After nailing the market's recovery, Fundstrat's Tom Lee is predicting hard hit stocks can carry the S&P 500 to new highs.
We’re in perplexing times. At this writing, the S&P 500 index stands at 3,201, just 5.5% below its all-time high. That high, reached back in February, came the day before the bottom fell out of the stock market, as the coronavirus crisis triggered the steepest, deepest – and fastest – stock market drop on record. And now we are in the midst of a prolonged bull-rally, as the markets have been trending upwards since bottoming out on March 23.What’s an investor to do? The natural inclination during a bear market is to defend the portfolio and make conservative plays toward defensive dividend stocks, while the inclination during a rally is to go with the winners and stake positions in the stocks that are climbing most rapidly. The two strategies don’t often overlap, and the future remains clouded even though sentiment is high for now.At Wells Fargo, strategist Christopher Harvey believes that defensive moves are obsolete for now, and that investors should “start adding risk.”“We’re starting to price in a less bad scenario. Things are getting slightly better at the margin… A few weeks ago, for the first time in a long time, we went overweight on value. Now, what we are telling [investors] is we want them to start putting risk into the portfolio,” Harvey said.The strategist is advising investors to look for stocks that are positioned for a strong comeback. These are note necessarily the stocks that have been doing best in the current rally; rather, they are stocks that will benefit most as the economy reopens. That reopening is happening now, in fits and starts, as some states continue their lockdown policies and others try to get back to business. With this in mind, we’ve opened the TipRanks database and pulled up three relevant stock calls from three of Wells Fargo's top analysts. These are stocks with at least 7% dividend yield, and in the eyes of the Wells Fargo analysts, at least 10% upside potential. Let's take a closer look. EQT Midstream Partners (EQM)We’ll start in the energy industry, with a $4.8 billion mid-cap player in the important midstream segment. EQM provides natural gas pipeline and storage services for the Pennsylvania/West Virginia/Ohio sections of the Appalachian basin. This region, in the rugged, low mountains of the East, is one of North America’s richest natural gas production areas, and a center of the fracking industry. EQM is also involved in that latter, providing water supply and waste-water disposal services for gas fracking companies.EQM holds a sound position in an essential industry, and has been able to maintain revenues and earnings despite the COVID-19 pandemic. Q1 earnings numbers beat the forecast by a wide margin. The $1.08 EPS was well ahead of the 95-cent estimate, while revenues grew 16.25% year-over-year to reach $453 million, 14% ahead of expectations.In addition, for income-minded investors, the company has made moves to maintain the dividend even in difficult times. Management lowered the payment – never a good look, really – but the new payout of 38.75 cents per share quarterly gives a yield of 7.43% and an annualized payment of $1.55 per share. These are solid numbers that significantly outperform the services industry average yield of 1.4%.Much of EQM’s potential is tied up in the Mountain Valley Pipeline. This project, in which the company is heavily invested, is delayed by regulatory and permitting hurdles, but is widely expected to come online in 2021.Covering this stock for Wells Fargo is analyst Michael Blum. Noting the pipeline delays, he writes at the bottom line, “EQM is well positioned to benefit from improving natural gas fundamentals heading into 2021 due to the expected decline in associated gas production. We see … the pending completion of MVP as positive…”Blum sets a $27 price target here, in support of his Buy rating. His target implies a healthy upside potential of 17%. (To watch Blum’s track record, click here)Overall, EQT Midstream gets a Moderate Buy from the analyst consensus, based on 3 Buy and 2 Hold ratings set in recent weeks. Shares are selling for $23.18, and the $23.20 average price target is less bullish than Blum’s. (See EQM stock analysis at TipRanks)BP PLC (BP)Next up, we move from mid-cap to industry-leading giant. BP, with a market cap of $93 billion, is one of the world’s largest oil and gas companies, and reported $278 billion in revenue for 2019. While that was down from the year before, the $10 billion in net profits beat the expected $9.7 billion.And then came Q1 2020. We all know the story. Back in April, oil prices dropped dramatically, as demand was quenched by the ongoing economic shutdowns. Oil producers don’t have the luxury of simply shutting off the pumps when demand falls; the equipment must be maintained, and it is not easy to restart a well that has been capped. The bounce back in prices since the April low has been helpful, but only partially. Even so, BP saw net profit fall 67% yoy in Q1, from Q1 2019’s $2.4 billion to the current figure of $800 million. Even though Q1 earnings dropped so drastically they remained positive, but looking ahead Q2 is expected to show a loss of 37 cents per share.Through everything, however, BP has kept up