Month: October 2020

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TABLE OF CONTENTS

MARKET LAST WEEK (10/19 – 10/23)

MONDAY: JEROME POWELL SPOKE AT THE INTERNATIONAL MONETARY FUND REGARDING DIGITAL CURRENCY

Federal Reserve Chair, Jerome Powell, stated that the central bank has not decided to issue a digital currency, citing the need for further work and “extensive” public consultation with stakeholders before doing so.

Powell believes that it is more important for the United States to get it right than first, embracing a full-scale study on whether a digital currency approach might be suitable for the United States.

In August, the central bank announced that they were expanding experimentation and research on technology relating to digital currencies. The Boston Federal Reserve has been working on analyzing the results of a digital currency oriented for the central bank to use.

Powell does believe that the current payment system could use some improvement as society transitions away from cash. Digital currency can change the way that monetary policy works and speed up payment systems that have been lagging in modern times.

Powell believes that any digital currency adoption by the government should complement the dollar and cash, not replace cash or cash equivalents.

UNEMPLOYMENT: U.S. JOBLESS CLAIMS FELL TO 787,000 LAST WEEK – NEW LOW DURING THE COURSE OF THE PANDEMIC
New applications for unemployment benefits so far for October fell to the lowest levels since the coronavirus pandemic shut many businesses in March, a sign of improvement for the U.S. economy.
Last Thursday, the Labor Department reported that initial jobless claims have declined by 55,000. The declining layoffs serve as a further indicator that the economy is continuing to recover from the effects of Covid-19.
In recent weeks, companies ranging from American Airlines Group Inc. and United Airlines Holdings Inc. to Walt Disney Co. and AT&T Inc.’s Warner Media have announced job cuts. These layoffs may have affected filed claims last week. Meanwhile, businesses such as restaurants, gyms, and theaters are closing doors due to what appears to be a prolonged slump for services and products that rely on public gatherings.
STIMULUS TALKS THROUGHOUT THE WEEK 
Lack of direction and indecision on the government’s part continues as talks of a second stimulus bill progress.

Stimulus talks as of 10/24 continue to lag, although both Nancy Pelosi and the White House claim to be eager to reach an agreement. It seems that progress and agreement had been reached in terms of the amount distributed; however, there is much left to discuss.

Currently, Pelosi and House are disputing the language of the bill. Pelosi, specifically, desires a bill that requires contract tracing of Covid-19. However, the White House wishes to give individual states the option of contract tracing versus making it a mandatory requirement.

Stimulus talks continue into next week while the election date nears closer.

The pharmaceutical and medical industries stand to benefit immensely from passing the stimulus due to most of the funds being allocated to the continued research and advancement of ways to prevent the spread and fight Covid-19.

Travel companies, specifically airlines, also favor a stimulus package being agreed upon given that currently there is $25+ billion being allocated to airlines.

On Friday, we have also taken note of a flow exhibiting a large block of $JETS (Airline ETF) being purchased. This may be an indicator that hedge funds expect the agreement of a bill soon.

PAYPAL TO ALLOW ITS USERS TO BUY, SELL, AND SHOP WITH BITCOIN


PAYPAL – $PYPL

PayPal is implementing crypto buying, selling, and shopping on its service. While buying and selling crypto is not novel, using cryptocurrency to pay for goods and services is. The details of the launch are as follows:

  • PayPal users will be able to shop using cryptocurrency as a form of payment at the 26M merchants on its PayPal’s network starting in early 2021

  • US account holders can start buying cryptocurrencies such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin on PayPal in the next few weeks.

  • PayPal is planning to bring this service to its partner – Venmo – and implement the service in countries other than the United States next year.

  • The merchants will not actually get paid in crypto. PayPal plans to settle Bitcoin to USD on the backend and complete sales transactions in dollars.

WHY IT MATTERS

This launch can be big for Bitcoin and other cryptocurrencies. With 346M active accounts, PayPal has a way bigger reach than any other fintech company that allows the use and trading of crypto. With the news alone, Bitcoin hit a record high for 2020. PayPal could help to normalize the use of crypto in everyday purchases.

