These shares could be worth investing in on recovery hopes
Source: Bloomberg
Shares Vodafone Investor Inflation Satya Nadella Microsoft
Worldwide markets have been hit by fears of a recession this month, as global inflation remains high and the cost of energy rises. The Nasdaq has fallen by 30% this year as investors have fled from growth and tech stocks to the safer haven of more defensive stocks amid the stock market turmoil and war in the Ukraine.
However, in these difficult times value can emerge. Here are three stocks we think could be a buy on recovery hopes.
Microsoft shares have resilient qualities
Microsoft Corp (All Sessions) shares have been hit by the recent tech sell-off fuelled by inflationary concerns. However, recent results showed that the software giant is in rude health. Third-quarter revenues at the company rose 18% to $49.4bn, while operating income rose 19% to $20bn.
What’s more, its cloud computing Azure division delivered its best performance for two years, pushing results above analysts’ expectations. And, despite concerns about the economy, Satya Nadella, Microsoft’s chairman and chief executive officer, thinks it will be business as usual for the software giant.
“Going forward, digital technology will be the key input that powers the world’s economic output,” Nadella told investors. “Across the tech stack, we are expanding our opportunity and taking share as we help customers differentiate, build resilience and do more with less.”
Indeed, Nadella relieved shareholders concerns about slowing worldwide economic growth, saying that he expects customers to try to beat inflation by investing in systems that automate tasks. “In an inflationary environment, the only deflationary thing is software,” he said, forecasting that tech spending should remain resilient.
At $259.62, the shares are down 25% on their highs of $345 seen last September and are worth buying.
Could a recovery be due at Vodafone?
Vodafone shares have disappointed for some time since the heyday of its acquisition of Mannesmann in the early noughties. However, with interest taken in the mobile phone giant lately by activist investors, things could be looking up for shareholders.
First, Carl Icahn’s Swedish based investment group Cevian took a stake in the company earlier this year. It is pushing for a shakeup of the business and for Vodafone to lead consolidation in the European telecoms sector.
More recently, Emirates Telecom, based in the United Arab Emirates, has purchased a majority shareholding in the company worth 10%. The company says it is supportive of Vodafone’s current strategy.
Vodafone’s chief executive Nick Read says he is busy looking for takeover targets in the European telecoms markets. The company is currently in discussions with CK Hutchinson, Hong Kong-based owner of Three, about the possibility of combining its respective UK businesses.
However, talks with Masmovil in Spain earlier this year came to nothing, while Vodafone turned down a bid from Iliad for its Italian business.
There is always the risk that an ill-judged acquisition spree doesn’t pay off. And the German business is underperforming. Read recently warned investors at the recent results that Vodafone will also be hit by inflationary pressures. Full-year figures are likely to be lower than expected.
However, the shares are worth buying at 130p for the long-term on activist investor interest.
Intercontinental Hotels Group seeing increased pricing power
With the hotel industry emerging from the Covid-19 pandemic, shares in Intercontinental Hotels Group could be worth looking at. Despite the difficulties of Covid-19, the hotel industry has been more insulated from the ravages of the pandemic compared to the airline and cruise line industries.
This is because customers have continued to make staycation bookings. Plus, while the sector faces inflationary cost pressures, it does not have to contend with the huge hikes in jet fuel the airline industry is facing.
Indeed, recent first-quarter figures from IHG were encouraging with RevPAR up 61% vs 2021 and attaining 82% of 2019’s level. Its hotels in the Americas and Europe and the Middle East also saw improved trading after a tough January.
“We’ve seen very positive trading conditions in the first quarter with travel demand continuing to increase in almost all of our key markets around the world,” said IHG CEO Keith Barr at the recent first-quarter results earlier this month.
“The high level of demand we have seen for leisure travel continues to drive increased rates and occupancy. We also continue to see a return of business and group travel, further supporting RevPAR improvements in many of our key urban markets.”
Barr says the company’s hotels are seeing increased pricing power, with leisure rates in its US hotels up by more than 10% on levels seen in 2019. However, its hotels in China are being hit by Covid lockdowns and restrictions currently in place.
At 4,735p, shares in the hotelier are down 12% on their highs of 5358p seen in November last year and have oscillated this year. However, with trading conditions at the group improving, the shares could be worth buying.
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*Based on revenue excluding FX (published financial statements, June 2020).
Piper Terrett | Financial writer, London 26 May 2022
Australian dollar gains, US dollar falls on FOMC minutes; S&P 500 welcomes potential Fed turning point in Fall 2022 and AUD/USD may rise next, though watch the Hanging Man.
Source: Bloomberg
Forex Indices Shares United States dollar AUD/USD Australian dollar
Wednesday’s market recap – FOMC minutes sinks US dollar, Australian dollar gains
The haven-linked US dollar gave up a good chunk of its gains over the past 24 hours in the aftermath of the FOMC meeting minutes. In fact, it was a rosy session on Wall Street, where the Dow Jones, S&P 500 and Nasdaq 100 gained 0.61%, 0.92% and 1.45% respectively. This allowed sentiment-linked currencies, such as the Australian dollar, to find strength in the last moments of Wednesday’s session.
It seems that the key takeaway from the minutes of the Fed’s May 3rd – 4th meeting was not what was said, but rather what was left out. The document offered no immediate signals that policymakers could become more hawkish outside of current expectations. In fact, there were clues that the central bank could even pause its current hike cycle in the fall.
According to the document, the Fed is 'well-positioned later this year to assess the effects of policy firming and the extent of which economic developments warranted policy adjustments'. In recent weeks, markets have been materially pulling back 2023 tightening prospects. Odds of a 50-basis point increase are also fading for September.
On the intra-day chart below, the US dollar can be seen weakening after the FOMC minutes crossed the wires. This is as the S&P 500 pushed higher. The improvement in risk appetite helped propel AUD/USD higher, though it still left it lower by the end of the session.
FOMC Minutes Market Reaction
Source: TradingView
Thursday’s Asia-Pacific trading session – Australian Capex, AUD/USD
The improvement in risk appetite on Wall Street is leaving the door open for some follow-through for Thursday’s Asia-Pacific trading session. As such, regional indices such as the ASX 200 and Nikkei 225 could receive a boost. This could bode well for the sentiment-linked Australian and New Zealand dollar, while placing the anti-risk US dollar and Japanese yen in a vulnerable spot. AUD/USD has first quarter Australian Private Capital Expenditures to look forward to. A stronger result could boost RBA tightening bets, offering AUD/USD upside momentum.
Australian dollar technical analysis
AUD/USD has been struggling to hold a breakout above the falling trendline from March on the daily chart below. Prices have left behind a Hanging Man candlestick pattern. This is a sign of indecision that can appear after a period of gain. Downside follow-through could spell trouble, though that has also been somewhat lacking. Resuming gains exposes the 0.7165 inflection point. Otherwise, a turn lower places the focus on the 0.6968 – 0.7000 inflection zone.
AUD/USD daily chart
Source: TradingView
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco 26 May 2022
FOMC meeting minutes, a GDP revision and PCE inflation to guide the dollar price this week.
Source: Bloomberg
Forex Inflation Personal consumption expenditures price index GDP Federal Open Market Committee Recession
FOMC meeting minutes
Minutes from the last Federal Market Open Committee (FOMC) meeting on the 4th of May, are set for release on Wednesday (25 May) evening (GMT).
Markets will be looking for further clues with regards to the future of monetary tightening in the world's largest economy.
Source: CME Group Fedwatch Tool
The CME Group’s Fedwatch Tool currently suggests that a 50 basis point (bps) hike has a 92.3% probability at the 15 June meeting. The Fedwatch Tool goes on to suggest another 50 bps hike (87.6% probability) at July’s meeting as well.
But while the Federal Reserve (Fed) has become progressively more hawkish at each meeting, the group's outlook towards inflation and growth will come under increased scrutiny.
A more hawkish approach to monetary policy will find some friction against contraction in economic growth, whereby the first quarter produced negative growth of 1.4% year-on-year. The contraction in growth meets Consumer Price Index (CPI) inflation still tracking above 8%. Negative growth and high inflation provide two component parts of the ‘stagflation’ conundrum. The third component part to ‘stagflation’ is labour, which at current levels (3.6% unemployment) holds off overuse of the word just yet. Stagflation is known to be a precursor to a recession.
GDP and inflation prints this week as well
Further to Wednesday’s release of the FOMC meeting minutes, markets will be looking to Thursday’s US Gross Domestic Product (GDP) and Friday’s Personal Consumption Expenditure (PCE) Index data for near-term directional guidance.
The preliminary GDP data is a revision of the advance GDP data released last month, which showed an economic contraction of 1.4%. The PCE Index data is the Federal Reserve's preferred measure of inflation and follows on from the recently released CPI data which showed inflation in the world’s largest economy at 8.1% annualised in April this year.
The US dollar – technical view
Source: ProRealTime
The dollar index is currently correcting from near-term highs. The rising wedge (shaded area), price blowoff (three steepening trendlines), and overbought signals were warnings that we could see a short-term correction of the longer term uptrend, which is now taking place.
Traders respecting the longer term uptrend, will be looking for a bullish price reversal from the short-term correction underway for long entry into the dollar. A confluence of horizontal and trendline support is considered at around the 101.00 mark.
Should we not get a bullish price reversal before this level, and instead see a price close below, we would then be looking for long entry on a bullish price reversal closer to the 99.20 support level.
Shaun Murison | Senior Market Analyst, Johannesburg 24 May 2022
The food and clothing retailer unveils figures this week
Source: Bloomberg
Shares Retail Marks & Spencer Tax Tesco Bond
It’s all change at Marks & Spencer, which posts full-year results on Wednesday. Current chief executive Steve Rowe is also set to leave this summer after six years in the job as part of the company’s succession plan. He stands down at the full-year results this Wednesday and his last day is the AGM on 5th July. Rowe has been with the company since he was 15.
Steve Machin is to take over as CEO, while Kate Bickerstaffe will become co-CEO and Eoin Tonge chief strategy and finance officer. Investors will want to know what the new management team’s plans are for the long-established retailer. Its restructuring programme has finally begun to bear fruit, with a handful of earnings upgrades last year.
They will also be watching closely to see how significantly inflation and input costs will affect the retailer going forward and what it is doing to mitigate this.
M&S faces inflationary headwinds, possible online tax
Other retailers, including AB Food-owned Primark and Tesco have already announced that they are facing tough inflationary headwinds.
Marks & Spencer also recently criticised the Treasury’s proposed tax on online retailers. "This rationalisation will always start with the least profitable parts of a business - which, in the case of multi-channel retailers, will more often than not be High Street stores,” said chief finance officer, Eoin Tonge of the proposals.
"Therefore it is likely that, far from helping the High Street an online sales tax will damage shops and our high streets further, particularly in areas that require new investment to bring them back to life."
