Earnings season continues to wind down this week with about 97% of the S&P 500 companies having already reported results. First-quarter earnings are on pace to rise by 50% from a year ago, the quickest pace since 2010. The fast rising Q1 earnings are a reflection of broad economic strength.
One of the key takeaways from this earnings season is that demand is snapping back at a rapid pace. And as vaccinations rise, infections decline and restrictions are lifted, increased spending seems probable. As last week’s income and spending data confirmed, consumers continue to have a significant amount of excess savings on hand that they could deploy as normal activities begin to resume.
Today’s stock hotlist features three tickers we think are worth watching closely this week. Including one interesting way to get some skin in on global firms that stand to benefit as global economies regain strength.
Vanguard FTSE All-World ex-US Small Cap ETF (VSS)
As the world’s largest economy, the U.S. economy is likely to grow at a slower pace than countries with smaller, less-developed economies. Not to mention the painful effects that are still playing out for economies around the globe, due to COVID-19. But some of these beaten down economies are likely to recover swiftly. Investors are placing their bets through the use of exchange traded funds that focus on an asset class that is often overlooked but should be a core component of any long term portfolio – small caps listed outside of the U.S..
Vanguard FTSE All-World ex-US Small Cap ETF (VSS) seeks to track the performance of a benchmark index that measures the investment return of international small-cap companies. The fund roughly tracks the performance of the FTSE Global Small Cap ex US Index.
Most broad ex-U.S. ETFs primarily focus on large cap stocks, and feature portfolios that have minimal allocations to small or mid cap stocks. Because large cap stocks are often multinational firms that generate their revenue globally (including the U.S.), they won’t always be great pure plays on the local economy. VSS offers exposure to smaller companies, an asset class that can round out exposure and serve as a nice complement to other investments.
Advanced markets like Canada and Japan make up the bulk of the allocation, but VSS does have some exposure to emerging economies like India and Mexico. VSS offers exposure to over 4,000 companies spread across the globe for a low fee when compared to its peers. VSS has an expense ratio of just 0.11% while ERShares NextGen Entrepreneurs ETF (ERSX) costs 0.75%. VSS also comes along with a yield of 1.73%.
Year-to-date the return for VSS is almost 12%. For the month of May the fund gained 7.3%, outperforming the S&P 500 by a landslide. Things could be just starting to heat up in international and emerging markets, and VSS is an excellent choice if you’re looking for exposure.
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Even as other tourism companies battled to survive the pandemic, Airbnb (ABNB) made a huge market debut last year. In February, Airbnb stock topped $220, more than double its listing price. However, Airbnb‘s stock has dropped by 35% since then. Airbnb, like many other high-risk, high-reward stocks, has lost appeal with value investors. It has, however, created a more attractive entry for the stock’s many fans.
At the pandemic’s peak, Airbnb had to gather emergency funds and cut a fourth of its personnel. These efforts were pivotal in helping Airbnb recover from the “most harrowing crisis of our lifetime,” according to CEO Brian Chesky. Airbnb’s income was $3.4 billion at the end of the year, down 30% from the previous year. That’s impressive, given that the company had expected revenue to drop by more than 50% in 2020.
Revenue increased 5% year over year to $887 million in the first quarter of 2021, easily above Wall Street projections. Airbnb attributed this to a 35% increase in overall average daily rates, as most of its bookings were in the United States (which tends to have higher daily rates). There were also fewer cancellations this quarter than the year before.
Chesky appears to be optimistic about the company’s future prospects. In an interview with Yahoo Finance last week he identified a crucial travel pattern that could be long-term. According to data from Airbnb’s most recent fiscal quarter, enthusiastic visitors are already taking short “staycations” fewer than 50 miles from home.
Furthermore, a quarter of these stays were for 28 days or more. This, according to Chesky, demonstrates customers’ rising interest in lengthier vacation stays. When you combine all of this with the fact that Airbnb’s recent quarter revenue exceeded analysts’ expectations, things could be looking bright for the company.
In the long run, Airbnb has plenty of room to grow. Despite being a household name in the global travel industry, it’s captured less than 1% of its total addressable market. Investors who want to play on the expanding popularity of consumer travel may be interested in ABNB shares.
Newly issued stocks tend to be quite volatile through their first few days or weeks of trading. But IPO stocks can also provide bold investors with the biggest returns.
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One sign that usually points to a strong underlying quality in a IPO stock is a high initial price tag with large price increases on the IPO day. The Roblox (RBLX) direct listing reference price was $45 per share and the stock closed it’s first day of trading at $69.50.
Roblox provides a global online gaming platform. The company’s namesake “Roblox” game was 2020’s biggest mobile game in the U.S., in terms of revenue. Roblox reported having 32.6 million daily active users at the end of 2020, up a whopping 85% from the same period in the previous year.
Roblox content creators include individuals and video game studios. Other businesses create Roblox content for marketing purposes like film and TV studios such as Netfilx, Disney and Warner Bros.
Roblox has yet to make a profit, but the Wall Street pros expect this to change in 2021. It’s expected to post annual earnings per share of 44 cents, compared to a loss of 46 cents in 2020. For 2022 analysts see this improving by 27% to 56 cents per share.
“The creation and monetization of user-generated content effectively allows Roblox to outsource game development costs to its creators while retaining the economic upside with a diversified portfolio of content, reducing hit-risk,” Said Goldman Sachs analyst Michael Ng, who rates the stock a Buy.
Due to the fact that RBLX is a new issue and still in its value seeking phase, the road ahead could be bumpy as the stock finds its footing. But we believe that, for our long-term-minded readers, RBLX is one to watch over the coming days.
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