Lowe’s Train Leaves the Depot; Saudis Go Home & The Bearish Barrage
First World Problems?
Saudi Crown Prince Mohammed bin Salman is having a terrible, horrible, no good, very bad year.
This past month, the Saudi Arabian prince and head of state-owned Saudi Aramco learned that his newly minted initial public offering (IPO) was worth way less than he expected.
Despite protests that he hadn’t even taken the Aramco IPO out of the box yet (It’s still in mint condition!), investors around the globe balked at bin Salman’s price range of $1.7 trillion to $2 trillion.
Yes, that’s trillion with a T.
Aramco’s valuations have varied widely, but most IPO banks valued the company in a range of $1.2 trillion to $1.5 trillion. Again, that’s trillion with a T, and it’s about 25% below bin Salman’s desired sale price.
Many companies would be happy with the initial valuation, trusting their value would rise once investors came on board. But not bin Salman.
In true princely fashion, the Saudi crown prince took his ball … and went home.
Saudi Aramco canceled its IPO “roadshows” in Asia, the U.S. and England — much to the dismay of more than two dozen banks, advertising agencies, advisors and other various money people.
Instead, Saudi Aramco will now conduct its IPO on the Tadawul stock exchange in Riyadh, Saudi Arabia.
Back on his home turf, bin Salman can (literally) command the $1.7 trillion valuation for Saudi Aramco that he desires. Yes, trillion with a T.
OK, so this isn’t a “first world problems” issue. It’s more like a 0.0001% problems thing.
But one question has troubled me since the day that Saudi Aramco announced its desire for an IPO. Why does the world’s most profitable company want to go public?
Most companies go public to raise cash to fund operations or expansion. It’s a much faster way to raise capital than waiting on revenue to rise, and it’s much safer than taking out corporate loans. But Saudi Aramco clearly doesn’t need the cash … or does it?
According to former CIA Chief David Petraeus, Mohammed bin Salman is running out of cash to fund his “Vision 2030” program, which focuses on social and economic reforms in Saudi Arabia.
If the prince really is running out of cash to fund his vision for Saudi Arabia, it not only explains the Aramco IPO, but also his insistence on a high valuation (and reportedly pressuring OPEC to drive up oil prices to help make the IPO a success). I smell a touch of desperation in the air, how about you?
Unfortunately for bin Salman, he picked a really bad time to take Aramco public.
A string of high-profile, underperforming IPOs — Uber Technologies Inc. (NYSE: UBER), Lyft Inc. (Nasdaq: LYFT) and the infamous WeWork — sorry, “The We Company” — soured investor tastes for big, gaudy public offerings.
What’s more, global investment preferences for “fossil fuel” companies have fallen off considerably in the past couple of years as countries move toward renewable sources of energy.
And then we have the issue of security. Oil field security, to be specific. Investors still remember when drone strikes set key Saudi oil refineries on fire in September. I hope they remember — it was only a couple months ago.
The bottom line here is that Saudi Aramco pulling back its IPO to Riyadh is a good thing for investors. It’s one more gaudy, overpriced IPO temptation out of the way.
There are better ways to invest your money in the oil and commodities markets than the Aramco IPO, and Banyan Hill expert Matt Badiali is the man you need to guide you to them.
In fact, Matt is researching a revolutionary new technology that could unlock a potential $70 trillion windfall for investors — once again, that’s trillion with a T — and it starts right here at home.
Good: High in the House
The U.S. House of Representatives is getting high today.
Well, not really … but we all know it could stand to chill out a bit. The House Judiciary Committee is slated to vote (and reportedly pass) the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. I swear it employs a whole group of people just to think up these names.
The MORE Act, should it become law, would decriminalize cannabis at the federal level and remove it from the Controlled Substances Act schedule. But that’s not all … it would also purge federal pot convictions, prompt resentencing for those currently incarcerated and establish a 5% sales tax on cannabis.
Now, before you potheads get too excited about MORE, remember that decriminalization does not equal legalization. That would still fall under the purview of individual states.
But, it’s a big start. And it’s big enough to end a six-day slide in cannabis stocks. Canopy Growth Corp. (NYSE: CGC), in particular, is having a banner day following news of the MORE Act.
Additionally, CGC is getting help from Bank of America Merrill Lynch, which upgraded the stock to “buy,” saying Wall Street’s estimates are now achievable for Canopy.
Better: Get Low(e’s)
To the windows … to the walls, Lowe’s Companies Inc. (NYSE: LOW) has all your home improvement earnings needs covered.
Following on the heels of Home Depot Inc.’s (NYSE: HD) sales miss, Lowe’s just reported a beat-and-raise quarter. Earnings came in $0.06 per share ahead of the consensus estimate, while revenue topped expectations at $17.39 billion.
Lowe’s even bucked the recent retail trend of guiding lower, instead boosting its full-year outlook to earnings of between $5.63 and $5.70 per share. It’s clear that the company has its head on straight and isn’t making any of the missteps that analysts are trying to explain away at Home Depot.
LOW shares are running with the news, up more than 4% to hit fresh all-time highs.
Best: Target’s Bullseye Earnings
Reports of the death of retail have been greatly exaggerated.
Here’s the breakdown: Earnings topped by $0.17 per share, revenue beat by $480 million, same-store sales were 1% above expectations and full-year guidance was placed well above Wall Street’s expectations.
And the icing on the cake: Online sales rocketed 31% higher. Take that, Amazon!
It was the ultimate in beat-and-raise quarters, and investors are cheering the results. At last check, TGT had surged more than 12%, hitting its own all-time high.
This is nearly a word-for-word recreation of a conversation I had with my youngest daughter last week. I’m both excited and worried about her. Wish me luck?
Great Stuff: Bearish Barrage
Wow … I mean, just … wow.
For instance, take this email from Richard F.:
Richard went on for a bit more, but you get the point. (This email was also sent in all caps, by the way.)
So, out of respect for my non-Tesla readers out there, I’m sharing a counterpoint from Banyan Hill expert John Ross, editor of Apex Profit Alert.
John recently identified a downtrend for Tesla — a 13% downtrend that could put the shares near $302. But you don’t have to short TSLA to benefit from this decline. To find out how and see John’s bearish take on Tesla, read: “How to Profit From TSLA’s 13% Decline With Put Options: John’s Chart of the Week.”
To get more of John’s expert analysis (I’m talking to you, Tesla bears!), sign up for Apex Profit Alert today!
Finally, if emailing me isn’t satisfying your need to rant or comment on a topic, why not start a discussion with other Great Stuff readers?
Get that conversation rolling — click here now!
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing