Shot in the arm. Stocks rose yesterday in response to good results from Moderna’s vaccine trials released after the close on Tuesday. Bank earnings were mixed but a solid beat from Goldman Sachs helped bolster the Dow’s gains.
N O T E W O R T H Y
Shocking revelation. A quick word about yesterday’s market. Good news from Moderna on the results of their vaccine trials, more good news from AstraZeneca/Oxford U, and a big earnings beat by Goldman Sachs gave bulls a reason to cheer yesterday. Though markets faltered mid-session, they ultimately rallied closing well in the green. Companies that would benefit from a world-returned-to-normal got a boost in the session. Top S&P500 stocks: Royal Caribbean Cruises (+21.2%), Norwegian Cruise Lines (+20.68%), Carnival Corp (+16.22%), American Airlines (+16.16%), United Airlines (+14.59%). Are you surprised? Probably not. If you are like me, you are likely thinking “Wow, those are nice single-day returns… I wish I got those… but those sure are risky gambits, requiring a great deal of faith.” Speaking of faith, there is never a lack of headlines around Elon Musk and his endeavors. Muddy Waters Research is a company that is notable for publishing mostly damaging research on public companies which are overvalued while simultaneously taking some sort of short or bearish position. Sounds sketchy, but it is legal, and they are conspicuous for their assault on high flyers… like Tesla. Founder and mouthpiece Carson Block’s bravado has its limits though. When asked about his take on highly-valued Tesla, Block responded that betting against Elon Musk is not a good idea as “… the guy specializes in pulling rabbits out of a hat”. Tesla is currently the most valuable car company in the world with its stock up by +269.57% year to date. I got the decimal right, trust me. Its trailing 12 month Price to Earnings Ratio (P/E) is 9778.99. Oh, for reference, the P/E for the S&P500 is a paltry 23.16. I got those decimals right too. Perhaps we should consult the professional auto industry analysts charged with following the stock. Of that group, 25% give the stock a Buy recommendation, 33% rate the shares a Hold, and 41.7% think investors should Sell the stock. The twelve month analyst consensus price target is $850.46 and the stock closed out yesterday’s session at… wait for it… $1,546.01! As you might guess there is a fairly wide discrepancy amongst the analysts regarding the target price. Piper Sandler has the highest target: $2322, while Williams Research has the lowest target at $70. Ok, so some analysts are better than others. Bloomberg is good enough to rank analysts based on the relative returns of their investment recommendations. David Whiston from Morningstar enjoys the top ranking of the group that is focused on Tesla, and his price target is $731… he has a Sell rating on the stock. I have covered valuation methodologies in-depth before but. at a high level, a stock price should, in theory, reflect the company’s future cash flows discounted into today’s dollars. This is referred to as the DCF (discounted cash flows) method, and many analysts use that as a starting point. It is a complicated process in which the analyst attempts to model every aspect of a company's business for the foreseeable future (usually 3 years) down to how much cash the firm will have at the end of each period. With so many moving parts in the company, an economy in flux, and lots of competition, you might imagine that it is a difficult task. Trust me, it is difficult. The DCF model includes something referred to as the Terminal Value. Recall that an analyst can only reasonably forecast out for 3 years. The terminal value factors in all the cash flows beyond 3 years, in perpetuity. That means forever! Imagine trying to get that one right. Let’s get something clear, Elon Musk is a prolific modern-day industrialist and Tesla is an amazing company. The cars are cool and they are getting smarter and cheaper every day. But is the stock worth $1500 and can it still go up from here? We know what the professional analysts think, but what do the weekend warrior, Davy Day Traders over at Robinhood think? On Monday, I pulled a report that tracks stock ownership at the no-frills broker dealer that showed almost 40,000 new accounts added positions in Tesla within a four-hour period on that day. The stock was up by +10.78% in the prior session. According to the same report, the stock was held by around 446,000 users (it is up to 484k this morning). Want to know another interesting stat? Tiziana Life Sciences, a small cap stock out of London has recently seen a surge in ownership at Robinhood as well. Its symbol is: TLSA. A case of mistaken identity? Maybe. Last weekend, I pulled up to a man who was proudly displaying a beautiful white Model X with a cool “GIGAWAT” vanity license plate. I asked him if he liked his car, though I was pretty sure what he might answer. He told me that the car drove like a dream. He highly recommended that I buy one… and the stock. True story.
THE MARKETS
Stocks ran up yesterday on promising news on the COVID vaccine front and solid earnings from a number of pre-market reporters. The S&P500 rose by +0.91%, the Dow Jones Industrial Average climbed by +0.85%, the Russell 200 Index jumped by +3.5%, and the Nasdaq Composite Index advanced by +0.59%. Bonds retreated and 10-year yields remained flat at 0.62%.
NXT UP
- Retail Sales (June) may have risen by +5.0% down from last month’s +17.7% surge.
- Initial Jobless Claims (July 11) is expected to show 1.25 million new claimants, down from the prior week’s 1.314 million.
- Continuing Jobless Claims (July 4) is expected to come in at 17.5 million, down from the 18.062 million a week earlier.
- NAHB Housing Market Index (July) is expected to have risen to 61 from the prior read of 58.
- This morning Truist, J&J, Bank of America, Morgan Stanley, Abbott Labs, and Domino’s Pizza all beat by double digits. After the bell we will hear from Netflix and JB Hunt Transport.