TheStreet
Markets dipped this week as COVID-19 vaccine optimism was tempered by the harsh reality that cases are surging. Responding to the growing case counts, we saw more cities and states implement restrictions on activity in an effort to slow the spread. But without the assistance of more stimulus from Congress, additional restrictive measures could put the recovery in the jobs market and broader economy at risk.
Although we must navigate the market and economy's response to rising case counts in the near-term, there is light at the end of the tunnel coming in the spring when the vaccines are hopefully deployed nationwide. It is for this reason we remain bullish on the long-term, but in the near-term we would not be surprised to see more choppy behavior like what occurred this week.
In-line with this view, we have focused our rebuilding our cash position into strength from cyclical stocks that have seen outsized moves in recent weeks on vaccine news, and redeployed cash into large scale names such as Walmart (WMT) which has both defensive characteristics as well as growth-oriented investment initiatives and Crown Castle International (CCI) , which is exposed to a strong secular investment cycle required to meet the increasing demand for mobile data and deploy 5G in the United States.
Ten-year Treasury yields fell below 0.9%. Gold prices slid to the upper-$1,800s level. The dollar index remains at ~92 level. Lastly, WTI oil prices are holding steady in the low-$40s per barrel region.
We are in the heart of third-quarter earnings season. Within the portfolio we heard from Walmart and Nvidia (NVDA) .
Walmart reported a top- and bottom-line beat with its third-quarter results. On the top line, total revenues of $134.7 billion (+5.2% YoY) beat the consensus of about $132.23 billion. On the bottom line, adjusted diluted earnings of $1.34 per share (+15.5% YoY) topped expectations of $1.18 per share.
Management did not provide guidance for the fourth quarter, but it did say that the fourth quarter, "will feel different from past years, as customers shop differently, and shopping events are spread out." Black Friday will have a different feel to it this year, because of health measures that will limit traffic in brick-and-mortar stores, so this comment looks largely consistent. But on the holiday season itself, management said it expects a "good" one this year, and that is an encouraging sign given that so many consumer products were bought earlier in the pandemic. On the Walmart+, the company's recently launched membership program that is expected to be their answer to Amazon Prime by creating an ecosystem effect that grows customer loyalty and increases wallet share, no specifics were given in terms of uptake or subscriber count but management's overall tone on the future of the service sounded upbeat.
Nvidia reported a strong top- and bottom-line beat with its fiscal third quarter 2021 results. Revenue of $4.73 billion (+57% YoY) outpaced the $4.41 billion consensus, while adjusted earnings per share of $2.81 (+63% YoY) exceeded expectations of $2.58 per share.
For the fiscal fourth quarter, management expects revenue to be $4.8 billion +/-2%, and this forecast is stronger than the $4.4 billion consensus estimate. By platform, gaming sales are expected to increase sequentially despite what is usually a seasonally down quarter as the ramp of the new RTX 30 Series products will continue to drive sales. Meanwhile, data center revenues are expected to be down slightly versus the third quarter. Within that, management expects computing products to grow in the mid-single digits sequentially but will be more than offset by a sequential decline in Mellanox, though year over year sales are still expected to be about 30% or more. This might be slightly disappointing to some, but you have to remember that this quarter featured Mellanox sales to a China OEM that will not happen again in the fourth quarter. Elsewhere, Nvidia expects continued sequential growth in automotive and pro visualization but year over year growth will still have to wait. Lastly, a seasonal decline in OEM is expected. As for margins, management expects adjusted gross margins for fiscal 3Q21 to be in about 65.5% +/- 50bps, roughly in line with the 65.27% consensus heading into the print. Adjusted operating expense guidance of $1.18 billion and capital expenditures are expected to be approximately $300 million and $325 million. Elsewhere, adjusted other expenses are expected to be $55 million, and adjusted tax rate is expected to be about 8%. Putting this all together, the implied adjusted EPS is roughly $2.79, which is nicely higher than the $2.54 consensus estimate.
Economy
On Tuesday, The U.S. Commerce Department reported Tuesday that retail and food-services sales advanced 0.3% in October to $553.3 billion, missing expectations for a 0.5% increase. Last month's rise follows a 1.6% increase in September. On a monthly basis, excluding auto sales, retail sales were up 0.2%, also missing expectations for a 0.6% monthly gain. Excluding autos and gas, sales were also up 0.2% in October, again below projections for a 0.6% advance. Core retail sales (were down 0.1% in October, missing expectations for a 0.5% advance. See here for our full analysis.
Also, on Tuesday, the Federal Reserve announced that industrial production advanced 1.1% in October, exceeding expectations for a 1.0% increase. Capacity utilization also outpaced expectations, coming in at 72.8% versus a 72.3% consensus for October. Total industrial production is down 5.3% from the same time last year, while capacity has grown by 0.2% annually. See here for our full analysis.
On Wednesday, the U.S. Census Bureau reported that housing starts increased 4.9% month over month in October to a seasonally adjusted annual rate of 1.53 million. That figure was up from September's revised rate of 1.459 million and exceeded expectations for a 1.46-million-unit rate of starts. With October's reading, housing starts are up 14.2% from the same time last year. As for building permits, units authorized in October were "virtually unchanged" at a seasonally adjusted annual rate of 1.545 million, missing expectations for a rise to a 1.57 million seasonally adjusted rate. With October's reading, permits are up 2.8% from the same time last year. See here for our full analysis.
On Thursday, the National Association of Realtors (NAR) reported that existing home sales increased 4.3% in October to a seasonally adjusted annual rate of 6.85 million, outpacing expectations for a decrease to a 6.46 million rate. With October's reading, overall existing home sales are up 26.6% from the same time last year. On the pricing front, the median existing home price increased 15.5% year-over-year to $313,000, marking the 104th consecutive month of YoY price gains. On the inventory front, supplies remain below the six-month level many view as balanced, currently sitting at a 2.5-month supply given the current rate of sales, marking an all-time low. See here for our full analysis.
Also, on Thursday, the Department of Labor reported that initial jobless claims for the week ended November 14 were 742,000, an increase of 31,000 from the previous week's revised level of 711,000 (up from 709,000 previously reported). The reading missed expectations for 710,000 claims.
Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 742,000, a decrease of 13,750 from the previous week's revised average of 755,750 (up from 755,250 previously reported). For the official weekly release, please see here.
(Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)
Oil
On the commodity front, prices held steady as near-term demand concerns are offset by longer-term optimism as we have a more concrete vaccine timeline and are beginning to see the light at the end of the tunnel.
On the domestic front, on Wednesday, the U.S. Energy Information Administration (EIA), reported that in the week ending November 13 U.S. stockpiles (excluding those in the Strategic Petroleum Reserve) increased by 0.8 million barrels to 489.5 million barrels, better than expectations for a 1.65-million-barrel drawdown. Additionally, 0.4 million barrels were drawn down from the Strategic Petroleum Reserve. U.S. production increased by 400,000 bpd to at 10.9 million bpd. Lastly, net imports decreased by 228,000 bpd as imports decreased by 245,000 bpd, while exports decreased by 17,000 bpd. See here for the full report.
Lastly, we note that the spread between WTI and Brent stands at around the $2 to $3 per barrel level. Recall, this is a key metric as the wider the spread, the more attractive U.S. based crude (WTI) becomes to foreign buyers, though we note that strength in the dollar can offset this effect as foreign buyers convert their home currencies to the dollar.
Stocks
In the portfolio this week, we initiated a position in Crown Castle (here) and added to our position in United Parcel Service (UPS) (here). On the other hand, we trimmed our position in Seagen (here).
Moving on to the S&P 500, third-quarter earnings season is wrapping up, with 84.7% of companies reporting a positive EPS surprise. For the third quarter, earnings are down roughly 6.8% year over year vs. expectations for an overall 6.8% decline throughout the season. Revenues for the S&P 500 are down 1.3% vs. expectations throughout the season for a 1.1% decrease; 84.7% of companies beat EPS expectations, 12.7% missed the mark and 2.5% were in line with consensus. On a year-over-year comparison basis, 52.44% beat the prior year's EPS results, 45.01% came up short and 2.55% were virtually in line. The best performing sectors have been Consumer Staples, Healthcare, and Industrials while the worst performing have been Utilities, Energy and Real Estate.
