Discuss about the Investment Analysis and Portfolio Management.
Investment decisions are largely influenced by human psychology. Investing goes behold rationality and statistics and decisions are made based on human intuitions (Yuniningsih, Sugeng and Muh Barid, 245-263). Investments are important for enabling an individual to meet financial goals more easily. Investments generate income by putting forth an amount (something) with expectations of a higher return in a future time. Investments allow a person to create wealth and become financially independent (Nofsinger, 76). The investment decisions are characterized by uncertain stock markets, risky ventures, unpredictable environment, and changing business environment. Investors make decisions differently as they are influenced by behavior, mind, conscious, unconscious and thoughts. Investors’ make investments decisions with an objective of increasing their returns on investments (ROI) or getting the highest interests (Luthans, Carolyn , and Bruce, 321-340,).
The stock market bull and bear impact investment decisions and it depends on human psychology to make decisions in these situations. The bull market is characterized with optimism that leads to increased market rally increasing the stock price. The bear market on the other side is characterized with pessimism leading a decreasing stock price (McPhee, 107).The bull market make average investors greedy who buy many shares leading to the stock being overpriced. The bear markets rally everyone to fear a stock and sell their share leading to a fall in the stock price. The herd mentality when investing influences investors to think the same way and act according to a group instead of making independent investment decisions. The peaks and trough situations in investment happens regularly in the stock market. Prices keep changing and range from the highest price (peak) to the lowest price (trough) and require understanding the investment psychology to make appropriate decision in different times of price change (Kim et al., 140-154).
The following write-up contains discuss for three companies that will be analyzed for investments. These companies are Alibaba Group Holding Limited, Apple Inc, and Tesla Motors Inc. This will involve analyzing their financial history, competitors in the market, past peaks and trough and reasons for buying their stocks both emotional and logical.
Alibaba Group Holding Ltd
Alibaba Group is a multinational ecommerce, Internet, retail, AI and Technology Company. The company through subsidiaries operates in four segments; cloud computing, core commerce, entertainment and digital media, and innovation initiatives. Alibaba provides business-to-business, consumer-to-consumer and business-to-consumer sales services through web portal. The company also provides electronic payments services, cloud computing and shopping search engines. Alibaba operates in more than 200 countries.
Alibaba Group Holding Limited trades in New York Stock Exchange as BABA. The company stock price is US$ 172.07 as at 4th April 2018. The company had a total equity of US$ 48.33 billion at the end of 2017 financial year. Alibaba 2017 revenue amounted to US$23.82billion. The company revenue in 2016 financial year was US$22.96 billion which was 56% higher from 2015 FY. The stock price was US$121.27 in 2016 FY while 2017 stock price US$142.
Alibaba main competitor is Amazon. Alibaba revenue grew from $3.14Billion in 2012 FY to $22.99 Billion in 2017 FY compared to Amazon that grew from $48 Billion in 2011FY to $135.99 Billion in 2016 FY. The Amazon’s revenue grew with 23% while Alibaba revenue grew by 48%. The Alibaba stock price increased by 79% from 2014 compared to Amazon that increased by 192% during the same timeframe.
There are several reasons to buy Alibaba. First, the company revenues are increasing at a high percentage that will increase the net income leading to a higher dividends payment. There is an increasing trend for consumers to buy products online that leads to upward sales revenues. The revenue increased to $23 in 2017 from less than $11 billion in 2014.
The company has a large scale of operation where the company managed $547 billion online shopping portals of retail transactions in 2017 and they are expected to increase by $1 trillion by 2019. Secondly, the exploding Chinese economy will favor the performance of Alibaba. The Chinese economy accounts for 86% of the Alibaba retail sales. The Chinese economy has a gross domestic per capita income of $3000 which is expected to grow to $13300 within 20 year. This is different to US which will increase by 28% at the same time. Third, Alibaba has diversified operations. The company is not all about retail but is also involved in other services such as digital media and computing tools. Fourth, the Jack Ma’s vision for Alibaba will drive sales up leading to increased dividends payment. The Jack Ma wants the business to serve more than 10 million small business and 2 billion consumers (Chandra, 203). Lastly, the company insider ownership will also drive it performance Jack Ma owns 6.3% of the company shares that amount to $27 billion. Jack Ma personal fortune is tied to the company success and will act as an incentive to the company performance to increase its value.
The Alibaba past peak for the past 52 days is $206.20 while the trough is $106.78. There is variance is $99.42. This shows that the Alibaba shares have a high potential of rising up to $206 which represent 23% from the current share price of $173. On the other side, the company shares can drop down by 40% to 106 from the current $173. Therefore investing in Alibaba shares has both possibility where the investor can lose by 40% or gain by 23%.
Tesla Motors is company that specializes in energy storage, electric vehicles, solar panel manufacturing. The company was founded in 2003 and is based in California. The company products include lithium-ion battery, electric cars, photovoltain panels, Telsa Powerwall batteries, solar panel, sonar roof tiles, and Powerpack batteries. The company is led by Enlon Musk who envisions that the company will be a leading technology company and automaker that will offer affordable electric cars at competitive prices to average income consumers. The company subsidiaries are SolarCity, and Telsa Grohmann Automation.
Tesla Motors has a total equity of US$4.24 billion at the end of 2017 financial year. The company recorded revenue amounting to US$11.76 billion during 2017FY. The Company is listed as TSLA in the NASDAQ. The Tesla common stock price is $299.67 as at 4 April 2018. Tesla Revenue increased from $3.2 billion in 2014 to $1.76 billion in 2017.
