To The Moon

US market closed lower on Tue (28 Mar 2023) as losses in the following sectors led shares lower :

1. Communication services.

2. Health.

3. Technology.

The first meeting between the Senate and its 3 key witnesses also resulted in mixed trading for bank stocks as both sides traded barbs on how Silicon Valley Bank’s could’ve descended into hell so quickly.

US regional banks - Sample

US Top banks - Samples

At one glance, can tell the gainers from the losers for the day.

One confirmed outcome from ytd’s initial meeting is that the legislation (endorsed by ex-President Trump) that resulted & permitted SVB to circumvent the framework will be reinstated.

Thes rule that came about from the ashes of the 2008 financial crisis should not have been signed away in the first place.

I am still wondering why the Senate did not call for Mr Trump, as a witness to explain himself or the rationale behind it.

What is “work in progress” might be the possible “new” - rules, regulations and legislation (if any) to be recommended by the Fed to prevent similar incident occurence, going forward.

This will be closely watched by investors & institutions alike in their assessment on opportunity left when it comes to bank stocks investment.

With negativity abound in the immediate term, what is there to invest ?

I have been “taught” by internet-gurus that when it comes to sourcing for “investable” stocks, it will be prudent to check out a company’’s :

• Book value

• Earnings

• Dividends;

However, now might be time to regard the three metrics with a grain of salt.

There is a “new” and “better” way to appraise whether a stock is of investment grade.

This is based on “how much loose cash a business generates from its operations”.

“Free cash flow” (FCF) is cash from operations minus outlays for capital expenditures.

The beauty of FCF emerges from skepticism about corporate accounting where “net income” could all too easily be doctored or artificially smoothed out.

Incidentally, looking at profitability is not a novel concept.

It has been trumpeted by Mr Warren Buffett easily since 1986, using the phrase “owner earnings”.

Using FCF as stock selection criterion, one very plausible mega tech stock that’s worth a re-look will be search engine giant - $Alphabet(GOOG)$ .

Let’s do a quick analysis to see if it is indeed so.

$GOOG stock price on 28 Mar 2023

• Alphabet goes for 4.5 times its book value

• It generates plenty of cash. Its Q4 2022’s FCF stood at $16 Billion.

• More importantly, there is no need to plow them back into the business.

• Also, it does not issue dividends.

• Taking all these into considerations - the web search company is priced at 15 times its FY 2023 expected FCF.

• With Alphabet’s stock still -29.24% off its 1 year’s peak and its healthy cash flow in the bank, it certainly looks enticing.

I confess. Looking at Google from this angle, I am tempted !

• Do you think the use of Free Cash Flow as stock selection criterion a good & accurate tool ?

• Do you think now would be the ideal time to take a position in Alphabet if you haven’t done so ?

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