No portfolio companies will be reporting next week. Other key earnings reports for the market include:
- Mon 11/23
- Open: Baozun BZUN, Warner Music Group WMG, Korn/Ferry KFY, Twist Bioscience TWST.
- Close: Agilent A, Urban Outfitters URBN, Cabot CBT, Nutanix NTNX, Ambarella AMBA, Enanta Pharmaceuticals ENTA
- Tues 11/24
- Open: Best Buy BBY, Medtronic MDT, Dollar Tree DLTR, Hormel Foods HRL, Dicks Sporting Goods DKS, J.M. Smucker SJM, Burlington Stores BURL, Analog Devices ADI, Dycom DY, Abercrombie & Fitch ANF, American Woodwork AMWD, Eaton Vance EV, Chicos FAS CHS, Titan Machinery TITN, Anaplan PLAN
- Close: Dell, HP HPQ, Gap GPS, Nordstrom JWN, VMware VMW, American Eagle AEO, Autodesk ADSK, Pure Storage PSTG
- Wed 11/25
- Open: Deere DE, Frontline FRO
- Close:
- Thurs 11/26
- Open:
- Close:
- Fri 11/27
- Open:
- Close:
Economic Data (*all times ET)
U.S.
Monday (11/23)
Chicago Fed Nat Activity Index (8:30)
Markit US Manufacturing PMI (9:45): 52.5 expected
Markit US Services PMI (9:45): 56 expected
Markit US Composite PMI (9:45)
Tuesday (11/24)
FHFA House Price Index MoM (9:00)
Conf. Board Consumer Confidence (10:00): 98 expected
Richmond Fed Manufact. Index (10:00)
Wednesday (11/25)
MBA Mortgage Applications (7:00)
Initial Jobless Claims (8:30)
Continuing Claims (8:30)
Wholesale Inventories MoM (8:30)
GDP Annualized QoQ (8:30): 33.10% expected
Personal Consumption (8:30)
GDP Price Index (8:30): 3.60% expected
Core PCE QoQ (8:30)
Durable Goods Orders (8:30): 1.00% expected
Durables Ex Transportation (8:30): 0.20% expected
Cap Goods Orders Nondef Ex Air (8:30)
Cap Goods Ship Nondef Ex Air (8:30)
Bloomberg Consumer Comfort (9:45)
Personal Income (10:00): 0.10% expected
Personal Spending (10:00): 0.50% expected
PCE Core Deflator MoM (10:00): 0.00% expected
PCE Core Deflator YoY (10:00): 1.40% expected
- of Mich. Sentiment (10:00): 76.8 expected
New Home Sales (10:00): 968k expected
Thursday (11/26)
Friday (11/27)
International
Monday (11/23)
Germany Markit/BME Germany Manufacturing PMI (3:30): 57.3 expected
Germany Markit Germany Services PMI (3:30): 47.5 expected
Germany Markit/BME Germany Composite PMI (3:30): 49.1 expected
EU Agg Markit Eurozone Manufacturing PMI (4:00): 54.2 expected
EU Agg Markit Eurozone Services PMI (4:00): 44.1 expected
EU Agg Markit Eurozone Composite PMI (4:00): 47.1 expected
UK Markit UK PMI Manufacturing SA (4:30): 51.6 expected
UK Markit/CIPS UK Services PMI (4:30): 46 expected
UK Markit/CIPS UK Composite PMI (4:30): 44.1 expected
Tuesday (11/24)
Japan Nationwide Dept Sales YoY (00:30)
Germany GDP SA QoQ (2:00): 8.20% expected
Germany GDP NSA YoY (2:00): -4.10% expected
Germany GDP WDA YoY (2:00): -4.30% expected
Germany IFO Business Climate (4:00): 90.9 expected
Germany IFO Expectations (4:00): 94 expected
Germany IFO Current Assessment (4:00): 87.6 expected
Wednesday (11/25)
Thursday (11/26)
Japan Leading Index CI (00:00)
Japan Machine Tool Orders YoY (1:00)
Germany GfK Consumer Confidence (2:00): -5 expected
EU Agg M3 Money Supply YoY (4:00)
Japan Tokyo CPI YoY (18:30): -0.50% expected
Japan Tokyo CPI Ex-Fresh Food YoY (18:30): -0.60% expected
Japan Foreign Buying Japan Stocks (18:50)
Japan Buying Foreign Bonds (18:50)
Friday (11/27)
EU Agg Consumer Confidence (5:00)
New folks, welcome aboard! You're reading the Weekly Roundup of the charitable trust that Jim talks about regularly on Mad Money and in his bestseller, Get Rich Carefully. Jim put $3 million of his own money into this charitable trust so that you, the subscriber, can learn how he and the Action Alerts PLUS staff make decisions about a diversified portfolio and make money. You'll see every position in every stock, and we'll send you alerts BEFORE every trade. And best of all, all profits go to charity -- we've donated over $3.0 million to date.
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ONES
AbbVie (ABBV) ; $100.84; 1,400 shares; 4.25%; Sector: Healthcare
WEEKLY UPDATE: Warren Buffett's Berkshire Hathaway disclosed its portfolio position as of the end of the third quarter and AbbVie was a new position per the 13F filing. 1-Wk. Price Change: 1.82% Yield: 5.16%
INVESTMENT THESIS: AbbVie is a biopharmaceutical company best known for its blockbuster drug Humira. Despite the incredible selling strength of this product, investors have shied away from this name due to Humira's lost patent protection in Europe and risk in the United States in 2023. Key to the AbbVie's future is the acquisition of Allergan, a deal that will diversify the company's revenue stream and give it exposure to Medical Aesthetics, neuroscience, and eye care, while also increase operating cash flow. Additionally, we believe key growth drugs Rinvoq and Skyrizi will help fill the gap once Humira loses exclusivity, the company pays a high yielding dividend that we believe is supported by the balance sheet and well covered by the cash flow. Target Price: Reiterate $110; Rating: One
RISKS: Execution of the Allergan integration, drug pricing, pipeline issues, loss of exclusivity on key drugs, competition
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/30/20), Buying Shares of a Beaten-Down Drug Name (10/21/20),FY2Q20 Earnings Analysis (7/31/20), CEO Richard Gonzalez on CNBC (5/14/20), AbbVie, Allergan Close Acquisition Deal (5/11/20), General Update (1/27/19), 3Q19 Earnings Analysis (11/1/19), Initiation (10/1/18), Investor Relations
Advanced Micro Devices (AMD) ; $84.64; 250 shares; 0.64%; Sector: Info. Tech.
