Sucking the Marrow out of Wall Street
Today, dear readers, we’re going to talk about mania — Wall Street’s mania.
From Virgin Galactic Holdings Inc. (NYSE: SPCE) to Tesla Inc. (Nasdaq: TSLA), investors have pushed stock valuations to the breaking point and beyond. In fact, Bank of America Corp. (NYSE: BAC) recently declared that — based on the price/earnings to growth ratio — stocks are more overvalued right now than they have been since the 1980s.
Cue the Flashdance montage. (She’s a maniac, maniac on the trading floor. And she’s trading like she’s never traded before.)
These truly are manic times on Wall Street. When Virgin Galactic — a company with no earnings or revenue — surges threefold in less than two months … when stocks push toward record highs despite the fallen canary in the corner…
Mike O’Rourke, the chief market strategist at Jones Trading, blames this mania on several issues. Zero-commission brokers, forced index buying, FOMO from fund managers and the Federal Reserve’s QE (that’s totally not QE) are the real culprits contributing to Wall Street’s mania.
“The bottom line is there is no respect for risk in the equity market and mania is not indefinitely sustainable, there is no permanently high plateau,” O’Rourke wrote in a note this week.
The question is: When the market has no respect for risk, then what’s the difference between speculation and investing?
The difference between speculation and investing, dear readers, is a fine line to walk.
Identifying pure speculation is easy. Virgin Galactic is the very definition of manic speculation. The company has no earnings or revenue, and its “space travel” service reaches only the bare minimum of Webster’s definition of “space.”
And yet, SPCE has surged more than 300% in 2020. That is speculation, plain and simple.
But what about Tesla? Yes, there’s some speculation in there, as analysts continue to boost price targets (more on that later!) amid exceedingly ridiculous revenue and sales projections.
But Tesla has revenue. It has earnings. It has a product with projected demand — demand reinforced by world governments mandating the death of the combustion engine.
Beyond Meat Inc. (Nasdaq: BYND) is another example of this fine line. The company has earnings. It has revenue. Its products have a voracious following in a social/environmental trend that shows little signs of stopping.
But BYND shares trading at 282 times forward earnings? That’s just silly.
That said, we can sit back and make fun of these ridiculous valuations, point fingers and decry rampant market speculation … or we can profit from this mania! (Just remember to devote a respectable portion of your investments to preparing for the worst, as I warned yesterday.)
We have some time before Wall Street realizes just how bad the fallout will be from rampant speculation and the COVID-19 virus. Since we’re not at the top yet, let’s get right to sucking the remaining marrow out of this bull market.
And I can think of no one better to guide you toward better investment research than Mr. True Momentum himself … Banyan Hill expert Paul .
His nearly three-decade investing career is the stuff of legends. (For instance, Barron’s named his former hedge fund as one of the “world’s best,” with Kiplinger ranking it in the top 1%.)
I mean, the man’s recommendations have turned up top gains of 185% … even 393%.
Early next week, Paul plans to send a brand-new trade opportunity to his True Momentum subscribers. That said, your best chance to join True Momentum before this recommendation goes live ends on Monday, February 24.
Good: Nothing’s Shocking
All right … back to a bit of speculation. Piper Sandler Cos. (NYSE: PIPR) analyst Alexander Potter piled onto the Tesla bull train this morning.
Now, there’s nothing shocking about Potter’s target boost to $928 from $729 or his bullish outlook on Tesla electric vehicles (EVs). That’s all par for the course with every bullish Tesla analyst.
What’s shocking is that Potter apparently realizes that there’s more to Tesla than just cars. As part of his bullish note to clients, Potter cited the company’s SolarCity unit, its battery storage business and its network of EV charging stations.
As a result, TSLA jumped roughly 10% today, putting the stock dangerously close to the $1,000 mark. I say “dangerously” close because $1,000 is the next surge point for the stock. More than 16% of Tesla’s float remains sold short.
That’s about 22.7 million shorted shares that could squeeze if Tesla pops north of $1,000. These remaining shorts are some strong holdouts, given the stock’s run so far this year. But even they have their breaking point, and $1,000 could be it.
Better: Garmin … Wait, Garmin?
Today, GRMN shares surged to a decade high, after the company released much better-than-expected fourth-quarter financials. Earnings topped expectations by $0.15 per share. Revenue spiked 18% to beat Wall Street’s estimates, and operating margins rose to 25.1% to top consensus targets.
Garmin also boosted its 2020 forecast, saying it expects revenue of $4 billion on earnings of $4.60 per share. The figures left Wall Street’s expectations for sales of $2.84 billion and earnings of $4.34 per share in the dust.
The company, it seems, is succeeding where Fitbit failed, as fitness and wearables revenue spiked 34%. But Garmin is no one-trick pony. Aviation and marine revenue rose 22%, and outdoor revenue climbed 16%.
If you weren’t taking Garmin seriously before — like yours truly — now’s the time to add it to your watch list. Maybe consider a position when the stock finally calms down after today’s post-earnings surge.
Best: Totally Not Speculation
The company we’re about to talk about is one of the solar energy sector’s best-kept secrets.
Enphase Energy Inc. (Nasdaq: ENPH) doesn’t make solar panels or photovoltaic cells. It makes power converters … and not the ones you were whining about going to Tosche Station to buy.
These are semiconductor-based microinverters that monitor, regulate and control power generated by solar panels. And they’re required on every single solar panel — i.e., you need multiple Enphase converters for each solar power installation.
It turns out, this means robust sales for Enphase Energy as solar panels gain in popularity. This morning, the company said that earnings literally skyrocketed 875% year over year to $0.39 per share — beating Wall Street’s view by 18.2%. Revenue spiked 119.8% to $210 million, also blowing past the consensus estimate.
If that wasn’t enough, Enphase set guidance for second-quarter revenue of $200 million to $210 million. Wall Street was anticipating a more subdued $171.7 million.
Now, before you go bask in the sun with ENPH, the shares surged an astounding 40% in early trading today. If you want in on this hidden gem in the solar industry … I’d advise waiting for today’s enthusiasm to settle down a bit.
Last week’s poll results are in … and you guys love Great Stuff: Picks!
We asked: “What topics do you like reading in Great Stuff?”
More than 38% of you voted for “stock recommendations.” I’m glad to hear that, and I hope Great Stuff’s picks are working out well for you! That’s what I’m here for, after all. Well … that and the memes.
Economic news was the next most popular topic, with “I’m just here for the memes” bringing up the rear at 11%. Don’t worry, meme lovers: My sarcasm isn’t going anywhere.
This week, we’re talking options!
Are they scary things to avoid? Or are you interested in learning more about options?
Stay tuned: Eventually (when you’re ready), I’ll unveil Great Stuff’s hidden secrets to using options volatility to your advantage!
So, are you an options fiend or an options beginner? Let us know in this week’s poll:
Until next time, good trading!
Editor, Great Stuff