Strong Christmas trading for Marks
However, the retailer posted an upbeat Christmas trading statement in February, with food sales up 12.4% to £1.9 billion on the year 2019 to 2020 and clothing and home sales up 3.2% to £1.1 billion compared to the same period.
"Trading over the Christmas period has been strong, demonstrating the continued improvements we've made to product and value,” outgoing CEO Steve Rowe said at the time. “Clothing and home has delivered growth for the second successive quarter, supported by robust online and full price sales growth.
“Food has maintained its momentum, outperforming the market over both 12 and 24 months. The market continues to be impacted by the headwinds and tailwinds that we reported in the first half, but I remain encouraged that our transformation plan is now driving improved performance."
International sales rose 5.1%, with online sales more than doubling. Marks & Spencer also strengthened its balance sheet and paid off its December 2021 bond maturity with cash, signing a new £850 million revolving credit facility, which matures in June 2025. It also sold two warehouses for £42.5 million in cash.
Management said in February that it expected the “strong trading” it had seen in the early part of the quarter “to be sustained” and that it was more confident that it would deliver on its increased earnings guidance. It expects full-year profits before tax and adjusting items of at least £500 million, assuming “no further material restrictions or lockdowns.”
Trading at 135.8p, the shares are down 48% since hitting a high of 260p in January, hit by the wider market sell-off. While difficult times lie ahead for the retail sector, Marks & Spencer shares are worth buying for the longer term.
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*Based on revenue excluding FX (published financial statements, June 2020).
Piper Terrett | Financial writer, London 24 May 2022
easyJet’s share price could be on the path to recovery, as it ramps up capacity to accommodate the anticipated summer boom.
Source: Bloomberg
Shares EasyJet Airline Revenue Flight attendant Airport
At 517p apiece, easyJet (LON: EZJ) shares remain 59% below their pre-pandemic crash level and have fallen by 44% since their May high of 922p last year.
And now all hopes for its share price recovery rest on a resurgent summer season.
easyJet share price: half-year results
Results brought broadly positive news for easyJet shareholders. Revenue increased by a substantial 524.2% to £1.498 billion compared to the same pandemic-ravaged half last year, where it made just £240 million. Within this, ancillary revenue rose by 632.9% to £513 million.
Capacity increased from 6.4 million to 30.2 million, driving passenger revenue up by 479.4% to £985 million, ‘as we flew increased levels of capacity compared to the same period last year.’ Passenger revenue per seat, a key metric, rose by 22.7% to £32.49.
And the FTSE 250 company highlighted that trade began to strengthen in February and March as Omicron restrictions were removed.
However, despite the positive trajectory, easyJet made another headline loss, this time of £545 million. While this is a better result than the £701 million it lost in the same half last year, headline costs rose by 117% to £2.043 billion, ‘primarily due to the increase in flown capacity.’
But the airline operator has reduced net debt by a third down to £600 million since September and has no debt set to mature until 2023. Further, it has a strong cash position, with a cash and equivalents balance of around £3.5 billion.
Further, the airline is currently hedged for 71% of jet fuel, and 29% hedged for H1 FY23, restricting the margin impact of currently sky-high oil prices. However, it told investors that higher fuel and USD exchange rates were ‘layering additional cost in H2.’
CEO Johan Lundgren exhorted that ‘easyJet has reduced its losses year on year, at the better end of guidance. The pent-up demand and removal of travel restrictions provided for a strong and sustained recovery in trading.’
Source: Bloomberg
Where next for easyJet shares?
easyJet says it ‘faces summer 2022 with optimism,’ and that customers are ‘returning strongly to us whilst also driving a step changed revenue capability.’
Lundgren expects ‘to operate 90% of FY19 capacity in Q3’ and revealed that easyJet has a ‘capacity on sale of around 97% of FY19 flying in Q4.’ He hopes this will leave the airline as ‘a winner in the post pandemic recovery of European aviation.’
And while business and city traffic remains below pre-pandemic levels, perhaps reflecting the cultural shift towards remote working, ‘in the second half of the year leisure and domestic routes have fully recovered with capacity at 113% and 104% of FY19 levels respectively.’
Meanwhile, ‘easyJet holidays is continuing to build, as the UK’s fastest growing holiday company and remains on track to carry >1.1 million passengers in FY22 with over 70% of the program sold.’ Overall, forward bookings are 76% sold for Q3 and 36% sold for Q4.
However, Lundgren admitted ‘it has been well documented that the industry is experiencing some operational issues so, as you would expect, we have been absolutely focused on taking action to ensure we have strengthened our operational resilience for this summer.’ This includes ‘proactively managing the schedule, reducing cancellations through various measures such as, boosting recruitment, and improving ID processing.’
However, the reputational damage is already done. With thousands of flights cancelled, missing luggage, and airport chaos, angry customers include stranded holidaymakers, business people, honeymooners, and in one extreme case, a customer who missed the chance to see their dying mother after their flight was cancelled.
But despite the disruption, easyJet argues ‘bookings continue to be strong as we have seen demand, post the impact of the Omicron variant, returning with the removal of travel restrictions.’
To cope with its staffing crisis, it’s even removing some seats, with easyJet now ‘operating our UK A319 fleet with a maximum of 150 passengers onboard and three crew in line with CAA regulations.’ The airline is legally compelled to provide one cabin crew member per 50 passengers.
Despite costing precious revenue, airlines are usually held liable for compensation for flight cancellations within two weeks of departure. And staff shortages is not an acceptable excuse.
HSBC analyst Andrew Lobbenberg Open My IG ‘what we can see, looks decent. Winter remains the unknown. Concerns over weakening consumer confidence in the autumn abound. We think there is a possibility that these fears may be overdone. We expect consolidation, aircraft and labour shortages combined to limit capacity and support yields in a challenging economic environment.’
But with inflation at 9% amid a worsening cost-of-living crisis, a question mark hangs over the anticipated summer boom for easyJet shares.
Trade over 16,000 international shares from zero commission with us, the UK’s No.1 trading provider.* Learn more about trading shares with us, or open an account to get started today.
*Based on revenue excluding FX (published financial statements, June 2020).
Charles Archer | Financial Writer, London 23 May 2022
Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 23rd May 2022. These are projected dividends and likely to change. IG cannot be held responsible for any changes made.
Dividends highlighted in red include a special dividend, therefore some or all of the amount will not be adjusted. Amount in brackets is the expected adjustment after special dividends excluded (where shown on major indices). Dividend adjustments due to be posted on a bank holiday will usually be posted on the previous working day.
If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video.
NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account.
Index
Bloomberg Code
Effective Date
Summary
Dividend Amount
N/A
Special Div
How do dividend adjustments work?
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Gold prices rose the most since early March as the US dollar fell; markets seemed to be trimming 2023 Fed rate hike expectations and XAU/USD still needs to breach critical resistance for bullish view.
Source: Bloomberg
Forex Shares Commodities Gold United States dollar XAU/USD
Gold prices soared almost 1.4% on Thursday in the strongest rally since early March. The anti-fiat yellow metal likely capitalized on a combination of a weaker US dollar and falling Treasury yields. This was during a relatively quiet day in terms of economic event risk. Volatility cooled in global stock markets a day after the S&P 500 futures clocked in a roughly 4 percent drop.
It seems that traders might be growing increasingly concerned about a recession in the United States. Taking a look at Fed Funds futures, markets have been gradually paring Federal Reserve rate hike expectations for 2023. This has been coinciding with losses in the stock market. Meanwhile, the gap between search interest for the terms ‘inflation’ and ‘recession’ have been increasingly narrowing.
Gold has been struggling to meaningfully capitalize despite the highest inflation in 40 years. What has likely been holding it back is a combination of a strong US dollar and surging Treasury yields. Until the direction in the these start to change, it might be difficult for the yellow metal to sustain meaningful upside progress.
The economic docket is once again rather lackluster heading into the weekend, leaving the yellow metal paying attention to broader fundamental themes in the market. Conditions are still relatively volatile. Despite softer US yields, risk aversion could threaten gold is the US dollar once again catches a bid.
Gold technical analysis
On the four-hour chart below, gold prices are testing the former rising trendline from 2021. It seems to be holding as new resistance, with the 100-period Simple Moving Average just above. This is also closely aligned with the 1849 – 1858 inflection zone. Breaking above the latter could increasingly shift the outlook bullish. Otherwise, rejecting resistance could see prices retest early 2022 lows.
XAU/USD four-hour chart
Source: TradingView
Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco 20 May 2022
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Target’s 25% share price fall, the worst one-day decline since 1987’s Black Monday, dragged other retailers down and hit the broader market.
Source: Bloomberg
Shares Price Target Corporation Retail Inventory Warehouse
Target widely misses estimates
The US behemoth retailer Target widely missed analyst estimates as a surge in costs squeezed margins in the first quarter (Q1).
When the company cut its profit forecast it triggered the sharpest one-day decline in its share price since the Black Monday 1987 crash.
Target’s supply chain constraints, rapidly rising fuel, and freight costs in Q1 amid a shift in consumer shopping habits which led to a sharp slowdown in apparel and home goods sales, led the company to mark down bloated inventories and lower its forward guidance.
The retailer stated that it would have to spend $1 billion more on freight in 2022 than it expected to at the start of the year as widespread Covid lockdowns in China created congestion at Asian sea ports, and rising petrol prices have driven up the cost of trucking.
Added to that, Target ordered too many bulky home goods which US consumers bought less of, and which are especially costly to ship and store because of their size and weight, forcing the company to rent additional warehouse space in the tightest warehouse market on record to store its excess inventory before selling it off at highly discounted prices to free up storage space.
All of the above led to Target’s net income dropping by 52% in the first quarter of 2022 compared to the same period in 2021 and a near 25% drop in its share price on Wednesday.
Where to next for Target’s share price?
Year-to-date the Target share price has declined by 30%, the majority of which yesterday, with it falling to the 61.8% Fibonacci retracement of the 2020-2022 bull market at $155.22 before consolidating in the short-term.
Source: ProRealTime
Over the next few days this year’s decline is expected to continue with the August 2020 high at $152 representing the first downside target, followed by the October 2020 low and the 200-week simple moving average (SMA) at $146.90 to $144.83. In this area the share price may find support.
On the daily chart a huge gap has been formed between Tuesday’s low at $209.27 and yesterday’s high at $167.77 which is not expected to get filled for several months at the very least.
Source: ProRealTime
In case of the share price stabilising in the short-term, the 50% retracement of the advance from the March 2020 pandemic low and the November 2020 high at $176.40 to $177.43 may act as initial resistance.
If not, the next higher February low at $183.07 is likely to be more solid resistance and is expected to cap, if reached at all.
As 2022 heads towards a seemingly inevitable recession, some of the larger US tech stocks are becoming ever more reasonably priced.
Source: Bloomberg
Like the 2020 covid-19 pandemic crash, and the financial crisis of 2008 preceding it, 2022 is gearing up to be a financial bloodbath.
The Nasdaq Composite fell 4.73% yesterday alone, and is down nearly 28% year-to-date.
Of course, this is a very different crisis; one of supply chain shocks, sky-high inflation and labour shortages.
And while the UK’s oil and bank heavy FTSE 100 is perfectly positioned to take advantage of record commodity highs and rising interest rates, the opposite is true of the US’s Nasdaq Composite. The high-growth index is packed with technology stocks that rely on being watered with the nectar of loose monetary policy.
But those days are gone. The US Federal Reserve, in common with many western central banks, is moving to clip its $9 trillion balance sheet and increase interest rates to potentially as high as 2.9% says the Economist Intelligence Unit.
Meanwhile, former Goldman Sachs CEO Lloyd Blankfein has warned the risk of recession is ‘very, very high.’
This leaves NASDAQ stocks with high debt, or in the early stages of growth, in peril. The likes of Peloton, Zoom and DocuSign have already collapsed from their share price highs. Of course, they could deliver exceptional returns if they successfully weather the oncoming storm, but this is by no means guaranteed.
On the other hand, the NASDAQ Composite also includes market titans that have been hit by the shotgun spread of negative market sentiment, despite boasting strong balance sheets, defensive qualities, and continued growth in the face of the 2022 recession.
2022 recession: 5 top NASDAQ sell-off stocks to watch
1) Amazon (NASDAQ: AMZN)
Amazon, the largest e-commerce stock in the world, saw net sales rise by 22% to $469.8 billion in 2021. And it still delivered growth in Q1 2022, despite online sales dropping slightly.
Further growth potential can be found in its AWS cloud computing platform, which has grown 34% annually over the past two years. AWS is now the cloud market leader, with 33% of global market share according to Finbold, more than Microsoft’s Azure and Google’s Cloud offerings combined.
And with new CEO Andy Jassy spearheading a $10 billion share buyback scheme and 20-for-1 stock split, Amazon’s share price remains down 37% year-to-date.
2) Alphabet (NASDAQ: GOOGL)
The Google and YouTube owner saw revenue grow by an impressive 23% year-over-year to $68 billion in Q1. Despite representing ten times the Q1 revenue of 2010, it’s still a slowdown compared to pandemic breakthroughs.
However, Google search revenue grew by $8 billion to $39 billion, demonstrating its stranglehold in the search arena. And Insider Intelligence data indicates that Google will capture a colossal 29% of total global online ad spend in 2022.
While YouTube is seeing revenue increases slow as TikTok steals market share, Google Cloud’s 43% growth was highlighted as ‘strong’ by CEO Sundar Pichai.
Like Amazon, it’s proposing a 20-for-1 stock split in the summer and has its own share buyback scheme of $70 billion. While ad spending could decrease in the 2022 recession, the giant’s dominant market position makes it defensively resilient, despite being down 23% year-to-date.
3) Microsoft (NASDAQ: MSFT)
Microsoft is the computer company that changed the world. When David Letterman asked Bill Gates what the internet was back in 1995, the audience laughed, and Gates replied ‘the new big thing.’ Early investors who were watching have been handsomely rewarded.
In Q3 results, revenue rose 18% to $49.4 billion, representing exceptional growth and demonstrating the company’s market grip. Chairman and CEO Satya Nadella enthused that ‘digital technology will be the key input that powers the world’s economic output.’
Like and Amazon and Alphabet, its executive vice chair and CFO Amy Hood lauds its cloud platform as key to continued growth, saying ‘continued customer commitment to our cloud platform and strong sales execution drove better than expected commercial bookings growth of 28% and Microsoft Cloud revenue of $23.4 billion, up 32% year over year.’
Microsoft increased its share buybacks by 25% to $12.4 billion in the quarter yet remains down 24% year-to-date. Moreover, its proposed purchase of Activision could see further growth as the metaverse develops.
4) PayPal (NASDAQ: PYPL)
PayPal, one of the first forays of serial inventor Elon Musk, is like Microsoft in that it benefits from first-mover advantage, but in the FinTech space.
2021 revenue soared by 18.4% year-over-year to $25.4 billion. And the company is projecting growth of between 11% and 12% in 2022; impressive, yet slower than the previous pandemic-charged two years.
However, PayPal has indicated it expects to reach 750 million active accounts by 2025, a compound annual growth rate of 20%.
And it expects to hit $1.4 trillion in payment volume in 2022, up from $1.25 trillion last year.
With its share price down 60% year-to-date, the FinTech has a price-to-earnings ratio of 25, less than a third of pandemic levels.
And despite increased competitors, PayPal’s current $90 billion market cap is whalelike compared to direct rivals like Payoneer, and almost twice that of Shopify.
Further growth could come from its consumer-focused digital wallet, Venmo, which is already accepted by Amazon as a payment choice.
5) Meta Platforms (NASDAQ: FB)
Meta, the owner of Facebook, WhatsApp, and Instagram, is the largest social media company in the world. With just shy 2 billion daily active users on Facebook alone, the social media giant is used 24/7 by more than a quarter of the world’s population.
The NASDAQ-listed company has been hit hard by a series of headwinds in 2022; the rise of TikTok, falling active users earlier in the year, political scrutiny, Apple’s privacy changes, and investor dissatisfaction with its Metaverse focus.
However, in Q1 results CEO Mark Zuckerberg enthused ‘we remain confident in the long-term opportunities and growth that our product roadmap will unlock…more people use our services today than ever before.’
Revenue rose by 7% year-over-year to $27.9 billion, and the company expects Q2 revenue to grow further to between $28 to $20 billion. The social media company also repurchased $9.39 billion of stock, with a further $29.41 billion authorized for further repurchases.
Moreover, its headcount is up 28% on the year to 77,805 as it expands its Metaverse vision. Down 43% year-to-date, Meta is a NASDAQ market titan that may be oversold as the 2022 recession progresses.
*Based on revenue excluding FX (published financial statements, June 2020).
Charles Archer | Financial Writer, London 19 May 2022
Nvidia’s share price has plunged by close to 40% year-to-date. Can its upcoming Q1 results aid to reverse the bearish sentiments?
Source: Bloomberg
Shares Nvidia Price–earnings ratio Graphics processing unit Valuation Cryptocurrency
When does Nvidia report earnings?
NVIDIA is set to release its quarter one (Q1) financial results on 25 May 2022, after market closes. At the time of writing, expectations for its Q1 earnings per share (EPS) is coming in at $1.29, up 40.2% year-on-year (YoY). Revenue is also expected to increase to $8.1 billion, up 43.4% from a year ago.
Nvidia earnings – what to expect
For the upcoming earnings release, much will still depend on its two core business segments, gaming and data centres, to deliver. Recent outperformance for Advanced Micro Devices (AMD) results point to resilient demand in the data-centre space, which may bode well for Nvidia by highlighting ongoing tailwind from enterprises’ digital shift into artificial intelligence (AI) and high-performance computing. While revenue growth may be expected to moderate further on a YoY basis from the initial Covid-19 surge, an expected 43.4% increase still points to an above-trend growth rate over the past five years. Ahead, the huge untapped market for consumers’ upgrades to newer versions of its GTX-series graphics cards may continue to be a catalyst to underpin demand in the months ahead.
That said, a key risk to watch may be the plunging cryptocurrency prices from April into May, which may be a potential roadblock for its gaming segment. This is considering that mining demand tends to fade in line with falling cryptocurrency prices, which translates to lesser demand for Nvidia’s cryptocurrency mining processor (CMP) sales. Bitcoin and Ether are currently trading down around 36% and 45% year-to-date at the time of writing.
Nvidia’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin has remained resilient thus far, with its product technological advantage allowing rising costs to be passed on to consumers through higher average selling prices (ASPs). An area of uncertainty will be the potential easing of global chip shortages, which may make further rise in ASPs unsustainable. Recent statement from Nvidia in end-April shows that its graphics processing units (GPUs) are ‘restocked and reloaded’, which suggests that the peak of GPU shortages may be nearing or even past its peak. If this holds true, that may translate to some moderation in product pricing from its previous Covid-19-induced surge. This will place its margins on close watch over the coming months.
Source: Nvidia Corporation
Nvidia’s valuation
The ongoing interest rate upcycle has put equities’ valuation in focus, particularly for growth names like Nvidia whose lofty valuation is driving greater sensitivity to the US Treasury yield movement. Recent heavy sell-off has brought about a re-rating for Nvidia’s forward price-to-earnings (P/E) valuation back to its pre-Covid-19 levels of 30.3, its lowest since May 2020. While its valuation may tower above its industry peers, an attributing factor for the premium is due to its above-average growth. Its five-year historical earnings per share growth stands at 52.8%, way above the semiconductor industry average of 15.9%. High market expectations are still being priced with an absolute forward P/E above 30 and failure to deliver in the upcoming earnings release may run the risk of further re-rating in share price closer to industry mean.
Source: Nasdaq
Source: Nasdaq
Currently, the stock has 40 ‘buy’ recommendations, nine ‘holds’ and one ‘sell’. The Bloomberg 12-month consensus target price of $323.95 suggests a potential 87.6% upside from current price of $172.64.
Nvidia shares – technical analysis
On the four-hour chart, a bullish divergence on both the relative strength index (RSI) and moving average convergence divergence (MACD) indicators may increase the chances of a near-term relief rally, coming after the heavy sell-off of close to 45% since the start of April. This comes along with a bullish pin bar candlestick on the daily chart last week. That said, longer-term outlook will remain fragile with ongoing policy tightening set to cool economic growth momentum, which raise some doubts on whether any bounce can be sustaining. The longer-term downward trend for Nvidia’s share price remains intact, with the series of lower highs and lower lows imprinted since November last year. A look at the 100-day and 200-day simple moving averages (MA) also revealed a bearish crossover, marking its first time since 2019.
A near-term relief may potentially drive a retest of the $206.00 level, where a previous support level will now serve as resistance to overcome. Near-term support may be at the $156.30, where some dip-buying was seen towards the end of last week.
Source: IG charts
Source: IG charts
Yeap Jun Rong | Market Strategist, Singapore 19 May 2022
AMC shares popped up 10% yesterday to close at $12.90 apiece. The indebted, but much-loved, cinema company experienced the covid-19 pandemic as a double-edged sword.
Source: Bloomberg
Shares AMC Theatres Debt Investment Interest Interest rates
AMC (NYSE: AMC) shares have varied between $2 and $73 over the past couple of years, with huge volatility in every swing. On one hand, repeated lockdowns saw its cinemas shuttered for months at a time, sending revenue down 77% in 2020 and current debt north of $5 billion.
On the other, ultra-loose monetary policy saw Reddit traders bestow upon it cultlike ‘meme stock’ status, seeing AMC’s share price soar far beyond fundamentals. This allowed the company to create millions of new shares, providing both the liquidity and creditor goodwill needed for recovery.
But at $12.90, it’s now priced where it was before the short squeeze of May 2021.
AMC share price: Q1 results
Q1 results were better than expected. Revenue grew by 430% year-over-year to $785.7 million, beating the Refinitiv average analyst consensus for $743 million. Meanwhile, its net loss narrowed to $337.4 million or 65 cents a share, down from $567.2 million or $1.42 a share in the same quarter last year.
Accordingly, adjusted EDITBA improved significantly, with a loss of $61.7 million compared to $294.7 million in Q1 2021.
Chairman and CEO Adam Aron posited that Q1 results ‘represent AMC’s strongest first quarter in two full years. We continue on our pandemic recovery trajectory, more than quintupling revenues and improving adjusted EBITDA by nearly eighty percent compared to a year ago.’
Detracting from the threat posed by streaming, the CEO lauded recent successes of hits like ‘Spiderman: No Way Home’ and ‘The Batman’ as evidence of ‘the enduring appeal of theatrical exhibition.’ The CEO enthused that ‘when Hollywood releases films that moviegoers want to see, people flock to cinemas in huge numbers.’
And with Marvel, Jurassic World, Toy Story, Top Gun and Avatar franchise films yet to be released, he told investors ‘the theatrical box office during the remainder of 2022 is very exciting.’
Source: Bloomberg
Where next for AMC shares?
At its core, AMC has to increase revenue or profitability, and it has to do this by selling more cinema tickets. And the chain only sold 39.1 million in Q1, half that of pre-pandemic levels, and worryingly, down on the 59.7 million sold in Q4 2021.
And with a brutal cost-of-living crisis exacerbated by sky-high inflation in AMC’s key markets, it’s having to struggle against the threat posed by streamers who arguably offer better value for money as consumers cut back on discretionary spending.
But the big challenge for AMC is its $5.52 billion debt mountain. Even accounting for cash and equivalents, net debt stands at a whopping $3.84 billion. The cinema operator spent $82 million on interest payments in Q1 alone, and interest rates are only going to keep rising in the near term. However, Aron raised $950 million in Q1 to refinance first-lien debt and has made clear that none matures until 2023.
To take advantage of its meme stock status, AMC has launched ‘multiple NFT programs’ and has started accepting cryptocurrency payments. It’s also spent $28 million on an 11% stake in NASDAQ-listed Hycroft Mining.
Aron is also planning further outside-the-box investments, saying ‘I'd like to think there will be more third-party external M&A announcements going forward…our shareholder base has given us capital to deploy with the clear expectation that we are going to do exciting things.’
But most analysts remain sceptical of AMC stock.
Wedbush analyst Alicia Reese has assigned it an underperform rating, with a price target of $4, citing its crypto launch, ongoing volatility, and unstable plans. Meanwhile, MKM Partners analysts have cut their rating to a sell with a 12-month price target of $1, noting that achieving ‘solvency came at a steep price.’
However, the Swiss National Bank recently increased its investment in AMC to 2.2 million shares, despite having made a heavy loss on its original investment. And Ray Dalio’s Bridgewater Associates disclosed it had bought up 27,100 AMC shares in its latest portfolio update.
But AMC now has 516 million weighted-averaged shares outstanding, up from 104 million at the end of 2019. Moreover, Aron has sold $40 million worth of AMC shares since November 2021. This level of insider selling is hardly confidence-inspiring.
For now, AMC’s share price is in the hands of emotion-driven retail traders. Only volatility can be predictably guaranteed.
Charles Archer | Financial Writer, London 19 May 2022
The mobile phone giant says growing costs will hit earnings this year
Source: Bloomberg
Vodafone Group warned that inflation will negatively impact its earnings figures in the coming year. The mobile phone company told investors at its full-year results for 2022 that the current macroeconomic climate “presents specific challenges, particularly inflation” and that this is likely to “impact our financial performance in the year ahead.”
Shares rose 2% on Tuesday to 120.3p but dropped back 1% to 118.76p on Wednesday.
Revenues rose 4% to €45.58 billion, boosted by growth in service revenue in Europe and Africa. Operating profits increased by 11% to €5.7bn (from €5.1 billion last year) thanks to the increase in earnings and a reduction in depreciation and amortisation costs compared to the same period in 2021.
Free cash flow also improved to €3.3 billion (from €3.1 billion last year) and Vodafone says its cost-cutting programme has delivered €1.5 billion of efficiencies over the past two full years. However, pre-tax profits fell to €3.95 billion (from €4.4 billion in 2021). Net debt also increased by 2.6% to €41.6 billion due to its €2 billion share buyback programme.
Rising costs to hit the mobile phone giant
“We delivered a good financial performance in the year with growth in revenues, profits and cash flows, in line with our medium-term financial ambitions,” chief executive Nick Read told shareholders. “Our organic growth underpinned a step-change in our return on capital, which improved by 170bps to 7.2%.
“Whilst we are not immune to the macroeconomic challenges in Europe and Africa, we are positioned well to manage them and we expect to deliver a resilient financial performance in the year ahead.”
Management expect adjusted earnings to come in at between €15 billion and €15.5 billion for the full-year 2023, while adjusted free cash flow is forecast to be around €5.3 billion.
Meanwhile, Vodafone is negotiating a long-term energy deal with Centrica to keep costs down.
Read says he is focused on improving the group’s performance in Germany, which he says is disappointing and pursuing merger opportunities with Vantage Towers. “These actions, together with the simplification of our portfolio and the ongoing delivery of our organic growth strategy, will create further value for our shareholders,” he said.
Vodafone faces pressure from activist shareholders
Vodafone has been under pressure from activist investor Cevian, led by Carl Icahn, which built up a stake earlier this year, to shake up the company and consolidate the European telecoms sector.
Since then, a new majority shareholder – UAE-owned Emirates Telecom – has emerged with a stake of around 10% in the company. Emirates Telecom says it supports Vodafone’s strategy.
Read says that he is committed to finding acquisition targets in Europe. However, nothing has yet transpired despite interest from Iliad in its Italian arm and negotiations with Spain’s Masmovil. The company is, nevertheless, currently talking to Hong Kong-based CK Hutchinson to combine its UK business with Three UK.
Analysts at Citigroup initiated coverage on Vodafone shares, setting a price target of 165p.
Vodafone shares have long disappointed. However, at 118.76p, they remain a long term buy on activist investor interest.
*Based on revenue excluding FX (published financial statements, June 2020).
Piper Terrett | Financial writer, London 19 May 2022
Today, we look at where the four markets are heading: AUD/USD, Nasdaq, Brent Crude Oil and Bitcoin
Source: Bloomberg
Forex Indices Commodities United States dollar AUD/USD Nasdaq
Risk sentiment returned to the market this week and eased growing concern after the release of strong US retail and industrial data. In Australia, the RBA’s May meeting minutes put the possibility of a 40bps hike on the table for June and China’s plan to ease Shanghai out of its lockdown has supported energy prices in recent sessions.
AUD/USD
The concern for a US recession triggered by hotter than expected CPI data last week managed to push the AUD/USD to its lowest point since June 2020. Moreover, the demand for the Aussie dollar has been hit as iron ore prices tumbled, weighing heavily on the AUD as a commodity currency.
This week the Australian currency was lifted as the RBA’s minutes increased the probability of a 40bps rate rise. The Australian dollar rose to 70.15 and delivered its third consecutive day of gains but was still more than 5% lower than a month ago.
From a technical standpoint, the rise on Tuesday has helped the AUD/USD break through April's descending trend line while bringing the 20-day moving average around 0.705 into view. Current support sits at 0.6932.
Source: IG
Nasdaq
U.S. stocks rebounded on Tuesday thanks to retail sales rising 0.9% last month, following a 1.4% surge in March. The data helped ease growing concern about the economic outlook which has lately fuelled pessimistic sentiment. Meanwhile, Federal Reserve chairman Jerome Powell reiterated in a public speech that he will 'keep pushing' to tighten the U.S. monetary policy until it is clear that inflation is in decline.
Nasdaq led the advance on Wall Street by soaring 2.62%. Technically, the bounce has broken through the April trendline and brought the 20-day MA at around 12722 as a possibility. Looking forward, the line connected by previous lows can be viewed as a key support for the Nasdaq while the March low (12944) should be a key challenge in the near future.
Source: IG
Brent Crude oil
The concern about supply and demand has pushed up oil prices in recent sessions.
The ongoing conflict in Ukraine shows no signs of easing and with the expectations of further bans on Russian energy by the EU and US decisively means that a lack of supply will be a long-term norm for crucial energy.
On the demand side, China recently announced it would bring normality back to 25 million Shanghai residents by mid-June. This wouold offset previous concern for a shrinking demand in oil even if the risk of a future lockdown can’t be ruled out. Brent Crude rallied sharply in the second half of last week and edged above the $110 level. The daily chart shows that the price is now sitting above the 20, 50, and 100 MA, suggesting a bull-biased sentiment is taking the lead.
Source: IG
Bitcoin
Cryptocurrency has shown signs of stabilizing after a bloodbath last week wiped $200 billion from the market, with the prices of Bitcoin and Ethereum plunging to their lowest level in more than 12 months.
The selling pressure for Bitcoin has shown some signs of easing this week following optimism resurfacing in the stock market. The short-term bullish idea has pushed the price up from its 18-month low level recorded last week at $25385 and is now back at 30k.
The four-hour chart shows a clear uptrend for the price to bottom out from the recent low while encountering resistance near 30436. However, the long-term chart (weekly) suggests the price is staying way behind its short, mid and long-term moving averages. In other words, the bear-biased sentiment remains intact.
Source: IG
Source: IG
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Hebe Chen | Market Analyst, Melbourne 18 May 2022
EUR/USD tries to stabilise above its January 2017 low with EUR/GBP and GBP/JPY also holding ahead of this week’s UK unemployment, inflation, and retail sales data.
Forex Pound sterling Euro GBP/JPY Japanese yen United States dollar
EUR/USD tries to stem its slide
Last week EUR/USD dropped to $1.035 amid worries of a looming recession and the interest rate differential between the European Central Bank’s (ECB) and the US Federal Reserve’s (Fed) monetary policies. The cross dropped to a level last seen in January 2017 and by over 15% from its 2021 Covid-19 pandemic peak, before levelling out.
The fact that the currency pair stabilised has probably come as no surprise to technical traders since multi-year key support seen between the March 2015, December 2016, and January 2017 lows at $1.0463 to $1.0341 is deemed to withstand the first test. Having said that, the downtrend remains firmly entrenched and as long as the early May high at $1.0642 isn’t overcome, the $1.035 to $1.0341 area is expected to eventually give way with the major psychological $1.00 mark, or parity, then being targeted.
Minor resistance above the 28 April low at $1.04723 comes in along the one-month resistance line at $1.05 and also at Thursday’s $1.0529 high.
