December Selloff Starts: The Stocks You Should Actually Be Watching

Key Concepts

• Market Trend: The overall direction of the stock market.
• Uptrend: A market trend where prices are generally rising.
• Profit Taking: Selling an asset after its price has increased to secure gains.
• AI Trade: Investments focused on companies involved in artificial intelligence.
• Dividend: A distribution of a portion of a company's earnings to its shareholders.
• Share Buybacks: A company repurchasing its own shares from the open market.
• Dividend King: A company that has increased its dividend payout for at least 50 consecutive years.
• Consensus Price Target: The average price target set by financial analysts for a particular stock.
• Valuation Concerns: Worries that a stock's price is too high relative to its underlying value or earnings.
• Forward Earnings: A company's expected earnings per share in the future.
• Payment Processor: A company that facilitates electronic payment transactions.
• Fintech: Financial technology companies.
• Cross-border Payments: Transactions that occur between individuals or businesses in different countries.
• Institutional Ownership: The percentage of a company's stock held by institutional investors (e.g., mutual funds, pension funds).
• Short Interest: The number of shares of a stock that have been sold short but not yet covered.
• Clinical Stage Company: A biotechnology or pharmaceutical company that is in the process of developing drugs or therapies but has not yet brought any to market.
• Invariant Natural Killer T-cell (NKT) Therapies: A type of cell therapy being developed for cancer and autoimmune diseases.
• Biotechnology Sector: A sector focused on companies that use biological systems and living organisms to develop or create products.
• Fed Rate Cut: A reduction in the target interest rate set by the Federal Reserve.
• FOMC (Federal Open Market Committee): The committee of the Federal Reserve that manages the nation's monetary policy.
• Basis Point: One-hundredth of a percentage point (0.01%).
• PCE (Personal Consumption Expenditures) Price Index: A measure of the prices that consumers pay for goods and services.
• EV Tolls: Electric Vertical Take-Off and Landing aircraft used for transportation.
• Corporate Espionage: The illegal or unethical acquisition of trade secrets or confidential information from a competitor.
• Short Squeeze: A rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock.
• Rare Earth Elements: A group of 17 chemical elements with unique properties crucial for many modern technologies.
• Head and Shoulders Reversal: A chart pattern that signals a potential trend reversal from an uptrend to a downtrend.

Market Beat Monday: December 4th, 2023 Market Analysis

This Market Beat Monday segment, featuring analysts Chris Marcotch and Thomas Hughes, provided an overview of the market's cautious opening to December, discussed individual stock movements, and touched upon macroeconomic factors.

Market Overview and Outlook

• Cautious Opening: December began with a weak, albeit small, downward move in the market. Analysts described the market as moving in a tight range, indicating no significant change and a cautious approach ahead of key economic data releases.
• Intact Uptrend: Despite the tepid start, the overall uptrend is considered intact, with the market poised to set new highs. The trigger for further upward movement is anticipated to be either a gradual creep higher or a significant catalyst, potentially leading to a "fear of missing out" (FOMO) trade.

Stock Analysis

Broadcom (AVGO)

• Recent Performance: Broadcom experienced a significant drop of approximately 4% on the day, following a substantial rise in the preceding week, particularly around Thanksgiving.
• Analysis: This decline is largely attributed to profit-taking after the stock reached an all-time high. Broadcom has seen over 100% growth in the last six to seven months. While some investors are taking profits for money management (e.g., selling a portion of a position that has doubled), the overall outlook for Broadcom remains positive, with expectations of continued upward trend.

Nvidia (NVDA)

• Synopsis Investment: Nvidia announced a $2 billion investment in Synopsis, a company providing testing and engineering services for semiconductors and technology.
  • Purpose: This investment is seen as a strategic move for Nvidia to utilize its substantial cash reserves, expand revenue streams across various sectors, and solidify its future growth, particularly in the data center market.
  • Market Reaction: Nvidia's stock saw a slight dip following the announcement, while Synopsis experienced a nearly 5% boost.
• Dividend Discussion:
  • Current Dividend: Nvidia currently pays a token dividend of four cents per share.
  • Investor Perspective: While Nvidia has the cash flow to increase its dividend significantly, analysts suggest that investors might prefer the company to prioritize strategic acquisitions like the Synopsis deal, which signals future growth, over aggressive dividend increases.
  • Share Buybacks: Share buybacks are considered a more likely and potentially beneficial avenue for Nvidia to return capital to shareholders, offering opportunistic leverage over time.
  • Comparison to Apple: Nvidia is seen as being in a similar category to Apple as a technology company that happens to pay a dividend, rather than a dividend-focused stock.