WEEKLY UPDATE: Analysts at Cleveland Research upgraded shares to Buy from Neutral as industry checks point to server and PC market share gains in 2021 and upside to fourth-quarter consensus expectations. Also, this week, AMD unveiled the AMD Instinct MI100 GPU accelerator. 1-Wk. Price Change: 3.94%; Yield: 0.00%
INVESTMENT THESIS: AMD is a chip maker that specializes in the development of both CPUs (like Intel) and GPUs (like Nvidia). On the CPU side, the company continues to take share from Intel in the data center thanks to its 2nd generation EPYC processor line, which is seeing increased adoption in the super computing and high-performance computing space (especially following execution missteps from Intel that has resulted in delays for the companies 7nm chips), which you can read more about at the link here. On the GPU side, while Nvidia remains the unquestioned leader in terms of overall performance, AMD is the close on its tail and provides a strong balance between price and performance. AMD is also seeing strong momentum in the mobile space, recently announcing that its Ryzen platform has exceeded its moonshot 25x20 goal set in 2014 that aimed to improve the energy efficiency of its mobile processors 25 times by 2020. Simply put, we think AMD has more room to run as it gains market share, especially when you factor in the current strength of data center and the company's positioning as it relates to the next-gen video game console cycle given that both PlayStation and Xbox use AMD graphics cards. Target Price: Reiterate $90; Rating: One
RISKS: Competition, a slowdown in the IT/data center spending
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/27/20), CEO Interview (7/29/20), Readthroughs Are Still Positive for AMD (7/24/20), Measuring the Reports of the PlayStation 5 Production Ramp (7/17/20), Initiation (7/7/20), Investor Relations
Apple (AAPL) ; $117.34; 1,400 shares; 4.94%; Sector: Technology
WEEKLY UPDATE: Announced the "App Store Small Business Program" which reduces App Store commission to 15% for businesses earning under $1 million per year. We believe this a positive move as it is likely too small to materially impact the company's App Store revenue stream while providing a positive PR spin as the company defends its 30% fee for larger customers. According to analysts at Bernstein, "the impact from the resultant commissions cut is tiny: about a 15 bps impact to Apple's revenues, and a 70 bps hit to Services revenue." 1-Wk. Price Change: -1.61% Yield: 0.70%
INVESTMENT THESIS: While we acknowledge that near- to- midterm performance remains heavily influenced by iPhone sales, the dynamic is shifting as investors finally being to place greater emphasis on Services growth. We are bullish on the 5G upgrade cycle and believe longer-term upside will continue to come as Services revenue grows its share of overall sales. Services provide for a recurring revenue stream at higher margins, a factor that serves to reduce earnings volatility while allowing for a higher percentage of sales to fall to the bottom line, as a result, we believe that Services growth and the installed base, are much more important than how many devices the company can sell in a given 90-day period. In addition to improved profitability we also believe the transparent nature of this revenue stream will demand an expanded price-to-earnings multiple as segment sales grow. Furthermore, we believe that Apple's desire to push deeper into the healthcare arena will help make its devices invaluable as more life-changing features are added and the company works to democratize health records. Lastly, also see upside resulting from increased adoption of wearables (think the Apple Watch) and potential new product announcements such as an AR/VR headset or an update on project Titan, the company's secretive autonomous driving program. Target Price: Reiterate $135; Rating: One
RISKS: Slowdown in consumer spending, competition, lack of new product innovation, elongated replacement cycles, failure to execute on Services growth initiative
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (10/29/20), FY3Q20 Earnings Analysis (7/30/20), Takeaways from WWDC (6/22/20), At What Price Range Will We Upgrade Apple? (2/18/20), Apple's Underappreciated Ability to Navigate Tariffs (8/26/19), Valuing Apple After Last Night's Quarter (7/31/19), Apple WWDC: Everything You Need to Know (6/4/19), Regulation Fears (6/3/219), The Apple Card: A Huge, Underappreciated Opportunity (4/4/19), Apple Services Event (3/26/19), The Healthcare Ecosystem (1/9/19), Apple should acquire health record company Epic, CEO Tim Cook Interview (1/15/19), Initiation (1/4/10), Investor Relations
Boeing Co (BA) ; $199.62; 375 shares; 2.25%; Sector: Industrial
WEEKLY UPDATE: It finally happened. Boeing's 737 Max was cleared to fly this week by the Federal Aviation Administration (FAA) as the organization rescinded the Emergency Order of Prohibition issued on March 13, 2019. The recission comes following a 20-month long "comprehensive and methodical safety review process." Following the news, FAA Chief Steve Dickson spoke with CNBC, here, commenting that the conditions that caused the two fatal accidents (Lion Air Flight 610 on October 29, 2018 and Ethiopian Airlines Flight 302 on March 10, 2019) that resulted in the deaths of a total of 346 people are now "impossible." While it remains to be seen how the public will respond and if flyers will be willing to board the plane, the news is certainly a win for the company and we note that while some may be hesitant, the result of the review process is that the 737 Max is now the most heavily scrutinized transport plane in history. 1-Wk. Price Change: 6.69%; Yield: 0.00%
INVESTMENT THESIS: Our thesis is predicated on a few beliefs. First off, we see a near-term catalyst related to the conclusion of the 737 Max saga, and we expect a happy ending and a globally coordinated recertification before the end of 2020. Additionally, we believe 2021 will be the inflection year to Boeing's free cash flow, and Boeing' history points to the inflection point being a good entry point to get into the stock. That being said, management acknowledged on its third quarter earnings call that 2022 is the more likely inflection point. Looking further out, we've seen estimates that suggest Boeing's free cash flow will be greater than $20 per share in a normalized year 2023. When visibility behind Boeing estimates begins to improve (driven by 737 ungrounding and vaccine/therapeutic driven improvements to air travel/global tourism), we think positive momentum will finally build in the stock. Target Price: Reiterate $215; Rating: One
RISKS: Recovery in aerospace market, economic health of airlines, production issues, 737 MAX recertification, defense budgets
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/28/20), Boeing Jumps After Europe's Aviation Regulator Says 737 MAX Is Safe to Fly (10/16/20). Boeing Dips After Company Revises Demand Forecast (10/6/20), Initiation Post (10/5/20), Investor Relations
Bristol-Myers Squibb (BMY) ; $61.61; 1,950 shares; 3.61%; Sector: Healthcare
WEEKLY UPDATE: Warren Buffett's Berkshire Hathaway disclosed its portfolio positions as of the end of the third quarter and Bristol-Myers was a new position per the 13F filing. 1-Wk. Price Change: -3.16%; Yield: 2.92%
INVESTMENT THESIS: We view Bristol-Myers Squibb's strength in cancer, cardiovascular and autoimmune disease treatments, key areas of focus that provide strong growth opportunities as they are always in need of further innovation. Key drugs include Eliquis, which has a best-in-class profile and is used to prevent strokes in patients with atrial fibrillation; Opdivo, a drug designed for people with previously treated advanced non-small cell lung cancer; Orencia, which is used for the treatment of adult rheumatoid arthritis; Sprycel, which is used to treat certain types of leukemia; and Yervoy, which is used to treat certain types of skin cancer. That in mind, the big, "control your own destiny move" the company made was the Celgene deal. From a financial perspective, the deal is expected to achieve greater than 40% accretion in the first full year with roughly $800 million in synergies in 2020, 2021, and 2022. The deal was necessary because it positions Bristol-Myers for the back half of the decade through the creation of a more robust pipeline. Moreover, on the cardiovascular side, the acquisition of MyoKardia brings with it mavacamten, a potential first-in-class cardiovascular medicine for the treatment of obstructive hypertrophic cardiomyopathy. Bristol-Myers expects to explore the full potential of mavacamten in additional indications and develop MyoKardia's pipeline. Target Price: Reiterate $74; Rating: One
RISKS: Execution of the Celgene integration, drug pricing, pipeline issues, loss of exclusivity on key drugs, competition
