GVI Investor Market Update November 11, 2022

Hello, big shout out to all my GVI research newsletter subscribers and also all of you who have just signed up as well. I'm going to give you a stock market update. Now what I do in this, for those of you who are new, is my hedge fund team looks across so much material that crosses my desk, crosses their desk, they pinpoint the things that I should look at and examine. I find my own pieces of data and information that I should examine. Then I sift through those, work out the most important ones and I share them with you. So there's probably a 100 man hours each week which goes into this when I give you these updates. And these are the ones we found at the moment which we think are essential to bring to your attention. So first and foremost, this is just price earnings ratios. Okay.

And it's a measure of the valuation of companies measured by their profitability. So their share price relative to their profits. That's a measure of valuation. If a company's share price is very high relative to its profits, it's overvalued. The ones in green energy and banking. Okay. It's one measure of valuation. It's not the only one, but it's one measure and that's what we're finding at the moment, that energy continues and so does banking to be undervalued on this measure. Performance over the past week of the market as a whole world, it's not been a bad week as such. Energy funnily enough, despite being undervalued, has taken a bit of a breather and not risen much. Whereas banks have gone in the direction they should do. Semiconductors, somewhat overvalued one could argue on price earnings, but they've been doing rather well. What about another measure of valuation, which is price earnings growth.

That's the share price relative to the growth of the profits of a company. And what we see there, I know I'm blocking some of these like Microsoft is the undervalued ones are the ones with a number below one. Finance is very easy. You don't need to know formulas, you just need to know the shortcut and the shortcut for the PEG or price earnings growth ratio is, is it below one such as energy. Above one suggests it's overvalued. It doesn't mean overvalued companies can't keep going up in price, but it just means that they're going to face more of a headwind and there's less of a reason to buy them. Okay. So that's where we are, to give you an idea in the broader market. Energy still looking attractive.

So what about the market itself, the S&P 500 and some of the bellwether stocks? This is what I'm seeing with the S&P 500. And I want to draw something to your attention with this. It is in a downward channel. You can see that. I've drawn the channel for you. It has fallen for fair bit, about roughly 20 odd percent since the start of the year because we are here at the moment. Okay. So although it's rising occasionally, it's rising in a downward channel. So then it drops back again. Rises and it looks like it might drop some more. If somebody put a gun to my head, I'd probably say in the next year I'm afraid that's more likely, although it could have a slower decline and might only go up here. But I think as things stand, we are in that downward channel.

Now, an indicator of momentum or direction is this thing, which is the monthly, what's called MACD, moving average convergence diversions. Sorry it sounds all complicated, but it's a measure of momentum. And whilst that's falling and if it's falling sharply, suggests its very difficult for companies or in this case an index to rise. It'll try and it's forming a bottom based on these other indicators of momentum. But I think we are still looking at maybe gradual falls slowing down before some kind of turnaround. So that's not to say in the next year we'll be down. It's just to say that's probably in the next couple of weeks would be my update, that we're more likely to be falling.

But I suspect we're going to gradually form a base. Probably gets into January before that happens, before we can even look at an upward move. Okay, so how are the individual companies looking? Well, this is Microsoft. I know it looks all ugly. All these B's are banks, analysts saying buy. So there's a lot of screaming buys there. And just behind those B's you can see where the exact price is at the moment. It's got two options, could go up there, could go down there. Again, it's falling in a downward channel. Right. And you can see the momentum is definitely still headed lower. So that's another as a bellwether, it's another one which hasn't turned course, isn't taking the market higher, and we'll probably review this in another week or two so we'll get a better idea of market direction. But at the moment, I wouldn't be buying Microsoft this week. I might look at it in a week, in two weeks. But let's just see what happens before we do that.

Amazon has had this phenomenal upward channel for a very long time. I'm afraid it has broken well beneath it, it has gone well beneath it and that's why we hadn't been buying more Amazon. And as a bellwether you can see this is the danger of what happens. They fall beneath those and they get full slower and well were it to go back to that, which is a usual thing you'd target, you'd get a 50% return on this. Now if that took a year, that's a great return. If it took two years in getting a 50% return is rather good. But for the moment, whilst the momentum's lower, let's just wait and see shall we.

Meta, the only reason I'm showing this is to show you how far it's declined, 77% and were it to recoup those losses, that's a 340% return. I don't think that's going to happen. It's certainly not going to be a V-shape recovery. And we'll keep an eye on it because like I said, it's such a big company, it's a bellwether, it impacts the rest of the market. Now let's look at some of the better ones. So forget tech for a minute and let's just look at some of the ones doing well. Well, as you know, I like Costco. It's got that upward support, it's intact and you can see what I'm projecting probably 22% over 11 to 12 months and that's still intact. Okay. PayPal has fallen off a cliff, another bellwether. And this isn't sort of an example of tech plus retail as it were, or tech plus economy. If it stays on that line that I've drawn, this one, then those are the kinds of returns you're looking at and you can see how it can drop up and down, could do that.

But it just gives you another understanding of how prices can move and how something can be an upward slope but still be falling in the short term. And why sometimes we don't need to panic at all because we can see that actually it's still longer term gradually inclining upwards. So we'll keep a close eye on it. And again, as goes PayPal to some extent, so goes the rest of the market. Now Johnson & Johnson comes up a lot, again another bellwether because people read and look at these stocks, read their results, their news, and they make determinations based on that. And you can see there, I've done a bear base and best case, bear base and best. Okay. Remember that, the three B's, bear best and base, right? The bear case is this, where you'd see falls within that upward channel. Base case is sort of going sideways ish.

