Image Source: Depositphotos
Reflecting on the stock market bubble of his time, Isaac Newton famously said that he could calculate the movement of the planets but not the madness of men.
Market Froth Dangers.
In earlier times investors experiencedmassivelosses due toTulip Mania, John Law’s Folly, the South Seas Bubble, the Railway Mania, the Roaring Twenties, and the Nifty Fifty.In 2000 we had the dot.com boom and bust following a madness of men rush into companies of little or value. In 2007/9it was banks and their sub-prime mortgage madness.This year an AI frenzyproduced the Magnificent Seven.The rush into Meme stocks in 2020 is being repeated as I write. Recently Faraday Future Intelligent Electric Inc (FFIE)closed at 1.80, 4,636.84% above the 52 week low of 0.038 set on Apr 29, 2024. It was up another 75% yesterday! It has sales of around $500,000 with a net margin of minus 97,000%.
The Magnificent Seven at its peak constituted around 30% of the S&P 500’s value and had anaverage trailing PEof 37 compared to around 15 for the other 493 companies.It seems to be forgotten by investors that in the 1960sfilm of that name, four of the Magnificent Seven died! Today - whileone or two of those may justify a very high valuation - the others willnot die but they occupy an investormake believe world and such investors resemble children counting money and who still have much to learn but most of those investors simply don’t want to know or learn, thus proving Newton right. At least they are all sound financially unlike some of former manic times - they are simply hugely overvalued.
In addition to suchcompaniesare the political leaders who also occupy a make believe world leaving many home growncompanies atrisk and, thus,their localeconomies in a mess.I shall mention some of those - companies and countries - before featuring somecompanies I am investing in that are and will continue to make real money in such a world.
First the companies with make believe valuations...
Such companies spell danger for marketsas a whole because Newton's madness ofmen also tells us how they rush out ofmarkets like Lemmings jumping off a cliff.
Tesla is an outstanding typifier!Tesla’s share price was falling until someone invented the Magnificent Seven and namedTesla as one of those. That Sevenare supposed to be tech companies like Nvidia butTesla (TSLA) is a car makeryet the make believers, including its very talented boss, Elon Musk, prefer to think of it as a tech company.The latest portrayal by him is of its future leadership in humanoid robotics and self driving cars. A past such belief was that it would be a world leader in solar panels - it became just another also ran!Whereas Tesla was once an early leader in electric cars, today others lead in humanoid robotics and one wonders why Tesla wants to develop those if its cars will one day self drive and won’t need a robot at the steering wheel. Today Tesla does not even get a mention among the top humanoid robot makers in this report by proven robotics.Interestingly, Toyota (TYIDF), the world’s largest car maker, is among the leaders with those.
Tesla’s stock market valuation alone is around the combined market valuation of the world’s top ten car makers, including Toyota. As I write Tesla'sPE is 43 compared to GM’s (GM) of 5.6. The world’s largest EV maker, BYD (BYDDF), has aPE of 19. Toyota’s PE is 20.
Tesla will make no investorreal money in the medium to long term. Those who think it will and buy in now - or stay in - occupy a make believe world. Much admired - even worshipped- CEO Elon Musk is not helping. Unusually for him, he is now in retreat. He is cutting car pricesand thus undermining Tesla's one time big margin advantage over other car makers but is still losing market share. Price cutting in that way undercuts hisexisting customer's car resale values andis a race to the bottom! He will not win that race either - big Chinese EV maker BYD has just introduced a nice looking model that ispriced at a mere $10,000! Even a 100% tariff in the US will still mean that model is cheaper than anything Tesla sells.
And many existingcars are not selling as buyers turn way from EVs to hybrids.Yahoo recently reported onTesla's Storing Unsold Inventory In An Abandoned Mall Parking Lot.
He is cutting head count by 10%. He is also being erratic - recently he announced the closing of Tesla’s supercharger network department including sacking its bossand 500 peoplethen a few days later said he would spendwell over $500 million on new electric vehicle chargers to expand the Supercharger network! A recent much vaunted trip to India to announce the building of a giga factory there got canceled overnight and instead he went to China where he announced cooperation with local companies to make Robotaxis. There isnothing special about Robot taxis - they can have conventional engines.
Musk also said recently that Tesla should be valued as an AI robotics company and not as a car company. Swiss giant ABB (ABBNY) is a leader with those and makes no cars. Its PE is 26 compared to Tesla’s 43. Such statementsmakes little sense anyway given the fact that 80% of Tesla’s sales and earnings come for car making and the several other bits combine -including robots - only 20%.
Musk is renowned for onstage talking and maybe that old saying “The whale that spouts the most is the one most likely to get harpooned” will apply to him. That will hurt investors who make believe otherwise asI doubt Tesla will be priced at more that $100 by year end compared with $177today. Many of those make believers proved mypoint in the past - on November 4, 2021, the share price hit an all time high of $409!
Perhaps that old adage will also apply to another whose name we all know and who recently founded the...
Trump Media and Technology Group (DJT). It is not a Magnificent Seven company nor a magnificent anything but some make believe otherwise. Atleast Tesla makes useful things - DJT does little.
Following its initial public offering in late March, the shares soared to nearly $75 each. Aformfiled with the U.S. Securities and Exchange Commission showed the company had a net loss of $58M in 2023 on $4.1M in revenue. That is worse than many start-up companies yet the madness of men gives DJT a market cap of $7.44billionat thecurrent share price of $54. There is no PE so put another way DJT is valued at 1,815 times sales! In such cases where a startup makes no profits eqvista suggests employingtheEV/Salesmultiple for newly established small enterprises. EV/Sales would typically vary from 1X to 3X. That would give DJT a value of $4.1 - $12.3 million compared to that make believe figure of $7.44 billion.
Recently the US SEC shut down its auditor - BF Borgers - accusing it of "massive fraud" according to an article I read in the Financial Times. Investors/make believersresponded by putting the shareprice up!
Amazon (AMZN).Amazon is another of those "tech" companies that make up the Magnificent Seven but it is not a tech company. It is hard to know what it is other than a new age conglomerate - it owns food stores (Whole Foods), cargo carrying planes and delivery trucks plus book shops, online sales, and now is getting more and more into advertising. Amazon has a market cap of 52.8.True tech company Microsoft (MSFT) has a PE of 35.
We all know what happened toold age conglomerates. They ultimatelyfail but some of the bits survive. I am invested in one of those former conglomerate bits - GEVernova - that I will say more about later in my next article.
In addition to company leadership,it is also hugely important for investors totake into account ...
Make Believe Politics
Across the AtlanticThe EUis an economic mess but, perversely, that makes it a stock pickersparadise. I wrote about that mess and one of my picks - Schneider Electric (SBGSF) or SU on the Paris exchange where I own it - in Paris - Europe's New Capital And A City Of Light For Investors.It is a true tech company big also in the US but Isuppose did notget considered for the Mag 7 because it is foreign. Microsoft (MSFT) is a Mag 7 component - its market value YTD is up 12%, Schneider is up 32%! I have several other super EU picks - mostlyin France - and l say more on those below.
France is also the destination for most FDI. German companies are heading to the US will a record amount of $15.7 of capital commitments there announced last year compared to an already high $8.2 billion in 2022 according to figures in the Financial Times.
For the EU mess generally, these photos of mine paint a picture that would require a book full of words to explain in depth...
I took the above photo in May 2019.
I live near thatautobahn (interstate/motorway) just outside Zürich, Switzerland. Although we are not in the EU our road and rail systems are essential for the EU and this is one of Europe’s main crossroads that runs -at this point -around 30 kms (19 miles) south of Germany's Baden-Württemberg border. B-W is thehome state of Mercedes Benz and Porsche carsand many world-leading machinery makers. The lanes flowing towards us head on to southeast Germany - Bavaria,home of BMW, Audi, and Siemens- and toAustria and many countries east from there;Poland, Czech Republic, etc.
Those flowing away split beyond the overhead direction signs with the right lanes heading to France then via France on to Spain in the south and to north European countries such as Holland, Britain, Denmark, etc. The left lanes head off south to Italy.In former times one and sometimes two of those lanes each way were slow-moving conveyor belts of nose-to-tail trucks at the time of the day I took thatphoto.The registration plates on those trucks made a fascinating sight in those times; German, Spanish, Italian, French, Netherlands, Lithuania, Poland, Hungary, Sweden, Turkey, Russia, etc. Those in myphoto are nearly all local Swiss registered trucks. I did not take a photo then because that truck conveyor belt was the norm until early 2019 when all stopped.
"All stopped" has been the story of the EU ever since. I took this photo in May the other day at the same rush hour time of day - 5 years on!
The traffic flows freely despite thoseroads works that in earlier “normal” times would have made things much worse! The big culprit is Germany which was long the EU’s economic powerhouse - the one time Wunderkind (Wonder child). That changed to it becoming The Sick Man of Europe The German Finance Minister denies that and claims all Germany needs is"a good cup of coffee”. More make believe! Presumably, he expects a cup ofcoffee to besufficient to give the economythe much neededenergy kick yet someone living in the realworld in Germany - the head ofthe important German business association - called the politicalenergy policy "absolutely toxic".
And when they say they will cut the vast amount of red tape in Germany they do it lengthwise!
In the EU they simply keep adding red tape in a make believe approach to success. The FT reported thatExxonMobil has blamed red tape for the “deindustrialization of the European economy”. The CEO of Swedish telecoms equipment maker Ericsson said a focus on regulation was “driving Europe to irrelevance” and the head of the giant Norwegian sovereign investment fund “ in America you have a lot of AI but no regulation, in Europe you have no AI and a lot of regulation”.
The UK is in an even worse state. From the 16century until 1997 when Britain handed over Hong Kong to China itpresided over the biggest empire the world has ever known. By the end of this year, it will have had 6 Prime Ministers in ten years each promising a make believe return toglory. The former colony - Singapore - became supersuccessful once out of Britain'sclutches has had 4 PMs in 60 years!
Once out of the EU one of those PMs promised Empire 2. I wrote about that 6 years ago in Britain - Lost en route to Empire 2. Since then former lowly Empire 1 colony, India, has preplacedBritain inits 5th largest world economy slot! And the country cannot escapenumerous self inflicted crises - housing not helped by having 16Housing Ministers since 2010, energy, healthcare, cost of living, cost of learning etc. It has an enormous government debtand pensions remain unfunded requiring more debt. Many big cities such as Birmingham are technically bankrupt. In 1977 the UK had to be rescued by the IMF. Today the IMF probably would not have sufficient means to doso if called upon again!
There may be some butI can think of no investments that are worthwhile there.
Apart from my SchneiderElectric investment mentioned above and some others in moving-ahead-France my only investments elsewhere in the EU are Italian company Prysmian (PRYMF) or PRY on the Milan exchange (where Iown it) and Danish company NKT A/S(NRKBY) or NKT on the Copenhagen exchange where I own it. They are the world's leading electrical cable makers and will be among the suppliers of cable that connect the electrical power needed to satisfy increasing world demand. I will write more on that another day.They are and will continue to...
Make Real Money
ChooseFrance.
Outside the USmost ofmy investments are in France. Big companies are investing there too. This Reuters report tells more 'Choose France' investment push bags record $16 billion in pledges
In addition to Schneider Electric I own...
Alstom (AOMFF) or ALO on the Paris Exchange isthe world's second largest train maker after a state owned Chinese company. Alstommight not be well known but it is the largest train maker in theUS too. It share prices isnow recovering after ALO finally got rid off the skeletons it found in the closet following its acquisition on Bombardier's train making part.
Gaztransport et Technigaz- GTT on theParis exchange. It is not listed in the US but is important there asit is a world leader in LNG technology and is becoming a leader in hydrogen too.
Veolia Environment (VEOEY) or VIE in the Paris exchange is a world leader in water management including water desalination and, thus, is of growing importance in a world where the water supply is shrinking. Some of its work in the US is mentioned in this link. Ishall say a few more words about another favorite...
Air Liquide (AIQUF) or AI:PAR on theParis Exchangeis a world leader in gases, technologies, and services for Industry and Health. Oxygen, nitrogen, and hydrogen are essential small molecules for life, matter, and energy. Ilike itespecially for its hydrogen activities because hydrogen isone ofour future's fuels.
It employs 67,800 people in 72 countries including 3,900 involvedin R&D resulting in 372 new patents being filed in 2023.
Those interested in the financial side can see all on thecompany website.
Those finances provide sound foundations to take advantage of the many market developments especially those inHydrogen - Our Future’s Fuel
In spring 2023,Air Liquide announced the creation of Hydrogen Airport,a joint venture with Groupe ADP.Hydrogen Airport is an engineering company dedicated to helping airports in their transition to hydrogen. Theyhave identified around 200 airports of interest, both regional and international.
This has recently been announced by AI:Air Liquide and ENEOS partner to accelerate the development of low-carbon hydrogen and energy transition in Japan
AI started in China in 1916 andtoday operates nearly 120 plants in over 40 cities employingaround 5,000 personnel nationwide.It is a leader in hydrogen there,which is important given China’s need to reduce pollution
Air Liquide has done well for investors over the past 5 years as this Financial Times chart shows...
I see no reason why that performance will not be repeated over the next 5 years.
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