Fam Wencong, Kenneth

My Diary

Good Start To 2020

Published: Monday, February 3, 2020

It has been a good start to 2020. I found a new job as a developer! Was unemployed for 3 months, worst feeling ever. Thank god!

Since I will have some income now, I am thinking of investing some of it in stocks. The job stability for a web developer is unstable; with contract jobs becoming the norm now. I need to save or invest some of my income.

Saw an ad on YouTube; eToro. Opened an account with them. My take on their platform? Looks great and easy to use (as I have some trading experience).

With my new investment strategy of buying and holding for the long term (read my previous post here), I set aside US$2,000 to invest with a 1-year horizon.

Markets were on a roll in 2019 reaching their all-time highs and this pullback because of the coronavirus scare was my entry point.

I also did some research on the stocks I was going to buy. Better to have some knowledge rather than going in blind. More on my analysis below.

Cost of Equity

To calculate the required rate of return of investing in individual stocks, I will be using the opportunity cost of versus investing in the general market such as the S&P 500 index. From Jan 1990 to Jan 2020, the S&P 500 grew from 331.89 to 3,225.52.

331.89*(1+r)^30=3225.52

This means during the last 30 years the average annual return for the market was 7.87%.

Valuing Alphabet (GOOGL)

Alphabet’s EPS for the twelve months ending September 30, 2019 was $46.60. I will be using the Gordon Growth Model. I expect the perpetual growth rate of Google’s EPS to be at 5%. This leads us to the formula below:

Fair Value=46.60/(0.08-0.05)

Target price of $1553.3 with an average 2020 quarterly EPS estimate of 12.23. Google releases earnings today.

Valuing Intel (INTC)

Intel’s EPS for the twelve months ending December 31, 2019 was $4.71. I will be using the Gordon Growth Model. I expect the perpetual growth rate of Intel’s EPS to be at 3%. This leads us to the formula below:

Fair Value=4.71/(0.08-0.03)

Target price of $94.2 with an average 2020 quarterly EPS estimate of 1.21.

Valuing Microsoft (MSFT)

Microsoft’s EPS for the twelve months ending September 30, 2019 was $5.30. I will be using the Gordon Growth Model. I expect the perpetual growth rate of Microsoft’s EPS to be at 5%. This leads us to the formula below:

Fair Value=5.30/(0.08-0.05)

Target price of $176.7 with an average 2020 quarterly EPS estimate of 1.39.

Valuing Boeing (BA)

In 2019 Boeing was unprofitable as a result of the MAX crashes. We will be using 2018 results. Boeing’s 2018 annual EPS was $17.85. I will be using the Gordon Growth Model. I expect the perpetual growth rate of Boeing’s EPS to be at 3%. This leads us to the formula below:

Fair Value=17.85/(0.08-0.03)

Target price of $357 with an average 2020 quarterly EPS estimate of 4.6.

Valuing Alibaba (BABA)

Alibaba’s 2019 annual EPS was $4.97, a 27.11% increase from 2018. We will be using the Gordon Growth Model. I expect the perpetual growth rate of Alibaba’s EPS to be at 6%. This leads us to the formula below:

Fair Value=4.97/(0.08-0.06)

Target price of $248.5 with an average 2020 quarterly EPS estimate of 1.32.

Valuing Xiaomi (1810.HK)

Xiaomi reported 2019 Q3 EPS of RMB$0.106, an average yearly EPS of RMB$0.424. We will be using the Gordon Growth Model. I expect the perpetual growth rate of Xiaomi’s EPS to be at 3%. This leads us to the formula below:

Fair Value=0.424/(0.08-0.03)

Target price of RMB$14.13 or HK$15.68 with an average 2020 quarterly EPS estimate of 1.09.

With my homework done, I am putting US$250 into each stock with some leverage. That’s my 2020 portfolio for you guys.

Follow me here on eToro to copy my trades.