Weekly Update 11/07/2023
Stocks Climb Higher!
Rivian Q3 Earnings: Production forecast boosts, trims loss projection
NVDA Shows Bullish Chart Pattern
10 Year Treasury Yield Falls
Real Estate World: WeWork Files For Bankruptcy!
Weekly Meetings:
INVESTMENT CLUB THURSDAYS 6 PM (BPC188)
INVESTMENT FUND THURSDAYS 7 PM (BPC188)
—Market Madness—
S&P 500, Nasdaq finish higher to clinch longest winning streaks since November 2021
The S&P 500 and Nasdaq Composite rose on Tuesday to notch their longest winning streaks in nearly two years and build on November’s rally.
The S&P 500 added 0.28% to close at 4,378.38, while the Nasdaq jumped 0.9% to end at 13,639.86. The Dow Jones Industrial Average edged up 56.74 points, or 0.17%, to settle at 34,152.60.
The S&P 500 rose for a seventh consecutive day for the first time since its eight-day win streak reached in November 2021, while the Nasdaq posted eight days of wins for the first time since an 11-day streak ended in November 2021. The Dow rose for a seventh straight session for its longest streak since July.
Technology stocks moved higher as yields pulled back, with the yield on the 10-year Treasury note last trading about 9 basis points lower at 4.573%. Some notable gainers included Amazon and Salesforce, which rose more than 2% each, while Apple, Microsoft and Meta Platforms gained about 1%. Semiconductor stocks Advanced Micro Devices, Broadcom and Intel rose ahead of the rollout of funding from the Chips Act.
“As yields move lower, we tend to get a bigger rebound in the growth parts of the market,” said Mona Mahajan, senior investment strategist at Edward Jones, adding that a cooldown in oil prices may also be contributing to sentiment around inflation, and offering some relief at the pump.
“There’s some momentum after last week, there’s some follow through,” she said. “We’re not seeing yet any real consolidation in some of the gains we’ve seen over the last six days.”
In other news, Datadog popped 28.5% after topping quarterly results and offering a strong outlook. Uber rose 3.7% even after third-quarter earnings fell short of expectations.
Wall Street continued to assess whether last week’s rally can continue after all three indices wrapped their best week in 2023. So far this month, all major averages are on pace for gains, with the Dow up 3.3%. The S&P and Nasdaq have jumped 4.4% and 6.1%, respectively.
Elsewhere, Wall Street awaits more commentary from central bank speakers, including Federal Reserve Chair Jerome Powell. Quarterly results from Disney, Wynn Resorts and Occidental Petroleum are due out this week.
Stocks finish higher as Nasdaq, S&P 500 notch longest streaks in roughly two years
Stocks finished higher on Tuesday, with the S&P 500 and Nasdaq Composite clinching their longest winning streaks since November 2021.
The S&P added 0.28% to close at 4,378.38, while the Nasdaq jumped 0.9% to end at 13,639.86. The Dow Jones Industrial Average edged up 56.74 points, or 0.17%, to settle at 34,152.60.
Market rally may be fleeting, Wolfe Research says
Wolfe Research strategist Rob Ginsberg noted that the early November rally could soon stall out, if the trading action from earlier in the year is any indication.
“Each rally since the July peak has stalled out before making a fresh 1-month high, before rolling over to a new 1-month low…the definition of a downtrend,” Ginsberg said.
To be sure, he also noted that some momentum indicators “inflected positive for all of the indices (last week), and today we see it being confirmed at the stock level.”
How I Built Mike’s Hot Honey Into A $40 Million-A-Year Business
EV Stocks: Rivian, Lucid Diverge Sharply On 2023 Production Guidance
Rivian (RIVN) raised EV production guidance for the full year late Tuesday after revenue surged more than expected in the third quarter. Rivian stock rose in extended trading.
But Lucid (LCID) lowered its 2023 production outlook late Tuesday after a far worse-than-feared Q3 revenue decline. Lucid stock tumbled in late trade.
