Risk on; Risk off
The global economy is sick … and I mean that literally, not in the ‘90s kinda way or in a Michael Jackson’s “Bad is good” kinda way.
Over the weekend, the U.S. hit back-to-back record highs for new COVID-19 cases. According to Johns Hopkins University data, the seven-day average of new coronavirus cases in the U.S. spiked 22% compared to last week.
And it’s getting worse. Food and Drug Administration Commissioner Dr. Scott Gottlieb warned: “I think we are right now at the cusp of what is going to be exponential spread in parts of the country.”
Exponential spread? That doesn’t sound encouraging. If you think that’s bad, wait till you hear the news out of Europe:
“Italy and Spain have followed France in adopting the ‘Buffy the Vampire Slayer’ approach (it is not safe to be out of doors after dark). This is obviously bad news for bars and restaurants, but more positive for supermarkets and home entertainment,” said UBS Economist Paul Donovan.
It’s true: COVID-19 cases are spiking nearly as fast as they are stateside, prompting a state of emergency lockdown in Spain and robust new restrictions in several other European countries.
With colder weather approaching, the U.S. economy faces a similar fate.
Current restrictions limit the number of indoor customers a business can have. Many restaurants and bars snuck around these restrictions with outdoor seating, but that will be a problem come wintertime.
In about two weeks, we’ll find out just how the U.S. retail sector is holding up when October retail sales data hits the Street. Today, however, Wall Street took some of its economic cues from the latest new home sales data.
The Commerce Department reported that new home sales unexpectedly dropped 3.5% in September. Before we get up in arms, this was largely a seasonal dip. In fact, new home sales were up a whopping 32.1% from year-ago levels.
Chalk this win up to record-low mortgage rates and near-zero Fed rates.
Still, the unexpected monthly decline and the spike in COVID-19 cases spooked Wall Street. Combine that with a lack of progress on a relief bill and the looming presidential election, and we’ve got more volatility in the market than we know what to do with.
The CBOE Volatility Index (VIX) hit a one-month high today, and the big three indexes — the Dow, S&P 500 and Nasdaq — were down 2% across the board.
But never fear, Great Ones! You have options … literally.
Stop banging your head against the revolving door of risk and learn to love the volatility.
Good: Get Dunked
Arby’s owner Inspire Brands Inc. has everyone’s meat needs covered with Buffalo Wild Wings, Sonic Drive-In and Rusty Taco.
Sonic aside, the company kinda had breakfast covered, but it sorely lacked two crucial breakfast staples.
So, what do you do when you already “have the meats?” Why, you go after the donuts and coffee, of course!
According to reports, Dunkin’ Brands Group Inc. (Nasdaq: DNKN) is in buyout talks with Inspire Brands. The price tag is reportedly $106.50 per share — a 20% premium to Friday’s close.
Inspire declined to comment, but Dunkin Chief Communications Officer Karen Raskopf tempered expectations. “There is no certainty that any agreement will be reached,” Karen noted. Typical Karen…
That warning didn’t slow Wall Street’s desire for coffee and donuts one bit. DNKN soared more than 15% in response, putting the stock just below the $106.50 per share price tag.
DNKN was already in rally mode ahead of the buyout talks, gaining more than 70% off the March bottom. That said, the shares have all but reached their limit if the deal goes through. In other words, don’t chase this rally.
Inspire Brands is a private company, so you won’t get any stock in return for your shares … just cash. And at this point, that cash is limited, unless talks between the two companies bring about a higher price tag, which seems unlikely.
Better: Ant’s Marching
Step aside Saudi Aramco, we have a new initial public offering (IPO) king to crown today.
Alibaba Group Holdings Inc.’s (NYSE: BABA) Ant Financial Group just priced its dual listing of 1.67 billion shares on the Shanghai and Hong Kong stock exchanges. And it’s poised to rake in $34.5 billion from the IPO — well above Saudi Aramco’s $29.4 billion IPO.
As a result, Ant’s valuation rests at a lofty $310 billion. That’s bigger than Goldman Sachs, Wells Fargo and many other major U.S. financials.
To be fair, Ant isn’t just any old financial company, but a fintech with its tentacles spread throughout nearly every facet of Chinese life. The company offers everything from investment accounts and micro-savings products to insurance and credit scores to dating profiles.
Yes … dating profiles.
In September, Ant’s Alipay payments app had more than 731 million users. In the year ending June 2020, Alipay processed some $17.7 trillion in payments.
Unfortunately, Ant won’t be listed in the U.S. You’ll need access to the Shanghai or Hong Kong markets for that. You can benefit in a roundabout way by investing in Alibaba, which will retain a 33.3% stake in Ant Group.
Just know, you put yourself at risk to the continued back-and-forth between the U.S. and China. For now, we’ll just have to wait and see if this red-hot fintech ever starts to trade stateside.
Best: Winnebago With Wings
Last week, Winnebago Industries Inc. (NYSE: WGO) plummeted hard. From their pre-earnings peak on October 20 through Friday’s close, WGO crashed more than 17%.
The odd thing is that Winnebago crushed fiscal fourth-quarter earnings and revenue estimates. It even offered up a rosy outlook for fiscal 2021.
And if that wasn’t enough, the company currently sits on an order backlog of $1.8 billion.
The problem is, there aren’t any clear answers as to why WGO plummeted. Some speculate that a recent rise in gasoline prices is to blame. Others worry about pandemic pressures.
However, analysts at Citi believe this is all poppycock. The brokerage boosted WGO from neutral to buy and set a price target of $63 — 30% above the stock’s current trading range.
According to Citi: “We believe that a return to extensive travel (planes, cruise, hotels) is several years away, while we believe that the attractiveness of the RV lifestyle is here to stay.”
It’s certainly been my dream to buy an RV and travel around the great American countryside — I just need to get the kids out of the house first. You know how it is…
But RVs taking up slack from air travel, cruises and hotels?
I agree with Citi that WGO unfairly tanked following a rather stellar earnings report. If your risk tolerance lines up, WGO is probably a good investment pick right now.
How do you Great Ones feel about WGO? Is the stock a bargain? Is the RV lifestyle here to stay like Citi says?
Do you itch to travel America in style with an RV? Or are you more airplane and hotel people?
Email us at GreatStuffToday@BanyanHill.com and let us know!
While you ramble on in your Winnebago, let’s dig into another week’s earnings spotlight — aka, the declare-all corporate shout-out that our Chart of the Week feature more resembles nowadays.
After all, more than 35% of the S&P 500 is set to report this week — with a third of the Dow thrown in too. So today’s slide might be one in a series with this massive myriad of market movers…
You name the sector, and it’s covered this week. Better yet, I bet you have a personal portfolio position or two reporting this week, so this is your heads up! You know the deal: Earnings aren’t important until Wall Street decides they are … or aren’t.
But for you as Great Ones? This is the make-or-break, do-or-die quarter to pay attention to.
Here’s where we stand according to FactSet: “At the sector level, nine of the 11 sectors in the S&P 500 index are reporting a year-over-year decline in earnings, led by energy (-123.6%).”
In the face of doubt, negativity and earnings reality, take a look at who’s up to bat, courtesy of Earnings Whispers on Twitter.
See? We’re not kidding: It’s a blowout earnings excitement all dumped into one week, like that one extra-cheesy Dorito in a surprisingly full bag. We’re just skimming off the top here of all the action in the confessional this week, and first up is the duel for data center dominance.
We touched on Intel Corp.’s (Nasdaq: INTC) paltry, cut-in-half data-center revenue last week. And this week’s report from Advanced Micro Devices Inc. (Nasdaq: AMD) could solidify who really brings the chips to the data center party.
Elsewhere in the semiconductor crowd, Great Stuff Pick Amkor Technology Inc. (Nasdaq: AMKR) continues to power through, up about 45% since we recommended it last August. Keep holding, and we’ll keep an eye out for any news!
All the biotech bigwigs will also report, with a few ‘rona vax makers in the spotlight as well — specifically Gilead Sciences Inc. (Nasdaq: GILD), Moderna Inc. (Nasdaq: MRNA) and Novartis AG (NYSE: NVS).
Don’t get your hopes up too high, though. Any major updates in the COVID-19 vaccine race would be breaking news, not in an earnings report. Though, if you’re invested in any of these biotechs, you’ll get a look at how solid of a financial foundation they have to keep pumping through vax research.
Next, take your pick of potential disaster-watching with Boeing Co.’s (NYSE: BA) clawing return to grace or General Electric Co.’s (NYSE: GE) existential “why do we still exist?” earnings. Or, why not dip into the oil fields with Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX) and BP Plc (NYSE: BP)?
Now, we’ve mentioned “consumer confidence this” and “consumer confidence that” long before the recovery’s weak knees started shaking.
We’ll see a certain shade of the consumer picture, since this week’s reports run the e-commerce gamut and dive right to the heart of stay-at-home spending.
Brick-and-mortar retail will be on thin ice after we hear from online shopping overlord Amazon.com Inc. (Nasdaq: AMZN), the niche-serving eBay Inc. (Nasdaq: EBAY) and Etsy Inc. (Nasdaq: ETSY). For everything else, there’s Shopfiy Inc. (NYSE: SHOP).
Another contender to keep an eye on during the school-at-home market: Chegg Inc. (NYSE: CHGG), with its role in remote learning and study help. Though, for the “Yeah dad, I’m totally in class and not playing World of Warcraft!” crowd, there’s Activision Blizzard Inc. (Nasdaq: ATVI) reporting Thursday.
But above all, there’s the sub-story for any fans of our Big Tech drama Antitrust Issues. CEOs from Google, Facebook and Twitter will appear before a Senate subcommittee this Wednesday on how tech companies “decide what content users can post on their platforms.”
Namely, the hubbub is over Section 230 of the Communications Decency Act — Clinton-era protections for online platforms against legally iffy user content. And those same tech giants report this week, along with ol’ Microsoft Corp. (Nasdaq: MSFT) and Apple Inc. (Nasdaq: AAPL).
Will any new precedents emerge from the Senate hearing? Maybe, maybe not (do they ever?) But you know that every good soap opera needs a tease ending…
For those of you looking to leave Big Tech behind and see what’s happening in the land of the small tech fry … jot this date down!
The New Era Fortunes Summit is this Thursday, October 29. And Ian King will reveal his five-tiered trading strategy that targets small-cap tech stocks with the potential to skyrocket 1,000% in as little as 12 months.
I arranged for you to attend for free, but you gotta sign up today! Click here — right meow!
Great Stuff: Wake Me up Before You Winnebago
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