Source: IT-Finance.com
EUR/GBP stabilises above 200-day simple moving average (SMA) ahead of UK data
EUR/GBP’s decline off last week’s £0.8618 high earlier today found support at £0.8472, not far above the 200-day SMA at £0.8446, ahead of this week’s UK unemployment, consumer price index (CPI) and retail sales data.
While the £0.8472 to £0.8446 support zone holds, a rise back towards the early and mid-May highs at £0.8591 to £0.8618 is on the cards.
Were this resistance area to be overcome, the September peak at £0.8658 and also the late May and July 2021 highs at £0.8669 to £0.8671 would be next in line.
Source: IT-Finance.com
GBP/JPY decline looks to have ended at last week’s low
The slide in GBP/JPY seems to have ended at last week’s ¥155.61 low ahead of this week’s unemployment, CPI and retail sales data releases.
From a technical point of view an Elliott Wave zig-zag correction, also called and a,b,c correction, may have ended at last week’s ¥155.61 low now that a brief rise above Friday’s ¥158.51 high has been seen. If so, a continued advance should eventually take the cross to above its April ¥168.43 peak.
For this scenario to become more probable a rise and daily chart close above the one-month downtrend line at ¥160.86 should ideally take place this week with the wave ‘b’ high at ¥164.25 representing the next upside target. A drop through the current May trough at ¥155.61 would invalidate the bullish technical set-up and probably provoke a resumption of the recent descent towards the December-to-May uptrend line at ¥152.46.
The gaming company unveiled first-quarter results last week
Source: Bloomberg
Shares Roblox Investor Free cash flow Jefferies Group Investment
Losses at Roblox rose 16% to $161.7 million in the first-quarter from $136.1 million last year as the benefit of Covid-related bookings waned.
However, revenues at the popular US children’s gaming platform jumped 39% in the first-quarter to $537m, compared to the same period last year ($386.9 million).
That said, Roblox admitted it expects to post losses “for the foreseeable future” even as it anticipates “generating net cash from operating activities”. Shares in the gaming company fell 4% on the day of results, although they recovered some ground on Monday.
"We remained focused on delivering our innovation roadmap to unlock the full potential of the Roblox platform and drive long-term returns for investors," David Baszucki, Roblox’s chief executive officer told investors. "Over the past two quarters, we have launched a number of notable innovations, including spatial voice and layered clothing that will continue driving user growth, engagement and monetization."
Roblox’ Covid fillip wanes
Hours engaged increased by 22% to 11.8 billion from the same period in 2021, while daily active user numbers rose by 28% to 54.1 million in the quarter. Roblox says two-thirds (77%) of its users hail from outside North America, while users aged over 13 increased by 38% year-on-year and accounted for over half of daily active users.
However, bookings in the first-quarter fell 3% to $631.2 million due to tough comparative figures in the same period last year when stronger Covid restrictions were in place. These figures were lower than analysts had forecast.
In the first-quarter, free cash flow stood at $104.6 million, while earnings before interest, tax, depreciation and amortisation fell to $67.9 million. Management says both figures fell “significantly” compared to last year as the company invested in headcount, infrastructure and developer expenses but bookings remained flat.
Riding the Metaverse wave
Roblox looks set to continue its investment going forward and is focusing heavily on the metaverse, which management believe is “an uncommon opportunity”. Indeed, the company told investors in its shareholders’ letter that it thinks this “new form of communication” will change how people connect with each other and that over the long-term, the opportunity is ultimately “potentially larger and more profound” than other innovations in social networking.
Analysts at broker Jefferies raised their second-quarter earnings forecasts to losses of -$0.25 per share (from $0.30 a share). They currently have a $50 price target on the shares.
Roblox shares are down 51% in the past year to $34.39 and remain well off their highs of $141.60 seen in November 2021. They could travel the crest of the metaverse wave and many other US companies, such as Meta and even Wendy’s, are investing heavily in the virtual world. However, with losses likely to continue for some time, it’s unclear when the shares may receive a much-needed short-term boost.
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*Based on revenue excluding FX (published financial statements, June 2020).
Piper Terrett | Financial writer, London 17 May 2022
Peloton shares hit their lowest price on record last week after sobering Q3 results saw CEO and President Barry McCarthy label the turnaround effort ‘emotionally draining.’
Source: Bloomberg
Shares Revenue Peloton Cash Investor Apple Inc.
Peloton's (NASDAQ: PTON) share price peaked at $163 in December 2020 but fell to as little as $12 during intra-day trading last week.
A Sex and the City heart attack, safety investigations by the US Department of Justice, and stinging criticism by 5% shareholder Blackwells Capital's Chief Investment Officer Jason Aintabi haven’t helped.
Neither has the axing of 2,800 staff earlier this year, some without notice.
And despite recovering to $16 today, Peloton’s $5 billion market cap is a tenth of the $50 billion value it commanded just two years ago.
Peloton share price: Q3 FY22 results
Peloton’s Q3 revenue fell by 24% year-over-year to $964.3 million, as connected fitness revenue from the physical sales collapsed by 42% to $594.4 million. The company blamed ‘a reduction in consumer demand exiting the pandemic’s peak’ and ‘higher than anticipated Tread+ returns totaling $18 million related to our May 2021 product recall.’
On the other hand, subscription revenue rose by 55% year-over-year to $369.9 million. Subscriptions now account for 38.4% of total company revenues, more than double the 19% of Q3 FY21. Peloton is ‘taking steps to accelerate (this shift) with our hardware price changes and FaaS strategy.’
Subscription gross profit was $252.1 million in Q3, representing 63% year-over-year growth, while subscription gross margin rose from 64.6% to a healthy 68.1%.
However, gross profit fell by 59% year-over-year to $184.2 million, driven by price reductions, higher delivery outlays, port and storage costs, and recall expenses. Worse, operating expenses more than doubled to $920 million, representing 95.4% of the quarter’s revenue compared to 36.3% a year ago.
This led Peloton to declare an overall net loss of $757.1 million net loss. For context, it only lost $8.6 million in the same quarter last year.
Source: Bloomberg
Where next for Peloton shares?
It was a tale of two quarters for Peloton. On one hand, equipment sales are collapsing alongside consumer demand, as the pandemic ends amid a rising cost-of-living crisis. On the other, subscriptions are soaring, as the affordability of its digital-only offering gains in popularity.
McCarthy advised that ‘turnarounds are hard work. It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full contact sport.’
The CEO highlighted stabilising cash flow as a key priority, warning ‘inventory has consumed an enormous amount of cash, more than we expected’ but consoling that ‘the obsolescence risk is negligible, and we believe the inventory will sell eventually, so this is primarily a cash flow timing issue, not a structural issue.’
Bernstein analyst Aneesha Sherman concurs, saying ‘it's about cash flow buffer in an environment where supply chain logistics and storage of these bikes is getting more and more expensive…hardware sales were half of what they were a year ago, and hardware inventory is double what it was a year ago.’
UBS analyst Arpine Kocharyan thirded the sentiment but expects investors to be primarily concerned about Peloton’s short-term ability to preserve cash flow and liquidity. McCarthy warned that Peloton’s $879 million in unrestricted cash left it ‘thinly capitalized,’ and has signed a $750 million loan agreement with JP Morgan and Goldman Sachs.
Moreover, The Wall Street Journal reports Peloton is courting institutional investors to take a 15-20% stake to help improve cash flow.
Of course, market titans like Apple or Amazon might spot an opportunity to purchase significantly more. Peloton ranks second behind Apple in February’s Prophet Brand Relevance Index, while McCarthy argues its sub-1% subscriber churn rate is ‘the best I’ve seen.’
The CEO aspires to see Peloton increase its user base to 100 million members, up from the current 7 million, but admits ‘it’s a long, long way from where we sit today.’
New initiatives to create growth include expanding deals with third party retailers, more aggressively marketing its digital-only app, growing in international markets, and escalating its Fitness-as-a-Service model. Encouragingly, April price changes could deliver ‘roughly $40 million of incremental revenue monthly,’ as the rate of subscriber growth increases off the back of cheaper physical sales.
BMO Capital Markets analyst Simeon Siegel believes management is in a paradox, noting ‘the company continues to suggest with their words that they know they need to turn around,’ but conversely ‘holding onto this notion that their growth story is their North Star.’
And with revenue expected to fall by 29% in this quarter to between $675 to $700 million, investor patience may start to wear thin.
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Charles Archer | Financial Writer, London 16 May 2022
Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 16th May 2022. These are projected dividends and likely to change. IG cannot be held responsible for any changes made.
Dividends highlighted in red include a special dividend, therefore some or all of the amount will not be adjusted. Amount in brackets is the expected adjustment after special dividends excluded (where shown on major indices). Dividend adjustments due to be posted on a bank holiday will usually be posted on the previous working day.
If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video.
NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account.
Index
Bloomberg Code
Effective Date
Summary
Dividend Amount
SX5E
SAP GR
19/05/2022
Special Div
0.5
NDX
JD US
19/05/2022
Special Div
1.24
How do dividend adjustments work?
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Rivian’s share price fell by 88% to $20 on Wednesday. But at $25 today, a slow recovery may be in the works.
Source: Bloomberg
Shares Rivian Amazon Ford Motor Company Pickup truck Vehicle
Rivian's (NASDAQ: RIVN) Initial Public Offering became the US’s sixth-largest ever in November last year, launching at $78 a share just before the sustained market correction.
Offering the first-to-market EV pickup truck, Rivian shares quickly rose to $172 within a few days, but then fell by 88% to $20 apiece yesterday. However, after Q1 earnings, Rivian’s share price has recovered to $25.
Rivian share price: Q1 results
Rivian’s results were a mixed affair. The EV challenger generated revenue of $95 billion, below the $130.5 billion Refinitiv average analyst estimate. And it made a net loss of $1.59 billion, or $1.43 per share, up from $414 million a year earlier.
Rivian produced 2553 vehicles in the quarter, and delivered 1,227, up from 909 in Q4 2021. Its factory in Normal, Illinois, will eventually have an annual production capacity of 150,000 vehicles.
Moreover, it now has 90,000 vehicle reservations, up from the 83,000 in its last update. And Rivian maintained 2022 production guidance, staying on track to build 25,000 vehicles at a recently raised average purchase price is at $93,000.
However, it’s battling headwinds to fill these orders. To start with, the 25,000 annual production goal is half that of what was promised in its November IPO presentation. And the EV stock has lost ‘approximately a quarter’ of planned production since the end of March.
Rivian warned ‘the supply chain constraints will continue to be the limiting factor of our production,’ though CEO RJ Scaringe sought to calm investors, saying ‘we’ve seen really the worst of it, or sort of the valley, if you will, of the supply constraints.’
The company highlighted the worsening semiconductor shortage as a key concern, as well as ‘increased logistics costs due to expedited freight associated with supply chain challenges.’
However, Rivian noted that its currently low volume production on lines designed for higher volumes means that it will ‘continue to experience negative gross profit,’ but that ‘it will improve on a per vehicle basis as production volumes ramp up.’
Source: Bloomberg
Where next for Rivian shares?
Rivian burnt through $1.4 billion in cash in the quarter, with a net cash position of $17 at the end of Q1, down from $8.4 billion in the prior quarter. Expecting to spend $7 billion in 2022 alone, some will be concerned that it will have to issue additional shares before it hits profitability.
On the other hand, smaller rivals have weaker cash positions. And Rivian has confirmed it has enough financial firepower to launch its new low-cost model R2 and build its $5 billion second facility in Atlanta, Georgia by 2025, after receiving $1.5 billion in state and local incentives.
Redburn analyst Charles Caldicott counts this as a ‘big plus’ for the EV stock, while Wedbush analyst Dan Ives concurred, noting ‘the investment in the Georgia facility to accelerate the R2 platform will also be a long term positive.’
And Rivian has hired the President of auto supplier Magna International’s contract-manufacturing unit, Frank Klein, as its COO effective 1 June. The expert could be its key to solving its supply chain and production issues, in combination with the development of its revolutionary single motor powertrain ‘Enduro.’
Moreover, Rivian retains the backing of key stakeholders, including market titan Amazon. It’s producing 100,000 electric vans for the e-commerce giant by 2024, with the first 10,000 to be delivered at the end of this year.
And given Rivian’s share price weakness, CFRA Research analyst Garrett Nelson speculates that it could become an acquisition target for Amazon, ‘or a traditional automaker looking for a bolt-on EV acquisition.’ Amazon is already its second-largest shareholder with a 17.7% stake. However, its paper loss on this investment was a key reason for its own lacklustre Q1 results.
Morgan Stanley analyst Adam Jonas noted prior to results that Rivian’s enterprise value (market cap minus net cash) was only ‘just above zero dollars.’ Despite the improvement yesterday, trillion-dollar Amazon could take an in-for-a-penny approach with little additional risk.
However, after Rivian’s initial post-IPO lock-up period expired on Sunday, fellow shareholder Ford sold 8 million of its 102 million Rivian shares for $124 million at $26.80 per share. However, with a 10.5% stake remaining, Ford is still Rivian’s fourth-largest shareholder. And like Amazon, Ford’s poor Q1 results were directly due to a $5.4 billion paper loss on its Rivian investment.
But Rivian’s mountain is increasingly stiff competition. Ford’s own F-150 Lightning EV pick-up truck is taking market share, while Volkswagen has announced plans to invest $106 million launching its Scout EV pickup truck in the US in 2026.
But the race for the EV revolution is a marathon, not a sprint. With enough cash, in theory, to last until profitability, Rivian’s tortoise strategy could yet reap rewards.
Charles Archer | Financial Writer, London 13 May 2022
The pound continues to lose ground against the US dollar as risk-off sentiment intensifies in the markets, with the latest GDP release from the UK adding further fuel to the fire.
Forex Pound sterling GDP United States dollar United Kingdom Market trend
The March GDP figure shows a month-on-month contraction in the economy, playing into the recession warning signs the BoE offered at last week’s meeting.
(Video Transcript)
GBP under pressure
The latest data from the UK has done little to help aid the pound's pressure we've seen over the last few days.
The latest economic readings show a contraction in the month-on-month growth rate in the month of March, with that first quarter GDP coming in at 0.8%, below those forecasts of 1%.
Industrial production rose to 0.7% in March, that is better than those expectations of 0.5%, but the trade deficit has deepened to £11.55 billion.
GBP/USD chart
Let's take a look at a chart of the pound against the US dollar, because we've been tracking this trade over the last few weeks, definitely since we saw this drop below $1.30 here at the end of April.
We know that Bank of England (BoE) meeting on Thursday really hurt the pound in the short-term, seeing those concerns about economic growth coming from the BoE, from Andrew Bailey there.
The data that we've seen this morning has justified those concerns, showing that, yes, in fact, growth is stalling in the month of March, showing that recession in the monthly figure and expecting that recession to now deepen into the third quarter of the year.
So, that's definitely pricing into the pound, that negativity, also that overall bearish sentiment that we have in the markets, flying to safety, heading into the US dollar and not helping the pair.
The end in sight?
Is there any end in sight in the short-term? Well, it doesn't look like it at the moment. The RSI is showing those bears in control and so are those moving averages, and the way we're seeing these technical patterns in the daily candlestick continue to show that sellers are coming in.
We're struggling to find momentum bringing the pair up in the short-term. Yes, we saw it in yesterday's trade, we actually headed above the high that we saw on Tuesday, heading towards that high on Monday, quickly reversing to the downside and nicely painting a lower low sequence once again.
That's probably what sellers are focusing on now, bringing that pair down in the short-term, heading towards this 76.4% Fibonacci here at $1.2080, which is likely to be hit in the next few days if we continue to see this bearish sentiment in the pound against the US dollar.
Daniela Sabin Hathorn | Presenter and Analyst, London 13 May 2022
A brief examination of ASX lithium stocks, their advantages and drawbacks, and a rundown of the 10 best lithium stocks to watch in Australia this year.
Source: Bloomberg
Indices Shares Mining Electric battery ASX Metal
ASX lithium stocks: what you need to know
Lithium is a silvery-white alkali metal, with special properties that make it extremely useful in the production of lithium-ion batteries that act as the power source for Electric Vehicles.
Because lithium is both the least dense metal and least dense solid element, it is highly unlikely to be replaced in modern EVs by alternatives such as nickel. While nickel has been used in the past, it has 40% lower energy density, meaning more of the metal is required to create an EV battery.
However, lithium’s chemical disadvantage is its inherent instability. Lithium is highly reactive and must be stored in an inert atmosphere or vacuum such as oil. This makes it expensive to produce, transport, and store.
As the Electric Vehicle revolution gathers pace, by dint of the increasingly scarce and costly oil, or because of environmental concerns, lithium mining is likely to become ever more profitable in the long term. Of course, it does come with significant environmental concerns of its own, which the industry is taking steps to address.
Top 10 best ASX lithium stocks to watch in 2022
1) Pilbara Minerals (ASX: PLS)
PLS is ‘ready for the global energy transformation,’ and well-positioned to be a low-cost, long-term sustainable lithium producer. It describes itself as the ‘leading ASX-listed pure-play lithium company, owning 100% of the world’s largest, independent hard-rock lithium operation.’
Its Pilgangoora mine in the Pilbara region produces both spodumene and tantalite concentrate, and it counts Ganfeng Lithium and General lithium as partners. Its long-term strategy is to become an ‘integrated lithium raw materials and chemicals supplier in the years to come,’ in an attempt to be a major player in the lithium supply chain, underpinned by increasing demand for clean energy technologies.
2) Sayona Mining (ASX: SYA)
SYA is an emerging lithium producer with projects in Quebec, Canada and Western Australia. It’s in a strategic partnership with Piedmont Lithium in Quebec, having acquired North American Lithium. And it plans to integrate nearby Authier and Tansim projects, as well as its 60% ownership of the Moblan project, to create a world-scale hub.
The miner is ‘committed to downstream processing in Quebec to supply the fast-growing North American battery and EV market.’ And it also holds a large tenement portfolio in Western Australia for gold and lithium.
3) Core Lithium (ASX: CXO)
CXO is developing one of Australia’s most capital-efficient spodumene lithium projects, the Finniss Project in the Northern Territory. The prospector’s definitive feasibility study concluded that the mine has 173,000tpa of lithium concentrate, with a 10-year mine life.
Managing Director Stephen Biggins ‘prime directive is to deliver first production of high-quality lithium concentrate from the Finniss Project this year in the midst of a very high lithium price and high operating margin environment.’
A key advantage is that the mine has ‘arguably the best supporting infrastructure and logistics chain to Asia of any Australian lithium project.’ It’s only 88km from Darwin Port, the closest port to Asia.
4) Piedmont Lithium (ASX: PLL)
PLL aims to ‘develop a world-class integrated lithium business in the United States.’ It owns interests in the Carolina Tin Spodumene Belt in North Carolina, ‘the cradle of the lithium industry.’ The miner could become one of the lowest-cost producers of lithium hydroxide and is strategically placed to insert itself into the US electric vehicle supply chain.
Alongside its partner Sayona, it’s also developing interests in Quebec.
5) Ioneer (ASX: INR)
INR is expected to be the first new lithium chemical producer in the US in over 60 years. The miner owns a 100% interest in the Rhyolite Ridge Lithium-Boron project in Nevada, the only known lithium-boron deposit in North America, and one of two in the world.
In its 2020 feasibility study, it confirmed the site as a world-class project with a globally significant deposit that could set it up as a major lithium supplier for decades. It’s signed a deal to supply NexTech batteries from the mine and has been invited by the US Department of Energy to begin due diligence for a key loan programme.
Source: Bloomberg
6) AVZ Minerals (ASX: AVZ)
AVZ is entirely focused on developing its Manono project in the Democratic Republic of the Congo, potentially one of the world’s largest lithium-rich LCT pegmatite deposits. The miner’s objective is to leverage its DRC, financial and project development expertise to advance its 75% ownership of the project up the value curve.
However, it’s facing a legal battle. Chinese Zijin Mining, the country’s largest gold miner, is claiming a 15% share of the project, which AVZ has called ‘spurious and immaterial.’ This issue could take some time to resolve.
7) Mineral Resources (ASX: MIN)
MIN operates a growing world-class portfolio of operations across multiple commodities but its core activities are iron ore and lithium mining throughout Western Australia and the Northern Territory.
Key sites include Wodgina Lithium, which as the largest hard-rock lithium deposit in the world is expected to have a 30-year mine life. It operates the project in partnership with US giant Albemarle, and despite a production pause, is set to resume mining in Q3. It also owns 50% of the Mount Marion lithium project in partnership with Ganfeng Lithium.
Its diversification into iron ore and partnerships with global players makes MIN a safer choice for risk-averse investors.
😎 Liontown Resources (ASX: LTR)
LTR aims to ‘find, develop and supply battery minerals required by the rapidly growing Electric Vehicle and Energy Storage industries.’
It controls two lithium deposits in Western Australia and is expanding its portfolio through additional exploration, partnerships, and acquisitions. Its cornerstone is the Kathleen Valley project, one of the world’s largest and highest-grade hard rock lithium deposits.
The project is expected to supply 500,000 tonnes of 6% lithium oxide concentrate per year when production starts in 2024, with a mine life of 23 years. Its second project, Buldania, has over 15 million tonnes of 1% lithium oxide.
9) Allkem (ASX: AKE)
AKE was formed from the merger of two lithium giants, Orocobre and Galaxy Resources last year. It now controls a global portfolio of diverse, high-quality lithium chemicals. Headquartered in Buenos Aires, it operates lithium projects across Argentina, Australia and Japan, with development underway to meet significant expected market growth.
The company has partnerships with Toyota, the Jujuy provincial government and Prime Planet Energy & Solutions. And it plans to expand production 3-fold by 2026, mining 10% of the world’s lithium over the next decade.
10) Lake Resources (ASX: LKE)
LKE is a lithium developer which uses proprietary clean extraction technology to create high-purity battery quality lithium carbonate. Its tech partner, Lilac Solutions has designed a ‘benign water treatment’ which returns all water (brine) to the source without changing its chemistry, making it far more environmentally friendly than conventional brine evaporation or hard rock mining. Lilac is backed by the Bill Gates-led Breakthrough Energy Fund.
LKE’s flagship Kachi project together with three other lithium brine projects in Argentina covers 2,200 square km in a prime location in the lithium triangle, where 40% of the world’s lithium is produced at the lowest cost.
How to trade or invest in ASX lithium stocks
1. Learn more about ASX lithium stocks
2. Find out how to trade or invest in ASX lithium stocks
3. Open an account
4. Place your trade
You can open a position on ASX lithium stocks either through share trading or derivatives trading. Share trading means that you take direct ownership of the stock. By comparison, derivatives trading – such as CFD trading – allows you to speculate on the price movement of a company’s shares without actually taking ownership of them.
For a complete breakdown of the benefits and drawbacks of each strategy, please click here.
Source: Bloomberg
ASX lithium stocks: further important information
The best current alternative to lithium is nickel-based batteries. But lithium batteries charge quicker, and have no memory issues, meaning their maximum charging capacity isn’t affected by each charging cycle. And nickel batteries run hotter quicker, so usually require a cooling system.
On the other hand, lithium’s instability makes it around 50% more expensive to manufacture lithium batteries, which impacts the cost of an EV. Lithium batteries also usually have a shorter shelf life than nickel batteries before needing replacing. And because nickel is used more widely, the metal can already be recycled profitably.
But fundamentally, lithium is likely to be the metal that will power the EV revolution, unless there is a giant technological leap forward.
And to understand the potential the EV revolution has, market leader Tesla’s market cap, while volatile, usually hovers around $1 trillion, comparable to the cum of every other auto manufacturer in the world combined. And it produced less than one million vehicles in 2021, while the OICA estimates 57 million passenger cars were produced in total.
In Tesla’s Q1 earnings call, CEO Elon Musk argued ‘do you like minting money? Well, the lithium business is for you.’
Despite Tesla’s record quarterly profits, the global shortage is pushing lithium prices beyond record levels, threatening to arrest its so far rapid growth. The metal has risen in price from $12,000/tonne in 2017 to $78,000/tonne over the past five years. Musk has even speculated about setting up his own lithium mining company to maintain supply.
According to the IEA, the number of EVs produced more than doubled in 2021 to 6.6 million. And analysts expect lithium demand to increase tenfold by 2030, as legislation prohibiting the manufacture or sale of ICE cars in the future is being passed across vast swathes of the world, including in the EU, UK, USA, and even China.
Currently, China controls 80% of battery cell production and maintains a market-leading position in lithium refining. The war in Ukraine, combined with the Shanghai pandemic lockdown has forced companies worldwide to examine the strength of supply chains and perhaps pay more for higher security of supply.
Already, US President Biden has invoked emergency Presidential powers under the Cold-War era 1950 Defense Production Act. He aims to increase production of key metals including lithium, ‘to reduce our reliance on China and other countries for the minerals and materials that will power our clean energy future.’
Another lithium concern is that it is relatively abundant worldwide. However, supply is restricted for two reasons. The first is that it needs to lithium needs to be concentrated enough to be worth mining and exploratory projects are often expensive with a high failure rate.
The second is that lithium is difficult and time-consuming to mine, with new mines taking up to ten years to begin extraction. While corporations worldwide are trying to set up their own mining and processing operations. the demand for lithium is likely to eclipse the supply ramp-up. The International Energy Agency (IEA) estimates that demand for lithium will rise by 900% by 2030, and by 4,000% by 2040.
Indeed, Rivian CEO R.J. Scaringe believes that ‘all the world’s cell production combined represents well under 10% of what we will need in 10 years…90% to 95% of the supply chain does not exist.’
Of course, lithium prices are as volatile as the metal itself. For example, a recent influencing factor is China’s ‘zero-covid’ strategy which is seeing lithium processing halt in some areas of the country, while EV manufacturers like Tesla have been forced to suspend factory production.
Finally, there are multiple ways to invest in ASX lithium stocks. It’s worth noting that lithium is mined from three types of deposits: brine, pegmatite lithium and sedimentary, with Australia accounting for most of the sedimentary lithium worldwide. Many lithium investors prefer to invest across all three types.
More widely, many investors choose to buy shares in a diversified miner like Rio Tinto to gain exposure to lithium while limiting overall risk. Of course, this cuts both ways, with diversified miners unlikely to feel the full benefit of any future price rise. And most of the stocks on this ‘top 10’ list are large-cap miners, with the potential for share price hikes in the long term with rights to exclusive projects. But small-cap lithium stocks can be more lucrative, despite carrying more risk.
And long term, pure-play ASX lithium stocks are exciting prospects for the adventurous investor.
Charles Archer | Financial Writer, London 11 May 2022
Tesla’s share price has slid below the two-year long trend line, a dangerous alarm for long-buyers. WTI oil and Bitcoin prices are moving towards new lows.
Source: Bloomberg
Forex Shares Commodities Tesla, Inc. Bitcoin Cryptocurrency
Global investors continued to hit the sell button this week across equity and currency markets as trepidation grew that neither a recession in the US nor a devastating break in China’s economic growth was avoidable. The ASX has been on the back foot for six consecutive weeks and now comes to the lowest level in more than three months.
The currency and commodity markets were also surrounded by fear. Oil prices retreated near the $100 threshold as the demand outlook was darkened by China’s months-long lockdown. The panic escape from the risk asset has caused a freefall in the crypto community as the biggest cryptocurrency, Bitcoin, plunged 20% in five days.
TESLA
Earlier this week, Tesla’s factory in Shanghai was reported to haved encountered production issues as China locked down the 25 million strong city in a controversial attempt to eliminate Covid-19. Although Elon Musk’s company denied an outright shutdown, Tesla stock still fell 9.1% on the narrative.
More than 15% of U.S. companies with operations in Shanghai reported their businesses remained fully shut as production capabilities were sharply reduced due to a lack of employees and supplies.
The other factor that triggered the selloff stems from concern that its founder and CEO Elon Musk would offload more stock to help fund the takeover of Twitter. Two weeks ago, Musk sold $8.5bn worth of shares in Tesla after reaching a deal to buy Twitter with $21 billion of his own money.
As such, the share price of Tesla has slid below the long-term trend line in the weekly chart, a dangerous alarm for the long-buyers.
Below this level, it’s a fair prediction the price will meet the 100-MA if the momentum persists. On the other side, only a bounce above $855 and the descending trendline can restore the buyer’s confidence in the EV master’s stock.
Source: IG
Source: IG
WTI
WTI crude oil prices are set to move further down as the cloudy demand outlook is driven by China’s lockdown, even though the supply issues persist as the EU plans to ban Russian oil completely. From a macro perspective, Central banks are making aggressive shifts to combat rising prices with the elevated risk of kicking the economy into recession, which would further work to worsen the appetite for energy commodities.
Meanwhile, Saudi Arabia’s state-run Saudi Aram confirmed this week that it would reduce oil prices for June, a clear signal that the major OPEC producer sees demand trailing off, given the uncertainty around the global economic outlook.
The price of WTI oil is retesting on the long-term support line with-100 days MA. A sustained move over this level will indicate the presence of buyers while on the flip side, massive selling pressure will resurface to see the price pullback $95.3—a level that would erase all the gains for the past two months. Only a move above $103 could be viewed as a sustainable bull-biased sign for the buyers looking for the upside.
Source: IG
Bitcoin
The risk-sensitive Bitcoin prices have dropped over 20% since last Friday and look likely to break through 30k in the upcoming days. Most crypto prices have suffered turbulence lately, mainly triggered by the risk-off momentums that the capital is chasing a haven for the forthcoming tough time. On the bright side, Australians will welcome the delayed cryptocurrency ETF funds on Thursday, 12 May.
Looking ahead, Bitcoin prices look likely to go through significant volatility in the coming months as uncertainty surrounding the global central bank’s rapidly changing rate.
From a technical point of view, the push below the January low, and the 30k threshold represents that a major downward risk is ahead. The next level to be eyed for potential support will be down to 24k if such an event occurs. On the slip side, the price will face pressure at 35621 if the most-popular coin seeks a leg up.
Source: IG
Hebe Chen | Market Analyst, Australia 11 May 2022
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The dollar’s run higher is pausing for now, but the overall bearish outlook for EUR/USD, GBP/USD and AUD/USD remains firmly in place.
Forex Commodities United States dollar Euro Australian dollar EUR/USD
EUR/USD moves sideways
Consolidation appears to be the order of things here with EUR/USD, as the price looks to recover some of the ground lost in recent weeks. The sideways movement allows the price to work off some of its ‘oversold’ condition that has resulted from the sharp declines of recent months, and also allows the moving averages to play catch-up.
Overall the scene appears set for a short-term recovery, although that will depend mostly on the US dollar, which is being supported both by safe-haven moves as market volatility surges and by the expectation that some Federal Reserve (Fed) speakers will begin fresh calls for 75 basis points (bps) rate hikes to fight inflation. Gains from here target $1.0637, and then towards $1.08 and the 50-day simple moving average (SMA). A move below the 2017 low at $1.034 would be a major development that would see the pair head to a 20-year low.
Source: ProRealTime
GBP/USD edges off Monday’s lows
Monday saw a fresh two-year low for GBP/USD, but signs of stabilisation overnight have given some hope that a short-term rebound could be in play. The outlook for the UK economy remains grim however. A recession seems to be a definite possibility, as UK consumers remain squeezed by high inflation and by rate rises that have boosted borrowing costs.
This has put the Bank of England's (BoE’s) hiking policy into question, at least in the medium term. A short bounce might see the price recover $1.25 or even head back towards $1.27, but the downtrend would remain firmly intact. Further losses below $1.225 would see the price head towards $1.208.
Source: ProRealTime
AUD/USD slips below $0.7
Weakness in commodity prices and the general risk-off environment has meant that AUD/USD has fallen sharply in recent days, falling below $0.7 for the first time since January. Despite the Reserve Bank of Australia's (RBA’s) move to a hiking posture, the US dollar retains its pre-eminence, and while the debate over 50 vs 75 bps rate hikes appears to be over for now, it will likely reignite if this week’s and future consumer price index (CPI) figures remain strong.
Additional declines target $0.6828, and then on to $0.6671, while a recovery above $0.7 might suggest a short-term low is in place.
