Mid-Morning Look

Monday, October 12, 2020

U.S. stocks opened higher as the Dow and S&P 500 on track for a 4^th straight day of gains, while technology outperforms behind big gains in the Nasdaq ahead of big events this week for AAPL (product event tomorrow) and AMZN (2-day Prime Day sale event starts today). No major economic data today while bond markets were closed given the holiday in the U.S. Overall it was just more investor enthusiasm and euphoria helping lead U.S. stock markets higher ahead of the start of earnings season this week (big banks start mid-week) as well as ongoing hopes for additional stimulus relief out of Washington despite the ongoing soap-opera between House Democrats and the White House. Stocks are coming off their biggest weekly advance in over 3-months (S&P rose 3.8%), while Smallcaps paced gains rising more than 6% last week on energy and financial strength. Ahead of earnings, with the economy continuing to slowly reopen, profits of large companies in the S&P 500 are now projected to drop 20% from a year earlier, an improvement from the 25% decline anticipated at the end of June. Markets are also betting the Democrats may secure control of the Senate in the November election, making it a full sweep. That would lay the ground for a large stimulus package to be passed by Congress.

Sector Movers Today

·     Restaurants; Raymond James said they continue to maintain a cautiously optimistic stance towards COVID re-opening beneficiaries within our restaurant, as they upgraded TAST to Outperform from Market Perform as remain comfortable with above consensus 3Q EBITDA while saying BLMN, TXRH top picks (both strong buy rated) and reit OP on DRI along with later-stage recovery ideas including PLAY and RUTH (which was also upgraded at Stephens today) as well as CHUY (clean balance sheet, upside to 2H consensus on benefit of the reopening/recovery in TX & FL), and FRGI depressed valuation + recovering sales trends, solid B/S)

·     Utilities & Solar; solar industry active after Roth Capital said President Trump’s withdrawal of bifacial exclusion could come in 15 days and is leaves both JKS and CSIQ negatively impacted while they view this development as a positive for FSLR as thin film panels are excluded from the 201 tariffs – said could be a modest negative for NOVA and RUN, but SPWR could be better-positioned given its MAXN supply agreement as IBC panels are exempt

·     Insurance; JPMorgan with several changes as they downgraded TRV to Underweight from Neutral which reflects concerns about a declining ROE, lackluster business trends, and potential risks to EPS estimates. Also, while the stock has pulled back in 2020, it has materially outperformed other large cap commercial lines stocks such as AIG, CB, and HIG. CB upgraded from Neutral to Overweight to reflects its superior franchise while MMC downgraded from Overweight to Neutral as feel that the risk-reward in the stock is less compelling; BTIG said they believe the valuations of private mortgage insurers (ESNT, RDN, MTG, NMIH) would be much fuller if the market better recognized another significant mitigant: the reduction in tail risk enabled by the insurers’ use of insurance-linked notes (ILNs)

·     Healthcare services and providers; AMWL rises after analyst’s pick up coverage – at least 4 rated OP/buy and 3 with neutral/holds – Piper with $44 tgt high; CVS tgt raised to $75 as believe CVS offers some compelling value with an 11% FCF yield and a 3.4% dividend yield; in animal health, Credit Suisse raised tgts on several names (ZTS, ELAN, CHWY, PETS, PDCO, IDXX) saying survey suggests robust veterinary demand in Q3, as 80% of practices experienced volume growth of 3% on avg. basis

Stock GAINERS

·     AAPL +3%; ahead of tomorrow’s iPhone event

·     ALKS +4%; after saying the FDA advisory committee voted in support of ALKS’s drug candidate, ALKS 3831, as a potential treatment of schizophrenia and bipolar disorder in adults

·     DDS +36%; Berkshire Hathaway investment manager and one of Warren Buffett’s lieutenants R. Ted Weschler disclosed a large position in the retailer (overall ownership of 1.08 million Dillard’s shares, a 5.89% stake)

·     F +6%; upgraded to buy from hold at Benchmark and introduces PT of $10 saying new management team of CEO Jim Farley and CFO John Lawler will be significant upgrades by investors

·     KDP +2%; will become a component of the Nasdaq-100 Index and the Nasdaq-100 Equal Weighted Index prior to market open on Oct. 19, switching from the NYSE

·     TWLO +4%; to buy customer data platform Segment for $3.2 bln in an all-stock deal and following the deal, Segment to become a part of TWLO; deal to close in Q4 2020

·     TWTR +5%; upgraded from Hold to Buy at Deutsche Bank with $56 tgt saying they are now starting to hear more positive feedback in the ad channel and would take advantage of the opportunity to build a position now

·     WRK +5%; BMO Capital upgraded shares of WRK, IP, PKG and GEF all from Market Perform to Outperform saying it is the first time they have recommended any of these names in more than two years

Stock LAGGARDS

·     APA -4%; as energy stocks pulling back with decline in oil prices

·     ATXI -51%; after the FDA declines to approve the company’s acute pain treatment

·     CCL -2%; cancels Miami and Port Canaveral cruises for Nov. 2020

·     JKS -5%; Roth Capital said President Trump’s withdrawal of bifacial exclusion could come in 15 days and is leaves both JKS and CSIQ negatively impacted while they view this development as a positive for FSLR as thin film panels are excluded from the 201 tariffs – said could be a modest negative for NOVA and RUN, but SPWR

·     PCG -11% after telling California regulators that its power equipment may have contributed to igniting the Zogg Fire, which has killed four people cited in an 8-K filing Friday

·     ZYXI -27%; shares fell after lowering its revenue guidance for the third quarter due to lower than expected orders in the second and third quarter related to Covid-19