The United States is in the middle of one of the best recovery years it has seen in decades, with a predicted GDP growth this year of up to 7%. (Click to read that blog.) That GDP growth has saved us from a credit downgrade by Fitch Ratings, although the outlook does remain negative. If we get the Debt Ceiling raised in time (hopefully before August 1 and definitely before we run out of money), it’s very likely that the U.S. will keep its AAA rating from Fitch for the rest of 2021.
However, if you think the U.S. is having a gangbuster year, China is “off the charts,” to quote Sebastian Eckardt, the World Bank’s Lead Economist for China, in his podcast interview with Fitch Ratings on July 12, 2021. It’s rare when economists use language like that. They didn’t even bother mentioning the number, which was 18.3% GDP growth in the first quarter of 2021 for China.
2Q 2021 economic growth for China should be reported next week. In a Reuters’ poll of economists, the median forecast was 8.1% GDP growth year-on-year. The full year should be around 8.6%, which would be the highest GDP in a decade for China.
Before we jump all in, it’s important to remember that this is a recovery year. Companies have taken on a lot of debt to stay alive during the pandemic. Some companies and industries are in the middle of a structural shift and are unlikely to have the revenue they need to recover without restructuring. As just one example, be sure to read my report on office buildings in San Francisco and NYC.
In many industries that are enjoying impressive revenue growth, such as technology and electric vehicles, the recovery is already priced into U.S. equities. If you look at the chart below, which came from the Federal Reserve Board, you can see that the forward PEs of the S&P 500 are as high now as they were in the Dot Com Recession. There was a wipe-out of up to 78% in the NASDAQ Composite Index between the high of March 2000 and the low of October 2002. It took 15 years to recover. So, it’s important to be mindful of price and valuation, even in an unprecedented year of GDP growth.
Share prices on many Chinese companies have dropped dramatically. Alibaba is trading at $213/share. Last October, before Jack Ma went radio silent, Alibaba was trading at $319/share. Beijing scuttled Ma’s Ant Group IPO and fined Alibaba $2.8 billion in April. According to Alibaba’s co-founder and vice-chairman Joe Tsai (speaking on CNBC on June 15, 2021), the company is looking forward under the leadership of CEO Daniel Zhang. Jack Ma is now more focused on his charities and hobbies, and is no longer on the board of Alibaba.
Even with all of the scrutiny and fines, Alibaba hit a new milestone of one billion annual active global consumers, with year-over-year revenue growth of 64% in the 1st quarter of 2021. The company swallowed the fine and reported a net loss of $836 million in the quarter, due to that one-time event. Alibaba is forecasting $144 billion in revenue in the 2022 fiscal year, representing an increase of almost 30%. Alibaba’s forward PE is 21. With 64% year-over-year sales growth, a 19% net profit margin, continued robust growth predicted in 2022 and a gangbuster GDP year for China, that’s very reasonable (unless the pandemic surges with a vengeance).
By comparison, Amazon’s forward PE is 77. Amazon is boasting a respectable 44% year-over-year sales growth. However, the company’s price-earnings ratio is dramatically higher than Alibaba’s, with lower growth in the trailing earnings quarter.
An ESG Star of the Stock Report Card
Daqo Energy, which provides high purity polysilicon for the global solar PV industry, has a forward PE of just 9. Daqo Energy saw revenue growth of 52% in the first quarter. Since then, the average selling price of their product has gone from $11.90 per kilogram in the 1st quarter to $23-$25 per kilogram. In the 2nd quarter of 2020, during the pandemic, polysilicon prices dropped to just $7.5/kg.
Even with a silicon supply chain bottleneck, Daqo is managing to stay on track for their deliveries without much increase in costs. So having their ASP double, without a meaningful escalation of expenses, should make for a pretty stunning earnings report in mid-August.
Oddly, though investors rallied after the May earnings report, the price is lower today than it was when the report came out. Since hitting a high back in February of this year of $130 a share, Daqo has mostly been on a downtrend. The company is currently trading at $68 a share.