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Rivian also said it will allow more customers to purchase its commercial electric vans, beyond Amazon (AMZN), which remains a key customer.
Both Rivian and Lucid make high-end electric vehicles while burning through cash. Fears of a global EV slowdown mounted in October as auto giants, including Tesla (TSLA), warned on slowing demand.
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Rivian Earnings
Estimates: Analysts, on average, expected the maker of premium electric vehicles to narrow it net loss to $1.34 per share from $1.57 a year ago, according to FactSet. Revenue was seen surging 146%, year over year, to $1.321 billion.
Results: Rivian lost $1.19 a share, less than feared. Revenue jumped 149% $1.337 million, slightly above views.
That marked the fifth straight quarter of smaller year-over-year losses, FactSet shows. It also marked the second billion-dollar-plus revenue quarter for the EV startup.
Late Tuesday, Rivian raised its 2023 production guidance to 54,000 electric vehicles, up from 52,000 in August. The company tied the hike to “progress experienced on our production lines, the ramp of our in-house motor line, and the supply chain outlook.”
The startup also improved 2023 EBITDA guidance to negative $4 billion, citing cost reduction efforts. It reduced capex spending guidance for the full year to $1.1 billion.
Rivian had already reported producing 16,304 electric vehicles and delivering 15,564 in the third quarter. It makes the R1S SUV and R1T truck, as well as a commercial delivery van whose main customer is Amazon. The average selling price is $85,000.
Rivian Stock
Shares of Rivian gained 3.3% in late trade. They closed up 1.4% to 17.42 on the stock market today, erasing earlier losses. Rivian stock remains stuck under the 50-day and 200-day moving averages after losing more than a third of its value in October, the MarketSmith chart shows.
Lucid Earnings
Estimates: Analysts, on average, expected the maker of the luxury Air brand electric sedan to narrow it net loss to 36 cents per share from 40 cents a year ago, according to FactSet. Revenue was seen falling 5%, year over year, to $185.1 million.
Results: Lucid posted a 28-cent loss, better than feared. Revenue dived nearly 30% $137.8 million, far worse than expected.
The EV startup saw revenue slump after double- and Triple-digit gains in prior quarters. The sales decline came despite cutting prices repeatedly in the wake of Tesla cuts on the Model S and X. It’s also said to be losing hundreds of thousands of dollars on every EV it makes.
Lucid on Tuesday also lowered its 2023 production guidance to 8,000-8,500 vehicles, down from prior guidance of more than 10,000. The company said the move was made to “prudently align” production with deliveries.
Lucid had already reported producing 1,550 electric vehicles and delivering 1,457 in the third quarter. The Lucid EVs sell for around $100,000 on average.
Lucid Stock
Shares of Lucid slid 4.2% in late trade. They closed down 0.5% to 4.30 Tuesday. Lucid stock remains near all-time lows.
Tesla Stock
Tesla stock rose 1.3% to 222.18 Tuesday, closing just above its 200-day line.
A source told Reuters Monday that CEO Elon Musk told German factory workers he plans to build a 25,000-euro ($26,838) electric vehicle in the country. The source did not say when production would begin.
Tesla declined to comment for the story, but its mass-market moves will be watched by startup rivals.
While Tesla has plans to build a cheaper, as-yet unveiled next-generation EV at a future Mexico plant, CEO Elon Musk recently signaled a go-slow approach on that site, where construction hasn’t started yet. A Mexico plant would have low wages and could take advantage of U.S. IRA tax credits of up to $7,500. A cheap EV at the Berlin factory would not have those advantages.
Should You Buy These 2 ‘Magnificent Seven’ Stocks Ahead of Earnings? Apple and Nvidia in Focus
What should investors make of this year’s third-quarter earnings? The Q3 results have been pretty good, with 78% of companies reporting so far beating the forecasts, but stocks are still feeling pressure. One obvious sign of that pressure: the S&P 500 this week hit its lowest point since last May, and is just shy of correction territory.