its dividend payment. The company remains committed to the payments, and has even increased its debt load to do so. The current dividend is 63 cents per share quarterly, annualized to $2.52, gives a yield of 9.65%. Compared to the 3% yield among utility peer companies, the attraction is clear.Roger Read, another of Wells Fargo’s analysts, is cautious here but also sees a path forward for BP. He writes, “…BP's expected free cashflow generation through 2022 should support reductions in leverage and capacity to raise its dividend in 2020 and beyond.”Read gives the stock a Buy rating, and backs it with a $31 price target implying room for 15% upside growth in the next 12 months. (To watch Read’s track record, click here)The Moderate Buy analyst consensus rating on BP is derived from 7 reviews, including 4 Buys and 3 Holds. The average price target of $32.20 suggests a 16% premium from the $27.81 current trading price. (See BP stock analysis on TipRanks)CenturyLink, Inc. (CTL)The last stock on our list here is a communications services firm, in the cloud-based tech niche. CenturyLink’s products offer customers solutions for networking and online security, a vital industry in today’s connected work environment – and even more vital during the current corona crisis, with so many office workers moving to telecommuting. The urgency of online security is clearer now than ever.That clear from CTL’s Q1 earnings, which not only grew 12% sequentially, but also beat the forecast by a penny. The 37 cents reported was even 8% higher than the year-ago quarter.CTL’s steady earnings underlie the company’s dividend. The payment has been stable for 5 quarters – and management recently announced that the next payout, set for June 12, will remain at 25 cents per share, or $1 annually. At this level, the dividend yields 9.43%, a solid return by any standard.Wells Fargo’s Jennifer Fritzsche, rated 5-stars in the TipRanks database, acknowledges that leading-edge tech company inhabit a capricious landscape, but is optimistic about CTL’s prospects. She writes, “In our view – the co. made its difficult capital allocations decisions last year and we see that dividend as secure near term. If one lesson will be (crystal) clear coming out of this crisis, it is that fiber is critical and necessary ‘railroad tracks’ (to quote WSJ) in our new normal. CTL has more of that asset than any public co.”Supporting her Buy rating on the stock, Fritzsche gives CTL a $12 price target, indicating room for 10% upside growth. (To watch Fritzsche’s track record, click here)While Fritzsche is optimistic here, her Wall Street peers remain cautious. CTL shares have a Hold from the analyst consensus, based on 2 Buys, 4 Holds, and 4 Sells. Shares are selling for $10.24, but the average price target is $9.91. Time will tell if Fritzsche’s bullish stance is the correct course for CTL. (See CenturyLink stock analysis at TipRanks)To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Share prices for American Airlines, Luckin Coffee, XpresSpa and Genius Brands have all spiked up to unusual price points. Here's what you need to know before investing.American Airlines: Why Did The Price Move? American Airlines Group Inc (NYSE: AAL) stock took off Thursday, gaining more than 40% on the day. This followed a statement by the company saying it believed 74% more flights will take place in July than in June. Mind the bears, however. Citron Research tweeted on Friday that the surge was largely due to increased buy volume from young retail traders, and didn't reflect the company's poor fundamentals.> $AAL Back to $10 Robinhood traders have 0 idea what they buying. Balance sheet is upside down. Unencumbered assets worth far less than current price. The reason why Buffett fully exited lower. They don't teach finance in the Sherwood Forest.> > -- Citron Research (@CitronResearch) June 5, 2020Luckin Coffee: Why Did The Price Move? The recent spike in shares may have been due to bargain hunting amid the stock's plunge. Although the number of shorted shares has declined from April, Chinese Starbucks (NASDAQ: SBUX) competitor Luckin Coffee Inc (NASDAQ: LK) still is at a relatively high 37.73 million as of May 15, representing 14.91% of the outstanding shares. The short ratio as of May 15 was at 1.92. With bargain hunters picking up the stock, some of the short bets may have unwound, creating additional strength.XpresSpa: Why Did The Price Move? XpresSpa Group Inc (NASDAQ: XSPA) shares are trading higher after the company announced it has signed a contract with HyperPointe to provide coronavirus screening and testing in U.S. airports.Genius Brands: Why Did The Price Move? The shares of Genius Brands International Inc., (NASDAQ: GNUS) a company until recently struggling to keep itself listed on Nasdaq, have added 2458% since May. The surge has come following a string of operational advancements and investments announced by the children entertainment company.See more from Benzinga * Analysis: Amazon Air And ATSG Grow Together * Group Of Pro-Cannabis Law Enforcement Agents Share Recommendations For Police Transparency, Accountability * The Rise Of The Cannabis Beverage: An Analysis(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
