Succession

U.S. equity futures are rising into the new month ahead of a busy week of earnings and the April jobs report.

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By Caleb Silver, Editor in Chief

Image courtesy: Getty Images / Simonkr

MAY 03, 2021

1/ What's Happening

2/ Today’s Headlines

3/ Buffett names successor

4/ Elon Musk's massive stock grant

5/ World Market Indices

1/ FROM THE EDITOR'S DESK

What's Happening

Most Asian equity markets are closed for a holiday as COVID-19 cases continue to rise in India, but European and U.S. markets are headed higher to start the month of May. The U.K's stock markets are also closed. This is historically the beginning of the worst six months of the year for the U.S. stock market, but the old adage of "Sell in May, and go away", may be just that - old.

Over 900 companies will report their quarterly results this week, including CVS Health, Pfizer, Zillow, Activision Blizzard, Uber and Square to name a few. So far this earnings season, companies have posted profits that have been 22.8% above expectations. The recent run of strong results has S&P 500 companies on track to post their fastest rate of earnings growth since 2010.

While the equity markets have been choppy over the past two weeks despite robust earnings, investor optimism remains at record levels. Excessive optimism can be a contrarian indicator, too, so markets may remain a little frisky for the foreseeable future.

Chart courtesy BofA Equity & Quant Strategies

Survey Alert: We're running another survey of our U.S. readers to learn more about your investing sentiment and outlook for the rest of the year - especially given the recent all-time highs for markets. The survey is anonymous and we'll protect your privacy, but we'll share the results with you in the coming weeks. Thanks, as always. Go to survey >

2/ QUICK HITS

Today’s Headlines

Dell Technologies is close to a deal to sell its Boomi cloud business to private-equity firms Francisco Partners and TPG, according to the WSJ. It's part of a larger reordering of the PC and data-storage giant’s business, and values the cloud-based integration platform at $4 billion including debt. Boomi, which Dell acquired in 2010, makes software that helps applications communicate with each other by transferring data between them.
Verizon Communications sold its media division, which included Internet 1.0 companies like AOL and Yahoo, to private equity firm Apollo Global Management for $5B according to CNBC, and Verizon may still hold a small stake.
On AG, the Swiss sports-shoe maker backed by tennis great Roger Federer, has started preparations for an initial public offering that could value the business at about $5 billion, according to Bloomberg. The Zurich-based company plans to list as soon as this Fall, and On is working with banks including Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase.
Robinhood Markets, Inc. largest source of revenue, payment for order flow, more than tripled in the first quarter as the trading app became immensely popular with new investors amid the meme-stock frenzy. Revenue from payment for order flow reached about $331 million in the first quarter, up from $91 million a year ago, according to a securities filings last week.
Moderna will supply 34 million doses of its COVID-19 vaccine this year and Sweden has donated 1 million AstraZeneca shots to the global COVAX program as it struggles to get stocks to inoculate the world’s poorest people. The advance purchase contract agreed with Moderna is for up to 500 million doses, but the rollout will only start in the fourth quarter, with 34 million doses available this year, the GAVI vaccine alliance said on Monday.
Lumber futures extended a record rally as sawmills struggle to meet insatiable demand, with the biggest U.S. producer saying it’s sold out of some key homebuilding materials for the next several weeks. Prices have quadrupled in the past year, spurred by an unexpected surge in home building and renovations amid low mortgage and refinancing rates. Demand has held strong since mid-June, keeping inventories low and costs high.

Chart courtesy TradingView

3/ THE BIG STORY

Highlights from Berkshire's Annual Meeting

Photo courtesy Yahoo Finance

The Berkshire Hathaway annual meeting took place virtually this past Saturday. Instead of the traditional gathering in Warren Buffett’s hometown of Omaha Nebraska, this year Warren, 90 years young and his partner Charlie Munger - just 97, live-streamed their meeting out of Los Angeles where Charlie lives and is still Chairman of The Daily Journal.

While it wasn’t Woodstock for Capitalists, as the annual pilgrimage to Omaha is known, the two Investing Hall of Famers left a few a few pearls of wisdom and some useful information on how Berkshire Hathaway sees the future.

Here are a few takeaways:

Succession! Buffett finally named a successor, something Berkshire investors have been waiting for years to hear. Greg Abel (pictures below), who is the CEO of Berkshire Hathaway Energy and Vice-Chairman of Berkshire Hathaway's non-insurance businesses, will likely take over for Buffett when he is no longer CEO. Berkshire did not make Abel's succession official in an SEC filing, but Buffett said he will be the likely successor.
Buffett says today’s stock market giants may not have staying power. He pointed out that the largest and most powerful companies in the stock market today may not be around in 20 years. Pointing to the similar list from 1989, the Buffett noted that not one of the 20 top companies 32 years ago are still among the top 20 today. That includes powerhouses like ExxonMobil and General Electric.
Buffett and Munger lambasted Robinhood, the popular online broker. Buffett said Robinhood has "...become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half.”
Buffett made a mistake on trimming Berkshire’s holdings of Apple shares in 2020, and admitted to it. Still, Berkshire still owns more than 5% of Apple’s shares outstanding, and Apple is in the midst of massive share buybacks, so Berkshire actually owns roughly the same amount today than it did last year.
Berkshire Hathaway was not a big buyer of equities in 2020, even when prices got really low. Munger and Buffett admitted to not knowing how bad the pandemic was going to be, or how much the government was going to step in.
Charlie Munger hates Bitcoin. Surprise, surprise! "I hate the Bitcoin success," he said. "The whole damn development is disgusting and contrary to the interest of civilization." He’s 97, so he can say whatever he wants.
Berkshire bought back $6.8 billion of its stock in Q1, and $24.7 billion in 2020. Companies buy back their shares when they think they are undervalued, they don’t see anything they want to buy with that cash, or they don’t have better uses for it. Buffett loves buybacks, and his company is sitting on $145.5 billion in cash right now, up 5% from last year.

Photo courtesy Yahoo Finance

4/ THE BIG NUMBER

$32.4 Billion

Image courtesy Giphy

That's the dollar amount of shares that Elon Musk, already one of the richest people in the world, can add to his treasure chest. According to SEC filings late last Friday, Musk, who is actually listed as Technoking and CEO of Tesla, is now vested in stock options valued at that amount after the electric-car maker hit roughly half of the targets laid out by the board in his 2018 compensation package. Musk is poised to receive another $10.8 billion more when Tesla hits other targets soon.

Tesla made the grant of stock options on 101.3 million shares three years ago, when Tesla’s shares traded at around $70 on a split-adjusted basis. As a result, Musk’s cost to exercise his 50.66 million vested options—or convert them into shares—is $70.01 apiece. Tesla shares closed Friday at $709.44. Nice spread.

In the proxy filing, Tesla said the company had achieved six of 12 operating targets, and said two more were in sight. Most of the targets reflected an adjusted version of EBITDA, and Tesla's EBITDA for the twelve months ending March 31, 2021 was $4.875 Billion, a 56.1% increase year-over-year.

Here's how $10,000 invested in TSLA in March of 2018, the month Musk signed his compensation package, would look today: