Sherwood Cherry-Picking
Great Ones, do you know what really grinds my gears? Robinhood (Nasdaq: HOOD).
Well … not Robinhood, per se, but the financial media’s coverage of the HOOD stock these past two days. When it comes to Robinhood and its prospects, I pretty much laid that out late last week:
In Robinhood, we have a company’s livelihood — nay, its very existence — that depends on retail investor sentiment. If retail investors don’t like Robinhood, they don’t use Robinhood. And then Robinhood has no money. It’s that simple.
But retail investor sentiment has been abysmal — especially sentiment on Reddit’s meme-stock message board WallStreetBets (WSB). For example, a top WSB post (which has since been removed) during Robinhood’s IPO said: “Is it me or does anyone else get pleasure from watching Robinhood’s stock burn to the ground?”
(Spoiler alert: The answer was “yes.” Many people enjoyed watching Robinhood’s initial crash.)
This brings us to today’s Robinhood narrative in the financial media. HOOD stock was halted in premarket trading this morning after it skyrocketed 65%. The shares went on to open more than 30% higher, putting HOOD up about 90% off its post-IPO lows.
The question is … why? Why is a hated stock surging?
Well, here’s the narrative that the financial media is selling you right now: ARK Investments, which is run by popular tech investor Cathie Wood, took a $4.2 million stake in HOOD — about 89,622 shares for those counting.
That investment instilled courage in retail investors who took to Reddit, WSB and other stock-trading websites to talk bullish about HOOD, thus creating a retail investor boom for Robinhood and its massive rally.
It’s a wonderful Disney-esque tale: Wall Street investor buys “struggling” post-IPO stock, inspiring thousands of Average Joe retail investors to buy the stock they hated just days ago. And we all live happily ever after. The end?
Except, that’s not what happened. What actually happened was that ARK bought $4.2 million in HOOD shares on Tuesday, providing enough lift to push the stock back above its IPO price of $38. Nervous Wall Street players noted the break back above the IPO price and tentatively edged into the stock.
I say “tentatively” because Robinhood’s trading volume was nothing to write home about on Tuesday. You can look at literally any chart and see this. And if the “Cathie Wood inspires retail investors” narrative were true, you’d see much more trading activity after the announcement than what we got.
Once HOOD broke above $40, technical traders moved in and pushed HOOD stock higher still. Technical traders absolutely love round numbers, and a move above $40 piqued their interest.
Note that on Tuesday, there were no stories about retail investors pushing HOOD higher. That didn’t happen until late last night and early this morning … before the market opened and said retail traders could actually start trading. Smell rotten to you yet?
Furthermore, those financial media stories of bullish retail investors on Reddit and WSB? They’re cherry-picked. For every “Unpopular opinion: Robinhood still has the best mobile interface” post on Reddit, there are 10 more completely blasting the company.
In fact, the top post on WSB as of this writing was titled: “My experience trading with Robinhood this past year,” and the Shrek meme created by user “Ratchet_as_****” was decidedly anti-Robinhood … and hilarious. Here’s the link, which is totally not safe for work, if you’re interested.
What’s more, Reddit users were not happy waking up to find out that the financial media painted them as the reason for HOOD’s rally. Many financial stories backed up their claims by noting that HOOD was among the most popular tickers on Reddit due to the sheer number of mentions.
Many also claimed that most of those mentions were positive … something anyone of us can debunk by simply searching for “Robinhood” during the past 24 hours on Reddit…
Which I did … and the results weren’t pretty. The profanity directed at HOOD was more than I can post here, I’ll tell you. So, what does this tell us?
It tells us the HOOD stock rally isn’t due to a change of heart from retail investors. It’s a rally that started with Wall Street insiders like Cathie Wood and ARK.
That if there is a surge in retail investors buying HOOD, it’s likely due to the stories in the financial media … that don’t necessarily represent reality. Those stories emerged last night and this morning — you know, times when retail investors literally can’t trade?
And, finally, it tells us that you’re being sold a narrative on Robinhood.
