Showing posts from 2019

Buy Airlines On Oil Induced Weakness

More evidence continues to show that the strikes on Saudi oil facilities actually came from Iranian missles, not Yemen drones. Not even sure, if it matters, because the whole world knows that Iran was involved. 

Dion Nissenbaum
US looking to declassify satellite imagery to bolster contentions that Iran was origin of weekend attack on Saudi oil industry as mounting evidence points to cruise missiles fired from Iran or Iraq, not Houthi drones launched from Yemen: … w/@summer_said

Intel Upside Capped By Yield

Find it interesting that certain stocks appear to have capped upside based on the dividend yield. Intel (INTC) is such a stock when the yield hits the recent 2.4% levels. The stock might rally further to reach the recent highs, but the time to buy Intel is when the dividend yield tops 3.0%. 

Read the full article on Seeking Alpha. 

More commentary on WhoTrades.

Disclosure: No position. See the disclaimer page for more details.  

Lyft: It Keeps Getting Worse

California continues to move forward on AB 5 that will turn contractors into employees. Lyft already has a slim profit margin. Avoid the stock until the company formulates a business model around generating solid operating margins. My previous work already focused on the lack of a margin of safety in Lyft (LYFT) and the news continues to get worse. The company faces legislative issues pressuring the gig work concept while the business growth is apparently decelerating at a very fast clip. The stock doesn't appear to have reached a low yet. Read the full article on Seeking Alpha.  More commentary - WhoTrades Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Aurora Cannabis: Supply Rationalization Needed Now

Canadian cannabis industry inventories continue to surge with over 300K kg in supply and monthly demand below 10K kg. The industry needs to rationalize capacity with store forecasts of only 600 retail locations by the March quarter. A stock price of $5 and a market cap of ~$5.5 billion remain lofty for breakeven EBITDA and FY20 revenue targets of $521 million. The cannabis bulls continue to claim that a lack of retail stores and legal supply has kept sales low, while the data doesn't support the thesis. No doubt, sales will increase substantially as retail stores in Canada grow, but the market is headed to a major over supply scenario led by market leader Aurora Cannabis (ACB). My previous research had the stock approaching a potential buy point near $5, but the latest Health Canada stats for June have the industry at a critical inflection point that needs immediate action. Read the full article on Seeking Alpha.  More commentary - WhoTrades

Update September 16
No surprise here. A…

Slack: Wheels Just Fell Off

Slack fell hard due to revenue growth expectations failing to meet expectations. The company is facing a period of decelerating revenue growth that always hits high multiple stocks very hard. A valuation of 8x FY22 revenues places the stock at only $17.50. By all accounts, Slack Technologies (WORK) reported a solid FQ2 for the first quarterly report following their hot IPO back in June. The stock was already down substantially from the highs above $40, but the IPO rally was so outrageous that investors should expect the IPO pricing at $26 is broken. My original research was bearish on the stock following the hot IPO, and the view hasn't changed much now. Read the full article on Seeking Alpha.  More commentary: Out Fox The $treet - September 5, 2019  Disclosure: No position. Please review the disclaimer page for more details. 

Fitbit: Premium Services To The Rescue

Fitbit announces a major program with the Singapore Health Promotion Board. The deal has an initial value listed at $5 million with a CEO prediction that it would reach up to $120 million annually. The stock won't continue trading at a 0.15x EV/S multiple with substantial services revenue growth. The market is so negative on Fitbit (FIT) that a transitional deal with a foreign government only led to a 2% daily gain for the fitness tracking stock. The company remains in the process of shifting to a medical device and premium services company while the market completely ignores the move due to recent weak sales. My investment thesis remains very bullish on the stock due to the deep value and potential for services revenue growth that leads to multiple expansion. Read the full article on Seeking Alpha.  More commentary - Fitbit Relaunch Disclosure: Long FIT. Please read the disclaimer page for more details. 

AMD: Full Value Myth

AMD has taken a performance lead with the release of the Epyc 2 chips. New customers like Twitter and Google provide more confidence for 20% market share in the data center space. AMD doesn't trade at full value at $30. The stock has reasonable targets of $10 billion in revenues and a $1.75 EPS. For a few years now, Advanced Micro Devices (AMD) has attempted to reach the inflection point where their chips reached the price and performance that customers couldn't resist switching from the safety of the Intel (INTC) brand. The horizon was constantly shifting, causing consternation with the market participants that lacked faith in CEO Lisa Su and CTO Mark Papermaster. The release of Epyc 2 and other 7nm products finally has the company at the inflection point, allowing for disproof of the valuation myth and confirmation of our bullish investment thesis even with the stock up at $30. Read the full article on Seeking Alpha.  More commentary: Out Fox The $treet - August 28 Disclosur…

Will Canopy Growth Break $20 Next?