The effect is most clearly seen in the ‘Magnificent Seven,’ a group of Big Tech giants whose gains earlier in the year carried the markets generally – but which are facing serious losses lately, despite solid earnings results. Four of these tech giants – Alphabet, Amazon, Meta, and Microsoft – have reported earnings so far, and all beat expectations. The group as a whole is expected to show a 33% year-over-year increase in profits this earnings season. Even so, the Magnificent Seven stocks are down 11% since the end of July.
But does this mean you shouldn’t buy in? Wall Street’s analysts are weighing in on that question, especially relevant with both Apple and Nvidia scheduled to release earnings in the near future. These are iconic names, leaders in their respective industries, and they have proven records of long-term success. Let’s put them into focus ahead of their upcoming financial releases to see where they stand now and why some analysts are recommending ‘Buy’ ahead of the earnings results.
Apple (AAPL)
We’ll start with a company that needs little introduction: Apple. Apple’s $2.67 trillion market cap makes it the largest publicly traded firm in the world. The company is best known for its iconic products, including the iPhone line, iPads, and MacBook computers. Apple’s success was built on its reputation for high-end quality and the professional-level applications that the Mac computer lines could support. In recent years, the company has been expanding its service segment.
Apple has also been working to integrate AI technology into its user experience. The company has used it to improve the autocorrect feature on its iPhone line and is using AI to create a smarter AirPod, making an earbud that will recognize when the user is having a conversation and automatically lower the volume.
Small tweaks have kept the product lines popular with consumers, and Apple weathered a serious industry-wide drop in smartphone sales earlier this year. Industry research showed that smartphone shipments fell 24% in 1H23, but Apple saw only a 6% decline in iPhone sales. By the end of the half, Apple held a 55% market share in smartphones.
In its last reported quarter, fiscal 3Q23, which ended on July 1, Apple posted revenues of $81.8 billion, marking a 1% year-over-year loss, and earnings of $1.26 per diluted share, indicating a 5% year-over-year gain. These results were considered positive, especially in light of the overall decline in smartphone sales. The company also reported having more than 1 billion paid subscription customers, driving its Services segment to record revenues. Looking forward, the Street expects Apple to report $89.4 billion in revenue and $1.39 in earnings per share when it reports its fiscal Q4 financial results on November 2.
Covering Apple for Morgan Stanley, analyst Erik Woodring writes of the upcoming earnings, “We expect Apple to post an in-line to better than expected September quarter (F4Q23), highlighted by MSD Y/Y iPhone revenue growth, accelerating Services growth, and record gross margins. However, we are more cautious on the December quarter (F1Q24) given iPhone supply shortages and uneven consumer spending, and believe Apple will guide to a revenue range that is both below normal seasonality and Consensus expectations. Looking at the rest of the mega cap tech names that reported this earnings season, the companies that have guided to December quarter profitability in excess of Consensus have seen greater post-earnings outperformance than those guiding closer (or below) to Consensus, and therefore we lean cautiously into earnings on Thursday.”
Even though he is somewhat cautious, Woodring goes on to give an upbeat bottom line: “However, with the potential for iPhone upside later in the quarter (if supply improves; akin to the iPhone 13 cycle) and/or a better than seasonal March quarter, Services growth accelerating, and shares near what we believe is a near-term floor (of $160), we are bullish over the next 12 months.”
The analyst’s stance supports his Overweight (i.e. Buy) rating on the shares, and his $210 price target implies a gain of nearly 23% for AAPL over the next 12 months. (Watch Woodring’s track record)
Overall, the analyst consensus on Apple is a Moderate Buy, based on 31 recent reviews that break down to 22 Buys and 9 Holds. The shares are selling for $171.40 right now, and their $203.35 average price target suggests a one-year upside potential of ~19%.
Nvidia Corporation (NVDA)
Next up is Nvidia, a leader in the global semiconductor chip industry – and another of the stock market’s handful of trillion-dollar-plus companies. Nvidia has built its dominance around high demand for its top-end GPU chips, which were originally developed for high-end gaming apps but have found strong market share with professional graphic designers and AI developers as well. The launch of ChatGPT last November, and the subsequent boom in AI, opened up even more opportunities for Nvidia.
