Shutterstock
Markets continued their grind higher this week as earnings season progressed, largely characterized by better-than-expected results. While macroeconomic updates were limited, Fed Chair Jerome Powell spoke on Wednesday and reiterated that the central bank has no plans of raising rates anytime soon, citing their intense focus on the recovery in the labor market and willingness to remain accommodative to support the economy. Additionally, Dr. Tony Fauci spoke this week on the Today Show and shared his belief that by the middle of the year, there will be enough vaccines available for anyone who wants one to get one. This commentary brought optimism and clarity to the reopening timeline.
Looking ahead, we remind members that the market will be closed on Monday for Presidents Day.
Ten-year Treasury yields continue to hover around the 1.15% level while gold prices are holding in the low-$1,800s region. The dollar index is bouncing around the ~90 level and WTI oil prices are holding steady in the mid- to- upper-$50s per barrel level.
Fourth-quarter earnings season is underway. Within the portfolio, we heard form Take-Two Interactive (TTWO) , DuPont (DD) and Disney (DIS) .
Take-Two Interactive Software reported strong results with its fiscal third-quarter 2021 earnings. Net bookings of $814.3 million (-8.3% YoY) exceeded expectations of $757 million and were above the top end of management's guidance. Unadjusted earnings per share came in at $1.57 (+9.7% YoY), but we do not have an adjusted number to which we can compare the FactSet adjusted EPS consensus estimate of $0.96 -- this is similar to what we have said before with our video game publisher write-ups. That said, the more important metric to follow is net bookings.
Turning to guidance, management once again raised its fiscal 2021 outlook. For the full fiscal year ending March 31, 2021, management now expects net bookings in the range of $3.37 billion to $3.42 billion (up from the previous view of $3.15 billion to $3.25 billion) and this new forecast exceeds expectations of $3.29 billion for the year. Additionally, diluted unadjusted earnings are expected to be in the range of $4.08 to $4.18 per share (up from previous expectations of $3.22 to $3.49), and this is above the $3.69 unadjusted consensus. However, on an adjusted basis, we do not have an accurate comparison to the FactSet consensus of $5.68.
For the fourth quarter ending March 31, 2021 management is expecting net bookings in the range of $602 million to $652 million, a very solid outlook against expectations of $584 million. Additionally, diluted unadjusted earnings are expected to be in the range of $0.88 to $0.98, above the $0.59 per share consensus. But again, this is not an accurate comparison with FactSet's adjusted $0.43 per share consensus. All told, we believe guidance was better than the consensus forecasts based on the net bookings outlook.
DuPont reported better-than-expected fourth-quarter results. Net sales of $5.25 billion (+1% YoY) slightly edged the $5.23 billion Wall Street consensus, and adjusted earnings per share of $0.95 (flat YoY) greatly exceeded the $0.89 consensus. Operating EBITDA was $1.3 billion (-7% YoY), edging estimates of $1.25 billion.
As for 2021 guidance, net sales are expected to be $15.39 billion to $15.59 billion (+8% YoY) with operating EBITDA in the range of $3.83 billion to $3.93 billion (+11% YoY) and adjusted earnings per share of $3.30 to $3.45 (+68% YoY).
Walt Disney reported a top-and bottom-line beat with its fiscal first-quarter earnings. Revenues of $16.25 billion (-22% YoY) exceeded estimates of $15.9 billion, while adjusted earnings per share of $0.32 (-79% YoY) were much better than the $0.41 loss per share expected.
Economy
It was a slow week on the macroeconomic front. On Wednesday, The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.3% in January on a seasonally adjusted basis, matching expectations, following a 0.2% advance in December. Over the last 12 months the CPI has increased 1.4% before seasonal adjustment, slightly below the 1.5% consensus, following a similar advance in December.
The core CPI, which excludes food and energy costs due to their volatility, was unchanged in January, below expectations of 0.2% following an unchanged December reading. Over the past 12 months, core CPI has risen 1.4%, short vs. expectations of 1.5%, and follows a 1.6% annual increase for the 12 months ending in December. See here for our full analysis.
