Mid-Morning Look

Monday, July 26, 2021

U.S. stocks mixed to start the heavy earnings week (more than 1/3 of S&P 500 companies expected to report this week), as the Nasdaq Comp hits new intraday highs and S&P 500, and Dow slips slightly from their Friday record highs. Chinese corporate worries weighed on risk sentiment before the busy week of earnings and a Fed meeting as a selloff in Chinese private education companies (EDU, GOTU, TAL) punished stocks as investors priced in risks from an intensifying and widening crackdown. The CSI 300 and Hang Seng fell more than 3%. Separately, senior U.S. and Chinese diplomats held “frank and direct” talks on Monday during which the United States laid out its views, although the two sides did not come away with specific agreements nor discuss a possible meeting between the countries’ leaders, senior U.S. administration officials said. Meanwhile Bitcoin surged close to $40,000 amid ongoing speculation that Amazon could potentially get involved in the cryptocurrency sector. Monthly New Home Sales data disappointed investors, coming in well below consensus views.

Economic Data

·     New Home Sales for June rose 6.6% MoM to 676K, well below the 800K expected and downwardly revised 724K (from 769K) for May; June single-family home sales -6.6% vs. May -7.8%; June home sales northeast -27.9%, Midwest +5.7%, South -7.8%, West -5.1 pct; June new home supply 6.3 months’ worth at current pace vs may 5.5 months; the median sale price $361,800, +6.1% from June 2020 ($341,100)

Sector Movers Today

·     Casinos, Gaming, Lodging & Leisure sector; SIX upgraded to Outperform and up tgt to $50 at Wedbush saying despite a sharp selloff in recent months, they continue to think that the theme park industry is a compelling reopening play, and that SIX represents an intriguing combination of massive underperformance over the course of the pandemic, Bloomberg reported the recreational vehicle (RV) industry set a new record for RV shipments in any quarter, as 151,760 units were shipped for the three months ended June. That’s 2% higher than the previous record set in the first quarter of 2021 (CWH, THO, WGO); Barron’s said travel and leisure stocks rallied in the initial reopening stage of the pandemic, but the surge has fizzled with the spread of the delta variant – but article identifies six stocks that can be bargains during the next leg of the reopening (HLT, WH, RCL, MGP, HST, TNL); WYNN falls a third straight session at the open at a six-month low of $100 after CFRA downgrades ND cuts PT by $24 to $118

·     Housing & Building Products; DHI upgraded to Outperform at Wedbush and up tgt to $125 saying it expected current-quarter orders to be even lower than Q3 as it limits new bookings amid slowdown in homebuilding due to high material and labor costs; LOW downgraded to Neutral from Outperform at Wedbush and maintain neutral on HD saying they see the most risk to more cautious view should the Pro home improvement project backlog prove to be so large that home improvement spending driven by housing $ turnover extends well beyond the normal period; FBHS announces additional $400M share repurchase authorization

·     Bitcoin, FinTech & Payments; cryptocurrency-exposed stocks surge (RIOT, MSTR, MARA, NCTY, COIN) after a weekend rally for Bitcoin extended, with the token now trading above $38K and coming close to hitting the $40K level. Prices rose after comments from Ark Investment Management LLC’s Cathie Wood and Tesla Inc. CEO Elon Musk late last week/jumps further after London’s City A.M. newspaper said Amazon is looking to accept bitcoin payments by year-end. Little luster off crypto after Bloomberg News reported the U.S. Department of Justice is probing whether executives behind the Tether digital token committed bank fraud during the nascent stages of its cryptocurrency business

·     Pharma movers; ABEO said it saw positive magnetic resonance imaging data from its Phase 1/2 clinical study for ABO-102; TNXP shares slide after saying it will stop enrollment in the Phase 3 Rally study of TNX-102 SL 5.6 mg for the management of fibromyalgia, sending shares lower; PCRX upgraded to Overweight at JPMorgan calling it an attractive valuation case, noting that the shares of the Exparel maker have slumped more than a quarter from the peak in 2021; INCY disclosed that it received a Complete Response Letter (CRL) for its BLA for retifanlimab in SCAC, consistent with the vote on the 6/24/21 Oncologic Drug AdCom

·     Software movers; MDLA entered into a definitive agreement to be acquired by Thoma Bravo in an all-cash transaction that values Medallia at $6.4B, with holders to receive $34 per share in cash (shares of XM, MNTV seen as comps to MDLA); Loop Capital downgraded PANW, ZS, MIME and QLYS to hold from buy saying recent industry checks into the security software industry revealed what we believe to be an incremental change in cybersecurity spending priority for many large organizations; CHKP posted bigger than expected rise in Q2 net profit and revenue as a sharp increase in sophisticated cyber-attacks boosted demand for its products

Stock GAINERS

·     AMZN +1%; strength in large cap tech ahead of big earnings this week from AAPL, AMZN, FB, GOOGL, TSLA and MSFT

·     HAS +10%; reported Q2 profit that was more than double what was expected, as revenue got boosts from strength in franchise brands and Wizards of the Coast and digital gaming

·     LAC +11%; rises after a U.S. federal judge ruled that LAC may conduct excavation work at its Thacker Pass lithium mine site in Nevada, which could become one of the country’s biggest lithium mines producing 30,000 tonnes

·     LCID +11%; shares open at $25.24 after deal completion with Churchill Capital

·     MARA +16%; cryptocurrency-exposed stocks surge (RIOT, MSTR, COIN) after a weekend rally for Bitcoin extended, with the token now trading around $38,000 and coming close to hitting the $40,000 level. Prices rose after comments from Ark Investment Management LLC’s Cathie Wood and Tesla Inc. CEO Elon Musk late last week and jumped further after London’s City A.M. newspaper said Amazon (AMZN) is looking to accept bitcoin payments by year-end

·     MDLA +1%; entered into a definitive agreement to be acquired by Thoma Bravo in an all-cash transaction that values Medallia at $6.4B, with holders to receive $34 per share in cash

·     RIDE +4%; said it received a $400 million equity investment from hedge fund YA II PN Ltd

·     SLB +3%; rebound in energy stocks after sector top decliner last week

Stock LAGGARDS

·     EDU -24%; shares of Chinese education stocks listed in the U.S. plunge further after Beijing banned companies that teach the school curriculum from making profits, raising capital or going public – confirming news last week which tanked shares of TAL, GOTU as well

·     ITRM -44%; says the U.S. FDA declined to approve its oral drug candidate, sulopenem, for the treatment of adult women with uncomplicated urinary tract infections

·     PHG -3%; Q2 beat analysts’ expectations with a jump in core earnings, boosted by its personal health and diagnosis businesses; also announced a 1.5 billion euro share buyback set to start in the third quarter and take up to three years, but announced a device recall sending shares lower

·     TME -3%; after Chinese regulators ordered the company to give up exclusive music streaming rights and pay half a million yuan in fines

·     WLTW -5%; after the co reached a mutual agreement to terminate their merger deal with AON and end litigation with the U.S. Justice Department; Aon will pay WLTW a $1B termination fee