Topley’s Top Ten – February 11, 2020

Author

Matt Topley
February 11, 2020

1.Technology Sector vs. 1999.  1995-1999 Information Technology Returned 700%

Information technology stocks have rallied 47.8% in the past12 months, according to FactSet data. But that “still pales in comparison tothe Tech Bubble.” Over the past five years, the sector has returned 149%;between 1995 and 1999, the sector returned nearly 700%. Meanwhile, the techgroup’s forward price/earnings ratio trades at a 22% premium to the S&P 500now, on a relative basis, the analysts wrote, below the long-term average of31%.

S&P Technology ETF +90% from 2018 XMAS EVE sell off.

2. Utilities are trading at the highest absolute forward P/E and highest relative P/E to S&P 500 Value over the past 20 years:

Percy AllisonDesk StrategistJefferies LLC

Defensiveshave steeply outperformed offensives:

Source: JefferiesTrading Desk

Utilitiesare trading at the highest absolute forward P/E and highest relative P/E toS&P 500 Value over the past 20 years:

Source: JefferiesTrading Desk

3.Coronavirus vs. SARS

  • The new coronavirus and SARS come from the same family ofviruses that usually infect animals, but can sometimes evolve and spread tohumans.

  • Investors and analysts often compare the two viruses to gaugethe potential economic impact from the latest outbreak.

  • The SARS outbreak nearly 20 years ago caused China’s economicgrowth to slow from 11.1% year over year in the first quarter of 2003 to 9.1%in the following three months.

  • Growth in retail sales and industri al productionin China was also slower around May 2003, but expansion in exports remainedsteady throughout that year.

4 charts show how SARS hit China’s economy nearly 20 years ago

4.The Share of Energy From Renewable Sources 10% in U.S.

Torsten Slok-Deutsche Bank

The share of energy fromrenewable sources in the US is around 10%, see chart below and hereand here.

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Let us know if you would liketo add a colleague to this distribution list.

5.Inflation Expectations Rolling Over.

The Daily Shot

6.Two Employment Charts.

Job openings have also rolled over, as you cansee in the yellow line in the chart below. On the other hand, openings remaincomfortably above the number of unemployed persons in the United States—notwithstandingthe aforementioned skills gap problem.

Sleight of Hand: Dissecting the Latest Employment DataBy Liz Ann Sonders

7.EuroCurrency ETF Hits New Lows.

8.Debt AS A % of GDP Less Frightening Than Overall Public Debt

9.Healthcare Sector Trading at Discount to Historical Average

As the graph below illustrates, the S&P 500 Index is tradingat a premium (>100%) to its historical average forward price-to-earningsratio (PE), while the broad health care space trades at a discount (<100%)to its historical average.

10.The modern business plan

It’s not clear to me whybusiness plans are the way they are, but they’re often misused to obfuscate,bore and show an ability to comply with expectations. If I want the real truthabout a business and where it’s going, I’d rather see something else. I’ddivide the modern business plan into five sections:

  • Truth

  • Assertions

  • Alternatives

  • People

  • Money

The truth sectiondescribes the world as it is. Footnote if you want to, but tell me about themarket you are entering, the needs that already exist, the competitors in yourspace, technology standards, the way others have succeeded and failed in thepast. The more specific the better. The more ground knowledge the better. Themore visceral the stories, the better. The point of this section is to be surethat you’re clear about the way you see the world, and that you and I agree onyour assumptions. This section isn’t partisan, it takes no positions, it juststates how things are.

Truth can take as long asyou need to tell it. It can include spreadsheets, market share analysis andanything I need to know about how the world works.

The assertions sectionis your chance to describe how you’re going to change things. We will do X, andthen Y will happen. We will build Z with this much money in this much time. Wewill present Q to the market and the market will respond by taking this action.

This is the heart of themodern business plan. The only reason to launch a project is to changesomething, and I want to know what you’re going to do and what impact it’sgoing to have.

Of course, this section willbe incorrect. You will make assertions that won’t pan out. You’ll miss budgetsand deadlines and sales. So the alternatives section tells mewhat you’ll do if that happens. How much flexibility does your product or teamhave? If your assertions don’t pan out, is it over?

The people section rightlyhighlights the key element… who is on your team, who is going to join yourteam. ‘Who’ doesn’t mean their resume, who means their attitudes and abilitiesand track record in shipping.

And the last section is allabout money. How much do you need, how will you spend it, what does cash flowlook like, P&Ls, balance sheets, margins and exit strategies.

Your local VC might not likethis format, but I’m betting it will help your team think through the hardissues more clearly.

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