Mid-Morning Look

Monday, January 25, 2021

Nasdaq Composite another record high (on track for a 5^th straight day of gains), up 1.2% and topping the 13,725 level as investors pile into technology shares ahead of a huge week for earnings in the space including AAPL, AMD, FB, MSFT, TSLA among those due to report (follows a spike in high-beta tech last week after NFLX better subscriber report – AAPL, TSLA record highs today). Energy and banks, which were market leaders to start the year have slipped in recent trading days amid the rotation back into large cap technology. U.S. Treasury 10-year yield hits fresh three-week low, last at 1.0516%, while the CBOE Volatility index (VIX) edges higher ahead up 3.8% at 22.75 despite stocks surging. Big surges in consumer discretionary names, as well as technology and biotech, while energy, financials and reopen related trades such as travel, and leisure are lagging this morning. After Bitcoin, electric vehicle and SPACs dominated December trading interest (though are still very much a part of January volatile trading action), the next wave that investors have turned their attention too is “squeezing” highly concentrated short interest positions – sending shares surging for several names across various sectors on no specific news recently. GME trading momentum madness continued on Monday, trading up more than 50% after the wild trading last week, as several highly concentrated short interest related stocks have been rising causing a massive disconnect – (GME shares came into the day up 245% MTD) – other names not leveraged to consumer /retail such as BB (+111% YTD into today), PLTR (up 38% MTD), EXPR (up 96% MTD), CCIV (+123% MTD), BBBY (+70% MTD), AMC (+65% MTD) all higher initially today on massive surges (again on no specific news). Zerohedge noted today (at 10:20) that a basket of the 11 most shorted Russell 3000 stocks is up 100% today (GME, FIZZ, DDS, MAC, BBBY, LGND, AMCX, SRG, GOGO, SPWR, AXDX). Just the latest area boosting markets as the Fed remains accommodative and markets wait yet more stimulus out of Washington, with Biden pushing for another $1.9 trillion in added funds after Congress has already doled out $4 trillion in 202 to help with the virus economic impact.

Sector Movers Today

·     Pharma movers: MRK announced it is dropping out of the Covid-19 vaccine race. It announced this morning that it will stop developing both formulations of a vaccine it was working on after trial participants failed to generate a strong immune response to either; RHHBY said that its eye treatment Faricimab met its primary endpoint in two phase 3 studies; EXEL initiated Phase 1 trial evaluating of XL102 alone or in combination with other anti-cancer agents in patients with inoperable locally advanced or metastatic solid tumors; AUPH rises after receiving FDA approval late Friday of its therapy LUPKYNIS for adult patients with active Lupus Nephritis; AZN announced positive headline results from the Phase 3 ELEVATE-RR study evaluating Calquence in patients with previously treated, high-risk chronic lymphocytic leukemia in comparison with Imbruvica

·     Energy stock movers; sector lags after strong start to the year; Bank of America upgraded SLB to Buy with a $31 pt from Neutral as international markets are likely to supply the majority of incremental oil production in 2022 and beyond as US companies face more regulatory scrutiny along with higher royalties and taxes, and SLB generates more than 80% of international revenue; Atlantic upgraded HAL to OW with a $23 target; HESM guides 2021 net income to $590-620M, adj EBITDA of $860-890M, DCF $750-780M, capex to reduce to $160M, adj FCF $610-640M which will sufficiently fund targeted distributions with excess of $100M; Stifel says recent earnings from HAL, BKR, SLB and preliminary results from PUMP, SOI were above consensus and bode well for pressure pumpers LVRT, BOOM, WHD, and the results also show U.S. land outpaced expectations and momentum has continued into 1Q21

·     SPAC news; Bill Foley’s SPAC Foley Trasimene Acquisition Corp. (WPF) is near a deal to take U.S. benefits services provider Alight Solutions public at a valuation of $7.3b including debt, Reuters reported https://reut.rs/2Y8RDXg ; IACAU announced it will merge with a wholly-owned subsidiary of Taboola in a deal valued at approximately $2.6B and it will trade under the new symbol TBLA; LCY signed a merger agreement to take The Hillman Group, a hardware and home improvement company, public at an implied valuation of $2.642B https://bit.ly/3oaJwEk; SPRQ, a Chamath Palihapitiya-led PIPE partnered with APO, announced it will merge with Sunlight Financial, a residential solar financing platform; TSIA entered into a definitive merger agreement to bring Latch public in a transaction valuing the Company at an equity value of $1.56B

·     GME trading momentum madness continued on Monday, trading up more than 50% after the wild trading last week, as several highly concentrated short interest related stocks have been rising on no specific related news, causing a massive disconnect (shares up over 400% MTD) – Telsey downgraded to underperform today with 433 tgt but shares till surging; DKS was upgraded to outperform with $85 tgt at Wedbush as analysis indicates that investors are underestimating DKS’ sales & especially margin potential in FY21 as they anchor on company comments for operating margins in FY21 to exceed FY19’s 5.1%; AEO upgraded to Outperform from Sector Perform with a $30 price target at RBC Capital saying current Aerie momentum with runway ahead across channels coupled with inflecting margins, they see room for shares to run; strong gains in retail across the board – DDS, M, JWN, KSS, EXPR, DBI

Stock GAINERS

·     AAPL +5%; trades new record highs ahead of earnings this week as analysts boost tgts

·     AMC +30%; said that any talk of an imminent bankruptcy is “completely off the table” after raising an additional $917 million to help cushion the blow from the pandemic

·     AUPH +28%; after receiving FDA approval late Friday of its therapy LUPKYNIS for adult patients with active Lupus Nephritis

·     BB +37%; trades at highest since Nov 2011, on track for 7th straight session of gains and already up 112% YTD = another one of these unexplained recent moves

·     CLF +2%; after saying said it sees Q4 revenue of $2.2B-$2.3B, above consensus of $1.82B and a more than fourfold increase over the year-ago period

·     GME +50%; trading momentum madness continued on Monday, trading up more than 50% after the wild trading last week, as several highly concentrated short interest related stocks have been rising on no specific related news

·     KMB +4%; Q4 adj EPS $1.69 vs. est. $1.60 and sales $4.8B vs. est. $4.71B as reports Q4 organic sales growth of 5% vs. consensus of +2.5% while approved 6.5% increase in dividend and authorized a new $5B share repurchase

·     MRNA +10%; said laboratory studies demonstrated that its COVID-19 vaccine can still protect people against two new coronavirus variants: the B.1.1.7 that was first identified in the United Kingdom, and the B.1.351 strain, out of South Africa

·     TSLA +5%; trades new record highs ahead of earnings on Wednesday

·     VIAC +12%; shares leading in the S&P up 12% – tgt raised to $50 at Guggenheim today (follows tgt hike to $55 from Needham late last week as media names outperform – FOXA, DISCA)

Stock LAGGARDS

·     BKNG -4%; weakness in online travel, airline related names (EXPE, UAL)

·     CCL -5%; delayed additional voyages further into the year, extending its revenue; voyages on Carnival Magic, Carnival Paradise and Carnival Valor will be delayed until November

·     FTI -5%; as energy stocks among the top decliners in the S&P 500 early

·     GM -4%; pulls back after recent stock outperformance

·     MRK -1%; announced it will stop developing both formulations of a Covid vaccine it was working on after trial participants failed to generate a strong immune response to either

·     WRK -3%; said that certain operational and information-technology systems have been hacked in a ransomware incident, and that it has notified law enforcement and customers.