Bespoke Baskets Update — June 2024
Bespoke’s Weekly Sector Snapshot — 6/20/24
Nearing 10x Sales for Large-Cap Tech
In today’s Chart of the Day we took a look at valuations across the Tech sector and how things stand relative to historical extremes. (It’s an eye-opening read, so make sure to check it out if you haven’t seen it yet.)
Below is a quick look at trailing 12-month price to sales ratios (P/S) over the last five years for the large-cap S&P 500 and small-cap Russell 2,000 along with each index’s respective Technology sector. As shown, the Russell 2,000’s price to sales ratio is just 1.25x, which is slightly below its average P/S ratio over the last five years. The Russell 2,000 Technology sector’s price to sales ratio is higher at 2.8x, but that’s still below the 2.9x P/S ratio for the S&P 500 as a whole. Incredibly, the S&P 500 Tech sector’s price to sales ratio has pushed all the way up to 9.8x, which is well above its high at the peak in late 2021. A 9.8x multiple is attractive if you’re looking at price to earnings (P/E), but for Tech stocks to be trading at 9.8x annual sales, that’s just a remarkably high number. (As mentioned, we’ve got further coverage of this topic in today’s Chart of the Day if you’d like to read more of our thoughts.)
Below is a look at the stocks in the large-cap Russell 1,000 that have seen the biggest increase in their price to sales (P/S) ratios since the current bull market began on 10/12/22. As shown, NVIDIA (NVDA) has seen its share price rise more than 1,000% during this bull market, but its P/S ratio has made 32 turns higher from 9.7x up to 41.9x! That’s by far the biggest jump of any stock in the index. Of the 30 stocks shown, the average P/S ratio has risen 9.6 points from 8.6x up to 18.2x, and most stocks on the list are Tech stocks.
Chart of the Day – Record Tech Valuations
The Triple Play Report — 6/20/24
An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance. You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term. We like triple plays as an indication that a company’s business is firing on all cylinders, with better-than-expected results and an improving outlook. A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.
Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts. Bespoke’s Triple Play Report is available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 11 new stocks. To sign up, choose either the monthly or annual checkout link below:
Bespoke Institutional – Monthly Payment Plan
Bespoke Institutional – Annual Payment Plan
Brady (BRC), an industrials name that supplies identification and workplace safety products, is an example of a company that recently reported an earnings triple play. Shares of BRC are up more than 40% since the beginning of 2023, which includes a jump-start 11.4% up-day after its earnings triple play report on 5/22 that followed a slower start to the year for the stock.
Looking at the snapshot below from our Earnings Explorer, BRC is not a company that often reports triple plays with just two over the last seven years, both in the last two years though. Two earnings reactions north of 10% in the last year are some of its best earnings days since 2016. So in some regards, BRC may be trending in the right direction. The company’s EPS have also been trending upwards over the the last several years, usually above estimates. This quarter, that figure hit a record high due in part to stabilizing input costs and the increasing adoption of automation technologies.
BRC introduced several products this quarter, including barcode scanners, an industrial jet color label printer, and an improved floor marking tape designed for manufacturing sites. The Bluetooth-enabled barcode scanner, for example, uses proprietary technology that allows the scanner to read very small barcodes from any angle, and then parse and arrange data that connects to cloud and ERP systems. From more of a macro standpoint, management called out short-term hesitancy in investment due to elevated interest rates and other general concerns, so the overall recovery for industrials has been slower than expected. Over the long-term, though, that sentiment shifts to an overwhelmingly positive outlook thanks to AI potential. You can read more about BRC and the 10 other triple plays in our newest report by starting a Bespoke Institutional trial today.
Bespoke Investment Group, LLC believes all information contained in these reports to be accurate, but we do not guarantee its accuracy. None of the information in these reports or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.
Bespoke’s Morning Lineup – 6/20/24 – Weak Data
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Why pay a dollar for a bookmark? Why not use the dollar for a bookmark?” – Steven Spielberg
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
While the US was closed in observance of Juneteenth, stocks worldwide were mostly higher, and US futures are playing catchup this morning as the Nasdaq and S&P 500 are indicated higher. At the same time, the Dow, which doesn’t include Nvidia (NVDA), is modestly lower. A bunch of economic data just hit the tape, and it was mostly weaker than expected. While jobless claims were only slightly higher than expected on an initial and continuing basis, Building Permits and Housing Starts were significantly weaker than expected. Those two reports covered the month of May, but the June Philly Fed Manufacturing report also came in weaker than expected, although it remained in positive territory.