ACTIONS, ANALYSIS & MORE: CEO Giovanni Caforio Discusses the MyoKardia Acquisition on Mad Money (10/5/20), Bristol-Myers Squibb to Acquire MyoKardia (10/5/20), FY2Q20 Earnings Analysis (8/6/20), Trade Alert (1/24/20) , Pipeline Updates (6/23/20), Jim & Jeff Discuss BMY (12/11/19), Initiation (12/2/19), Bristol-Myers Squibb Joins the Bullpen (11/26/19), Investor Relations
Crown Castle International Corp (CCI) ; $166.97; 250 shares; 1.26%; Sector: Real Estate
WEEKLY UPDATE: We initiated a position Wednesday in our Alert here. Earlier in the week the company announced a new multiyear partnership agreement with DISH here through which Crown Castle will lease DISH space on up to 20,000 communication towers. 1-Wk. Price Change: -0.62% Yield: 3.19%
INVESTMENT THESIS: Crown Castle is positively exposed to the long investment cycle required to meet the increasing demand for mobile data and deploy 5G in the United States. Approximately 56% and 71% of CCI's towers are located in the 50 and 100 largest U.S. Basic Trading Areas, respectively. The company's towers have a significant presence in each of the top 100 BTAs. We also see upside related to Elliott Management's activist stake in the company. Elliott would like to see CCI implement several changes including a strategic review of the fiber channel business, but management believes this business is key to the longer term growth story. We believe Elliott's presence could lead to management either making a convincing case for its Fiber businesses (which the market will give appreciation for), or it could force a strategic review. Lastly, we appreciate the consistent, growing dividend yield - the company recently increased its quarterly dividend by 11% to $1.33 per share and we think there is plenty of room for the payout to grow. Target Price: Reiterate $190; Rating: One
RISKS: Delays to 5G deployments, either operational challenges in the fiber channel business or no strategic review, higher interest rates
ACTIONS, ANALYSIS & MORE: Initation Alert (11/18/20), Investor Relations
CVS Health (CVS) ; $66.39; 1,800 shares; 3.59%; Sector: Healthcare
WEEKLY UPDATE: As we discussed earlier this week, shares came under pressure on news that Amazon is officially entering the pharmacy space through the rollout of their new offering called Amazon Pharmacy. 1-Wk. Price Change: -6.49% Yield: 3.01%
INVESTMENT THESIS: We see upside resulting from Aetna integration progress, which we believe will allow shares to re-rate higher as the price-to-earnings valuation closes the gap with peers, and a deleveraging of the balance sheet, which has been another concern for investors. We believe the new CVS Health will transform into a diversified pharmacy/healthcare retailer that is integrated with a managed care operation, creating a more personalized and analytic-based experience that all patients will want. Additionally, we value shares because CVS is an all-domestic company (providing insulation from trade-related headwinds) in the healthcare field (defensive) without a lot of cyclicality, making it even more attractive as we are faced with a barrage of headlines about slower global economic growth. Target Price: Reiterate $84; Rating: One
RISKS: Failure to execute on Aetna integration, greater than expected rebate guarantee headwinds on PBM business, regulatory headwinds
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (11/6/20), Upgrading CVS to One (9/17/20), FY2Q20 Earnings Analysis (8/5/20), CEO Larry Merlo on Mad Money (5/6/20), CEO Larry Merlo Discussing COVID-19 on Mad Money (3/17/20), Upgrade to One (1/24/20),Cowen Raises Their Price Target (8/27/19), PBMs Receive Key Win With the Removal of Rebate Proposal (7/11/19), Looking for Winners of a Potential Healthcare Policy Proposal (7/9/19), Updating CVS Health (4/8/2019), Our Case for CVS Health Over Walgreens (4/3/2019), Initiation (11/13/18), Investor Relations
DuPont (DD) ; $62.05; 2,250 shares; 4.2%; Sector: Materials
WEEKLY UPDATE: None 1-Wk. Price Change: 1.49%; Yield: 1.92%
INVESTMENT THESIS: DuPont is an industrial that operates in four key segments: Electronics & Imaging, Nutrition & Biosciences, Transportation & Industrial, and Safety & Construction. We vie w E&I as a solid growth business thanks to its exposure to semiconductor technologies and interconnect solutions, which is a play on premium next-generation smartphones (5G). Nutrition and Biosciences has a value unlocking catalyst through its pending merger with International Flavors & Fragrances. While Transportation and Industrial has recently been challenged, we see greenshoots in the automotive industry improving sales. And Safety and Construction is seeing strong demand for Personal Protective Equipment and its construction end markets will benefit from the economic reopening. Lastly, we like the divestment optionality within the non-core segment. Not only will the future cash proceeds go directly to the balance sheet, but the sales will also lift the company's margin profile--a multiple expanding catalyst. Target Price: Reiterate $64; Rating: One
RISKS: Economic recovery, auto sales, PFAS liability, ability to divest non-core components
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/29/20), DuPont Divests Non-Core Business (9/10/20), Catching Up on a Couple of Names (8/12/20), Let's Take Stock of This Choppy Day (6/18/20), Initiation (6/5/20), Investor Relations
Goldman Sachs (GS) ; $223.35; 550 shares; 3.7%; Sector: Financials
WEEKLY UPDATE: None 1-Wk. Price Change: 1.95% Yield: 2.24%
INVESTMENT THESIS: Goldman Sachs is a strong performing investment bank, and the firm is currently ahead of its goal to generate an additional $5 billion in annual revenue by 2020. Meanwhile, the firm has delivered consistent improvements to its return on equity and return on tangible common equity metrics-which are drivers of a premium over book price-while tangible book value has continued to grow. Another reason why we think the share price deserves a greater premium is because of management's emphasis on fee-based, or more recurring, revenue streams. Less reliance on interest rates makes Goldman's earnings power far more resilient in the current low interest rate environment. At the end of 2018, 61% of Goldman's revenues were fee-based, up from 48% in 2013. We also see value in Goldman's retail initiative through Marcus as well as the Apple card. The firm's tangible book value per share as of the end of the third quarter 2020 was $215.54 Target Price: Reiterate $240; Rating: One
RISKS: The economic cycle, Financial System regulation, 1MDB litigation, interest rates, financial market activity
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/14/20), CEO David Solomon on CNBC (4/2/20), CEO David Solomon Interview at World Economic Forum (1/22/20), Trade Alert (6/3/19), Trade Alert (5/20/19), The Apple Card: A Huge, Underappreciated Opportunity (4/4/19), Stocks We Are Looking at During Friday's Selloff (3/22/19), Daily Rundown (2/7/19), Daily Rundown (1/16/2019), Initiation (2/14/18), Investor Relations
Marvell Technology (MRVL) ; $43.96; 2,750 shares; 3.64%; Sector: Info. Tech.
WEEKLY UPDATE: On Thursday, analysts at Citigroup moved MRVL up to a "Top Pick" within their Semiconductor Equipment & Specialty Semis coverage list. 1-Wk. Price Change: 1.62%; Yield: 0.55%
INVESTMENT THESIS: Our thesis on MRVL is heavily predicated on Marvell's integral role in the 5G cycle. As noted in our initiation alert, we believe that the 5G upgrade cycle remains in early stages and that from an infrastructure viewpoint, which Marvell plays to by creating the network that needs to be built and running to support all of the new, Marvell will benefit as 5G enabled devices begin coming to market over the next several years. Additionally, we believe the Cavium deal was a big step in the company's transformation while the acquisition of Aquantia, a leader in Multi-Gig Ethernet connectivity, will help in broadening Marvell's connectivity solutions portfolio and capitalizing on the future of high-speed networking requirements in cars that are needed to enable autonomous, electric, and safety/security applications. Furthermore, on the M&A front, we believe the acquisition Avera Semiconductor, a developer of custom ASICs for networking and telecom equipment was a 5G additive play as Avera's biggest end market exposure is base stations, which are leveraged to 5G. Target Price: Reiterate $50 Rating: One
RISKS: Further intensification on the US/China trade front, a delayed ramp in 5G infrastructure buildouts.
ACTIONS, ANALYSIS & MORE: Marvell Announces Acquisition of Inphi (10/29/20), Takeaways From Marvell Tech's Analyst Day (10/9/20), FY2Q20 Earnings Analysis (8/27/20), Potential Customer Shift at Verizon a Positive for Marvell (7/10/20), CEO Matt Murphy on Mad Money (6/2/20), FY1Q20 Earnings Analysis (5/28/20), CEO Matt Murphy on Squawk Alley (3/31/20), Adding to and Upgrading Marvell Technology (3/10/20), Marvell Rallies After Bullish Analyst Call (11/4/19)MRVL Get Spotlight in Analyst Calls (8/21/19), Initiation (7/3/19), Investor Relations
Mastercard (MA) ; $323.00; 175 shares; 1.7%; Sector: Info. Tech.
WEEKLY UPDATE: Craig Vosburg, President of Mastercard North America spoke with CNBC about expectations for consumer spending as we enter the holiday season as well as the company's acquisition of Finicity. 1-Wk. Price Change: -3.59% Yield: 0.50%
INVESTMENT THESIS: We believe upside will result from the secular shift toward digital payments and a growing "network effect" as acceptance rates of digital payments increase among merchants. In line with this view, we also believe the shift to ecommerce to be a tailwind as online purchases inherently require some form of digital payments. In the near-term we also expect a tailwind to result from the coming release of the Apple Card as MasterCard was selected as the card's payment processing platform. Furthermore, we value MasterCard for the strong three-year Performance Objectives management laid out on their fourth quarter 2018 and full year 2018 financial results conference call. For 2019 - 2021, on a currency-neutral basis, excluding future acquisitions and Special Items, management's goal is for low-teen Net Revenue CAGR (compound annual growth rate), a minimum 50% Annual Operating Margin, and high-teens percent earnings per share CAGR. Lastly, the company also has a hefty share repurchase program in place. Target Price: Reiterate $355. Rating: One
RISKS: Slowdown in consumer spending and a prolonged shift toward digital payment mediums
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/28/20), Outgoing CEO Ajay Banga and incoming CEO (current Chief Product Officer) Michael Miebach on Mad Money (2/25/20), CEO Ajay Banga joins Microsoft CEO Satya Nadella at the World Economic Forum to discuss "The Role of the New Industrialists." (1/22/20), Updates on Our E-Commerce and Payment Provider Names (6/6/19), Initiation (5/28/19), Investor Relations
Microsoft Corp (MSFT) ; $210.39; 400 shares; 2.53%; Sector: Technology
WEEKLY UPDATE: None 1-Wk. Price Change: -2.83%; Yield: 1.06%
INVESTMENT THESIS: We believe the cloud to be a secular growth trend and that upside to shares will result from Microsoft's hybrid cloud leadership as the company grab's market in this expanding industry. While companies may look to build out multi-cloud environments, Microsoft's Azure offering will be a prime choice thanks to the company's decision to provide the same "stack" used in the public cloud, to companies for their on-premise data centers. Additionally, we would note that hybrid environments are currently the preference for most companies because it allows them to maintain critical data in house while taking advantage of the agility and scalability provided by public clouds. Outside of the cloud opportunity, we maintain a positive view on the company's growing gaming business, which we believe is becoming an increasingly prominent factor in the Microsoft growth story as gaming becomes more mainstream, management works to convert its gaming revenue from one-time license purchase to a recurring subscription model and as technologies like augmented/virtual reality evolve. Finally, as it relates to LinkedIn and other subscription-based services such as O365 and various Dynamics products, we continue to value them highly for their recurring revenue streams, which we remind members, provides for greater transparency of future earnings. Target Price: Reiterate $230; Rating: One
RISKS: Slowdown in IT spending, competition, cannibalization of on premises business by the cloud
ACTIONS, ANALYSIS & MORE: FY1Q21 Earnings Analysis (10/27/20), Microsoft Acquires ZeniMax (9/22/20), CEO Satya Nadella on CNBC (3/25/20), CEO Satya Nadella speaks at the World Economic Forum (1/23/20), CEO Satya Nadella Join Mastercard CEO Ajay Banag to discuss "The Role of the New Industrialists" at the World Economic Forum (1/22/20), Jim sits down with CEO Satya Nadella and CFO Amy Hood - part one, part two (1/16/20), Microsoft Secured the JEDI Contract (10/28/19), What Can We Learn from Facebook, Microsoft, and Lam Research Earnings? (4/25/19), Initiation (11/27/17), Investor Relations
Nike (NKE) ; $132.98; 850 shares; 3.4%; Sector: Consumer Discretionary
WEEKLY UPDATE: Analysts at JPMorgan reiterated their Overweight rating and raised their price target to $146 (from $140) following discussions with management at the firm's Global Consumer, Retail/Luxury Conference. The analysts noted that Nike is "leveraging data to drive demand creation in growth areas." Moreover, the analysts called out that the company "has doubled down their enterprise-wide focus on digital, consumer connections, and product innovation, including a heightened focus on women's while prudently managing costs and taking a disciplined focus to the recalibration of supply/demand." As the holiday season approaches, the company is ready for the increased demand about to be placed on their e-commerce operation as the analysts highlighted that the management also noted 3x and 4x increase in North American and Europe, the Middle East and Africa (EMEA) digital fulfillment capabilities, respectively, relative to pre-COVID-19 levels. On Friday the company announced a 12% increase to its quarterly dividend and we talked about this in our Alert here. 1-Wk. Price Change: 3.66% Yield: 0.83%
INVESTMENT THESIS: High-quality brand globally known for their footwear, apparel, and accessories. Digitization is the thesis as Nike is currently going through a transformational shift from wholesale to a direct-to-consumer company and digital journey. This shift is financially accretive to the company as on average, a sale of an incremental unit through digital channels generates double the revenue with higher gross margins compared to a sale to wholesale, translating to double the operating income dollars. Currently, Nike is tracking to toward 30% e-commerce penetration by fiscal 2021 (two years ahead of management's initial target), and longer-term management sees a path towards achieving 50% digital penetration. Target Price: Reiterate $145; Rating: One
RISKS: Consumer demand and changes to spending levels and tastes (competition), large China exposure, FX, higher product costs,
ACTIONS, ANALYSIS & MORE: Nike's Dividend Boost Is a Sign of Financial Strength (11/20/20), FY1Q21 Earnings Analysis (9/22/20), Initiation (9/11/20), Adding Nike to the Bullpen (9/9/20), Investor Relations
NortonLifeLock (NLOK) ; $18.27; 5,300 shares; 2.91%; Sector: Info. Tech.
WEEKLY UPDATE: There was no company news this week, but it was another disappointing one for the stock. Our view of the company has not changed since our Alert here. 1-Wk. Price Change: -7.73% Yield: 2.74%
INVESTMENT THESIS: NortonLifeLock is an industry leading and worldwide recognized user-centric Consumer Cyber Safety business which provides Device Security, Identity Threat Protection and Privacy software that protects customers from threats posed by cyber criminals. With Covid-19 accelerating online activity and working from home, NortonLifeLock is in a great position to meet the growing consumer need for cyber safety. Management is meeting this opportunity with a step up in marketing spend, especially in international markets, and if we see good yields on this investment it will lead to an improved growth profile and higher average revenue per users (ARPU). With 90% of sales being direct to consumer through the company's e-commerce platform, operations are largely insulated from brick and mortar restrictions related to Covid-19. Additionally, one of management's goals following the sale of its the enterprise division to Broadcom is to eliminate stranded costs by August 2020 and sell underutilized assets. Management has made great progress with this goal, reducing about 70% of its stranded costs as of the May quarter and generating $750 million in cash from the sale of two smaller businesses. But there are still moves to be made, including the sale of real estate that is worth an additional $750 million. Longer term, management is committed to growing at a low to mid-single digit percent, achieving a 50% operating margin, and with share count reduction made possible by a clean balance sheet, delivering $1.50 earnings per share. Target Price: Reiterate $27; Rating: One
RISKS: customer churn, management execution, competitive dynamics
ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (11/5/20), Initiation (7/22/20), Investor Relations
Take-Two Interactive (TTWO) ; $170.05; 550 shares; 2.81%; Sector: Consumer Discretionary
WEEKLY UPDATE: Coverage on Take-Two Interactive Software was initiated with an outperform rating Monday. The analysts believe Take-Two "is about to embark on its most
ambitious pipeline of games in the next 5 years, 93 total titles, of which 63 are core gaming experiences, and with leading studios Rockstar and 2K, we are inclined to back them." Also, we think the Nvidia conference call highlighted the strength of the gaming industry which is something we briefly touched on in our Alert here. Lastly, on Thursday gamers were quick to notice a possible tease of a new map expansion to GTA Online. 1-Wk. Price Change: 5.08% Yield: 0.00%
INVESTMENT THESIS: We are bullish on TTWO because it benefits from stay-at-home trends (which are expected to last for the foreseeable future), it has games that act as alternatives to live sports (its NBA 2K franchise and future football title), and historically speaking, gaming stocks tend to outperform the broader market in the year leading up to a major console upgrade cycle. We think Take-Two Interactive is a company of the moment and its earnings are more likely to be revised up from Covid-19 than down like the majority of the market. Target Price: Reiterate $190 Rating: One
RISKS: Competition, poor consumer reception to highly anticipated releases, industry regulation
ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (11/5/20), Initiation (4/14/20), Investor Relations
United Parcel Services (UPS) ; $163.76; 700 shares; 3.45%; Sector: Industrials
WEEKLY UPDATE: We added to our position as shares lagged the overall market in response to Pfizer's effective Covid-19 vaccine news, with the thought being that the end of the pandemic will moderate growth in business-to-consumer (B2C) volumes. As noted in our alert, we viewed the move as an overreaction and believe that while it is likely that e-commerce will moderate as the economy reopens, a reversion to pre-pandemic levels is not likely. The pandemic created a change in consumer behavior and accelerated the adoption of online shopping, and this trend should have lasting power in the new economy. 1-Wk. Price Change: 0.05%; Yield: 2.47%
INVESTMENT THESIS: Our bullish views stem from how the surge in e-commerce activity is creating opportunities for UPS to flex pricing power, which should result in strong margin opportunities in the future. We are also huge fans of new CEO Carol Tomé. Throughout her time as CFO of Home Depot, Tomé built an impressive reputation as a turnaround artist, and we think her fresh perspective and intense focus on efficiencies will create a better UPS. Lastly, we appreciate UPS's nearly 50 years of stability and growth in dividends, which management calls the "hallmark" of the company's financial strength.
