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- 🥤 Bulls Are Soda-Lighted About This Stock
🥤 Bulls Are Soda-Lighted About This Stock
Plus, top long-term streaming stock picks and an energy company that counts Ichan as an investor.
Happy Sunday to everyone on The Street.
Quickly, I'd like to say thank you to those of you who signed up for The Last Cast Letter. Hopefully, you enjoyed the most recent edition. The next one will be published at the end of this month. Hard to believe it's March already, but I digress.
In case you missed it, The Last Cast Letter is where I'll be outlining my thoughts on the real estate market and communicating with those of you who want access to private real estate investments.
If this sounds interesting to you, this is a one-click sign-up, so hit this hyperlink to be automatically subscribed. I realize this isn't for everyone so please sign up only if you're genuinely interested in becoming an investor.
Before we dive in today, did anyone end up seeing "Cocaine Bear" since I wrote about it a couple of weeks ago? According to the AP, it pulled in $23.1 million during opening weekend, topping expectations. In fact, it even clawed its way past Marvel's "Ant-Man and the Wasp: Quantumania" on two consecutive days at the end of its opening week.
I'm not sure we need sequels, but apparently, a few have already been teased. According to Axios, "a similar film in 'Attack of the Meth Gator' looks to be in production from The Asylum, the film studio responsible for 'Sharknado.'" Only in America.
With that, let's move along to this week's posts. I love hearing from you all. If there are any stocks or stories you want us to look into, please let me know. You can reply directly to this email or find me on Twitter using the link below. Hope it's a good Sunday all, make it a great week!
Review
US stocks finished higher Friday after another meaningful influx of quarterly results and economic data. Wholesale titan Costco (COST) reported a beat on earnings estimates but missed on revenue projections. More importantly, Costco highlighted inflation’s toll on demand for big-ticket discretionary items.
Meanwhile, Dell Technologies (DELL) surpassed expectations on both revenue and earnings. The company also announced the retirement of CFO Tom Sweet. His successor is slated to take the helm at the end of Q2.
On the economic front, the ISM non-manufacturing PMI, which measures the health of the services industry, declined to 55.1. This beat analyst expectations of 54.5 and pointed to a relatively robust and still-expanding services economy.
Elsewhere in markets, Bitcoin and the broader crypto industry saw a significant downturn as the potential bankruptcy of Silvergate Capital looms. The crypto-friendly bank has been a go-to for cryptocurrency businesses, but it has caused concern among many of its clients after delaying its annual report and warning it may not be able to operate for another year.
In company-specific news, Amazon (AMZN) paused construction of its second headquarters in Virginia. The first phase of the project, a future 22-story office building known as Metropolitan Park, will still wrap this June, but CEO Andy Jassy has decided to curtail company expenses in the face of slowing revenue and a tepid economic outlook.
For the week as a whole, all three major indexes finished higher. The Dow Jones Industrial Average snapped a four-week losing streak finishing up 1.75%, while the S&P 500 advanced 1.9%. The Nasdaq Composite surged 2.04%.
Preview
Tomorrow, the monthly factory orders report will be released. In December, new orders for US manufactured goods jumped 1.8%, correcting a decrease in November.
Tuesday, investors will get a closer look at Jerome Powell’s decision to raise interest rates, as the Fed Chair testifies before the House Financial Services Committee. At its February meeting, the Fed raised rates to 4.5%-4.75%, pushing the cost of borrowing to its highest point since 2007.
On Wednesday, investors will get a sense of which direction the job market is trending with the release of the JOLTS job openings report. In December, the number of job openings sat at nearly 11 million, the largest figure in five months. Investors will also receive readings on the balance of trade and the 30-year mortgage rate. The latter sat at 6.71% as of its last reading.
On Thursday, the release of the initial jobless claims report will offer more insight into the job market. The number of Americans filing for unemployment is hovering close to a 9-month low, signaling a stubbornly tight labor market.
On Friday, the release of employee hourly earnings will round out the week. In January, average earnings rose by 10% from December to $33.03. This is up 4.4% from a year earlier.
Earnings Spotlight
On Tuesday, a new week of earnings will begin in earnest with Dick’s Sporting Goods (DKS) dropping its Q4 report. For the previous quarter, Dick’s reported same-store sales growth of 6.5% and raised its full-year guidance. Investors will be eager to see if the retailer’s holiday season lived up to the hype.
On Wednesday, investors will get earnings announcements from Campbell Soup (CPB) and productivity software provider Asana (ASAN). Campbell Soup sales can often be viewed as a recession indicator, so investors will listen closely to what they have to say.
Thursday will be the busiest day of the week, with reports from BJ’s Wholesale Club (BJ), Gap (GPS), Allbirds (BIRD), and DocuSign (DOCU). DocuSign’s earnings will provide continuing insight into the turbulent tech sector. The company posted 18% revenue growth last quarter, but also announced that it will be laying off 10% of its workforce.
On Friday, Bird Global (BRDS) will offer insight on why the electric scooter business has been struggling. In February, the company announced its decision to leave the San Francisco market.
Institutional Insights for Everyday Investors
Tendies Research was started to remove the barriers preventing individual investors from accessing the research banks and hedge funds use to make decisions. We’ve built a team of former industry professionals, from Bloomberg, UBS, Morgan Stanley, and others to bring daily insights to your inbox, for free.
Our coverage spans across multiple sectors and categories. Commodity articles cover the latest energy, metals, and agricultural news.
Economics coverage provides weekly market reviews with key macro- and micro-economic market drivers. Equities coverage spans across sectors like Banking, Consumer Technology, Healthcare, Biotech, and Retail.
One Way to Play the Electric Power Boom
Poised For Power
Although we're years (and I mean, years) away from phasing out fossil fuels, it's important to recognize that electric utilities are having a moment.
Investment dollars are flowing into electric transmission grids and renewable power to meet outsized demand from electric vehicles, appliances, and heating systems. That bodes well for the entire industry – and FirstEnergy (FE) in particular. The Ohio-based electric utility is poised to benefit from this slow shift away from oil.
It doesn’t hurt that FirstEnergy pays a dividend with a yield of 3.9% – high for the sector – and is seeking permission to raise rates in several states it operates in during the next few years. The stock is trading around $40 per share, which is lower than its high of $49 per share, set last April.
Shares are trading at 16x projected earnings for 2023, a discount to the electric utility sector, which trades around 18x this year’s projected earnings. Rising interest rates and an industry selloff have weighed on the stock, presenting a potential opportunity for bargain-hunting investors.
“It has a solid dividend and growth story,” John Bartlett, president and portfolio manager at Reaves Asset Management, which runs the Reaves Utility Income Fund (UTG), said in a recent interview with Barron’s.
FirstEnergy Powers Up
Beyond trading at a discount to its peers, FirstEnergy is in growth mode. The company expects annual earnings per share to grow between 6% and 8% through 2025, driven by expanding its transmission network and strengthening the electric grid in New Jersey, Pennsylvania, and Ohio, a service area that has six million customers.
Capital expenditures are also rising, with $3.4 billion earmarked for 2023 and $4 billion in 2025. Once utility regulators let FirstEnergy raise prices, those investments will blend into a higher pool of top-line revenue.
The company is also poised to raise its quarterly dividend – which has stayed at 39 cents per share since 2019 – in the second half of this year. Some estimates see the dividend rising 5% in 2023.
Big Names Have Exposure
So what has been dragging this stock down in 2023?
For starters, FirstEnergy was at the center of a bribery scandal in Ohio, which resulted in a $230 million fine in 2021. The CEO was later ousted. A new one is expected to be appointed this month. Obviously, this wasn't good, however, most analysts don't view this horrible hiccup as having long-term impacts on the company.
