Showing posts from 2020

Nikola: Too Many Promises For Now

Nikola has a long list of promises to meet in order to reach substantial out year revenue targets.The stock currently has a $15 billion market cap due to 425 million fully diluted shares outstanding.The company remains a 2024 revenue story.Investors need to realize Nikola has 200% upside, but the stock has 90% downside risk over the next few years. As with most IPOs and newly public companies, the initial earnings report is very volatile. The Q2 earnings report for Nikola (NKLA) was no different from the general market despite the unique method of going public via a SPAC. Whether or not to invest in the stock is more related to whether the zero emissions commercial transportation system company can meet staled promises. My investment thesis remains negative on the stock, considering the huge jump in the public float and the massive valuation for a company that hasn't delivered on revenues yet.Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review t…

Exxon Mobil: Dividend Should Be At Risk

Exxon Mobil continues to boost net debt levels in order to pay massive dividends.The energy giant continues to cut investing in the future in order to pay an 8.3% yield while watching the stock collapse.The stock isn't investable until the company cuts the dividend at least 50% similar to BP. After another quarter of massive amounts of cash exiting the balance sheet in favor of debt, Exxon Mobil (XOM) investors should want the energy giant to consider cutting the dividend. The biggest issue is that the company can't afford to correctly invest in the future with the massive dividend overhang. My negative investment thesis continues to project the stock having less value due to $15 billion in annual payouts causing irrational asset sales and volatile capital spending decisions that hurt investors.Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please read the disclaimer page for more details. 

AMD: Another Intel Gift

Intel just delayed key manufacturing technology another 12 months.AMD should finally grab substantial market share gains in key server chips.My EPS target for AMD is now set at ~$4 based on the chip company reaching 25% market share off a $79 billion TAM. As Advanced Micro Devices (AMD) continues to prep for market share gains in semiconductor chips, Intel (INTC) provided the company the best gift ever. Not only was AMD on a path to maintain technology leadership, but also Intel announced they plan on allowing AMD to expand that leadership in the next couple of years. While the COVID-19 shutdown has potentially delayed some massive server transitions to Epyc chips, my investment thesis remains very bullish on the stock as analysts have to now raise financial models previously based on limited market share gains.Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Snap: Not Worth The Premium

Snap reported mixed Q2 results.The company guided towards highly disappointing Q3 DAUs at only 243 million.The stock is the most expensive in the social media sector and should be avoided without leading financial results. Snap(NYSE:SNAP) is amongst the cohort of technology stocks priced for perfection when the company is imperfect. While plenty of stocks trade as if the economy doesn't recover to previous levels, Snap trades at levels suggesting a return to strong growth in 2021, despite the company still forecasting a tough ad market in Q3. With the company still losing substantial amounts on a quarterly basis, my investment thesis remains negative on the stock up in the $20s with a market cap topping $40 billion prior to the earnings report.Read the full article on Seeking Alpha. 
Disclosure: Long TWTR. Please review the disclaimer page for more details. 

Out Fox The $treet - July 16, 2020

Yext is a buy at $16. Aurora Cannabis is a buy on weakness to play a potential deal with 50% upside. Out Fox The $treet to launch soon! Stocks to watch on Thursday: Yext (YEXT)  The digital knowledge management company should see a surge in demand as retail stores constantly shift open hours and services offered in store due to COVID-19. The stock has struggled to break strong resistance in the $17-18 range. A break would easily signal a run to previous highs.  Investors need to keep in mind that Yext should return to 30% revenue growth rates once the economy normalizes. Even the worse case scenario in FY21 (January) includes 18.5% growth. The stock has constantly bounced off $16 offering another gift entry point.  The Out Fox model remains highly bullish on the stock.  Aurora Cannabis (OTC:ACB) As mentioned in the my research today, the Canadian cannabis stock is a buy on any deal with Aphria (OTC:APHA). The key is the C$200 million synergies from the deal and the potential for Aphr…

Aurora Cannabis: Promising Consolidation

Aurora Cannabis was in talks with Aphria on a merger of equals. The deal was estimated to generate C$200 million in synergies. The stocks could have had up to 50% upside on a merger. Over the last week, Aurora Cannabis (ACB) and Aphria (APHA) apparently discussed a merger with talks falling apart. A merger would've made the new entity into a global giant in the cannabis space after the Canadians have lost a ton of market leadership to U.S. firms in the last year. The synergies alone could make this a no brainer deal as Aurora Cannabis already had made an impressive transformation on costs making the long-term investment thesis on the stock more bullish. Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Citigroup: Not So Bad

Citigroup easily beat analyst estimates in Q2. The bank took a $7.9 billion credit loss, but the company still generated net income of $1.3 billion. The stock shouldn't trade far below the TBV of $71.15 while offering a 4% dividend yield. For a stock trading far below tangible book value, Citigroup (C) had a solid quarter. The large financial was able to generate a large enough profit to cover the dividend while still building most capital ratios. My investment thesis remains highly bullish on the stock as a pick for the decade. Read the full article on Seeking Alpha. 
Disclosure: Long C. Please review the disclaimer page for more details. 

Walgreens: Clear Overreaction

Walgreens fell by 8% following disappointing FQ3 results. The company was hit by higher cleaning costs and weaker U.K. Boots sales. The stock now offers a 4.8% dividend yield while trading at only 7x normalized EPS estimates. Walgreens Boots Alliance (NASDAQ:WBA) has too slowly transitioned to the digital realities of the modern retail environment, but the stock drop after FQ3 results was a clear overreaction. The quarterly results weren't as bad as the stock reaction for a stock already down about 20% from the previous highs. My investment thesis is more bullish on the stock following this dip below $40, as Walgreens Boots gets more aggressive with its digital plans and expands into more personalized healthcare services after a slow start. Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

American Airlines: No Other Bulls Exist

Amazingly, Seeking Alpha is unable to find another Bull to highlight their view on American Airlines (AAL). All of the other contributors on the financial site pretty much think the airline is going bankrupt.

When just about every so-called financial expert is on the same side of a trade usually the opposite happens. Passenger traffic continues to rebound in the best signal the market will return to normal by next year.

More research: American Airlines: Stop The Bankruptcy Talk

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

Canopy Growth Just Admitted Massive Failures

Canopy Growth remains locked out of the major cannabis opportunities in the U.S. The Acreage deal is failing due to a lack of funding for the MSO. The company is still aggressively spending chasing smaller global opportunities in competitive markets. The stock is far overvalued here with a $6.5 billion valuation, over 16x FY21 sales estimates. On June 22, Canopy Growth (CGC) hosted a virtual investor meeting where the company discussed the future of cannabis in great detail. Whether intentional or not, the large Canadian cannabis company highlighted how the business model continues to waste too much money chasing the wrong markets. My investment thesis remains highly negative on the stock here with a market cap of nearly $6.5 billion and a long road to profits ahead. Read the full article on Seeking Alpha.  Disclosure: No position. Please review the disclaimer page for more details.
Update 6/25 Canopy Growth just modified the deal with Acreage Holdings (ACRGF) to drastically lower the …

AT&T: Negatives Of Selling Gaming Unit

AT&T is exploring selling their video gaming unit for a reported $4 billion. The company has $154 billion in net debt so the cash isn't as meaningful as the lost revenues from WBIE. The deal value is an apparent low valuation compared to public gaming stocks such as EA or Take-Two Interactive Software. The stock will suffer from the constant hit to revenues per share while the 6.8% dividend yield is covered from the extra cash. Due to the massive scale of AT&T (T) following the buyout of Time Warner, the company has looked for non-strategic asset sales to lower massive debt levels. One new target is the video game business from Warner Bros. due to the multi-billion valuation estimate thrown around by analysts. Read the full article on Seeking Alpha. 
Disclosure: No position. Please reveal the disclaimer page for more details. 

Delta Air Lines: Eliminating Disaster Discount

Delta Air Lines entered the crisis already trading at a disaster discount. The airlines are quickly approaching load factors where average flights are break-even. The stock has upside from the 52-week high of $63 due to eventual multiple expansion. Delta Air Lines (NYSE:DAL) continues to rebound from the Buffett lows as airline traffic rises off the April lows. One of the most crucial metrics for valuing the airlines going forward is the load factor. My investment thesis is highly bullish on the airlines even with this recent rally in the stock as the load factors are rising and the potential for eliminating the disaster discount coming out of this down cycle improves the long-term potential of Delta. Read the full article on Seeking Alpha. 
Disclosure: Long AAL, UAL. Please review the disclaimer page for more details. 

Square: Not Pricing In Q2 Weakness

Square rallies near yearly highs after Q1 results. The company should report a large decline in Q2 payments volumes and an EBITDA loss. The stock trades at an insane 65x normalized EBITDA targets that are unlikely to be obtainable even in 2021. Despite the obvious long-term impact of the coronavirus to Square (SQ) small business customers, the stock is now back close to yearly highs. The company faces a tough road ahead with a material impact to business in the current quarter and a questionable future. My investment thesis was bullish on a rebound at the lows near $40, but the stock is no longer appealing above $75. Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

American Airlines: Breathing Room

American Airlines has over $17 billion in liquidity to survive the current air passenger traffic crash. The company has billions in unencumbered assets and a very valuable loyalty program as additional collateral for more funding. May 8th passenger traffic was up over 25% to the highest level since March 25. The market continues to misunderstand daily cash burn rates making the stock a buy at $10. The story of the day for American Airlines Group (AAL) is that the airline now has breathing room. With the government aid, the company has the liquidity to survive as passenger traffic continues to grow on a weekly basis even faster than ridesharing. The market remains highly fearful due to negative headlines such as Warren Buffett selling shares, but my investment thesis is even more bullish here. Read the full article on Seeking Alpha. 
Disclosure: Long AAL, UAL. Please review the disclaimer page for more details. 

Southwest Airlines: Major Safety Net

Southwest Airlines reported mixed Q1 results as the coronavirus hit March revenues. The airline now has access to over $13 billion of cash after raising an additional $3 billion of funds. The company has reduced cash burn to ~$10 million. The stock is a bargain at 7x normalized earnings, but the airline isn't the best deal in the sector. Southwest Airlines (LUV) has seen a tepid rally following Q1 results as the company is poised to quickly wipe out the daily cash burn. The general airline industry was up over 10% on the quarterly news and bullish signs of reopening the economy and international travel with passenger tests. Unfortunately, this airline caused a self-inflicted wound by rushing out equity offerings when cash wasn't needed. Under $30, my investment thesis remains bullish on the stock while acknowledging that better upside exists in other sector stocks. Read the full article on Seeking Alpha. 
Disclosure: Long AAL, UAL. Please review the disclaimer page for more det…

Delta Air Lines: So Unloved

Delta Air Lines obtained $5.4 billion in government aid. The airline stocks trade at constant discounts to the troubled cruise liners despite better business prospects. The stock trades at a substantial discount to the market at only 4.8x drastically reduced forward EPS estimates. For years now, Delta Air Lines (DAL) has been the best-run legacy airline, yet the stock was never loved by the markets. The airline always traded at far lower ratios than the other transport stocks and now the lack of love is apparent compared to the cruise lines. My investment thesis remains highly bullish on the airlines and particularly Delta as a safe bet for an eventual rebound in air passenger traffic rebound. Read the full article on Seeking Alpha. 
Disclosure: Long UAL. Please review the disclaimer page for more details. 

Aurora Cannabis: Not All Reverse Splits Are Negative

Aurora Cannabis announced plans for a 1:12 reverse stock split. Most research supports dire outcomes for most reverse stock splits. Not all splits are negative, though, providing potential upside on the stock after already falling on the news. Aurora Cannabis only trades at ~3x sales estimates now. With Aurora Cannabis (NYSE:ACB) trading below $1, the market shouldn't be too surprised the company announced a reverse split of their stock. Historically, reverse splits are negatives for participating stocks, but the cannabis sector is a new space where the capital structure and regulatory restrictions are as much the issue for the company than any dire situation. My investment thesis still remains positive on the catalysts for Aurora Cannabis during 2020, while the stock will be volatile during this process. Read the full article on Seeking Alpha. 
Disclosure: No position. Please review the disclaimer page for more details. 

AMD: Imminent Break Of $50

Despite the market uncertainties, AMD (AMD) remains a strong stock. In late Thursday trading, the sock ran into major resistance at $50.

The chart appears to show a stock ready for a major breakout. My advice as long recommended this period is the last chance to buy AMD below $50. Any dip here is a buying opportunity. More research on Seeking Alpha:

AMD: Work From Home Boost
AMD: Right On Target
AMD: Last Chance Below $50

Update April 10

Intel (INTC) says demand picked up for chips.

Source: No position. Long in Out Fox model. Please review the disclaimer page for more details. 

Zoom Video: Zooming Too Far

Zoom Video is priced for unsustainable trends plus the video conferencing tools isn't ready for privacy issues. The stock is worth double and triple a similar group of companies benefiting from the work-from-home economy. The stock trades at an unsustainable 40x FY21 sales. As the market has collapsed this year due to the coronavirus outbreak, Zoom Video Communications (ZM) has soared. The company benefits from the virtual economy and reportedly has seen mobile active users up over 150% in March. The problem here is that the stock is priced for a virtual only world where users never return to normal trends. Read the full article on Seeking Alpha. 
Disclosure: No position mentioned. Please review the disclaimer page for more details. 

AMD: Work From Home Boost

The Work From Home economy is set to boost data center demand. AMD is poised to take market share from Intel in the growing data center space. The stock has long term EPS potential above $3 making the stock a bargain down at $40. The work from home economy has already boosted several companies in the virtual space which should lead to higher data center demand. While Advanced Micro Devices (AMD) has held up well in the downturn, investors have probably missed the boost in demand the company could see from the data center segment. My investment thesis continues to see the stock as a very compelling buy anywhere below $50. Read the full article on Seeking Alpha.  Update - March 27

Don't see the recent lows being broken. The risk is to the update as virus totals dip over the weekend in Europe and the US potentially hit peak new cases here soon.

Disclosure: No position mentioned. Please review the disclaimer page for more details.

Square: Attractive For First Time In Years

Square gets 45% of GPVs from sellers generating under $125,000 in sales. The payments company is likely to see customers go out of business. My base case is 0% revenue growth in 2020 and a return to only 15% growth in 2021. The stock is a buy at 7x '21 adjusted revenues with potential upside to estimates. The Covid-19 outbreak and the shutdown of the global economy has investors fleeing Square (NYSE:SQ). The mobile payment company is highly dependent on small business customers, and the economic slowdown is going to hit their customer base the hardest. Just weeks ago, my view on the stock was negative with the price back above $80, and now, the stock is far more appealing after a 50% collapse in a matter of weeks. Read the full article on Seeking Alpha.  Update March 25, 2020 The company updated Q1 guidance to only slightly below original forecasts. The stock has already soared on the backs of the agreement on a stimulus deal to help small business. The view on Square is more neut…

Apple: Future Boost

Apple closes all retail stores outside Greater China and should take a large hit to FQ2 and FQ3 sales. The company had most China stores closed for about one month. The market will increasingly look towards FY21 sales that should see a boost from delayed spending. My estimate is for a FY21 EPS boost to $17, making the $250 stock cheap at 14.7x this target. Apple (NASDAQ:AAPL) has seen several analysts cut price targets on the stock due to cuts to FY20 numbers. Regardless, the stock remains a strong investment option based on normalized numbers not impacted by the coronavirus impact on the global economy. My investment thesis recommends investing in stocks based on FY21 numbers that might even get a boost from sales pushed into the next fiscal year. Read the full article on Seeking Alpha. 
Disclosure: Long AAPL. Please review the disclaimer page for more details. 

Alphabet: Sticking With $1,700 Target

Alphabet has dipped $400 on COVID-19 fears. The company has an EV down to only $670 billion due to $115 billion in net cash. A slash in travel ad revenues will cut $1-2 billion in quarterly revenues. The stock only trades at an EV of 12.2x '21 EPS targets. A $1,700 target is only 19.0x EPS targets. With analysts already warning on Alphabet (GOOGGOOGL) losing ad revenue in the travel space, the stock has taken an amazing $400 hit from recent highs. While consumers Internet search usage may remain high, hotels and travel destinations aren't going to advertise on the platform with a lack of travelers. While the situation sounds dire in the short term, investors should buy the stock for the all but certain rebound in the digital ad space as the coronavirus fears dissipate in the next weeks or months. My investment thesis maintains a $1,700 price target on the stock based on no changes to 2021 estimates. Read the full article on Seeking Alpha.
Disclosure: No position mentioned. P…

