Burning Shorts: No More Mr. Nice Nikola
Where the Down Boys Go
Last week, I promised we’d look into Great Stuff Pick Nikola Corp. (Nasdaq: NKLA) and the Hindenburg/Citron disaster. Now that the little voice inside my head isn’t trying to kill me anymore, let’s get right to that…
I want to start off by making one thing crystal clear: I don’t like short-selling hedge funds. It’s not that I don’t like short selling — it’s a valid trading strategy that has a place in many portfolios.
What I don’t like — and honestly can’t believe is legal — is that companies such as Hindenburg Research and Citron Research can sell a stock short, then turn around and publicly blast that stock however they see fit. The stock crashes, and these companies profit regardless of the truth of their allegations.
And here I am, legally not allowed to own anything Great Stuff Picks recommends. Go figure…
So, Hindenburg accused Nikola of fraud, citing emails, recorded phone conversations and texts. Putting the big reveal’s timing aside — conveniently right after the GM announcement and near-term highs — we have yet to see any of this alleged evidence of wrongdoing.
Since both sides have lawyered up, this is par for the course. Furthermore, with the Securities and Exchange Commission now involved, it will be some time before we get any real clarity on this particular evidence.
The solitary point of public contention right now is that Nikola faked a three-year-old video of its Nikola One prototype vehicle moving under its own power. This claim set retail investors ablaze and prompted a massive backlash against Nikola on investing message boards across the internet.
In rebuttal, Nikola said the Nikola One “was never described as ‘under its own propulsion’ or ‘powertrain driven.’” According to the company, investors were well aware of this fact and knew the vehicle’s capabilities during the demo.
Nikola moved on from its initial prototype to develop the Nikola Two, which moves under its own power. So yes, Nikola does have a working prototype of its fuel cell vehicle. It’s not all just smoke and mirrors as Hindenburg claims.
General Motors Co. (NYSE: GM) was probably more than aware of this information when it took an 11% stake in the company. Either way, GM is now involved, with both the manufacturing and engineering might to fully realize Nikola’s technology — regardless of the “truth” of Hindenburg’s claims.
So, what does this mean for Great Stuff Pick’s readers who bought NKLA?
Well … it means we’re down about 16% right now. I know, that’s quite disturbing given that we were up about 35% on NKLA less than a week ago on September 8. But I’ve always said this would be a bumpy ride.
Short-selling hedge funds will continue to take advantage of this upstart electric vehicle (EV) maker. But remember, both Tesla Inc. (Nasdaq: TSLA) and Shopify Inc. (NYSE: SHOP) were derided (and shorted) as fake companies looking to scam investors. Just look at both companies now.
NKLA will come back. It has the technology and an angle on disrupting a critical market — long-haul semitrucks. And it has a massive backer in GM with the capabilities to help make all Nikola’s dreams come true.
We’re looking at the birth of another major automaker in the new EV auto world, and this recent sell-off is a major buying opportunity. If you missed your chance to get in on NKLA when Great Stuff first picked this EV maker, now’s your chance.
The bottom line: Buy NKLA.
Editor’s Note: OK, OK. If you’re not ready to jump in on Nikola yet, I feel you. But you still need to get in on the energy craze.
Two words: Battery tech. My friend, it’s a whole new electrified market out there, and no one takes on Tesla with those ol’ Duracell AAs. For all you need to know about what’s shaking down on Electric Avenue, click here.
Good: TikTok on the Clock
Who saw that coming?
Oracle reportedly struck a deal with TikTok owner ByteDance for a preliminary “technical partnership.”
The deal walks a fine line in the growing U.S.-China trade spat. President Trump said he’ll ban the TikTok app if it’s not sold to a U.S. company. China said that it won’t allow the sale of TikTok’s “special sauce” to a non-Chinese firm.
Well, neither side got what they wanted. TikTok won’t be sold to a U.S. company. Strike one for Trump. Meanwhile, Oracle will manage the app’s U.S. user data with potential access to TikTok’s secret sauce (whatever that is). Strike one for China.
As it stands, this deal will live or die based on how the Committee on Foreign Investment in the United States (CFIUS) rules. (CIFUS? Bo CIFUS? As in There’s a Tear in My Beer?)
But, Mr. Great Stuff, why should I care about TikTok? It’s just some teeny-bopper app.
First, no one says “teeny-bopper” anymore.
Second, TikTok is a threat to Facebook, Twitter, Snapchat (especially Snapchat) and every other social media app out there that courts younger generations. The point is: It’s really popular … as in, it topped two billion downloads in April, was the most downloaded app in August (63.3 million!) and has 100 million daily active users in the U.S. alone.