Target Price: Reiterate $185 Rating: One
RISKS: weakness in the broader economy, rising fuel prices, execution, cost management, pricing power
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/28/20), Initiation Post (9/25/20), Investor Relations
Walmart (WMT) ; $150.24; 700 shares; 3.16%; Sector: Consumer Discretionary
Weekly Update: Reported earnings. 1-Wk. Price Change: -0.2%; Yield: 1.44%
INVESTMENT THESIS: We believe Walmart to be a defensive name that can withstand the pressures of the coronavirus pandemic that is at the same time transforming itself for the digital, post-pandemic world. While its scale is well understood and to a large part what allows the name to be so resilient despite a difficult macroeconomic environment, we believe investments into ecommerce are what will provide longer-term upside. On this offensive front, we believe multi-year investments in eCommerce (previously rolling Jet.com into the core online operation) and initiatives such as Walmart+ stand to stand to increase engagement and customer loyalty. We also believe the recent partnership with Shopify will help expand the online marketplace and view a potential deal with TikTok Global as an "embedded call option" that can greatly aid the online segment's growth as it provides the company an Instagram like play with the ability to leverage online influencers. Moreover, we believe Walmart to have a strong foothold in the rapidly growing emerging Indian market via its majority ownership of Flipkart. Finally, we believe there to be a budding advertisement business that can leverage the company's omni-channel investments (and resulting data) that has yet to be appreciated by the market. Target Price: Reiterate $160; Rating: One
RISKS: Consumer spending levels, FX, Competition, Margin headwinds related to e-commerce,
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (11/17/20), Initiation (11/6/20), Investor Relations
TWOS
Abbott Laboratories (ABT) ; $110.89; 900 shares; 3%; Sector: Healthcare
WEEKLY UPDATE: As highlighted earlier this week, analysts at Morgan Stanley increased their price target to $121 from $117 commenting that Abbott is primed to have a very strong 2021, driven by continued leadership in Covid-19 testing as well as a resurgence in its medical device business. 1-Wk. Price Change: -1.52%; Yield: 1.30%
INVESTMENT THESIS: Strong underlying performance evidenced by sustained strength in organic sales growth. The company boasts high-performing franchises in Medical Devices (with strong growth in Diabetes Care) and Diagnostics (with strong gains in Core Laboratory), while Nutrition and Established Pharmaceutical remain strategic parts of its total portfolio. We believe the company's opportunities for upside rest with additional Libre uptake, the Alinity U.S. launch, and an expanded indication of the MitraClip. We believe in incoming CEO Robert Ford and the rest of the Abbott management team, which has a strong track record of integrating acquisitions and delivering double-digit earnings per share growth. Lastly, Abbott has plenty of financial flexibility to pursue mergers/acquisitions and other strategic actions. Target Price: Reiterate $120; Rating: Two
RISKS: Emerging market exposure, Product disruptions, strong dollar, timing of FDA approvals.
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/21/20), FDA Approves New Rapid Covid-19 Test (8/27/20), Prior CEO Miles White and current CEO Robert Ford on Mad Money (3/30/20), Upgrade to Outperform (4/9/19), Daily Rundown (3/27/2019), Raising Cash Through 2 Small Trades (3/20/2019), Assessing Weakness Related to AT&T's Quarter (1/31/19), Daily Rundown (1/23/19), Initiation (6/27/16), Investor Relations
Amazon (AMZN) ; $3,099.40; 50 shares; 4.66%; Sector: Consumer Discretionary
WEEKLY UPDATE: Unveiled Amazon Pharmacy. Per the company's press release, "Amazon Pharmacy, a new store on Amazon, allows customers to complete an entire pharmacy transaction on their desktop or mobile device through the Amazon App. Using a secure pharmacy profile, customers can add their insurance information, manage prescriptions, and choose payment options before checking out. Prime members receive unlimited, free two-day delivery on orders from Amazon Pharmacy included with their membership." 1-Wk. Price Change: -0.94%; Yield: 0.00%
INVESTMENT THESIS: We believe upside will result from Amazon's continued Commerce dominance, AWS' continued leadership in the public cloud space, and ongoing growth of the company's advertising revenue stream, which feeds off Amazon's eCommerce business. Additionally, we believe profitability will continue to improve as AWS and advertising account for a larger portion of total sales as both these segments sport higher margins than the eCommerce operation. And while we believe the increasing share of revenue from these higher margin businesses will be key to driving profitability longer-term, we believe margins on ecommerce stand to improve as the company's infrastructure is further built out and economies of scale further kick in. The embedded call option is that management is always looking to enter a new space and generate new revenue streams. Target Price: Reiterate $3,600; Rating: Two
RISKS: High valuation exposes the stock to volatile swings, eCommerce has exposure to slower consumer spending, competition, management is not afraid to invest heavily, potential headwinds resulting from new eCommerce regulation in India, management is not scared to invest aggressively for growth, which can at times cause volatile reactions as near-term concerns arise relating to the impact on margins.
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/29/20), FY2Q20 Earnings Analysis (7/30/20), FY2Q19 Earnings Analysis (7/25/19), Mad Money Interview with Amazon Web Services CEO Andy Jassey (2/28/19), One More Reason to Invest in Amazon (3/1/19), Amazon Remains One of the Best Stories in Technology (2/11/19), Keep These Themes In Mind (1/10/19), Initiation (2/2/18), Investor Relations
Broadcom (AVGO) ; $383.33; 125 shares; 1.44%; Sector: Info. Tech.
WEEKLY UPDATE: None 1-Wk. Price Change: 2.63% Yield: 3.39%
INVESTMENT THESIS: We are fans of Broadcom's M&A driven push into software through recent acquisitions of CA Technologies and Symantec. These businesses (mainframe an enterprise software security software) are higher in margin and more recurring in revenue compared to cyclical semis. We also like Broadcom's leading wireless business, which has a major customer in Apple and consists of three product lines: RF (tied the initial ramp in 5G phones), WiFi/Bluetooth combos, and mixed signal custom products. We are also attracted to management's shareholder friendly capital allocation policy. Management is committed to returning approximately 50% of its prior year cash flow to stockholders through cash dividends. Target Price: Reiterate $400 Rating: Two
RISKS: Supply chain disruption, macroeconomic slowdown impacting semiconductor demand, smartphone demand, integration risk as the company works to increase its infrastructure software revenue streams, M&A activity.
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (9/3/20), Initiation (2/26/20), Investor Relations
Costco (COST) ; $381.12; 300 shares; 3.44%; Sector: Consumer Staples
WEEKLY UPDATE: Announced a $10 per share, payable Dec. 11, to shareholders of record as of the close of business on Dec. 2. 1-Wk. Price Change: 0.60%; Yield: 0.73%
INVESTMENT THESIS: We like Costco's long-term prospects, driven by a club-based operating model that focuses on volumes, not margins, and therefore offers its customers a value proposition of everyday low prices. The strength of this model has created an incredible loyal customer base with low churn and continued share gains in both brick and mortar and e-commerce. And this is a global concept, evidenced by the strength of sales both in the U.S. and abroad, which includes an emerging China opportunity. Current dividend policy is limited, but management always keeps an eye on how to return capital back to shareholders, most notably through large special dividends which they have not issued since FY 2017. Target Price: Reiterate $400; Rating: Two
RISKS: Inability to pass through higher costs, fuel prices, weaker consumer, membership churn
ACTIONS, ANALYSIS & MORE: $10 Per Share Special Dividend (11/16/20), FY4Q20 Earnings Analysis (9/24/20), Recent Buy Alert (2/28/20), Initiation (1/27/20), Investor Relations
Salesforce (CRM) ; $258.04; 300 shares; 2.33%; Sector: Info. Tech.
