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Market Sell-Off Part 2: Zoom Earnings and 10 Year Treasury

THE SECRET SAUCE | COMPLEX IDEAS | SIMPLE SOLUTION

Market Sell-Off Part 2:  Zoom Earnings and 10 Year Treasury

Friday, March (3/5) Closing Price

 

Discord Logo And the History of the Business | LogoMyWay
DISCORD RECAP (March 1st – March 5th)

We like energy and oil.

After OPEC’s surprise to cut oil production through April,  we anticipate oil prices will continue to climb.

Crude oil has been a top-performing asset this year, with variants like gasoline and diesel also delivering significant gains in 2021 of 38.6% and 24.3%, respectively.

To participate in this, we will be investing in Exxon Mobil, $XOM.

On Friday, XOM closed at $60.93 and we see a potential to hit $85.

If you trade this stock, we have a short-term target price of $63.17.

Day trading short-term call options could also be a good idea.

Zoom Logo - PNG and Vector - Logo Download

Fundamental Analysis Matters???

Investors have decided that fundamental analysis is essential this week, reflecting in Zoom’s stock price dropping $100 or 30% in two days.

Zoom released its earnings on Monday, and they blew expectations out of the water. The video-calling software maker reported its revenue grew 369% YoY in the quarter that ended on January 31st, after growing 367% in the

third quarter and losing fewer customers than executives had expected.

  • Revenues soared to $883 million, up from $188 million the year before.
  • Based on formal accounting rules, Zoom’s net income rose from $15 million to $260 million, or 87 cents a share.
  • The gross margin expanded from the previous quarter’s 66.7% to 69.7%.
  • small customers grew to 467,100 customers with more than 10 employees at the end of the fiscal fourth quarter, nearly five times as many as it had before the pandemic hit, or up 470% on an annualized basis, compared with 354% growth in the previous quarter.
  • It ended the quarter with $4.24 billion in cash, cash equivalents, and marketable securities, significantly up from the previous quarter’s $1.87 billion.
  • Consensus estimates for their Earnings per Share (EPS) was $0.79, and actual was $1.22 for Q4.
  • Zoom’s revenue topped $822B, almost 9% better than estimates, and provided 2022 earnings guidance of $3.62 per share.

Despite these robust estimates, investors do not agree that the stock should be trading at 110x its 2022 Earnings estimates as well investors are wary of whether or not Zoom can continue this momentum.

Just two weeks ago, researchers from Stanford University argued about possible “Zoom fatigue.”

The study found that all the countless hours spent on zoom calls take more of a tool on the human brain and body than regular office work.

The fact that we are always connected, and sharing is leaving us mentally fatigued. The address four key reasons.

  1. Excessive amounts of close-up eye contact are highly intense.

  2. Seeing yourself during video chats constantly in real-time is fatiguing.

  3. Video chats dramatically reduce our usual mobility.

  4. The cognitive load is much higher in video chats.

We wouldn’t be surprised if we started to see a decline in zoom video usage in the upcoming months with vaccine rollouts, re-openings, and taking a break.

Target Reports Record-breaking Earnings, stock sells off.

Target-Logo - Earl & Brown

best friends yes GIF by Target

Target’s stock closed down 6.8% on Tuesday trading but has soared 64% over the past year.

For the fiscal fourth-quarter ending on January 30th,

  • revenue rose 21% to $28.34 billion from $23.4 billion last year, higher than analysts’ expectations of $27.48 billion.
  • Comparable sales, a critical metric that tracks sales at stores open at least 13 months and online, went up 20.5% compared to the prior year as comparable digital sales rose by 118% YoY.
  • After strong holiday sales, online sales gained even more momentum as Americans cashed in their $600 stimulus checks in January.
  • Store sales increased by 6.9%, digital sales increased 118%, and same-day service grew 212%.
  • As impressive as they are, both metrics show a deceleration in growth rates versus the third quarter.
  • In mid-January, Target reported that sales grew 17% during the holidays, which is a slight slowdown from the third quarter’s 21% spike, but it is still a lot better than the 9% that Walmart experienced.