And if Oracle gets its hands on some of that sweet, sweet social media cash, all the better. ORCL gained more than 5% on the news. But this kneejerk reaction is one family tradition you’ll want to hold off on for now.
Better: Under His Eye
A 100% gain in one day? If you held Immunomedics Inc. (Nasdaq: IMMU), congratulations! You just won the stock market lottery. No tears in your beer, am I right?
If you’ve paid attention to Gilead, you may know that the biotech shifted toward oncology in the past year.
Back in March, Gilead shelled out $4.9 billion for cancer drugmaker Forty Seven. As for Immunomedics, the company’s metastatic triple-negative breast cancer drug Trodelvy was Gilead’s main prize in the acquisition.
Analysts believe that Trodelvy could rake in $2.3 billion in sales by 2025. With Gilead now in control, sales could rise even higher as the company pursues other uses for the drug.
GILD shares rose roughly 3% on the news. Gilead investors needed a nice pick-me-up with the shares down some 24% from their April highs. The losses come despite the success of the company’s anti-viral drug Remdesivir in treating COVID-19.
With everyone and their mother searching for vaccine plays, Gilead might be one of the most overlooked biotechs on the market right now.
Best: Got My Chips Cashed In
Speaking of buyouts, the semiconductor rumor mill was right for once!
Here’s the shakedown: NVIDIA fought the good fight against graphics processing rivals such as Advanced Micro Devices Inc. (Nasdaq: AMD) for years.
And AMD stepped up its production and product-innovating game to put Intel Corp. (Nasdaq: INTC) even further into the dirt.
Now, NVIDIA came back to the knife fight Armed with a bazooka.
See, Arm isn’t just your grand pappy’s chipmaker but a world leader in mobile processors — so much so that Apple and Samsung are longtime customers. Even Intel buys from Arm since it can hardly make its own products these days.
As analysts figure out if NVIDIA overpaid for the deal, traders sent the stock up about 8%.
Today’s Chart of the Week comes straight from a new Harris Poll that dives right into the bleeding heart of the ‘Street.
The Street? Main Street — you, me and every Robinhood risk-taker and Schwab swashbuckler around.
When asked about pandemic investing habits, 33% said that they’ve traded more, while 36% said they increased market exposure. So far, nothing unexpected.
But when asked about how much leverage — i.e., options and trading on margin — things get a lot more interesting. Specifically, 43% of retail investors said they’re using options, margins or both. Here’s the breakdown:
(Psst … if this suddenly turned into gibberish for you, options are contracts that let you buy or sell stocks at predetermined prices, letting you control more shares at once. And using margin means that you’re trading on collateral or debt.)
Just like my Ma always said … it’s not your words that matter but how you use them. But my Ma didn’t know squat about options and margin, so here’s my spin on the double-edged sword of leverage.
It’s not that using options or margin is inherently bad, but how you use them determines your fate.
In other words, leverage is your investing jackhammer. You could use it to break up and repair roads like a productive member of society, or you could chuck that bad boy right through the windows of a McDonald’s Play Place to fast-track your demise.
In other other words, you can use leverage to insulate your portfolio against downside risk or benefit from bull runs and bearish retreats…
Or you could buy a Hail Mary option the day before expiration, just because it gets the risk-happy blood pumping just the way you like it. Different folks, different strokes. And so far this year, there has been “an average of 28 million options contracts per day, up 45% from last year,” according to the Options Clearing Corp.
The real question is how many of these retail traders use leverage to their advantage and not overextend their accounts and risk tolerance, like a cat knocking coffee mugs off progressively higher shelves. Stop it, you!
Drastic days like we saw back in March would have many overextended traders searching for Robinhood’s “close account” button. And I should also note how easy Robinhood makes it for your Average Andy to sign up for margin trading, allured by the shiny sleek allure of premium “gold” membership.
But … but … confetti came across my screen when I signed up. How can that be bad?
You want options the right way? Don’t venture in without a surefire strategy. And if you don’t have your own homemade options blend on hand, store-bought is fine.
In One Trade, Mike Carr recommends the same trade on the same ticker symbol every week. It’s super simple. He’s boiled the markets down to a single trade.
The average trade takes 48 hours or less and can deliver gains of 21.7% per trade. And Mike recommends a new trade every week. He’s recommended trades that have soared 129%, 280% and 313% in 24 hours or less.
Great Stuff: Girl, We Couldn’t Get Much Hydrogen
While you check that out, think of what you want to write for this week’s edition of Reader Feedback.
That is, if you haven’t already written to us! We’ll catch up with you and your crazy emails this Thursday, so get pumped up to rant or keep it casual with your investing questions.
Write to us! GreatStuffToday@BanyanHill.com is the place, right now is the time.
Until next time, stay Great!
Editor, Great Stuff