WEEKLY UPDATE: None 1-Wk. Price Change: 3.42% Yield: 0.00%
INVESTMENT THESIS: We are bullish on shares of CRM as we view Salesforce as a key player in the "digital revolution" and invaluable to those companies looking to build out their digital strategy and better understand their customer base. Furthermore, we believe the acquisition of MuleSoft effectively expanded the company's total addressable market by unlocking data previously trapped on legacy systems, to be used on the Salesforce platform. These factors compounded by a strong management team keep us confident that the company remains on track to reach its FY2022 target of $21 billion to $23 billion in revenue. Target Price: Reiterate $285; Rating: Two
RISKS: Slowdown in IT spending, competition
ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (8/25/20), Salesforce is added to the Dow Jones Industrial Average (8/25/20), CEO Marc Benioff Interview at World Economic Forum (1/23/20), Trimming and Downgrading CRM (1/6/20), Salesforce Proves Itself a True Secular Growth Story (11/21/19), Interviews with the CEOs of Salesforce and Nvidia (11/20/19), Rule of 40 (9/17/19), Daily Rundown (3/5/19), January 2019 Members Call w/ Transcript, Pivotal upgrades to Buy, Wedbush adds to "Best Ideas List" (1/7/19), Initiation (6/5/18), Investor Relations
Disney (DIS) ; $141.07; 450 shares; 1.91%; Sector: Communication Services
WEEKLY UPDATE: According to Deutsche Bank's proprietary dbDIG geolocation data, Disney World attendance just had its highest daily average attendance since reopening in July. In California, parks are still closed, but Disneyland California Adventure finally opened this week for outdoor dining -- still no rides though. 1-Wk. Price Change: 1.96%; Yield: 0.00%
INVESTMENT THESIS: We see upside resulting from Disney's direct to consumer efforts via ESPN+ and Disney+ and are happy to ride out the associated investment cycle. Additionally, we view the integration of Fox assets as another catalyst as progress is made given the acquisition brings with it programming across six continents, reaching over 1.8 billion consumers that speak roughly 50 different languages, as well as the rights to Start India, India being one of the fastest growing countries in the world and all of the domestic content, plus an additional 30% ownership of Hulu, bringing their total Hulu ownership to 60%. Furthermore, we are bullish on the Studio Entertainment division's 2020 movie lineup even as it laps a record 2019 year. Lastly, we believe a strong consumer should continue to support attendance and spending at Parks and Resorts. Target Price: Reiterate $150; Rating: Two
RISKS: Fox integration risk, competition, macroeconomic slowdown impacting the consumer
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (11/12/20), CEO Bob Chapek Discuss Disney's Media & Entertainment Restructuring (10/12/20), Some Positive News About Disney's Parks (5/8/20), CEO Bob Iger on Mad Money (9/24/19), FY3Q19 Earnings Analysis (8/6/19), Disney announces Marvel "Phase 4" content lineup (7/22/19), Sell-Side Survey Points to Strong Interest in Disney's Streaming Service (6/18/19), Initiation (8/21/18), Investor Relations
FacebookFB ; $269.70; 150 shares; 1.22%; Sector: Communication Services
WEEKLY UPDATE: None 1-Wk.Price Change: -2.62% Yield: 0.00%
INVESTMENT THESIS: Facebook is the leading social media company. It monetizes its platforms and delivers targeted advertisements across all major demographics at a high ROI. Although revenue is expected to decelerate as the company transitions its monetization emphasis to Instagram Stories from Facebook's NewsFeed, and there are additional risks to margins related to increased OpEx spending, we believe both processes have become well understood by investors at this point. Plus, we think future growth opportunities exist through increased monetization of the WhatsApp and Messenger verticals. While critics claim the member base has become disengaged, Facebook's third quarter results showed trends have held with daily active users (DAUs) of 1.82 billion and monthly active users (MAUs) of 2.74 billion. Lastly, we believe the stock's current price to earnings multiple is cheap relative to the company's growth and competitive moat. Target Price: Reiterate $300; Rating: Two
RISKS: Regulation, weak engagement on core platform, capital spending, margin pressure, monetization strategy of WhatsApp and Messenger, pullback in advertisement spending due to economic pressures
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis, FY2Q20 Earnings Analysis (7/30/20), COO Sheryl Sandberg on Mad Money (5/20/20), Downgrading Facebook (4/14/20), COO Sheryl Sandberg on Mad Money (3/17/20), Facebook's Libra Cryptocurrency (6/18/19), Regulation Fears (6/3/19), What Can We Learn from Facebook, Microsoft, and Lam Research Earnings? (4/25/19), Facebook Instagram Update (4/3/19), Initiation (1/8/2013), Investor Relations
AlphabetGOOGL ; $1,736.38; 50 shares; 2.61%; Sector: Communication Services
WEEKLY UPDATE: In its latest move to expand into new industries, diversify revenue and generate recurring revenues, Google announced that it is "launching a redesigned Google Pay app on Android and iOS." In addition to being a mobile wallet (similar to PayPal's Venmo or Square's Cash App), the company is partnering with financial institutions (11 banks and credit unions starting 2021) "to create Plex, a new mobile-first bank account integrated into Google Pay. Plex Accounts are offered by banks and credit unions, include checking and savings accounts with no monthly fees, overdraft charges or minimum balance requirements and help you save toward your goals more easily." 1-Wk. Price Change: -2.02%; Yield: 0.00%
INVESTMENT THESIS: We believe that while Search and digital ad dominance is what will carry shares in the near- to- midterm, longer-term it is the company's artificial intelligence (AI) "moat" that will provide for new avenues of growth. AI is what has made the company's Search, Video (YouTube) and targeted ad capabilities best-in-class and is the driving force behind the company's success in voice (Google Home) and autonomous driving (Waymo). Furthermore, we believe it is this AI expertise that will also make the company more prevalent in other industries, including healthcare via subsidiary Verily, as AI and machine learning continue to disrupt operations across industries. We believe Alphabet's willingness to invest in new areas, knowing most will fail, is a recipe for long-term success as while most "X Moonshot Factory" projects may fail, every once in a while, you end up with a Waymo, perhaps the division's, most successful graduate to date. Lastly, compounding out positive view of the company's future opportunities, we believe that Alphabet's free cash flow generation and solid balance sheet set it apart and are what will allow the company to continue taking chances on far-out ground-breaking and potentially world changing projects. Target Price: Reiterate $1.850; Rating: Two
RISKS: Regulatory risk (data privacy), competition, macroeconomic slowdown impacting consumers and therefore ad buyer activity
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/29/20), Why GOOGL Has Shrugged Off Antitrust Headlines in Early Trading Tuesday (10/20/20), FY2Q20 Earnings Analysis (7/30/20), CEO Sundar Pichai Speaks at the World Economic Forum (1/22/20), Alphabet Gets a New Street High Price Target (10/3/19), MoffettNathanson's positive take on Alphabet (8/19/19), Regulation Fears (6/3/19), Daily Rundown (4/30/19), Alphabet Announces Stadia (3/19/19), A Check on the Market, Tech and Media (1/28/19), Initiation (11/27/13), Investor Relations
Honeywell (HON) ; $202.00; 550 shares; 3.34%; Sector: Industrial
WEEKLY UPDATE: Announced a cybersecurity partnership with Nozomi Networks "to deliver more comprehensive, end-to-end cybersecurity for Operational Technology (OT) environments." 1-Wk. Price Change: 0.23% Yield: 1.84%
INVESTMENT THESIS: High-quality, diversified industrial with strong franchises in Aerospace, Safety & Productivity Solutions (SPS), Building Technologies (HBT), and Performance Materials & Technologies (PMT). In the current COVID environment, we believe Aero's exposure to the still-growing Defense & Space industry is being underappreciated by the market, while SPS is poised for growth in the back half of 2020 into 2021 due to exposure to PPE and warehouse automation. Honeywell also has one of the strongest balance sheets in the sector with a leverage ratio below 1x. This creates ample capacity for future dividend increases, share repurchases to support EPS growth, or strategic M&A which we believe is even more of a possibility in the current environment. Target Price: Reiterate $200; Rating: Two
RISKS: The economic cycle, longer than expected rebound in the aerospace industry,
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/30/20), CEO Darius Adamcyzk on CNBC (9/10/20), Initiation (8/5/2020), Investor Relations
JPMorgan Chase & Co. (JPM) ; $114.57; 200 shares; 0.69%; Sector: Financial
WEEKLY UPDATE: None 1-Wk. Price Change: 0.43% Yield: 3.14%
INVESTMENT THESIS: We view JPMorgan as the best of breed large cap financial. The firm consistently delivers the best return on equity/tangible common equity performance in the industry, making the stock well deserving of a premium to its growing tangible book value. Not only that, but the fortress balance sheet provides a degree of insulation to the risks associated with an economic shock. Lastly, we believe the valuation is very reasonable, especially considering the 3-4% dividend yield. The buyback is currently on hold, but we will look for management to resume repurchases once visibility improves. The firm's tangible book value per share as of the end of the third-quarter 2020 was $63.93 Target Price: Reiterate $120; Rating: Two
RISKS: The economic cycle, Financial System regulation, interest rates, credit quality.
