How do you make sense of the insane? How do you turn the irrational into rational? That's what so many are asking me to do so I will approach it head-on. I will try to justify the valuation of the wild bunch, four stocks that have been as untamed and unfettered as I have ever seen, three that are tried and true, Amazon (AMZN) , Netflix (NFLX) , and Tesla (TSLA) , and one that better be on your radar screen: Livongo (LVGO) .
Let me say from the outset that as wild as these stocks are, they actually have legitimate theses, better balance sheets than we thought, and a lasting impact beyond Covid-19, even as its been a big spur to all but Tesla.
Some companies are flat out revolutionary. Amazon may be the most revolutionary of all. This company is predicated upon one concept: the best customer service imaginable. It does it in two ways: giving you low prices and giving it to you at your home. Its prime package may be the greatest bargain in history. It's always snaring new customers through word of mouth. But, let's face it, if you had to create a company that could take care of your pandemic needs, it would be a company called Amazon. If this were just a retailer, it would still trade at a lofty valuation. The fact is there are two other divisions in this ultimate flywheel company, Web Services and advertising, that are both extraordinary in their growth rates, again, giving the consumer an edge. Do you know that Amazon Web Services is so good and so cheap that retailers are still signing up with it even as it would make more sense to with Microsoft's (MSFT) Azure or Alphabet's (GOOGL) Google's Cloud business if only because you are helping your enemy. I think that the company is worth every cent, but I have to tell you we did sell our first lot of Amazon for my charitable trust because it had become 8% of the portfolio. I am sure other money managers feel the same way about this monster.
What can be said about the $250 billion beast that is Tesla that hasn't been said already? I want to posit something that few are talking about: what happens if Elon Musk develops a battery that can go 1000 miles? What if he reveals pick-up orders that rival the F-150? What if he says that China's sold out or that Berlin is well ahead of schedule? In other words, we are going to find out why this company's stock has been flying and I think it will justify the move.
These was a time when skeptics thought it was ridiculous that the stock of Netflix was bigger than CBS. Now ViacomCBS (VIAC) is a flyspeck. There were people who questioned the company when it was worth $50 billion and was losing money and spending money like a drunken sailor. But now I think all of those old media comparisons are odious. Netflix, like Amazon, offers a service that is irreplaceable that you would gladly pay more for. Every time I get together with any friends, after we discuss how to stay safe, we almost always talk about what we are watching on Amazon. Now that you can't go to the movies and there are no sports - at least for now - and it has become even more imperative. Some could say Netflix rivals Amazon as the best company's stock to own in the great pandemic. That means that the momentum is very hard to stop even as it is up a huge amount this year. It trades with Covid case growth as much as it does a slate of movies.
Finally, there's Livongo, a company that has come of age during the pandemic. We have had them on several times and they just pre-announced better than expected earnings last week. Why? I consider Livongo a sophisticated, personal life coach for those with diabetes and with hypertension. I am sure they can add more to the platform and it is, indeed, a platform. They call their wonder platform Applied Health Signals but I consider it a service that manages lifetime illnesses for patients, especially illnesses that we now regard as preconditions to Covid complications.
Do these make sense? Do you know I have never considered that a question worth asking. The way to put it is will these make sense and the answer, surprisingly, is very much so if they continue to execute as well as they have.