And the best case is that. So the best case is about a 12% return in a year. So we're not talking about blowing the doors off in terms of returns. Coterra, still on the upward trend. So intact you can see energy undervalued, they're intact. Halliburton falls into that whole industrial energy kind of area and that's doing well. It's within that upward channel and there's strong upward projections from when we first started, which was down here. And we said you're looking at an 81% return in 12 months. Well guess what? That's happened already because this price is at the projection we thought it would take, pretty much has happened, would take in 12 months. It happened sooner. So a lot of people would say, Well why would I wait? Why wait? Well you might think it's going even higher. Or you might say, No, I'll just take my money, take my bird in the hand rather than wait for two in the bush.

Okay. And that's how trading happens. You make decisions based on such things. Marathon Oil, still on the upward trend, still looking solid, still relatively undervalued. And those are the projections there. Projection of Occidental as you know another one, which the energy is very much a bellwether as well. And you can see the projections and where we see the direction going in that. Devon Energy did a similar one for you. Again, all of these for the energy sector, which is so important are bellwethers. I keep using that term, but they're sort of indicative of how the market will feel. Okay. It will take a lead from these. Now healthcare, Eli Lilly comes up in the news a lot. Usually a safe haven in recessive or danger of recession environment. And you can see the projections we put there and the direction we think it's going.

By the way, way Sterling US dollar, you can see the US dollar strength and that's how we think that'll play out. We think the dollar will gradually weaken a bit because everybody wants to buy. It's pretty much bought it. UnitedHealth Group, another one in healthcare, which during periods of recession, because it's non cyclical you still need healthcare, even if there's a recession, and I'm not saying there is going to be a recession in the US. And so with this one, that's where we stand and pretty solid returns if you're looking at it. So that gives you a good idea of that. Well what are the things that have crossed my desk? Well, is there a relationship between the size of a drawdown, the fall in market and the size of the following bull market? Okay. This is the following bull market and they've done this for Bitcoin, Ethereum and S&P. Well let's just focus on S&P shall we? The blue dots, they're the ones I really want to show you.

And following, this is what tends to happen. Is there a correlation the deeper the fall? Do you tend to get bigger rises? Well, is there a pattern? You tell me. You can have a 20% fall in the markets and get a 300% return or you get a 20% fall and no, you just get a, what is that 30% rise? So I'm not sure there is a pattern there and much to be drawn from the size of the falls and the following returns. However, there is an argument to be made. The drawdowns are opportunities. If you buy these assets now, how much will you be up by the time they recover from their falls? And I showed you the example with Meta where you'd be up about 380% and some of the others. Doesn't mean its time to buy now just because they're fallen, but you can see why some people are going to be bottom fishing and just buying on price action let alone valuation and other factors.

Let's also just, you might want to pause this and look at this and I really want to focus on the S&P 500 though Bitcoin and Ethereum are there. So far the S&P 500 draw down lasted 297 days. Okay. Duration of drawdown, 297 days and it bottomed up minus 27.5% from the all time high. So this is where we are with the S&P 500. Now as you can see, things could get worse, but they don't often fall further than that because if you want to go lower, you're looking at relatively few instances where that's happened. Could this last longer? Yeah, there's a few instances, there's not many where that's going to happen. The point is we are probably getting to some kind of bottom because these instances are far fewer than these instances. Okay.

Now it's an oversimplification, but I thought I'd just put things into perspective. I mean thank God it's not the Great Depression, let's put it that way. You can look for yourself what all this means for Ethereum and Bitcoin, which have just been absolutely hammered of late. Now what's actually happening with tech? Let's go back to some of the tech and the great gains we had over the last couple of years. Well what's actually happening is revenue growth, growth of sales, revenue means sales has been slowing. So it's not that they're getting negative growth, just that things are slowing. Instead of getting 20% growth of sales, they're only getting 10%. That's what's really impacting them. People are realizing maybe the great game is over. Let me put things in a different way. This data shows you where some of these tech companies are.

What's their forward price earnings or their valuation? Well, they've come down a significant amount. How much of the price has fallen? What's the revenue growth last 12 months, revenue growth over 10 year period? So you can see it's below their 10 year average. That's a problem. Okay. Gross profits to assets, well it's not such a major thing. Free cash flow margin five year average and these things are getting hit. What's getting hit is profit margins and their growth. Of course, they're getting hit. You can't keep growing exponentially, especially in this kind of environment. So if you wanted to know why tech's been suffering a bit, that's why. But energy's a new game in town. My job is to make sure I keep you aware of all of these things and I send you stocks which fit into all of this background narrative. All this analysis goes into the individual stocks we send you.

So I want you to know there is hundreds of hours of manpower which goes into and thinking which goes into all of this. I hope you enjoyed that insight. I want to give you a quick update on the portfolio as a whole as well. I'm just going to pull up my data and as you can imagine, there's some I'm very happy with. A10 Networks is taking forever to give us a positive return just because there's been headwinds and now it is. Fantastic. Really pleased with that one as well. Another one, which is now starting to gather some steam, Molina Healthcare is doing well. So I'm pleased with that. Excellus is just starting to get a bit higher than our entry price, so that's good. McKesson of course has been one of the best ones that we've had as has Occidental Petroleum. I'm really pleased with that. Continue to be pleased with it.

AutoZone, continue to be hugely pleased with that one as well. Sanofi's down slightly, not much. We'll wait for that one to come about. APA Corporation, done fantastic. Really happy to continue with that one as well. Archer-Daniels is up, happy with how that's turning out. Genuine Parts as well. Neurocrine Biosciences, all looking good. NETSCOUT, we've only just put up there so we've got to wait a bit longer. So really pleased with how some of these are panning out. Don't have an issue with them as things stand. Hope you found that all very useful. As I said, you have the right to expect and you will get from myself and my team, all our efforts, all our energies, all our brain power into keeping you up to date with the market and also giving you those individual actionable stock ideas. Thank you very much.