When billionaire financier Jim Simons makes a move, Wall Street pays attention. Simons is best known as the inventor of quantitative trading, using data crunching algorithms to make market predictions. He put his theories to work in the 1980s, when he founded the Renaissance Technologies hedge fund, and since then has established the best record on Wall Street, averaging a 66% annual return for over 30 years.Ask how he did it, and Simons will likely tell you that he took the emotional factor out of trading. Humans are fickle beasts, but data never lies. Take out the human factor, focus solely on the numbers and their patterns, and you can’t lose. Following this insight, Simons’ fund has brought in $100 billion in profits since 1988, and his personal fortune totals over $20 billion.It’s clear that a smart trader can build an investment strategy just by following Simons’ lead. And right now, the 13F filings show that Simons is buying, among others, penny stocks. These equities, priced below $5 per share, typically offer high upside potentials. Even a small gain in share price – just a few cents – quickly translates into a high yield return. Yes, there is risk involved, but that’s where Simons’ quantitative algorithms come in, to pick the winners.Looking into Renaissance's basket of stocks, we’ve chosen three penny stocks that TipRanks database reveals as a “Buy” and offer solid upside potential. Let’s take a closer look and see what Wall Street analysts have to say.Orbcomm, Inc. (ORBC)We’ll start with a small-cap communications company. Orbcomm controls both ground-based wireless messaging infrastructure and a network of 31 satellites, giving it global coverage. Orbcomm’s network provides machine-to-machine communications, and is heavily involved with Internet of Things. The company boasts 2 million billable subscribers in 130 countries.During the first quarter, Jim Simons' Renaissance upped the ante by 464%, adding 1,150,018 shares of the company to the fund. The fund had first bought into the stock in Q4 2019, with a purchase of 248,000 shares. Its latest buy brought its total holding to over 1.39 million shares, worth $4.8 million.Currently going for $3.43 apiece, some members of the Street believe the share price reflects an attractive entry point.Canaccord's 5-star analyst Michael Walkley sees a bright future for Orbcomm, despite the coronavirus pandemic. He writes of the company, “With a portion of ORBCOMM’s business dedicated to helping its customers transport food and medicine during these uncertain times, a strong piece of the firm’s recurring revenues remains protected… we view the risk-reward as very positive…” The analyst added, "ORBCOMM should be well positioned with its 2.2M subscriber base to drive consistent adjusted EBITDA through its high-margin recurring revenue solutions. Further, its improving cost structure and consolidated platforms should lead to longer-term margin expansion."To this end, Walkley rates ORBC a Buy along with an $8 price target. His target implies a wildly robust upside potential of 133% for the coming year. (To watch Walkley’s track record, click here)Overall, Orbcomm has 4 recent analyst reviews, and all are Buys, making the analyst consensus rating a Strong Buy. The average price target stands tall at $6.88, which suggests the stock has room to double in the next 12 months. (See Orbcomm stock analysis on TipRanks)Arcos Dorados Holdings (ARCO)Next up is Arcos, the master franchise holder for McDonalds in the Latin America & Caribbean region. The company is one of the world’s largest McDonalds franchisees, and lists some 20 countries in its franchise territory. Arcos is the largest fast-food chain in Latin America.Pulling the trigger on ARCO in the first quarter, Renaissance purchased over 563,000 shares. This is a 221% boost to the fund's holding, and brings its stake in the company to nearly $2.6 million.As you can easily imagine, the sudden halt in economic activity imposed to stop the coronavirus spread hit Arcos hard, as restaurants were among the businesses most harshly affected. Arcos saw Q1 earnings turn sharply downward, from a 16-cent Q4 profit that was nearly double the forecast to a 26-cent net loss. The Q1 loss was more than 6x worse than analysts had anticipated. Looking forward, Q2 losses are estimated to reach 70 cents per share.Yet, JPMorgan analyst Ian Luketic believes ARCO's long-term growth narrative remains strong and that its $4.59 share price reflects the ideal entry point. Luketic lays out the clear case for Arcos’ return to profitability in the wake of corona: “As stores are reopened and the company is able to adjust its cost structure, we expect to have more visibility on what to expect from margins going forward. Although margins were at a miss, we don´t expect a major negative reaction as the market is already pricing-in weak margins for 2020 and focus should be on results ahead and potential indicators of consumption pick-up.”Luketic maintains a Buy rating on this stock, and his $5.50 price target implies a 19% upside potential. His is the only recent analyst review on record for ARCO. (To watch Luketic’s track record, click here)Some stocks fly under the radar, and CATS is one of those. Luketic is the only recent analyst review of this company, and it is decidedly positive.Adecoagra SA (AGRO)Last on the list, we have an agricultural holding company. Adecoagra’s subsidiaries operate