By Steve Goldstein
Wow, that was a shocker:
U.S. consumer price growth slowed to 0% in July, the Labor Department reported on Wednesday. Core price growth slowed to 0.3%, which was below forecast. Over the last 12 months, prices have gained 8.5%, also coming in below forecast.
The soft reading seems to justify the 13% rally in the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.57% from its mid-June lows.
In a recent letter to investors, Jason Gilbert and Elliot Turner of RGA Investment Advisors advise against trading from one datapoint to the next.
“Timeframes of the average market participant shrink from years to days. People isolate on the most recent datapoint and extrapolate that ad finitum. To an extent, this kind of over-extrapolation has been in place from the moment the COVID crash started, but today we are at a juncture where extending one’s timeframe is the most important way to inevitably reap solid long-term returns,” they say.
The fund managers identified a few stocks that the market has thrown out the window, the most well-known being Facebook parent Meta Platforms /zigman2/quotes/205064656/composite META +1.21% . Excluding Reality Labs investments, the core properties of Facebook, Instagram and WhatsApp would see their earnings boosted by 23%.
“This would chop about 2.5 turns off the company’s P/E. Speaking realistically, there is no sign Mark Zuckerberg would entirely stop these investments; however, we do think Zuckerberg is realistic about his stock price and very well might defer a large portion of the investment until core earnings reaccelerate,” they said. Even with Reality Labs, the stock is too cheap to ignore, they say.
Some lesser known companies they discuss include orthodontics player Align Technology /zigman2/quotes/200300692/composite ALGN +1.84% and biotech instrument makers Cytek Biosciences /zigman2/quotes/228313453/composite CTKB +0.68% and MaxCyte /zigman2/quotes/206438366/composite MXCT +6.58% . But they highlight that of their main 17 U.S. positions, 13 are Russell 1000 value index /zigman2/quotes/210598148/delayed RLV +0.40% constituents, and of that group, another 8 are in the growth index. Besides Meta, dual growth and value constituents include Alphabet /zigman2/quotes/202490156/lastsale GOOGL -0.49% , PayPal /zigman2/quotes/208054269/composite PYPL +0.28% , Regeneron Pharmaceuticals /zigman2/quotes/203149337/composite REGN -0.96% and Roku /zigman2/quotes/205087179/composite ROKU -3.58% .
“Over the course of our careers, no such period has existed where one can acquire so much growth at value prices. Therein lies both the problem and the opportunity. The problem is that in the very near term, market timeframes are shrinking and while growth estimates of these companies get slashed, few buyers want to step in; but, the opportunity is for those who can look through to a day when the economy either avoids or gets past a recession, the dual forces of growth and value compounding on one another will lead to especially favorable outcomes,” say Gilbert and Turner.
The market
U.S. stock futures /zigman2/quotes/209948968/delayed ES00 +0.25% /zigman2/quotes/210219788/delayed NQ00 +0.27% rallied after the CPI report, with the Dow contract /zigman2/quotes/210407078/delayed YM00 +0.15% moving over 400 points higher. The yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.35% eased to 2.72%.
The buzz
Elon Musk sold nearly $7 billion worth of Tesla /zigman2/quotes/203558040/lastsale TSLA +0.72% stock on uncertainty over whether he will be forced to buy Twitter . Tesla shares rose 2% in premarket trade, while Twitter added 3%.
Wednesday’s earnings calendar includes media group Fox /zigman2/quotes/209921865/composite FOX +1.21% , and after the close, Walt Disney /zigman2/quotes/203410047/composite DIS +1.27% .
Coinbase Global /zigman2/quotes/225893452/composite COIN -1.75% slumped 6% in premarket trade after the cryptocurrency exchange reported a worse-than-forecast $1.09 billion loss. In a series of tweets, FTX CEO Sam Bankman-Freed said Coinbase results imply a company with annualized “real net” revenue of roughly $2.5 billion but costs of nearly $5.5 billion. He did add that Coinbase’s recent job cuts could change the expense picture, and that there would be large upside in a broader cryptocurrency recovery.
Advertising-technology company Trade Desk /zigman2/quotes/207508089/composite TTD +0.42% rallied 16% after both its sales and forecast topped expectations . Roblox /zigman2/quotes/223883423/composite RBLX +0.23% shares slumped 14% after reporting a decline in bookings for the second quarter in a row .
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