AMD: Right On Target

AMD updated their long-term financial targets at Financial Analyst Day 2020 to levels supportive of higher stock prices. The company guided to >20% revenue growth and 25% operating margins eliminating a long-held investor view of limited profits. The conservative outlook is for 2023 revenues of $15.0 billion and 2024 revenues at $18.0 billion suggesting revenues doubling from 2020 levels. My long-term model has an $18.75 billion revenue target (25% market share) and a $3.72 EPS. On March 5, Advanced Micro Devices (AMD) held their Financial Analyst Day for 2020. Despite the DJIA dipping nearly 1,000 points on the day and the COVID-19 fears spreading around the globe, the management team stayed focused on the long term. Read the full article on Seeking Alpha. 
Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Spirit Airlines: Pricing In Too Much Risk

Spirit Airlines is down close to 50% from recent highs. The airline will obtain a massive cushion from lower fuel costs with jet fuel down to $1.42 per gallon. Global air travel rarely slows down based on virus outbreaks. The stock is a bargain at below 5x normalized EPS estimates. As the global coronavirus outbreak reduces travel, the domestic airline stocks are being hit hard. Spirit Airlines (SAVE) is now an incredible bargain after taking a $20-plus tumble in the last couple of weeks. The market has far too much fear over an airline with a rock-solid position. Read the full article on Seeking Alpha. 
Update March 9, 2020 Jet fuel was down to $1.31 as of March 6 and will continue to fall. The lower prices are a huge benefit to the airlines like Spirit. The stock has held the lows from last Friday. 
Disclosure: No position. Please review the disclaimer page for more details. 

Square: Confusion Over Results

Square rallied following soft 2020 guidance due likely to a confusion over net and adjusted revenues. Revenue guidance suggests only 25% growth this year. The stock trades at a very rich 76x EBITDA targets. Square (SQ) has a lot of moving parts in their revenue numbers so the stock rallying on Q4 numbers and more specifically on disappointing 2020 guidance has investors chasing false revenue hype again. Despite the U.S. stock markets crashing over 10%, the stock is near recent highs. My investment thesis remains negative at this valuation due to the likelihood the market doesn't understand the presented revenue metrics and the ramifications. Read the full article on Seeking Alpha. 
Disclosure: No position. Please review the disclaimer page for more details. 

Aurora Cannabis : 2020 Catalysts - Retail Stores

Aurora Cannabis should benefit from expanded Canadian cannabis retail store openings in 2020. The Canadian market remains very inefficient with key provinces of Ontario and Quebec lacking retail stores. Even based on planned store expansions in 2020, the company would only see a 25% boost to consumer cannabis revenues. The stock has a $2 billion valuation with analysts only forecasting sales reaching $356 million in FY21. As Aurora Cannabis (ACB) flounders around $1.50, the negatives surrounding the stock shouldn't completely overshadow the opportunities for the Canadian cannabis market in 2020. The company has substantial catalysts in 2020 including additional retail stores in Canada, the rollout of Cannabis 2.0 products and global expansion including the U.S. CBD market. This article is the first in a series of articles discussing the 2020 catalysts for Aurora Cannabis with a focus on the opportunity for more retail stores in Canada. Read the full article on Seeking Alpha. 

Pinterest: Buy Now

Pinterest never provided the major selloff opportunity. The coronavirus fears offer an ideal entry point around $21. The stock now trades at only 5.7x forward EV/S targets despite 30% growth expectations. Sometimes stocks just run and investors have to pass on them while waiting for a better entry point. Pinterest (PINS) fit into this category following the substantial rally in early 2020, but the market dip following the coronavirus outbreak is providing another opportunity here. Read the full article on Seeking Alpha. 
Disclosure: Long TWTR. Please review the disclaimer page for more details. 

Gilead Sciences: COVID-19 Tops Disappointing Results

Gilead Sciences rallied on potential COVID-19 treatment. The plan to remove stock-based compensation from non-GAAP EPS guidance provides a headwind in 2020. Due to a disappointing turnaround, the stock is a sell on any major rally based on the COVID-19 treatment. The ability of Gilead Sciences (GILD) to make a run at new highs must speak to bullishness surrounding the coronavirus because the biopharma is struggling to complete the expected turnaround. In addition, new management made the unwise decision to remove stock-based compensation from non-GAAP results going forward causing a headwind for EPS estimates. When combined with disappointing growth prospects for 2020, investors are probably lucky the stock is at yearly highs above $70 versus the yearly lows at $60. Read the full article on Seeking Alpha. 
Disclosure: Long GILD. Please review the disclaimer page for more details.