in crop farming and dairy, along with sugar, ethanol, and even energy production. The company’s field of operations is in Argentina, Brazil, and Uruguay. The company was hit on two fronts – food production and distribution were impacted by the shutdowns, while forced social lockdown policies put a heavy damper on the fuel market’s demand for ethanol. Yet, AGRO’s niche is essential, and the company is expected to benefit quickly as economies reopen. Demand is already beginning to resume for ethanol, as consumers are starting to purchase more automotive fuel. Simons’ algorithms are forward-looking, so maybe it’s no surprise that he bought into this company, picking up 415,131 shares in Q1. This holding is worth $1.9 million. Lucas Ferreira, covering this stock for JPMorgan, noted, “COVID-19 and the oil price decline drove sugar and ethanol prices down by 18%-25% year-to-date and compressed sector valuations and near-term free cash flow generation prospects.” He goes on to add that “the worst seems behind us with domestic ethanol demand surprising to the upside and the gradual reopening to give a further booster to volumes.”Ferreira’s Buy rating comes with a $6 price target that indicates a solid 31% upside potential from the current share price of $4.57. (To watch Ferreira’s track record, click here)To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
‘It’s going to take a bit of time for the insurance industry to understand the full implication of this.’
U.S. investors will find it tougher and more expensive to buy shares in some Chinese companies if delisting law is passed.
When Luckin Coffee shares, which were already down 89% for the year, were halted in April amid an investigation into financial misconduct, losses were felt far and wide. One investor with a PG-13 Reddit name took a particularly grievous hit.
“Uncertainty has seldom been higher…oddly, neither has the stock market,” warns Inker, the firm’s head of asset allocation, adding that GMO slashed its stock exposure in its flagship Benchmark-Free Allocation Strategy from 55% in March to just 25% by the end of April. “We are in the top 10% of historical price earnings ratio[s] for the S&P on prior earnings and simultaneously are in the worst 10% of economic situations, arguably even the worst 1%!” adds Grantham, the company’s co-founder. The coronavirus pandemic is unlike past economic disasters, he says.
The Trump administration picked out five companies it believes are most likely to produce 2020’s holy grail – a vaccine for the coronavirus. Unfortunately, Novavax (NVAX) was not on the list.Although the White House didn’t disclose what lay behind the choices, 5-star B.Riley FBR analyst Mayank Mamtani provided some possible explanations.3 of the choices already have clinical studies in various degrees of progress (Moderna, AstraZeneca/Oxford University and Pfizer/BioNTech), whilst Novavax only began enrollment late last month. This implies to Mamtani that “speed to market entry” could be a major factor in the decision-making process.Whilst “risk diversification and cost sharing,” and a preference for large companies (Johnson & Johnson, Merck) with the necessary balance sheet required to conduct the extensive and pricey vaccine development and manufacturing may also be contributing factors.Even so, while those reasonings might explain the smaller player’s omission, Mamtani maintains Novavax should be added to the list.Mamtani said, “We remain encouraged by the de-risked nature of NVAX's vaccine candidate, on the basis of the most extensive preclinical data generated to date, and now reviewed closely by the global scientific community residing with CEPI, WHO, and SII, as well as U.S. agencies such as CDC, NIH-NIAID, and BARDA. We believe adding NVAX's NVX-CoV2373 on the basis of its proprietary adjuvanted recombinant nanoparticle platform could further help diversify development risk as well as tap into a relatively clearer path to market and manufacturing scale-up that NVAX has made tangible progress on recently…”To this end, Mamtani reiterated a Buy on NVAX and has a $74 price target, indicating the potential for 60% upside over the next year. (To watch Mamtani’s track record, click here)All other 4 analysts to post a Novavax review over the last 3 months recommend the stock a Buy, too. A Strong Buy consensus rating is accompanied by a $49.20 price target, implying room for an 11% uptick in the months ahead. (See Novavax stock analysis on TipRanks)To find good ideas for healthcare stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Yahoo Finance speaks with Nikola founder Trevor Milton as the electric- and hydrogen-powered truck maker debuts on the Nasdaq.
Private equity firm Sycamore Partners is in preliminary talks to acquire J.C. Penney Co Inc <JCP.N> out of bankruptcy should the U.S. department store chain's negotiations with its creditors fail, three people familiar with the matter said on Friday. J.C. Penney, which employs roughly 85,000 people, filed for bankruptcy protection in May after the coronavirus pandemic forced it to temporarily close its more than 800 stores across the United States, compounding financial woes that stemmed from years of dwindling sales. Sycamore is weighing acquiring J.C. Penney outright or making an investment in the troubled retailer, the sources said.
