Get up to speed on this week’s stories about Commonwealth Bank’s wrongdoings, earnings season, and Tesla’s cash problem. (3:52 min read)

This information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.


1. Commonwealth Bank criticisms

In the latest instalment of banks behaving badly, the Commonwealth Bank are under fire from banking regulator APRA.

APRA released a harsh 110-page report about CBA’s many missteps and breaches, ranging from breaking counter-terrorism and anti-money laundering laws to governance, culture and accountability issues.

What does this mean if you are invested in Australian banks or financial services shares?  

Shareholders in Australian banks and financial services companies have faced a litany of bad news recently, particularly as the banking Royal Commission continues to unearth scandal after scandal.

Not surprisingly, stock markets have reacted by driving down share prices of the major banks over the past month.

The APRA report on Commonwealth Bank is probably just the beginning. We believe banks are likely to be on the back foot for a while as politicians figure out new laws to better control banking activities.

What does this mean if you’re invested money with AtlasTrend?

Our managed funds do not invest in Australian banking or financial services shares.

They do invest in companies either driving or creating long-term global trends. These trends tend to be moving society forward and positively impacting the world. Right now, the Australian banking sector appears to have different priorities.


2. Earnings season off to a roaring start

Earnings season is upon us again; a time when companies listed on major global stock markets report how they’ve performed during the first 3 months of the year.

Investors (including us at AtlasTrend) eagerly anticipate the earnings reports as the contents have a material impact on how each company’s share price might perform.

What does this mean if you’re invested in the stock market?

The picture emerging from the first quarter earnings season so far is one of all-around strength, with quarterly earnings and revenue growth on track to reach its highest level in over 7 years.

Total earnings for the 267 S&P 500 companies that have reported results are up 25.1% from the same period last year on 10% higher revenues, with 76.8% beating earnings per share estimates and 73.8% beating revenue estimates.

The proportion of companies beating both earnings per share and revenue estimates is 61.4%.

What does this mean if you’re invested money with AtlasTrend?

The impact of the earnings season on AtlasTrend’s investments has been positive particularly our investments in the technology sector.

We now have first quarter results from over 65% of the technology sector’s total market capitalisation in the S&P 500 Index. Total earnings for these tech companies are up 31.3% from the same period last year, with 92.9% beating earnings per share estimates and 89.3% beating revenue estimates., a core position across our Trends, has continued to outperform analysts expectations on both sales and net profit, reaching all time highs of US$1,634.32 during the period.


3. Tesla’s cash burn problem

A recent Bloomberg report  analysed the rate at which Tesla burns through cash. According to their calculations, the company burns through $6,500 every minute.

This statistic alone would rattle any investor, but Tesla shareholders can find some solace in the fact Tesla’s price has increased by 10 times since the start of 2012.

Why has Tesla burnt through so much cash?

Let’s look at the facts.

Tesla designs and manufactures cars; a very costly process to setup and execute efficiently. On top of that, Tesla also has to build huge battery factories to power its vehicles.

It is not surprising the company has burnt through billions over the years to build up its capacity to manufacture electric cars at scale.

But how can a company like Tesla, which has lost billions of dollars, still experience share price growth over the past 6 years?

The simple answer is the share market tends to value companies looking into the future. Investors believe Tesla will eventually sell enough electric cars to be a hugely profitable company.

As for the billions spent on developing its manufacturing capability, this is a necessary sunk cost to disrupt the car industry.

What does this mean if you’re invested money with AtlasTrend?

AtlasTrend is not currently invested in Tesla shares but it is a potential investment for future Trend funds.

If Tesla can quickly fix Model 3 production issues, and show it can manufacture on a large scale, we believe the company could have a bright future.

It will be one of the first mass market priced electric cars available for purchase, and will mean the company retains a several year lead over other car manufacturers in the fast growing electric car industry.


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About Kent Kwan

Kent Kwan is a Co-Founder of AtlasTrend, an investment platform that makes it easy for anyone to learn and invest in trends impacting our world. Kent has over 17 years experience in financial markets including as Chief Investment Officer at Arowana International Limited, and roles at JP Morgan and Macquarie.