TLDR;
Adam Khoo discusses the seasonal bearishness of September and whether it's a buying opportunity. He analyzes historical data, the Federal Reserve's potential interest rate cuts, and specific stock opportunities like Google, ASML, and Celsius. The key takeaways are:
- September is historically a weak month, but recent market conditions and potential Fed rate cuts could make this year different.
- Focus on companies with strong economic moats and buy the dip during market downturns.
- ASML and Fortinet are presented as undervalued companies with strong moats, while Celsius is a speculative growth company with a narrow moat and significant potential.
September Market Trends and Historical Analysis [0:24]
Historically, September tends to be a bearish month for the S&P 500, with a gain frequency of only 55% compared to the average of 78% for other months. Over the last 20 years, September has shown a tendency to start weak, rally in the middle, and finish down, averaging a -0.7% return. However, October, November, and December typically see gains. This year might be different because the market has had four consecutive gaining months leading up to September, a pattern that has occurred only 10 times since 1950. In those instances, September was up 60% of the time, slightly higher than the historical average. Additionally, the market tended to perform well for the remainder of the year in those instances.
Impact of Federal Reserve Policies [4:00]
The Federal Reserve is expected to cut short-term interest rates, with a high probability of rate cuts in September, October, and December. This expectation is based on statements from Fed Chair Powell, who indicated a shift in policy towards prioritizing employment and potentially overlooking the 2% inflation target. Historically, when the Fed pauses rates for an extended period and then starts cutting, the market rallies strongly, averaging a 15% increase after the first rate cut.
Google's Antitrust Case and Economic Moats [6:49]
The judge in the antitrust case against Google ruled that the company doesn't have to sell its Chrome or Android businesses. This news has caused Google's stock to rally. The most important factor when investing in a business is whether it has a strong economic moat, protecting it from competition. Companies with wide economic moats are more likely to generate increasing free cash flow and see their intrinsic value rise over time. Short-term bad news presents buying opportunities for these companies.
Google's Intrinsic Value and Market Behavior [9:31]
Despite short-term market fluctuations and negative news events, Google's stock has consistently risen due to its strong economic moat. The strategy is to buy the dip when the price drops due to short-term bad news. While Google's current share price may be slightly overvalued compared to its intrinsic value, the intrinsic value will likely increase over time. It's important to wait for the price to drop to a support level and below the intrinsic value before adding to a position.
ASML as an Undervalued Opportunity [13:32]
ASML, a monopoly in the photo lithographic segment of the semiconductor manufacturing industry, is presented as an undervalued company with a strong economic moat. Its intrinsic value is estimated at $948, while it's currently selling at $725. ASML has a very strong financial balance sheet, high predictability, high profitability, and high growth. Its economic moat is rated 9 out of 10, indicating its dominance in the industry.
Fortinet as Another Undervalued Company [16:10]
Fortinet, a top cyber security company, is also highlighted as undervalued. After a recent earnings report, its stock price dropped to its 200-day moving average, a strong support level. Fortinet has an intrinsic value of $88.70 and is currently undervalued with a wide economic moat, high predictability, high profitability, medium growth, and a strong balance sheet.
Celsius: A Speculative Growth Opportunity [17:37]
Celsius, an energy drink company, is presented as a speculative growth opportunity. While the speaker is already up 64% on their position, the stock is still undervalued with a latest intrinsic value of $90.37. Celsius is gaining market share from competitors like Red Bull and Monster and has significant potential for international expansion. However, Celsius is a relatively young company with a narrow moat and inconsistent profit track record, making it a speculative investment.