So why did the stock sell-off?

Target did not provide guidance within their earnings report, and this has spooked investors.

  • Target also reported on-GAAP EPS of $2.67, beating estimates by $.13, and revenue of $28.34B beating estimates by $920M.
  • The only real forward direction that Target provided is that they will spend $ 4B annually for the next several years.
  • A big step up from 2020 where they spend $2.7B and in 2019, they spent $3B.
  • Target is planning to increase the number of stores by 30-40 stores annually.
  • Target plans to remodel 150 stores this year and increase that number to 200 in the following year.
  • Investors did not take to this news lightly, and the stock price reflected it.

Their earnings were solid outside of the spending guidance, and their omnichannel business presence led to their revenue growth.

In conclusion, investors do not like spending more money.

Somethings AREN’T Best Left Unsaid 

Investors often make decisions based on what was said in meetings, press conferences, and interviews. In this case, markets moved because of things that were left unsaid; investors were left with a sour taste after Federal Reserve Chairman Jerome Powell failed to address the Gigantic Elephant in the room. 10-Year Treasury Yields are rising due to expected economic growth and inflation in the future. Due to the pandemic, borrowing is near an all-time high, and any change in interest rates can have a massive multiplier effect across the country. High Growth companies, small businesses, and millions of individuals will face defaults with higher interest rates. This lack of reassurance from Powell sent markets tumbling despite a positive jobs report showing unemployment rates falling to 6.2%. We will have to keep a close eye on the 10-Year Treasury Yield in the future with it carrying such grave implications.

Tesla Divides Believers and Values Skeptics

Elon Musk Mic Drop GIF by FullMag

The market is split between believers and skeptics.

Those who believe that Tesla’s value is limitless and those who are more pessimistic about its prospects, especially given its current market price.

The company’s progress so far in “accelerating the world’s transition to sustainable energy” is a credit to Tesla. Still, there is a lot more left to do in its master plan to justify today’s valuation.

Tesla’s history of executing many of its audacious goals seems to be expected to continue, given the optimism in the current stock price. This gives the company very little room for error.

Read more about it on our website: https://www.tigerwolfcapital.com/tesla-divides-believers-and-skeptics/

REVIEW OF PAST WEEK 3/1 – 3/5

UPCOMING WEEK 3/8 – 3/12

EVENTS & TALKS

#4: 2021 – Heading Into a New Year in the Market

“Losers quit when they fail. Winners fail until they succeed”.–Robert T. Kiyosaki

 

Thursday, December 31st Closing Price


TABLE OF CONTENTS

  1. STIMULUS
  2. COVID RELIEF
  3. BOEING
  4. ANT-GROUP
  5. ASTRAZENECA
  6. MODERNA VACCINE
  7. NATIONAL DEFENSE AUTHORIZATION ACT
  8. SHIPPING DISRUPTIONS
  9. UPCOMING EARNINGS
  10. MERCHANDISE
  11. DISCORD RECAP
  12. STOCKS ON OUR RADAR
  13. EDUCATIONAL LEARNING SEGMENT
  14. VIDEO OF THE WEEK

 

 

MARKET LAST WEEK (1/4 – 1/8)

MARKET

MONDAY

THE SECOND ROUND OF STIMULUS – WHAT DOES THIS MEAN?

President Trump has officially signed a second round of stimulus checks to citizens as part of the coronavirus relief package. This second round of direct payments does come with a few fundamental changes, though. In the first round of funding, eligible households received $1,200 per adult and $500 per child. This time around, we see a decrease to $600 per adult and an increase to $600 per child. These changes apply to individuals with gross income under $75,000 and married couples under $150,000 based on their 2019 income. All of these changes are expected to happen relatively quickly, as the IRS has started sending out payments via direct deposit as of December 29th. Treasury secretary, Steven Mnuchin, states that all taxpayers who have current banking info with the IRS will receive direct deposits by January 4th. With nearly a third of Americans reporting that they are struggling to pay their bills due to the pandemic, this is undoubtedly welcome news, despite failure to push through legislation to increase direct payments to $2,000 from $600.

 

TUESDAY

COVID-19 RELIEF BILL
House Representatives passed the updated Covid-19 relief bill with increased payments from $600 to $2,000, and the bill now includes college-dependent students. This all seems to be not due to the Senate’s expected vote to decline the increased Stimulus. This re-vote was all based on President Trump initially declining the first round of stimulus funding in favor of the larger package.

BOEING

In other news, Boeing had its first flight with its controversial 737 Max from Miami to LaGuardia after 21 months of being forced aground after two fatal crashes. This comes after nearly two years of the plane being grounded and facing harsh regulations from every aviation agency across the globe. With Boeing able to fly this plane, we can begin to see Commercial Airlines begin to purchase and renew contracts for the 737Max.

ANT-GROUP

Ant group is facing harsher regulations from the Chinese government as they want to hold Ant Group’s finances in a holding company. China is using this as a possible way of increasing domestic consumption by having raised consumer loans. They want to use Ant group finances to provide funding to citizens, which in turn will then increase at-home spending.

ASTRAZENECA

And finally, the United Kingdom approved the third vaccine from AstroZenica to combat the notorious Covid-19. AstraZeneca has partnered with Oxford University to create this vaccine, and it has reached the minimum efficacy needed to push forward for implementation. This approval is only within the United Kingdom and needs to go through trials within the United and be approved by the Food and Drug Administration. The United States is skeptical of the AstroZenica vaccine as they have had several missteps along the way and need to re-prove their credibility to the United States marketplace.

WEDNESDAY

MODERNA’S VACCINE

The head of Ontario’s COVID-19 vaccination program has requested that Health Canada, the department responsible for the country’s federal health policy, delve into the feasibility of administering Moderna’s two-shot vaccine in a single dose. General Hillier (Ret.) cites a desire to increase efficiency in helping citizens. Notable health officials have expressed that there is a lack of evidence to suggest merit to this idea. If this idea gains traction and is proven to be effective, the implications are significant as it will lower the time necessary to inoculate and protect the population, effectively lowering the rate at which coronavirus will spread.

FRIDAY

NATIONAL DEFENSE AUTHORIZATION ACT

The House and Senate overwhelmingly voted to pass the National Defense Authorization Act and override President Trump’s veto. The 740 billion dollar law automatically comes into effect. The bill contains multiple cybersecurity provisions relevant to the Solar Winds hack. It also gives the Cybersecurity and Infrastructure Security Agency at DHS the authority to issue administrative subpoenas that will enhance the agency’s ability to investigate private-sector networks’ hacks. The bill is necessary for strategic programs, cyber, intelligence matters, drug interdiction, and counter-drug activities in appropriations adjustments.

SHIPPING DISRUPTIONS

In other news, there may be major international shipping disruptions in 2021 due to a law signed in 2018 that comes into effect. Over 180 countries and territories are not in compliance with the 2018 Synthetics Trafficking and Overdose Prevention (STOP) Act. The bill’s purpose was to combat the opioid crisis and stop fentanyl shipments through the USPS by providing advanced electronic data, or AED. AED provides USPS and Customs and Border Protection with information about international packages’ contents before reaching the United States. Country waivers are available, but only to countries without the technological and financial capital to properly comply with it, only 10-15% of the total volume.

 

UPCOMING WEEK 1/4 – 01/8

EARNINGS

Thursday (Before Market Open)

Bed Bath and Beyond Logo transparent PNG - StickPNG

Bed Bath & Beyond
In a year when home improvement and retail therapy have run rampant across the United States, Bed Bath & Beyond has a stronghold in that market. Beginning in Q3-2020, $BBBY began to pivot its business model from retail to a digital-first company. They will be closing over 200 stores within the next two years with this strategy to save money. They have an expected EPS of $.31 and revenue of $2.77B and have expected quarterly earnings of -155%.

