Nine weeks tracking and analyzing our portfolio involved multiple factors impacting the market as a whole. September is historically a tough month for stocks, but September 2018 was surprisingly not too terrible compared to the past. Stocks fell in October due to fears of an economic downturn. Increased concerns of rising interest rates, slowing economic growth and global trade tensions especially with China all contributed. The S&P fell 6.9 percent in October and the Dow fell 5.1 percent.
In November, the “FAANG” (Facebook, Amazon, Apple, Netflix, Google) all closed down almost 20% from their 52 week highs. Most of this was due to Apple as investors demonstrated fears of declining iPhone sales. Facebook was down as they dealt with backlash for how the platform was used by foreign entities in the 2016 election. Furthermore, major indexes were also experiencing pressure. As Apple and Amazon were included in our portfolio, this impacted our results. Also in November, an improved trade outlook due to reports that the US and China were working to come to agreement regarding trade tensions helped the market. However, the Federal Reserve’s interest rate hike plans and indications they will raise interest rates has caused concerns and hindered some optimism on Wall Street. The midterm elections on November 6 and resulting divided Congress was suspected to increase political and stock market turmoil and pose risk to financial markets. The market typically rallies in the fourth quarter after midterm elections and complete and political turmoil subsides. The GOP lost control in the House on November 6 resulting in a newly divided government. History demonstrates this can lead to strength in the market. The day after the elections, the Dow rose more than 545 points or 2.1 percent. The Standard and Poor’s 500 stock rose 2.1 percent and NASDAQ composite was up 2.6 percent. The likely period of legislative gridlock was expected and will most likely not prove to be a major impact for the markets.
Over the nine weeks, Apple fell 15.46%. Apple achieved $1 trillion valuation in August 2018 boosting their stock value. Apple had $630 billion growth in market capitalization from May 2016 to September 2018 spurred by growth in average revenue per iPhone unit. However fears that growth has peaked have resulted in $120 billion decline in market capitalization from September 2018 to November 2018. IPhone is the key product, representing 59% of revenues. Unfortunately, the boost in Apple’s gross margin attributed to increase in iPhone average revenue per phone has been cut by higher costs from components such as facial recognition chips, labor expenses and corporate costs. Stagnant demands for iphone have resulted in the market responding negatively in November despite strong revenue growth. Cash dividend of $0.73 per share was paid to all shareholders on November 15, 2018.
Axon Enterprises saw a drop of 30.59% in value over the nine weeks, however the company is showing strong potential to realize gains in 2019. Third quarter earnings were 20 cents per share. Bottom line improved 300% year-over-year. Revenues totaled $104.8 million representing 16.1% year-over-year led by higher sales in both TASER weapon and software segments. Gross margin increased 750 basis points year-over-year with increases attributed to improvement in body camera shipments, enhanced margins in Axon Fleet and eliminating duplicate data storage costs. Axon Enterprises stock benefits will be realized slightly longer term for two main reasons. First, police departments are putting off purchasing TASER units until the new model is released, therefore sales will increase later in 2018 and into 2019. Second, Axon Record, the company’s record management system, will be rolled out next year and allow for payments after five years thus the company will not begin to realize these benefits until later next year and the full benefits will not be achieved until 2024.
Lululemon stock fell 9.55% over the nine weeks, however Lululemon is outperforming the textile and apparel industry in year-to-date returns. Lululemon is up 80% year to date highlighted by significant growth in on-line sales. Lululemon is beating competitors Nike, Under Armour and Adidas on key measures such as inventory turnover, return on invested capital and gross profit margin. Lululemon has proved the ability to sell products priced higher than similar products in the market resulting in higher gross margins. Lululemon’s design process produces quality products consumers are willing to pay for placing them in a favorable position in the retail industry.
Amazon stocks were down 18.62% over the nine week period. Amazon revenue is growing at annualized rate 25.97% over past 3 years. Trailing twelve month growth margin is 24% and net income is $300 million. Net income produced one year growth rate of 28% with net margin of 3%. Amazon is entering numerous new markets and securing innovative partnerships. This period, they announced new office locations, launched new partnership with Shark Tank and expanded Alexa capabilities. If Amazon can continue 25% annual rate of growth, it could possibly be worth $6455 in 2024.