SNAPCHAT REPORTS PHENOMENAL EARNINGS; SHARES JUMP 30%


SNAPCHAT – $SNAP

The pandemic continues to cripple the economy; although businesses are slowly beginning to open, most earnings for Q3 are subpar. SNAP surprises investors with a killer earnings report. On their earnings call, Snap reported the following:

  • Sales increased drastically to 52% as advertisers started spending again, compared to a growth of 17% in the previous quarter.

  • Daily users grew 18% to 249M – equivalent to 75% of the US population between the age of 13 -34.

  • On average, 4 billion snaps are created every day.

  • The average revenue per user grew to $8.29 from $6.29 – a 32% growth year over year.

  • Total Revenue grew to $1,716 million from $1,180 – a 45% increase year over year

  • Snap’s losses shrank 12%, but the 9-year-old company still isn’t profitable.

  • Snap’s growth slumped after Facebook’s Instagram copied its game-changing Stories back in 2016. Last quarter, however, Snap profited from FB’s ad boycott as marketers shifted their spending to Snap instead

  • TikTok is officially banned in India; since that date, Snap has more than doubled its users in the world’s 2nd most populous country.

WHY IT MATTERS

Snap has been booked, busy, and a little lucky with pandemic recovery and Facebook’s and TikTok’s misfortune. Snap is one of the few companies that have benefited from the pandemic lockdowns by increasing their user gain as more people spend time online.

Snap is continuously taking steps to improve its platform and provide a great user experience. It has introduced an array of new filters, such as an anime filter that turns your selfies into a cartoon and a transforming landscape filter that takes users to outer space. It also launched new features from mini-apps to TikTok rivaling sounds.

The lingering question is: Can Snap hold this momentum into 2021, or will their growth plateau?

REMDESIVER GAINS FDA APPROVAL
GILDED SCIENCES INC. – $GILD

On 10/22, moments before market close, news broke that GILD’s drug, Remdevisir, gained FDA approval for use in Covid-19 treatment. During after-hours trading, the $GILD stock price rose by 6%. This may mark a milestone in Covid-19 research, and we may soon see an array of similar drugs given FDA approval.

There are already quite a few similar drugs in the making, but they have yet to gain FDA approval limiting their use to limited small groups. The most known of these pharmaceutical companies is Regeneron (REGN), whose REGN-COV 2 Antibody Cocktail was used to treat President Trump in the days following his hospitalization. Unlike a vaccine, these antibody drugs are designed for people post-exposure to COVID. They attempt to boost the user’s number of antibodies to increase the odds of recovery.

Drugs of this nature will not be obsolete in Q1 of 2021, which is the current expected timeline for a viable vaccine. Instead, antibody drugs like this will likely serve as a complement for the segmented group of people in the population who may not have gotten a vaccine or who have a low risk of exposure to COVID-19 but still contracted the virus.

UPCOMING EVENTS 10/26 – 10/30

TWILIO – $TWLO

At Tiger Wolf Capital, TWLO has become a fan favorite amongst investors, and we are very eager to see what their earnings report will look like, which is being reported on Monday after market close. As we stated in our research report published back in late September, we are very bullish on the results.

Twilio streamlines businesses to client communication through the power of AI and cloud-based services.  Using Omnichannel customer service, Twilio enables businesses to connect with their clients through WhatApp, SMS, or WebChat, powered by automated routine customer inquiries with conversational IVRS and chat boxes to reduce weight.

We see great value and long-term growth potential for this product as more companies are switching over to remote work. The need to provide greater customer satisfaction and increase brand loyalty is increasing significantly.

We purchased TWLO 330 and 335 call options on Friday afternoon with the expiration date of 11.20.20 for $11.20 and $10.75 per contract.

We have a price target of $350 for TWLO.

UPCOMING EARNINGS 10/26 – 10/30

Monday:

Twilio – We are bullish on TWLO earnings and the stock in general long-term, as we stated in our research report. Although they are not yet profitable, the stock has performed well, and we find great value with this communications company poised to continue to thrive during this pandemic and the work from home shift beyond it.

Alphabet – The parent company of Google presents an interesting earnings case. The U.S. DOJ is suing Google for anticompetitive practices and the first quarter with decreased advertising revenue for the first time in 22 years. Their cloud business, however, is poised to make healthy gains in the future.

