There Can Be Only 1
Here we are, Great Ones, born to be kings! We’re the princes of the universe!
Hold on there, Mr. Great Stuff. A stock you just recommended is tanking on bad news, and this is how you react?
Why yes. Yes, it is how I’m reacting. Didn’t you ever watch The Highlander? You know, Conner MacLeod and the whole: “There can be only one!”
That’s how I feel about China’s announcement this morning and Industry and Information Technology Minister Xiao Yaqing’s comments that there are “too many” electric vehicle (EV) makers in the country.
Still not following? Let me break it down for you.
China now believes that there are too many EV makers in the country … that the Chinese market is saturated with EV companies that will ultimately fail and hurt China’s budding green energy economy.
In fact, according to Tu Le, founder of Beijing’s Sino Auto Insights advisory group: “This is just version 2.0 of the central government looking to trim the [number] of entrants as they did when they limited manufacturing licenses [and] permits in 2017.”
Wall Street, in its infinite wisdom — and yes, I’m being sarcastic here — has decided that today’s news is bad for Chinese EV makers such as NIO (NYSE: NIO), Xpeng and Li Auto. As such, all three stocks are down big today on China’s “too many” EV makers statement.
This opinion couldn’t be further from the truth. What China is planning to do is create a state-sanctioned oligopoly — i.e., like a monopoly, but with multiple companies. And who’s going to win out in that race? Why, the biggest EV players already in the game: NIO, Xpeng and Li Auto.
In short, China knows not all of the EV start-ups will survive … so it’s shortcutting the typical “survival of the fittest” route to actively choose the winners. Yes, this is a foreign concept to our capitalist market in the U.S. — but, I mean, it’s China. What did you expect?
The winners are basically already known here, and NIO is going to win big. This is just another feather in the company’s cap — in addition to the multiple “feathers” I outlined this weekend when I recommended buying NIO stock.
So, Great Stuff Picks readers … today’s drop in NIO stock on this obviously bullish news for the company is a blessing for you. You’re going to be able to buy stock in an excellent EV company that’s about to have even less competition at home … with government backing. And you’ll be able to buy NIO stock at a discount. Good on you!
Oh … and one more thing! If China thinks there are too many EV makers in the country, and it is clearly going to favor Chinese companies in this move … how well do you think Tesla (Nasdaq: TSLA) is gonna fair in China now? Not so well, I think.
Forget Tesla for now, buy NIO and enjoy those sweet, sweet EV gains!
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Going: We All Fought In That Epic War…
And it wasn’t long at all before, little Epic flew its plane and saved the day…
And in the end, some Apples (Nasdaq: AAPL) screamed. Some revenue blew up, and some developers dreamed. The walled garden was broken, Apple’s lawyers were choking…
And the company I admired most (not really) said it was filing an appeal … what?!
No, I’m not crazy. My mother had me tested. Setting the lyrics aside, Epic won its epic battle with Apple … at least where it counts.
Federal Judge Yvonne Gonzalez Rogers sided with Apple on nine of Epic’s 10 complaints, but the one that Apple lost was a doozy. According to Judge Rogers, Apple can no longer force developers to use its in-app purchasing system.
In layman’s terms, those app developers can now tell you about cheaper purchasing alternatives and even provide links to those payment alternatives — something Apple vehemently argued against but then relented leading up to the judge’s decision. In fact, Apple had already given Netflix, Spotify and other big-time developers room to skirt the App Store’s 15% to 30% “Apple tax.”
As I said before, this was all but a foregone conclusion. Apple was never going to be able to maintain both its smartphone market share and its walled garden on in-app purchases. What is a shocker, however, is that Epic is pushing for more. I don’t see this appeal going anywhere for Epic, and, honestly, it should be happy with the ruling it got.
Anywho, AAPL stock investors completely ignored the loud sucking noise coming from Apple’s services revenue unit in favor of shiny new iThings, which are slated to be unveiled tomorrow.
If this big unveiling has anything interesting, I’ll let you know. But then, Apple hasn’t unveiled anything interesting in nearly 10 years now. So, I wouldn’t hold your breath…
Going: Robin’ Robinhood
Remember a few weeks ago when rabble-rousing Robinhood (Nasdaq: HOOD) caught the eye of SEC Chairman Gary Gensler over its handling of “payment for order flow,” or PFOF?
And how the company’s trade execution is apparently so bad for investors “that it more than outweighs the benefit they got from not having to pay a commission” in the first place?
