Our previous Stock Exchange noted that the market remains volatile, and we may still retest the 2018 lows. And the market has continued to sell-off since that report. However, despite the volatility (and perhaps because of the volatility) attractive trading opportunities continue to exist.
Is Twitter The Blueprint for Success?
All correlations move towards one during a market crisis. That was the lesson learned by many during the financial crisis of 2008-2009. The current market sell-off that began in October has caused some pain, but so far there have been both winners (e.g. REITs) and losers (e.g. growth, technology and momentum). Basically, thus far, there has been benefit to owning differentiated types of stocks. And more specifically, Twitter (TWTR) may be a good blueprint for success through differentiation during challenging market conditions.
If you don’t know, according to FactSet, “Twitter is a global platform for public self-expression and conversation in real time. It provides a network that connects users to people, information, ideas, opinions, and news.” Twitter also has a low historical beta (-0.33), a bit of a contrarian strategy (they’re intentionally taking a step backwards, in hopes of setting themselves up to take multiple healthy steps forward in the future), and the share price has performed very well while the market has been selling off.
Regarding Twitter being a “blueprint” for success in a challenging market, we are essentially referring to differentiated strategies. As we saw earlier, low beta dividend-paying REITs have performed well during this recent sell-off. But so too have long-short funds, certain trading strategies (we’ll detail our recent Twitter trade later in this report), investment grade bond ladders, and cash (at least on a relative basis compared to the Nasdaq (QQQ) which is down 14.5%).
Regarding Twitter’s differentiated strategy, the company is currently foregoing user and content in growth, in favor of purging suspicious users and questionable growth. These actions are “nails on a chalk board” to short-term-focused Wall Street analysts (they have very mixed feelings on the company, as seen in the following graphic.
But Twitters “one step back, two steps forward” strategy could be exactly what the company needs to increase going forward. The company recently beat earnings expectations, and that’s what caused the shares to jump higher in October, but this could have been a much bigger jump if the company had not been focused on purging questionable users. It could also be a sign of much bigger growth in the future once the company gets itself on the right track (i.e. the right kind of content and user growth).
Stone Fox Capital had an interesting bullish write-up on Twitter recently (see: Twitter Is Finally Getting Healthy). His takeaway includes the following:
