David Fuller and Eoin Treacy's Comment of the Day
Category - Autonomies

    GE Surges as Culp Predicts Positive Cash Flow in Second Half

    This article by Ryan Beene for Bloomberg may be of interest to subscribers. Here is a section:

    Key markets are stabilizing and GE is making “good progress” in cutting costs by $2 billion and saving $3 billion in cash to contend with the coronavirus pandemic, Culp said. While the recovery will be gradual, results are improving and GE is poised for continued cash-flow gains through the end of the year, he
    said.

    “I sit here today feeling very confident about where we are and where we’re going despite all of the trials and tribulations that Covid has certainly thrown at us,” Culp said at a Morgan Stanley conference Wednesday.

    The CEO’s optimistic tone marks a turnabout from late July, when he stopped short of saying GE would generate free cash flow in the second half. The pandemic has prompted an unprecedented collapse in air travel, gutting demand for the company’s jet engines and crimping sales of other products such as gas turbines and medical equipment.

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    Industrials Conference: Strategy Sector Views + Analyst Stock Picks

    Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

    Stupid 'Rich' Skew in Apple, Greed Breaks Things

    This article from the BearTrapsReport may be of interest to subscribers. Here is a section:

    Jan $180 Strike Calls costs $4
    Jan $80 Strike Puts costs $1

    *Both options are $50 out of the money, approx data, BUT it is nearly 3x more expensive to buy upside risk in AAPL equity. Downside protection normally costs more than upside risk participation, NOT today. What does this mean? One large buyer has made a colossal splash in the market and the scent of greed has drawn thousands of other market participants into the dangerous game. Several clients in our institutional chat on Bloomberg have cited SoftBank as the original size buyer. We have NO IDEA if this is true, just that highly credible clients have made this reference several times over the last week. It’s a high-stakes game of musical chairs, the ultimate greater fool theory moment. The colossal call buyer has thrown meat in the water and drawn in the sharks, but unfortunately thousands of Robinhood minnows at the same time. When the large players’ exit, the little guy and gal will be left holding the bag.

    Apple closed near $130, while the cost of speculative upside calls is weighted heavily against the buyer. Someone must have reached out to Buffett today because he can make a fortune in selling $AAPL upside calls.

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    Rolls-Royce Disposal Raises Questions Over Balance Sheet

    This note from Dow Jones may be of interest to subscribers. Here is a section:

    Rolls-Royce's GBP2 billion disposal announcement is materially more than what the market had in mind, and may imply a lower need for fresh equity to repair its balance sheet, Credit Suisse says. This raises questions as to whether the company was waiting for things to improve before a rights issue or taking the risk of seeing things get worse, the Swiss bank says. The lack of visibility on the balance sheet rebuild, persistent volatility in forecasts and the unattractiveness of the underlying investment case mean the stock remains unappealing for many investors, CS says. The bank has an underperform rating on the stock, and lowers the target price to 200 pence, from 210 pence. Shares are down 9% at 219.40 pence.   

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    Facebook Hits Record as Analysts See Opportunity From Shop

    This article by Ryan Vlastelica for Bloomberg may be of interest. Here is a section:

    Facebook analysts were positive after the social-media company added a new shopping section, called Facebook Shop, to its main app, seeing strong e-commerce growth potential.

    JMP Securities (market outperform, PT $305)

    There are “multiple catalysts” for Facebook, and e-commerce “can be a significant opportunity”
    There is “a clear line of sight to monetizing Shop”
    While advertising should remain Facebook’s focus, the growth in e-commerce means Facebook “can generate greater product discovery” for small and mid-sized businesses relative to other channels

    Stifel (buy, PT $290)

    The accelerated roll-out of the service “suggests the benefits to growth could be evident as early as 2021,” and Facebook waiving selling fees in 2020 “could accelerate the adoption of these tools”
    Over the long term, Facebook’s e-commerce opportunity “should come more from increased adoption of digital ads” by small and mid-sized businesses than transaction fees

    Shares up as much as 2.86%, the stock has nearly doubled off a March low, and it is trading at a record

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    A Robot Tried to Fix Value Investing and Ended Up Buying Amazon

    This article by Justina Lee for Bloomberg may be of interest to subscribers. Here is a section:

    The top three holdings of the machine-guided fund in July were Amazon.com Inc., Alphabet Inc. and Facebook Inc. Those are far from the kind of undervalued stocks typically favored by a value strategy. But to Qraft, it’s just value 2.0.