Tech stocks are leading the charge again this morning as the ETF that tracks the sector (XLK) trades up more than 0.65% in the pre-market. Heading into today, the sector was already riding an eight-day winning streak, the longest since last November and the 31st such streak since the start of 1990. If the sector rallies again today, it would be the longest streak since September 1, 1990, and just the 17th such streak since 1990. In the chart below we show where each of the prior streaks that ended at eight days and those that stretched on to nine days occurred. Surprisingly, during the late 1990s, these types of streaks were pretty much non-existent.
While the Technology sector has had no problems hitting new highs this month, the same can’t be said for other sectors. Using June 18th as an end date, the chart below shows how many calendar days it has been since each sector’s 52-week high. The only other sector with a 52-week high in June is Communication Services. For three other sectors, their respective 52-week highs were just over a month ago, but for the majority of sectors, their 52-week highs were more than two months ago, including Real Estate where its high over the last year was nearly six months ago in late December!
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
The Closer – Fedspeak, Mid-Cap Comeback, Retail Sales – 6/18/24
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with an update on the latest Fedspeak including an update of our Fedspeak Monitor Index (page 1). We then dive into the outperformance of mid-caps today (page 2) before reviewing the latest retail sales report (page 3). We finish with a recap of the strong 20-year bond reopening (page 4).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Daily Sector Snapshot — 6/18/24
Bespoke Stock Scores — 6/18/24
View From The Top: 1999 vs. Now
Breadth has been the topic of the week with the market cap weighted S&P 500 pushing to new highs, leaving behind cumulative AD lines and equal-weight measures of the same index. This means the index’s largest stocks are providing an outsized boost to performance, so in the charts below we take a look at the weighting of those largest stocks over the years. As shown below, the combined market cap of what are currently the 30 largest stocks in the S&P 500 account for almost 53% of the index. Looking back to the comparable point of the year 5, 10, 15, 20, and 25 years ago, it has been common for the 30 largest stocks to account for around 40% of the S&P 500’s total market cap. However, the current reading is over 10 percentage points higher than even June 1999 when the 30 largest accounted for 42.18%.
As we have mentioned in the past, even though one stock may be a giant at one point in time, it is not guaranteed to hold its dominance. In the chart below we show the number of stocks that currently rank as one of the top 30 largest S&P 500 members and also ranked in the top 30 in years past. As shown, only around half of the current mega-caps were also mega-caps of a decade ago. Setting the calendar back a quarter century, a third of the 30 largest S&P 500 stocks were also in the top 30 in 1999.
Below we show the 30 S&P 500 members that currently have the largest market caps. Of these, there are only a couple, Tesla (TSLA) and Johnson and Johnson (JNJ), that have provided a negative return in the past year. Granted, TSLA has also been a ten bagger over the past five years. The only other stock that boasts such an outstanding gain is, of course, NVIDIA (NVDA).
Below is a look at the 30 largest stocks in the S&P 500 as it stood twenty-five years ago in June 1999. As previously mentioned, there are ten stocks in the current top 30 that were in the top 30 in June 1999 (highlighted in grey below). At the top of the list is the familiar face of Microsoft (MSFT) with an inflation adjusted market cap (in 2024 prices) of $816 bn back then. Like TSLA and NVDA now, MSFT had also been a ten bagger over the previous five years. However, one difference between 1999 and now is that stocks with such large gains had much more company back then. Whereas currently there are only two of the 30 largest stocks that are up 1,000%+ in the last five years, in 1999 there were five: MSFT, Cisco (CSCO), WorldCom, Time Warner, and Dell (DELL). Again, only one of those is still a mega-cap today while others like WorldCom had more dramatic falls from grace following bankruptcies only a few years later.
In comparing 1999 to today, currently the S&P 500 is in fact more concentrated at the top. Just the top three stocks today—MSFT, AAPL, and NVDIA—account for over 20% of total S&P 500 market cap compared to around 9% for the comparable three—MSFT, GE, and Exxon—in 1999.