Source: ProRealTime
Chris Beauchamp | Chief Market Analyst, London 10 May 2022
Shell shares fell by 59% at the start of 2020 to 933p by October 2020. And despite recovering to 2,253p today, the FTSE 100 oil major remains just shy of its pre-pandemic value.
Source: Bloomberg
Indices Shares Commodities Royal Dutch Shell Energy Share repurchase
Despite sky-high oil and gas prices, and repeated share buybacks, Shell (LON: SHEL) shares still remain tantalizingly close to complete pandemic recovery.
Shell share price: Q1 results
Shell recorded a $9.13 billion profit, describing its performance as ‘strong results in volatile times.’ However, this does not quite do the FTSE 100 oil major justice: this was its highest-ever quarterly profit, up 45% from the $6.3 billion it made in Q4 2021, and nearly triple the $3.2 billion profit it made in the same quarter last year.
Shell also increased its dividend by 4% to $0.25 per share, bought back $5.4 billion of shares, and plans to buy back a further $4.5 billion in the current quarter. In H2, it expects shareholder distributions to be ‘in excess of CFFO.’
And boasting a cash flow of $14.82 billion, it also reduced its net debt from $52.6 billion to $48.5 billion in just three months.
CEO Ben van Beurden enthused that ‘strong earnings and cash flow, coupled with maintaining a healthy balance sheet and continuing the disciplined delivery of our strategy, are crucial for Shell to play a leading role in the energy transition.’
However, he warned that the Ukraine war has ‘caused significant disruption to global energy markets and has shown that secure, reliable and affordable energy simply cannot be taken for granted.’
The company took a $3.9 billion hit as it continues to exit interests in Russia, including from the country’s first offshore LNG project at Sakhalin-2, as well as its stake in Nord Stream 2.
However, this sum is far smaller than the $24.4 billion absorbed by competitor BP as it offloads its 19.75% stake in Rosneft.
Source: Bloomberg
Where next for Shell shares?
There are four factors to consider, assuming oil and gas prices remain elevated.
First is the growing global abandonment of Russian fossil fuels. Van Beurden has warned that a complete ban on Russian gas would be a ‘major disaster’ that would leave a ‘supply hole’ in Europe. But with the UK and US committed to cutting off Russian energy, political pressure on the G7 and EU to push through a complete ban is intensifying.
Second is Shell’s commitment to invest between £20 billion and £25 billion into the UK over the next decade. 75% of this money will be spent on green tech such as EV charging points, with the rest assigned to oil and gas development, including in the North Sea. For perspective, it only made $344 million from renewables in Q1.
Shell is also ‘very close to making a few major investment decisions on hydrogen in Northwest Europe,’ including plans for a 200MW green hydrogen electrolyser in Rotterdam.
And having already switched on a smaller unit in China, Van Beurden believes Shell is the ‘ones who are making most (hydrogen) progress on the ground… our lead position we currently have may well triple or quadruple in the next few months or quarters to come.’ This isn’t just a soundbite; Shell recently spent $1.5 billion acquiring India-based green hydrogen company Sprng Energy.
Third is input from activist investor Dan Loeb’s Third Point, which has again increased its $750 million stake. The fund thinks that trying to ‘do it all,’ is leaving Shell trading ‘at a large discount to its intrinsic value.’ It continues to apply pressure in an attempt to break the company up into its constituents.
Finally, despite government hesitation, Shell could soon be hit by windfall taxes. Rivals BP, Total Energies, and Norway’s Equinor have all also reported sharp rises in underlying profits while consumers are drowning in energy bills.
Both BP’s and Shell’s CEOs have confirmed that windfall taxes would be unlikely to change current investment plans. However, Van Beurden warns that they would still have to make ‘economic sense.’ And further, he’s cautioned that ‘these types of investment levels, they do require a stable and predictable financial outlook, it does require stability of policy.’
With average energy bills already up 54% to £1,971 per year, Cornwall Insight is predicting a further 35% rise in October. Scottish Power CEO Keith Anderson has already called for a £1,000 energy bill cut for 10 million homes, arguing that ‘around 40% of UK households could be in fuel poverty this winter.’
If Shell’s profits remain elevated, the government’s current position may become untenable.
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Charles Archer | Financial Writer, London 10 May 2022
Coinbase is currently trading at a super-discounted P/E ratio of only 8.6, compared to 150 times one year ago. Will the upcoming Q1 earnings overturn the momentum or keep pushing the price lower?
Source: Bloomberg
Shares Coinbase Cryptocurrency Price–earnings ratio Revenue Stock
When is the report date?
Coinbase Global Inc (All Sessions) is estimated to report its earnings on May 10, 2022, after market close.
What to expect?
Based on six analyst forecasts at the Zacks Investment Research, the consensus EPS forecast for the quarter is $0.74. The reported EPS for the same quarter last year was $3.05.
Source: Nasdaq
2021 was a year of tremendous growth and development for Coinbase. Both the number of its users and total revenue grew at a jaw-dropping 500% plus rate. In addition, the strong performance across Coinbase’s key metrics has seen its net income turn ten-fold. Overall, Coinbase Global is a very profitable business by all measures.
Source: Coinbase
Rolling into 2022, the company is expecting its trading volume to decline substantially to 200 billion USD, given that the crypto market capitalization is down by 20%. Coinbase also sees a lower number of retail MTUs at roughly 10 million down from the 11.4 million in Q4. A similar pattern is anticipated to be shown in the revenues from subscriptions and services.
On the expense side, increased miner expenses will be a crucial factor in driving up the cost due to the network congestion and elevated account verification expense.
What to watch?
Overall, the leading crypto trading platform is foreseeing a challenging time ahead which has been reflected in its stock price. Coinbase's share price sits at its all-time-low level near $103 after dropping 70% from its all-time high six months ago. Coinbase is currently trading at a super-discounted P/E ratio of only 8.6, compared to 150 times one year ago.
However, putting aside the performance in the stock market, there is more to watch for the business.
The global crypto economy is still at its infancy stage and thus facing the strong headwind as it faces the global macroeconomic challenge, rising interest rates, inflation, and geopolitical instability - all of which deteriorates the appetite for risk. However, looking through the current haze, a company like Coinbase is likely to be a major beneficiary of the industry's explosive growth once the headwind fades.
Moreover, the company's diverse front-edge products will add tremendous value to the business when its time comes. For example, Coinbase is now officially the biggest NFT platform, an industry that is expected to grow 30.72% year by year. Therefore, the NFT platform could add more than $45 billion to Coinbase's market capitalization, and as of now, it is not priced in yet. Besides Coinbase Ventures, FairX, Coinbase One, and Coinbase Cloud are all waiting in the pipeline to shine.
Technical Analysis
There’s little doubt that the share price of Coinbase still bears the risk of moving downwards in the near term. Looking at the daily chart, we can see that the price dropped so violently from April to follow the path of Bitcoin.
Source: TradingEconomics
With the price tumbled to its floor level, the technical will take a back seat to forecast how much lower it can be. While on the flip side, a retest of the $130 may help restore some confidence, but the descending trend line on the daily chart will exercise its resistance for such a move.
Source: TradingView
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Hebe Chen | Market Analyst, Australia 09 May 2022
As the Bank of England predicts inflation will hit 10.2% later this year, the FTSE 100 offers an excellent selection of defensive stocks.
Source: Bloomberg
Shares Recession Inflation FTSE 100 United Kingdom Stock
Last week, the Bank of England set in stone that which investors have been afraid to hear. Whilst increasing the base rate to 1%, it predicted that double-digit inflation will see the UK’s economy contract by 0.25% in 2023.
While the country should avoid a technical recession (two consecutive quarters of falling GDP), Governor Andrew Bailey admitted that ‘it is a very obviously sharp slowdown in activity.’
But MPC member Huw Pill has rejected the notion that the UK is headed for stagflation, saying ‘we are not headed in that direction.’
However, Capital Economics expects the base rate to strike 3% next year, arguing that the ‘weakening economy won’t do the MPC’s job.’ And given the Bank’s inflationary track record, investors are understandably nervous about the economy’s future trajectory.
Meanwhile, Chancellor Rishi Sunak is resisting calls to increase financial support for the economy despite poor local elections results.
And as equities fall, the pound drops, and growth stalls, many investors are recalibrating their portfolios in favour of defensive stocks to combat the spectre of recession.
FTSE 100 Defensive Stocks
The widespread appeal of defensive stocks is that they usually outperform the market during recessions. Regardless of external events, their dividends, earnings and share prices usually remain comparatively stable, because they offer a product or service for which there is consistent demand. This could be because they hold a dominant market position, hold a reputation for value for money, or even provide the bare necessities.
In investor vernacular, the best stocks within defensive sectors benefit from ‘inelasticity of demand,’ making them ‘safe havens.’ If they raise prices to tackle inflation, consumers will almost always still buy the product or service.
And with UK growth grinding to a halt, increased investment in defensive stocks grants investors the ability to protect their wealth from inflation whilst minimizing their stock market risk.
Source: Bloomberg
Best FTSE 100 defensive sectors
Happily, for UK investors, the FTSE 100 is packed with some of the best defensive sector stocks.
First and foremost is Consumer Staples, which is the sector with companies that sells essential products and services. FTSE 100 examples include stalwarts like AB Foods, Tesco, Unilever, and British American Tobacco. Consumers will always purchase food, household products, and tobacco, regardless of financial means or the wider economic picture.
Second is the Healthcare sector. There is consistent demand for medical treatments every year, as well as financial incentives to develop new drugs. And as a consequence of the covid-19 pandemic, there is strong political consensus that FTSE 100 healthcare companies are to be backed for future preparedness. Giants GlaxoSmithKline and AstraZeneca are excellent examples.
Third is the Utilities sector. The risk-reward ratio is currently elevated as the global transition towards renewables amid climate goals and the rejection of Russian fossil fuels. But the need for electricity, gas, and water will never subside. FTSE 100 exemplars include National Grid and Centrica.
Finally, telecommunication is an excellent defensive sector, as consumer demand for mobile phones and broadband services remains consistent. While some growth may now be found from the expansion into 5G and superfast internet, demand for connectivity means that titans like BT and Vodafone are unlikely to see weakened demand, even if recession strikes.
Of course, there’s a strong argument that growth stocks, having taken a hammering so far in 2022, are now at excellent buy-in points. For example, the tech-heavy NASDAQ Composite is down 23% year-to-date. Both ARK Innovation ETF and Scottish Mortgage are in the doldrums despite previous years of outperformance. And there’s no knowing where the bottom might be.
Moreover, FTSE 100 stocks like the oil majors BP and Shell, or mining giants Rio Tinto and Anglo American, currently offer far better returns than those in the defensive sectors. However, the cyclical nature of commodities does leave investors at the mercy of demand volatility.
And as rising inflation and interest rates continue to increase the risk of a full-blown recession, the hallmark consistency of FTSE 100 defensive stocks becomes ever more appealing.
Charles Archer | Financial Writer, London 09 May 2022