On Thursday, the Department of Labor reported that initial jobless claims for the week ended February 6 were 793,000, a decrease of 19,000 from the previous week's revised level of 812,000 (up from 779,000 previously reported). The reading missed expectations for 760,000 claims.
Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 823,000, a decrease of 33,500 from the previous week's revised average of 856,500 (up from 848,250 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, there was not much news as prices remain stable thanks to production cut compliance from OPEC+ on the supply side and optimism that the economy will be able to reopen by the second half of the year on the demand side. Supporting the demand side, Dr. Anthony Fauci commented this week on the Today Show, "I would imagine by the time we get to April, that would be what I call ... open season. Namely, virtually everybody and anybody in any category can start to get vaccinated."
On the domestic front, on Wednesday, the U.S. Energy Information Administration (EIA), reported that in the week ending February 5 U.S. stockpiles (excluding those in the Strategic Petroleum Reserve) decreased by 6.6 million barrels to 469.0 million barrels, better than expectations for a 0.99 million-barrel increase. Additionally, 0.2 million barrels were drawn down from the Strategic Petroleum Reserve. U.S. production increased by 100,000 bpd to 11.0 million bpd. Lastly, net imports increased by 216,000 bpd as imports decreased by 650,000 bpd, while exports decreased by 866,000 bpd. See here for the full report.
Lastly, we note that the spread between WTI and Brent stands at around the $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 added to our positions in Crown Castle International Corp. (CCI) (here), DuPont (here) and United Parcel Services (UPS) (here). On the other hand, we trimmed our positions in Starbucks (SBUX) (here), Waste Management (WM) (here) and Abbott Laboratories (ABT) (here).
Moving on to the S&P 500, fourth-quarter earnings season is underway, with 81.5% of companies reporting a positive EPS surprise. For the fourth quarter, earnings are up roughly 6.1% year over year vs. expectations for an overall 2.9% advance throughout the season. Revenues for the S&P 500 are up 2.5% vs. expectations throughout the season for a 1.3% increase; 81.5% of companies beat EPS expectations, 15.2% missed the mark and 3.4% were in line with consensus. On a year-over-year comparison basis, 64.33% beat the prior year's EPS results, 33.14% came up short and 2.53% were virtually in line. The best performing sectors have been Information Technology, Financials and Communication Services while the worst performing has been Consumer Discretionary, Energy and Real Estate.
Next week, within the portfolio, we will hear from CVS Health on Tuesday before the open and from both Walmart and Waste Management on Thursday, before the open.
Other key earnings reports for the market include:
- Mon 2/15
- Open:
- Close:
- Tues 2/16
- Open: Yandex N.V. YNDX, US Foods USFD, AutoNation AN, Ecolab ECL, Expeditors Intl EXPD, Advance Auto AAP, Zoetis ZTS, Vulcan Materials VMC, JELD-WEN JELD, TransUnion TRU, Palantir PLTR
- Close: American Intl AIG, Occidental Petro OXY, Eversource Energy ES, Genworth Financial GNW, Agilent A, Avis Budget CAR, Devon Energy DVN, Mercury General MCY, Boyd Gaming BYD, La-Z-Boy LZB, Invitation Homes INVH, Exact Sciences EXAS, Compass Minerals CMP, Vornado Rlty Trust VNO, Solar Edge Technologies SEDG, RingCentral RNG, Kornit Digital KRNT
- Wed 2/17
- Open: Genuine Parts GPC, Henry Schein HSIC, Sonic Automotive SAH, Commscope COMM, Owens Corning OC, NiSource NI, Athene Holding ATH, Analog Devices ADI, Garmin GRMN, Hilton HLT, Shopify SHOP, Wix.com WIX
- Close: Baidu BIDU, Energy Transfer ET, iQIYI IQ, Nutrien NTR, Sunoco LP SUN, Community Health CYH, Mosaic MOS, Pioneer Natural Resources PXD, Herbalife Nutrition HLF, Waste Connections WCN, Universal Forest UFPI, Antero Resources AR, CF Industries CF, Synopsys SNPS, Marathon Oil MRO, Regal-Beloit RBC, Cheesecake Factory CAKE, Sleep Number SNBR, Twilio TWLO, Boston Beer Co SAM, SunPower SPWR, Jack In The Box JACK, Strum Ruger RGR, 10x Genomics TXG, Invitae NVTA, Fastly FSLY
- Thurs 2/18
- Open: Southern SO, Newmont Goldcorp NEM, TC Energy TRP, Barrick GOLD, LKQ LKQ, FirstEnergy FE, Teck Resources TECK, Marriott MAR, Hormel Foods HRL, Reliance Steel RS, PPL Corp PPL, Wabtec WAB, Dana Inc DAN, Syneos Health SYNH, Kelly Services KELYA, Ventas VTR, Bloomin' Brands BLMN, Atlas Air Worldwide AAWW, West Pharm WST, Vonage VG, Fiverr FVRR
- Close: Applied Materials AMAT, Con Edison ED, Ameren AEE, Keysight KEYS, Alliant Energy LNT, Conduent CNDT, Flowserve FLWS, Quidel QDEL, Arista Networks ANET, Roku ROKU, Dropbox DBX, Cabot Oil & Gas COG, Gaming Leisure and Properties GLPI. The Trade Desk TTD, Planet Fitness PLNT, Universal Display OLED, Trip Advisor TRIP, Appian APPN, Everbridge EVBG, BigCommerce BIGC
- Fri 2/19
- Open: Magna MGA, Deere DE, DTE Energy DTE
- Close: KBR KBR
Economic Data (*all times ET)
U.S.
Monday (2/15)
Tuesday (2/16)
Empire Manufacturing (8:30): 6 expected
Total Net TIC Flows (16:00)
Net Long-term TIC Flows (16:00)
Wednesday (2/17)
MBA Mortgage Applications (7:00)
PPI Final Demand MoM (8:30): 0.40% expected
PPI Ex Food and Energy MoM (8:30): 0.20% expected
PPI Final Demand YoY (8:30): 0.80% expected
PPI Ex Food and Energy YoY (8:30): 1.10% expected
Retail Sales Advance MoM (8:30): 0.80% expected
Retail Sales Ex Auto MoM (8:30): 0.80% expected
Retail Sales Ex Auto and Gas (8:30): 0.50% expected
Industrial Production MoM (9:15): 0.40% expected
Capacity Utilization (9:15): 74.80% expected
Thursday (2/18)
Building Permits (8:30): 1670k expected
Housing Starts (8:30): 1651k expected
Initial Jobless Claims (8:30)
Import Price Index MoM (8:30): 1.00% expected
Continuing Claims (8:30)
Philadelphia Fed Business Outlook (8:30): 19.8 expected
Bloomberg Consumer Comfort (9:45)
Friday (2/19)
Markit US Manufacturing PMI (9:45): 58.5 expected
Markit US Composite PMI (9:45)
Markit US Services PMI (9:45): 58 expected
Existing Home Sales (10:00): 6.56m expected
International
Monday (2/15)
EU Agg Industrial Production SA MoM (5:00): -0.50% expected
EU Agg Industrial Production WDA YoY (5:00): -0.20% expected
Japan Tertiary Industry Index MoM (23:30): -0.70% expected
Tuesday (2/16)
Germany ZEW Survey Expectations (5:00): 60 expected
Germany ZEW Survey Current Situation (5:00): -65 expected
EU Agg GDP SA QoQ (5:00): -0.70% expected
EU Agg GDP SA YoY (5:00): -5.10% expected
EU Agg ZEW Survey Expectations (5:00)
Japan Trade Balance (18:50): -¥702.7b expected
Japan Trade Balance Adjusted (18:50): ¥586.3b expected
Japan Core Machine Orders MoM (18:50): -7.00% expected
Japan Core Machine Orders YoY (18:50): -3.00% expected
Wednesday (2/17)
UK CPI MoM (2:00)
UK CPI YoY (2:00): 0.50% expected
UK CPI Core YoY (2:00)
UK Retail Price Index (2:00)
UK RPI MoM (2:00)
UK RPI YoY (2:00)
UK RPI Ex Mort Int.Payments (YoY) (2:00)
Japan Buying Foreign Bonds (18:50)
Japan Foreign Buying Japan Stocks (18:50)
Japan Tokyo Condominiums for Sale YoY (23:00)
Thursday (2/18)
Japan Machine Tool Orders YoY (1:00)
Japan Natl CPI YoY (18:30): -0.70% expected
Japan Natl CPI Ex Fresh Food YoY (18:30): -0.60% expected
UK GfK Consumer Confidence (19:01)
Japan Jibun Bank Japan PMI Mfg (19:30)
Japan Jibun Bank Japan PMI Services (19:30)
Japan Jibun Bank Japan PMI Composite (19:30)
Friday (2/19)
UK Retail Sales Inc Auto Fuel MoM (2:00)
UK Retail Sales Inc Auto Fuel YoY (2:00)
UK Retail Sales Ex Auto Fuel MoM (2:00)
UK Retail Sales Ex Auto Fuel YoY (2:00)
UK Public Finances (PSNCR) (2:00)
UK PSNB ex Banking Groups (2:00)
UK Public Sector Net Borrowing (2:00)
Germany PPI MoM (2:00)
Germany PPI YoY (2:00)
Germany Markit/BME Germany Manufacturing PMI (3:30): 56.8 expected
Germany Markit Germany Services PMI (3:30): 46.5 expected
Germany Markit/BME Germany Composite PMI (3:30): 50.5 expected
EU Agg Markit Eurozone Manufacturing PMI (4:00): 54.2 expected
EU Agg Markit Eurozone Services PMI (4:00): 46 expected
EU Agg Markit Eurozone Composite PMI (4:00): 48 expected
UK Markit UK PMI Manufacturing SA (4:30): 53.5 expected
UK Markit/CIPS UK Services PMI (4:30): 40.8 expected
UK Markit/CIPS UK Composite PMI (4:30): 42 expected
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.
To learn more about how we construct and trade the portfolio, click on Getting Started in the dropdown menu of the Help link above. We also want to be sure you're not confused about the terminology that Jim uses on his Mad Money television show: When you hear Jim refer to the charitable trust, he is talking about the trust that holds the Action Alerts PLUS portfolio. The gains from Action Alerts PLUS go to charity after the close of each trading year.
Here's the quick guide to the rating system, too: Ones are stocks we would buy right now, Twos are stocks that we'd buy on a pullback, Threes are stocks we would sell on strength and Fours are stocks we want to unload as soon as our trading restrictions allow.
Tickers: ABT ABBV AMD AMZN AAPL AVGO BA BMY CCI COST CRM CVS DD DIS F FB GOOGL GS HON JPM MA MRVL MSFT NKE NLOK NVDA SBUX TTWO UPS WFC WM WMT
ONES
AbbVie (ABBV) ; $104.44; 1,275 shares; 3.65%; Sector: Healthcare
WEEKLY UPDATE: Announced that the FDA "has approved BOTOX® for the treatment of detrusor (bladder muscle) overactivity associated with a neurologic condition in pediatric patients 5 years of age and older who have an inadequate response to or are intolerant of anticholinergic medication." Additionally, AbbVie and Caribou Biosciences "a leading clinical-stage CRISPR genome editing biotechnology company," announced "that they have entered into a collaboration and license agreement for the research and development of chimeric antigen receptor (CAR)-T cell therapeutics." Caribou was founded by Jennifer Doudna, who won the 2020 Nobel Prize in Chemistry for her work on CRISPR technology. 1-Wk. Price Change: -3.95% Yield: 4.98%
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 $125; Rating: One
RISKS: Execution of the Allergan integration, drug pricing, pipeline issues, loss of exclusivity on key drugs, competition
ACTIONS, ANALYSIS & MORE: Highlights From the JPMorgan Healthcare Conference (1/13/21)AbbVie Shines at Analyst Meeting; We're Raising Our Target (12/15/20), 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), 3Q19 Earnings Analysis (11/1/19), Initiation (10/1/18), Investor Relations
Advanced Micro Devices (AMD) ; $93.77; 800 shares; 2.06%; Sector: Info. Tech.