Occidental stock (OXY) shot up 33% on Friday to $20.79. The stock appears to be riding higher on optimism about oil prices, which have more than doubled since late April. On Friday, West Texas Intermediate crude futures rose 5.3% to $39.39.
Weeks of business closures and shelter-at-home orders have left millions of workers out of jobs, and companies struggling with bleak outlooks and a likely recession. Barron’s screened for S&P 500 companies that are widely expected by Wall Street analysts to see their per-share earnings recover in 2021 and reach 20% higher than 2019 levels. Amazon shares, similarly, are now 13.4% above their Feb. 19 levels.
Casino stock investors received some good news this week as early reports out of Las Vegas suggest the reopening of major casino resorts was met with strong initial demand.However, one analyst said on Friday that Vegas still has a long road to full recovery from its shutdown.What Happened?A number of Las Vegas casinos opened their doors for the first time on June 4, and Bank of America analyst Shaun Kelley said initial demand was so strong that several operators are now opening additional properties ahead of schedule."At 12:01AM on June 4th, Las Vegas casinos officially reopened. From local reports and our channel checks, the demand was strong with long lines and packed flights, similar to most regional gaming markets," Kelley wrote in a note.Why It's ImportantDemand was so strong that Caesars Entertainment Corporation (NASDAQ: CZR) has bumped up its planned opening of Harrah's and MGM Resorts International (NYSE: MGM) is planning to open Excalibur next week.But while the initial surge of Vegas demand was much better than feared, Kelley said room rates will likely suffer significantly in the medium term. Kelley estimates quoted room rates on the Vegas Strip are down 36% in June and 46% in July compared to a year ago, which will negatively impact operator margins. Kelley said the cancellation of Vegas events and conferences will continue to weigh on room rates given these events drive demand for some of the Strip's highest-priced rooms.Even once events ramp back up, Kelley is projecting convention attendance will drop 15% in the second half of the year.Kelley estimates Las Vegas Sands Corp. (NYSE: LVS) will endure the smallest drops in average room rates in the near term, with average rates in June and July falling 23% and 40%, respectively. Wynn Resorts, Limited (NASDAQ: WYNN) has the highest average room rates on the Strip, and Kelley estimates it will endure the largest drop in average rates. He projects 43% and 53% declines in June and July, respectively.Benzinga's TakeStrong initial demand was the first hurdle for Vegas casino stocks to overcome in the near-term. Now that the Strip is reopened, the focus will shift to room rates and margins to determine just how profitable these casino stocks can be in a sub-optimal environment.For investors looking to play the Vegas recovery, Bank of America has the following ratings and price targets for major Las Vegas casino operators: * Las Vegas Sands, Buy rating and $61 target. * Wynn, Buy rating and $95 target. * MGM Resorts, Underperform rating and $15 target.Do you agree with this take? Email email@example.com with your thoughts.Related Links:Las Vegas Casinos Reopen This Week, And Here's What Investors Should Expect Analyst: Why Penn National And Boyd Could Outperform As US Casinos ReopenLatest Ratings for MGM DateFirmActionFromTo May 2020UBSMaintainsNeutral May 2020Credit SuisseAssumesNeutral May 2020B of A SecuritiesDowngradesNeutralUnderperform View More Analyst Ratings for MGM View the Latest Analyst RatingsSee more from Benzinga * 7 Sin Stocks To Buy During The Coronavirus Shutdown * Q1 13F Roundup: How Buffett, Einhorn, Ackman And Others Adjusted Their Portfolios(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
(Bloomberg) -- Hertz Global Holdings Inc. shares are rallying two weeks after the company filed for bankruptcy in an extreme example of the bets investors are making on recovery from the coronavirus pandemic.The car renter’s stock traded as high as $3.70 shortly after the start of regular trading Friday, a 353% surge from Wednesday’s close. The two-day boost is in part a reflection of signs that air travel is poised to rebound.Hertz also is likely to benefit from prices of used cars at auctions coming all the way back from a mid-April collapse. Market researcher J.D. Power said Thursday that prices last week were above its pre-virus forecast.Those positives aside, Hertz’s equity holders are still taking on significant risk. Shareholders rarely recover anything from companies that have filed for Chapter 11 because under U.S. Bankruptcy Code, all of a company’s debts must be repaid in full before stockholders recover anything.The recovery in used-car prices is “a major narrative shift from just a few weeks ago,” Adam Jonas, an auto analyst at Morgan Stanley, said in a report. Holders of Hertz’s asset-backed securities, which are backed by the value of its vehicles, now stand a greater chance of being made whole.Investors also are asking about the independent value of Donlen, Hertz’s fleet-management unit, and the value of its European business, Jonas said. Still, his base case is that while the equity may stay liquid enough to trade as a distressed stock, a full recapitalization is unlikely.There is still “a real risk that shareholders may not be able to recoup any proceeds” from the bankruptcy, Jonas wrote.Hamzah Mazari, a Jefferies analyst, also said in an email that while there may be some sort of resolution for equity holders this month, it is unlikely. The options market suggests there is a 90% chance the stock trades back to $0.50 or below, he wrote.Billionaire investor Carl Icahn was Hertz’s biggest shareholder when the Estero, Florida-based company sought court protection on May 22. He sold all of his 55.3 million shares on May 26 at a loss of almost $1.6 billion.(Updates with analyst comment in the fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Is United Airlines stock ready to take flight? Here is what the fundamentals and technical analysis say about buying United stock now.
