Blue Chip Jackpots: A Tale Of Two Puzzles

 

“It doesn’t matter if the cat is black or white, only that it catches mice”-

Deng Xiaoping

 

I always like to think of investment strategies and decisions as a Texas poker game. In my humble opinion, there is a big difference between playing poker and gambling. In gambling, an investor is not quite familiar with the stocks fundamentals or technical analysis. He doesn’t know which cards to play with, so ultimately he can’t differentiate between winning and losing cards. Hence, he can’t spot the potential intrinsic value of stocks.

When gambling, an investor places his bets on any stock based on a herd mentality criteria. In other words, an investor will allocate his funds on the stocks longed by the big boys or the institutional investors or even use a crystal ball, it doesn’t really matter. By doing so, an investor may incur losses because following the big boys' strategy may not suits his portfolio specifications or risk appetite.

On the other hand, playing a lucrative poker game entails the knowledge of an informative decision making process. An investor explores his winning probabilities based on an informative calculated risk. Understanding the stock direction and intrinsic growth are key ingredients to a successful timing recipe.

In today’s investment game, two blue chip stocks are playing to hit the jackpots. The two stocks are Apple, and Alibaba through its subsidiary Ant group. Apple already hit the USD$2 Trillion valuation jackpot and is aiming at another historic level of USD$3 Trillion, while Alibaba is predicting an IPO jackpot for its subsidiary to surpass USD$30 Billion upon launching the dual offering in Shanghai and Hong Kong stock markets. Comparing the two jackpot stories, there is a common puzzle. How could this happen in 2020, the COVID-19 year? The jackpot stories also raise another subset of puzzles related to each blue chip stock individually. Is the USD$3 trillion valuation attainable for Apple? Is Apple overvalued by reaching a share price of USD$500/Share? Why did Jack Ma choose Chinese cities this time instead of NY for an IPO?

First of all, let’s try to answer the common puzzle question for Apple. Such valuation could almost be impossible in light of Q1-2020 financial results ending March 2020. The results depicted a negative impact of COVID on the company’s bottom line resulting in a decrease of around 2.7% if compared to the same period in the previous year.  So How did Apple hit the USD$2 Trillion jackpot in a COVID year? The obvious answer is mentioned in the question. It is also because of the COVID era. This is stemmed from the company’s investment and marketing strategies countering the COVID impact on its activities. As per Q2-2020 financial results ending June 2020, the company was flexible enough in following a series of lucrative strategies. It brilliantly took advantage of COVID consequences in expanding its sales of products and services by shifting markets from China to Europe and America. It successfully bargained better suppliers terms and condition with a new Chinese company to counter any supplier disruptions. This enabled Apple to effectively manage its production costs with the same quality. Moreover, Apple launched its COVID card and boosted its line of business cooperation with health care business. Finally, Apple was smart enough to tackle investment strategies beside its marketing strategies to ensure a successful safe landing at appropriate timing. In June 2020, it continued its shares buyback / share repurchase program embarked few years ago. Not only this, but it is also intending to conduct a 4-to-1 stock split on August 24th.

1 2 3 4
View single page >> |
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Trinity Sinclair 2 months ago Member's comment

Good article.

Samar Abuwarda, MSc 1 month ago Author's comment

Thanks for your feedback..