Stocksons.com Review 3 Reasons Why Stock Sons is Risky { BEWARE }

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Why A Rising Stock Market Isn’t Risky

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

The S&P 500 Index continues to rise and is likely primed to go much higher, but that does not mean it is becoming riskier, nor does not mean it is becoming more expensive. Still, that didn’t stop Barron’s from noting that the higher the market climbs, the riskier it gets.

It is only when fundamentals do not support an asset class rise does that asset become riskier. Based on valuation, the stock market enters 2020 no more expensive than when it began 2020. The market’s rise will likely continue throughout much of 2020 without interruption as long as earnings continue to grow, along with the U.S. economy, aided by the benefits of the tax reform package.

Earnings Growth

Valuing the stock market and the S&P 500 is undoubtedly easy to do, because stocks trade at multiples to earnings. And based on current earnings projection for 2020 and 2020, stocks seem reasonably valued.

According to the Dow Jones S&P Indices, the S&P is expected to have operating earnings of $150.57 in 2020, which is up from estimates of $145.80 as of December 29, 2020, as the savings from the new tax reform law trickle in.

But those earnings are expected to increase by nearly 11 percent in 2020 to $166.38, which means the S&P 500 currently trades at 16.8 times 2020 operating earnings estimates. By comparison, when the first quarter of 2020 ended, the S&P 500 was trading at 16.1 times 2020 estimates.

Reasonably Valued

It seems that despite the nearly 20 percent gain in 2020, and the more than 5 percent gain so far in 2020, stocks are no more overvalued today then they were a year ago.

And should the stock market follow last year’s path, we should continue to see multiple expansion throughout the year. Should 2020 end with the S&P trading at 18.5 times 2020 estimates, a rise of another 10 percent to about 3,100 appears to be in the cards.

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What a Speculative Bubble Looks Like

Bitcoin is a perfect example of a speculative bubble. The price of bitcoin rocketed from roughly $1,000 at the start of 2020 to nearly $20,000 by year’s end on what seemed to be driven by pure emotion. To this day, understanding how to value bitcoin seems a mystery, as its prices have crashed below $11,000 in the early days of 2020. (See also: Bitcoin Price Tanks Over The Weekend.)

To say that the stock market is risky is common sense, but to say that it is risky because it has risen a lot is just flat-out wrong. Should earnings continue to grow as expected and there are no significant geopolitical or global economic meltdowns, then the market will likely continue to climb. We could even make the case that as global growth continues to emerge, this could be just the early days of a multi-year run-up. (See also: 5 Reasons the Bull Market Will Thrive in 2020.)

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company’s actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer’s bio and his portfolio’s holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

3 Reasons Why Electronic Arts Stock Cratered So Badly

Management’s missteps and disconnect with gamers has cost Electronic Arts stock

As both a casual gamer and a person who studies long-term trends, I firmly believe in the video game industry’s potential. At the same time, I’m horrified at the steep losses that companies like Electronic Arts (NASDAQ: EA ) and Activision Blizzard (NASDAQ: ATVI ) have incurred. Electronic Arts stock in particular cannot seem to find a bottom.

On a year-to-date basis, EA stock has dropped nearly 22%, but that doesn’t tell the whole story. The renowned video game manufacturer has written a Jekyll and Hyde account. During the first half of 2020, shares were trending toward an outstanding annual profit. But in the second half, EA mercilessly cratered.

Pouring salt on an open wound, the markets sent Electronic Arts stock down more than 3% for Monday’s session. Is there any relief in sight?

To answer that question, we need to look at the key catalysts for the downfall in EA stock:

Sorry Folks: We’re in a Bear Market

Technically, the benchmark indices are in positive territory for the year. But who are we kidding? While the broader market has yet to fall 20% below its 52-week high, the writing is on the wall. By the way, I’m not saying it: Morgan Stanley analyst Michael Wilson is.

More to the point, technology firms have suffered the most. The tech-heavy Nasdaq Composite is the worst performer compared to the Dow Jones Industrial Average and the S&P 500. Adding to the jitters for Electronic Arts stock, companies who design video game components, such as Advanced Micro Devices (NASDAQ: AMD ) and Nvidia (NASDAQ: NVDA ), have also suffered sharply.

