Wednesday, July 24, 2024

The Smaller the Better

  • Small-caps dominate.
  • We have more crypto ETFs.
  • Gettin’ in Webtoon…
Senior Editor, StockPick Daily
MARKETS

The Great Rotation Is as Real as Ever

Bull markets thrive on this type of activity.

A glance at the end-of-day numbers for the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite would tell you it was a run-of-the mill flat-to-down day in the stock market.
And then, again, there’s the Russell 2000 putting up a 1.02 percent gain to once more outperform its big-cap brethren.
Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, said on CNBC Tuesday that the small-cap rally could extend out to 40 percent off the lows by the end of the summer.
Lee expects this major rotation from Big Tech that’s seen the Russell 2000 rally nearly 10 percent over the last 10 trading sessions while the Nasdaq was shedding about 3 percent to continue.
Such a development is probably long-term bullish for equities generally, as it reflects confidence in the underlying businesses of the companies that ground the US economy.
Still, we simply can’t afford to overlook companies like Alphabet $GOOGL and Tesla $TSLA, especially when they report earnings and comment on their prospects.

The iShares Russell 2000 ETF $IWM has outperformed the Invesco QQQ Trust $QQQ by 11.12 percent to 0.09 percent over the trailing month.
Alphabet posted a 14 percent year-over-year revenue increase to $84.74 billion, supported by solid results for its search business as well as its cloud business.
The latter generated more than $10 billion in quarterly sales and exceeded $1 billion in operating profit for the first time.
Ad sales were up 11 percent to $64.62 billion, an encouraging development after inflation and interest rates took big bites out of marketing budgets in 2022 and 2023, though YouTube ad sales were short of analyst expectations.
Earnings per share of $1.89 topped an estimate of $1.84.
GOOGL was down more than 1 percent in after-market trading on Tuesday evening.
Tesla, meanwhile, once again reported weaker-than-expected numbers, with EV sales down for a second straight quarter.
TSLA was down more than 4 percent in the after-market. EPS of $0.52 were short of the $0.62 Wall Street forecast.
Revenue was up 2 percent to $25.50 billion, slightly ahead of the consensus estimate, though automotive sales were down 7 percent to $19.9 billion. That includes regulatory credits of $890 million, more than three times the year-ago total.
On the plus side, Tesla deployed 9.4 gigawatt hours of energy storage during the quarter, and revenue for that business doubled compared to the second quarter of 2023.
Management had said storage would grow faster than EV sales.
That’s one thing those guys have nailed.
Elsewhere on the earnings front Spotify $SPOT beat expectations and traded up nearly 12 percent during regular trading hours.
But UPS $UPS had its worst day in the market in a quarter century, falling more than 12 percent, amid a stalled turnaround plan.
Management trimmed full-year sales and earnings guidance, a point of concern from a macro perspective given the parcel giant’s role in the economy.
General Motors $GM managed to beat expectations but still got hammered, trading more than 6 percent lower after management reported a second-quarter operating profit of $4.4 billion and earnings per share of $3.06.
Wall Street forecast operating profit of $3.9 billion and EPS of $2.71.
Management also boosted its full-year operating profit guidance range to $13 billion to $15 billion from $12.5 billion to $14.5 billion.
Perhaps the good news was already priced in to GM.
deep dive |
July 24, 2024
DEEP DIVE

Are You Decentralized?

Investing in crypto is getting easier.

I’m a big fan of Ether $ETH, the native coin of the Ethereum blockchain.
I traded it only once but for a decent gain that eventually helped cover part of the cost of my older daughter’s wedding last September.
I’m not entirely sure there’s a problem for it or any other cryptocurrency to solve, though perhaps my vision beyond the price action is blindered.
There’s no denying ETH has enjoyed a solid run lately, its price action reflecting the rising anticipation of the debut of spot Ether ETFs that’ll facilitate broader participation.
Eight such funds launched in the US on Tuesday, and it looks like there is indeed quite a bit of interest in the world’s No. 2 cryptocurrency.
Data from Bloomberg show that the funds saw aggregate trading volume of more than $600 million during their first half day of trading.
Spot Bitcoin $BTC ETFs came to market in January, signaling a fresh rally for the world’s No. 1 crypto.
Old-school institutions including BlackRock, Fidelity, Franklin Templeton, Invesco, and VanEck have joined crypto-native institutions including Grayscale, Bitwise, and 21Shares to sponsor Ether-backed ETFs.

Ethereum $ETH has rallied in recent weeks on the anticipated launch of multiple ETFs linked to the world’s second-biggest cryptocurrency.
It’s a big symbolic milestone for crypto, another step on an envisioned path toward integration into the global financial system.
"Ethereum’s attractiveness stems from its decentralized framework and its potential to revolutionize finance and various other industries," said Jay Jacobs, BlackRock's US head of active and thematic ETFs.
BTC-backed ETFs have seen about $17 billion of net inflows in their first six months on the market. Bitcoin’s market capitalization is approximately three times Ether’s.
ETH varieties are expected to attract a lighter flow due to technical issues related to staking, which allows investors in certain coins to boost returns via yield farming but also locks up their coins for network security purposes.
Some fund sponsors are waiving fees in an effort to attract investors.
ETH was up modestly during regular-hours trading on Tuesday with the impact of the ETFs’ debuts largely priced in.
FROM THE RESEARCH DESK

How To Buy the Creator Economy

You can get in just above the IPO price.

You can get in just above the IPO price.If this is the first you’re reading of Webtoon Entertainment $WBTN, you’re not alone.
I learned about the digital comic company via Goldman Sachs $GS and other Wall Street houses that initiated coverage on the stock this week following expiration of its post-initial public offering quiet period.
Goldman rates WBTN a “buy” rating and a $62 12-month price target.
Webtoon closed its IPO on June 28, pricing 15 million shares at $21 per to raise approximately $315 million. Its valuation at the time was $2.67 billion.
Goldman and Morgan Stanley $MS co-led the IPO.
WBTN opened lower at Tuesday’s open then slipped more than 8 percent about 30 minutes into the trading session. It closed down 11.87 percent, just above its IPO price at $21.02.
Goldman sees about 180 percent upside from here.

Goldman Sachs has initiated coverage of Webtoon Entertainment $WBTN with a “buy” rating and a $62 12-month price target.
CEO Junkoo Kim founded Webtoon as a side project in 2005 while he was working as a search engineer at South Korea-based Naver.
According to Goldman analyst Eric Sheridan, its platform enables creators and users all over the world to develop, discover, and share stories.
Webtoon is uniquely positioned to monetize web-based comics and novels because of its focus on development and the diversity of its creators, Sheridan wrote.
Its business model incorporates paid content as well as advertising; the latter is a significant potential growth driver. 
And WBTN gives investors, traders, and speculators exposure to the creator economy.
Sheridan also noted Webtoon is already popular in Asia but is only just beginning to break in North America.
Therein lies the opportunity.
It’s helpful here that Evercore ISI also initiated WBTN coverage and echoed Goldman’s bullish call, rating it “outperform” with a more modest $30 12-month price target.
Webtoon dominates the digital comic space, Evercore observed, and its expanding user base and flexible revenue model provide strong foundations for growth.
JPMorgan Chase & Co. $JPM is “neutral” and Morgan Stanley $MS gives it an “equal weight” rating. Both houses see it trading at $23 in 12 months.

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