Winter Is Coming; Forests of Azure, Cloudless Solar Skies
Future in the Cards
Sooo … how about those Dodgers?
I don’t follow baseball — I got burned on baseball cards back in the late ‘80s and early ‘90s, and it’s been downhill ever since. Anyone else have a massive box of three-decades-old baseball cards that are worth absolutely nothing right now?
Oddly enough, there’s a parallel between this era of baseball card collecting and today’s stock market. And it’s not a pretty one.
For those who don’t remember — or blocked out that painful period — baseball cards saw a renaissance in the mid ‘80s. Practically everyone collected them, driving prices up due to scarcity. Then, the major manufacturers had a genius idea: print more cards!
Everyone from Fleer to Donruss to Tops was in on it. Heck, they even brought back the retired Bowman cards and launched ultra-premium UpperDeck and 3D cards.
The market was saturated, but most of us regular Joes didn’t know. We were kids clamoring for the newest, rarest Ken Griffy Jr. UpperDeck … the Jose Canseco Donruss … Mark McGwire’s Topps All-Star Team “official” rookie card.
And then, it all crashed.
Doping scandals hit baseball, and fans lost interest. When card collectors finally went to sell our cards, we realized everyone else had the same supposedly “rare” cards. Values plummeted. Fortunes were lost. Dreams were crushed.
I, for one, was disillusioned with baseball forever — well, it was partly the card implosion, but mostly the Reds sweeping the A’s in the 1990 World Series. I’ll never forget the 7-0 blowout in game one of that series — I was there! But I digress…
Yes, yes … Mr. Great Stuff’s shattered field of dreams. My heart bleeds purple Kool-Aid. What’s the point?
The point, Great Ones, is that the market is very much like the baseball card market of the ‘80s and ‘90s. Companies “print” stocks left and right through stock offerings, stock splits, IPOs, special purpose acquisition companies (SPACs) … the list goes on.
Furthermore, the Federal Reserve contributes to the problem as its money printer goes Brrrrrrr. The excess money (or liquidity) in the system created asset prices on steroids. Price-to-earnings ratios mean nothing. Actual revenue figures mean diddly squat. Fundamental analysis is out the window in the mad race for yield and profits.
Growth and asset demand is everything. But what happens when the stock market faces its own doping scandal?
Will investors begin to realize that they’ve been buying essentially worthless paper predicated on estimated future growth all this time? What if that future suddenly changes? What if growth and demand disappear?
We already see hints of this in the global economy due to the pandemic, especially in the U.S. and Europe. Doped up on the Fed’s unlimited stimulus, Wall Street ignored the situation for most of 2020.
But the bubble is popping: COVID-19 cases are rising too high too fast.
The U.S. added a half-million cases in the past week, and hospitals in the Midwest are already overwhelmed. Europe enacted tighter restrictions on business activity, with Germany and France joining the U.K. and Spain in stricter regulations this week.
The boys of summer are gone, and winter is coming.
That means no more outdoor venues for many restaurants and bars. It means people packed closer together indoors, which could further worsen the pandemic. Wall Street’s “doping scandal” is about to be laid bare, and there’s a reckoning coming for the stock market.
If you haven’t already taken profits off the table on your speculative bets, do so now. Ride this storm out in gold, Treasurys and well-run blue-chip companies … you know, safe-haven assets. Keep that powder dry and be ready to buy after things go pear-shaped.
But there are other alternatives to hunkering down in the dugout — even in the grimmest of innings you can swing for the fences. You have more options than just watching your portfolio strike out … and other assorted baseball metaphors.
What I’m saying is, don’t count yourself out of this game just because of a little bit of volatility. Better yet, put that volatility to your advantage. One strategy uses the same trade on the same ticker symbol once a week, using options, and you can target potential gains of 100% or more every time you trade it.
Good: The Sun Also Rises
OK, enough doom and gloom. It’s time to shed some light on one of the hottest American solar companies.
First Solar Inc. (Nasdaq: FSLR) was one of the few bright spots in today’s stock market eclipse. The solar power specialist stunned Wall Street analysts with an impressive third-quarter earnings report:
- Earnings per share: $1.45 versus $0.63 expected.
- Revenue: $928 million versus $677 million expected.
Earnings more than doubled the consensus estimate, as revenue beamed nearly 70% higher from $547 million in the same quarter last year.
But First Solar wasn’t done — it had more sunshine and rainbows to spread.
The company said that demand continued to rise in Texas, California, Nevada and Virginia. U.S. demand is up, and overseas demand from Europe and China was only moderately slowed by the pandemic.
In fact, First Solar believes that the increased pandemic restrictions could prompt U.S. customers to turn away from Chinese competitors. “The continued growth at the utility-scale of solar despite the pandemic-related headwinds speaks to the relative health of the U.S. market,” said CEO Mark Widmar.
Now, I too am intrigued by First Solar’s shining performance. But, unless you already own FSLR, chasing today’s 12% rally will only burn you. Take your time; wait for the shares to consolidate and for any broader market fallout to run its course.
Put FSLR on your “waiting to buy” list and be ready to pounce when the time is right.
But, if you’re serious about staking your claim in new energy stocks, First Solar is already in the mainstream, and that’s simply not special enough for you Great Ones.
Better: Part and Parcel
Just as First Solar packed heat with its earnings report, United Parcel Service Inc. (NYSE: UPS) did what it does best.
What, leave my package three houses down?
No … deliver. UPS beat expectations on both counts. Earnings per share hit $2.28 versus estimates for $1.90. Revenue reached $21.24 billion, crushing estimates by $1 billion and some change.
Better still, UPS reported strong, double-digit growth across every business segment, which include both domestic and international packages, along with supply chain and freight shipments.
Though, UPS’s margins stateside were less than Wall Street would’ve liked, as pandemic costs weight on profitability. Thankfully, international customers picked up the slack, and that segment saw a 45% jump in profits.
There’s no “beat-and-raise” quarter here, however. UPS didn’t offer up any guidance, but that’s not a knock against the company as we head into a very uncertain holiday season.
We’ve seen this kind of conservative outlook before. UPS and fellow delivery runner FedEx (NYSE: FDX) both face a momentous holiday season with potentially record demand. The online gift shopping beast beckons … more so than usual this year, for obvious socially distanced reasons.
This is another caveat to UPS’s profit-hungry domestic business. Americans would shop through Armageddon, and nothing is more American than holiday shopping. Whether or not people have money for the holiday season is another question, whether that’s access to credit or cash.
But Americans will find a way to shop, and UPS knows this. UPS also knows that it needs to bulk up its margins to have any chance at keeping this growth sustainable in its domestic business. The company noted it would focus on “more business from higher-margin customers like smaller businesses and the health-care industry.”
What do you think about the oncoming holiday season? Let us know in the Great Stuff inbox right here.
Best: Soft Served
It’s earnings week for FAANG … FAANMG? FAANMA? It’s earnings week for Big Tech stocks!
Kicking things off for the sector is the OG tech king: Microsoft Corp. (Nasdaq: MSFT). And after this quarterly report, we have to open the windows … it’s getting hot in here.
Ol’ Softy dialed up yet another smoldering quarter, driven by blue clouds. Get it? Azure … blue? Clouds? Never mind … here are the numbers:
- Earnings per share: $1.82 versus $1.55 expected.
- Revenue: $37.2 billion versus $35.76 billion expected.
- Cloud revenue: $12.99 billion versus $12.78 billion expected.
Cloud growth is the key takeaway here. Microsoft’s Intelligent Cloud unit’s revenue grew 20%, with Azure revenue up a solid 48%.
“Whether it’s infrastructure, whether it’s data or on (software as a service), it’s, in fact, increased adoption rate. Even the smallest of businesses need to be able to deploy a solution quickly for some workflow that allows them, say, for example, to do curbside pickup if you’re a retailer and a small business,” CEO Satya Nadella told investors in Microsoft’s earnings conference call.
So, why is MSFT down 4% on this stellar report? Well, we can chalk that up to profit-taking and overexuberance from Wall Street in regard to tech stocks.
You know how Great Stuff always talks about “well-run blue-chip” companies? We’re talking about companies like Microsoft. For many big tech companies, this is their first rodeo in market volatility. Microsoft has been there, done that … and it has the antitrust and dotcom bubble scars to prove it.
The work-from-home market is here to stay, even after the pandemic finally goes away. And Microsoft positioned itself to be a market leader for the workforce of the future.
Welcome back to the Great Stuff polling booth — where each and every one of your votes matters in the seething sea of democracy that makes ‘Stuff great.
We eagerly read all your email replies too. So if you haven’t written in to the Great Stuff inbox with your tales of market whimsy or woe, get to scribbling our way.
GreatStuffToday@BanyanHill.com! Reader Feedback day is tomorrow, and we’d love to feature your email in our discussion. But for today, we’ll dig into your votes for last week’s poll.
We asked where you think the market’s headed postelection, with just under 20% of you thinking we’ll go down swinging no matter who wins.
Another 43% of you believe that we’ll go nowhere fast and that the latest volatility is here to stay long through the whipsaw wintertime. Finally, about 37% of you are ready to zip zoom straight to the moon … or at least you were when you answered our poll last week.
Don’t get me wrong here: There are still buys out there. We just recommended a hydrogen hustling powerhouse recently in Great Stuff Picks! Click here if you missed our plug for Plug Power Inc. (Nasdaq: PLUG), which even in this week’s topsy-turvy trading is juuuust around where we recommended it.
All this boils down to our new Poll of the Week — a volatility temperature check, if you will, just to read the room. With most of you feeling like the nail-biting, back-and-forth action is here to stay even postelection…
What are you doing right now? Are you in the ball game or calling it quits? Click below and let us know. Some error has occured.
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We’ll rejoin the conversation next week with a new poll! Remember: If you have more to share, hit us up at GreatStuffToday@BanyanHill.com. We’re still looking for one or two emails to round out this collection of questions, rants and longwinded rambles.
Until next time, stay Great!
Editor, Great Stuff