Thursday (Before Market Open)

Walgreens Logos | Walgreens

Walgreens Boot Alliance Walgreens is a retail drugstore chain that sells prescription, non-prescription drugs, and various household items. With a consistent decrease in in-store visits and pivot to online sales, Walgreens will continue to tumble on its earnings reports. Estimated EPS of $1.02 and Revenue of $34.89B, with expected Quarterly earnings of -25.5%.

Thursday (After Market Close)

Micron Technology
Micron Technology is one of the world’s largest and leading semiconductors and data storage providers. They have shown consistent downtrends in their last three years of annual reports, including lower revenue and net income. They have an estimated EPS of $.80 and Revenue of $5.73B, and their expected quarterly earnings are expected to increase by 42.9%.


EVENTS & TALKS

Thursday: Balance of Trade (NOV) at 8:30 a.m. EST

Jobless claims 4-Week Average at 8:30 a.m. EST 

 

 

DISCORD RECAP

We finished the year strong.

We had a total of 22 trades in the 4 day trading week, with 18 of those trades being profitable.

We will continue to focus on companies in the Electric Vehicles Industry in 2021.

We have also improved our discord experience by adding more bots to the server at no additional cost to our members.

Quant Data Bot –

Provides the team with options sweep. The team’s sweeps are used to note what stocks are getting a lot of attention and have the potential to make a big move towards the upside or downside.

Join the team to see how we will use this information to improve our trading.

 

EDUCATIONAL LEARNING SEGMENT

“Always be ready for the next move.”

 

Straddling is a conservative trading strategy that consists of buying both calls and put option contracts for security with the same strike price and expiration date. Straddling is an attractive option because you don’t need to accurately predict price direction as you are poised to benefit from a sharp move in either direction and can sell your incorrect position at a loss once the direction is confirmed. This strategy provides a built-in hedge, but you do stand to lose on both positions if a move fails to happen. So the next time you find yourself wanting to test your thesis on a big move, consider straddling to protect your investment.

#3 Last Week of the Year: What to Expect

“Act as if what you do makes a difference. It does.” – William James

Thursday, December 24th Closing Price

TABLE OF CONTENTS
  1. STIMULUS SIGNED
  2. PELOTON ACQUISITION
  3. JACK MA AND ANTI-MONOPOLY PROBE
  4. CORONAVIRUS STRAIN
  5. REVIEW OF LAST WEEK’S EARNINGS
  6. UPCOMING EARNINGS
  7. MERCHANDISE
  8. EDUCATIONAL LEARNING SEGMENT
  9. VIDEO OF THE WEEK

MARKET LAST WEEK (12/21- 12/25)

Debt Loan GIF by Resistbot

STIMULUS SIGNED

Just a couple of days after Congress agreed to pass an $892 billion coronavirus relief bill, President Trump surprised many by strongly criticizing the bill and threatening not to sign it until Sunday night. President Trump lambasted the lengthy bill for its billions in foreign aid without focusing internally on the American people. His signature did two things for the US economy: it prevented a government shutdown on Tuesday, and it extends aid to the American people in coronavirus aid. The two key pandemic unemployment programs received their last payment this weekend. Still, due to the bill being signed on Sunday instead of Saturday, the payments could be delayed several weeks. 

The President cites too small of a direct payment in the form of a stimulus to citizens, referring to the proposed $600 stimulus as “ridiculous low. He instead proposed an increased stimulus of $2000 for individuals and $4000 for couples. 

Yesterday, President Trump ended up signing the bill as his club in Mar-a-Lago, with the stipulation that Congress consider implementing legislation to increase direct payments in the future. However, less than timely, the signing of this bill allows approximately 12 million benefit recipients to continue receiving benefits for another 11 weeks and signals an end in the Trump presidency’s latest point of contention.