Tuesday:

Advanced Micro Devices – Predicted to have a strong earnings performance despite the miss and weak forecast of rival Intel. The increase in work from home trends saw PC CPU, consoles, along steady server share gains suggest upside for AMD through earnings.

Microsoft – They are expecting growth in EPS as well as revenue. This is expected to happen at a slower rate year over year. Microsoft Teams is serving as an interesting alternative to zoom that could bode well for Microsoft’s future with 75 million daily users, an increase of 62 million since July 2019.

Wednesday:

United Postal Services – We expect the surge in e-commerce demand amid the current pandemic situation to boost UPS’ third-quarter results. The impending release is likely to reflect the significant increase in home deliveries amid the ongoing coronavirus outbreak. Higher demand for residential delivery is expected to have contributed to the U.S. Domestic Package segment’s performance, which accounts for the bulk of the top line. With expected revenue at $19.95 billion, up 8.9% from a year-ago quarter.

Thursday:

Twitter – After SNAP reported a strong earnings growth last week, we expect Twitter to do as well. Twitter generates the most revenue from ad spending, which has gone down drastically the past quarter in response to political unrest over the pandemic and civil rights issues. However, as elections come to an end, we expect a focus on business ad spending to increase as companies reopen. We also see how Twitter users’ time on the app has increased and a possible increase in revenue from users.

Penn – While faced with year over year decline in revenue, $PENN has several promising factors on the horizon. They’ve taken several expansion strategies, including the barstool sportsbook app for online sports betting, and are now the #1 app on the market. Several states (Michigan, Tennessee, Virginia) are expected to legalize sports betting soon. While already legalized markets have received a boom in revenue with the return of sports, Pennsylvania leading the charge with just shy of $500 million in September along with the return of the NFL. Access to these new markets and with sports returning to bet on, $PENN has an optimistic outlook.

Apple – is a difficult case to reach a conclusion on in regards to earnings. The rollout of their new highly anticipated smartphone has been delayed due to the pandemic and, as such, pushes out their earnings forecast. We do not see Apple having a “wow factor” in store for us this earnings season.

Boeing – Boeing, unsurprisingly, is not expected to perform well this earnings quarter with a decline in revenue and only more bad news. The stock has been performing poorly all year since the two fatal crashes of their 737 max. Revenues are expected to be $14.14 billion, down 29.2% from the year-ago quarter, with multiple airlines demanding deferrals on their reception of the 737 max and many renegotiating their contract prices as well, which Boeing is allowing due to their failure to meet expectations according to Boeing’s CEO.

Amazon – Wall Street is expecting a year-over-year increase in earnings on higher revenues. That does not necessarily mean they will beat earnings as it’s hard to tell if consensus EPS will be inflated. Amazon has beaten the consensus EPS estimates two times out of the last 4 quarters. U.S. retailers online were up to 68% year over year growth in revenue and 146% in all online retail orders. Online conversion rates were also up just shy of 10%, a frequency level typically seen around Cyber Monday. Stay-at-home orders coupled with stimulus checks amid the pandemic sparked retail therapy growth, and E-Commerce has been reaping the rewards.

EVENTS & TALKS

ALIBABA TO BUY A FIFTH OF SHARES IN ANT GROUP’S MEGA IPO

Alibaba Group has agreed to purchase more than a fifth of shares in Ant group’s upcoming IPO on October 27th.

Ant group is a Chinese fintech company that serves as the parent company to Alipay, a digital payment processor used by millions of Chinese.

Some key points about Alipay

  • a third-party payment platform, their primary service is a digital wallet (Aliwallet), which has been deemed practically essential for any business looking to reach a critical mass of Chinese shoppers.

  • Alipay reports over 500 million monthly active users and twice that in daily transactions as the Chinese head towards a cashless future.

  • For reference, Apply Pay has 127 million users globally despite coming preinstalled in every iPhone.

  • 92% of the people in China’s top cities use mobile payments as their primary payment method.

  • Mobile payments have grown into a 16 Trillion dollar industry in China over the past 15 years, with Alibaba on the forefront.

