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Wall Street Gets Small; Netflix Nukes Numbers and BABA’s Black Sheep

Wall Street Gets Small; Netflix Nukes Numbers and BABA’s Black Sheep

Small cap own ya stock meme

Let’s Get Small

Today, Great Ones, we’re talking about small-cap stocks — those Russell 2000 juggernauts set to lead the way this year.

So, as SNL great Steve Martin once said … let’s get small!

(Side note: Did you know that Steve Martin was never an SNL cast member? Discuss amongst yourselves.)

This year, the small-cap driven Russell 2000 is up a whopping 8%. That’s roughly double 2020’s big winner. The tech-heavy Nasdaq gained a mere 4% so far in 2021. What’s more, investors have never been more excited about small-cap stocks.

According to a global fund manager survey from Bank of America Global Research, the swath of investors who think that small caps will outperform large caps in the next year is at a record high.

So, what gives? Why are investors so jazzed about small caps? Why is Wall Street suddenly getting small?

The answer is rather simple. There are two main reasons why small caps are now the bee’s knees:

  1. Large-cap tech stocks are too big for their britches, as my grandma would say.
  2. President Joe Biden is just a wild and crazy guy when it comes to stimulus.

Let’s start with large caps. The Facebooks, Googles and Amazons of the market have grown so large that they now attract regulatory scrutiny.

What’s more, it’s bipartisan scrutiny. And let me tell you, as far as scrutiny goes … that’s the worst kind of scrutiny. When both sides of the aisle believe they’re getting screwed, something will happen.

There are already numerous antitrust investigations into Google, Facebook and Amazon. The incoming Biden administration says it’ll be tough on antitrust. The outgoing Trump administration wanted to gut protection rules altogether. Needless to say, that doesn’t bode well for Big Tech.

But there’s a larger problem here for investors and the market. These major tech stocks have accounted for most of the market’s gains over the past several years. Valuations are through the roof.

In other words, the market-leading big tech stocks were already set to take a breather as valuations played catch up to earnings. Throw government intervention in the mix, and you have yourself a right mess on your hands.

Speaking of government intervention, that brings us to point No. 2.

President Joe Biden is set to push a $1.9 trillion COVID-19 relief package that includes direct payments and $350 billion in state and local aid. That’s a metric crap-ton of cash flowing into the U.S. economy and right into the hands of small businesses — aka small-cap stocks.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, put it this way:

You have amazing operational leverage on the small-cap size because those companies that survived now have a chance to really rebound with much leaner staff, and therefore much better profit margins. The much-better trade is going to be long Russell, short Nasdaq going forward. That’s a trade that has not worked at all for the last four years, but I think is going to work very well in 2021.

Furthermore, Biden bills himself as “President Main Street.” I know that it’s premature at this point to assume Biden will champion the little guy — neither side has a great track record on that front — but the scales should still tip in favor of small caps if even a fraction of Biden’s agenda is realized.

Now, we can argue liberal and conservative agendas until we’re blue and red in the face. But political arguments do nothing for your portfolio. I’m not calling for “unity” or whatever floats your political boat.

I’m calling for gains! The winds of change blow across Wall Street as the age of big tech gains fades. It’s time for small caps to rise.

It’s time for you to get small … and your profits to grow fat with victory! Besides, don’t act like this is all news to you — Ian King and I told you about the small-cap surge before last year was even in the books…

Ian said: “On a valuation comparison, small caps are trading at the biggest discount to large caps in nearly two decades! … The last time that small caps were trading at such a significant discount was in late 2000. That was the start of a 92% rally in the [Russell 2000] up until its peak in 2007.”

Don’t hold off on the small-cap shuffle any longer. Click here to learn more!

Great Stuff's Quick & Dirty

Model Why?

Tesla Oppenheimer meme

Another day, another Tesla (Nasdaq: TSLA) upgrade. Oppenheimer — the ratings firm, not the “destroyer of worlds” — more than doubled its TSLA price target from $486 to $1,036.

There’s honestly nothing new here … just talk of batteries, production volumes and cost reductions. If you’ve seen one TSLA upgrade, you’ve seen them all. Next.

BABA’s Black Sheep

Guess who just came out of hiding? Alibaba (NYSE: BABA) founder Jack Ma emerged from hibernation yesterday to participate in an online ceremony for the Rural Teacher Initiative. Ma disappeared after scathing remarks directed at Chinese financial regulators. Not a smart move in China.

Hey, Great One Liz V.! You should be close to breakeven on BABA at this point. However, future profits may depend on whether Jack Ma saw his shadow yesterday or not. Good luck!

Tell Them About the Twinkie, Ray

Hostess Big Twinkie Meme

Stephens analyst Tim Perz fluffed up Hostess Brands (Nasdaq: TWNK) yesterday afternoon, starting his coverage on the stock with an overweight rating and an $18 price target — a 31% premium to yesterday’s close.

I like Ho Hos as much as anyone, but calling TWNK “overweight” is a bit unfair, don’t you think?

It’s not all just Twinkie love, though: Perz baked up the idea that Hostesses’ buyout of Voortman Bakery will give the combined company those sweet, sweet snacking synergies.

It’s Good, but It’s No Discovery+…

Netflix (Nasdaq: NFLX) is feelin’ freaky fresh at a new all-time high today after it released a banger of an earnings report. Per-share earnings came in below expectations ($1.19 versus $1.39), and revenue beat by just a hair.

The real story here is subscriber additions, which beat expectations by 2.03 million and brought Netflix over 200 million subs for the first time. What really set NFLX soaring 15% was company management spit-balling around the magic word: share buybacks! Reinvest in content production? No can do, maybe next year…

Great Stuff's Poll of the Week

Good afternoon, Great Ones, and thank you all for answering our last Poll of the Week!

If you feel lost, befuddled or bamboozled by this, are you sure you get your daily dose of Great Stuff? No? Here’s the deal: Every week, we ask for your take on the latest hot-button market topic. It’s like a sneak preview of tomorrow’s Reader Feedback, if you will.

Well … “hot-button” is relative around these parts. If topics like value stock comebacks and electric vehicle SPAC attacks get you giddy, you should hang around the Great Stuff inbox more often. (Drop us a line right here with your thoughts … all of ‘em!)

In last week’s poll, we asked if you got into any of our “road to recovery” stocks. You know — the latest batch of those 100% free Great Stuff Picks we keep talking about.

Our last bunch of picks for 2020 made bank for your fellow Great Ones — and I mean legit growth, not that GameStop pumped-up shorts kind of rally.

Here’s a look at what we recommended — and what you all bought — going into 2021. For reference, we’re looking at percentages of total votes, and I know many of you double dipped and bought more than one pick!

Intel (Nasdaq: INTC) was the top pick with about 22.7% of the votes. But, just like its place in the streaming market itself, Walt Disney (NYSE: DIS) is in a close second with 20.5% of the votes. Boeing (NYSE: BA) rounds out the rear with 15.9% of the vote. Though, a whole 34.1% of the votes took a rain check on stocks — no thanks, sir, this portfolio’s already full.

But for the 6.8% of you who still have not checked out these latest picks, it’s time for you to ketchup, mustard. You can click right here to read our reasons behind these “3 Potent Picks Primed for the Pandemic Recovery.

And on that note, this week’s Poll of the Week focuses on one such recovery pick: Disney … and its tug-of-war for attention with Netflix. You’ve heard everyone else’s big-shot stock predictions for 2021, so it’s time to share your own hot take!

Y’all already know that I fully expect the Mouse to stand tall above the streaming market — to beat Netflix at its own pioneering game. But when?

While Netflix’s subscriber numbers were good, no one expected Disney+’s pandemic boost to send it past 87 million subs for its first-year debut, so…

Get your crystal ball ready, and click below to let us know:

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We’ll dig in to your thoughts next Wednesday! As always, if you have more to share than a mere poll can satisfy, by all means, tell us all about it right here in the Great Stuff inbox!

Great Stuff: Feedback! Get Your Feedback Here!

Like I said, if you’ve never tuned into our Reader Feedback specials on Thursdays, you’re in for a treat. Tomorrow, we dive into the sometimes scary (but always hilarious) maelstrom that we call the Great Stuff inbox. We gather the cream of the feedback crop to reply to … or whichever emails send us into rant mode.

That means you’ve just one more night to get in all those stock market diatribes, rants and raves you’ve been holding in. GreatStuffToday@BanyanHill.com. Stop by whenever the market muse calls to you!

We’ll catch you on the flip side. Until then, don’t forget to follow us on social media too: Facebook, Instagram and Twitter.

Joseph Hargett

Editor, Great Stuff

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