PELOTON – RIDING MOMENTUM INTO THE NEW YEAR

Peloton, the American exercise equipment, and media company, have struck a deal to acquire Precor. Precor is an industry leader in exercise equipment manufacturing. This deal presents a unique opportunity for Peloton to continue to capitalize on the significant success they’ve had this year boosted by the pandemic. This deal is expected to close early in 2021 and cost $420 million but stands to return far more. Peloton has the great problem of struggling to meet their ever-growing demand for their orders. This, in conjunction with shipping delays due to the pandemic, has led to an increase in canceled orders by frustrated customers. Peloton’s stock had a meteoric ascent this year, up more than 500% on the year. A successful solution to their distribution issues will surely please their investors and pique the interest of many more.

JACK MA AND ANTI-MONOPOLY PROBE

It appears that Jack Ma would have far preferred a lump of coal this Christmas; instead, he received news that Chinese regulators were conducting an anti-monopoly probe into the Chinese monolith. This news led to a massive selloff for the E-Commerce company, with a 13% drop in share value on Christmas eve. This appears to be just the start of the implications from their recent woes, including halting the $37 Billion IPO of their subsidiary Ant Group. As of yesterday, the Zhejiang Provincial Administration for Market Regulation has concluded the probe into Alibaba, reporting that they cooperated with the investigation team promptly. Subsequently, Alibaba has announced a 67% increase in their share buyback program from $6 to USD 10 Billion over the next two years. This may be great timing considering the discount in share price, although the timing has led to speculation amongst investors. In demonstrating their confidence in their outlook, they may have provided a bit of good news. Whether this is reflected in the halting of their tumultuous stock price has yet to be seen. With Alibaba down 26% since its peak in late October, there are certainly several investors tuned in for an answer.

New Coronavirus Strain Induces Widespread Concern

Despite the FDA announcing emergency approval for immediate distribution of Pfizer and Moderna’s coronavirus vaccines, panic is still prevalent. A few new coronavirus strains have been detected in the UK, South Africa, Nigeria, and others in the past few weeks, raising questions about whether the vaccines carry the same macroeconomic implications as before. The effects of each strain are far-reaching. The strain in the UK, for example, does not appear to be more fatal, but it is reportedly 70% more transmittable, leading to dozens of countries banning travel from the United Kingdom. The Public Health Agency of Canada confirmed the first two North American cases in Ontario Saturday night. Japanese officials have announced that their borders will be closed from midnight tonight to January 31st after receiving seven positive results for the new coronavirus strain. BioNTech’s CEO has announced a “relatively high” chance the vaccine they created in conjunction with Pfizer will prove resistant to the new coronavirus vaccine. The importance of this statement’s accuracy cannot be overstated, and we can expect a significant public reaction to the conclusion one way or another.

LAST WEEK’S EARNINGS

Monday

HEICO

Heico Logo - LogoDix

Heico is a company that has seen large declines this year, which is to be expected from any company that is integrated into the airline industry. A pickup in global fleet travel is necessary for the company to continue to grow. It is important to see just how negatively affected the company has been since the pandemic began and how much it’s improved as lockdown restrictions are eased.

  • Net income of $314.0 million down from $327.9 million YoY.
  • FY Q4 net income of $62.3 million down from $85.7 million YoY.
  • Operating income was $376.6 million in FY 2020, compared to $457.1 million in FY 2019
  • Q4 Operating income of $89.1 million down from $120.6 million YoY.
  • Net sales $1,787 million FY 2020 down from $2,055.6 million FY 2019
  • Q4 net sales $326.2 million down from $541.5 million YoY

Takeaways: 

Adversely affected by CoVid. Consolidated net sales for their aerospace segment decreased approximately 32% during FY 2020. Cash flow was only down from $437.4 million FY 2019 to $409.1 million FY 2020. The Pandemic is likely to continue to impact HEICO negatively. HEICO will not issue guidance for FY 2021 for this reason. A lagged return to normalcy can be expected.

