Closing Recap

Tuesday, January 19, 2021

Equity Market Recap

·     Stock momentum remains firmly to the upside (though on light volumes) as underperforming mega cap tech names such as Alphabet, Apple, Amazon, Netflix (ahead of earnings tonight), and Facebook, (which are all down year-to-date), helped pace market gains along with another push for semiconductors (up as much as 3.3% to another record). Outside of tech, energy rallied again behind a jump in oil prices and Healthcare outperformed with the biotech sector at record highs. The move in markets came as Treasury Secretary to be and former Fed Chairperson Janet Yellen said at her testimony today before the Senate Finance Committee that benefits of a big relief package outweigh the costs of a higher debt burden. President-elect Joe Biden, who will be sworn into office on Wednesday, outlined a $1.9 trillion stimulus package proposal last week to jump-start the economy and accelerate the distribution of vaccines.

·     The fiscal stimulus measures under Trump (two big packages) and more expected from incoming President Biden has been among the top key drivers for stock markets over the last few months. In addition, the Fed has remained accommodative on rates and policy, helping boost risk sentiment, while investors are bullish heading into quarterly earnings this week (NFLX tonight after banks BAC, GS reported this morning). The economic recovery trade continues to gain steam as coronavirus cases begin to slow in many states, with travel, leisure, retail, restaurants extending recent gains. Bank earnings like last week were mixed too slightly better.

·     In sector news, banks active after GS earnings beat, while STT shakes off early losses to go green following its EPS miss while BAC, CMA shares show little reaction following their EPS beats; elsewhere in financials, AXP leads the Dow and SYF, DFS hit 52-week highs while COF rises after JPMorgan says they are Overweight all card issuers for the first time ever; Nasdaq outperforms other indices with FB, GOOGL leading big tech ahead of NFLX earnings tonight, while AVGO, QCOM, TXN among semi stocks hitting 52-week highs on the day; NOV among worst performers in the S&P after preliminary Q4 results miss consensus and prior guidance and HAL gives up morning gains after its eps beat; GM continues its recent momentum after announcing a partnership with MSFT to invest in Cruise, an autonomous driving company, as shares have returned more than 30% YTD already; other EVs also gain after TSLA delivers first made-in-China Model Y and Janet Yellen says that Biden support restoring EV incentives NIO, XPEV, LI, SOLO.

Commodities

·     Energy stocks rose as Brent and crude oil prices advance on optimism that government stimulus will eventually lift global economic growth and oil demand overshadowed concerns that renewed COVID-19 lockdowns are cooling fuel consumption. WTI crude rises 62c or 1.18% to settle at $52.98 per barrel as Yellen’s comments boost demand optimism. Also today the EIA said in its monthly forecast that U.S. oil output from seven major shale formations is expected to decline by about 90,000 barrels per day (bpd) in February to about 7.52 million bpd.

·     Gold prices finish higher as February gold rises $10.20 or 0.6% to settle at $1,840.20 an ounce as the U.S. dollar remained pressured (as gold bounces off lowest levels in over a month). It recouped some of the 1.2% loss it suffered on Friday, before Monday’s holiday. Incoming Treasury Secretary Janet Yellen said today that the value of the U.S. dollar should be determined by markets, while reaffirmed her commitment to relief measures and underlined the depth of the economic crisis.

Currencies & Treasuries

·     The U.S. dollar was one of the lone weak segments of the market today, falling from a four-week high hit in the last session as investors rotate back into riskier assets with sentiment surging as U.S. Treasury Secretary nominee Janet Yellen echoed prior comments about the need for major fiscal stimulus. The decline came after a 2% rise the first three-weeks of the year, helped by rising U.S. Treasury yields and some caution about the strength of the global economic recovery. The dollar index (DXY) was down but still above its more than 2-1/2-year low of 89.206 touched this month. Treasury yields opened modestly higher around 1.11% before slipping a few bps (having topped out last week around the 1.18% level for the 10-year).

Sector News Breakdown

Consumer

·     Retailers; GME extends last week gains (which was over 100%), as rally seemed to be news Monday that Chewy co-founder Ryan Cohen would be joining GameStop’s board of directors, along with two former Chewy executives (shares mentioned cautiously in Barron’s this weekend); PTON shares fell after UBS downgrades to sell (along with CHWY, FVRR and TTWO to neutral as risk/reward skews to negative); YETI will replace TRMB in the S&P MidCap 400 which is being added to the S&P 500 index on Thursday; ODP shares slip after co rejects staples’ takeover offer, proposes alternate plan; PETS slides after earnings results

·     Auto sector; TSLA delivered its first made-in-China Model Y compact crossover vehicles on Monday, WSJ reported; LAC shares rose as U.S. Bureau of Land Management gave final approval on Friday to co’s Thacker Pass lithium mine in northern Nevada; move is part of a push by policymakers to boost domestic output of lithium for electric-vehicle batteries; GM rises after Cruise, co partner with Microsoft to commercialize self-driving vehicles; UBER tgt raised to $72 from $51 at UBS; Jefferies initiate coverage on four China electric vehicle players: NIO, XPENG, LI and BLUEPARK – constructive on China’s auto sector and NEV segment given potential tech upgrades in the next 10Y; Electric vehicle startup Rivian, which is backed by AMZN and Ford (F) and aims to put an electric pickup and SUV in production this year, said on Tuesday it boosted its war chest further with a $2.65-billion investment round led by TROW

·     Consumer Staples; BYND slides as JPM reducing estimates to reflect deteriorating retail sales trends, per Nielsen takeaway data, and our view that foodservice will not rebound until later in 2021 (pushed from 2Q to 2H to account for the timing of broad vaccine dissemination); PFGC tgt raised to $57 from $45 at Guggenheim noting despite shares having rallied 33% over the past three months (vs. S&P 500’s +8%), on COVID recovery optimism, see further potential upside; RBC noted that; overall food and beverage names underperformed

·     Restaurants; CMG named a top idea at Goldman Sachs in restaurants and added to Conviction List with $1,650 tgt and initiated buys on DPZ, DRI, EAT, JACK, MCD, SBUX, WING as believe large chains are positioned to benefit from the rapid digital transformation and independent restaurant challenges – firm sees greater risk for Sell-rated BLMN, QSR, and YUM as accelerating competitive dynamics and idiosyncratic headwinds may limit share gain opportunities and valuation upside – they are Neutral rated on CAKE, TXRH, SHAK, WEN; Raymond James increases price target on PLAY to $40 from $35 and maintains Strong Buy rating

·     Leisure and Gaming; NCLH said it was extending its global cruise suspension through April 30. The suspension now includes all cruises on its Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises; DKNG falls after being added to Hedgeye best ideas short list after rally per Bloomberg; PENN said it intends to officially launch its barstool sportsbook mobile app on iOS, android & desktop on Jan 22

Energy

·     Energy stock movers: earnings kick off in services sector as HAL reports 60% rise in Q4 profit from Q3, eps 18c (est. 15c) on revs $3.24B (est. $3.21B, +8.8% from Q3) as demand for oilfield equipment and services has recovered slightly from the pandemic-driven fallout in drilling activity and their CEO is optimistic about North American momentum and expects international activity to bottom in Q1; NOV reported preliminary Q4 revenue $1.33B, below prior guidance and missing the expected $1.36B; TRP slides on news over the weekend that Biden may cancel the Keystone XL pipeline permit as soon as his first day in office (watch rails CP CNI that may see some benefit from this)

·     E&P sector – RBC expects earnings beats vs consensus for EQT, MTDR, MRO and misses for CDEV, ESTE, FANG; Cowen downgraded TOT to Market Perform as its current valuation is stretched and at an elevated premium vs peers, and they expect the company’s balance sheet advantage to shrink as production growth slows; TOT also purchased a 20% stake for $2.5B in Adani Green Energy, the world’s largest solar developer; JPMorgan moved COP to Neutral with a $52 pt on valuation as they are still believers in the company’s long-term strategy; KOS announced it discovered oil in the Gulf of Mexico; CIBC favors PDS and ESVIF as energy companies that have the right characteristics to maintain or grow their market share in N.A.

Financials

·     Bank movers; BAC authorizes $2.9B share repurchase plan and declares quarterly cash dividend of 18c per share and Q4 EPS of 59 cents beats consensus of 54 cents as Q4 revenue, net of interest expense was $20.1B below consensus $20.68B; Provision for credit losses decreased to $53M, reflecting a reserve release of $828M; GS Q4 net revenue rose 18% YoY to $11.74B, well above the $9.94B estimate on better trading revs and better EPS of $12.08; STT after q4 EPS $1.39 missed the $1.56 estimate but revs better $2.92B vs. est. $2.82B – sees FY21 NII down 14%-17%, sees FY21 fee revenue flat to up 2% y/y and up 3%-5% y/y and AUM up 11% YoY; CMA 4Q EPS $1.49 vs. est. $1.19, NII $469Mm, provision decreased $22Mm to a benefit of $17Mm vs 3Q; says 1Q21 avg deposits to remain strong, sees decline in NII with lower avg loan balances, LIBOR and security yields as well in 1Q vs 4Q20

·     Consumer Finance changes at JPMorgan: OMF top pick, AXP double upgrade to Overweight, SYF upgrade to Overweight, SC upgrade to neutral while downgraded NAVI, ESNT, GHLD all to neutral from overweight and RKT downgraded to Underweight: Our increasingly optimistic macro-outlook is consistent with improving forecasts of unemployment and GDP and a steepening forward 10YT curve. This outlook portends higher interest rates, better credit performance, and a significant rebound from 2020 trough earnings with momentum into 2022; WU rises after announced a new agreement with WMT in which money transfer services will be enabled at Walmart stores nationwide (shares of MGI slide in reaction)

·     REITs; data center REITs EQIX, DLR, and QTS all upgraded to strong buy at Raymond James saying these names are off an average of 16% from their highs, which we believe is due to portfolio allocation shifts among REIT investors and not based on any fundamental changes to the companies.