WEEKLY UPDATE: While this may more of a tailwind for the capital equipment makers (though certainly beneficial to the entire space), Reuters reported that 'A group of U.S. chip companies [including AMD] on Thursday sent a letter to President Joe Biden urging him to provide "substantial funding for incentives for semiconductor manufacturing' as part of his economic recovery and infrastructure plans." 1-Wk. Price Change: 6.68%; 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 $100; Rating: One
RISKS: Competition, a slowdown in the IT/data center spending
ACTIONS, ANALYSIS & MORE: FY4Q21 Earnings Analysis (1/26/21), 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) ; $135.37; 1,400 shares; 5.19%; Sector: Technology
WEEKLY UPDATE: According to Neil Cybart of Above Avalon, more than 100 million people wear an Apple Watch. It's an impressive milestone that comes less than six years after the first model was launched. What Apple has accomplished in a short period of time with the Apple Watch is an example of how the company may not always be the first to market, but frequently winds up being the best in market. 1-Wk. Price Change: -1.02% Yield: 0.61%
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 $150; 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: FY1Q21 Earnings Analysis (1/28/21), 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) ; $210.98; 500 shares; 2.89%; Sector: Industrial
WEEKLY UPDATE: There was not much news this week, however, on a positive note, as reported by CNBC, United Airlines officially returned the 737 Max to service this week and "expects to take delivery of 24 Max planes this year and had 14 in the fleet at the time of the March 2019 grounding." 1-Wk. Price Change: 1.47%; 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 2022 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 $260; Rating: One
RISKS: Recovery in aerospace market, economic health of airlines, production issues, 737 MAX recertification, defense budgets
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (1/27/21), CEO David Calhoun on Mad Money (12/16/20), 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) ; $59.99; 1,950 shares; 3.21%; Sector: Healthcare
WEEKLY UPDATE: None 1-Wk. Price Change: -1.53%; Yield: 3.27%
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: FY4Q20 Earnings Analysis (2/4/21), Highlights From the JPMorgan Healthcare Conference (1/13/21), CEO Giovanni Caforio Discusses the MyoKardia Acquisition on Mad Money (10/5/20), Bristol-Myers Squibb to Acquire MyoKardia (10/5/20), 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) ; $164.46; 1,000 shares; 4.51%; Sector: Real Estate
WEEKLY UPDATE: We added to our position this week. On Friday we spotted another insider buy and discussed it in our Alert here. 1-Wk. Price Change: 1.36% Yield: 3.23%
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: An Update on CCI (2/8/21), FY4Q20 Earnings Analysis (1/27/21), Initiation Alert (11/18/20), Investor Relations
Salesforce (CRM) ; $240.37; 350 shares; 2.31%; Sector: Info. Tech.
WEEKLY UPDATE: There were no specific news about the business or analysts notes this week, but the company said in a blog post here that it will permanently give employees the option to work remotely, in office, or in flex model. 1-Wk. Price Change: 0.62% 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: One
RISKS: Slowdown in IT spending, competition, Slack integration
ACTIONS, ANALYSIS & MORE: FY3Q21 Earnings Analysis (12/1/20), 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) ; $187.67; 450 shares; 2.31%; Sector: Communication Services
WEEKLY UPDATE: Reported earnings. 1-Wk. Price Change: 3.59% 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 that as the economy bounces back so too will attendance and spending at Parks and Resorts, resulting in an overall stronger company post-pandemic than it was pre-pandemic. Target Price: We are increasing our price target to $220; Rating: One
RISKS: Fox integration risk, competition, macroeconomic slowdown impacting the consumer
ACTIONS, ANALYSIS & MORE: FY1Q21 Earnings Analysis (2/11/21),Disney Tells a Great Story at Its Investor Day (12/11/2020), 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
DuPont (DD) ; $71.47; 1,800 shares; 3.53%; Sector: Materials
WEEKLY UPDATE: Reported earnings and we subsequently added to our position. Also, JPMorgan analyst Steve Tusa increased his price target on the stock to $80 from $70, though maintained a Neutral rating. 1-Wk. Price Change: -5.76%; Yield: 1.68%
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 $90; Rating: One
RISKS: Economic recovery, auto sales, PFAS liability, ability to divest non-core components
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (2/9/21), Reviewing the New DuPont (2/1/21), DuPont Provides Preliminary Q4 Results Ahead of its Exchange Offer (1/26/21), DuPont's PFAS Settlement a Positive Event (1/22/21), Our View on the N&B Split-off (1/12/21), DuPont Pushes Higher After Bullish Analyst Call (12/18/20), DuPont Divests Non-Core Business (9/10/20), Initiation (6/5/20), Investor Relations
Marvell Technology (MRVL) ; $53.82; 2,750 shares; 4.06%; Sector: Info. Tech.