In such a bloodbath, you can’t expect most investors to hold onto EA stock. Right now, the focus is on safety and damage mitigation. We’re talking boring investments like government bonds and money-market funds. Even anachronistic gold bullion has recently started to climb the charts.

If folks are willing to take a risk in the equity markets, they’re likely thinking ultra-conservative companies with secular businesses. Again, in such an environment, Electronic Arts stock doesn’t have much to offer.

Key Product Delays Have Hurt Electronic Arts Stock

Video games today are much more similar to major film releases than any other entertainment medium. Game-development firms shell out millions to create the most compelling and attractive titles. While it’s always a risk, it’s well worth it if you hit pay dirt.

Recently, I covered Take-Two Interactive Software (NASDAQ: TTWO ), which has generated considerable buzz. The company’s latest release, Red Dead Redemption 2, sold 17 million units in its first eight days. That translates to a whopping $725 million in revenue. To put that into perspective, this tally exceeds Disney’s (NYSE: DIS ) Avengers: Infinity War opening-weekend haul by nearly $85 million.

But the cautionary tale, of course, is that the video game industry is ultra competitive. If you’re not on you’re A-game, you’re liable for a beatdown. Sadly, that’s what we’re witnessing in Electronic Arts stock.

As avid gamers know, EA owns a distinguished franchise in the action-adventure arena called Battlefield. Management originally slated the latest iteration, Battlefield V, to go up against Take-Two’s Red Dead Redemption 2. However, in late August, Electronic Arts decided to delay the launch to Nov. 20.

EA stock wasn’t doing too well prior to this negative announcement. However, you can see that shares gapped down a day after the disclosure. And no wonder: you can’t afford to commit unforced errors when the competition is so fierce.

EA Is Making Games for Shareholders, Not Gamers

I think the industry itself is falling into an underreported, but serious trend: Gaming companies are making titles for shareholders’ benefit, and not for the gamers themselves. This is particularly evident for EA, which is why Electronic Arts stock has fallen under hard times.

I recently stated that Take-Two’s sales success comes from their end-user focus. More often than not, gamers want engrossing stories featuring strong character development. That’s what made Red Dead Redemption 2 a must-have among gamers.

Take-Two listens to their customers. EA, though, gives the impression that they’re above it all. For instance, the original Star Wars Battlefront received criticism for not including a single-player campaign mode. In the follow-up, EA listened to the complaints and dutifully provided such a campaign.

But with Battlefield V, it seems like they’re repeating the same mistakes. Prior to its public release date, beta-testing revealed substantial bugs that frustratingly impacted gameplay. More critically, Electronic Arts made changes to popular gaming modes that left fans scratching their heads.

In summary, this indicates that the company is more interested in pleasing shareholders rather than their core gamers. It’s the opposite of what they should be doing: make great titles, and the sentiment lift in EA stock will eventually arrive.

Bottom Line for EA stock

Having dissected the fallout in Electronic Arts stock, how should investors proceed?

If you’re conservatively minded, I wouldn’t jump into this company yet. But that advice goes for nearly any tech firm at this juncture. Morgan Stanley analysts believe we’re in a bear market, and I’m not inclined to disagree.

If you’re looking to speculate, I think EA stock has much to offer. It is still incredibly risky, please don’t me wrong. However, the markets just erased nearly two years of equity valuation gains.

Yes, EA made a dumb move delaying Battlefield V, and perhaps management has become arrogant. Electronic Arts stock deserves volatility. But these are also fixable issues. Sometimes, people just need to get hit in the head enough times before they correct their behavior.

As of this writing, Josh Enomoto was long gold bullion.

3 Reasons Why Stocks Crashed Again

Feb 5, 2020 11:00 PM EST

Let the bloodbath in the markets continue.

After an attempt at a reversal Monday, the Dow Jones Industrial Average crashed in the early afternoon. By 3:04 p.m. EST, the Dow was down about 1,500 points. Some of the world’s biggest stocks led the markets lower, which is certainly not a good sign. The Dow finished down 1,175 points.

Top Dow laggards included 3M (MMM) – Get Report , Chevron (CVX) – Get Report , Exxon Mobil (XOM) – Get Report and Action Alerts Plus holding General Electric (GE) – Get Report . Oddly enough, Action Alerts Plus holding Apple (AAPL) – Get Report only slid 2.5%.

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