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Issue // January 10, 2023
UPDATE
Happy New Year
By The MARK IT. Team
🌤️ Good morning, and happy Tuesday. This is our first issue of 2023! With the holiday season pretty much over, we’re looking forward to having our first week of normal market hours—both the Monday after Christmas and Monday after New Year’s were market holidays.
With that said, we’ve been hard at work during the break incorporating your feedback about our layout and what information to include about our weekly stock picks. We hope you appreciate our small but meaningful changes.
WEEK IN REVIEW
Diving Right In
By Abbas Akhtar
Historically, December has been one of the best months for S&P 500 growth. According to The Stock Traders Almanac (2018), between 1950 and 2017, the S&P averaged 1.6% monthly growth in December. April and November came second at 1.5% each.
In the days after Christmas, however, we saw a sharp dive for several companies on the MARK IT. watchlist. Ford, for example, dropped down to $10.90 per share on the 28th, its lowest price since July. Amazon, which has been on the decline since September kept dropping through December before bottoming out at $81.43 last Friday.
Analysts refer to the bullish performance of the holiday season as the Santa Claus Rally, though it’s debated whether the brunt of the rally happens in the week leading up to Christmas or the week after. In the end, investors should always note that past performance is never indicative of future results. For many companies, December 2022 is proof of that.
WEEKLY WATCHLIST
Buffet-Style Pickings
Both of our stock picks for this week are companies that hit or approached their 52-week lows in the past quarter. Despite the less-than-optimal performance, these are well-known companies trusted by millions of Americans every day. Additionally, these companies take the #1 and #2 spots for the biggest positions in Warren Buffet’s Berkshire Hathway portfolio.
STOCK #1
Apple Inc. (AAPL)
With a 5.9% weight in the S&P 500 and having been the first company to reach a 3T market cap in early 2022, Apple is the most valuable company in the world. Apple’s long-term trend has been almost entirely upward except for the last 8 months as the stock value has dropped after hitting an all-time high of $181.88 during Covid.
Since then, Apple’s stock price has slowly dropped which has brought the price in the price into a range that has value investors interested. Last Tuesday, Apple hit its 52-week low of $124.17 before bouncing back up to $129.62 on Friday's close.
AAPL Stock (1-year), via Google Finance
✅ Increasing cash flows: Apple’s cash flows have been increasing by 9.41% on average since 2013, which slightly outperforms the overall market. While smaller than other stocks we’ve reported on, Apple instead seems to have consistency on its side.
⚠️ Low dividend: With a 0.71% dividend yield, Apple is well under the average for the market. Dividend investors might want to weigh their need for a large dividend vs. a consistent one.
⚠️ Slightly undervalued according to DCF: Based on our discounted cash flow model, a single Apple stock at its 52-week low of $124.17 would be 10% undervalued. The current price of $130.15 at Monday's market close would be less than 10% which might be a slim margin of safety for most value investors.
✅ Low debt: As noted in our Big Tech, Big Swings newsletter, tech giants like Apple and Google have low debt compared to their respective market caps. Apple’s current market cap is 2.14T compared to 120B in debt.
STOCK #2
Bank of America (BAC)
Bank of America handles 2.44T worth of assets making it the second biggest bank in the United States. Recently, Bank of America and other bank stocks like JPMorgan and Wells Fargo have been of interest to many long-term investors likely due to the upcoming earnings reports.
Bank of America reports earnings on Friday, January 13 which could trigger any number of events including panic-selling, a stock price drop due to missed earnings, or no change in stock price which would point to the recent upward trend of the stock being longer-term.
BAC Stock (1-year), via Google Finance
🛑 Decreasing cash flows: The past 10 years have seen decreasing cash flows for Bank of America except for a slight bump up in 2018 and 2019. Inconsistent cash flows might be a big reason not to invest in Bank of America, though other metrics might balance this out.
âś… Solid dividend: With a 2.60% dividend yield, Bank of America has a higher yield than the S&P average of 1.82%.
âś… Very undervalued according to DCF: Based on our discounted cash flow model, a single BAC stock anywhere in the low $30 range would be more than 40% undervalued compared to its intrinsic value.
🛑 Higher debt: Bank of America has slightly higher debt than its market cap.
ONE MORE THING
Keep in Touch
For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar
Also, we want to hear your feedback! Send any comments or suggestions to [email protected]
Thanks again for reading!
