China’s Contagious Optimism; Oppenheimer Bombs Tesla Shorts
Phase 1 Signing = Phase 1 Optimism
It’s trade deal week! Are you excited?
Yes, dear reader, the much-hyped “phase 1” U.S.-China trade deal will finally be signed this week. It’s about time, I must say.
In case you’ve been trapped behind a wall, I put all the nitty-gritty details together in bullet points below (We all love bullet points, don’t we?):
- China agreed to buy $200 billion in U.S. farm goods and other products/services over two years.
- China agreed to address the protection of U.S. intellectual property.
- China agreed to provide U.S. companies greater access to its financial sector.
- China agreed to not devalue its currency to prop up exporters.
- The U.S. agreed to not impose new tariffs on $156 billion in Chinese imports.
- The U.S. agreed to halve the existing 15% tariff rate on $120 billion of Chinese goods.
- The U.S. agreed to increase the number of tariff exceptions it’s willing to grant.
Not too shabby for a phase 1 deal.
But, Chinese social media account Taoran Notes was quick to remind everyone: “We must bear in mind that the trade war is not over yet.” After all, the U.S. still maintains tariffs on some Chinese imports, and China is “still implementing retaliatory measures.”
What’s more, the U.S. plans to pursue a “phase 2” agreement as soon as possible to address subsidies for Chinese businesses, Chinese cyber intrusions in the U.S. and technology transfer to Chinese businesses.
We’re clearly not out of the woods yet, but this appears to be an excellent starting point.
With the phase 1 signing comes phase 1 optimism.
Bullish sentiment surrounding the deal has become quite infectious. Everyone from Alibaba Group Holding Ltd. (NYSE: BABA) to JD.com Inc. (Nasdaq: JD) to Tencent Holdings Ltd. (OTC: TCEHY) surged today.
The thing is, most of these companies weren’t directly affected by the U.S. tariffs anyway. Alibaba makes most of its money selling goods and services in China and Southeast Asia. (Singles Day sales hit an all-time high of $38.3 billion at Alibaba despite the trade war.) It was the same with JD.com.
Tencent has the most U.S. exposure, but most of that is due to online app sales and microtransaction revenue.
The point is, for the vast majority of U.S.-listed Chinese stocks, the trade war can be more accurately described as a war on investor sentiment. If you were able to weather the spike in negativity toward these stocks, you’re about to be well rewarded.
Alibaba, for instance, has surged more than 34% since the phase 1 deal was announced. BABA shares now trade at all-time highs. JD.com shares saw similar performance, but remain about 22% below their all-time highs — so there’s room to grow here for China’s biggest online retailer (by revenue).
Right now, you’re probably wondering: “Should I invest in Chinese stocks, or is it too late?”
Well … it’s not too late, per se, but chasing the current rally might not net you the kinds of gains you’re looking for. Today’s phase 1 signing optimism comes at the tail end of a four-month rally for U.S.-listed Chinese stocks.
Are there more gains to be had? Certainly. But you might be better served if you wait for a bit of consolidation or profit-taking from early investors before diving back into the sector at this point.
That said, keep an eye on Alibaba and JD.com as earnings draw near. Alibaba reports around January 29 and JD.com near February 14. After a record-breaking Singles Day, both should offer up impressive numbers that could send the stocks skipping higher.
Good: Oppenheimer, Destroyer of Shorts
I don’t think there’s a better word to describe Tesla Inc. (Nasdaq: TSLA) short sellers right now than “thunderstruck.” (Well, maybe “screwed.”)
This morning, Oppenheimer dropped a bomb on TSLA shorts by lifting its price target on the stock from $385 to $612 — which is way more specific than $500 or $0. Analyst Colin Rusch said he believes Tesla has hit “critical scale” and can now sustain positive free cash flow.
The boost sent TSLA shares soaring above the $500 mark for the first time ever. But it’s even worse than that for Tesla shorts. The stock has more than doubled in the past three months, raining pain down upon short sellers.
Despite a 5% decline in the most recent reporting period, 19.6% of Tesla’s float (or shares available for public trading) remains sold short. After hitting $500 today, I expect that figure to decline rapidly as shorts get squeezed into buying back their positions and ending their bearish pain.
The bottom line: We haven’t seen the end of the current Tesla bull rally. (And we haven’t even touched on Model 3 fart noises yet!)
Better: Hot Pants, Hot Stock
“What retail apocalypse?”
That’s what investors in Lululemon Athletica Inc. (Nasdaq: LULU) must be thinking today. The athleisure apparel retailer just lifted its earnings and sales forecasts for the holiday quarter due to strong seasonal demand.
Lululemon lifted its earnings expectations by $0.12 to between $2.22 and $2.25 per share, with revenue expected to come in between $1.37 billion and $1.38 billion — a $5 million boost to prior guidance.
That’s a lot of yoga pants. Enough to push LULU shares to a fresh all-time high.
If Lululemon teaches us anything about retail, it’s that this so-called retail apocalypse isn’t affecting every retailer. Only the ones that apparently can’t adapt quickly enough to changing retail demands. On that note, Lululemon already learned its lesson, and it’s executing impressively right now.
Best: In the Cards for Big Data
If you’re not familiar with Cardlytics Inc. (Nasdaq: CDLX), you need to get familiar now.
The company specializes in analyzing banking rewards program data and turning that information into actionable marketing and advertising strategies. While this may sound boring — let’s be honest, digging through someone’s bank rewards data would put all of us right to sleep — Cardlytics’ business model is very profitable.
The company has beaten Wall Street’s earnings projections in every quarter for the past year. And it’s about to do so once again. Cardlytics just announced preliminary fourth-quarter results, and Wall Street is shocked.
The company expects total revenue to be between $68.5 million and $69.5 million on total billings of between $99 million and $101 million. Now, those numbers may not mean a lot to you, but Wall Street is very impressed, let me tell you.
How impressed? CDLX shares are up more than 21% following the preliminary announcement.
It’s a vulnerable time for a lot of these young dudes, feel me? They don’t be taking care of their chicken right. … I’ll tell y’all right now while y’all in it, take care of your bread so when you’re all done you can go ahead and take care of yourself.
After losing to the Green Bay Packers last night, Lynch refused to offer up your typical sportsball clichés — and instead offered up a unique perspective on money. Clearly, Lynch’s commentary was aimed at NFL players — 80% of whom suffer from financial stress shortly after retiring.
However, Lynch’s words of caution also apply to anyone when it comes to retirement, echoing the Great Stuff motto of “be prepared.”
I wonder if we could get away with changing that to: “Are you taking care of your chicken right?” or “Are you making bread to keep yourself ahead?”
Maybe we’ll just leave that to Marshawn. That seems best.
Great Stuff Helps You Protect Your Bread
Mr. Great Stuff, you could’ve left the analogy in the last section.
I see your point and sidestep it to tell you the best way to care for your chicken — er, wealth.
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Remember, it’s a vulnerable time for a lot of these young dudes (and dudettes) … feel me?
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing