📷 A SPAC That Worked? In This Economy?

Happy Sunday to everyone on The Street. As quick as it came, it went. With summer almost in the rearview mirror, it’s time to turn our attention to September. And guess what, we have some great news for you: according to Barron’s, the S&P 500 has averaged a 1% loss in September—dating back to 1928—making it the worst month of the year.

The "September Effect" is a global phenomenon, meaning it doesn't only impact US markets, but this year will put the "anomaly" to the test. First off, the Fed is planning to raise rates. Most are betting on a three-quarter-point increase. If this increases borrowing costs, this could slow down consumer and business spending. Less spending would weigh on corporate earnings. And since stocks partially trade on earnings multiples, share prices could take a hit. Oil prices are another factor. While they've been slumping recently, you never know what's in store with the war in Ukraine. Putin just increased his troop count this past week.

It’s not all bad news. Sometimes it feels nice to get back into the swing of things. School starts, people are actually working again. Life carries on. With your remaining few days of August and the Labor Day weekend ahead of us, we hope you get a chance to soak it in. Here are the results from the polls last week:

• Would you invest in Flow? 88% of you said NO, 12% of you said yes.

• Would you invest in the start-up, RecNation RV & Boat Storage? 63% of you said YES, 37% of you said no.

• Are you bullish or bearish on Franchise Group (FRG)? 70% of you said BEARISH, 30% said bullish.

Review

US stocks were mixed last week. After starting the five-day stretch in the red, major averages ticked upwards Wednesday and Thursday.

Then on Friday, stocks lost ground after Fed Chairman Jerome Powell said the central bank will “use our tools forcefully” to attack inflation that is still running at a four-decade high. Powell added that raising rates will cause "some pain" to the US economy, signaling that fighting inflation is more important than supporting growth through an accommodative monetary policy. Stocks weren’t the only asset class that reacted to the news. Bitcoin and other cryptocurrencies fell as traders digested his comments.

Zooming out, the Fed isn't convinced yet that inflation has peaked. As a result, it doesn't see itself stopping its rate hikes anytime soon. Powell is cautious about halting interest-rate increases prematurely, saying, "We must keep at it until the job is done."

On the economic front, the University of Michigan consumer sentiment index came in better than expected. The final August reading was 58.2, which handily beat projections of 55.3 and was higher than July's figure of 51.5. Year-ahead inflation expectations also pulled back to 4.8% from 5.2% in July, which is the lowest reading in eight months.

In company-specific news, shares of Affirm fumbled around on Friday after the company issued weak full-year sales guidance. The lending firm did beat revenue estimates during the prior quarter, but investors are concerned about its near-term outlook. Elsewhere, Moderna decided to sue Pfizer and BioNTech for patent infringement. The former is alleging that the duo copied technology that Moderna developed prior to the pandemic.

In the week ahead, all eyes will be on the US jobs market. Data due Friday will show if July's strong performance was a blip or part of a larger trend. As a quick refresher, last month, nonfarm payrolls increased by 528,000, which crushed estimates of 290,000.

For the week as a whole, the Dow tumbled 4.22%. The S&P 500 lost 4.04%, and the Nasdaq Composite declined 4.44%.

Preview

Monday's entries on the economic calendar are fairly sparse, but keep an eye out for the Dallas Fed’s manufacturing index, which tracks productivity for the region.

On Tuesday, the July Job Openings and Labor Turnover survey, or JOLTs report, is due. This tracks both job openings and layoffs during a given month. June’s report showed job openings fell to hit a nine-month low, but there was no significant uptick in layoffs. Also, watch for June’s S&P Case-Shiller Home Price Index, which declined for the second-straight month in May. The Conference Board’s August Consumer Confidence Index is due as well, after falling for the third-straight month in July.

Wednesday, ADP will publish its retooled private payrolls report. The report has not been released since May as ADP has attempted to make it more reflective of the labor market.

More job market data is on the way Thursday, as jobless claims will be published. Initial filings fell last week, coming in at 243,000 which was below estimates of 255,000. Also, watch for Challenger job cuts for August, which dropped in July. ISM will also publish its manufacturing PMI for August, after reporting the sector grew last month.

Friday will bring the week’s economic calendar to a close with even more labor market data. The Bureau of Labor Statistics will report August’s unemployment rate and nonfarm payrolls. In July the unemployment rate ticked down to 3.5%, which is in line with pre-pandemic levels.

On the earnings front, Gambling.com Group (GAMB) is set to publish earnings on Monday. On Tuesday, pet products ecommerce site Chewy (CHWY) will hand in its latest report card. Wednesday, medical device firm Cooper Companies (COO) is set to report earnings. Sporting apparel company Lululemon is up on Thursday. Finally, Campbell Soup Company (CPB) will share its earnings on Friday. Keep your eyes on Gambling.com, as its CEO, Charles Gillespie, predicted week one of the NFL season will set records in terms of bets placed.

Making The Most of a Recession

Thinking about how you could make a recession work in your favor? A lot of investors may feel compelled to sell off their stocks before and during a downturn. The folks at The Wealthy Investor think that may not be the best idea. Instead, they reveal three stocks that have made money in the most recent recessions.

Take a look at this report to see if it could be a viable option for your investment strategy.

What the Heck is Going On With Hasbro?

A Short Lived Foray into Movies

Hasbro’s (HAS) $4 billion attempt to transform itself into a movie studio powerhouse has come to an end. Less than three years after buying Entertainment One, the Canadian media company behind hit kids TV shows “Peppa Pig” and “PJ Masks,” Hasbro is considering selling or restructuring the entertainment assets. Entertainment One has stakes in a number of production companies including Amblin, which is owned by Steven Spielberg.

It’s a sobering about-face for a company that hoped to expand beyond making toys, into films and television programming. Prior to this, the global toymaker, known for churning out Transformers action figures and Mr. Potato Heads, had also tried to buy DreamWorks Animation and Lions Gate Entertainment. Those conversations fizzled as well.

Timing is Everything

Admittedly, the timing wasn’t great for Hasbro. A lot has changed since August 2019 when the company scooped up Entertainment One. A few months later the COVID-19 pandemic hit, halting production on movie and TV sets across the globe. Chief Executive Brian Goldner, who spearheaded the transformation died, and an activist investor acquired a stake in the company and began calling for change. Hasbro was able to push back and is now undergoing a review of its entertainment business.

These setbacks don’t mean Hasbro is looking to retreat. The iconic company still wants to use movies and TV to capitalize on its toy brands, but it does have to make some tough decisions. One is selling everything it doesn’t want. For example, Hasbro already offloaded eOne’s music business for $385 million. Another option is to focus on branded entertainment. If all of a sudden you start to see more “Peppa Pig” movies, you’ll know this is the path they choose.

Will the Sequel Be Different?

Rival Mattel (MAT) is also pushing into movie and TV production, releasing movies around popular toys including Barbie. Unlike Hasbro, however, it didn’t spend billions to get a foothold in the market. Instead, it licensed the TV and movie rights to the toys to the highest bidder. That hasn’t been lost on investors, which is why Mattel is outperforming Hasbro. A potential sale of Mattel is also lifting the stock.

Investors will know more about Hasbro’s plans when it hosts an investor meeting in October. There, it plans to reveal details about its goals for the entertainment assets. Until then investors will have to sit tight and wait for the next season to debut.

Getty Gambles on a SPAC

Getty Is Public Again

Going public through a special purpose acquisition company, or SPAC, was thee thing to do in 2021. Many startups raised hundreds of millions if not billions of dollars that way. That’s no longer the case. In general, the IPO market is on pace for its worst year in decades. Last year, at this point, traditional public offerings had raised more than $100 billion. This year, traditional listings have raised only $5.1 billion. SPACs, which are essentially riskier versions of IPOs? Yeah, not so much.

Despite the depressing backdrop, one company decided to roll the dice. That would be Getty Images (GETY), the photo and video licensing business. Late last month it completed a SPAC transaction with CC Neuberger Principal Holdings II to become a publicly traded company. If you missed this don’t worry, a lot of people did, partially because the transaction took a while to complete. Getty Images announced its SPAC deal in December, valuing it at $4.8 billion. During its first few days of trading, the stock was hovering around $8-$9 per share. It’s now nearing $30 per share.

Getty Sheds its Debt

This isn’t Getty’s first rodeo. It launched in 1995 and began trading on the Nasdaq in 1996. It went private in 2008 after being bought by PE firm Hellman & Friedman. It was then bought back by the Getty family in 2018.

Despite the lack of interest in SPACs, Getty Images forged ahead. It set out to clear debt from its balance sheet and the SPAC deal, despite less than stellar conditions, enabled the company to do exactly that. The company has been around for 27 years and is profitable. In the second quarter, Getty had revenue of $233.3 million, up 4.1% year-over-year. Revenue from its editorial business increased 15% to $82.9 million.

Is Getty a Web 3 Play?

Getty serves a bevy of corporate customers including advertising and graphic design firms, print and online media outlets, and corporate marketing, communications, and design departments. Its library includes around 135 million images that date back to when photography started to go mainstream.

Getty is now betting those images will help it generate more money when the NFT market takes off and Web 3.0 comes to fruition. It already has a partnership with Candy Digital which operates a marketplace for Getty Images NFTs and develops exclusive images for the company.

So far, Getty Images has bucked the SPAC trend, successfully debuting during what has been a downturn in the IPO market. With the company focused on growth drivers and lodging a solid profit, it is one of the few brands that was probably able to pull this off. Getty investors are cheesing now, let’s see if they’re still up for a picture at this point next year.

Don't Dump Your Stocks Just Yet

If you think you need to dump all your stocks in a recession, that may not be the best idea. While past performance is not a guarantee of future results, these three stocks have made money in the most recent recessions.

The names of these three recession-resistant stocks are revealed and analyzed in this new report.

A Silent, But Essential, Semiconductor Company

A Quiet Way to Play the Chip Space

Looking for a way to get exposure to the semiconductor market beyond Intel (INTC), NVIDIA (NVDA), and Samsung Electronics? Well, then maybe it’s time to consider a company you’ve likely never heard of: ASML (ASML), the Dutch semiconductor equipment maker.

As pointed out by Trung Phan, the company, which sports a market capitalization of around $216 billion, makes machines to produce chips. Its extreme ultraviolet lithography machines, which use advanced technology to print circuits on silicon wafers, cost $150 million each. With little in the way of competition, ASML has a lock on the market. It ended last year with about $20 billion in sales.

Beyond being a near monopoly, ASML is an important player in the chip industry. Without its EUV equipment, Moore’s Law, which says the number of transitions on a microchip will double every two years, could end.

ASML Ahead of the Rest

ASML makes less than 40 EUV machines per year which not only gives the company pricing power but creates a lot of backlogs. Currently, ASML is sitting on over $50 billion in unfulfilled orders. In 2021 it shipped 42 EUVs, controlling about 90% of the semiconductor lithography market. It takes about 12 to 18 months to produce one machine, which is why so few are made in a year.

Its nearest competitors aren’t even close to perfecting their own EUV tech. ASML has about a decade lead on them. While they play catch up, ASML is working on the next generation of its EUV chip-making machines.

Semiconductor Demand Poised to Boom

Being years ahead of the competition isn’t the only thing ASML has going for it. With chips finding their way into everything from artificial intelligence to mining, semiconductors are going to power the future. To ensure that happens, chip companies need equipment and the ability to make semiconductors quickly and precisely. That means demand for ASML’s EUV equipment should continue unabated. It doesn’t hurt that the US has blocked the export of Dutch EUV licensed tech to China.

Chip usage goes way beyond computers and iPhones. To keep Moore’s Law alive and the world humming, manufacturers need more advanced semiconductors. That’s ASML's sweet spot now and into the future.

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