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Good morning,
Markets are called to open higher this morning in Europe. This is what's happening today:
Companies reporting results in Europe today – Philips, Software, Sartorius, Sandvik, National Grid, British Land, Willian Hill, PZ Cussons, Petra Diamonds, Aquarius Platinum, Carpetright, Jenoptik, Investor, Luxottica
Companies reporting results in the US today – Steel Dynamics, EMC Corp, International Paper, Valero Energy, CIT Group, Ford Motor, Harley Davidson, Amazon
Markets are called higher this morning in Europe once again. A quick look at Caterpillar's results after having reported yesterday for Q412. The shares closed the session 2% up and this enthusiasm came after the CEO said that Caterpillar could have another record year in 2013 despite a slowdown in sales in the first quarter. The company forecast 2013 earnings of $7 to $9 a share on revenue of $60 billion to $68 billion. The average of analysts’ estimates compiled by Bloomberg was for profit of $8.54 a share on sales of $65.2 billion. Caterpillar predicted global economic growth of at least 2.5% this year. China will expand, albeit at a slower pace than in 2010 and 2011, the U.S. will show some improvement and Europe will still struggle.
Moving on, another blue chip which everyone is talking about reports results today – Amazon. Now Amazon is a very interesting company to look at even when comparing to other companies like Apple because there is alot of learn from it. I like to compare Amazon to a balloon. The more it grows its top line, the more the share price will go up, however, because of its low margins, one disappointment and the share will get hammered. If you think Apple suffered alot for disappointing the market, wait and see what will happen to Amazon if they disappoint. The problem with Amazon is that is one (if not the most) expensive stock in the tech industry and it is also the company with the lowest margins. They earn a margin of just 2% on their products in general, so one mistake and this stock will get hammered.
Having said this, analysts are not worried that the company will get hit on margins in the December quarter. However, slowing revenue growth and lack on visibility in key aspects of its business such as Kindle, combined with razor thin margins, could also results in the stock experiencing multiple compression or trading in a range for an extended period as the company grows into its valuation.
The positive though is that in this bull market, it is good to be exposed to a company like Amazon that keeps on taking market share. If you think about it there isn't much difference with this line of thought at that of buying CCC bonds. Investors are getting yield by buying CCC bonds. Though the risk inherent in the bonds is very large. Though so far so good – as long as there is demand and a feel good factor, the prices will hold and the investors will get the coupon. However, one wrong move by the company or a turn around in the markets and CCC will the ones to suffer most.
So far so good. Amazon is expected to grow its top line by 27% yoy in Q412 and 28% yoy in Q113. The company keeps on gaining market share though there is very little room for error. Unfortunately the business model of this company makes it difficult for analysts to predict results, however, one wrong move and the share will get hammered. Amazon does not pay a dividend and is trading on a P/E of 520x.
For more information on Amazon or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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