At some point, one just has to let the numbers speak for themselves. So, here is a quick factbox on Exxon (XOM) and Amazon (AMZN) earnings.
2Q22 (value in millions)
XOM
Earnings before interest, taxes: $25,127
Avg. Assets: $353,348
Return on average assets: 7.11%
AMZN
EBIT: $3,317
Avg. Assets: $420,158
ROAA: 0.79%
These figures are not annualized (I am assuming you can multiply by four) but, yes, Exxon earned nearly 8-times as much as Amazon did in the second quarter on a much smaller asset base. Any questions? Yet, according to Google Finance, AMZN is worth $1.38 trillion, while XOM is worth $405 billion. How do those numbers make sense?
Also, as John Donne so notably said, no man is an island. Exxon's main competitor, Chevron (CVX) , dropped a quarterly report that was even more impressive than XOM's. Amazon's main competitor is Walmart (WMT) -- please do not get confused on this -- which felt compelled to issue a brutal profit warning less than one week before its quarter ended. So, "comps" are important, and energy sector comps are flying, and U.S retail comps are dying.
So, that's it. Class dismissed.
As I mentioned Thursday, my firm is practicing a new kind of ESG: We invest in Energy, Shortages (commodities in which there is a global deficit) and we avoid Garbage. E, S, G.
Apple (AAPL) and Amazon aren't garbage, and I am not just saying that because the stocks are jumping this Friday morning. But they are both heavily exposed to U.S consumer discretionary purchases. I don't think gasoline is a discretionary purchase. I never will. You can save your rapidly-eroding dollars and continue to roll with an iPhone 10 instead of upgrading, and, in the process, receive scorn from your friends. But if you try to roll an extra 20 miles in your F-150 when the gas gauge is banging the pin ... you will receive much more than scorn.
So, AMZN has the AWS business, and AAPL does some enterprise work as well, both of which are still strong. But let's not miss the forest by focusing on the most-attractive trees. If people buy fewer handsets, AAPL's margins will decline, and if people buy less "other stuff," AMZN, which was once again cash-burning and unprofitable in its core U.S. and international retail businesses in the second quarter, will just continue to incinerate cash.
That's the risk. I don't care what the professional obfuscators in the Biden Administration are telling us. We are in a recession in the U.S. now. Companies either need to right-size their cost structures or they will report lower profits, with one notable exception. Energy. The combination of high prices and negative growth is, as I have noted many times in my Real Money columns, stagflation, a situation not seen in the U.S. economy for 40 years.
So, you can throw out the tech obsession of the past decade, and replace the incredibly ill-advised ESG morality with my firm's new version of ESG. Or you can trust in Fed Chair Jerome Powell and Janet Yellen -- and listen to our commander-in-chief continue to bash an industry that is flowing billions of dollars to the U.S Treasury.
I have made my choice.
(AMZN is among the holdings in the Action Alerts PLUS member club . Want to be alerted before AAP buys or sells its stocks? Learn more now. )
