The Week Ahead: Hints for the ISA season | US opportunities beyond Mag7

Good morning and welcome to the Week Ahead.

We’ve been really pleased with the responses to this new format in the last few weeks (do keep sending us your feedback), which we’ve used to highlight upcoming financial results and economic events. But now with results season winding down on both sides of the Atlantic and in Europe, I have taken the opportunity this week to try and address some of questions that have been raised, especially from those of you who are looking for opportunities beyond the beleaguered British markets.

We’re a couple of weeks away from the start of the new tax year - a time when many of you might be pondering your strategy and thinking about the best ways to use your new years allowance. Our Academy has got some ideas if you’re doing a bit of a portfolio spring clean. This morning we have published Roland’s latest guide to generating investment ideas using screens and look out for some hints about healthy portfolio management later in the week.

There are still a few numbers that might be of interest set to be released this week, which you can find in the table below. In the UK, Tuesday sees a small flurry of FTSE 250 announcements, including a couple of gambling companies. In the US, GameStop (NYQ:GME) is set to announce final quarter results on Thursday. It has been three years since downtrodden private investors in the US failed to turn this stock into a battering ram to take down the big, bad hedge funds and only succeeded in hurting themselves (and teaching the investment world a valuable lesson about short squeezes). Since then, sales have continued to slide and the company hasn’t been able to turn a profit since 2018. It looks like the hedge funds might have been right and GameStop is going the same way as Blockbuster.

Announcements to look out for this week

Can Stockopedia cover US stocks?

At the start of March, subscriber Sanjay started an interesting thread on US investing. I’m excited to see such enthusiasm for US share coverage - I love the US markets because they’re bursting with quality companies. And I do like investing in quality stocks.

But it is certainly true that there is a gap in the provision of US companies analysis, especially for smaller stocks which aren’t part of the FAANGS or Magnificent 7 (or whichever moniker is currently in vogue).

Onto the opportunities shortly, but first to address another difficulty British investors have when pondering investment in the US: which platform or broker to use?

If you’re thinking about investing directly in US equities, it’s important to pick a platform which allows you to hold US shares in your ISA and you should also look for platforms or brokers which have plenty of shares available to trade (some of the newer platforms like Freetrade don’t offer access to all shares).

I use IG for my investing. It’s free to trade US shares if you buy or sell more than three a month (otherwise it’s £10 a go) and the £24 quarterly holding fee is removed if you trade more than three times a quarter. Foreign exchange fees - another important consideration when you’re looking to invest overseas - are 0.5%.

I also hear good things about Interactive Brokers, where the fees are even cheaper (if a little more complicated). There’s a £3 monthly holding fee which is removed if your trading fees (calculated based on the number of shares purchased a month) exceed £3 a month. You can see our full table of ISA provider cost comparison for trading US shares here.

If you’re thinking about ramping up your US or international investing, it’s worth considering whether your current platform or broker is the best one for the job. Hargreaves Lansdown, for example, is a fantastic platform for investing in funds, but it’s very expensive for US share dealing and costs can quickly eat into your returns. Remember that you can have multiple stocks and shares ISAs with more than one provider, meaning you can have separate accounts for different sections of your portfolio. And you can transfer any savings which were invested in previous tax years in parts, meaning you don’t need to shift all of your portfolio to another provider if you do decide you want separate accounts for the the domestic and international sections of your portfolio.

If you haven’t opened a new stocks and shares ISA in this current tax year and you’re thinking that you might want a new provider for the US part of your portfolio, you might want to consider opening a new platform before 5 April. Then you can transfer the US portion of your portfolio once the new tax year starts without it eating into your allowance at all. But remember, you can only contribute the current tax year allowance to one ISA with one provider.

For more hints and tips about effective investing in the US, check out our full guide in the Academy.

A brief word about tech…

And now onto some of the interesting opportunities in the US. I have written before about Adobe (NSQ:ADBE) , which is a phenomenally high quality company, but recently announced a disappointing set of financial results, sparking a sharp decline in the share price. A cash adjusted price to forecast earnings ratio of 24 times isn’t to prohibitive. But, anecdotally, I have heard a few stories which raise red flags. Our head of design here at Stockopedia uses the Figma set of tools for high fidelity design and says that while Adobe leads the way in photo editing software, its tools aren’t that easy to use. The company has also recently got into trouble for opaque pricing terms. It’s never a good idea to alienate customers.