Well, according to Robinhood’s Chief Legal Officer Dan Gallagher, that whole PFOF scandal isn’t something HOOD investors should worry their pretty little heads over:
[The SEC] is going to arrive at the conclusion that payment for order flow is undoubtedly an amazingly good thing for retail investors, and they’re not going to ban it.
Amazingly good? And I thought double negatives were bad…
As much as it pains me to say it, I think ol’ Dan is on to something here. I’d actually be pretty shocked if the SEC banned PFOF.
I mean, for one, when has the SEC done anything to … you know … benefit retail investors? It certainly didn’t help us little guys trying to make a quick buck on meme stocks at the beginning of the year (yeah, I’m still salty about it).
Furthermore, I don’t see PFOF getting the boot considering how many other financial big wigs have stuck their hands into this proverbial moneybag … especially when you consider how much moolah they’d lose by not being able to siphon off our trades.
All that said, I still don’t see the SEC letting Robinhood off scot-free. While it will likely be a mere slap on the wrist for Robinhood, something needs to happen so that the SEC comes out looking like the good guy.
How Robinhood gets “punished” is anyone’s guess, but investors should expect this uncertainty to drag on HOOD stock for at least the foreseeable future.
Gone: Not Ready For Takeoff
On Friday, Sir Richard Branson’s almost-a-space-company Virgin Galactic (NYSE: SPCE) announced that it would delay its first commercial research flight by several weeks due to a potential manufacturing defect in its flight control actuation system.
While Chief Executive Michael Colglazier assured Virgin Galactic investors that the company would “take to the skies again soon” following its latest safety debacle, the nervous nellies on Wall Street said: “Oh nay nay!” upon hearing the news and sent SPCE shares tumbling more than 3% this morning.
At this point, Virgin Galactic investors should be used to having their hopes and dreams dashed… After all, this is just one of several mishaps that have befallen Sir Dick’s commercial “spaceflight” company in recent months. And arguably, it won’t be the last.
Personally, I think today’s SPCE selloff is an overreaction on Wall Street’s part.
Defects and delays should be expected at this point — as should the level of volatility that surrounds Virgin Galactic and its merry band of space race competitors. I mean, you try slinging a rocket into orbit and having the whole shebang go off without a hitch.
No, the real problem facing Virgin Galactic isn’t this latest manufacturing defect or even the fact that its “spaceships” don’t actually go into space — at least, not by international standards.
Rather, it’s that once Virgin Galactic is done siphoning money from the über wealthy, it will need to develop a long-term growth plan that centers around more affordable space flights if it wants to become a true commercial success.
Until that long-term growth plan takes shape, I’ll continue to avoid Virgin Galactic like the plague that it is.
And now for something … well, not completely different.
Remember how airlines came out last week and said they were doing just fine despite the continuing pandemic? That bookings were up, people were traveling more and everything was just hunky-dory?
Yeah, about that…
Take a look at today’s Chart of the Week detailing rising global airline debt and tell me if you think everything is just hunky-dory:
There’s no way around it. That is a lot of debt. According to Bloomberg, airline debt has soared 24% to $340 billion since 2020. Furthermore, airlines have sold some $63 billion in bonds and loans this year alone.
So, what’s the problem? (I think you all know the problem.)
It’s COVID-19. Yup.
Travel restrictions, border restrictions, canceled plans due to sickness … you name it. Airlines are struggling to fill seats and keep flights open. And, as you might expect, these airlines are now returning to the bond and debt markets to shore up their bottom lines.
For instance, discount airline EasyJet just raised $400 million in new debt while selling $1.7 billion in new stock. Japan Airlines just sold about $2.7 billion in new bonds and loans.
Now, of course, your less capitalized discount airlines are going to be hit first. They’re your canaries in the coal mine, so to speak. But if the pandemic continues at its current pace, it won’t be long before the Delta’s and the American Airlines of the world start adding more debt to survive … again.
I know many of us are just dying to buy into oversold and distressed airlines in anticipation of the end of this pandemic. But the worst isn’t quite over yet for these companies. In fact, I would wait until we start seeing holiday travel expectations roll in before betting on any kind of recovery in the airline sector.
How about you, Great Ones? What’s your opinion on the airline sector? Are they taking on too much debt again? Are we looking at another airline bailout? Or is everyone overreacting, and now is the real time to buy in?
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Until next time, stay Great!
Editor, Great Stuff