WEEKLY UPDATE: None 1-Wk. Price Change: 7.53%; Yield: 0.45%
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 $60 Rating: One
RISKS: Further intensification on the US/China trade front, a delayed ramp in 5G infrastructure buildouts.
ACTIONS, ANALYSIS & MORE: FY3Q20 Earnings Analysis (12/3/20), Marvell Announces Acquisition of Inphi (10/29/20), Takeaways From Marvell Tech's Analyst Day (10/9/20), 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) ; $341.00; 175 shares; 1.64%; Sector: Info. Tech.
WEEKLY UPDATE: Mastercard discussed in its blog post here that it will begin supporting cryptocurrencies directly on its network this year. Jim talked about this news during our Thursday Daily Rundown here. 1-Wk. Price Change: 0.66% Yield: 0.52%
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: FY4Q20 Earnings Analysis (1/28/21), 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) ; $244.99; 400 shares; 2.69%; Sector: Technology
WEEKLY UPDATE: The Financial Times reported this week that Microsoft had approached Pinterest about an acquisition. Real Money contributor Eric Jhonsa wrote an excellent article here on why this deal would make strategic sense. 1-Wk. Price Change: 1.15%; Yield: 0.91%
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 $265; Rating: One
RISKS: Slowdown in IT spending, competition, cannibalization of on premises business by the cloud
ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (1/26/21), 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) ; $142.12; 850 shares; 3.31%; Sector: Consumer Discretionary
WEEKLY UPDATE: None 1-Wk. Price Change: 0.46% Yield: 0.77%
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 $170; 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) ; $21.47; 5,600 shares; 3.3%; Sector: Info. Tech.
WEEKLY UPDATE: None 1-Wk. Price Change: 1.90% Yield: 2.33%
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: FY3Q21 Earnings Analysis (2/4/21), Initiation (7/22/20), Investor Relations
United Parcel Services (UPS) ; $163.39; 850 shares; 3.81%; Sector: Industrials
WEEKLY UPDATE: We added to our position this week. Also, UPS announced it has increased its quarterly dividend payment by $0.01 to $1.02 per share. 1-Wk. Price Change: -0.60%; Yield: 2.50%
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: FY4Q20 Earnings Analysis (2/1/21), Initiation Post (9/25/20), Investor Relations
Walmart (WMT) ; $144.47; 1,100 shares; 4.36%; Sector: Consumer Discretionary
Weekly Update: We look forward to hearing from management when the company reports earnings on Thursday, before the open, where will be looking for earnings of $1.51 per share on sales of $147.98 billion. 1-Wk. Price Change: 0.08%; Yield: 1.50%
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
Wells Fargo (WFC) ; $33.53; 4,000 shares; 3.68%; Sector: Financials
Weekly Update: None 1-Wk. Price Change: 2.98%; Yield: 1.19%
INVESTMENT THESIS: We believe this is a turnaround story put in place by new CEO Charlie Scharf and his new management team. We think Mr. Scharf and his new leadership team will be successful in rebuilding Wells Fargo into a more accountable bank and restoring its reputation. Additionally, we think management's cost actions plans will help reduce expenses and improve the bank's efficiency ratio. We believe there is room for more upside here on book value growth as the economy improves, costs are reduced, excess capital is returned to shareholders, and the asset cap on the bank put on by the Fed is lifted. Target Price: Reiterate $37; Rating: One
RISKS: Interest Rates, Economic Growth, Regulator Risk, Cost Reduction Execution
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (1/15/21), Initiation 1/7/21, Investor Relations
TWOS
Abbott Laboratories (ABT) ; $128.23; 800 shares; 2.81%; Sector: Healthcare
WEEKLY UPDATE: We trimmed our position this week as shares pushed toward new all-time highs. 1-Wk. Price Change: 3.39%; Yield: 1.40%
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 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 $130 Rating: Two
RISKS: Emerging market exposure, Product disruptions, strong dollar, timing of FDA approvals.
