By Mike Simonato, Blue Mountains, Ontario
To say that Covid 19 has changed the world, and not in a good way, is an understatement. How does this relate to business and affect us as traders?
- Cost and difficulty of doing business have increased significantly. Note the Apple and Amazon Earnings and Guidance (2 companies that actually told the truth).
- Many people of old built and ran strong successful businesses, yet when they hand them down to the kids it all goes to hell in a handbasket. Just look at the joke called Rogers.
- The attitudes of many in the up-and-coming generation. Forget the blatant stupidity of the recent “homecoming fiascos”, but just the overall stupid attitude.
My day yesterday highlights everything.
At this time of year, I’m past exhausted, yes I can get grumpy, but I also know not to pile too much on my wife at this point. I got a call from a client. He was a really big name in the NHL and got a new house built. My rule is I don’t work on anything 5 years or newer (because they are that bad) and not interested in big monster houses. However, his wife has always been really nice, so I thought ok but I mentioned I hoped it was a small job. He then compromised and said even if we did the main floor, that would be ok. He also now runs 2 big, very successful businesses, so money isn’t a worry. We show up a little early hoping for a short day due to extreme exhaustion, and we knock and knock and knock, no answer, Finally, the wife comes to the door. She had worked until 3 am and was hoping to sleep till 8:30 (of course we wrecked those plans). yet she was still so nice. We then found out that she is a frontline worker and that yesterday was her only day off and works 12 hour shifts. Needless to say we felt like crap and even though exhausted, we did the entire house in and out which lifted her spirits. Her husband asked why she was working so many hours (money obviously isn’t a concern) and she said she can’t leave the hospital short-staffed. To say that the doctors and nurses are exhausted is an understatement yet they are there for each other and for those who need care. Now the Good part. There was a 23-year-old RN that was supposed to join the team and start Sept 1. They were thrilled to be getting some help and bent over backwards for this person’s stupid demands/ concerns. Well just before Sept 1 start date she decides that no, she had kind of wanted Sept off but then if she starts Oct 1 then she wouldn’t get any holidays for 3 months and she planned on taking time off over the holidays so that wasn’t going to work so she decided she might consider working next year. Yesterday, our client’s daughter was going for a job interview for full-time in her field. She texted her mom that she got the job. There was no interview, no questions. They merely said she was a good worker and she shows up so she’s hired. That is how low the bar is now and how desperate businesses of all sizes are to find workers with any kind of work ethic and an IQ higher than an empty pop can.
So with supply chain issues, costs going through the roof, and lack of good workers, how can we see which businesses or industries can navigate this maze of stupidity. The answer is VectorVest’s NPM – Net Profit Margin.
There are 2 things that determine how well a business will do.
- The cost involved in producing a product or service
- The Price a company can charge for said Good or Service
The difference between the two is called the Net Profit Margin (NPM)
Ideally, a good company to invest in will be growing their earnings while maintaining or growing their NPM.
Let’s look at some examples: Note with VectorVest you can use this to judge an Industry, a Portfolio and of course Individual stocks.
Let’s look at Stan’s Custom Mutual Fund in Friday’s Canadian Views. If you look at the Watchlist Average Graph, as the Earnings and NPM go, so goes the price. Even the constant weak one Disney is growing earnings and NPM, so at some point, Price should join the party. The results shown in the attachments show this is a good market-beating portfolio.
– Click to Enlarge –
One of my client’s sons is the co-CEO of Real Matters. They were perfectly poised to profit handsomely off the pandemic however, something has gone horribly wrong. Look at the EPS and NPM on Real Matters graph. As they have tanked, so has the price.
Summary: There will be very difficult and challenging times ahead for businesses, likely until the end of 2022. (on top of everything else Canada has announced 5 rate increases next year, each one being .25%, and starting in 2023 the Global Corporate Tax goes into effect. We have all the tools we need with VectorVest to make informed smart trading decisions.
As always, nothing more my 2 cents, and I hope it’s of value and interest