Published By Banyan Hill Publishing | | | | Published By Banyan Hill Publishing | | | | Sideswiped on a Desert Highway By Charles Sizemore
Chief Editor, The Banyan Edge | I was going 60mph on a desert highway in Peru when it all went sideways.
The trucker’s cargo — a massive carpet roll — came loose and dropped right in my path. I had to swerve out of the way.
I got lucky… at first. But the car two lanes over didn’t. And his bad luck changed mine.
He swerved to miss it and crashed into the car next to him at highway speed…
Which then sideswiped me.
Miraculously, no one was injured. My car was pretty smashed up, but it was operable.
So, I had to make the truly miserable trip back into Lima, into the bustle and chaos I was desperately trying to escape. (I left the little beach town I’d been vacationing at that morning to drive to my home in Lima and record last week’s Banyan Edge Podcast.)
I left the car at the mechanic, borrowed my mother-in-law’s car, and finally made it back to the beach around sunset.
Having a car accident on a desert highway in South America is not something I ever would’ve expected. To put it in investor-speak, I had the day “priced for perfection.”
I’d run home first thing in the morning, record a stellar episode (Okay, I did manage to do that part) and make it back to the beach right in time for the sun to hit its highest point in the sky.
Perfect.
But perfection is, unfortunately, not what I got.
The reason I tell this story is a lot of investors are pricing 2023 for perfection.
And if they don’t reckon with the very real, imperfect headwinds this market faces, they set up to get the proverbial “sideswipe on a desert highway” instead. Priced for Perfection Let’s talk about what “priced for perfection” really means.
A stock is priced for perfection when its high share price implicitly assumes an extremely rosy set of scenarios.
Sales growth continuing at a blistering pace indefinitely into the future… margins continuing to expand… competitors failing to materialize… no recessions on the horizon…
You get the idea.
The problem with a stock being priced for perfection is that perfection rarely actually happens. Things don’t always go as planned.
Inflation comes in hotter than feared (as we saw last week)… a recession hits (if it hasn’t already)… Rates continue to rise… or you get sideswiped in the middle of a South American desert!
So long as you didn’t grossly overpay for a stock, you can ride out little bumps like these.
But when you overpay – when the price of the stock assumes a set of circumstances that simply isn’t plausible – that’s when you’re playing with fire.
Right now, investors who are chasing the January rally are very likely overpaying for stocks.
Especially those in the tech sector… | | | Adam O’Dell reveals a simple 2-day trade that we believe is the fastest way to grow a trading account ever devised. In the six months we’ve been testing it internally, it’s beat the market by a staggering 51X.
To get the details, go here now. | | | Headwinds to Two Tech Giants As a case in point, let’s take a look at two of the biggest stocks in the S&P 500 and two of the most widely held by investors — Microsoft (MSFT) and Tesla (TSLA).
These two companies trade at respective price/sales ratios of 9.7 and 8.4.
Now, both of these companies are profitable and both have outstanding margins. They are innovative businesses and the leaders in their respective fields.
But to put those valuations in perspective, at the peak of the 1990s dot-com bubble, the price/sales ratio of the S&P 500 as a whole topped out at about 2.2.
More recently, in the pandemic bubble, it peaked at about 3.
Today, it’s about 2.4.
At multiples like these, it’s safe to say that Microsoft and Tesla are priced for perfection.
The market is essentially saying that Microsoft’s fat margins, stemming mostly from its cloud services, will remain elevated forever and competition will never force them lower…
And that Tesla will continue boosting its sales by half every year, indefinitely, in the face of relentless new competition in the EV and driverless space from Mercedes, BMW, and every other automaker.
Now, hey, I’m not saying that’s impossible. I suppose anything could happen.
But is that really a bet you want to make?
Last week, Adam made his case for his “big short of 2023.”
But he didn’t issue that prediction based on some smoking gun in the company’s financial statements. He hasn’t found any fraud or uncovered some sort of elaborate Ponzi scheme.
He’s simply found a company whose share price – and the assumptions that go into the share price – are wildly unrealistic.
There’s big money to be made here. And you don’t have to short stocks to do it.
If you haven’t seen Adam’s presentation, I recommend you watch it now. The company he’s targeting could very well make or break your 2023.
Regards,
Charles Sizemore
Chief Editor, The Banyan Edge | | | Adam O’Dell reveals the details of a simple new 2-day trade that we believe is the best way to make money in financial markets right now. Over six months of testing, this strategy has beat the market by 51X.
For real.
To get the details, go here now. | | | (c) 2023 Banyan Hill Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Banyan Hill Publishing. P.O. Box 8378, Delray Beach, FL 33482. (TEL: 866-584-4096) Legal Notice
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