WithCanopy Growth (CGC)breaking below $25, the next question is whether the stock will break below $20. The cannabis stock held above $20 back in 2018. 

My guess for now is that the stock sees more weakness and does break below $20 by the end of September. Vote on whether you agree or disagree with this forecast. 
Go to WhoTrades to vote. 
Update August 26
The stock is back above $25, but the rebound was meniscal considering the $31 price target. Also, a $31 price target is very telling for a stock with a 52-week high near $60. 

-Seaport Global's Brett Hundley upgraded Canopy Growth from Neutral to Buy and announced a new $31 price target.

Disclosure: No position 

Baidu: Stuck For Now

Baidu stemmed the massive downturn due to better than expected Q2 results. The Chinese search giant isn't predicting Q3 results worthy of a major stock rally. The company is positioned to thrive when the Chinese economy rebounds. The stock trades at an insane 1.5x EV/S. Following strong Q2 results for the Chinese internet stocks focused on ad revenue, Baidu (BIDU) is likely stuck at resistance near $115. Despite the stock trading far below the $180 levels from back in April, the macro headwinds and market dynamics in internet search aren't likely to provide the growth necessarily for a stock rally until resolution of the Chinese trade war. Ultimately, the insane stock value will make one want to own Baidu on a trade war resolution. Read the full article on Seeking Alpha.  More commentary - Out Fox The $treet - August 20  Disclosure: Long BIDU. Please review the disclaimer page for more details. 

Canopy Growth: No Wonder The Founding CEO Was Fired

Canopy Growth failed to meet FQ1 estimates with sales dipping below key cannabis competitors in Canada. The company burned the cash balance down C$1.4 billion to C$3.1 billion in the quarter. The company harvested nearly 6,000 kg more than forecasted near quarterly end. Another EBITDA loss above C$90 million will push the stock down to the $25 price target and likely lower. A founding CEO being fired in a hot sector is usually not a good sign and the FQ1 results of Canopy Growth (CGC) reinforce that theory. The stock is plunging towards the 52-week lows and how Canopy Growth bounces around $25 will likely derive where the stock heads for the rest of the year. My previous research following the termination of CEO Bruce Linton had suggested this target was the likely outcome and this price might end up too conservative. Read the full article on Seeking Alpha More commentary - Out Fox The $teet - August 15
Disclosure: No position mentioned. Please review the disclaimer page for more deta…

Tilray Is A Disaster

Tilray dipped below $40 on a big earnings miss. The company still has a $4 billion market cap despite quarterly cannabis revenues of only $22 million. The substantial cannabis price per gram drop is a sign of future market pricing as more supply reaches the market. Avoid the stock still trading at up to 10x forward revenue estimates that aren't realistic. With Tilray (TLRY) trading down below $40, the market has clearly finally caught onto the revenue gimmick game of the Canadian cannabis LPs. The company continues to expand into far-flung areas against large levels of competition without any legitimate spending restraints. The stock was the poster child for the excesses in the sector, and Tilray is still poised to head lower reinforcing our previous research. Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Yelp: Money Machine

Yelp reported a solid Q2 despite the revenue miss. The company repurchased 8.8 million shares in the quarter, leading to a nearly 12% share count reduction YoY. The stock is cheap trading at 9x EV/EBITDA estimates while the EBITDA/share grew by 50%. While the market has constantly hyperventilated on the revenue growth of Yelp (YELP), the consumer review site has quietly become a money machine. The company has utilized expense control to generate large cash flows to substantially reduce share counts in a huge benefit to shareholders. The market will slowly catch on to the bullish cash flow story for a company growing revenues up to 10% annually. Read the full article on Seeking Alpha.  More commentary - Out Fox The $treet - August 13 Disclosure: Long YELP. Please read the disclaimer page for more details. 