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/13/20), CEO Jamie Dimon Interview at World Economic Forum (1/21/20), Initiation (12/27/2017), Investor Relations
Nvidia (NVDA) ; $523.51; 200 shares; 3.15%; Sector: Info. Tech.
WEEKLY UPDATE: Reported earnings. 1-Wk. Price Change: -1.57% Yield: 0.12%
INVESTMENT THESIS: We believe upside will result from Nvidia's GPU dominance, the moat created by its CUDA, the company's parallel computing platform, and significant growth in all of the company's end markets including, the cloud (think datacenter), gaming, autonomous vehicles and pro visualization. Furthermore, we believe the cloud (i.e. data center) growth will be even more of a factor in upside following the acquisition of Mellanox, which thanks to its low latency "InfiniBand" technology, provides Nvidia the ability be a more integral player in the buildout of data centers by working to both accelerate server subsystems via GPU-acceleration and accelerate the data center overall by "tying together" the multiple subsystems and allowing them to operate as a single cohesive unit. Target Price: Reiterate $610; Rating: Two
RISKS: slow uptake of ray-tracing chips which will depend on gaming publishers' implementation of the new technology in software releases, a slowdown in the IT/data center spending, competition, slower than expected inventory channel normalization.
ACTIONS, ANALYSIS & MORE: FY3Q21 Earnings Analysis (11/18/20), Jim Discusses Arm Holdings Acquisition on Mad Money (9/24/20), Nvidia Had Legs, Now It's Getting an ARM (9/14/20), Gets OK for Mellanox Buy (4/16/20), Morgan Stanley Upgrades to Overweight (11/25/19), Nvidia Rallies on Latest Analyst Call (10/7/19), Nvidia Rallies on Analysts Calls (10/7/19), We like Nvidia despite trade issues (5/20/19), Updates on Nvidia (3/26/19)Adding to Nvidia (3/25/19)Stocks We Are Looking at During Friday's Selloff (3/22/19), A look at Gaming/eSports (3/21/19), Initiation (3/18/19), Investor Relations
Starbucks (SBUX) ; $97.01; 825 shares; 2.41%; Sector: Consumer Discretionary
WEEKLY UPDATE: Stifel increased its SBUX price target to $108 from $100 Friday and said the company is one of a handful of restaurants that will benefit from a vaccine-driven recovery due to its urban exposure. This is consistent with our view in that a vaccine will allow workers to return to the office and this increase in mobility and commuting should lead to a recovery in Starbucks' comps. 1-Wk. Price Change: 1.52% Yield: 1.86%
INVESTMENT THESIS: Growth at Scale business model driving solid comp growth in key growth markets in the United States and China and extending global reach of brand through Global Coffee Alliance. These initiatives drive a long-term operating growth model of +10% earnings per share growth. Also, we see a management team that has become more and more conscious of capital returns. Starbucks has delivered 10 straight years of double-digit dividend increases. Target Price: Reiterate $95. Rating: Two
RISKS: Rising inflation, freight costs, competitive pressures, shifts in consumer tastes, China exposure
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (10/29/30), CEO Interview (7/29/20), FY3Q20 Earnings Analysis (7/28/20), CEO Kevin Johnson on CNBC Discussing How Starbucks is Managing the Coronavirus Outbreak (3/24/20), CEO Kevin Johnson on Mad Money (3/18/20), Trimming and Downgrading to Two (2/18/20), Starbucks Catches a Big Upgrade (12/12/19), Initiation (11/12/19), Investor Relations
Waste Management (WM) ; $120.35; 900 shares; 3.26%; Sector: Industrials
Weekly Update: None 1-Wk. Price Change: -1.29%; Yield: 1.44%
INVESTMENT THESIS: Waste Management is the North American industry leader in environment solutions, with the largest and most diverse asset and customer base. Management focuses on four key strategies to drive its business: pricing leadership, volume growth, improvements to reduce cost and earnings growth/margin expansion. Our bullish thesis on WM is mainly predicated on the company's ability to close and integrate its $4.6 billion acquisition of Advanced Disposal Service, the general recovery in construction markets, and more specifically demand for residential housing development, and also the consistent, growing dividend payout. Target Price: Reiterate $130; Rating: Two
RISKS: Merger completion/integration, economic recovery, lower commodity prices, changes to corporate tax law
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (11/4/20), Waste Management and Advanced Disposal Announce Revised Terms of Acquisition (6/24/20), Initiation (6/5/20), Investor Relations
THREES
Seagen (SGEN) ; $83.78; 400 shares; 1.42%; Sector: Healthcare
WEEKLY UPDATE: The company hosted a R&D Day Monday. The tone from the event was positive with management highlighting the commercial opportunities for Adcetris, Padcev, and Tuksya and discussing the numerous late and early-stage opportunities in its pipeline. We think the event supports our longer-term thesis in that Seagen is transforming into a multi-product company, but it was not the catalyst to the stock that we initially hoped for. We further reduced our position to protect our double-digit profits in the position and improve our cash flexibility. 1-Wk. Price Change: -1.42% Yield: 0.00%
INVESTMENT THESIS: Seagen is a biotech focused on creating live-saving treatments for people with cancer. The company's first commercial treatment was Adcetris, a drug for the treatment of several types of CD30-expressing lymphomas. However, where we believe further upside will come from is the company's next two drugs, Padcev and Tukysa. Padcev was previously approved for the treatment of locally advanced or metastatic urothelial (bladder) cancer. Looking beyond Padcev's current label, management sees opportunities in earlier line and late stages of bladder cancer. Work is under way combining Padcev with Merck's blockbuster cancer drug Keytruda. As for Tukysa, this is a treatment to be used for certain types of breast cancer and certain patients with brain metastasis, which can unfortunately develop as a tumor in the breast region progresses and that's why this drug is so critically important. Additionally, there is a pipeline here management is committed to developing. While we hardly expect them to produce another potential blockbuster every four months, like they recently achieved, these are still developments worth monitoring. That in mind, we must note that this position is more of a speculative play due to the lack of earnings and dividend yield to fall back on. Target Price: Reiterate $215 Rating: Three
RISKS: Competition, regulation, failure to meet end points for new drugs, as noted in the investment thesis above, this position is more of a speculative play compared to our other holdings due to the lack of earnings and dividend yield to fall back on.
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (10/29/20),Seattle Genetics and Merck announce two strategic oncology collaborations (9/14/20), Taking Stock of a Biotech Hit by the Market Rotation (8/10/20), FY2Q20 Earnings Analysis (7/30/20), Initiation (5/5/20), Investor Relations
Action Alerts PLUS, which Cramer manages as a charitable trust, is long WM, BMY, TTWO, NLOK, CVS, BA, UPS, WMT, DIS, PEP, SGEN, NVDA, JPM, GOOGL, FB, CRM, AVGO, AMZN, ABT, SBUX, NKE, MSFT, MA, MRVL, HON, GS, DD, COST, AAPL, AMD and ABBV.