Good morning! Today’s word count is 1,937 words, or a 9-minute read. Let’s get to it:
Market Summary (10:45 A.M. ET): “Shares edged up, with investors paying close attention to negotiations in Washington over a fresh stimulus bill,” WSJ writes.
- S&P 500: $3,419.20 (-0.47%)
- Nasdaq: $11,387.25 (-0.85%)
- Bitcoin: $12,883.17 (+16.51%)
- Gold: $1,898.10 (-1.63%)
- U.S. 10-Year: 0.829%
Justin Oh’s Daily Read
Let’s revisit cruise line stocks, which include Royal Caribbean ($RCL), Norwegian ($NCLH), and Carnival ($CCL).
These stocks are clearly trading inversely to US Covid-19 case counts, which makes sense in the short-term. Royal Caribbean also announced a $1 billion capital raise, which spooked the market, plunging all three stocks by around 10% a couple of weeks ago. A capital raise might indicate that management expects to need even more cash to get through the crisis, despite management comments about the (relative) resiliency of 2021 bookings. At the very least, it indicates additional dilution to existing shareholders.
Looking through the analyst models I have access to, it seems like they have enough liquidity to avoid bankruptcy if they recover to profitability over the next two years. But if they have to keep burning large amounts of cash for even 12 months longer than analysts are anticipating, that could put them straight back into Chapter 11 bankruptcy territory.
Analysts are focused on recovered earnings in 2022 and 2023, and most of them are actually forecasting higher cruise line EBITDA in 2023 than in 2019, expecting a return to growth mode within two to three years. While I agree this is entirely possible, how quickly cruise line bookings return and how sustainably they can operate without infections is also unknowable at this point. With so much uncertainty, we’d want cruise line stocks’ valuations to be extremely cheap to make these interesting.
Palantir to Help U.S. Track Covid-19 Vaccines
Peter Thiel’s Palantir Technologies is helping the federal government deploy a system to track the manufacture, distribution and administration of Covid-19 vaccines, WSJ reports.
Thiel co-founded Palantir in 2003, which recently reached a $21 billion valuation during its first day on the public market. The data-mining and software company has worked on a wide range of projects with the federal government.
- It helped the U.S. military track down Osama Bin Laden, built out the software used by immigration services to find illegal immigrants and has tracked coronavirus hospitalizations.
Enter the Tiberius System, “an attempt to use cutting-edge data science to help the federal government manage the work of protecting Americans against Covid-19.”
- Tiberius could identify high-priority populations and then allocate shots to health-care workers, the elderly and others at highest risk of infection.”
Data Privacy: Tiberius is similar to another data collection and analysis tool called HHS Protect, used by the U.S. Health and Human Services Department to track hospitals’ Covid-19 data. Bringing Palantir into the fold could “draw fire from some Democrats and privacy advocates who have previously expressed concerns about the company gaining access to sensitive personal health information.”
- Claire Hannan, executive director of the Association of Immunization Managers, said Tiberius wouldn’t have access to personal health information.
It’s Go Time: With several candidates in the final stages of vaccine development, the U.S. government is getting ready.
- Pfizer and Moderna could seek emergency-use authorizations on their experimental vaccines next month.
- The federal government asked the states to draw up vaccine distribution plans for as early as November.
At $9.29 per share, Palantir ($PLTR) is trading at roughly 28x forward gross profit if they keep growing at the same pace this year. Given that this company has high-security risks and relies on a small number of government and corporate customers for growth, I don’t find it particularly attractive. For a similar B2B software play, I would rather buy Asana ($ASAN) trading at 16x forward gross profit and growing at 30-40% or Salesforce ($CRM) trading at 11x forward gross profit and growing at 20%.
Tesla Extended Profit Streak With Record Quarterly Sales
It’s Mambo No. 5 for Tesla. Following a prosperous Q3, the electric vehicle maker posted its fifth consecutive profitable quarter and promised global production increases, WSJ reports.
Tesla recorded a net profit of $331 million in the three months ending Sept. 30. The company is on pace to have its first calendar year of profitability, showing the coronavirus pandemic has “done little to dent Chief Executive Elon Musk’s push to take electric vehicles mainstream.”
- Tesla posted a $143 million profit in Q3 last year, which kicked off its streak.
Doubling Down: Musk celebrated the news with “significant growth production” projections for next year. Tesla expects an output increase in its China factory and that its new plants in Berlin and Texas would start producing vehicles.
- Other plans include rolling out its all-electric semi-trailer truck and potentially its pickup truck.
A quick pivot saved Tesla from the pandemic fully upending its operation. The company relied on “efficiencies in manufacturing, including lower battery and purchasing costs at its production facility in China,” coupled with increased demand for electric cars.
- Musk reiterated his goal to build 500,000 vehicles in 2020, which he had gone quiet on through the pandemic.
- Tesla reported record sales in Q3, with 139,593 vehicle deliveries.
Profits are going up, but Tesla is focused on keeping costs down. The EV maker wants to build cars more efficiently since consumers are increasingly gravitating toward the more-affordable Tesla models.
- Last month, Musk said he aims to build 20 million cars annually by the end of the decade and has thrown around a plan to use lower-cost batteries to make a $25,000 electric vehicle.
Tesla’s strong quarter “will likely revive debate about Tesla joining the S&P 500 stock index.”
