Stocks & ETFs

Stocks & ETFs

We believe in the power of equities and ETFs as foundational elements of a robust investment portfolio. Our approach is a unique blend of value investing principles, rooted in the teachings of Benjamin Graham, combined with the reflexivity theory of George Soros. This is further quantified through chart price actions, leveraging our expertise as a Chartered Market Technician.

Investment Philosophy:

As financial analysts, we believe that value investing is centered on identifying stocks trading below their intrinsic value. Benjamin Graham, often regarded as the “father of value investing,” and later on his pupil Warren Buffet emphasized the importance of thorough financial analysis and the need for a safety margin. However, relying solely on this approach can sometimes lead to investments in fundamentally robust companies that, due to market dynamics as described by George Soros’ reflexivity theory, lack momentum. This is further accentuated by charting and price analysis. A prime example is Zoom Video Communications, Inc. At the time of this writing, Zoom represents a quintessential value investment. However, capital parked in it saw limited upward movement for several months, offering no significant returns. This inertia can be attributed to the market’s current disinterest and its bearish trend following the COVID-19 driven rally.

In our stock selection methodology, we delve deep into company valuations, considering factors like price-to-earnings ratios, and scrutinize their financial statements. Our stock purchasing philosophy mirrors the approach of buying fruits in a market—emphasizing intrinsic value combined with price action momentum. We practice patience, waiting for the right moment to ensure optimal entry points. To bolster this, our quantitative models assess market sentiment for specific stocks and gauge the institutional momentum that can drive the stock’s ascent.

Diversified ETFs Philosophy:

Exchange Traded Funds (ETFs) present an avenue to invest in a diverse array of assets, whether they are stocks, bonds, or other securities. They mirror the performance of specific indices or sectors, offering expansive exposure without the intricacies of managing individual assets. This inherent diversification often equates to diminished risk. Analogous to our stock investment approach, we cherry-pick ETFs that resonate with our interpretation of global macroeconomics and its micro-level implications. We discern which themes have the potential for maximum gains. By evaluating their constituent assets, historical metrics like alphas and betas, and growth prospects, we ensure they align seamlessly with our overarching investment strategy.

Case Studies:

Zoom Video Communications, Inc. (ZM)

Zoom Video Communications, Inc., commonly known as Zoom, revolutionized the telecommunications landscape, especially during the COVID-19 pandemic, by providing a reliable and user-friendly platform for video conferencing and virtual meetings. As of the moment of writing this article, Zoom stands as a potential value investment company. However, its stock has seen a bearish downtrend for the past two years since the post-COVID rallies.

Financial Analysis:

Profitability Metrics:

Gross Profit Margin (TTM): 75.62%; Significantly higher than the sector median, indicating efficient cost management.

EBIT Margin (TTM): 5.59%; The EBIT margin has decreased by 58.40% compared to its 5-year average, suggesting reduced operational profitability.

Net Income Margin (TTM): 3.17%; A significant decrease of 77.37% from its 5-year average, indicating challenges in maintaining profitability.

Levered FCF Margin (TTM): 34.48% An impressive margin, slightly improved from its 5-year average.

Return Metrics:

Return on Common Equity (TTM): 2.18%

Return on Total Capital (TTM): 2.37%

Return on Total Assets (TTM): 1.59%

These metrics suggest modest returns on equity, capital, and assets.

Capital Structure:

Market Cap: $17.84B

Total Debt: $85.69M

Cash: $6.03B

Enterprise Value: $11.90B

Zoom has a robust capital structure with a significant cash reserve compared to its total debt.

Market Performance:

Despite its strong fundamentals, Zoom’s stock has been in a bearish downtrend for the past two years. This trend might be attributed to market sentiments and external factors rather than the company’s intrinsic value.

Conclusion & Insights:

Zoom showcases strong gross profit margins and cash from operations. While some profitability metrics have declined from their 5-year averages, its capital structure remains solid. The bearish downtrend in its stock price over the past two years indicates a divergence between market sentiment and its fundamentals. 

This presents a potential opportunity for value investors who believe in the company’s long-term prospects. However, as with all investments, it’s crucial to consider both the financial data and market trends when making investment decisions.

This case study provides a snapshot of Zoom’s financial health and market performance, offering insights for potential investors and stakeholders.