Latest thoughts on tariffs; Checking out Uber Technologies through my 'first look' lens
1) In another wild swing, the markets had their best day since 2008 yesterday...
The S&P 500 Index ripped higher by 9.5% and the tech-heavy Nasdaq Composite Index soared 12.2%. And it all came in the wake of the Trump administration's new change to tariffs. As President Donald Trump posted on Truth Social in the early afternoon:
I wasn't surprised by the news. As I wrote on April 3:
... what we're seeing here is Trump the dealmaker.
Yesterday's announcement is most likely an opening gambit to force other countries to trade with us on better terms.
And recall what I said two days earlier:
My gut tells me that Trump doesn't want to begin his presidency by tipping an otherwise strong economy into a recession, so he'll declare some victories and back off a bit – which could trigger a huge relief rally.
But it took longer than I expected – so the damage to investor and consumer confidence was greater than I expected. As such, I no longer believe the next sentence I wrote on April 1:
While I'm not outright bullish right now, I'm feeling more constructive than I was at the beginning of the year.
To be clear, I'm not bearish and telling my readers to sell into yesterday's bounce...
My advice for long-term investors remains the same: Sit tight. But just because Armageddon – a 2008-style financial crisis – is likely off the table doesn't mean we're in the clear.
Even during a 90-day pause (and who knows what happens after that?), the tariff regime is still going to be a shock to the international system.
As a smart friend of mine – a former hedge-fund manager who now posts on social media platform X anonymously under the handle BeenThereDoneThat Capital – posted yesterday in the wake of the wild rally:
I'm particularly worried about the tariff battle with China because of the size of the trade between the countries, the level of tariffs, and the reality that both countries are ruled by proud, stubborn men. So compromise here will be difficult.
I think the real-money bettors on Polymarket are correct that the odds of a recession this year have dropped – but only from 66% before Trump's post to around 53% earlier this morning.
2) Since I don't have a strong feeling about what's going to happen regarding tariffs, let's take a quick look at a business that's likely to be largely unaffected...
Regular readers will recall that I analyzed ride-hailing service Lyft (LYFT) over three daily e-mails on two months ago on February 10, February 11, and February 12 – and wisely said to stay away (the stock is down 14% since then).
However, I'm also interested to see the dominant company in the sector through my "first look" lens: Uber Technologies (UBER)...
Uber went public at $45 per share on May 10, 2019, giving it a valuation greater than $80 billion. That was much too high... and three years later, after much volatility, the stock was down by about 50% – largely matching Lyft's equally dismal performance over the same period.
But since then, the stocks have completely diverged...
Lyft's stock has fallen another roughly 50%. Meanwhile, Uber's stock has more than tripled – to the point where it has almost caught up to the S&P 500's performance since the initial public offering ("IPO") date. You can see the moves in the chart below:
Why has the stock recovered? Simple: Uber has shown huge revenue growth and has started to make money on an operating profit basis (I use operating income because net income is distorted by noncash tax gains and losses):
The story from the cash-flow statement is even more impressive. Free cash flow ("FCF") has exploded – going from negative territory as recently as 2021 to hitting $6.9 billion last year. The chart below shows the historical operating cash flow, capital expenditures ("capex"), and FCF:
Well, a quick initial look like this at the financials seems promising. But of course, valuation is a big question. After jumping 11.7% yesterday to close at $72.68 per share, that gave the company a roughly $152 billion market cap.
With projections for earnings per share of $2.43 this year, that would give the stock a forward price-to-earnings multiple of about 30 times.
That's too high a price for me.
But there's an even bigger reason why I'm avoiding Uber... the threat from Waymo and other self-driving vehicle services.
In fact, my team and I discussed this risk when we listed Uber and Lyft as "doomed AI victims" in a special report for Stansberry's Investment Advisory subscribers last August. (I cited some parts of the report in my February 11 e-mail.)
Investment Advisory subscribers can read the full report here: Dead Men Walking: 10 Doomed Companies in the Crosshairs of AI. (If you aren't a subscriber, you can find out how to gain access to it... the full archive of other Investment Advisory special reports... and the full portfolio of official recommendations by clicking here.)
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.