Alibaba is buying 730 million of approximately 1.67 billion of Class A shares. As a result, Alibaba is poised to own about 32% of Ant Groups affiliate shares, currently speculating about receiving a valuation in the region of 280 billion USD. This valuation would make Ant Group worth more than nearly every financial or fintech stock currently listed in the United States other than JPMorgan, Visa, or Mastercard.

CONSUMER CONFIDENCE INDEX 10 AM NEXT TUESDAY

In the United States of America, the U.S. consumer confidence index (CCI)  is an economic indicator of optimism. This indicator allows us to understand the habits of American consumers and the likely spending of US households. If a V-shaped recovery is viable, the CCI increasing from pandemic lows is vital. The last index reported that consumer confidence was up to a reading of 101.8 from 86.3 in September, an almost 20% increase in reported consumer confidence.

In an economy when economic uncertainty is at its highest, consumer confidence was shallow. Households spend less, but even in the event of no change in income overall, spending is likely to decrease, and savings are likely to peak.

This was the case in April of 2020, when savings rates reached all-time highs in the American economy. A stark change from a country and economy that prides itself on being robust and encouraging constant consumer spending and consumption at every turn. As consumer confidence trends up and returns to pre-corona levels, we are likely to see an increase in American consumption. The two sectors that will likely benefit from this are retail and travel. The volume of travel will likely return as Americans return to partaking in activities of leisure. Still, the volume is heavily dependent on progress made on the medical front of the virus, such as the availability of PPE and the development of treatments. Retail also shares similar challenges to the travel sector, but as income rises and spending increases, shoppers may begin flocking back to commercial spaces such as malls. While COVID-19 alters the retail, landscape companies that have adapted to online sales and venues with outdoor segments where social distancing is easier will have the edge over firms where primary revenue derives from in-person sales.

INITIAL JOBLESS CLAIMS 8:30 AM NEXT TUESDAY

With last week’s report for unemployment benefits, we saw unemployment claims drop to a record low since the coronavirus took its toll on the U.S. economy in March. This is unprecedented news and a significant sign of recovery for the economy. We look forward to seeing if there is a continued decline in that area.

TUESDAY 10/21 EVENING


Snowflake Inc. – $SNOW

After recently launching its IPO back in late September, we noticed that the company’s hype had died down, with the chart being well-positioned to gain the attraction of serious investors and traders. SNOW’s price action was consolidating for the past two weeks between $231.28 and $252.58.

Ideally, we wanted SNOW to get above the $253 level before getting into Call options and target $270.

The $260 calls for 10/30 were trading around $3.58 when we got in them. 

By Thursday, SNOW ran up to touch $300, blowing past our $270 price target. 

We bought the $260 contracts on Tuesday were trading at $46 from the $3.28 we bought on Tuesday.

That is a 1,400% return on investment!!

EDUCATIONAL LEARNING SEGMENT
“See profit, take profit.” 

Many times we find ourselves making a decent return on our investment and think, “this is going to keep going up’ to later having our profits taken away from us. The concept of locking in profits or at least a good portion of it has led me to continue to be a profitable trader and investor.

I have also never met anyone that went broke, locking in profits, but I have met plenty of people who lost a lot of money thinking their gains will grow.

$BA – The Boeing Company – 2020 Research

Last Trade Price: $168.08

Short Term Rating: Sell

Long Term Rating: Buy

Price Objective: $214.95

 

                                

Business Strategy and Outlook

Boeing is a leader in aviation, aerospace, and defense technology supporting airlines. Boeing derives its business off four segments: Commercial Airplanes, Defense/Space & Security, Global Services, & Boeing Capital. Boeing is a global leader in design, development, manufacturing, sale, and support of commercial jets, military aircrafts, satellites, missile defense, and space services. They are one of the only two manufacturers of 100+ seat airplanes and is one of the largest defense contractors in the U.S. The other major airplane maker in this category is Airbus.

Boeing’s business strategy is based off its core businesses – Commercial Airplanes, Defense & Space, and Global Services. Sales of Commercial Airplanes make up 42% of all revenue. Boeing has fixed-price contracts with the commercial airline companies and these contracts depend heavily on a healthy production and supply chain.

