Mid-Morning Look

Friday, December 18, 2020

The global stock market rally has continued again this week (with a minor stall out this morning), as the Dow, S&P 500, Nasdaq Composite and Russell 2000 (Smallcaps) all post record closing highs Thursday night as buying optimism, sentiment and euphoria continue to drive markets higher into year end. Hopes of a stimulus relief package out of Washington to the tune of about $900B including direct payment checks and help for individuals and small businesses has been the key driver this week…but markets have also been helped by the continued rollout of Pfizer’s Covid vaccine and news overnight that Moderna’s vaccine benefits outweigh risk, with a likely approval for emergency use expected later today. A dovish Fed mid-week led to more piling into equities after suggesting there will be no rate hikes until 2023 and they will continue to help markets as needed. Markets have ignored any negative news such as weaker economic data this week (rising jobless claims, declining retail sales), and national security concerns after MSFT said it found malicious software in its systems as part of a suspected Russian campaign that has hit multiple U.S. government agencies by taking advantage of the widespread use of software from SolarWinds (SWI). Also, the U.S. confirmed it will add dozens of Chinese companies, including the country’s top chipmaker, SMIC to a trade blacklist. The dollar index (DXY) recovers off fresh 2 ½ year lows yesterday, moving back above the 90 level. Investors buying retailers into “Super Saturday” shopping day and Nike (NKE) earnings after the close. Bitcoin takes a breather after a staggering surge this week while the dollar rebounds from over 2-year lows.

Sector Movers Today

·     Retailers; rising ahead of NKE earnings tonight as well as “Super Saturday”, or the last Saturday before Christmas, which is expected to see over 150 mln American shoppers. The National Retail Federation (NRF) said yesterday shoppers could be up by more than 2 mln versus last year; in research, Jefferies upgraded shares of both Macy’s (M) with $14 tgt and KSS (47 tgt) to Buy ratings; Bank America reiterated Buy rating on top kids/teens pick CRI and upgraded PLCE to Neutral based on view of a healthier backdrop for the children’s apparel market; DKS as partnered with online-grocery platform Instacart to enable same-day delivery from more than 150 stores; in office furniture, SCS Q3 EPS 8c beat by 5c but sales of $617.5M missed the $628.8M estimate (follows weaker outlook from peer MLHR yesterday)

·     Chemicals & Materials; DD says its board has approved the separation of DuPont’s Nutrition & Biosciences business through an exchange offer (split-off); DOW was upgraded to overweight and raise tgt to $60 from $47 at JPMorgan saying business conditions in the middle of December for commodity chemicals look much better than they did two weeks before; FUL was upgraded to Buy from Neutral at Citigroup with $61 tgt saying company’s portfolio has transitioned from commodity to specialty glues for end markets including automotive; CE was downgraded to in-line from outperform with $145 tgt

·     Industrial & Machinery; MYE upgraded to overweight and $25 tgt at KeyBanc citing an ambitious vision for growth & value creation; AGCO, CMI named as top picks in machinery into 2021 at Bernstein and introduce the tactical pairing of short URI vs. long OSK after machinery stocks are on track to end the year outperforming the S&P by 13% and expect this trend to continue; APOG reported mixed 3Q with light revenue and better EBITDA and EPS benefit from cost reduction efforts, a Q/Q decrease in backlog, balance sheet improvement and no forward guidance

·     Media & Telecom movers; VIAC, IHRT and DISCA all downgraded to Underperform from Neutral at Bank America due to challenging near term fundamentals saying in the case of the video-related stocks, i.e. VIAC and DISCA, they must transition their business models to DTC, already a competitive field from both traditional media cos. and also well capitalized FAANGs; FUBO tacking on to yesterday 18% advance initially after positive Motley Fool pick

Stock GAINERS

·     BEAT +15%; rises after PHG agreed to buy the provider of remote cardiac diagnostics and monitoring, in a deal worth $2.47 billion $2.8B with debt), with BEAT holders to receive $72.00 per share, a 16.5% premium to yesterday’s closing price https://bit.ly/3aojdHx

·     CURO +58%; rises after saying it would benefit from the merger deal between Katapult Holding Inc., about 40% owned by CURO, and FinServ Acquisition Corp

·     DOW +2%; was upgraded to overweight and raise tgt to $60 from $47 at JPMorgan saying business conditions in the middle of December for commodity chemicals look much better than they did two weeks before

·     FUBO +5%; tacking on to yesterday 18% advance after positive Motley Fool pick

·     PHM +1%; Barclay’s said that Homebuilders represent attractive relative value in a compelling housing environment, with strong pricing bolstering returns on equity as they upgraded PHM, TMHC ratings (to OW from EW) and downgraded LEN (to EW)

·     TSLA +1%; ahead of expected addition into the S&P 500 index later today with its inclusion official on Monday, December 21 as part of the highly anticipated index rebalancing

·     WGO +5%; as posts Q1 adj. income of $1.69 easily topping the 98c estimate as Q1 revenue of $793.1M also beat the $752.5M est. driven by strong end-consumer demand for its products

Stock LAGGARDS

·     BB -8%; said Q3 losses widened as sales decreased while software and services revenue growth was in line with the company’s projections; revs fell to $218M from $267M YoY vs. est. $221.7M

·     FDX -4%; shares slipped despite a big beat on profit and revs (though analysts note headline results had the benefit of a low tax rate), but FDX did not provide a F21 EPS outlook which disappointed some investors

·     MESO -29%; as the Data Safety Monitoring Board said its after stem-cell therapy not likely to meet target for reducing mortality due to COVID-19

·     OTLGY -14%; after SNE pulled CD Projekt’s video game Cyberpunk 2077 from its PlayStation Store and offering full refunds after gamers complained it was rife with bugs

·     PLTR -3%; downgraded to underperform at CSFB with $17 tgt (from $13) as see valuation disconnected from fundamentals with the stock now trading over 50% above our previous blue-sky scenario and see risk/reward skewed to the downside

·     SPCE -2%; after files prospectus related to the resale of up to about 112.96 mln shares of common stock by the selling stockholders

·     X -5%; issued lower outlook as sees Q4 EPS loss (85c) vs. est. loss (57c) and Q4 Ebitda about $55M vs. est. $95.3M (worse outlook than peers STLD, NUE yesterday)