I’m also still on the lookout for opportunities to buy into (or more of) the big three: Apple (NSQ:AAPL), Microsoft (NSQ:MSFT) and NVIDIA (NSQ:NVDA) . A few years ago (when Apple and Microsoft were valued at about $1trn each) I was convinced that the growth engines had stopped pumping and that valuations were starting to look a bit silly. Now that they’re all worth around $2trn, I can’t see anything stopping the continued growth. They’re all have operations in ‘next-generation’ services - Apple has its digital payments and app services, Microsoft has OpenAI, and Nvidia is the only large provider of semiconductors to the AI industry.

They’re ridiculously expensive companies, but they always have been. And even if regulation manages to clamp down on their respective monopolies, I can’t see momentum faltering entirely. Apple received a bit of heat last week for ‘crushing the competition’ in the smartphone market and shares faltered a little. But the US isn’t very good at stifling massive companies. Previous regulation (like that faced by Microsoft) has only served up further returns for investors.

A new tech kid on the block is Super Micro Computer (NSQ:SMCI) , which provides server management software and storage systems for a variety of markets - most notably, artificial intelligence. The company has been benefiting from the hike in demand for data storage, driven by the prolliferation of large language models (like ChatGPT), which require huge storage capacity. Revenues have risen at a compound annual rate of 16% over the last five tears and they’re forecast to more than double in the next two.

The 900% share price growth in the last year is probably a little excessive. Management at Super Micro Computer recently took advantage of the phenomenally high share price to raise more funds via an equity issue. It’s true that demand is high for Super Micro Computer, but is the company currently big enough to satisfy such demand? The recent fundraise suggests not.

The stock will benefit from its recent inclusion in the S&P 500, which means its shares will also be swept up in high performing tracker funds. But enough to justify the recent momentum? Unlikely. Management have been selling shares recently. Perhaps a sign that they too are capitalising on a momentary surge.

Garmin: Up and up

Few companies provide such a good example of the value of being able to roll with the punches as Garmin (NYQ:GRMN) . In the early 2000s, it was one half of a duopoly providing navigation services to drivers. But when Google launched its Maps services in 2005, demand for Garmin and TomTom portable navigation devices began to wane. The division, which once generated almost all of Garmin’s revenue, contributed just 8% of the top line in 2023.

But while TomTom has collapsed into almost nothingness, Garmin has changed track by piggybacking a consumer trend for the 2010s (and 2020s): wearable devices.

There was a time when sports watches were the exclusive property of hardy adventurers - the type of require GPS signal incase they got lost in the wilderness. Now they’re seen on the wrists of ‘soccer-moms’, businessmen and the growing population of amateur athletes who want to track their training a bit more seriously.

I love my Garmin. It died on a run at the weekend and I was bereft. Does 24km even count even you didn’t track it?

Appealing to consumers like me means the fitness section of the company now contributes 26% of revenues. But marketing in this field is more expensive and the margins are tighter than they are in the other divisions: outdoor, aviation and marine. It’s the latter two which are providing the current impetus to the share price. Demand for flight and marine tracking is rising as planes and boats become ‘smarter’.

Deere & Co (NYQ:DE): Not so old school

If John Deere conjures images of rickety old tractors, you’ll be surprised if you visit the company’s website. This is a strangely high tech company, which is using advancements in artificial intelligence and machine learning to improve outcomes for farmers.

Those with a new John Deere combine harvester can now automate their field harvesting overnight without the need for staff. It can optimise watering times for maximum crop health and keep track of any diseases that might damage plant or animal yields.

And though its end market is one of the world’s oldest industries, demand is still growing. Population growth and climate change are putting new pressures on farming and that is sparking demand for new technologies.

At John Deere, this modernisation has also given way to rising operating margins and an improvement in operating cash inflows. All of which can be reinvested in new products and services.

Earnings announcements to keep an eye on

S4 Capital (LON:SFOR)

There was a time, back in 2021, when it seemed like Martin Sorrell might have managed to build a genuine competitor to WPP (the first business he founded, but was unceremoniously removed from in 2018). In September of that year the company’s share price briefly tipped over the 800p mark as Mr Sorrell employed the same tactic which had helped make WPP the biggest marketing company in the UK - buy and build and buy again.

Since then, things have unravelled. The acquisitions and digital demand which fuelled the double-digit revenue growth and enticed the investors in the early days have dried up. This week, the company is expected to report a decline in sales for the first time in its short life.

It is true that it has been a difficult time for companies which create adverts. In periods of economic uncertainty, marketing budgets are among the first to be slashed, and companies which provide marketing services (like S4 and WPP) and those that host the ads (like Google) have felt the pressure. It will be interesting to see whether results this week show any hint of a return in advertising demand. Which might speak to a wider economic recovery.