Equities continued their march higher this week and even recouped their all-time highs. It seems as though crossing 3,000 at this point for the S&P is a matter of when, not if, and sentiment has largely improved.

Earnings Season Gets Underway

Earnings are starting to trickle in and so far, they are better than what analysts expected. Of the 231 S&P500 companies to report, Q1 earnings are up around 1%. That’s far better than the 4% drop that consensus was expecting.

But even so, that is largely priced into 2020 numbers. I noted in my Sell in May and Go Away post, further moves to the upside would likely have to result from multiple expansion vs. earnings growth. This is because the 2020 EPS assumption is already baking in $184-$185, which implied 13% growth Y/Y compared to 2019.

Granted, earnings have been good. In particular, Facebook trounced the skeptics and ended the day 5.85% higher on Thursday. I still remain positive on the stock at these levels from when I last wrote on it, despite the sharp rebound in the price YTD.

Amazon also smashed earnings estimates, though its strong performance already YTD likely capped its upside as investors must have been expecting a strong result. The interesting thing to note about Amazon though is that its formerly known “sky high” P/E ratio is coming down very quickly. As of 12/31/2017, Amazon traded at 192x NTM EPS. That’s now down to 57x despite its stock moving to $1,900 from $1,196. It helps when you have AWS that is fast growing and earns Op Income margins of 28%, whereas the rest of the business is low margin (and international retail remains negative, but is improving). Longer term, I have to think AWS will become more commoditized, but I admit in the early innings I have been wrong.

Unicorn Sighting (Lots of Them)

It appears 2019 will be the year of the Unicorn. So far we have seen Lyft, Zoom, and Pinterest IPO and Uber, Airbnb, WeWork, Slack, Peloton, and Beyond Meat are rumored to be in the pipeline.

This sort of rush makes me think that VC investors saw their opportunities for liquidity collapsing during Q4’18 and now they won’t take another chance and suffer a lower valuation. “The gates are closing!”

I plan on taking a broader look in depth at these companies as they approach the market. I mean, someone has to, right? The snapshot below is the list of underwriters on Lyft’s IPO and what their rating is on the stock. If everyone thinks its a buy, how can you expect to outperform?