Resilient companies like Ford, Disney, and Goldman Sachs have been outperforming their competition this year, in particular, Tesla, Netflix, and PayPal. Walmart is neck and neck with Amazon in e-commerce by 2021.
Ford shares are up nearly 82 percent this year, while Tesla shares are down about 15 percent. Goldman Sachs has gained about 48 percent since January, while PayPal has gained only 12 percent. Disney is down 2.7 percent, less than streaming behemoth Netflix, which is down 8 percent. Year to date, Walmart has dropped 1.7 percent. Meanwhile, Amazon’s stock has dropped 2.15 percent in 2021.
The outperformance of the so-called incumbents comes amid a rotation out of growth stocks this year due to an inflationary threat and uncertainty about how the Federal Reserve will respond to rising prices. Investors in technology are concerned that the central bank will abandon its easy policies and allow interest rates to rise. This would have a negative impact on the growth sector, which is heavily reliant on cheap borrowing to fund long-term investments and innovations. Low-interest rates also make their high valuations more bearable for investors.
“As for the rotational part, it has a lot to do with interest rate direction, with up being good for value and down being good for growth,” Bleakley Advisory Group chief investment officer Peter Boockvar CNBC.
Stocks that benefit from the economic reopening have also been rewarded by investors. As the Covid-19 vaccine rollout continues, investors anticipate that people will buy cars, visit Disney theme parks, and return to in-person shopping.
Tesla, which popularized electric vehicles, is facing real competition from incumbents in the space, while also dealing with negative headlines of its own. The company also appears to be losing ground in the hot EV market.
Ford’s stock rose 5% on Thursday after the company reported that electric vehicle sales increased 184 percent year over year in May to 10,364 vehicles. In the last two weeks, the automaker has received a “massive” number of reservations for its all-electric F-150 Lightning, totaling over 70,000 trucks.
“For Ford, they are impressing people with their EV rollout, while Tesla is pulling back from its extreme valuation in the growth to value rotation,” Boockvar added.
Ford also unveiled a new compact pickup truck called Maverick on Thursday, which will go on sale by the end of the year. The company hopes that the addition to its truck lineup will attract more customers from the West Coast.
The rotation into value groups, such as financials, benefited Goldman Sachs. The bank has benefited from increased capital market activity, while PayPal’s market multiple has been called into question, according to Boockvar.
Disney and Netflix’s streaming wars heated up this year, with Disney+ surpassing 100 million subscribers just 16 months after its launch. Meanwhile, Netflix’s subscriber growth slowed dramatically in the fiscal second quarter, falling short of expectations by more than 2 million subscribers.
According to Netflix, the slowdown in subscriber numbers could be attributed to the ongoing coronavirus pandemic, which forced the company to postpone some of its high-profile shows and films. As a result, Disney is benefiting this year as its parks reopened after being closed due to the pandemic.
Finally, the battle between Walmart and Amazon is neck and neck. Following impressive returns in 2020, both stocks are trading near the year’s lows (Amazon rose 76.3 percent and Walmart rallied 21.3 percent ). Amazon benefited greatly from the pandemic, but Walmart quickly adapted and saw sales increase.
Walmart reported strong grocery sales and e-commerce growth last month, raising its year-end forecast.
“The Walmart vs. Amazon story has evolved into an intense competitive battle,” said Boockvar.
Is a reversal on the way?
Despite the underperformance in the first half, Wall Street expects its disruptor darlings to return to favor in the coming year.
According to FactSet’s average analyst forecast, Wall Street expects Ford to fall 7.1 percent over the next year, while Tesla is expected to rise 16.8 percent.
The aforementioned headlines about Tesla losing EV market share are “more nuanced” than many investors appreciate, according to Piper Sandler, who maintains its $1,200 per share price target on the stock.
“We continue to believe that investors should use sell-offs to build positions,” said Piper Sandler senior research analyst Alexander Potter.
According to FactSet data, Goldman Sachs is expected to gain only 1% this year, while PayPal is expected to gain 22%.
Despite PayPal’s stellar first-quarter earnings and guidance increase, Loop Capital Markets analyst Kenneth Hill said, “the path forward appears even brighter.”
“We like the business’s cadence of product development and how that translates to greater engagement and more consistent earnings growth,” he added. PayPal’s stock has a price target of $333 per share, according to the firm.
According to FactSet, Disney’s stock is expected to rise 17.4 percent in the next year, while Netflix’s stock is expected to rise 25.9 percent.
Stifel, which upgraded Netflix to buy following the streaming company’s earnings in April, expects revenue growth in the mid-teens, rising operating margins, and significant free cash flow generation.
“We anticipate a three-to-nine-month period of working through the remaining COVID comp issues, followed by a multi-year period in which the stock can compound at a rate consistent with revenue growth,” said Stifel analyst Scott Devitt.
Analysts expect Walmart to gain 15.3 percent in a year, while Amazon is expected to gain 33.6 percent in the next 12 months, according to FactSet.
Morgan Stanley, which has a $4,500 price target on Amazon, stated that the company is preparing for a broad one-day shipping offering, which will further shift the e-commerce goal posts and raise customer expectations.
“Increased same-day expectations would only increase the cost of competing in e-commerce while increasing the value of AMZN’s growing in-house delivery network,” Morgan Stanley equity analyst Brian Nowak told clients.
According to FactSet, all of the so-called disruptors have average 12-month price targets that are significantly higher than their incumbent counterparts.