·     Exchanges; NDAQ upgraded to Buy from Neutral at UBS as it appears US cash equities and equity options strength is sustainable, and Index trends remain robust (we are now ~9% above consensus on FY21 EPS) and expect non-transaction organic growth to remain elevated in the near term (we model a record +12% in the 4Q); CME reports international average daily volume grew 8% YoY to 5.2M contracts in 2020, reflecting all trading done outside North America was driven largely by 85% growth in Equity Index and 28% in Agricultural products

Healthcare

·     Pharma movers; LLY upgraded to Buy from Neutral at Mizuho with $222 tgt and see a highly attractive risk/reward, especially ahead of the full donanemab data release in March; GRTS rises after advancing development of a second-generation vaccine against SARS-CoV-2, with potential for both prolonged protection and potency against Spike mutants; LLYs R&D group Loxo and MRUS announce a research collaboration and exclusive license agreement; OMER said the FDA granted priority review to its application for narsoplimab for the treatment of hematopoietic stem-cell transplant-associated thrombotic microangiopathy, or HSCT-TMA; DBVT adds to Friday gains, after rising 51% after feedback from FDA regarding Viaskin Peanut regulatory path

·     Biotech movers; BHVN provides update on phase 2/3 trial and Alzheimer’s disease program; said Troriluzole did not statistically differentiate from placebo at 48 weeks on study’s prespecified co-primary endpoints and also did not differentiate from placebo on key secondary measure; NERV rises after selling its royalty interest in seltorexant to RPRX for an upfront payment of $60M and up to $95M in milestones; GILD upgraded to Overweight and $83 tgt at Morgan Stanley; ACRS after announces positive preliminary topline data from 12-week phase 2a trial of oral ATI-450; MRNA slips as the California state epidemiologist is recommending the state pause on the distribution of more than 330K doses (~10% of the state’s allocated supply) of the MRNA vaccine after a "higher than usual" number of people showed signs of a possible severe allergic reaction.

·     Healthcare services and providers; CERN downgraded to underperform from Buy at Bank America noting the co has a mature core business and newer growth opportunities offer "longer-dated potential contribution; PINC was downgraded to underperform as well at Bank America

·     MedTech and Equipment; TMO agreed to purchase a molecular diagnostic company called Mesa Biotech Inc. for about $450 million in cash; in Tools and Diagnostics – raise PTs on NTRA ($135), EXAS ($162), ADPT ($74) and NEO ($62) saying the MCIT final rule is a big deal – notes last Tuesday, HHS finalized the Medicare Coverage of Innovative Technology (MCIT), which automatically issues a national coverage determination (NCD) and Medicare coverage for four years for any device or diagnostic test that had received a breakthrough device designation; TRXC received CE Mark approval for its intelligent surgical unit that provides machine vision capabilities to the Senhance Surgical System.

Industrials & Materials

·     Industrial & Machinery; Barron’s mentioned MMM positively, saying investors looking to make a bet on an industrial bounce back could do worse than buy 3M, noting the stock has dropped 7.9% over the past 12 months but could be set for a move higher into earnings; GGG upgraded to buy at Jefferies as view Graco as a best-in-class industrial company (28%+ EBITDA margins, 35%+ ROIC) that is well positioned to benefit from a recovery; Goldman upgraded ITW to Neutral with a $217 pt, abandoning their sell rating given the pandemic makes it difficult to evaluate industrial stocks on fundamentals as thematic investing ruled 2020, which can continue in 2021 though there will also be a focus on fundamentals and ITW screens well for organic growth; Goldman also upgraded EMR to Buy with a $97 pt as the stock is a beneficiary to improving oil and gas fundamentals, inexpensive relative to coverage despite a healthy balance sheets and catalysts on the horizon, and is also one of the highest quality ways to invest in a recovery in oily industrials

·     E&C sector: Citi upped their price targets in the E&C space: on ACM to $69 from $61, FLR to $22 from $19, KBR to $37 from $30, MTZ to $96 from $58, and PWR to $89 from $75 as they still see opportunity for further re-rating even after their solid performance since March/April lows driven by political and macro frameworks, including stimulus, a potential FAST Act replacement, and stable/rising oil prices;

