Danger Signs, Aurora Climbs, Morgan Stanley’s Fine
IPOooo … Oh My God, We’re Going to Crash!
Hey, I heard you missed us … we’re back! (Yeah.) I brought my pencil. Gimme something to write on, man!
Sorry about the two-day hiatus, but life happens. While I was away, the market broke out to fresh all-time highs. The Dow is above 29,000, and market bulls are eyeing 30,000. Jeez, I’m out of it for a little while, and everyone gets delusions of grandeur!
But there’s one thing that didn’t change while I was out. As usual, with the advent of new market highs come the inevitable “the last time this happened, everything went to hell” articles. Today’s “clear danger sign” example comes from MarketWatch.
The article interviews AdvisorShares Ranger Equity Bear ETF (NYSE: HDGE) manager Brad Lamensdorf. It opens with the comical line: “When pigs squeal, feed them.”
Excuse me while I try not to have Deliverance flashbacks here.
The “pigs” comment refers to an age-old adage on Wall Street. When investors are craving overhyped initial public offerings (IPOs), investment bankers will feed those “pigs” with more overhyped IPOs. But, as Lamensdorf notes, this can be a “clear danger sign.” He elaborates:
(It kills me that we can’t edit direct quotations. Why two different spellings for “overpriced,” Brad? Why?)
The last time we saw this kind of excessive exuberance and resurgence in failed IPOs was 1999, aka the dot-com bust.
The dot-com bust is the new “Black Monday” (which was the new 1929 crash, which was the new Panic of 1907, yada, yada, yada). It’s brought up every time a new indicator gives the impression that the current bull market run is ending. It’s the Godwin’s law of finance.
Now, I agree with Lamensdorf that many investors in the IPO market lost their ever-loving minds last year. Following the WeWork debacle, the IPO market all but imploded. Speculative venture capital investors became much more conservative after former WeWork CEO Adam Neumann took them for a ride.
The problem with screaming “the sky is falling” every time an indicator throws off a bearish signal is that, eventually, no one will believe you … Chicken Little.
This indicator is no different. Unlike 1999, the entire market isn’t driven by IPOs. Back then, investors were fixated on any and every internet dot-com company. It didn’t matter that most of those companies’ business plans were written on fast food napkins — if they had one at all.
Dot-com companies were the market back in 1999. IPOs are not the market in 2020, nor were they in 2019. If they were, we would be talking about WeWork like we talk about Bear Stearns and the financial crisis.
Is this explosion of losses in the IPO market concerning? Sure. Is it bad for speculative IPO investors? Definitely. Will it stop the current bull run? Nope.
The current market is so much more than just overhyped IPOs. It will take more than this one indicator to give a “clear danger sign” for the market as a whole.
In the meantime … you know what to do after you feed the pigs, right? You make bacon!
I can think of no better way to bring home the bacon than by joining Paul Mampilly’s True Momentum research service.
Paul sifts through the stock market’s scruff so you don’t have to. Instead, he recommends standout stocks that are primed to soar higher.
And as this bull run continues, you’ll need stocks with true momentum to keep the bacon — er, gains — rolling in.
Good: It’s All About the Benjamins, Baby
What you wanna do, be traders? Investment bankers? Gains-makers?
Morgan Stanley (NYSE: MS) just made bank on earnings … we’ll call it money for short. The investment banking giant blew Wall Street’s expectations away, posting a profit of $1.30 per share in the fourth quarter. The consensus was looking for $1.02 per share.
Revenue soared 27% to $10.86 billion, bro. Now that’s some green. Know what I mean?
But Morgan didn’t make its money wheeling and dealing in equities and trading, no. Morgan got paid in the fixed-income market, where revenue surged 126% to $1.27 billion.
It’s certainly an unexpected turn of events, given that we’re 10 years into a bull market, but being less aggressive paid off big-time for Morgan Stanley.
It’s also a nice contrast to the woes plaguing the IPO market right now. A word to the wise from Morgan Stanley: You don’t need to be aggressive across the board to grow your wealth.
Better: Lifting the Cannabis Haze
Dude … wait … what happened? Oh, we were running a business! I guess we should, like, fix it or something.