Walt Disney (DIS)

• Record-Breaking Movie Release: A recent children's movie release had a record-breaking opening weekend, setting domestic and international records.
• Impact: This success is a significant positive for Disney's entertainment segment, which had shown weakness in the previous quarter. It affirms the company's outlook and suggests that current guidance and analyst expectations for the year might be underestimated. The strong slate of upcoming releases and content on Disney+ further bolsters this positive sentiment.

SoFi Technologies (SOFI)

• Strong Year-to-Date Performance: SoFi has shown remarkable growth, up 89% year-to-date. It has achieved over a 50% stock price return in 2023 and is on pace to repeat this in 2024, making it an outperforming stock in its sector.
• Business Model Validation: The company has consistently overcome perceived hurdles, leading to increased investor rewards and stock price appreciation over the last couple of years. Its business model is proving effective, with expanding services and deepening penetration benefiting from strong tailwinds.
• Valuation and Analyst Sentiment:
  • Valuation Concerns: SoFi is trading at approximately 111 times forward earnings, raising valuation concerns.
  • Analyst Sentiment: While the consensus price target is being met or exceeded, there have been recent downgrades. However, trends indicate increasing coverage, firming sentiment with upgrades, and significant price target increases over the past year.
  • Consolidation: The market is currently consolidating, with analysts projecting a potential upside to the $38 range, indicating a bullish trend despite short-term choppiness.

DLocal (DLO)

• Business: DLocal is a payment processor operating in the e-commerce sector, with a strong focus on cross-border payments in markets like Mexico, Brazil, India, and South Africa.
• Growth and Profitability: The company has experienced hyper-growth over the past couple of years and is expected to maintain double-digit growth. It is also profitable.
• Market Sentiment and Chart:
  • Competition: The payment processing and fintech space is highly competitive.
  • Chart Analysis: The stock is trading within a range, with potential resistance around the $17.50-$18 mark.
  • Analyst Optimism: Analysts are generally optimistic, with high institutional coverage (90%).
  • Limited Upside: Price targets are capped around the $19 range, suggesting limited upside without a significant catalyst.
  • Institutional Ownership: High institutional ownership can limit volatility. Heavy institutional selling was noted in the last quarter.
  • Short Interest: Short interest is elevated, contributing to potential range-bound trading.
• Outlook: The stock is expected to remain within its current range unless new catalysts emerge to invigorate analysts and institutional buying, or to prompt short covering.

ASML Holding (ASML)

• Recent Performance: The stock has experienced a significant pullback, down nearly 35% in the last month, but is still trading above analyst forecasts.
• Previous Surge: The rapid increase prior to the pullback was attributed to market excitement and pricing in future growth that has not yet materialized.
• Current Situation: The stock is consolidating, with price action aligning more closely with consensus levels.
• Outlook: The market is awaiting upcoming earnings or news to affirm the growth outlook. While some weakness or sideways movement is possible in the short term (2-3 months), a positive catalyst is expected from the next earnings report or subsequent one.
• Entry Point: The current levels are considered a decent entry point, but there's a risk of falling to the $38 level if support is not established. Patience and waiting for clear support or a move to the $38 level are advised.

Mink Therapeutics (INKT)

• Business: INKT is a clinical-stage biotechnology company developing off-the-shelf invariant natural killer T-cell (NKT) therapies for cancer and autoimmune diseases.
• Financials: The company is not yet profitable and generates no revenue. It recently reported an earnings loss that was less than forecast, but still higher year-over-year.
• Lead Candidate: Agent T797, its lead candidate, received positive Phase 1/2 data, but the stock did not significantly react, even selling off more sharply after earnings.
• Clinical Trials: The company is not yet in Phase 3 trials, which are not expected until mid-next year at the earliest, with commercialization potentially in 2027.
• Analyst Sentiment: Analysts have a price target approximately 33% above the current price, reflecting enthusiasm for the technology.
• Volatility: The stock is highly volatile, having spiked significantly in the past and now trading at much lower levels. The long-term outlook depends on the success of its clinical trials and eventual FDA approval and insurance coverage.