Now, I’ve been around the block on Wall Street more than a few times, and what’s happening with Robinhood is pretty much par for the course. Wall Street insiders are used to it. They factor this stuff in when they buy or sell.
But retail investors? They’re once again learning the hard way how Wall Street operates. I hope y’all Great Ones out there aren’t investing in HOOD with any serious cash … like rent money. HOOD is going to get ugly.
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Going: General Motors & Lieutenant Confusion
Good news, Great Ones! If you were in the market for some used General Motors (NYSE: GM) stock, now might be the best time to buy.
GM shares plunged more than 8% today in the wake of an impressive beat-and-raise quarterly report — the old 2021 two-step. I’m sure we’re all familiar with how this goes at this point. Here are the numbers:
- Earnings per share: $1.97 versus $1.82 expected.
- Revenue: $34.17 billion versus $29.92 billion expected.
Those are some rather fine numbers right there. GM even raised full-year earnings guidance to between $5.40 and $6.40 per share.
Unfortunately for GM, Wall Street expects full-year earnings of $7.07 per share. And therein lies the rub.
Right now, GM is facing a global semiconductor shortage, rising COVID-19 cases and a flagging U.S. economy. GM knows this all too well, and yet it still raised guidance. Wall Street also knows this, but I think that the Street is still wearing rose-colored glasses when it comes to the pandemic and the U.S. economy.
I’d say the raft of elevated consensus estimates proves that point … see Lyft below for yet another case just like this.
So, GM stock fell not because the company is underperforming. All things considered, General Motors is knocking it out of the park.
No, GM fell because Wall Street’s expectations are too high … and they’ve been too high across the board for a while now.
The good news is that, with GM dropping despite a beat-and-raise quarter, you now have the opportunity to snap up GM stock at a discount — if you’re so inclined.
GM isn’t an official Great Stuff Picks portfolio selection … yet. But it’s definitely on the shortlist for consideration.
Editor’s Note: Will This Beat Electric Vehicles?
Almost every car company is betting on this new tech: Audi alone is investing $16 billion. GM is investing $27 billion through 2025. BMW? $35 billion. In fact, Google, Amazon, Apple and even the U.S. Army are investing in it.
What would get car and tech giants investing together? Click here to keep reading…
Going: The Midnight Ride-Sharer
Just like GM, Lyft (Nasdaq: LYFT) is quickly learning how hard the 2021 two-step is when you can’t see your feet through rose-colored glasses. (Jeez, how many metaphors do you want to jam in here? A whole raft of them?)
Right now, Lyft has to run to keep from hiding. And it’s bound to keep on riding — rising COVID cases notwithstanding.
And Lyft has more than a few silver dollars in its latest earnings report: With sales up 125% year over year, Lyft’s revenue hit $765 million and blew away estimates for $696.9 million. Nice.
The revenue Lyft brings in from each rider is up 14%. Drivers are earning more too. It’s like a Christmas miracle in August. Except for, well, the rest of Lyft’s report.
Earnings still came in at a loss — adjusted earnings per share (i.e., the only earnings Wall Street truly cares about) landed at a loss of $0.05, which, in fairness, still beat estimates for a $0.24 loss. Guidance, however, is where Wall Street finally caught the midnight rider.
Analysts want Lyft to bring in $869.1 million for the current quarter, but Lyft only expects it will bring in between $850 million and $860 million … and that’s “barring a material decline in the operating landscape” from the pandemic.
Personally, I’d say that whole pandemic thing is a pretty big “what-if.” Why would Lyft not account for the uncertainty with COVID? Why?
Because according to Lyft’s management, everything’s been just peachy keen so far. Despite rising case counts, July was Lyft’s best month since the pandemic started a year and a half ago. Because business is hunky-dory now, it’s bound to stay that way all quarter long … right?
Do y’all see the problem here? We’re still playing the reopening hokey pokey, just like last summer. Lyft’s success in July doesn’t mean squat if we’re headed for more indoor restrictions and potential lockdowns.