Lyft: No Margin Of Safety

Lyft beat ridiculously conservative Q2 guidance. The actual EBITDA losses continue unabated with forecasts for losing $850 million in 2019. The contribution margin needs to reach 72% to breakeven due to massive operating expenses. The market dynamic suggests more competitive as the rideshare companies approach breakeven making Lyft uninvestable. Lyft (LYFT) reported Q2 numbers that were far better than forecasted due to ridiculous guidance. Unfortunately, the numbers of a key competitor are a harbinger of more pain ahead. The rideshare competitors are still failing to prove how the business model can pay drivers while also undercutting traditional taxi prices and generate a positive return for shareholders. My negative investment thesis is only reinforced by the company's quarterly numbers. Read the full article on Seeking Alpha.  More commentary - WhoTrades Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Aurora Cannabis: Conflicting Moment

Aurora Cannabis reported solid FQ4 preliminary numbers including a move towards positive EBITDA. Health Canada data doesn't support these healthy numbers with industry inventory levels soaring. The company likely only sold 50% of inventory available for sale. The $7 billion market cap is not a relative value in the cannabis sector. Before the open on August 6, Aurora Cannabis (ACB) updated the market with a positive pre-announcement on FQ4 results for the period ending in June. Apparently, the company remains on track to positive adjusted EBITDA targets by reaching revenue growth not supported by Health Canada sales data. Investors are urged to remain cautious on the stock with mounting cannabis inventories in the Canadian market over shadowing short-term results. Read the full article on Seeking Alpha. More commentary - Out Fox The $street - August 7
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

LendingClub: Turnaround Story Of The Year?

LendingClub (LC) is up 10% in a tough tape, but the stock should be soaring 20% or 30% or 40% on the Q2 numbers.
Record loan originations of $3.1 billionRecord net revenue of $190.8 millionRecord adjusted EBITDA of $33.2 million  Even the guidance was strong: Reaffirms 2019 net revenue forecast of $765M-$795M2019 adjusted net loss of $5M-$20M vs prior range of $9M-$29M.Q3 net revenue of $200M-$210M; consensus estimate of $204.7MQ3 adjusted net income of $0M-$5MThe fintech has $670 million in cash and financial assets with a market cap of only $1.2 billion. The stock should trade at multiples of the current stock price. 
More commentary - Out Fox The $treet - August 7, 2019

Disclosure: Long LC. Please review the disclaimer page for more details. 

IBM + Red Hat = +$1 Billion

On Friday, IBM (IBM) provided an update on the financial impacts of the Red Hat merger. The market made too much noise about the dilutive impact of purchase accounting. The key is the boost in free cash flows expected in 2020 and 2021.  By 2021, IBM is forecasting FCFs to grow from $12 billion to $13 billion. The stock has a market cap of only $130 billion. 

The hybrid cloud leader should be worth more by focusing on cash flows and not earnings impacted by adjustments for deferred revenues. Buy any dip from investors not understanding this merger impact.

More research: IBM: Better Cash Flows Together 

More commentary - WhoTrades
Disclosure: Long IBM. Please review the disclaimer page for more details. 

Sprint: T-Mobile Merger Still At Risk

The Justice Department agreed to a settlement with T-Mobile and Sprint, removing another hurdle from closing the merger. Thirteen state attorneys general are still suing to block the merger. Dish remains in no position to effectively launch at viable 5G network. The risk/reward equation on Sprint heavily tilts towards high downside risk. As Sprint (S) surged to $8 based on a DOJ approval clearance of the combination with T-Mobile (TMUS), a large risk still exists the merger will fail to obtain all the necessary regulatory approvals. The stock is not correctly priced for the binary outcome with large downside risk highlighted in previous research from a failure to close the merger while the upside gains are now limited. Read the full article on Seeking Alpha.  Update - August 2  1st Republican state joins the lawsuit to block the merger. The deal is still not guaranteed to obtain approval placing Sprint at substantial risk for downside.  -Texas has joined more than a dozen states that ar…

AMD: Weak Q3 Guidance Is Ok

AMD (AMD) is down fracationally as the market is disappointed by weak Q3 revenue guidance. The number is a big sequential and YoY jump so investors should expect the stock to survive any concerns about revenue weakness. Not to mention, the margin story continues to play out as expected with strong guidance for reaching 43% in the Q and above analyst estimates below 42%.  Q3 outlook estimates:  Total revenue of $1.75-1.85B (consensus: $1.94B)gross margin of 43% (consensus: 41.7%). The news about a Google Cloud deal is more important to the stock as a big data center server win means more revenue over the long term, than any concern about the revenue ramp in Q3.  More research: AMD: Latest Campaign Has Several Targets More commentary on WhoTrades
Disclosure: No position. Please review the disclaimer page for more details. 

Twitter: mDAUs Surge

The investment thesis on Twitter (TWTR) has long centered around the growth of DAUs. In Q2, the social media site saw the mDAUs jump to 139 million, up from 134 million in Q1. Since the turnaround started in Q1'16, this quarter saw the largest sequential increase in users not related to Q1. 

Rich Greenfield@RichatTBD
~50% more people using Twitter daily than four years ago

26% more using Twitter daily vs. two years ago chart shows past 4 years of monetizable DAUs globally