I’m not sure if the cannabis market has fixed itself yet or not, but investors certainly think the sector has baked long enough.
Pot stocks have made a comeback in the past week, and former Great Stuff favorite Aurora Cannabis Inc. (NYSE: ACB) is showing signs of life … thanks to Cowen analyst Vivien Azer.
Azer reported on the ICR Conference this morning, telling clients that Aurora’s management was working with creditors to restructure its debt.
She also noted that the Canadian cannabis firm looks to control spending and focus on sales. (Focus on sales?! Duuude … that’s a great idea! We should totally sell this stuff.)
As part of her note to clients, Azer reported that sales of Aurora’s Cannabis 2.0 products (such as gummies and chocolates) exceeded expectations. Azer then reiterated her outperform rating with a $4.61 price target on the stock.
So far this week, ACB shares are up nearly 40%. While this is good for investors, the stock remains down more than 70% in the past year. What’s more, Wall Street may not be convinced to buy back into ACB until the company reports earnings next month.
Best: Squeezing Mr. Robot
iRobot Corp. (Nasdaq: IRBT) is about to go on a rampage, and there’s nothing Will Smith can do about it this time.
Beaten down by an escalating trade war between the U.S. and China, iRobot finally got some relief this week when both sides signed the “phase 1” trade agreement.
Doing so lessened tariff pressures on iRobot, which has an extensive supply/manufacturing chain running through China.
With a sigh of relief, investors returned to this outperforming home-robotics specialist in droves. The stock is up more than 15% in the past two weeks, with bullish sentiment driving IRBT above psychological resistance at $50. (And you thought psychology and robots didn’t mix!)
While the rally has investors excited, short sellers are more nervous than a long-tailed cat in a room full of rocking chairs. According to ShortSqueeze.com, more than 46% of iRobot’s float (i.e., shares available for public trading) are sold short. In other words, nearly half of all IRBT shares on the market are shorted.
This is a powder keg just waiting to explode for IRBT. All it’ll take is one little spark to send the shares skyrocketing as short sellers rush to avoid potentially heavy losses. (Just look at what happened to Tesla Inc. (Nasdaq: TSLA), which more than doubled in just a few months due to short sellers covering their sold positions.)
The catalyst for such a move could be something as benign as IRBT shares moving above technical resistance at $55. Or, it could be next month’s quarterly earnings report. Either way, IRBT is primed and ready to run.
You Marco. I Polo.
It’s Reader Feedback time!
It’s been a bit of a rough week, and I feel like we could use some encouragement around here. (I know I could, at least.) So today, I’m going to be a bit shameless and share some of the great things you have to say about Great Stuff.
Let’s start with this short-but-sweet email from Barbara M.:
Thank you, Barbara! But I’m afraid that if I took my mind out of the gutter, there wouldn’t be anything left of it. (My mind or the gutter … I’ll let you decide which.)
Next, we have this delightful feedback from Dawn B.:
OK, I admit, I just read my first Great Stuff email — love it! But tell me again, what happened to the little boy who said the king had no clothes on? (Isn’t that what the derivatives excuse was all about? “Don’t worry, I can’t explain it and you wouldn’t understand it anyhow, just the brainiacs in the financial markets, the nerds!”)
Love your sense of humor and your no-nonsense assessment of the information. What I’m curious about is all this information and misinformation — some of it coming from the president himself! So, how do we know what’s real and what’s Memorex?
Thanks again for a refreshing, witty, delightful read!
I completely forgot about those commercials! “Is it live, or is it Memorex?” Here’s a little Ella Fitzgerald commercial for those who don’t remember.
(For you young’uns out there: Back in the day, we had to record music and videos on these things called cassette tapes and VHS tapes. It was barbaric, and we liked it.)
I’m glad you love Great Stuff, Dawn! And if you’re worried about all the misinformation out there, just keep it dialed in to Great Stuff and BanyanHill.com. We’ve got you covered.
If you wrote in and I didn’t get to you, it might be because you cursed too $%*?@#! much. I still really appreciate the feedback, even if they won’t let me publish it.
And if you haven’t written in yet … what’s stopping you? Drop me a line at GreatStuffToday@banyanhill.com and let me know how you’re doing out there in this crazy bull market.
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing