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Growth Team Weekly Investment Insights

This week's post highlights some of the market narratives from November.

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Discretionary

The winning sector for the month was consumer discretionary. However, a look under the hood shows that the gains were largely driven by Tesla and Amazon, which rose 38% and 12%, respectively. Together, they accounted for nearly 80% of the sector's return. If you were to remove those two securities, the sector return would drop to 2.1%. 

Consumer Staples

Keeping on the consumer theme, one of the takeaways from this earnings season has been the wide performance difference between some large cap competitors due to company-specific factors. Most notably, Target versus Walmart.

Walmart has been a standout performer, and its third-quarter earnings results gave the stock more momentum.

• The company continued to expand its market share in the third quarter, with households earning more than $100,000 a year accounting for three-quarters of its gains in the US, Doug McMillon, chief executive, told analysts.
• Executives said a combination of lower prices and conveniences, such as online ordering and delivery, had helped attract wealthier consumers to Walmart’s historically budget-conscious clientele.
• John Furner, Walmart’s US president, noted strong volumes of online pick-up and delivery in higher-end categories such as gluten-free foods, grass-fed beef and organic produce.
• E-commerce sales grew 22%, and Walmart+ membership income rose by double digits.

Target’s results were meaningfully worse, including sales growth of only 0.3%. And it now expects profits of between $1.85 and $2.45 per share in Q4, well below the $2.66 expected by analysts. The read-through seems that Walmart is doing a better job at attracting traffic away from Target, which may be eating into Target’s sales of discretionary items (an area it is best known for).

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Technology

Within information technology, the big story was NVIDIA’s earnings results, which surpassed analysts' expectations from both a revenue and earnings perspective (for the eighth straight quarter) and confirmed that AI data center expansion efforts are alive and well.

 

 

 

 

 

 

 

 

 

At the time of writing this, expected 2024 sales are $123 billion and expectations for 2025 are over $189 billion. The majority of these sales are from the data center segment, which is expected to end this year at $107 billion and grow to $171 billion next year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Even after massive sales growth throughout 2023 and 2024, the market expects the company’s data center sales to grow nearly 60% next year. However, current expectations for 2026 and 2027 show a meaningful growth deceleration as the company will be lapping very difficult comparisons.

 

 

 

 

 

 

 

 

 

 

Health Care

There have been fireworks within the health care space, largely attributable to the nomination of Robert Kennedy Jr. to head the Department of Health and Human Services, a department with a $1.8 trillion dollar budget and wide-ranging influence over drug regulation and public health.

In a statement from President-elect Donald Trump, he declared “for too long, Americans have been crushed by the industrial food complex and drug companies who have engaged in deception, misinformation and disinformation when it comes to Public Health.” Trump also stated that Kennedy would “restore these Agencies to the traditions of Gold Standard Scientific Research, and beacons of Transparency, to end the Chronic Disease epidemic, and to Make America Great and Healthy Again!”

While many agree a renewed focus on improving the American diet (including limiting ultra-processed foods) and combating rising instances of chronic disease is a good thing, there is more controversy around his views on vaccines, which have sent shares of companies such as Moderna falling, and a general uncertainty around drug pricing.

While this nomination increases uncertainty around drug makers, we don’t believe companies that are providing life-changing solutions to rare and genetic diseases would be in the crosshairs.

 

 

 

 

 

 

 

 

 

 

 

 

Communication Services  

Live Nation’s latest quarterly results continue to show the public’s appetite for live events, especially among younger generations. According to a Bankrate survey, 44% of Gen Z respondents and 30% of millennials expect to spend more on live entertainment in the future versus just 9% of boomers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Results included:

• Global ticket sales reached $144 million year-to-date and $20 million has already been sold for 2025 events.
• This year was th most active summer concert season ever, bringing the year-to-date event attendance to 112 million people and trending toward a new record.
• VIP ticket sales at major festivals increased by 20% as there seems to be a premiumization trend among consumers.
• On-site spending per fan was up 11%.

Market Cap

November proved to be a very good month for small caps. The Russell 2000® Index returned 11.0% for the month versus 6.4% for the Russell 1000® Index. This is just the ninth  monthly return >10% in the last 10 years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

And the index has closed in on its November 2021 all-time high.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Artisan Growth Team manages portfolios that hold securities issued by Amazon and Live Nation as of 9/30/24.  Portfolio securities are subject to change.