Long Live the Trade War – New Tariffs Fuel Market Uncertainty
Did you enjoy yesterday’s break from the trade war?
It was fun for a day, wasn’t it?
Semiconductors rallied. Oil stocks gained ground. The market hit all-time highs. For a brief moment, we were able to shrug off global uncertainties and bask in the remnants of the bull market.
Today, that illusion of certainty is over.
The U.S. is proposing tariffs on another $4 billion in goods from the EU. This comes on top of the $21 billion in tariffs announced in April.
The new tariffs affect products including cheese, olives and (gasp!) scotch whiskey.
Don’t touch my whiskey. Them’s fightin’ words.
At the center of the row is an almost 15-year fight at the World Trade Organization (WTO) over aircraft subsidies for Boeing Co. (NYSE: BA) and European rival Airbus. According to the WTO, both companies receive billions in government subsidies.
For its part, Boeing has urged the U.S. to more narrowly implement tariffs so as not to impact American manufacturers.
There’s only one way to describe current market conditions: certainly uncertain. Today’s tariff news is a stark reminder of that.
Clearly, the market wants to move higher. Investors are jonesing for a reason to push stocks further into all-time-high territory. However, the constant uncertainty of where tariffs will strike next (India and Vietnam are on the short list) has left many investors on the sidelines.
In fact, according to a Bank of America report, cash holdings are at their highest levels since 2011. That’s a lot of capital that could be put to work. But it’s just sitting there as investors remain vapor locked by uncertain global market conditions.
One thing’s for certain. If we ever do get clear skies on the tariff front, there’s going to be one heck of a relief rally.
In the meantime, there are pockets of opportunity in the market — especially where initial public offerings (IPOs) are concerned. To get started today, check out Banyan Hill expert Paul Mampilly’s new IPO Speculator service.
Good: Lyft’s 5-Star Review
Anyone call for a ride?
Uber was started at hold, but with a $50 price target — a 13% premium to yesterday’s close. Lyft was reiterated at buy and saw its price target boosted to $76.
Stifel called out Uber’s growth prospects and “better-than-expected competitive rationality.” Competitive rationality … that’s a new one, even for me.
For Lyft, the ratings firm highlighted the company’s partnership with Alphabet Inc.’s (Nasdaq: GOOG) Waymo and its market-leading innovation.
Basically, Stifel sees growth for both ride-sharing companies — Uber for brand recognition and Lyft for technology. I’m inclined to bet on technology, but you do you.
Better: This Bud’s for Hong Kong
Biggest IPO of the year. That title currently rests with Uber after it raised $8.1 billion back in May. But Anheuser-Busch InBev (NYSE: BUD) just can’t let that title go unchallenged.
AB InBev is planning a listing on the Hong Kong exchange later this year that could chug down an estimated $9.8 billion. That’s a lot of beer. That’s a ridiculous amount of beer. It’s a market value of about $64 billion, and that’s just for AB InBev’s Asian market.
Société Générale calls the valuation “reasonably punchy.” I’m guessing that translates to: “No, I can drive. I’ve only had nine beers” in analyst speak. The ratings firm says a frothy IPO at the high range would put Budweiser Brewing (the name of AB InBev’s Asian listing) at 33.5 times 2020 consensus earnings.
Pulling in that much cash would allow AB InBev to pay part of its considerable bar tab — about a 10% reduction in borrowings, according to Société Générale.
With Chinese operations growing considerably, the prospects for AB InBev are good. But that’s still a lot of beer.
Best: i carry your heart with me
(i carry it in my heart)
Any E.E. Cummings fans out there? Let me here you say “(yeeaaah!)”
How about biotechnology fans? We have to have some of those in the house.
If you’re watching the biotechnology space and Amarin Corp. (Nasdaq: AMRN) isn’t on your radar, you’re headed for heartbreak.
AMRN shares are up more than 60% this year, and the stock is up nearly another 15% today.
The reason? Amarin just boosted revenue guidance due to strong demand for Vascepa — a treatment for chronic cardiovascular disease.
The company expects the treatment to “generate billions of dollars in revenue in the years to come.”
Amarin is already on a hot streak, reporting a 67% increase in first-quarter revenue earlier this year. If growth prospects pan out for Vascepa, the company’s newly issued guidance boost may be on the conservative side. That’s one biotechnology investment you can take to heart.
FactSet writes great headlines for its research. But the rest of the story is always less dramatic. Overall, earnings season will be mediocre. Looking at aggregate data, 77% of companies issuing negative guidance is in line with average. Historically, 70% of companies warn in an average quarter.
But for individual companies, expect big moves … like “earnings-geddon” for individual stocks. Misses will be punished more than average. Many companies failing to impress should see their stocks fall 5% or more.
This is a perfect earnings season for stock pickers, not index investors.
What on earth could get Banyan Hill expert Michael Carr this worked up?
This article from CNBC warning about earnings season: Companies are warning that earnings results are going to be brutal.
Maybe if you’re an index investor. But for stock-picking gurus like Michael Carr, it’s just another day at the office.
Great Stuff Stock of the Week: Wix You Were Here
This week, we’re headed back into the cloud.
I know what you’re thinking: “Jeez, not another cloud stock.”
But this one is different. No, really.
You see, all the big cloud companies out there focus on one thing: big, Fortune 500 businesses.
The Amazons, Microsofts and Alphabets of the world are focused on the big bucks … the big, multimillion-dollar contracts.
But what about the little guys? The small- to medium-sized businesses?
After all, I hear they’re the lifeblood of any major economy.
They want in on the cloud action too. The problem is that the barriers to entry for cloud business services are often too high for these smaller companies to afford.
That’s where Wix.com Ltd. (Nasdaq: WIX) comes in.
Wix offers website creation tools, management solutions and marketing tools needed to launch these smaller businesses into the clouds. These businesses need cloud services to compete, making the potential for growth in the market enormous.
At the end of the first quarter, Wix touted its more than 150 million subscribers. On the quarter, the company added 6.6 million free users and had more than 180,000 paid subscribers.
Growth has been impressive, and CEO Avishai Abrahami believes that Wix could easily grow from $1 billion in annual collections to $10 billion.
That’s no joke. Wix saw revenue growth average 26% per quarter so far this year and is projected to see growth of 25.5% in 2020. Earnings shocked Wix analysts as well, with the company beating expectations by an average of 35% over the last four quarters.
The company also has eyes on the future to provide small businesses with the same data analytics that the big boys use.
Wix’s Corvid feature (which is still in beta testing) links to external data sources to gather, sort, store and manage content. Corvid rolls out in the next six months and should be a major draw for the company.
Wix shares, meanwhile, weathered the recent volatility in the technology sector rather well. WIX price is up 58% this year and remained stable during the volatile market conditions of the past month.
In short, WIX shares are well rested and ready to run — especially if the company knocks out another stellar quarterly report next earnings season.
The bottom line: Buy WIX.
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing