nuggetrouble

Do Higher Yields Still Justify Valuations of Growth Stocks?

TVC:NDX   NASDAQ 100 Index
NDX has fallen below the 50 Day Moving Average. The lack of support zones, plethora of gaps, high valuations and heavy selling volume can cause Nasdaq to see a longer correction of -10% to 25%. Nasdaq can fall back down to the September highs or the September lows. If the Nasdaq ETF falls by this much, individual stocks will fall by a lot more. Especially those, that have floated up like "bubble".... I believe shorting these type of stocks will provide better entries and a higher risk to reward than shorting indices or longing Volatility ( UVXY , VIXY - these are based on VIX futures in contango)


The US Ten Year Yield is now at 1.5%; the same yield as SPY's Dividend. This leads to the question: What asset is safer to guarantee the 1.5% yield? US Treasuries obviously. The Market rally we have seen since April was mainly based on the artificially low rates present. Lower rates justified the purchase of growth assets with high valuations. High Yields pose corporate credit problems and undercut the present value of future earnings of Growth stocks. Higher rates erode the value of future cash flows, for growth companies more than mature "value" businesses because growth companies expect to see a large share of their profits come farther down the line. Smaller, less profitable growth names are most sensitive because they are largely less profitable at present. The formula for Calculating Net Present Value = ( ()/(1+)^t). The bigger the r (yield) is for every future time period the larger the decrease in Cash Flow will be for that time period. A lot of the SPAC's we have seen come up the last couple of months will get hurt imo. Further weakness in Bonds could drive rates higher, potentially to 2%. https://www.treasurydirect.gov/instit/an... - the results for the 7 year Bond Auction were horrendous with a record low bid to cover.

Fiverr, Lemonade , Square, Wayfair , Cleveland Cliffs, Roku, Enphase, Penn Gaming are all high flying stocks with extreme valuations. Most of their value comes from optimistic financial projections. Higher rates cuts into their estimated revenue and makes operating expenses more expensive reducing profitability. I will be watching these stocks for further downside confirmation. I expect there to be some sort of relief rally presenting an opportunity to enter these shorts. I urge everyone to look at the financial data for these companies to fully understand how much of their value comes from future earnings , revenue and growth.

Assuming Nasdaq goes down to the September lows/highs a drop of roughly 15%. If Growth stocks were to drop to their September High/Lows this would equate to a drop of 30-50%. When "bubbles" fly too high they pop.

Comment: ZEN,LULU,AVYA,INOD,LAZR,CAT,CROX,CVNA,PLUG,MSI,TEAM,PLAN,M,BBBY,PYPL,TSLA,MARA,MVIS,NIO,OKTA,TWLO,ICLN,DASH,GDDY,CRSP,ARKK
Comment: *Edit* The Formula for Calculating Net Present Value = ( ()/(1+)^t). It is the aggregate of the future years' cash flow divided by the discount rate. A higher rate means it would be more expensive to borrow money/more risky.
Comment: * ( (CashFlow,t)/(1+r,t)^t)
Comment: I had chart analysis on the all of the charts but, it only showed up on the top two.:(
LMND - LMND ipo'd in July, they have a very high valuation 70 times forward revenue lolololol
FIVERR - 8 billion mkt. cap yikes!!!
SQ - 300x P/E
Wayfair - $3 loss per share
Roku - EV to EBITDA ratio of over 150
CLF - PB Ratio (7.1x) compared to the US Metals and Mining industry average (2.5x).
ENPH - up 1000%
PENN - up 3000% not profitable

Comments

Thanks for sharing this analysis on yield and growth. It's been featured in Editors' Picks and our Weekly Digest email. Cheers!
350 coins
+3 Reply
nuggetrouble TradingView
@TradingView, Thanks TV. I will pass them along to other publishers.
Reply
I wonder what the play for the next few years will be. Since growth has been on fire, are value stocks going to get the attention soon? I think it depends on inflation. If we actually do see inflation and China is allowed to continue their expansion, then growth will continue (which is what everyone is expecting). If we see deflation, and China is clamped down on, I think Value stocks are going to be where it's at.
+6 Reply
@BMLemon, crypto
+1 Reply
BMLemon PontusTrader
@PontusTrader, Crypto trades inverse to the dollar. If you're a dollar bull, you're a crypto (and other risk asset) bear. There are no greater risk assets than crypto. I know the hype around "the great reset" and "dollar collapse" has gotten into the heads of novice traders, but many people are going to have to come to terms with these two ideas. Either the DXY reverses and crushes all risk assets, or the dollar continues to weaken and we see inflation. The number of people, who have otherwise no business trading assets, but because of a tic toc vid they saw they now think they're going to get rich, is astounding.
+12 Reply
AlexWe1992 BMLemon
@BMLemon, I actually think there will be digital Dollar and Euro in the near future.
So central banks and governments will fight for their money monopoly.

For now bitcoin is mostly a store of value and not a currency, so governments are still ok with this.
When this changes, they will probably forbid cryptos, as the "money system" is a cornerstone of the whole system. (governments/economy/taxation...)
So cryptos will be victim to its own success.
+6 Reply
BMLemon AlexWe1992
@AlexWe1992, Yeah, I really struggle with that concept. Bitcoin is certainly too young to be considered a store of value, and currently, the whole cryptoverse is a risk asset playground where fortunes can be made/lost. I think we're going to see some massive deflation and crypto is going to get slaughtered. The good news, for the patient ones, is there are great opportunities in the future to make fortunes, but I don't think that'll be until 2022-23.

Let's watch DXY and Eur/Usd. My prediction is DXY goes to 108ish and Eur/Usd goes to around .96. IF that happens, that's where you want to go all in on crypto. At least, that's what I'm expecting/hoping for. The question is then, which crypto has the best RR at those valuation. I don't think BTC is the long term play, though it's probably the safest to jump back into since it's considered the blue chip crypto and should rebound first. But at some point it will fail to print new highs while others will soar.

I have my theories, I do think I'm nuts, and I'm okay with that.
+6 Reply
@BMLemon, yeah the DXY is currently painting a double bottom will it be the spring in the DXY that pushes it up or will it fall down to that 88.XX level I mentioned in the previous comment? I'm Currently bull-ish on dollar pairs long term as a Democrat is in Office right now. A great crypto business model i like is Stellar Lumens. if the SEC wins against XRP I think Stellar Lumens will still be around as their Business Model is that of Western Union but faster and cheaper. I see them over taking WU and being the prominent money mover in the future! just my .02$
+1 Reply
@BMLemon, i really enjoyed reading this as i am a huge skeptic on cryptos myself. I do think there will be a place for them, but I do see troubles arising with them soon. Ripple (XRP) has managed to land themselves in hot water with the SEC * I think by not filing with them* because, they were operating as an asset and not a currency (and not including the massive gift, a few million XRP coins, they gave out to a handful of people). Now, this is where the hot water begins to warm up for the other Cryptos; how many people do you know personally that have thrown money into Cryptos and have EXPECTED a profit?

I personally know a few handfuls.

This EXPECTATION is what landed XRP in the mess their in. Because, the SEC states that when someone throws money into something and EXPECTS a profit then its no longer unit of measure but rather an asset. Now, the legal system here in the states is based of what the legal system calls "Benchmarks", which is a fancy way of saying "this is how Judge John Doe ruled on with XYZ- Case in ABC- Year.

Now, XRP I see is the Sacrificial Lamb that is going to set the Benchmark for a lot of these cryptos. Some of these "Coins" are offering APYs and paying out this interest quarterly. See this happens in the FOREX world known as the Carry trade and it happens when country's change their interest rates. But, but I don't know of any Republic of Ripple, or United Kingdom of Bitcoin for there to be a national interest rate.

Where the problem arises is if the courts side with the SEC then that gives the SEC the firepower to fire at the other companies offering "Coins". Claiming its not a unit of measure, but rather its an asset.

Now, on to the Dixie it is doing something very interesting its playing off a 61.8 retracement off an impulse move back in 2014, and in 2018 is when it rebounded off the 61.8 almost to the PIP. Being the technical trader I am I see a potential double top forming with the second peak forming last year in April. Where is the Mid-line? the old 61.8 made back in 2018 at 88.XX. All eyes on 88.XX, because if that neckline breaks then we could expect a 4-10% drop in the DXY.

The fundamental aspect of this setup is that here in the States the Democratic Party has had a history of conservative foreign trade policies which drives the the DXY up. Which dries up foreign trade here in the states, because the dollar is more expensive. Republicans, historically, have had very liberal foreign trade policies given that the DXY drops making the dollar cheaper which creates an influx of foreign business. For any other reader who does not understand that would you pay 1$ for a bottle of Coke (KO) or 2$ for the same bottle?

For all my Robin Hood Millionaires be very wary of leverage because Warren Buffet said it best. "I have seen many men get destroyed by liquor and leverage"
+3 Reply
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