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Everything on tech: 90 percent of tech companies earned more than expected in the third quarter.
In addition, many companies use the cheap money to buy back shares
Photo: DENIS CHARLET / AFP
The global champions are showing strength: Despite the corona blues, shortages of parts and globally disrupted supply chains, the majority of listed companies in the USA and Europe exceeded expectations in the third quarter. Around three quarters of the companies listed in the US S&P 500 index have already reported, and the vast majority surprised positively. 83 percent have exceeded their profit estimates, and 67 percent achieved more sales than expected. US companies are once again marching ahead.
In Europe it looks a bit more modest: Around two thirds of the Stoxx600 companies have already reported, and of these, around 60 percent were able to report more profit than expected. 63 percent exceeded the sales estimates. "The Q3 results give cause for optimism," says Salman Baig, fund manager at the Swiss asset manager Unigestion. Especially since rising profits and sales are widely spread and can be seen across all industries: 90 percent of all companies in the US tech companies reported higher profits than expected, but in the utilities sector it was still 60 percent.
Numerous companies on both sides of the Atlantic have increased their profit and sales forecasts for 2021.
The price rally on the stock markets then picked up speed again: in particular in the technology sector, which was already a favorite of shareholders, valuations have risen again significantly.
Lack of chips, disrupted supply chains - so what?
Issues such as labor shortages, chip shortages or disruptions in the global supply chain have not been able to slow down the share rally of the past few weeks - although numerous companies have pointed this out in their quarterly reports. Tech darling Apple, for example, estimates that delivery bottlenecks in the third quarter cost the iPhone manufacturer around 6 billion dollars and that the problem will worsen in the fourth quarter. Amazon expects costs of around $ 4 billion in the fourth quarter from a lack of workers and disrupted supply chains. For these reasons, the sporting goods manufacturer Nike lowered its forecast for 2021, and the US chip giant Intel is only venturing a very cautious outlook for the year 2022.German car manufacturers such as Volkswagen and Daimler have also cut their sales forecasts for 2021 after a brilliant first half of the year due to the shortage of chips.
"Only a few companies were able to avoid this headwind," says Unigestion fund manager Baig.
"Many expect these problems to persist into the fourth quarter and in some cases into the next year as well."
Many companies use the flood of money - for share buybacks
The fact that valuations on the stock market continue to rise despite these obvious problems has not only to do with the solid profits of many companies, but also with the flood of money from central banks around the world.
Companies in the USA and Europe were inundated with cash by the Fed and the ECB immediately after the start of the coronavirus crisis, and just under two years after the start of the pandemic, the central banks are keeping the money locks open, money is still extremely cheap.
Companies have started to use their capital: Ideally, it is increased investments such as in the energy, oil and gas sectors that are urgently desired by the central banks because they ensure growth. But many companies simply use the cheap money to maintain prices by buying back their own shares. According to research by Unigestion, share buybacks in the S&P 500 increased by 13 percent in the third quarter, compared to the previous year the increase is almost 70 percent. More than 80 percent of share buybacks were funded with cash: this year, share buybacks worth $ 730 billion have already been announced.
730 billion dollars for price maintenance: That's already more than in the entire pre-Corona year 2019. As long as money is as cheap as it is now, share buybacks are a popular means of driving up the price and thus the valuation of one's own company.
Rising interest rates are likely to result in a change of favorites
This means works as long as money stays cheap.
But the US Federal Reserve began to steer cautiously last week.
The central bank is reducing the volume of its monthly bond purchases.
Rising interest rates in the first half of 2022 are likely.
While the highly valued technology stocks are likely to suffer from rising interest rates, companies in the financial sector are hoping for a relaxation. And the rising energy prices have also caused a change of favorites in the past few weeks: companies from the oil, gas and energy sectors, which have been avoided for a long time, have risen, as have shares in major consumer goods manufacturers, which use their pricing power to pass higher prices on to consumers and thus defy inflation can.
Even companies from the travel and tourism industry such as Lufthansa, Tui, Carnival or Norwegian Cruise could be among the new favorites: The announcement by the pharmaceutical company Pfizer that it has applied for approval for a corona drug that could significantly reduce the severity of the disease in infected people, has already strengthened the industry last week.
In addition, the USA is now again allowing vaccinated travelers from the EU to enter the country.
Everything on tech - a lot of capital in the US tech sector
On the other hand, tech stocks like Netflix or Zoom, which as "stay at home stocks" were among the biggest corona winners, have already come under considerable pressure.
And after the brilliant tech rally around the world, many investors are increasingly willing to take profits and broaden their portfolios.
Apple, for example, is still valued at 27 times its expected profit despite the difficulties noted above.
At Google parent Alphabet, the price / earnings ratio is also 27. In addition, a lot of capital is still concentrated in the tech sector: the three tech giants Microsoft, Apple and Amazon alone currently account for 15 percent of the market value in the S&P 500 - one 500 company index.
That is also a reason to think about changing favorites.
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