Trump made his assessment at the White House, shortly after the U.S. Labor Department reported an unexpected surge in May jobs, and five weeks after Buffett said his Berkshire Hathaway Inc <BRKa.N> sold its airline stakes. "Warren Buffett sold airlines a little while ago," Trump said.
While the S&P 500 has rallied 39% from its March 23 low, the market for long-dated dividend futures has risen just 7%, according to a Thursday note from Goldman Sachs, reflecting concerns over earnings growth and rising chances that a Democratic sweep in November will lead to a reversal of the 2017 corporate tax cuts.
(Bloomberg Opinion) -- Warren Buffett says “nothing can stop America.” To put his money where his mouth is and spend some of his $137 billion stash before this crisis is over, he wouldn’t have to look far. If there’s one company that warrants the dealmaker’s attention, it may be Costco Wholesale Corp., a retailer in which Buffett’s Berkshire Hathaway Inc. already owns a stake. At Berkshire’s virtual shareholder meeting last month, Buffett signaled that the Covid-19 pandemic hasn’t afforded him deal opportunities at bargain-basement prices the way past economic meltdowns have. Despite the nationwide shutdowns that are just starting to lift and a soaring unemployment rate, the S&P 500 Index is only 8% off its February all-time high. That’s partly due to aggressive actions taken by the Federal Reserve to mitigate the crisis, though one can’t deny that there exists an astonishing disconnect between stock prices and the economic realities of many Americans right now.Costco wouldn’t be a typical crisis-era bet for Buffett in this regard. The shares are up, not down, this year and its operations have carried on throughout the pandemic. Zoom, Netflix, TikTok, Costco — the retailer is right up there with those services that have become centerpieces of the stay-at-home recession.But in so many other ways a Costco deal would still be classic Buffett. For starters, Buffett already likes Costco. Berkshire has owned the stock for two decades; its 1% stake is valued at about $1.3 billion currently. Buffett’s business partner Charlie Munger, the 96-year-old vice chairman of Berkshire Hathaway, also sits on Costco’s board. Last year, Buffett even publicly marveled at Costco’s in-house Kirkland brand, which at that point had $39 billion of annual sales. “Here’s somebody like Costco, establishes a brand called Kirkland and it’s doing $39 billion — more than virtually any food company,” including Kraft Heinz Co., he said. Berkshire is Kraft Heinz’s largest shareholder.Costco has proven during this crisis that it has a durable brand and a wide competitive moat, two of the key attributes Buffett looks for. More than 90% of Costco’s U.S. club members renew, and globally the rate is nearly as high at 88%. Those warehouse memberships are a predictable source of cash flow, almost akin to Berkshire’s insurance float that Buffett uses to invest. While the majority of Costco’s 787 warehouse clubs are in the U.S. and Canada, it does have locations in Mexico, the U.K., Japan, South Korea, Taiwan and Australia. It’s also expanding in China, offering Buffett exposure to the country’s growing middle class.Costco’s same-store sales have risen 6.5% on average for the last 10 quarters, topping other U.S. mass retailers including Walmart Inc., the parent of Sam’s Club. Costco also generated more than $1,300 of sales per square foot in fiscal 2019 — more than any of its peers.The share price has gotten a bump from all the panic-shopping, and at 34 times earnings, Costco’s valuation certainly isn’t what Buffett would call cheap. But Costco should continue to fare well in a post-virus America, especially if it leads some residents to ditch cities for suburbs and spend more time at home. After the meat and toilet paper shortages, more shoppers may even turn to bulk-buying to be better prepared for future lockdowns or shortages.The biggest hurdle to a takeover is that Costco’s market value is $137 billion — precisely the amount of cash Berkshire has available. Berkshire’s last major acquisition was Precision Castparts, a maker of airplane engine parts, for $37 billion in 2016. After years spent searching for his next target, Buffett signaled recently that his hunt is on hold, suggesting that he thinks the crisis could still get worse before it gets better. “The cash position isn’t that huge when I look at the worst-case possibilities,” he told a stunned audience last month that tuned into the livestreamed annual meeting expecting to hear something a little more upbeat or at least hopeful from the Oracle of Omaha.