In fact, since then, Blackstone (BX), the private equity giant, has invested $1 billion in the company and owns just over 5% of outstanding shares. Activist investor Carl Icahn also owns a large chunk – 3% – of FirstEnergy.
Now, FirstEnergy’s pensions, which aren’t fully funded, could impact earnings. And the company does get roughly 10% of its profits from Signal Peak, a coal mine located in Montana. The coal business rightfully weighs on its shares but it's somewhat canceled out by the company's 50.1% stake in a transmission network.
Acting CEO John Somerhalder says execution is key for the company as it invests in its network and gets rate increase permission from regulators. If it's successful, Somerhalder thinks FirstEnergy will be a “premier utility” that is valued higher. Let's see if this switch flips for investors.
Are you bullish or bearish on FirstEnergy over the next 24 months? |
Move Over Coke and Pepsi – Dr. Pepper Should Be the Preferred Soft Drink
Coffee & Carbonation
Forget Pepsi (PEP) or Coca-Cola (COKE). When it comes to carbonated beverages, investors may want to give Keurig Dr. Pepper (KDP) a sip. Although the stock hasn't generated much fanfare to start the year, a minor sell-off has made it a cheap name that some investors might want to consider adding to their portfolios.
Since the start of 2023, shares of the company – which produces A&W, Mott's, 7UP, and, yes, Keurig and Dr. Pepper – have slipped just over 3%. That compares to the S&P 500, which so far in 2023 has lodged a 5.4% gain. Worries about the coffee business have weighed on shares.
Nonetheless, the slight downturn may be overdone. When analyzing competitors in the space, both Pepsi and Coke posted higher sales in the most recent quarter, showcasing their resiliency even in a tough climate. The problems on the coffee side of KDP's business also appear to be waning. With growth increasing and pricing power improving, bulls think shares can outperform.
“It has Monster Beverage (MNST) level margins and more rapid growth than Coke and Pepsi yet trades at 20 times forward earnings versus 25 times,” Eric DeLamarter, founder and portfolio manager of Half Moon Capital said in a recent interview. “It’s a pretty fascinating company and never seems to get much attention.”
Caffeine Crash
The big drag on the stock – and the reason many investors remain on the sidelines – is the Keurig coffee business.
During the pandemic, the Keurig business boomed as consumers stuck at home traded Starbucks (SBUX) runs for Keurig machines. Now, with restrictions eased, buying coffee on the go is easier than brewing at home. This may have put downward pressure on sales, especially during the fourth quarter. That’s traditionally the busiest time of year, as people gift coffee machines during the holidays.
This isn't what you want, but it's also not the end of the world. Zooming out, the coffee system only represents about one-third of the conglomerate's annual revenue. Yes, that's a big chunk, but investors have already been bracing for a slowdown in this segment. If one does materialize, it's likely already baked into the share price.
Get the Energy
Unlike its rivals, Keurig Dr. Pepper is approaching the sports drink business via partnerships with the likes of Red Bull, Athletic Brewing Company, C4, and Nutrabolt, rather than through acquisitions. That’s a cheaper and easier way to make a mark in an area of the beverage industry that’s enjoying fast growth – and a reason why some analysts are so bullish.
“The partnership model makes a lot more sense than that of an outright acquisition, for all parties,” DeLamarter said. “If consumed in a massive company, a brand risks losing some of the critical components that made it successful when independent, Coca-Cola–Body Armor being a recent case in point.”
Then, there’s its growth rate, which is projected to be higher than rivals'. Keurig Dr. Pepper is forecast to have EPS growth of 6.7% this year and a 5.8% increase in sales. Coke is expected to see EPS and revenue growth of under 5% while Pepsi is forecast to have EPS growth of 6.9% and a sales increase of 3.6%.
Finally, the return of Bob Gamgort as CEO and the fact that 90% of its business is done in the US makes a strong dollar and bumpy reopening in China non-events.
Dr. Pepper may not be the first beverage you reach for – but thirsty investors looking for a bargain may want to crack one open regardless.
