Are Investors Nervous About Amazon, Starbucks, Visa?
There are several large cap bellwether growth stocks that are trending downward. Here are a few examples:
- Visa (NYSE:V) is down 7 percent for the year and over 10 percent from its January peak.
- Mastercard (NYSE:MA) is down 14 percent for the year.
- Amazon (NASDAQ:AMZN) is down 19 percent for the year.
- Starbucks (NASDAQ:SBUX) is down 9 percent for the year.
- Biogen Idec (NASDAQ:BIIB) is down about 70 points, or nearly 20 percent from its all time high hit in mid-March
These names were especially weak on Friday when the tepid jobs data came out from the Bureau of Labor Statistics. What this tells me is that investors are losing confidence in “risk” assets. The names that are holding up – Exxon Mobile (NYSE:XOM), Johnson and Johnson (NYSE:JNJ), McDonalds (NYSE:MCD), and so on are stocks that people buy for steady income and cash-flow. In other words, investors are becoming much more defensive.
This means that we could be on the verge of a correction. Even if you are bullish on stocks, it is impossible to deny that this correction is long overdue. It is rare that we go for as long as we have without a 10 percent, a 20 percent, or even a 30 percent correction in the broader stock indexes. But rather than fear this, investors need to take a step back and approach it rationally and opportunistically.
As an investor interested in owning companies that are growing over the long-term, I think a phenomenal opportunity is shaping up, and this is my game plan going forward.
First, I am isolating those growth names that I want to own for the long-term. I want to focus on those companies that can grow their revenues and earnings for many years through a changing economic landscape. Therefore, I am not so interested in a growth company such as Michael Kors (NYSE:KORS). While this company is growing rapidly, this growth stems from a present interest in the company’s branded products. There is nothing essential or uniquely appealing about Michael Kors’ handbags except that they cost hundreds of dollars and are plastered with the ‘MK’ logo.
A company such as Visa, or its major competitor — Mastercard — is a different story. Visa and Mastercard are going to continue to grow because it offers a fundamental product in the global secular shift from cash transactions to electronic, cashless transactions. I think Amazon is in a similar situation. More commerce is taking place online, and Amazon is the leading online retailer.
Second, I am picking price points at which I want to add to my positions. For instance, I want to own Mastercard at around 20 times earnings, or at about $60/share. I know that I may not pick the bottom, but I know that I am getting relatively good value at such a price point.
I want to have orders in the market in advance so that I am emotionally detached from these investment decisions. When my price points are hit, the stocks will be much lower than they are now. While this is a good thing, lower stock prices often come with “bad” news. For instance, if Visa shares hit my price point, it might be on news that there are antitrust suits against the company. We know that Wal-Mart (NYSE:WMT) is suing Visa for $5 billion for swipe-fees because it believes that Visa is taking advantage of the lack of competition in the cashless payment market and charging illegally high fees.
In the long run, this is more or less irrelevant to Visa’s success, but in the near-term, investors might get spooked out of the stock, and short sellers might lean on it which in turn will spook even more people out of the stock. Negativity feeds on itself and it engenders more negativity. If my buy order is in the market before my price point is hit, then I will not be caught up in this mass delusion. I may not be happy a couple of weeks after my purchase, but I will be happy in the long run.
Ultimately, we are beginning to see negativity enter the stock market, and it is impacting some of the best long term investments especially. While there is a good chance we are going to see the downtrend continue for the next few weeks or months, now is the time to start thinking about which opportunities you want to take advantage of. If you plan ahead and don’t get caught up in the emotional aspect of a declining stock market, you can make excellent long-term investment decisions.
Disclosure: Ben Kramer-Miller is long Visa and Exxon Mobile.