I’ve guided us through Tesla’s moves well so far, calling it overvalued at the end of August right before it crashed. After Battery Day, though, I switched to become a mild Tesla bull again based on how confident I believe in Elon Musk as an operator and how many huge growth avenues they have ahead of them. I’m much more convinced of their ability to become a top-3 automobile manufacturer in the next 5-10 years, and they will make inroads into solar/energy, self-driving, trucking, and other verticals too.
The stock is very expensive at $427 per share, but I think it will go up long-term and has a $460 price target. But this is one of those cases where valuation doesn’t matter as much in the long-term. This is a revolutionary company that you should hold with strong hands if you believe they will become a top producer of automobiles and succeed in its battery and trucking opportunities in the next five years. And it’s one that you shouldn’t hold if you think that Tesla will level off as one of many car brands in the face of a coming deluge of EVs by incumbents.
Elevated Jobless Claims Reflect Cooling Labor Market
“The number of people applying for jobless aid is expected to have held nearly steady for the eighth straight week, a sign that the summer’s rapid labor market improvement cooled dramatically this fall,” WSJ writes.
Atop The Plateau: Fresh layoffs appear to offset any employment gains, and weekly unemployment claims through regular state programs have stabilized between 800,000 and 900,000.
- It’s down significantly from March, where Covid-19 shutdowns prompted 6.9 million claims in a single week. But claims are still elevated above pre-pandemic levels.
The number of people getting benefits through state programs has declined in recent weeks to the lowest levels since March. It’s consistent with furloughed workers being recalled but also could signal long-term unemployed workers losing eligibility.
- Programs are usually capped at six months or less.
Companies That Have Announced Recent Job Cuts: American Airlines, United Airlines, Disney and AT&T’s WarnerMedia.
- Large scale layoffs at these firms may have affected filed claims last week.
- Gyms, restaurants and theaters are also enduring prolonged slumps, with public gatherings still subject to restrictions.
After 22 million jobs were lost in March and April, the labor market “broadly had a strong, but partial, rebound this summer,” by regaining about half of those. Jobless claims slowing supports economists’ expectations of a “prolonged period of slow recovery.”
- WSJ surveyed economists earlier this month, and most said the job market wouldn’t “claw back” from Covid-19-related shutdowns until 2023 or later.
- The number of posted jobs has increased since the spring but remain 15.3% lower than a year before.
Care Package: Stimulus discussions are progressing, according to Bloomberg, but the sides are still far apart on any agreement.
“I had talked about how we should expect a volatile, but relatively sideways market, which has been playing out as expected. Markets don’t like uncertainty, so it has liked new stimulus package negotiations and Biden’s increased lead in the polls. But for the market to make another meaningful move higher, we will need to see another stimulus package to support consumer spending and a weak job market.”
What’s Going On
Qui-Bye For Sure: “Quibi Holdings LLC is shutting down a mere six months after launching its streaming service, a crash landing for a once highly touted startup that attracted some of the biggest names in Hollywood and had looked to revolutionize how people consume entertainment. The streaming service, which served up shows in 5- to 10-minute “chapters” formatted to fit a smartphone screen, has been plagued with problems since its April debut, facing lower-than-expected viewership and a lawsuit from a well-capitalized foe.”
Luv Lost: “Southwest Airlines on Thursday posted its biggest loss ever after the coronavirus pandemic hurt the summer travel season, but the airline continued to cut its cash burn…Southwest said it plans to stop blocking middle seats starting Dec. 1, a measure it had in place to calm travelers worried about traveling during the pandemic.”
Maximum Effort: “HBO Max has had 8.6 million people activate the service as of September, compared to about half of that in May, a sign of growth, but still way behind rival services like Disney+ and Netflix. For AT&T, the success of HBO Max is key as more customers cancel their video subscriptions in favor of streaming services. In the second quarter, the company lost 627,000 video customers, a smaller loss than previous quarters, but still a continued downward trend.”
Raise Us Up: Tekion collected $150 million to “pull car dealers into the 21st century,” E-bike subscription service Dance raised $17.7 million, freelancer banking startup Lili netted $15 million and Silverflow pulled in $2.6 million to build a “cloud-native” online card processor.
Hold Please: “Plans to turn Chinese-owned TikTok into a U.S. company are in a holding pattern as a federal judge considers blocking Trump administration action that would effectively force a sale of the video-sharing app to U.S. investors.”
Bittersweet Symphony: “AT&T Inc.’s big media bets dragged down results in the latest quarter as closed movie theaters and pay-television customer losses offset the growth at its core wireless and broadband businesses.”
Taste The Feeling: “Coca-Cola Co.’s revenue declined in the third quarter as the company continued to see pressure from its sales to restaurants, bars, movie theaters and other public venues.”
Double Trouble: “Australia’s competition watchdog will consider its own antitrust case against Google, the commission chairman said Wednesday after the U.S. Justice Department sued the company for abusing its dominance in online search and advertising.”
Grow Grow Grow: “Smartphone shipments in India increased 8% in the third quarter to an all-time record of 50 million units, research firm Canalys said.”
New Issue Day: “Datto, which provides outsourced information technology services to clients, began trading on the New York Stock Exchange as ‘MSP’ Wednesday morning.”
Fresh Fit: “ThredUp Inc., an online retailer for second-hand clothing, filed confidentially for a U.S. initial public offering.”