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Expensive water

18 March , 09:28 am

Market scorecard

US markets took a hit on Friday, and closed in the red for the week. It was the first back-to-back weekly decline for the S&P 500 since October. The information technology and communication services sectors were the weakest performers, with both declining by over 1%.

In company news, Ulta Beauty dropped 5.2% following the company's cautionary remarks about slowing growth in the industry. Elsewhere, Fisker saw a 13% increase after the electric-vehicle maker downplayed discussions about a potential bankruptcy filing. CoStar Group, a commercial property services provider, was the biggest winner in the S&P 500, rising by 8.3%. We've never heard of them.

On Friday, the JSE All-share closed down 0.48%, the S&P 500 slipped 0.65%, and the Nasdaq was 0.96% lower. A sloppy end to the week.

Our 10c worth

One thing, from Paul

Bloomberg columnist Matt Levine (pictured below) says "One extremely crude but sometimes useful rule of thumb is that a business is worth about 10 times as much as it made this year. If you have a hardware store or a dental practice or a newsletter and it made a profit $1 million this year, and you want to sell it to someone else, they should pay you about $10 million for it."

Levine immediately retracts this statement, noting that business valuation is a complex issue, which prompts fundamental questions like how fast is the business growing, and what do its long-term prospects look like?

He also notes that the term "profit" is a bit squishy. "What do I even mean by "made $1 million": Is that net income, or revenue, or EBITDA (earnings before interest, taxes, depreciation and amortisation), or some other measure of earnings? A business is worth the value of all of its expected future cash flows, discounted back to present value at some appropriate cost of capital. Sometimes, the growth rate and discount rate will work out such that that number will turn out to be roughly 10 times this year's earnings, but of course it could be much more or much less."

Anyway, I have a different rule. According to me, a business is worth about 10 times as much as it will make in one of the full calendar years that lie ahead. That makes more sense, because it is forward looking.

I apply this equation backwards to sound clever when discussing stocks, because I generally know their current share prices. For example, Amazon trades around $175 per share, so I can breezily say that in my view, Amazon will make a profit of around $17.50 sometime soon. Maybe in 2026.

Byron's beats

We get quite a few people asking our advice on where to invest their savings if they do not meet our minimum starting amount of $25 000. Our advice is always the same, buy locally-listed index trackers that track the US stock markets.

US stocks are a safer bet than those in the rest of the world and offer the best growth opportunities. We are lucky to have access to many exchange traded funds (ETFs) listed on the JSE that track global markets. We prefer the 10x Coreshares S&P500 (CSP500) and the Satrix Nasdaq 100 (STXNDQ).

It may seem overly focused only having just 1 or 2 positions in a JSE portfolio, but as the names suggest, the S&P compromises 500 companies and the Nasdaq has 100 (the biggest holdings are listed below). These indices are heavily diversified and are made up of the biggest and best companies on the planet.

So whether you have a tax-free savings account or a normal brokerage account with your bank, that's where we would advise you to invest your hard-earned savings. And in case you were not aware, they are Rand hedges and go up when the Rand weakens to the US Dollar.

Bright's banter

Liquid Death, a nonalcoholic beverage company, is making waves by capitalising on the trend of sober curiosity. Its skull-branded aesthetic is often mistaken for a brewery but in reality it is just water. The company's valuation recently rose to $1.4 billion after a $67 million investment round. Notable investors include actor Josh Brolin, NFL player DeAndre Hopkins, and Live Nation, which already sells Liquid Death at its venues.

The company's distinctive tallboy cans are designed to blend in seamlessly with alcoholic beverages at social gatherings, catering to the growing demand for booze-free alternatives. This trend is reflected in the 30% increase in sales of near beer, mocktails, and kombucha observed last year, with further growth projected through 2026.

Liquid Death has expanded its product range recently, venturing into iced tea, flavoured seltzers, and most recently, an electrolyte powder mix named Death Dust. This move positions the company to compete in the energy drink market, where it aims to disrupt with innovative offerings.

Liquid Death markets itself as a quirky yet wholesome brand for individuals unswayed by peer pressure. Its unconventional marketing strategies, including renaming products and collaborating with celebrities like Travis Barker, have garnered a significant following on social media, with 7.9 million followers across TikTok and Instagram.

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Signing off

Asian markets are mostly higher this morning. Benchmarks rose in Japan, Hong Kong, mainland China, and South Korea. China reported better-than-expected factory output and fixed asset investment growth.

US equity futures have nudged higher pre-market. The Rand is trading at around R18.76 to the US Dollar.

This week we will see earnings reports from Accenture, Nike, Lululemon, General Mills, Micron Technology, PDD Holdings, and Tencent Music.

Have a good day.