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (1/27/27), Highlights From the JPMorgan Healthcare Conference (1/13/21), 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) ; $3,277.71; 50 shares; 4.49%; Sector: Consumer Discretionary
WEEKLY UPDATE: None 1-Wk. Price Change: -2.22%; 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 $3,800; 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: FY4Q20 Earnings Analysis (2/2/21), 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) ; $486.32; 125 shares; 1.67%; Sector: Info. Tech.
WEEKLY UPDATE: None 1-Wk. Price Change: 4.36% Yield: 2.96%
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 $500 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: FY4Q20 Earnings Analysis (12/10/20), Initiation (2/26/20), Investor Relations
Costco (COST) ; $352.75; 300 shares; 2.9%; Sector: Consumer Staples
WEEKLY UPDATE: None 1-Wk. Price Change: -0.68%; Yield: 0.79%
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. We also appreciate management's approach to capital returns and their willingness to return cash when it is in excess on the balance sheet. Recently, the company rewarded shareholders with a special dividend of $10 per share. Target Price: Reiterate $400; Rating: Two
RISKS: Inability to pass through higher costs, fuel prices, weaker consumer, membership churn
ACTIONS, ANALYSIS & MORE: FY1Q21 Earnings Analysis (12/10/20), $10 Per Share Special Dividend (11/16/20), Recent Buy Alert (2/28/20), Initiation (1/27/20), Investor Relations
CVS Health (CVS) ; $74.21; 1,000 shares; 2.03%; Sector: Healthcare
WEEKLY UPDATE: We look forward to hearing from management when the company reports earnings on Tuesday, before the open, where will be looking for earnings of $1.24 per share on sales of $68.73 billion. 1-Wk. Price Change: 2.81% Yield: 2.70%
INVESTMENT THESIS: Target Price: Reiterate $84; Rating: Two
RISKS: Failure to execute on Aetna integration, greater than expected rebate guarantee headwinds on PBM business, regulatory headwinds
ACTIONS, ANALYSIS & MORE: Highlights From the JPMorgan Healthcare Conference (1/13/21), 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
Ford (F) ; $11.45; 17,500 shares; 5.49%; Sector: Industrials
WEEKLY UPDATE: Outside of the news reports that electric vehicle company Rivian, which is backed by Ford and Amazon is looking to IPO later this year, the primary factor everyone is keeping a close eye is the global chip shortage, which is causing uncertainty in terms of near-to-mid-term production and will likely weigh on the industry for the time being. 1-Wk. Price Change: -0.52% Yield: 0.00%
INVESTMENT THESIS: Our bullish thesis on Ford is mainly predicated on the turnaround led by CEO Jim Farley and his new leadership team. Whether it be through restructuring underperforming parts of the business and getting out of low profitable vehicles or addressing a roughly $2 billion headwind related to warranty costs, we believe Farley and his management are executing in building a new Ford that grows profitably and generates sustainable free cash flow. We also think Ford's electric vehicle business is underappreciated. Not only do they have the Mustang Mach-E, but Ford is also developing all-new electric versions of the popular F-150 and the E-Transit cargo van. Plus, Ford has a strategic partnership and minority investment with Rivian who is best known for its customer delivery vehicles for Amazon.