The other key segment in Boeing’s Core business strategy is Government Defense and Space contracts. This segment makes up over 34% of Boeing’s current revenue and has allowed them to stay afloat in the midst of the pandemic. These long-term contracts have allowed Boeing to operate while losing money. Boeing features numerous defense products that are constantly being contracted out to the Department of Defense. A key feature for this business segment is the research and development of new defense products to be bought by the Government. Boeing is on the leading edge of development for new defense products.

Product Line:

Commercial Airplanes Defense/Space
Next-Gen 737 F/A-18 E/F Super Hornet
737 MAX* F-15 Programs
747-8(F) P-8 Programs
767(F) KC-46A Tanker
777(F) T-7A Red Hawk
777X CH-47 Chinook
787 AH-64 Apache
Business Jets V-22 Osprey
*(F)Freight Planes Unmanned vehicle MQ-25 & QF-16
NASA’s Space Launch System


Performance and Risk

Tiger Wolf Capital focuses on two things: is this company profitable? Do people want to buy their product?

After taking a close look into the 10Q report of Boeing, we see that the company is operating at a significant loss. After two fatal crashes, Federal Aviation Administration (FAA) has forced the grounding of the 737 MAX, which made up 59% of Boeing’s Commercial Airline revenue back in 2019. As a direct result, Boeing faces risks include uncertainty in regulatory approvals on the return of their 737 MAX, a decrease in planned production, increased costs, and a decrease in supply chain health. The grounding of these planes has resulted in a significant reduction in their revenues, operating margins, and cash flows. In 2019, Boeing reported a 24% decrease in revenue from its prior year. Until FAA approves the return of the 737 MAX, we foresee Boeing to continue to loss growth in its year over year revenue growth.

 

 

As a direct result of COVID-19, global demand for travel as severally dropped. This is extremely concerning as Commercial Airlines make up 42% of their revenue and clients such as American Airlines, South West, and United Airlines are currently furloughing thousands of employees due to lack of demand in flights. As a result of this, the production of all their products have either slowed down or have completed been halted until 2021 / 2022. Shutting down factories in Q2, a lack of demand for new planes due to the travel ban, and massive losses from commercial airlines cancelling orders. Boeing revenue from this segment has dropped 78% since December of 2019 from December 2019.

Boeing’s defense segment has been healthy year over year and is only down -1% since December of 2019 from December 2018. Boeing was able to continuously add more Department of Defense (DoD) contracts and prop up the commercial segment of the business. Boeing’s Defense segment is very susceptible to changes in the defense spending budget. At any point with a change in defense spending the U.S. government can terminate or curtail Boeing’s contracts. Under President Trump, defense spending has continued to increase which has been extremely beneficial to Boeing. We believe that the Q3 earnings report should have a positive increase in the defense segment with the re-opening of factories and signing of new contracts.

 

 

By looking at both segments, we determine until Boeing receives approval on the 737 MAX and a continued low amount of travel, Boeing will continue to not be profitable. The increase in government spending on defense will unfortunately not offset the massive decrease in demand for commercial planes. In Boeing annual report from January 2020, we see that its total revenue has dropped 25% year over year.

Technical Analysis

 

 

The levels to watch are $144.46 and $171.39

Currently $BA is trading at $168.08. We seem to have found support around the Fibonacci level $144.46 and did quick bounce upwards towards $171.39.  I recent days, this $169 – $171.39 have proven to be an extraordinarily strong resistance level for this stock and we have not seen any change in this. We will remain bearish on $BA until we can effectively get above and hold above $171.39. Every time we get near this $171 level, we will short the stock by buying weekly put options and target $160 / 162 and then reevaluate. We believe that BA will bounce up once we hit the low $160s and give us another entry to short it once it hits $170 again. Fail to hold the $160 level, we see $BA pulling down towards $145.

The case for the bulls:

We are witnessing the 14-day and the 30-day simple moving average curl upwards as $BA continues to retest this $171.39 level. We would anticipate the 14-day moving average to cross above the 30 day, this will make the trend bullish and once we get above $171.5 we should see a fast move towards the upside. We anticipate the company to be trading at $188-$214 soon.