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- 📦 The Biggest Company You’ve Never Heard of
📦 The Biggest Company You’ve Never Heard of
Plus, how Gen Z's response to financial chaos may affect restaurant, apparel and retail stocks
Happy Sunday to everyone on The Street.
Thursday marked the 36th anniversary of the worst trading day in the history of Wall Street.
On Oct. 19, 1987, the Dow Jones lost 22.6% in one single day, which is now known as "Black Monday." The market lost $500 billion that day and the S&P 500 surpassed 20% in losses.
Today, some market conditions are dangerously close to those that led to 1987's crash. Most significant is the unusual relation between Treasury bond yields and stocks. Just as it was in 1987, bond yields are rising in parallel to the stock market. This week, the two-year Treasury note reached a 17-year high with a 5.2% yield.
In an opinion column for Bloomberg, Financial Times veteran analyst John Authers described how the yield spike curve for bonds in 2023 is similar to that of 1987.
The coincidences between today's market conditions and those that preceded Black Monday are certainly spooky — but they don't guarantee a market crash anytime soon.
Specifically, corporate earnings are reaching a 15-month high, as per the latest projections, which is yet another proof of how resilient the U.S. economy remains, regardless of high inflation and rising interest rates.
In 1987, macroeconomic conditions were worse than they are now. Before the crash, the market had experienced a week of sustained losses of more than 10%, Interest rates were higher and inflation was accelerating.
Yet Authers doesn't see a good augur in the fact that bond yields and equities are following a similar path, and says that "it's reasonable to expect that something will give soon." Cue foggy wind noises and rustling leaves in a dark park with a flickering light: That’s enough to send a chill down Wall Street’s spine.
PRESENTED BY KNIGHTSCOPE
In an ever-evolving world, public safety is in need of an upgrade. AI and robotics are part of the solution to create safer public spaces while decreasing human error that can come from human police officers and security guards. Knightscope (KSCP) is a technology company ushering in the dawn of Autonomous Security Robots (ASRs) and working hard to protect U.S. citizens from crime across the country.
The company’s robots are designed to enhance safety and security in various environments, such as corporate campuses, shopping malls and hospitals. Knightscope robots operate autonomously, meaning they can navigate and patrol areas without human intervention using A.I., including autonomously recharging.
Knightscope’s influence and reach seem to be on the rise. Just in 2023, the company has made more than 50 announcements including numerous contracts and reports it is on track to double its revenue versus 2022. These contracts further validate the growing demand for Knightscope's robotic solutions as they continue to work through a nearly $5 million backlog of new orders.
The company is currently offering an investment opportunity for interested parties to buy bonds.
The robotics market was valued at $31.38 billion in 2021 and is expected to reach $110.39 by 2030 with a CAGR of 15% from 2022-2030. Knightscope seems well-positioned to capitalize on this growth and be a potential leader in the U.S. market. Click here to learn more about the Rise of the Robots.
Review
U.S. stocks fell on Friday, with the S&P 500 logging its fourth daily loss in a row after the 10-year U.S. Treasury yield touched 5% for the first time in more than 16 years. Last week, Fed Chairman Jerome Powell seemed to reiterate that interest rates may stay higher for longer, which weighed on the stock market.
The Dow Jones Industrial Average shed 271 points or 0.8%, while the S&P 500 fell 1.2%. The Nasdaq Composite was down 1.5%. All the major indices finished the week sharply in the red, with the Nasdaq recording the worst performance.
In earnings news, American Express topped expectations and announced record quarterly results, carried by strong spending and demand for its high-fee credit cards, as well as a 34% increase in net interest income. However, it increased its provisions for credit losses by 58%, reinforcing concerns about a slowing economy. American Express shares finished 5.3% lower.
Elsewhere, solar product manufacturer SolarEdge announced substantial cancellations and project extensions in Europe, indicating waning demand. The company significantly lowered its Q4 revenue estimates, sending its shares 27% lower. Several other solar stocks fell as well, bringing the Invesco Solar ETF down more than 6%.
Finally, Atlanta Fed President Raphael Bostic said he doesn’t believe we should expect any interest rate cuts until late 2024. He added that he believes rates are sufficiently restrictive where they are and no further increases are needed. However, Bostic is not a voting member of the FOMC.
Preview
We’re starting out with the Chicago Fed National Activity Index, and a look at business activity in the U.S. manufacturing and services sectors Tuesday. On Wednesday, as usual, we’ll get an update on the 30-year fixed-rate mortgage. It’s nearing 8%, sitting at its highest level since November 2000. Additionally, new home sales data, which dropped 8.7% in August, will be released.
On Thursday, aside from the advance GDP report, which will also include personal spending for the third quarter, look for the September durable goods orders data.
On Friday, the Fed’s favorite inflation index – core PCE – for September will be in focus. In August, the price gauge only increased 0.1% month-over-month. On the year, it rose 3.5%.
Earnings Spotlight
Bank of Hawaii (BOH) is scheduled to kick off the earnings week, followed by mining company Cleveland-Cliffs (CLF). The latter recently had its $7.3 billion buyout offer of U.S. Steel (X) rejected.
On Tuesday, a busy day awaits, with several industry leaders set to report, including Microsoft (MSFT), 3M (MMM), Coca-Cola (KO), General Electric (GE), Spotify (SPOT), and Verizon (VZ).
On Wednesday, Boeing (BA), Hilton (HLT), Mattel (MAT), and Facebook owner Meta (META) will report. In late September, Meta announced a new slew of AI-powered tools, including smart glasses, digital assistants, and the Quest 3 virtual reality headset.
On Thursday, we’ll get earnings reports from Comcast (CMCSA), Mastercard (MA), Southwest Airlines (LUV), UPS (UPS), Chipotle Mexican Grill (CMG), and an anticipated first earnings call from Kenvue (KVUE) after its spin-off from Johnson & Johnson (JNJ). Ford Motor (F) will also give insight into its current challenges with the United Auto Workers union. The automaker recently said it was at its limit regarding labor deals.
Concluding the week are ExxonMobil (XOM) and Colgate-Palmolive (CL). Exxon recently announced plans to acquire Pioneer Natural Resources (PXD) for $60 billion.
Analysts Tout Little Known Pharma Stock
Simple but Effective
If you haven’t heard of McKesson (MCK), you’re not alone.
Despite being one of the largest companies in the nation, they are not even on the radar for many investors. But analysts say the drug delivery company is a “can’t miss” stock buying opportunity.
McKesson’s business model includes purchasing drugs from manufacturers and delivering them to pharmacies and hospitals across the country. This might sound simple, but it requires logistical finesse, rivaling UPS and FedEx. The demand for these carefully handled packages and efficient logistics is only rising.
In fact, McKesson currently delivers so much medicine that they are the 9th largest company in America in terms of revenue, bringing in $5 billion in cash over the previous fiscal year.
Less Worries, More Earnings
No longer tied down by pre-pandemic fears of pharmaceutical pricing regulations and opioid crisis liability, the stock is poised to explode according to several analysts.
The stock is already up 20% this year, but there is still plenty of room for continued growth, analysts say.
Ozempic, a drug that has repeatedly made headlines this year, is delivered by McKesson, as well as several other high-demand drugs. This alignment with popular prescriptions coupled with their steady cash flow could continue to be a catalyst for growth for the company.
Earnings per share are expected to balloon to $30.84 by 2025.
Ask the Experts
Investment banking giant Jefferies is bullish on McKesson and believes they will outperform rivals Cardinal (CAH) and Cencora (COR) with a 12-14% growth rate in the coming years.
Jefferies also pointed out that, when compared to companies with similar growth rates, McKesson’s stock price is cheap.
Finally, McKesson has announced plans for a stock buyback, and AdvisorShares CEO Noah Hammon says that makes McKesson stock even more favorable for investors.
As prescriptions for drugs like Ozempic, Wegovy, and Mounjaro continue to rise, so might McKesson’s bottom line.
Are you bullish or bearish on McKesson (MCK) over the next 12 months? |
Nutrition Stocks Stand to Benefit From Aging Population
A Supplement a Day Keeps the Losses Away
With the way life expectancy has continued to increase over the past 20 years or so, analysts see nutrition as a growing industry that could provide big gains for investors.
Barclays (BCS) sees the global nutrition market ballooning to $28 billion within the next decade, compared to the current $19 billion.
According to the bank, some older adults need supplemental nutrition because of illnesses, which make it difficult to eat and digest food.
Advocates agree, and they point to diseases like Alzheimer’s and cancer, which can impact the ability to consume food. This growing aging population and need for supplemental nutrition sets investors up for huge growth opportunities.
Three Stocks Above the Rest
Nestlé (NSRGY), Danone (DANOY), and Fresenius (FSNUY) are highlighted by the bank as the best positioned in the medical nutrition space.
Barclays found that Nestlé outperforms their peers when it comes to the supplements provided. They have a unique position which allows them to set higher prices.
But while the Swiss food company wins on performance, an analyst finds Danone as the clear leader in Europe.
Fresenius boasts nutrition products that can be given in a variety of ways, including orally, through a feeding tube, or intravenously.
Changes in China Seen as a Tailwind
Wall Street sees favorable regulation changes in Asia, which could also boost nutrition stocks.
An analyst for Barclays says the Chinese market is approving products faster in the space. He believes the market in this area could nearly double by 2030.
There is also the possibility for reimbursement outside of hospitals, which the bank sees as more lucrative for these companies.
Which stock would you want to own for the next decade? |
PRESENTED BY KNIGHTSCOPE
In an ever-evolving world, public safety is in need of an upgrade. AI and robotics are part of the solution to create safer public spaces while decreasing human error that can come from human police officers and security guards. Knightscope (KSCP) is a technology company ushering in the dawn of Autonomous Security Robots (ASRs) and working hard to protect U.S. citizens from crime across the country.
The company’s robots are designed to enhance safety and security in various environments, such as corporate campuses, shopping malls and hospitals. Knightscope robots operate autonomously, meaning they can navigate and patrol areas without human intervention using A.I., including autonomously recharging.
Knightscope’s influence and reach seem to be on the rise. Just in 2023, the company has made more than 50 announcements including numerous contracts and reports it is on track to double its revenue versus 2022. These contracts further validate the growing demand for Knightscope's robotic solutions as they continue to work through a nearly $5 million backlog of new orders.
The company is currently offering an investment opportunity for interested parties to buy bonds.
The robotics market was valued at $31.38 billion in 2021 and is expected to reach $110.39 by 2030 with a CAGR of 15% from 2022-2030. Knightscope seems well-positioned to capitalize on this growth and be a potential leader in the U.S. market. Click here to learn more about the Rise of the Robots.
Gen Z Habits Could Affect Apparel, Restaurant And Retail Stocks
Cutting Corners To Meet Ends
In light of escalating living costs and a complex economic backdrop in the U.S., a recent survey delved into the financial dispositions and actions of Gen Z.
The 2023 Better Money Habits study conducted by Bank Of America (BAC) provides a lens into how this demographic is grappling with its economic realities amid persistent inflation and altering economic conditions.
A substantial 73% of respondents have reportedly adjusted their spending habits to economize on essentials like groceries and fuel in response to inflationary pressure.
A striking 96% of these pragmatic spenders said they foresee these adjustments continuing over the ensuing 12 months, indicating a more long-term change in their economic behaviors and spending patterns.
Fast Food Chains Face Tough Trends
43% of Gen Zers said they have cooked at home more rather than dining out, with 90% saying they planned to maintain this approach through the upcoming year. Here are three companies that may face the brunt of this trend:
McDonald's Corporation (MCD), which has been a popular food hub for young Americans, plunged 14.7% in the last six months. On October 11, Morgan Stanley analyst John Glass cut the price target of MCD to $315 from $330.
American teens can't get enough of Starbucks (SBUX), but its share price movement has been bearish nonetheless, likely because of the current macro scenario of rising costs. Shares of SBUX fell 14.88% in the last six months. On October 12, UBS analyst Dennis Geiger lowered the price target of SBUX to $100 from $110.
Chipotle Mexican Grill’s (CMG) burritos, bowls, quesadillas, tacos, and salads could be losing their appeal among young Americans too. Stephens & Co. analyst Joshua Long lowered the price target of CMG to $2330 from $2400. Shares of CMG have been heavily battered in the last month, falling nearly 8%.
Other Sectors Seeing Pressure
Clothing expenses are also trending downward among young Americans, with 40% of Gen Zers saying they curtailed their spending on apparel and 79% anticipating that they would maintain this change for the next year, according to the study.
Nike (NKE) shares fell nearly 20.7% in the last six months. The athletic footwear and apparel company's North American sales were down about 2% year-over-year in the first quarter reported last month. And it’s not the only one. Foot Locker (FL) stock plummeted 47.59% in the last six months.
Gen Z's caution around expenses extends to groceries as well, with 33% of respondents saying they restricted their purchases to essential items and 79% planning to maintain this change through next year.
Retail giants like Walmart (WMT), Casey’s General Stores (CASY), and Kroger Company (KR) may bear the brunt of this trend. Shares of Walmart fell 3.28% in one month. Casey’s and Kroger’s shares were down by 4.81% and 3.56% respectively over the same time frame.
Roughly 40% of Gen Z respondents said they encountered a financial challenge in the past year, compelling them to either halt savings or accrue additional debt.
The prevailing sentiment among Gen Z appears to be economic pessimism — leaving plenty for some companies to be pessimistic about.
Last Week's Poll Results
Last Week’s Polls
Are you bullish or bearish on AGCO (AGCO) stock?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨⬜️⬜️⬜️⬜️ 🐻 Bearish
Which stock do you think will have the best Q4 Performance?
🟩🟩🟩🟩🟩🟩 Microsoft (MSFT)
🟨🟨🟨⬜️⬜️⬜️ Apellis (APLS)
🟨🟨⬜️⬜️⬜️⬜️ Ollie’s (OLLI)
🟨🟨⬜️⬜️⬜️⬜️ L3Harris (LHX)
Are you bullish or bearish on Cinemark shares over the next 6 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨🟨🟨🟨🟨 🐻 Bearish
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