TUESDAY

Carmax

CarMax's New Omnichannel Shopping Experience

As the largest used car dealer in the United States, Carmax can give a good insight into consumer spending habits. The ebb and flow of spending will tell consumers’ activity levels and if they are affected by any external factors. Lockdown restrictions are a key factor in this.

 

  • The third quarter’s net earnings increased 35.9%, and net earnings per diluted share increased 36.5% YoY.
  • Total used units sold increased 1.0%, while used unit sales in comparable stores were down 0.8%
  • Gross profit per used unit of $2,151 was similar to the prior-year quarter.
  • Total wholesale units increased 10.8%, driven by a record Q3 buy rate.
  • Wholesale gross profit per unit decreased slightly to $906 despite sharp depreciation in the broader market.
  • CarMax Auto Finance (CAF) income increased 54.7% due to the combined effects of favorable loan loss performance, higher net interest margin, and an increase in average managed receivables.
  • Enthusiastic customer response to omnichannel experience with the majority of customers progressing more of their transaction online.

Takeaways:

Vehicle sales are down to 1% from 11% in total used vehicle unit sales with comparable store unit sales down to (0.8)% from 7.5% YoY. The surge in CoVid cases had a substantial impact on their sales when lockdown restrictions were tightened. Total used vehicle revenue increased mainly due to the average retail selling prices rising almost $700 per unit YoY. Other sales and revenues took a hit in the quarter, decreasing by $6.9 million in other revenues. Much of the business expansion hinges on vaccine distribution and return to normalcy to return to normal growth expectations.

WEDNESDAY

PAYCHEX 

File:Paychex logo.svg - Wikimedia Commons

Paychex is a mostly positive bag when it comes to the pandemic. The pandemic has accelerated the growth of their business due to their online and automated business model. Cloud-based technologies were exceedingly profitable and necessary pre-pandemic, and the need for them skyrocketed as business structures changed overnight. However, a decrease in jobs in the economy is bound to affect the business.

 

  • The Company raises guidance as second-quarter results reflect a sequential improvement in financial performance and key business metrics.
  • Diluted earnings per share and adjusted diluted earnings per share each increased 4% to $0.75 per share and $0.73 per share, respectively.
  • Second-quarter service revenue was consistent with the prior-year period at $968.9 million, compared to a YoY decrease of 6% in the first quarter.
  • Management Solutions revenue increased 1% to $732.8 million.
  • Total revenue decreased 1% to $983.7 million.

Takeaways:
Client base increases, and their suite solutions primarily drove increased revenue YoY in that segment. PEO and Insurance Solutions revenue decreased 3% YoY to $236.1 million due to the mass shift in worksite employment and premium collection. YTD FY 2021 has seen operating income decreased 8% to $638.3 million, which is a significant amount to business operations. Changes in their operating assets and liabilities produced a 24% drop in cash flows from operations YoY. The company expects an overall flat movement in the next six months, but this is subject to change when the economy turns to normal.

 

EDUCATIONAL LEARNING SEGMENT

“Get rich or die trying”- Frank Mercado.

 

Averaging down is an exciting high-risk, high reward investment strategy. Averaging down is the practice of buying more of your original investment (shares or contracts) after the price has fallen for a lower average cost per security. For example, if 100 shares were purchased at $20 per share, and then a further 100 shares were purchased at $18 per share, the average cost per share is lowered to $19. This means that if the share price rises to $19, then the investor breaks even. If the price returns to $20, then a profit is made. This isn’t for the faint of heart and is a quick way to blow up your account. Be sure to strongly evaluate your trade thesis to determine if the risk is worth the reward to you and the timeframe on the reversal that you are predicting.

 

 

 

 

 

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