(1)Berkshire could simply increase its stake in Costco, a stable holding that pays a 70-cent quarterly dividend. But it wasn’t all that long ago that Buffett spoke of the possibility of an acquisition Costco’s size. “If a $100 billion deal came along that Charlie [Munger] and I really liked, we’d get it done,” he said in May 2018. With Buffett set to turn 90 in August, it would be uncharacteristic to not want to do one last splashy transaction.It also wouldn’t be the first time Berkshire acquired one of its stock holdings. Berkshire owned shares in Precision Castparts before that deal. It also took a stake in the BNSF railroad in 2007 and kept adding to that position until it eventually purchased the whole company. Berkshire’s ownership of Geico even dates back to the 1950s when Buffett first bought shares and as a curious young investor began a serendipitous friendship with the insurer’s former CEO, Lorimer Davidson, as Buffett often retells it.Whether as a takeover candidate or stock pick, Buffett’s best option may be right under his nose. (1) One well-known shareholder, Bill Ackman’s Pershing Square Capital Management, even exited its Berkshire position, deciding itcan find worthwhile investing opportunities faster than Berkshire can at this rate.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Like other analysts, Siegel worried about the wide disconnect between Wall Street and Main Street, amid sky-high unemployment and mass business closures. Main Street could be on the path to recovery, if the latest economic data turns out to be a lasting trend.
In just a couple of weeks, Aurora Cannabis (ACB) has surged back to a rich valuation. The most recently news has the Canadian cannabis company entering the U.S. CBD space via an acquisition set to close in June.The stock originally surged over 36% on the news leading to an increase in the stock value by over $500 million. Aurora Cannabis has cooled off some following the weak quarter from Canopy Growth, but investors need to realize that the CBD space in the U.S. is still held back by FDA restrictions. Wall Street is not convinced that Aurora's reward is worth all the risk, especially when taking note that TipRanks analytics exhibit ACB as a Hold. Based on 14 analysts tracked in the last 3 months, only 3 rate the stock a Buy, while 9 say Hold and 2 suggest Sell. Indeed, the 12-month stock price forecast stands at $11.35, marking a nearly 19% downside from where the stock is currently trading. U.S. CBD DealAurora Cannabis bought Reliva, LLC for $40 million in stock plus an earn-out potential of up to an additional $45 million in stock and cash. The deal is forecast to be EBITDA accretive to Aurora principally due to the company having large EBITDA losses currently so any acquisition with positive EBITDA is accretive.Cantor analyst Pablo Zuanic has Reliva pegged at $14 million in annual revenues from their distribution into 20,000 retail locations. The company is focused on topicals where sales have continued at specialty stores despite FDA restrictions on other CBD sales.The CBD market is still projected to reach a high end of $24 billion in 2025 according to Brightfield, but the numbers are highly dependent on the FDA removing restrictions on dietary products. Currently, mass retailers are reluctant to sell products in this segment which Charlotte’s Web Holdings (CWBHF) has stated account for over 80% of sales in the CBD category. For this reason, CWH saw Q1 revenues decline 1% from 2019 levels.The small deal allows Aurora Cannabis to enter the U.S. space without a large commitment or spending millions to establish a brand. The CBD space had over 6,000 brands entering 2020, so the large Canadian cannabis company can likely purchase more brands on the cheap to build up a strong revenue base while eliminating competition.Too Far, Too FastPrior to reporting FQ3 results on May 14, Aurora Cannabis traded to a new low of $5.30. The stock rallied over 200% off the lows to reach recent highs at $18.The cannabis company produced an impressive improvement in cash burn and a large reduction in EBITDA losses during FQ3. Better numbers in the June quarter should whittle down the EBITDA loss to somewhere below C$10 million leading up to a positive EBITDA in FQ1’21. Some positive EBITDA from Reliva should help, though the company has limited sales to impact the financials of Aurora Cannabis.The issue here is that Aurora Cannabis still has a market cap of $1.6 billion with 112 million shares outstanding after this deal. The CBD upside appears limited in the near term so the sales upside from this entry into the U.S. appears rather small. The company won’t generate much more than $300 million in sales for FY21 with or without Reliva.TakeawayThe key investor takeaway is that the valuation equation for Aurora Cannabis is far less interesting now as the market has pushed the stock up over 200% in a couple of weeks. The move to purchase a small CBD company in the U.S. is a smart move to enter the beaten down sector on weakness, but investors need to wait for the stock to cool off more before loading up on Aurora Cannabis.To find good ideas for cannabis stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclosure: No position.