The main Competitor for Tesla Motors is Ford Motors. Ford is a multinational automobile company with headquarters in Michigan. Ford is listed in NYSE and it trading name is F. It stock value is $11.5 as at 4 April 2018. Ford Motors earned $156.8 billion in 2017 from $147 billion in 2013.
There are several reasons to buy Tesla Motor share. First, the company has a beloved brand. Consumers are increasingly shifting to products that conserve the environment. The Company Roadster brand is not one decade old but has managed to get top 100 global brands in interbrands List. The Tesla brand is estimated to be worth $4 billion. Secondly, the company enjoys low cost marketing. Tesla Motors innovations make headlines that attract media attention. Most of Tesla moves are covered in details by media that provide unbelievable free amount of advertising. The company is therefore able to lower its operations costs that are then channeled to other projects or minimize the operations costs optimizing returns. Thirdly, Tesla enjoys ridiculous loyal customer base. The company has loyal customers who are willing to buy the same brand given another chance. The customers are highly satisfied and Tesla is ranked first among automakers in the industry in terms of consumer satisfaction. Fourth, Tesla is located in Silicon Valley at the hotbed of engineering and technology. The company is therefore able to attract talents that will lead innovation that will increase the company value. Lastly, Tesla Motors has access to SpaceX engineers. Tesla CEO Elon Musk is also the head of SpaceX Company. SpaceX is a valuable and remarkable company makes rockets and leads innovation on engineering, material science, and manufacturing. The automaker therefore has access to SpaceX engineers who are likely to lead innovation to the company and make it to be a market leader in the automobile industry. Therefore Tesla Motor is a promising share to buy and there are likelihood of high returns.
The peak of Tesla Motors for the past 52 weeks was $389.61 while the trough was $244.59. The variance between pas6t peak and trough is $145.61. The peak and trough show that the share price can increase by 27.7% or decrease by 20%. Therefore the investor is likely not to lose by a big margin.
Apple Inc is a multinational technology company. The company is headquartered in California and is involved in designing, developing, and selling computer software, consumer electronics, and online services. The company products include iPhone Smartphone, Mac computers, IPad tablets, iPod media player, Apple Watch, Apple TV, and HomePod Smart speaker. Apple software includes IOS operating system, iTune Media Player, macOS, Iwork, and safari web browser. The company online services include iTunes Store, Mac App Store, iOS App Store and Apple Music. The company was started in 1976 and is led by Tim Cook as the CEO and Arthur Levinson as the chairman ("Apple").
Apple Inc is a public company and is traded in Nasdaq as AAPL. The company stock price is $172.8 as at 4th April 2018. The company recorded revenue that amounted to US$229.234 billion in 2017 financial year. The company total equity was US$ 134.047 billion in 2017 FY. The company revenue increased from $170.87billion in 2013 FY to $228.57 billion in 2017 FY. The net income increased from $37.04 billion in 2013 FY to $48.35 billion in 2017 FY.
Apple Inc main competitor is Hewlette Packard Company (HP Ltd). HP Ltd is a multinational company that specializes in developing hardware components, software, and related consumer services related to technology. Their products include personal computers, tablets, and printers, networking hardware, data storage devices and designing software. The company trades as HPE in the NYSE. The company stock price is $17.20 as at 4th April 2018. HP Ltd recorded a decrease in revenue from $57.33 billion in 2013FY to $28.94 billion ("Hewlett Packard Enterprise Co."). The past peak and trough for 52 weeks were $19.48 and $12.70 respectively. The company also recorded a decrease in income from $2.05billion in 2013FY to $436 in 2017 FY ("Hewlett Packard Enterprise's Net Revenue 2011-2017 | Statistic").
There are many reasons to buy Apple stock shares. First, Apple Inc is earning high revenues that equivalent to a country GDP of US$ 229 billion. Consumers’ perception to Apple Products as of high quality, latest technology, and unique features drive the company’s revenue high. The revenues are also in an upward graph. The company also earned $48 billion profits for 2017 FY. This shows that the company shares will earn high dividends. Secondly, Apple is a market leader in technology hardware devices and software. The company enjoys a powerful competitive advantage that will enable the company to increase its profit margins above it competitors. This will increase the capital returns on investments. Lastly, Apple is an attractive valuation. The company is likely to remain as the top trading technological company. The company has a wide customer base and is perceived to have best products in terms of quality and technology advancement. This shows that the company will continue to attract new customers that will increase it sales. In addition, the company share price is affordable (not overpriced) and it’s expected to boom in the near future.
The past peak for Apple in 52 weeks is $183.50 while the trough has been $140.06. The variance between peak and trough is $43.44. The stock prices are likely to increase value by 6% or lose value by 19%.
From the write- up, different companies have different trends in terms of performance that can be used to make investment decisions. It is also evident that financial performance is not the only determinant of making decision to buy share because of other factors that impact company’s ability to make financial gains. Tesla Motors has the highest placed stock price of $299 while Alibaba the least with $172.07. Tesla Company stock prices are facing bull market situation. According to past peak and trough, Apple Inc stock price are the most stable, followed by Tesla Motors and then Alibaba. It is therefore recommendable to invest at Apple Inc as the first priority then Alibaba Group Holdings.
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