As the author of Put Your Money Where Your Heart Is, I strongly believe in ESG investing. However, price is always something to factor in. That is why it is so exciting to find a solar company that is trading at half the price it was earlier this year, with an impressively low forward PE, right at the time that average selling price of their main product has doubled.
If you'd like to learn how to learn how to pick and invest in great companies like Daqo, Alibaba, Nio, Tesla, XPeng and more, then join me for our 3-day Investor Educational Retreat. You will also learn how to properly diversify your 401k, IRA, insurance and pension, so that you can earn money while you sleep while protecting your wealth. Wisdom is the cure. It's time to become the boss of your money. Call 310-430-2397 or email info@NataliePace.com to learn more now.
Other Blogs of Interest
The Competition Heats Up for Tesla & Nio.
How Green in Your Love for the Planet?
S&P500 Hits a New High. GDP Should be 7% in 2021!
2021 Financial Freedom Sweepstakes
Will Work-From-Home and EVs Destroy the Oil Industry?
Insurance and Hedge Funds are at Risk and Over-Leveraged.
Office Buildings are Still Ghost Towns.
Money Market Funds, FDIC, SIPC: Are Any of Them Safe?
My 24-Year-Old is Itching to Buy a Condo. Should I Help Him?
Will Cannabis be Decriminalized This Summer?
The 12-Step Guide to Successful Investing.
Gardeners Creating Sanctuary & Solutions in Food Deserts.
2021 Company of the Year
Almost 5 Million Americans are Behind on Rent & Mortgage. Real Estate Hits All-Time High.
Beyond Meat, Oatly & The Very Good Food Co.
Is Cryptocurrency the New Gold?
Rebalancing Your Nest Egg IQ Test.
Answers to the Rebalancing Your Nest Egg IQ Test.
Tesla & Nio Will Report Spectacular Earnings.
The Coinbase IPO.
Restore Our Earth on April 22nd (and Every Earth Day).
Should You Sell in May and Go Away?
Adding Shoot the Moon Performance to Your Nest Egg.
Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors.
10 Budget Leaks That Cost $10,000 or More Each Year.
The Stimulus Check. Party Like It's 1999.
Kushner's Times Square Building Plunges 80% in Value.
Will There be a Spring Rally?
Cannabis and the Road to Decriminalization in the U.S.
Hot ETFs Return Up to 50% Since October.
Investor IQ Test 2021.
Investor IQ Test Answers
Shoot the Moon Stock Picks
2021 Crystal Ball.
Would You Pay $50 for a Cafe Latte? Is Your Tesla Stock Overpriced?
Can Medmen Avoid Bankruptcy?
Bitcoin is Back, Baby!
Real Estate Prices are Going Up. And Down.
Cannabis is Decriminalized. Stocks Triple.
Thanksgiving in a Pandemic. The Sustainability Silver Lining.
Money Stress Killed My Friend
Real Estate and Housing 2021. Challenges & Opportunities
Real Estate in a Pandemic. Interview with Mike Fratantoni, the Chief Economist of the Mortgage Bankers Association.
Bonds are Illiquid & Negative-Yielding.
Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot.
Is Your Bank a Junk Bond
Put Your Money Where Your Heart Is.
Schwab's Chief Fixed Income Strategist on What's Safe.
China's Tesla (Nio). 2Q Sales Soar.
Why Are You Still Renting? (Errr. There is More Than This to Consider!)
Wealth Myths That Keep You Poor. Prosperity Truths That Make You Rich.
Technology and Silver are Golden.
Real Estate: Feeling Equity Rich? Make Sure That Feeling Isn't Fleeting.
Airline Revenue Plunges 86%.
10 Questions for College Success.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
Why Are My Bonds Losing Money?
The Bank Bail-in Plan on Your Dime.
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About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020.
Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.