·     Transports; JBHT and SNDR both upgraded to outperform from neutral, and WERN raised to neutral from underperform as sees both JBHT and SNDR to benefit from a substantial acceleration in intermodal (IM) demand in 2021 and pricing improvement in IM – raises PTs for JBHT to $175 from $131, SNDR to $29 from $22.89 and WERN to $44 from $43; FDX is proposing to resize its European workforce as it completes the integration of TNT, according to Bloomberg; HTLD reported in-line Q4 earnings on weaker revs of $155.8M vs. est. $162.4M; DAL disclosed that it entered into a payroll support program extension agreement with the U.S. Treasury Department and expects to receive $2.9B in relief payments

·     Chemicals; FMC shares slipped after saying sees Q4 revs about $1.15B vs. est. $1.26B and expects 2021 outlook at or somewhat above long-range plan targets of 5%-7% revenue growth and 7%-9% adjusted Ebitda growth; TROX terminated its agreement with Eramet S.A. To acquire the tizir titanium and iron business; says sees Q4 revs $783M above the $696M estimate and adjusted EBITDA to exceed previously issued guidance; increasing annualized dividend to $0.32 per share

Technology, Media & Telecom

·     Internet; NFLX out with earnings tonight after the close to kick off Internet earnings; FB upgrade to Outperform at BMO Capital saying they see AAPL’s rollout of the App Tracking Transparency (ATT) prompt and subsequent limitations on IDFA marking the peak for FB’s "headwinds from targeting; KeyBanc raised estimates and tgts for companies exposed to Internet advertising, pointing to tailwinds for the sector that should keep up a strong ending to the fourth quarter well into 2021 (FB $340 to $345, GOOGL $1,970 to $2,060, PINS $76 to $86 and SNAP $40 to $60)

·     Semiconductors; INTC active on reports the Trump administration notified Huawei suppliers, including chipmaker Intel, that it is revoking certain licenses to sell to the Chinese company and intends to reject dozens of other applications to supply the telecommunications firm; KLIC guides Q1 EPS of $0.73-0.77 above consensus of $0.54 and sees Q1 revenues of $265M vs. $240.29M consensus; overall semiconductor sector (SOX) outperforms rising more than 2.8% back near record highs; INSG, QCOM, TSEM, IIVI, MRVL shares were among a handful of 5G related movers to the upside after Motley Fool names 5G top tech investment space for 2021

·     Software movers; CTXS announced that it has entered into a definitive agreement to acquire Wrike, a rapidly growing, recognized leader in the SaaS collaborative work management space, for $2.25 billion in cash; PLTR shares active after utility PCG launched an initial deployment of its Foundry data platform for its Public Safety Power Shutoff program

·     Media & Telecom movers; VIAC and DISCA downgraded to underweight at Barclay’s noting over the past three months, ViacomCBS is up 66% (SPX up 8%) and Discovery is up even more, by 76%; CRTO was downgraded to neutral on valuation at Citigroup as view its strategy of transitioning its business into a full stack DSP favorably but its core retargeting business still represents 80% of revenue, which we believe is the most at risk; ETM was upgraded to overweight on risk reward at Wells Fargo and see attractive opportunities for later cycle recovery group/the advertising Services as raise tgt in IHRT to $20; at Evercore/ISI, LYV downgraded to in-line from outperform while WWE was upgraded to outperform from in-line with $58 tgt; TME tgt raised to $28 at Oppenheimer as factor in long-form audio and audio advertising opportunities in our model and valuation

·     Hardware & Component news; COHR rises after LITE confirmed weekend reports it would acquire the laser maker in a $5.7B deal where COHR holders will get $100 in cash and 1.1851 shares of Lumentum stock for each Coherent share https://on.mktw.net/2M51Hhu; IPGP was upgraded to buy with $280 tgt at Needham as grown more confident of a sustained recovery in IPG’s business after two years of declining revenues; LOGI Q3 EPS $2.45 vs. est. $1.02; Q3 revs $1.67B above consensus $1.23B; raises FY21 sales growth outlook to 57%-60% from 35%-40%; BDC enters an agreement to acquire privately-held OTN Systems for ~$71M and raises its Q4 EPS and revenue outlooks above views ($494M-4499M vs. est. $475M)

·     Three-D sector (3d) sector remains strong as Stifel initiated DM Buy and $30 tgt as believe DM is well-positioned to benefit from a dramatic increase in the use of 3D printing for end-use part production over the next decade; SSYS init Buy and $40 tgt as like the company’s simplified strategy, as it takes a step back to focus on maximizing its leading position in the polymers market; was buy rated on XONE and $20 tgt as believe ExOne is well-positioned to benefit from increased adoption of 3D printing technology for industrial end part production, while firm was neutral rated on DDD and $28 tgt