Target Price: Reiterate $13; Rating: Two
RISKS: Turnaround execution, the transition from ICE (internal combustion engines) to EV vehicles, competition, economic cycle,
ACTIONS, ANALYSIS & MORE: FY4Q29 Earnings Analysis (2/4/21), Our Take on Ford as It Continues Its Climb Higher (1/21/21), Looking for Opportunities After a Ford Downgrade (11/25/20), Initiation (11/24/2020), Investor Relations
FacebookFB ; $270.50; 150 shares; 1.11%; Sector: Communication Services
WEEKLY UPDATE: On Wednesday The New York Times reported that Facebook is currently working on a product to compete with Clubhouse, an invitation-only audio-chat social networking app that launched last year and has quickly gained popularity. Additionally, The Wall Street Journal said here that Shopify's "Shop Pay" is coming to Instagram and Facebook. This news was more meaningful for Shopify than Facebook, but it should enhance the social media company's social commerce ambitions. 1-Wk.Price Change: 0.90% 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: FY4Q20 Earnings Analysis (1/27/21), 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
Goldman Sachs (GS) ; $306.32; 225 shares; 1.89%; Sector: Financials
WEEKLY UPDATE: None 1-Wk. Price Change: 4.37% Yield: 1.63%
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 $315; Rating: Two
RISKS: The economic cycle, Financial System regulation, 1MDB litigation, interest rates, financial market activity
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (1/19/21), 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
AlphabetGOOGL ; $2,095.03; 50 shares; 2.87%; Sector: Communication Services
WEEKLY UPDATE: Analysts at Citi increased their GOOGL price target to $2,415 from $2000 Friday, but no longer called the stock a "top pick" as they believe current Street estimates may be too high. But even though CIti's estimates are below consensus, they believe GOOGL's valuation is compelling and point out that shares trade at 24.6x their 2023 EPS estimate, representing one turn below the five-year average. 1-Wk. Price Change: 0.30%; 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 $2,300; Rating: Two
RISKS: Regulatory risk (data privacy), competition, macroeconomic slowdown impacting consumers and therefore ad buyer activity
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (2/2/21), 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) ; $203.57; 550 shares; 3.07%; Sector: Industrial
WEEKLY UPDATE: None 1-Wk. Price Change: 0.32% Yield: 1.83%
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 $220 Rating: Two
RISKS: The economic cycle, longer than expected rebound in the aerospace industry,
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (1/29/21), Sparta Acquisition (12/22/20), FY3Q20 Earnings Analysis (10/30/20), CEO Darius Adamcyzk on CNBC (9/10/20), Initiation (8/5/2020), Investor Relations
JPMorgan Chase & Co. (JPM) ; $141.25; 200 shares; 0.77%; Sector: Financial
WEEKLY UPDATE: None 1-Wk. Price Change: 2.37% Yield: 2.55%
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 fourth-quarter 2020 was $66.11 Target Price: Reiterate $145; Rating: Two
RISKS: The economic cycle, Financial System regulation, interest rates, credit quality.
ACTIONS, ANALYSIS & MORE: FY4Q20 Earnings Analysis (1/15/21), CEO Jamie Dimon Interview at World Economic Forum (1/21/20), Initiation (12/27/2017), Investor Relations
Nvidia (NVDA) ; $598.45; 200 shares; 3.28%; Sector: Info. Tech.
WEEKLY UPDATE: Shares benefited from a general flow into the semiconductor space as a global supply shortage is giving chip suppliers added pricing power. Separately, as reported by CNBC, "U.S. chipmaker Qualcomm has told regulators around the world that it is against Nvidia's $40 billion acquisition of British chip designer Arm, according to sources familiar with the matter." 1-Wk. Price Change: 10.08% Yield: 0.11%
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) ; $105.30; 625 shares; 1.8%; Sector: Consumer Discretionary
WEEKLY UPDATE: We trimmed our position this week. 1-Wk. Price Change: -1.11% Yield: 1.71%
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: $115; Rating: Two
RISKS: Rising inflation, freight costs, competitive pressures, shifts in consumer tastes, China exposure
ACTIONS, ANALYSIS & MORE: FY1Q21 Earnings Analysis (1/26/21), 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
Take-Two Interactive (TTWO) ; $199.86; 250 shares; 1.37%; Sector: Consumer Discretionary
WEEKLY UPDATE: Reported earnings. 1-Wk. Price Change: -3.66% 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: We are increasing our price target to $225.Rating: Two
RISKS: Competition, poor consumer reception to highly anticipated releases, industry regulation
ACTIONS, ANALYSIS & MORE: FY3Q21 Earnings Analysis (2/8/21), Initiation (4/14/20), Investor Relations
Waste Management (WM) ; $113.25; 600 shares; 1.86%; Sector: Industrials
Weekly Update: We trimmed our position this week look forward to hearing from management when the company reports earnings on Thursday, before the open, where will be looking for earnings of $1.09 per share on sales of $3.97 billion. 1-Wk. Price Change: -0.42%; Yield: 1.92%
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 integration of 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