Three Essential Factors To Consider While Investing in US Stock Market

  • Oct 01, 2019 AEST
  • Team Kalkine
Three Essential Factors To Consider While Investing in US Stock Market

The performance of a stock exchange is dependent on the economic situation of the country. For example, if the US economy is doing very well, it will obviously have some positive effect on the US stock exchanges and vice versa.

United States is currently the largest economy in the world and is home to some of the leading stock markets like NYSE (New York Stock Exchange) and NASDAQ. Any significant movement in the US stock markets generally has spillover effect on other countries’ equity markets. US equity market is one of the most important and popular equity markets in the world. In order to invest in the US stocks, one must keep in mind few things, which are mentioned as follows.

Macro-economic Factors

The global economic situation and the future prospects of a country plays an important role in determining the market value of a public traded company. When it comes to macro-economic factors, various factors like oil prices, currency value, inflation, political situation, employment rate, monetary policies of government, etc., can affect the stock market.

United States is currently going through a trade war with China. US has already increased its tariffs for China. In its response to US’ increased tariffs, China has threatened to use its dominance in the rare earth market which could impact US rare earths supply chain.

At the recently held United Nations General Assembly, Chinese Foreign Minister Wang Yi warned that the additional tariffs and trade disputes could take the world economy into recession.

Last Friday, i.e., 27 September 2019, US equities felt the heat with news that the Trump administration was looking at new ways of limiting investment in China which sent equities into a spin with the S&P500 down some -1.4% at one point, before paring losses to end at -0.5%.

The Administration US President Mr. Donald Trump has been discussing ways to limit US investors’ portfolio flows into China, as currently there are 56 Chinese listed firms on US exchanges with a combined market cap of around $1.2 trillion.

US central bank recently lowered its target range for the federal funds rate by 25 basis points over global uncertainties with federal funds rate now standing in the range of 1.72-2%.

Industry outlook

Before investing in any stock, it is very important to carefully look at the industry to which the stock belongs. For example-

The world’s transition to clean and renewable energy has positively impacted the battery minerals industry. Due to the increasing demand for battery minerals, many investors are looking for lithium companies which are trading on stock exchanges.

If investors want to invest in a financial company in the US, they must carefully analyse the financial framework of the US, US federal reserve policies, lending rates and restrictions, etc.

Likewise, if an investment is to be in an oil company, oil prices and major competitors of the company in the US and abroad should be studied well.

About the Company

It is very important for the investors to deeply understand the company’s business model, operations, revenue streams, risks, opportunities, products, etc., before making an investment in it. Investors must make sure that the company is fundamentally strong.

Many US companies derive most of their revenue and earnings from their international operations. Before investing in a company, investors must carefully look at the company’s operations and their compliance with applicable U.S. and foreign laws and regulations - such as import and export requirements, anti-corruption laws, foreign exchange controls, tax laws and cash repatriation restrictions, environmental laws, data privacy and data localisation requirements, labor laws and anti-competition regulations to name few.

It is very important to look at the company’s international operations and exposure before making an investment into it.

A Look at Few Popular US Stocks

Tesla, Inc. (NASDAQ: TSLA) - Tesla is primary involved in designing, developing, manufacturing and selling high-performance fully electric vehicles and currently produces and sells three fully electric vehicles:

  1. the Model S sedan
  2. the Model 3 sedan
  3. the Model X sport utility vehicle

Tesla’s customers enjoy several benefits, including:

  • Long Range and Recharging Flexibility – Tesla’s range of products significantly exceed any other commercially available electric vehicles, and they incorporate Tesla’s proprietary on-board charging system, permitting recharging from almost any available electrical outlet;
  • High-Performance Without Compromised Design or Functionality – Tesla vehicles deliver instantaneous and sustained acceleration, an advanced Autopilot system with active safety and convenience features, and over-the-air software updates;
  • Energy Efficiency and Cost of Ownership – Tesla vehicles offer an attractive cost of ownership compared to internal combustion engine or hybrid electric vehicles.

As at 30 June 2019, Tesla had total current assets of USD 10.18 million and current liabilities of USD 9.588 million. For three months ended 30 June 2019, Tesla reported total revenue of USD 6.35 million, as compared to USD 4 million in pcp. As at 30 June 2019, the company had Cash and cash equivalents of USD 5.49 million.

Total revenue Summary (Source: Company Reports)

At market close on 30 September 2019, Tesla’s stock was trading at a price of USD 240.87 with a market capitalisation of USD 43.15 billion.

Apple Inc. (NASDAQ: AAPL)

Apple’s principal activities include:

  • Designing, manufacturing and marketing mobile communication, media devices and personal computer
  • Selling a variety of related software, services, accessories and third-party digital content and applications;
  • The company mainly sells iPhone®, iPad®, Mac®, Apple Watch®, AirPods®, Apple TV®, HomePod™

Risk Factors

  • The company has international operations with sales outside the US, representing a majority of the company’s total net sales;
  • The company’s products and services are offered in highly competitive global markets characterised by aggressive price competition;
  • The company distributes its products through cellular network carriers, wholesalers, retailers and resellers, many of whom also distribute products from competing manufacturers;
  • Due to the highly volatile and competitive nature of the industry in which the company competes, the company must continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and services.

At market close on 30 September 2019, the Apple stock was trading at a price of USD 223.97 with a market capitalisation of USD 1.01 trillion.

Facebook Inc. (NASDAQ: FB)

Leading social media company, Facebook Inc. earned a total revenue of USD 16,886 million for the quarter ended 30 June 2019.

Operational and Other Financial Highlights for the second quarter ended on 30th June 2019

  • Daily active users (DAUs) – DAUs were 1.59 billion on average for June 2019, an increase of 8% year-over year;
  • Monthly active users (MAUs) – MAUs were 2.41 billion as of June 30, 2019, an increase of 8% year-over-year;
  • Mobile advertising revenue – Mobile advertising revenue represented approximately 94% of advertising revenue for the second quarter of 2019, up from approximately 91% of advertising revenue in the second quarter of 2018;
  • Capital expenditures – Capital expenditures, including principal payments on finance leases, were USD 3.78 billion
  • Headcount – Headcount was 39,651 as of June 30, 2019, an increase of 31% year-over-year
  • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were USD 48.60 billion

Facebook Inc. (NASDAQ: FB)

June Quarter Results (Source: Company reports)

At market close on 30 September 2019, Facebook’s stock was trading at a price of USD 178.08.


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