Don’t get me wrong: Lyft’s improving. Its business is growing by leaps and bounds compared to when the company first went public. But Lyft needs economic stability to sustain its growth, and stability is kinda hard to find right now.
Wall Street finally held back its post-pandemic rosiness, smiting Lyft shares down 8% today on the report’s unrealistic optimism.
Gone: Over/Under Armour
We’ve talked a lot about expectations today, Great Ones. The financial media setting expectations for Robinhood, General Motors not living up to elevated Wall Street expectations and Lyft whiffing those same above-the-board Street targets.
Under Armour (NYSE: UAA) faced a similar fate with last night’s quarterly earnings report, but the outcome was vastly different…
The sportswear maker posted a profit of $0.24 per share on revenue that soared 91% to $1.4 billion. Both figures raced past Wall Street’s targets of $0.05 per share earnings and $1.2 billion in revenue.
Under Armour even raised its full-year guidance, saying it expects revenue growth in the “low twenties” on a percentage basis. All in all, the company’s turnaround strategy is working as intended.
“Given the continued momentum, we’re raising our full-year outlook, which puts us on track to achieving a solid performance in 2021,” said CEO Patrik Frisk.
My first question should also be your first question here: Why is UAA different? I mean, GM beat and raised. Lyft beat and raised. Yet, both GM and LYFT shares fell.
The answer is one word: expectations.
Wall Street’s expectations for Under Armour were clearly lower than the rest. And it’s not because of COVID-19 or supply shortages or a flagging U.S. economy. All those things were factored into GM and LYFT … and they were certainly factored into Under Armour.
No, clearly, Wall Street didn’t believe that Under Armour’s turnaround strategy would work as well as it has — despite overestimating how well both Lyft and General Motors would perform during the same period.
And so, UAA stock rallied nearly 6% following its beat-and-raise quarter. This isn’t a bad thing by any means — it’s how things are supposed to work.
That said, another part of how things are supposed to work is that UAA will see a consolidation period as investors digest recent gains. If you’re looking to buy UAA stock, this consolidation period is what you’re waiting for.
It’s poll day, Great Ones! One of many chances you have to share your stock market hot takes. Of course, if you have more to say than a mere poll can satiate, write to us!
Drop us a line at GreatStuffToday@BanyanHill.com. You might just see your raving thoughts featured in tomorrow’s edition of Reader Feedback, where we slip on our waders and go rummage ‘round the Great Stuff inbox.
Samuel F., your question about AMD options is at the top of my list for tomorrow — you lucky dog, you. But the rest of you still have time to join Samuel if you write in now!!
Now, for last week’s poll, we wanted your take on which chipmaker will win the data center duel. Here’s how y’all voted:
- AMD: 54.8%.
- Nvidia: 33.3%.
- Intel: 11.9%.
Now those are my Great Ones! Someone paid attention to AMD’s last earnings razzle-dazzle.
I almost feel bad for ol’ Intel … almost … until I remember that neither AMD nor Nvidia have to move goalposts to make their progress look good. Womp. Sorry, team blue.
Anyway, on to bigger and better things: a new poll!
Back in March — when rumors of Robinhood’s public foray were confirmed, and the GME debacle was still a fresh open wound for investors — we asked if you planned to buy Robinhood’s IPO.
A good chunk of you wanted to wait for Robinhood’s IPO and do some due diligence before you dive in, and by golly, I think it’s time we touch on that once more.
I won’t say how many of you voted which way or another in our first Robinhood poll — can’t have any past results clouding your choices, you know? We already know what the financial media wants you to think about Robinhood’s IPO, but we want to hear it from you.
Did you buy Robinhood stock? Do you plan to? Click below and let me know:
I know a few of you are already frantically typing out a rant about “Robinhood this” and “payment for order flow that.” I, for one, can’t wait to see what glowing pieces of retail investor sentiment we see in the inbox!
Is the financial media right? Are y’all really in a love affair with the ‘Hood, or is the narrative just that … a narrative?
Let us know and drop us a line GreatStuffToday@BanyanHill.com. We’ll catch up with the results for today’s poll this time next week!
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