Healthcare Sector

• Recent Decline: The healthcare sector has experienced a notable decline.
• Reason: The primary reason cited is uncertainty surrounding government shutdowns and their potential impact on drug pricing and healthcare policy. This lack of resolution is causing a broad sector-wide red on the heat map.

Federal Reserve Interest Rate Policy

• December Rate Cut Odds: Odds for a 25 basis point rate cut in December have increased back to previous levels, influenced by recent economic data that suggests the economy is still stable and labor markets may be weakening.
• Longer-Term Outlook: Fewer cuts are expected by June of next year compared to previous forecasts, but this could change based on incoming data.
• Upcoming Data: Key economic data, including the September PCE price index (an inflation read), will be released. While important, its rear-looking nature might limit its sway on the Fed's immediate decisions.
• Fed Meeting: The FOMC meeting next week will be crucial, with an announcement on December 10th. The CME Fed Watch tool currently predicts an 87% chance of a 25 basis point cut.

Joby Aviation (JOBY) & Archer Aviation (ACHR)

• Market Performance: Both companies are moving in tandem, but Archer is trading at significantly lower levels than Joby.
• Joby:
  • Commercial Viability: Analysts expect commercial certification for Joby's eVTOL (electric vertical take-off and landing) aircraft in the next year, with commercial operations by the end of the year.
  • Revenue Streams: Joby is utilizing its "Blade" segment to offer helicopter rides from key airports, generating revenue soon.
  • Stock Position: Trading in the high end of its range, showing support at critical points.
• Archer:
  • Commercial Viability: Some analysts project certification as late as 2028, putting it two years behind Joby.
  • Stock Position: Trading in the low end of its range, below critical resistance points.
• Corporate Espionage Allegations: Joby has made allegations of corporate espionage against Archer, which could impact sentiment.
• Investment Recommendation: Joby is considered a better buy due to its clearer path to profitability and commercial operations, despite both stocks offering potential for bullish swings for traders.

DLocal (DVLT)

• Business: DLocal is a payment processor.
• Market Action: The stock is trading sideways, attempting to gain traction.
• Short Interest: Short interest is high (around 11.5%) and rising, which is expected to keep pressure on the market.
• Institutional Activity: Institutional activity is tepid, with ownership less than 1%.
• Analyst Coverage: Limited analyst coverage (three analysts), with one rating it a sell.
• Outlook: Despite recent affirmations with deals and funding, the company needs to start producing results. The market is expected to move sideways with a risk of correction due to a lack of profitability, revenue growth, and broad market support.

ONDS

• Business: ONDS is a drone company.
• Tailwinds:
  • Utility and Cost-Effectiveness: Drones offer practical and cost-effective solutions.
  • Government Contracts: Receiving follow-on orders from government agencies.
  • Improving Outlook: Revenue outlook is swelling, with improving analyst and institutional coverage.
  • High Short Interest: Significant short interest creates potential for a short squeeze.
• Growth: The company is in a hyper-growth phase, with 500% growth pace and expected similar performance in upcoming quarters.
• Catalyst: Potential catalysts include new contract announcements or upcoming earnings releases.

AMX

• Business: AMX is a company with a strong story and consistent growth, but its stock price experiences consolidation and corrections after significant leaps.
• Current Situation: The stock is consolidating, down about 30% from its high but trading at critical support levels.
• Outlook: The market is waiting for the next catalyst, likely from the next earnings release, to drive the stock higher. The story is developing positively with ramping production, sales, clientele, and outlook, all pointing to a higher stock price in the long term.

