Weekly Digest - Mid Week 29

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Hello everybody! I Hope you are doing well and staying safe in these crazy markets and enjoying the free analysis that I send out weekly. Given the markets have sold off again, I made a bunch of trades to reflect the current market direct and to recheck my current portfolios valuations to trim of the highest risk and lowest upside holding into cash with a aim to buy higher conviction stocks such as FANG and Peloton at a discount, and we are already begun to see a supported rebound.

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Monday News:

US and European markets started this week down big, with the S&P 500 (-1.32%) and Nasdaq (-1.44%), and the FTSE 100 (-2.29%) and Stoxx 600 (-2.35%).

Positive US economic news was released by the WSJ stating that U.S. economic growth surged this spring amid reopenings, government stimulus and vaccinations, and economists expect slower but still solid growth ahead.

• Widespread business reopening, rising vaccination rates and a big infusion of pandemic aid helped propel rapid gains in consumer spending.
• “We’re past the peak for growth, but that doesn’t mean something more sinister is going on here and that we’re poised to then drop off sharply.” – Ellen Zentner, chief U.S. economist at Morgan Stanley.
• Economists expect the economy to continue growing solidly over the coming year, fueled by job gains, pent-up savings and continued fiscal support.

Matthew: We’ll have more clarity on the pace of the economic recovery as we start earnings season this week. The U.S. has recovered relatively well, but the pace of economic recovery has been slightly muted by the labor shortage and the spread of the Delta variant.

Notable Earnings This Week

Monday: Tractor Supply Co, IBM, PPG, Prologis

Tuesday: United Airlines, Interactive Brokers, Chipotle, Netflix, Qualtrics

Wednesday: Coca-Cola, Verizon, ASML

Thursday: AT&T, Intel, Snap, Twitter, Southwest Airlines

Friday: American Express, NextEra Energy, Honeywell

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Information detailing the current plunge in oil prices was shared by Bloomberg as the virus rattles investors faith in a global recovery.

• Oil prices fall after OPEC+ agrees to boost production into 2022. Brent fell more than 1% on the news.
• The group is set to add 400,000 barrels a day each from starting in August.
• UAE and other get higher production quotas from May next year.
• Market watchers, including the International Energy Agency, have said that additional barrels were needed to plug a projected shortfall.

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Crypto markets were down over the weekend, with bitcoin at $30,700 and Ether at $1,800.

Coindesk shared information this week suggesting that America’s second-largest bank, Bank of America, has approved the trading of bitcoin futures for some clients, according to sources.

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Business & Investment Banking News

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The WSJ confirmed details on Monday that Zoom said it plans to buy cloud software provider Five9 in an all-stock deal valued at about $14.7 billion.

Deal highlights and analysis will be in a dedicated post this evening!

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The WSJ as also shared more news that Bill Ackman’s Pershing Square Tontine said it had decided not to buy a 10% stake in Universal Music, prompted by issues raised by regulators. Pershing Square Holdings will take a large stake instead.

• Bill Ackman said the SEC wasn’t convinced the deal met the rules for SPACs.
• Instead of the blank-check company merging with an unlisted business to take it public, PSTH intended to become a shareholder of an already-planned listing of UMG in the Netherlands.
• Shares in PSTH have fallen 18% since the original transaction was announced on June 4.

Tuesday News:

US and European markets are slightly up after selling off, with the S&P 500 (+0.23%) and Nasdaq (+0.14%), and the FTSE 100 (+0.03%) and Stoxx 600 (-0.02%).

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The WSJ details how the world-wide chip crunch is affecting smartphones, with shipments slowing and customers seeing their first significant price increases in years.

• For most of the year, smartphone makers avoided the chip disruptions faced in the auto, personal computer, and home-appliance industries.
• Phone manufacturers typically purchase key parts 6-months in advance, but the stockpiles are shrinking.
• Samsung (KRX: 005930): Sourcing problems contributed to an expected 20% drop in shipments.
• Alphabet (GOOG): Its Pixel 5a 5G device would only be available in the U.S. and Japan
• Apple (AAPL): Has generally stayed out of trouble given its supply chain clout.

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The crypto markets Further sold off, with bitcoin breaking the $30,000 psychological “support” and trading at $29,600 and Ether at $1,750.

• Bitcoin has been trading in the broad price range of $30,000 to $40,000 since mid-May.
• It briefly broke below $30,000 on June 22 after the People’s Bank of China ordered the country’s financial institutions to stop facilitating crypto transactions.

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Business & Investment Banking News:

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The WSJ has reported that the trading app Robinhood expects its coming initial public offering to give it a market value of about $33 billion, lower than the level previously anticipated.

• Robinhood (HOOD) plans to sell about 52.4 million shares at a price between $38 and $42 each.
• At the midpoint of the offering, the company would raise $2B.
• Its IPO was expected to value the company at $40B.

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Bloomberg shared that IBM reported its biggest increase in revenue in three years.

• Sales rose 3.4% YoY to $18.7 billion in Q2.
• IBM shares rose up 2.9% in pre-market.
• At $137.92/share, IBM trades at a $170.4 billion enterprise value. This represents 9x forward EBITDA which is in line with its historical figures.
• IBM does have a 4.8% dividend yield, but it’s only expected to grow 1-2% annually into the future making it a underwhelming investment is such a growth focused market, a hold is you already own it but not a current buy.

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Wednesday news:

The US and European markets continued to positively rebound, with the S&P 500 (+0.42%) and Nasdaq (+0.13%), and the FTSE 100 (+1.66%) and Stoxx 600 (+1.41%).

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Bloomberg has reported that U.S. housing increased in June by more than forecast.

• This suggests the residential construction market is stabilizing despite lingering supply-chain constraints and labor shortages.
• Initial home construction rose 6.3% last month to 1.64 million annualized (a three-month high) beating estimates (1.59 million).
• The number of single-family homes authorized for construction but not yet started – a measure of backlogs – rose to 144,000 in June (highest since 2006).
• Permit applications for single-family homes dropped to a 10-month low.

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Crypto markets bounced back strongly, with bitcoin above $31,500 and Ether above $1,900.

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Business & Investment Banking News:

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Netflix added 1.5 million members in the second quarter as it continues to see slower new-subscriber growth following a surge last year, as reported by the WSJ.

• Netflix (NFLX) said the pandemic created what it called “lumpiness” in its membership growth – referring to higher growth last year and slower growth this year.
• The company now has 209.2 million subscribers worldwide.
• The company says its gaming push with begin with mobile devices and would likely rely on Netflix originals for content – the games will be included for no extra cost to members.

Matthew: “we’re still a one-product company with a bunch of supporting elements.” The company is exploring retail and gaming, but the company will still focus mainly on its content operations. NFLX is trading at a 33x forward EBITDA multiple with low- to mid-teens projected growth.

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Bloomberg: Chipotle reported sales that exceeded analysts’ expectations for its latest quarter — sign of consumer resilience in the face of recent menu price hikes.

• Comparable sales rose 31.2% compared to 30% estimates.
• Restaurant-level operating margin was 24.5% – roughly double last year’s level. The company attributed the performance to higher menu prices, fewer promotions, and lower beef prices.

Tasty burritos, but not as tasty a valuation at 33x forward, not a buy for me.

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That concludes this mid week report with a end of week post coming on Friday evening! I will also be posting a brief equity analysis for both Zoom and Snapchat today! Stay tuned and please share!

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