This week, Gabrielle Reilly, CFP®, GFP (USA), MSBA, discusses Alphabet’s recent 20:1 stock split and shares earnings from portfolio holdings Johnson & Johnson and Taiwan Semiconductor.
Welcome to the weekly market update. Despite reports this week that investors’ economic sentiments remain low, the S&P posted its largest three-day gain since May, driven largely by tech and consumer discretionary stocks. Although momentum paused a bit, as you can see, markets have climbed nearly 9% from the low we saw in mid-June. We are still in the midst of earnings season and had a stock split leading headlines, so let’s jump right in.
Alphabet, Google’s parent company, announced in February of this year that they would be splitting their stock. While not the first tech-titan to split their stock this year, and not the first split for Google, the change should make their stock more affordable and attractive for investors who can now purchase whole, rather than partial shares. The stock split took effect after Friday’s closing bell and was a 20-for-1 split, changing the price of a single share from $2,235.55 pre-split to $111.78 at Monday’s market open. Investors who held shares at market close on July first were issued an additional 19 shares for each share owned. At the market closing on Monday, Alphabet stock was priced under $110 and next week, Alphabet reports earnings in the face of an economic slowdown.
Johnson & Johnson, a holding in both the Core and Defensive portfolios, lowered its earnings and revenue forecast for the year as the strengthening dollar hit its heavy mix of international sales. However, its Covid-19 vaccine sales came in at more than double the average analyst estimate and they had strong pharmaceutical sales growth. Johnson and Johnson has gained 1.9% since the start of the year and beat earnings and sales estimates. Earnings per share of $2.59 came in above estimates of $2.55 while sales beat at $24.02 billion versus a projected $23.96 billion, up 3% year over year. The company will rely on strong sales growth to help weather the hit of a strong dollar.
After having a tough go to begin the year, chipmaker stocks have initiated quite the rebound so far in July. As you will likely remember, chip shortages were the poster-child for post Covid-19 supply chain shortages. As evidenced by the possibility of selling your used vehicle for a higher price than a new one off the lot. Since hitting their lows in the first week of July, chipmaker stocks have rallied nearly 19% in the weeks since. One contributor to this was Taiwan Semiconductors, a holding in our Core Portfolio who beat estimates and issued strong third quarter guidance. Despite the aforementioned supply chain issues and a strengthening dollar, TSM continues to deliver with earnings coming in at $1.55 over estimates of $1.50. The company is projecting revenue for the third quarter as high as $20.7 billion versus a high estimate for the second quarter of $18.2 billion.
So what does it all mean? Despite uncertainty from investors, stocks had their best week in months. Still, how does one contend with disappointing economic results but fair news on certain sectors or stocks? Our goal at Reilly Financial is to minimize risk by owning a well-diversified portfolio of great companies that can weather volatility and come out strong. In turbulent times, remember, first, that our Investment Committee is closely watching your stocks, the economy, and world events and second, that the patient investor reaps long term rewards. So please, sit back, relax, have a great weekend, and join us next time for the weekly market update.