Vampire and greed-stock market in the clutches of the FANG stocks-but now it is the fundamentals that count! - On Stocks I 08.2018 - Mellinckrodt
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On Stocks I 08.2018
Photo: © Shutterstock, Tiron_L, rvlsoft, dennizn
FANG is getting to know gravity.
Georg Oehm July 29, 2018
Vampire and greed—
stock market in the clutches
of the FANG stocks—but
now it is the fundamentals
that count!
On Stocks I 08.2018 July 29, 2018
For some time the so-called FANG stocks – Facebook, Amazon,
Netflix and Google – have been delighting investors with enormous
gains. But with the current reporting season it is clear that trees
don‘t grow to the sky at Facebook and friends.
Now it is coming to haunt that prices had rushed ahead of the
fundamental data way too far.
I. FANG
The English term for vampire teeth is also the acronym of the U.S. stocks that were most
popular in the irst half of 2018 F(acebook)A(mazon)N(etflix)G(oogle).
Source: shutterstock, leo.org
The price development in the irst half year was phenomenal.
Source: ft.com
A rise in prices of over 50% in six months—that doesn’t happen every day. FANG stocks
making for more than 95% of the total price gain of the S&P 500 index is one of the
anomalies of the irst half of 2018.
page 2 of 5
On Stocks I 08.2018 July 29, 2018 II. Now the fundamentals count Reporting season has started, and suddenly real facts come to the foreground while political noise is moving to the background. As part of the real facts, trees don‘t grow to the sky at Facebook. As anticipated by its management, the regulation of the social media platform seems to have much more dampening effects on future business than investors anticipated. The near future doesn’t look any brighter considering that, for example, the British parliament is demanding that the cost of the regulation be billed to the social media providers. The members of parliament cite the inancial industry as an example. That is certainly not the fabric that the dreams of social media investors are made of. Tough times ahead. The correction of the irst week of the summer reporting season is not limited to Face- book alone. The FANG stock Netflix and the also very popular stocks from Twitter and Intel were hit with the investors‘ hard feelings as prices had rushed ahead of the funda- mental data way too far. III. Change in favorites The intense focus of investors on FANG catapulted these stocks up and most others to the sidelines. An interesting question is whether the stock exchanges manage to pass the baton of the continued price surge to other sectors or whether the FANG correction directly leads to a stock market crash. At the moment it looks like a change in favorites. Tech stocks in the area of value tech seem to take the baton. The Lam Research stock in our portfolio was an early indicator of the further development of the stock market already after Brexit—and it looks like it will repeat itself. page 3 of 5
On Stocks I 08.2018 July 29, 2018
Source: ft.com
Last Week, Lam Research reported about the last quarter and exceeded the expectations
of the market. It was announced that the company‘s management forecasts a short-term
low in the investment cycle that has continued for years in the third quarter of 2018. Sub-
sequently, another increase in sales is expected. Bright prospects considering the low
valuation. The same is true for our stocks Applied Materials and Teradyne.
However, new vital signs came not only from the area of tech. Numerous of our stocks
from the topic areas materials (e.g., Teck) & energy (e.g., Tullow Oil) as well as consump-
tion (e.g., Elis) surprised us with their results and subsequent price increases of 5 to 12%.
IV. Outlook
Let‘s hope that these surprising results continue in the ongoing reporting season.This could
lay the foundation for a positive stock market development in the second half of the year.
We do not believe any longer that Trump is going to get in the way big style—the midterm
elections in early November are casting their shadows before distinctly. Juncker has alrea-
dy been able to leverage this for Europe, and EZB (European Central Bank) Super Mario did
not get in the way of a positive stock market development the next day. For these reasons,
in addition to the positive start of the reporting season, we have given up the previous wai-
ting position of the fund in favor of an expansion of our stock positions without hedging.
There is nothing in the way of our complete participation in a positive stock market deve-
lopment in the next months. It is clear that there will be setbacks on the way, but on balance
we now expect rising stock prices until the end of the year. The very widespread skepticism
of many investors will contribute to this, and it is very well possible that it will come to a
rally, fueled by the fear of currently still skeptical investors who will then be afraid that they
are not invested enough.
page 4 of 5Georg Oehm
Since his banking apprenticeship in the mid-80s, Dr. Georg Oehm
has been working in stock exchange-related ields in Frankfurt.
Not only his degree thesis on the slump in 1987 and his doctoral
thesis on copper trade pertained to the stock exchange. His
responsibilities included the acquisition and sale of companies
as well as IPOs. Dr. Georg Oehm has been with Mellinckrodt
since 2008 and is currently a member of the administrative board
of Mellinckrodt 2 SICAV in Luxembourg.The investment company
offers a UCITS fund, which is covering the whole universe of
European stocks. The initiators use a private equity approach to
protect investors from the pitfalls of behavioral inance.
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Read more at www.mellinckrodt.com in our section „On Stocks“
In addition we are pleased to inform you about current publications in our newsletter
Mellinckrodt 2 SICAV With our publication “On Stocks“ we inform investors and
4, rue Thomas Edison interested parties monthly and on current events about our present
L -1445 Strassen, Luxembourg market assessment and important investment hypotheses.
Furthermore we publish expositions of the investment advisor about
Phone +352 2 030 1739
the current positioning of our fund in our “Fund Information“.
E-Mail g.oehm@mellinckrodt.com
www.mellinckrodt.com © 2018 Georg Oehm, Mellinckrodt 2 SICAV / Mellinckrodt & Cie. AGYou can also read