    “Intangible assets have become a more important factor in the actual value of the company due to the development of information technology,” founder Hyungsik Kim wrote in an email.

    “It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).”

    It’s the rallying cry for many remaining proponents of value: The factor isn’t dead, it’s simply plagued by outdated accounting rules that treat intangible investments such as research as expenses rather than capital.

    As a result, knowledge-intensive firms end up with much lower book values and higher costs, which make them look more expensive than they actually are.

    The new ETF’s eye-catching backtests also speak to the variety of methods underlying even the best-known equity factors. One study estimated there are well over 3,000 different ways to define a value strategy.

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    Email of the day - on risk appetites and the value of a subscription.

    I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

    I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
      
    Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

    I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
        
    It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

    At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

    Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

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    GM Shares Soar on Electric-Vehicle Spin-Off Speculation

    This article by David Welch for Bloomberg may be of interest to subscribers. Here is a section:

    GM does plan to sell more than 20 EV models around 2023. That business could be spun off for $20 billion and eventually be worth as much as $100 billion, Deutsche Bank’s Rosner said. GM’s core business selling gasoline-powered sport utility vehicles and pickup trucks is generating cash but viewed as being in long-term decline and is less exciting to investors than the company’s electric-car plans, he wrote.

    Despite the share gains this week, the Detroit-based automaker’s stock is down about 17% so far this year while all-electric rival Tesla Inc.’s value is eight times that of GM. By spinning off its EV business, GM could get the kind of momentum enjoyed by Tesla and a handful of startups that have lured capital despite their having no vehicles on the market.

    Battery-powered cars have caught the imagination of investors in recent weeks, sending shares of Tesla to successive record levels and boosting the value of electric startups such as Nikola Inc., Fisker Inc. and Lordstown Motors Corp., all of which took a fast track chasing public listings after being acquired by special purpose acquisition companies.

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    Trump Ban on Top Messaging App Risks Snarling Global Business

    This article by Zheping Huang and Vlad Savov for Bloomberg may be of interest to subscribers. Here is a section:

    Trump’s order on WeChat came after a similar injunction against ByteDance Ltd.’s TikTok, the viral video service the White House accuses of jeopardizing national security. But while ByteDance’s business outside of TikTok is largely confined to home, Tencent is central to the global distribution of games and a major conduit for American companies that sell products in the world’s No. 2 economy.

    Apple, for instance, makes the majority of its iPhones in China, where WeChat is the oil that lubricates communications both on the factory floor and in the boardroom. In a worst-case scenario, American consumer brands like Walmart and Starbucks Corp. may be prevented from selling goods and services to Chinese buyers via WeChat’s “mini-programs” in China -- now one of the fastest-growing avenues for e-commerce. China accounts for about 9% of Walmart’s international sales and is its fastest-growing market.

    “If you can’t pay for Starbucks coffee on WeChat, people will stop drinking it,” said BOCOM International analyst Connie Gu, commenting on the extreme cases where American brands are banned from using WeChat as a payment method.

    Less quantifiable is the spillover effect on the gaming industry.
    Tencent ranked as the world’s biggest games publisher by revenue in 2019, according to Newzoo data, and it collaborates with U.S. industry leaders like Activision and Electronics Arts Inc. It also holds a large stake in Fortnite maker Epic Games Inc. and owns League of Legends developer Riot Games Inc. That sprawling but somewhat stealthy gaming empire, deeply rooted in the U.S., was deemed under threat when the WeChat sanction was first announced, though a U.S. official later clarified that the action only involved the messaging service and not its parent.

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