Prominent among those opportunities was the announcement from ChatGPT’s creator, OpenAI, that it will need as many as 10,000 new GPU chips in the coming year in order to maintain current performance levels of the popular chatbot. Nvidia is already a leading supplier for the Microsoft-backed company, and now looks at 2024 from the happy vantage point of having a satisfied high-volume customer.
It’s not just AI that’s powering Nvidia’s growth. The company saw more than $10 billion in data center revenue, as customers went all-in on the company’s high-end, advanced computing chips. This accounted for the majority of Nvidia’s $13.5 billion revenue in fiscal 2Q24, surpassing expectations by $2.43 billion. The firm’s non-GAAP EPS figure, of $2.70, was 61 cents ahead of the forecasts. Looking ahead to the company’s upcoming fiscal 3Q24 release, the expectations are for continued growth – revenue of $15.99 billion, and earnings of $3.37 per share.
For 5-star analyst Ambrish Srivastava, writing from BMO, all of this adds up to a bullish picture for the long term. Srivastava says of Nvidia, “We believe as a company NVIDIA is likely experiencing the best visibility it has ever had. NVIDIA highlighted that its visibility for data center is backed by purchase orders, which are required for allocation requests from customers given supply constraints, with customers with large commitments likely getting priority… NVIDIA appears confident in its ability to secure supply into next year, both on the CoWoS side for the more complete GPU solutions, as well on the networking side, particularly in infiniband.”
—REAL ESTATE WORLD—
The fall of WeWork shows the deepening cracks in real estate
Since it was founded in 2010, WeWork has not once turned a profit. For years its cash-torching ways went unchallenged, thanks to the reality-distorting powers of its flamboyant founder, Adam Neumann, who succeeded in convincing investors, most notably SoftBank, that it was not an office-rental business but a zippy tech firm on a mission to “elevate the world’s consciousness”. At the height of the silliness in early 2019, in the lead-up to an initial public offering (ipo), the company was valued at $47bn.
The unravelling began soon after, as outside investors balked at its frothy valuation and questioned an unorthodox governance arrangement that gave Mr Neumann an iron grip on the company. The ipo was shelved, and Mr Neumann was offered $1.7bn to leave. Sandeep Mathrani, a real-estate veteran brought in to run the company, did his best to right the ship by cutting costs and renegotiating leases. In 2021 he succeeded in listing the firm through a special-purpose acquisition company, at a valuation of $9bn. Yet his efforts were undone by the slump in the office market brought on by the pandemic and an enduring shift towards remote working. On November 6th WeWork, which leases office space in 777 locations across 39 countries, filed for bankruptcy.
It is not the only property business in turmoil. Days earlier, on the other side of the Atlantic, René Benko, a once celebrated Austrian property magnate, was ousted from Signa, the €23bn ($25bn) property empire he built. Its portfolio includes the Chrysler Building in New York; the kadewe, a posh department store in West Berlin; and a stake in Selfridges, another ritzy temple of consumption in London; as well as luxury hotels, high-end developments and a grab-bag of other retail businesses.
The two cases are not identical. Unlike WeWork, Signa has not declared bankruptcy, though it faces a liquidity crunch, and has brought in a prominent German insolvency expert, Arndt Geiwitz, to take the reins. And unlike Mr Neumann, Mr Benko, a self-made high-school dropout who started his career converting attics into penthouses in his hometown of Innsbruck, was involved with Signa right up until his weekend ousting. After a conviction for bribery in 2012, he stepped back from day-to-day operational duties, but continued to sit on the company’s advisory board. He gave his blessing to the appointment of Mr Geiwitz, who helped steer Lufthansa, Germany’s national airline, through an insolvency. (Mr Neumann, meanwhile, has been reduced to sniping at WeWork’s collapse from the sidelines, complaining that the company “failed to take advantage of a product that is more relevant today than ever before”.)