger store is designed specifically for the region it caters for. Thus, the products sold will also differ by region.

For example, regions that are mainly populated by a particular ethnic group would have stores designed to cater for that ethnic group, areas populated by the affluent would include branded clothing shops in the store and in areas that lack health services, Kroger would provide a doctor and a dentist in the store.

The cost associated with this market research is significant for Kroger; however, the resultant company’s growth rate is also impressive.