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Chipping into the Green

Market Scorecard



Precious metal miners drove the JSE All-share on Friday, meaning that our local market just squeaked into the green for the day. Turning to Asia, mainland Chinese stocks have recovered to be back at pre-coronavirus levels. Even though China is only operating at 40% - 50% capacity, market participants are taking the view that the fall out from the virus will be limited. Over the weekend, China also announced plans to lower corporate tax rates, which will add extra stimulus to their economy and by extension the global economy.

On Friday the JSE All-share closed up 0.05%, the S&P 500 closed up 0.18%, and the Nasdaq closed up 0.20%.



Company Corner


Byron's Beats

On Thursday night last week Nvidia released their fourth quarter and full year results. Sales grew 41% compared to this quarter last year, coming in at $3.11bn. This resulted in earnings jumping 66% to $1.53 per share. For the full year, revenues declined 7 percent to $10.92bn and earnings dropped 13% to $5.79 per share.

The reason for the big contrast between the quarter and the full year numbers was the timing of the cryptocurrency crash. Remember that Nvidia gaming chips were being used to mine Bitcoin. This resulted in a large spike in demand and then an inevitable crash. Inventory management had never experienced anything like it.

More importantly, the quarterly recovery shows that the company is back on track for record sales, after learning many lessons from the crypto boom. Speaking of records, the company achieved the best gross margin in its history of 65.4%. The market really liked the numbers, pushing the stock up 7% on Friday!

Of their divisions, gaming makes up nearly half of sales. It grew 56% quarter on quarter. What really smashed expectations was data centre sales which is now 31% of total company sales. I remember when Nvidia was in the doldrums, but I kept reading that investment in cloud computing was spiking from the likes of Amazon, Microsoft, Google, Alibaba and Tencent. That gave me confidence that in quarters to come, their data centre division would see strong growth; it is the division of the business that really excites me.



The picture above is of a data centre. Here is a video from the Nvidia YouTube channel which explains how their Volta GPU services data centres around the globe. A simple Google search tells me that I can buy one of those chips for R261 000. One data centre will use many of these chips.

The future is very bright for this company. Gaming is growing but the internet of things and big data is still early days. The share is back at its highs. Analysts expect earnings to double in the next 3 years. We still recommend buying this stock.




Our 10c Worth


One thing, from Paul

I really like the outlook for our investments in the medtech sector. By medtech we mean companies that make medical devices, both those used to replace human joints and organs, as well as machines used in surgeries, and hospitals in general.

Our current investments here are Stryker and Johnson & Johnson, which has a big medtech division. We could also include Illumina, which makes genetic sequencing machines and consumables.

According to Goldman Sachs, the performance of the medtech sector over the past 20, 10, and 5 years was +9%, +12%, and +13% per annum, respectively versus the S&P 500 up +5%, +12%, and +11%. This has been a very secure space to invest for the past two decades.

Medtech companies seem to be subject to way less pushback from politicians and regulators than the drug developing pharmaceutical companies. For some reason, a cutting-edge knee joint or spinal insert, or a very expensive new pacemaker doesn't worry anyone, but a costly new drug for a rare disease has everyone up in arms.

Hospitals seem to like spending money on high-end surgical and post-operative equipment. For some reason, medical insurers are far happier to pay for a knee replacement than a lifetime of anti-inflammatory drugs and physio treatments. It appears that the FDA (US regulator) and EMA (European regulator) approve new devices with much less fuss.

Areas for further consideration are surgical robotics, where I own Intuitive Surgical (ISRG), pacemakers where the sector leader is Medtronic (MDT), and stents where Edwards Lifesciences (EW) looks interesting.








Michael's Musings

Following on from Pauls piece last week on the Zuckerberg's trying to change the world. Here is the annual letter from Bill and Melinda Gates about how their foundation is changing the world - Why we swing for the fences. Both couples have signed the giving pledge, where the bulk of their wealth will be given away to charity when they die. The world is a better place from the wealth they have amassed.

Over the last 20 years their foundation has spent $54 billion! That is a lot of money. In this latest letter, they talk about having a unique role in global development, where they need to pick projects where they 'swing for the fences'. These are projects that, if successful, will have massive returns for humanity, but they come with a high risk of failure.

One of the causes taken up by the foundation is to eradicate polio. A goal that they are very close to achieving. Other areas that they are focused on are education programs, climate and energy poverty, and gender equality. They are an inspiring couple.








Bright's Banter

The worlds most popular messaging app, WhatsApp revealed how massive it has become since starting 11 years ago. The Facebook owned app hit 2 billion users, up from 1.5 billion 2 years ago. The mother company Facebook, which recently hit 2.5 billion users, is the only other platform with over 2 billion users.

Facebook acquired WhatsApp for a sweet sum of $19 billion in the year 2014 to add it to its portfolio which included Instagram. WhatsApp had 465 million monthly active users at the time.

In its latest earnings report, Facebook said that 2.26 billion people open at least one of their apps - Facebook, WhatsApp, Instagram, or Messenger - each day, up 9% year-on-year. This doesn't help Facebook much as the company has faced a lot of regulatory scrutiny and some people truly believing that the company should be broken up to loosen the power that Facebook has.

The graph below shows how WhatsApp has grown over the years.

Infographic: WhatsApp Reaches 2 Billion Active Users | Statista You will find more infographics at Statista




Linkfest, Lap it Up


This is a brilliant piece of marketing from KFC. They paid artists to rename their songs on Spotify, so that the song names helped promote a new product - Some agencies think sneaking ads into Spotify is a hot new marketing strategy.



South Africa is one of the leading countries when it comes to adoption of fintech - Visualizing the Current Landscape of the Fintech Industry.






Signing off


It is Presidents' Day in the US, so their stock market will be closed. It is very quiet on the data front today. For the week ahead, there is local CPI released on Wednesday, and the South African earnings season kicks off. Vestact holdings, Bidcorp and Discovery are on the cards for this week. The Rand is slightly stronger this morning at $/R 14.85.

Sent to you by Team Vestact.


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