Friday Four Play: The ‘Final Countdown’ Edition
On Monday, December 21, Tesla (Nasdaq: TSLA) will officially join the S&P 500 Index.
If you read my December 1 report on this shindig, you know what today is. Sing it with me: It’s the final countdoooown!
If you didn’t read that report, go click that link now. It’s okay, I’ll wait. I won’t suddenly leave your screen. Finished yet? OK, good…
For those of you who just said you read it but didn’t (I see you out there!), let’s recap:
- Tesla is the biggest company ever added to the S&P 500.
- Once added, it’ll account for about 1.44% of the entire index. (That’s huge!)
- Index funds (ETFs and the like) that track the S&P 500 need to buy TSLA.
- Today’s the last day for those funds to get their books in order before TSLA joins.
- Once index funds have met their requirements, who’s left to buy TSLA?
If you want a real-world example of what happens after a large company is added to the S&P 500, just look at Yahoo in 1999 and Facebook in 2013. Both dropped anywhere from 10% to 20% in the following months.
Since December 1, TSLA rallied nearly 15%. That’s a sizeable gain for anyone who took my off-the-cuff and risky suggestion to buy TSLA calls last time.
We knew this rally was coming. It’s a direct result of index funds buying TSLA. They didn’t really have a choice there, and speculators took full advantage of the situation.
But this gain also falls roughly in line with the potential 10% to 20% downside TSLA faces in the weeks following Monday’s inclusion in the S&P 500. The risk to TSLA holders here is palpable. Speculators have their gains, and with little left to drive TSLA higher, they’re likely to take profits.
Once profit-taking starts in earnest, the stock’s snowball effect will begin — potentially even pulling the S&P 500 along for the ride.
The bottom line here is that TSLA trades at 1,254 times its earnings — a P/E ratio of 1,254.11. That’s just insane. It’s unrealistic, even for the most advanced and cutting-edge tech firms.
Now, I like Tesla as a company. I like its prospects, and I believe it has a strong future. But TSLA shares aren’t currently priced with reality in mind. Something has to give, and the fallout from this S&P 500 situation may finally be the straw that breaks the back of Tesla speculators.
Consider yourself warned. This isn’t the first time we’ve told you about steering toward the electric vehicle market’s less-treaded waters. If you still — still — haven’t looked beyond the Big Red T for something better in the battery space, don’t wait to click right here, right now.
And now for something completely different, here’s your Friday Four Play:
No. 1: Banana Bandanas
Banana bandanas?
Weird rabbit hole. We’ll get to that in a minute. First, FedEx (NYSE: FDX) shares fell more than 5% today as Wall Street reacted to earnings.
No, FedEx didn’t miss on earnings. It beat expectations by $0.82 per share, nearly doubling last year’s results. Revenue also blew past Wall Street’s targets, rising 19% year over year to $20.6 billion.
At this point, you might be able to guess why FDX dropped today: guidance. The speedy delivery firm said it expects continued demand and growth in the second half of its fiscal year, but it felt uncomfortable providing guidance due to spiking COVID-19 infections.
“While current business demand continued to improve in the second quarter, the current rise in COVID-19 cases globally adds significant uncertainty to demand forecast as well as operating costs and clouds our ability to forecast full year earnings,” said CFO Mike Lenz.
At this point, I think it’s safe to assume that the pandemic is a massive tailwind for FedEx. You know it. I know it. Wall Street knows it. And yet, FDX dropped when the company remained prudently cautious.
You know what this is, right? It’s profit-taking. FDX soared more than 220% off the March bottom, so profit-taking is expected. However, with the holiday shopping season in full swing, I see this as an opportunity.
With all the online shopping going on, FedEx will absolutely crush expectations in its next quarterly report. Mark my words. If FDX is your thing, now is probably a good time to buy.
Oh, and as for the “banana bandanas” thing … sometimes researching a stock leads you to strange, faraway places — such as the FedEx India YouTube page, for example.
No. 2: Because I’m Happe
It was October 26 … a Monday.
I just finished a rant about market volatility when I ran across an unfairly beaten down company…
That hardly clarifies anything, you know. It’s kinda your 2020 shtick.
Fair enough, but bear with me…
That company was Winnebago Industries (NYSE: WGO). WGO got hammered for no good reason, and I told you: “If your risk tolerance lines up, WGO is probably a good investment pick right now.”
After this morning’s quarterly report, WGO is up 29% since October 29. You’re welcome.
With nearly everything under the sun closed this year, Winnebago capitalized on consumers’ desire to explore the great outdoors in style.
Earnings skyrocketed 280% from year-ago levels to $1.69 per share. Revenue soared 34.8% to $793.1 million. Some tech firms would envy that growth!
Naturally, both top- and bottom-line results blew past consensus estimates. But Winnebago’s best news is that it believes that the trend is gaining momentum. “Interest in the outdoors is not waning and in fact, appears to be strengthening heading into the calendar year 2021,” said CEO Michael Happe.
For the most part, WGO’s success story should carry over into the new year. There’s only one caveat: gas prices. Once the pandemic clears, and people are free to move about the cabin again, it’s almost sure to drive gas prices higher.
How severely higher gas prices will dent Winnebago’s momentum remains to be seen. Just be aware that this is a real risk for WGO heading into 2021.
(Look! I made it through WGO without making a Spaceballs joke!)
No. 3: It’s a DRI Heat
You know where every Winnebago jaunt ends up? Probably at a Darden Restaurant (NYSE: DRI). Well … maybe in any other year. The restaurant group came to the earnings table today with a lovely, lukewarm meal of “meh.”
Darden beat on earnings but missed on revenue — like a get-together at Olive Garden without any breadsticks. Same-store sales dropped a brutal 20.6% last quarter, with the pandemic unequally hitting each chain of Darden’s casual dining cartel.
But we’re talking about LongHorn! And Olive Garden — the real OG! Next quarter will be better, right?
Nope, probably worse. Next quarter is usually Darden’s best, but it still expects sales to slip between 30% and 35%. Newly sprung lockdown restrictions continue to hit the sit-down restaurants hard, with only LongHorn seeing a notable pickup on its takeout hustle. Same-store sales at the steakhouse only dropped 11% last quarter.
And when earnings these days are a game of “only losing” so much, that’s how you end up with this mixed earnings salad.
Though, Darden wasn’t drastically off the mark on either measure. Per-share earnings came in at $0.73 versus expectations for $0.71. Revenue hit $1.66 billion, compared to estimates for $1.69 billion.
It’s an all-around bad time here at the pandemic bistro, as Darden’s cash flow keeps flapping in the Bahama Breeze.
No. 4: The Reese’s Cup of Crypto
Cryptocurrencies! IPOs! They’re two great tastes that taste great together … potentially.
Late yesterday, crypto-trading platform Coinbase filed for an IPO. Details are still sparse from the crypto exchange headed by Billy Corgan doppelgänger Brian Armstrong.
But over the past few years, it’s become the overall bigwig in the crypto-pushing space. Want some ETH? Have some BTC. You know me, I’m your friend. I’m your crypto-man.
The platform lets you trade crypto as well as buy coins in your virtual Coinbase wallet. Of course, King Coin hasn’t gone without its fair share of complaints, attacks and “whoopsie daisies!” on the spying front.
We’re not even sure what the company will be valued when it nears an IPO. Coinbase’s last valuation came in at $8 billion during a funding round in 2018. So, nothing recent. And what’s next?
That’s up to the SEC’s review process to decide, and the rest of Coinbase’s going-public timeline is up in the virtual air.
As it stands, the IPO market suddenly seems tepid after reactions (or overreactions, depending on your perspective) to the Airbnb (Nasdaq: ABNB) and DoorDash (NYSE: DASH) IPOs — and their ridiculous valuations, no doubt.
Both are still looking for a price floor below their IPO prices, with Airbnb at least seeing a bit of a comeback in the past few days. But with bitcoin trouncing past its previous high-water marks, the timing on Coinbase’s part is obvious.
Though, the hype is real for some. For instance, take Daniel Polotsky from Coinflip, which is — get this — a bitcoin ATM company! Daniel’s back at it again with the crypto hype: “It’s gold 2.0 for sure. It’s going to eat gold’s lunch.”
I’m sold on Bitcoin — you definitely know that if you’ve relished your Great Stuff rations this week — and so is an increasing portion of the finance world. But, as disruptive as I guarantee you the company will make itself out to be … Coinbase might face its own platform disruption in time as crypto trading gets even more mainstream — and lucrative.
Great Stuff: Go Public With Your Greatness
Are you feeling the festive cheer yet, Great Ones? With Tesla Day right around the corner … why not share your holiday plans with us here? Or, let us know how you’re trading up a storm before the closing bell tolls for good this year.
GreatStuffToday@BanyanHill.com. Make like Pat Benatar and hit us with your best shot — market-related or otherwise.
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff