Companies do matter. ETFs often swing because of companies. But, often, ETFs are simply the lazy man's way to invest. It drives me crazy, because half the time people don't even know enough about what's in them to move them.
Take yesterday's strong non-FANG tech that moved a lot of ETFs that exist out there to track technology.
Do you know what I think propelled it? Was it Buffett saying that he liked Apple AAPL and bought more this quarter -- something that actually sent the stock down?
Was it because Netflix (NFLX) was up about five points for no particular reason but that it might boost spending on 5G?
No, it was the Analog Devices (ADI) quarter and the brilliant conference call that this $30 billion company gave you. If you don't know Analog, a lot of people used to regard it as a flotsam and jetsam semiconductor company with a lot of different markets to attend to, all being hostage to the tail of Action Alerts PLUS charity portfolio holding Apple (AAPL) .
We know what happens when you are toggled to Apple. It doesn't matter what you do, you are a victim of whatever phone it might be putting out. And remember, like the Fight Club, the first rule of Apple is that you can't talk about Apple's business. But then ADI bought Linear Technology for $14.8 billion in July 2016, and now that the company has a full year of fruitful integration under its belt, it is a totally different animal, with just 17% of its products going into "consumer" markets -- which is often code for Apple's wireless demands.
It's the rest that's exciting and caught the tech investors' fancy. First, 49% of the company's business is industrial, which means mostly robots and factory automation. Given that when you automate your factory with machines with ADI devices you save about $2.0 million, it amounts to a broad brownfield renaissance, the first I have heard of it, but obviously common parlance in the industry.
Next, 16% of the product goes into auto, which is about $250 a car. There's been a seething negative involving car tech of late that the total sales of cars, which have peaked ex-Hurricane Harvey, will constrain this pervasive increase of electronics.
But ADI management say they simply haven't seen it. Some of that is because of demand from car companies seeking autonomous driving solutions. Again, perceptions are odious. When ADI management talk about these solutions, they are talking about safety radar that gives better lens resolution and an accuracy improvement by a factor of eight. The company helps create radar that is three times smaller.
And, for electrification -- the other megatrend beside autonomous driving -- it has chips that give you a three times more accurate reading of the battery charging process, which allows you to have miles per car. These chips play in the secular demand portion of the industry, which is why the company thinks that it can double car content to $500 in the next eight years.
Then there's the 18% that is embedded in the communications chain, which will help the rollout of 5G, which has started in China and Japan and will go worldwide.
Now, think about this mosaic: industrial, auto, communications, consumer. Think about this company's extraordinary 70% gross margins. Think about how the debt pay down is accelerated because of all the cash flow. What you get is a company that's involved in all of the important elements of the future, all of the internet of things, if you will, and how strong they are.
Then sit back and think about how well tech away from FANG is doing, and you might understand better why tech is taking center stage as we enter the ninth month of the year.
Quite simply, these are unstoppable trends, like the move to the cloud, like the importance of the data center, like the need for security and power, like the desire to mine data to do better for your customer, like the artificial intelligence driven by voice, like the need for cars that burn less fossil fuel that are safer with or without a driver, and, of course the desire to compete with Amazon (AMZN) .
These are ineluctable trends that buying an ETF masks. But they are why tech stocks are more robust than any time I can recall, except when the personal computer became cheap enough for all and the internet became universal.
Yes, Analog Devices could have told you all of that. But if you are so busy mulling investor letters from hedge funds that are filled with gloom, or if you are listening to alleged gurus telling you it's the top, go listen to some Cole Porter and stop acting on it.