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The EV industry has hit some rough patches lately. Here's how to play it.

Happy Sunday to everyone on The Street.

So far, 2024 hasn’t been a good year for Apple. The stock is down 12% since January 1st and recently had its longest losing streak since early 2022.

China sits at the heart of Apple’s woes. Here’s a break down on what’s going on:

  • Chinese iPhone sales fell 24% in the first six weeks of 2024, while Huawei saw its sales jump 64% during the same period

  • On Friday, Apple agreed to pay $490 million to settle a class-action lawsuit alleging Tim Cook defrauded shareholders by concealing falling demand for iPhones in China.

  • Beijing-based smartphone maker Xiaomi is releasing its first line of EVs this month, while last month, the Apple Car was abandoned after 10 years in development.

  • FCM’s Chief Global Strategist, Jay Woods, warned that Apple and other companies with Chinese exposure could see major ramifications from a TikTok ban

All these factors have combined into a perfect storm that’s tanked investor sentiment. However, Evercore analyst Amit Daryanani believes the recent sell-off of Apple shares is “overdone” and there are “distinct drivers that could unlock upside on the stock from here.”

🍎 Are you bullish or bearish on Apple over the next 12 months?

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POWERED BY FINANCE BUZZ

When rent is due on the first of the month, it can be a stressful moment for millions of Americans. Things aren't getting any easier either with soaring inflation, a pending recession, and stratospheric interest rates all happening at the same time.

If you’re struggling financially, you’re not alone. Here are 6 weird (but totally normal) things you can do right now that could help with paying your rent on time.

Review

Inflation reports unveiled in the week preceding the Fed meeting brought unwelcome news to investors. Price pressures surged more than expected in February, creating a headache for Federal Reserve Chair Jerome Powell, who had been pushing for greater confidence regarding the disinflationary trend before contemplating interest rate cuts.

Stocks flipped to the red after Thursday's producer inflation data confirmed concerns that emerged two days earlier in the consumer inflation report.

As market participants dialed back rate-cut bets, risk sentiment faded with crypto, and Bitcoin dragged to losses. Meanwhile, commodities outperformed, with gold holding near all-time highs and oil surging above $80 a barrel.

Powell’s Rate Dilemma

As inflation reasserts its presence, Fed Chair Powell faces pressure on the path to cut interest rates. Expert opinions on rate directions are now diverging, creating an uncertain policy scenario.

AI Stocks Exit?

Investors pulling out of AI tech stocks like NVIDIA Corp., Advanced Micro Devices Inc., and Microsoft Corp. may be acting prematurely, suggests Light Street Capital’s Glen Kacher. Kacher advises that we’re early in the AI investment cycle, making current valuations reasonable and highlights the potential growth of select “AI Five” companies.

Cruising’s Rising Tide

Goldman Sachs adopts a bullish outlook on the cruise sector, favoring Royal Caribbean Cruises Ltd. and Carnival Corp. due to industry shifts and expected pricing tailwinds.

Congressman’s Boeing Sale

A congressman’s sale of Boeing Co. stock just before a Department of Justice investigation announcement raises concerns over potential insider trading. The trade’s timing, especially given his committee position, has sparked calls for further investigation into whether non-public information influenced the decision.

TikTok Bill Advances

The U.S. House’s approval of a bill targeting TikTok has left many influencers anxious, given the app’s vast American user base of 150 million. The legislation’s progression underscored growing concerns over the app’s Chinese ownership and data security implications​.

Musk Critiques TikTok Bill

Elon Musk voiced concerns about the proposed TikTok bill. He believed the bill was overly broad and susceptible to future misuse, reflecting growing debates over the app’s fate in the U.S. amid speculation of forced sales or bans.

Cannabis Stocks Surge

Speculation around the DEA’s impending rescheduling of cannabis to Schedule III fueled a significant rally in cannabis stocks on Friday. This move, anticipated to foster industry growth, sparked widespread optimism and strategic positioning among investors.

Preview

Economic Data

  • Monday: Home builder confidence index

  • Tuesday: Housing starts, Building permits

  • Wednesday: FOMC interest-rate decision, Fed Chair Powell press conference

  • Thursday: Initial jobless claims, Philadelphia Fed manufacturing survey, Existing home sales

  • Friday: None

Earnings

  • Monday: Sonim Technologies, Peraso, Zepp Health 

  • Tuesday: AllianceBernstein, Codex DNA

  • Wednesday: Five Below, Chewy, Lifewaway Foods

  • Thursday: FedEx

  • Friday: AstroNova

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South American E-Commerce Giant Could Hold Opportunity

MercadoLibre (MELI) took it on the chin after reporting earnings last month. The South American online seller tumbled 10% and has struggled to find its footing in 2024 while other tech stocks have jumped this year. 

Barron’s believes investors should capitalize on this dip.

The financial magazine highlights MercadoLibre’s user base, with 218 million consumers buying products off the platform. The company has become the dominant online retailer in Brazil and Argentina.

Don’t Tread on Me

MercadoLibre is in a solid position when it comes to fending off competition, according to Barron’s.

Amazon (AMZN) hasn’t made aggressive moves to enter Latin American markets. Asian online sellers like Temu (PDD) have been hesitant to break into South America, instead focusing on the US and Europe. MercadoLibre also offers products unavailable in physical stores in Latin America, limiting its competition with local stores. 

Analysts estimate that only around 10% of Latin America is actively using e-commerce, giving MercadoLibre room for growth as online shopping usage grows.

Good Things Ain’t Cheap

Even with the recent decline in share prices, MELI stock still trades at pricey levels. 

The online platform is currently around 44 times 12-month forward earnings which is well over the S&P 500’s valuation. 

The stock is also up over 25% in the last year and over 200% in the last 5 years. 

Barron’s argues that MercadoLibre is still an attractive buy with its competitive advantage and impressive revenue growth.

If the company continues to dominate Latin America, investors might want to add it to their cart.

How would you rate MercadoLibre (MELI) stock?

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POWERED BY FINANCE BUZZ

When rent is due on the first of the month, it can be a stressful moment for millions of Americans. Things aren't getting any easier either with soaring inflation, a pending recession, and stratospheric interest rates all happening at the same time.

If you’re struggling financially, you’re not alone. Here are 6 weird (but totally normal) things you can do right now that could help with paying your rent on time.

The Future Isn’t Here Yet

An Alternative to EVs

The EV industry has hit some rough patches lately, so Morgan Stanley (MS) is providing investors with an alternative stock within the automotive industry: Phinia (PHIN).

The company, a spinoff of BorgWarner (BWA) created in 2023, builds parts for gas-powered car engines.

Morgan Stanley analyst Adam Jonas initiated coverage with an overweight rating and a $50 price target. That’s around a 39% upside from Monday’s open.

Weighing Risk and Reward

According to Jonas, Phinia is the bank’s preferred US auto supplier stock when considering risk and reward. He pointed to the fact that he believes it can generate cash flows at around 4 times EBITDA. 

The stock has the second-highest adjusted EBITDA margins within its coverage and is not highly leveraged. 

Morgan Stanley expects the transition toward EVs to be slower than the overall market is accounting for, and stocks like Phinia could benefit.

Smart Spending

Jonas likes the fact that Phinia doesn’t burn through investor money as quickly as its competition does. Historically, it has spread out its spending on things like research and development over a longer period than its competition. 

Jonas believes that the stock’s price will benefit from the company’s spending discipline.

Many consider EV stocks the future. But Morgan Stanley thinks it might be a while before the future arrives, and Phinia could be a good play for investors in the meantime.

Are you bullish or bearish on Phinia (PHIN) over the next 12 months?

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The Dividends Don’t Stop

High Growth, High Free Cash Flow

If you’re looking for stocks that perform well no matter what’s going on in the overall economy, look for high dividend growth and high free cash flow, according to Wolfe Research.  

Stocks that fit these characteristics beat the overall market by more than 5% annually regardless of what the economy is doing, reports Wolfe. 

Wolfe analyst Chris Senyek pointed out that these types of stocks particularly shine during recessions.

The Data

Senyek came out with a list of stocks that hit both marks. The list contains some big names like CVS (CVS) and eBay (EBAY). 

The stocks on the list that have seen the highest dividend growth over the last 12 months are Constellation Energy (CEG) and Mosaic (MOS) with 100% and 60% growth, respectively. 

Mosaic is also second on the list when it comes to free cash flow, with Twenty-First Century Fox (FOXA) taking the top spot.

Big Names

eBay’s stock has a 2% dividend yield, and its dividend grew 14% over the past 12 months. Its shares are up 16% this year, jumping 8% last month following the company’s decision to boost the quarterly dividend by 2 cents. 

CVS stock is currently yielding 4%, and the dividend has grown 11% over the past 12 months. Share prices are down 6% this year, but were up around 2% in February.  

Wolfe Research believes that companies routinely increasing their dividends and maintaining cash flow will continue winning. These stocks could provide value for investors looking for a defensive approach.

Which stock do you think will outperform next quarter?

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Last Week's Poll Results

🛬 Short Boeing?

🟩🟩🟩🟩🟩🟩 Yes

🟨🟨⬜️⬜️⬜️⬜️ No

Which stock would you rather own?

🟩🟩🟩🟩🟩🟩 UPS (UPS)

🟨🟨🟨🟨⬜️⬜️ FedEx (FDX)

Where do you think cocoa prices will end the year? 

🟨🟨⬜️⬜️⬜️⬜️ Below $3,500 per metric ton

🟩🟩🟩🟩🟩🟩 Between $3,500 - $4,500 per metric ton

⬜️⬜️⬜️⬜️⬜️⬜️ Between $4,500 - $5,500 per metric ton

Do you think the healthcare sector will decline in 2024?

🟨🟨⬜️⬜️⬜️⬜️ Yes

🟩🟩🟩🟩🟩🟩 No

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