Clorox (CLX)

• Operational Transition: Clorox is undergoing an operational transition that is not progressing smoothly.
• Recent Performance: The company issued tepid guidance in its last quarter, despite beating top and bottom lines. Investors were hoping for more positive guidance.
• Valuation: Trading at around 16 times forward earnings, a discount to its historical average, suggesting a potential value play.
• Dividend: Pays a dividend with a payout ratio that is becoming high, but the company is not expected to be unable to pay it.
• Analyst Outlook: Consensus price target suggests about 18% upside, combined with a dividend yield of approximately 4.6%. Some analysts have recently lowered price targets.
• Post-COVID Letdown: Clorox is seen as a poster child for the post-COVID letdown, having experienced a significant surge during the pandemic due to increased demand for sanitation products, followed by a deterioration in stock price as demand normalized.
• Innovation: A lack of new innovation is a concern, with suggestions that the company could acquire new brands to fuel growth.
• Current Levels: The stock is trading at 10-year lows, indicating a potentially overdone sell-off and supporting the idea of it being a value stock.

Dollar General (DG)

• News Flow and Sentiment: News flow and sentiment appear positive, with a good last earnings report.
• Chart Analysis: The chart is described as "ugly," potentially forming a head and shoulders reversal pattern that indicates a move from down to sideways rather than a strong uptrend reversal. The right shoulder being lower than the left suggests weakening market momentum.
• Valuation: Trading at about 18 times earnings, falling to seven times earnings in 2035, suggesting potential for robust stock price increase.
• Dividend: The dividend appears safe with a low payout ratio, but this may be due to slow growth.
• Consumer Trends: The value customer segment could be impacted by current consumer sentiment, which shows price consciousness but also quality consciousness. Dollar General may face competition from off-price retailers offering better deals.

Grail (GRAL)

• Business: Grail is a biotech company that has developed the Galleri test, a blood test capable of detecting over 50 types of cancer.
• Revenue and Profitability: The company has revenue, with the last quarter reaching approximately $36 million, but it is not yet profitable. The operating loss was higher year-over-year.
• Market Reaction: The recent pullback is attributed to profit-taking.
• Analyst Consensus: Consensus price target is $75, about 23% below the current price, though some analysts have higher targets ($100-$105).
• Short Interest: Short interest is around 13% and has not significantly increased recently.
• Institutional Buying: Institutions began buying the stock about a year ago, coinciding with a significant upward move.
• Outlook: The stock's future hinges on FDA approval and insurance coverage for its cancer screening blood test. Investors are currently getting ahead of this potential catalyst.
• Investment Timing: Waiting for a pullback to around the $92 or even $80 level is suggested for a "screaming buy opportunity," though current entry is not ruled out.

Village Farms International (VFF)

• Business: A small company with a focus on organic vegetables and cannabis.
• Tailwinds:
  • US Cannabis Legalization: Potential for US federal legalization of cannabis.
  • Shift to Pure Play: Transitioning to a cannabis pure-play strategy with higher margins.
  • Profitability and Buybacks: Achieved record profitability, enabling share buybacks.
• Growth: Expected growth is not robust.
• Caution: Investors are advised to be careful chasing cannabis stocks, as smaller companies may be absorbed by larger players if federal legalization occurs.
• Analyst Sentiment: Analysts have been fairly positive.

UAMY (United States Antimony)

• Business: A mining company in the rare earth category.
• Recent Performance: The stock is down 30% in the last month and down another 10% on the day, trading at long-term lows and below critical moving averages.
• Operations: Mining operations in Montana are nearing a winter shutdown.
• Financials: Generating $9-10 million per quarter, with projected 200% growth next year, but still only reaching $120 million. The company could be profitable.
• Outlook: Could be a buy for next year, but waiting until spring is advised due to the winter shutdown. The market could continue to move lower.

Conclusion

The market is exhibiting cautious behavior at the start of December, with an underlying uptrend remaining intact. Key economic data releases and upcoming Federal Reserve decisions are anticipated to drive market sentiment and volatility in the coming weeks. Individual stock performance varies significantly, with analysts highlighting profit-taking in some high-flyers like Broadcom, strategic investments by tech giants like Nvidia, and potential value plays in beaten-down stocks like Clorox. The discussion also emphasized the importance of catalysts, valuation, and long-term growth prospects when evaluating investment opportunities.