There is a newly public futuristic-transportation company for investors to follow: Nikola. The company has plans to disrupt the trucking industry with battery- and fuel-cell-powered models.
Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. So what are the best stocks to buy now or put on a watchlist?
(Bloomberg) -- Some of the biggest names in finance and business made a fortune on Zoom Video Communications Inc.: Hong Kong’s Li Ka-shing, Tiger Global Management’s Chase Coleman and, of course, founder Eric Yuan, whose net worth has surged to more than $10 billion.And then there’s Samuel Chen, a little-known Taiwanese investor who made his initial wealth through ink trading and started putting money in the video-conferencing juggernaut about a decade ago.His Digital Mobile Venture Ltd., which participated in Zoom’s early funding rounds, controls a $1.6 billion stake based on Thursday’s closing price, assuming it hasn’t sold stock since the holding was last disclosed at the end of March. Shares of Zoom, which recently reported a 170% increase in first-quarter revenue, have more than quintupled since their initial public offering last year.Chen is also a board member of Taiwan circuit maker Sonix Technology Co., and Digital Mobile is the biggest shareholder of Santa Clara, California-based Telenav Inc., a maker of navigation software.He keeps a low profile and doesn’t give interviews. Shumin Huang, a spokeswoman for Sonix, said he doesn’t engage in that firm’s daily operations. With respect to the Zoom investment, he considers himself lucky, she said.For that, Chen can thank Telenav Chief Executive Officer H.P. Jin, who introduced him to Yuan, according to a person familiar with the relationship. Jin knew Yuan from when they played soccer together on weekends in the San Francisco area, and he invested alongside Chen in Zoom’s early financing rounds partly because of how Yuan conducted himself on the pitch.“The way you behave on the soccer field is very important,” said Jin, who estimates his Zoom stake is worth more than $100 million.Analysts SplitChen’s investment firm has already sold some Zoom shares, including a $22 million chunk at Zoom’s April 2019 IPO and an additional 13 million shares through March, according to a filing. That means it could have earned a windfall of as much as $2.1 billion.Analysts tracked by Bloomberg are split on the stock’s prospects. A dozen recommend that investors buy the shares, 13 have hold ratings and five say sell. Zoom’s surging popularity has come with concerns over its security practices, prompting the company to bolster protective measures for users.There’s also the risk that people will abandon the service after the pandemic ends and they return to the workplace en masse.The stock slid 3% to $204.04 at 2:10 p.m. in New York, paring the company’s market value to about $57.5 billion.“How can anybody be tired of Zoom?” Chief Financial Officer Kelly Steckelberg said Friday in an interview with Bloomberg TV. “Video communication has been integrated into all aspects of our lives. Sure, maybe you don’t want to spend all of your days on Zoom meetings, but maybe we will see a mixed approach to that. We also have many other products, Zoom Phone, our cloud-based product as well as Zoom Rooms as people think about going back to work.”Zoom’s cloud-based phone offering is a “significant opportunity” that could set it up as a unified communications provider, Alex Zukin, an analyst at RBC Capital Markets, said in a note to clients this week in which he upgraded the shares to a buy.There’s “still money to be made in the stock,” he said.Cash BurnChen and other investors made initial investments in Zoom in 2011, according to a post last year on Medium by Louis Li of venture-capital firm TSVC, formerly known as TEEC Angel Fund.A year later, as Zoom burned through its seed funding and few venture-capital funds showed interest, Chen stepped in to lead a series A round.The investor, now in his late 60s, left Zoom’s board in 2018, four years after Digit Mobile Inc., a Taiwan-based company where he serves as chairman, brought the service to the island.Chen, who received a bachelor’s degree in chemistry from Taiwan’s National Tsing Hua University, earned his early fortune through a business trading ink, according to a book on successful former students published to celebrate the college’s 100th anniversary.(Updates with stock price in 11th paragraph, CFO’s comments in 12th.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.