Are you bullish or bearish on Keurig Dr Pepper over the next 12 months? |
Institutional Insights for Everyday Investors
Tendies Research was started to remove the barriers preventing individual investors from accessing the research banks and hedge funds use to make decisions. We’ve built a team of former industry professionals, from Bloomberg, UBS, Morgan Stanley, and others to bring daily insights to your inbox, for free.
Our coverage spans across multiple sectors and categories. Commodity articles cover the latest energy, metals, and agricultural news.
Economics coverage provides weekly market reviews with key macro- and micro-economic market drivers. Equities coverage spans across sectors like Banking, Consumer Technology, Healthcare, Biotech, and Retail.
Traditional TV's Days are Numbered
Streaming Reaches for the Remote
Video killed the radio star – and now it looks like streaming is finally killing TV.
As millions of consumers signed up for Netflix (NFLX) and Disney+ (DIS), many have spent the past few years predicting the demise of television. Now, the TV apocalypse may finally be upon us.
That's according to Insider Intelligence, which predicts 2023 will mark the first time in history that US adults spend more hours streaming shows on Netflix and TikTok than on traditional television. Linear TV, otherwise known as traditional TV, is forecast to represent under half of daily TV viewing this year, with digital video viewing increasing to over 52%.
That could boost the streaming sector, which took a beating in 2022, but is recouping losses this year. Yet, with so many players entering the market since the pandemic, it could be hard to predict how it shakes out. Market share battles are still in the early innings, but Wall Street and investors are focused more on profitability and average revenue per user these days. With that in mind, here are some of Wall Street's long-term favorites that may be worth watching.
Netflix, Disney Still in the Lead
Netflix had a rocky run last year, with the company reporting its first subscriber loss in over ten years. Since then, the streaming giant rolled out a new pricing tier that includes ads, geared up to crack down on password sharing, reported strong fourth-quarter subscriber numbers, and announced founder Reed Hastings will give up the CEO job. That hasn’t won over all of Wall Street, with only about 40% of analysts who cover the stock rating it a buy.
Of all the streaming service providers, Netflix has seen its shares rise the least in 2023. Some bulls think this makes it worth buying. Shares year-to-date are up about 7%. Meanwhile, rivals Disney, Paramount (PARA), and Warner Bros. Discovery (WBD) are all up double digits.
Currently, Disney is more of a Wall Street favorite, with almost three-quarters of analysts rating the stock a buy. Disney has made management overhauls as well, announcing the return of Bob Iger as CEO in November. In its most recent quarter, the company posted a smaller-than-expected subscriber loss in its streaming business.
Hidden Gems
Warner Bros. Discovery, formed via a merger of Discovery and WarnerMedia in 2022, is getting ready to combine its HBO Max and Discovery+ streaming services in the spring. That’s gotten some analysts giddy, including Brett Feldman at Goldman Sachs (GS).
Back in January, he added the company to his top media picks list, saying it has one of the most attractive risk-reward among media stocks. Slightly less than half of analysts who cover the stock rate it a buy.
For investors looking beyond streaming services, there is Magnite (MGNI), the online ad tech company. The company is expected to benefit from the explosion in streaming viewing – which is why 82% of analysts rate it a buy. “MGNI gets paid based on a percent of total ad spending and experts project rapid US programmatic ad growth over the next 3 years,” Needham analyst Laura Martin said in a recent research report.
Streaming viewing is poised to surpass TV viewing this year, providing a likely boost to their profits and stock prices. It's too early to say who will remain or emerge as the leaders, but for now, investors have big and small options to choose from.
Are you bullish or bearish on streaming stocks over the next 12 months? |
Last Week's Poll Results
Are you bullish or bearish on waste management stocks over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨⬜️⬜️⬜️⬜️⬜️ 🐻 Bearish
Are you bullish or bearish on Airbnb over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish
Are you bullish or bearish on the grocery industry over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish
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