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👱♀️ Will Swifties Boost Cinemark Stock?
Plus, Wells’ top fourth-quarter picks and an AgCo company coming for Deere.
Happy Sunday to everyone on The Street.
Last week, shares of Coca-Cola (KO) and PepsiCo (PEP) fell after Walmart's (WMT) CEO said its customers were buying fewer groceries thanks to weight-loss drugs like Ozempic (NVO) and Wegovy (NVO). Shoppers were specifically pulling back on purchases of high-calorie foods.
US sales for these "GLP-1" drugs have increased 300% between 2020 and 2022. In fact, some analysts think the injections could be worth as much as $100 billion within a decade.
So, if you believe this trend will come true, how can you play it?
Well, you could short the sugary drink stocks like the ones mentioned above. This is something we mentioned in this newsletter a few weeks ago. To be fair, PepsiCo is still projecting double-digit revenue growth this year, though, certainly notable for such a massive company.
You could also look for the "picks-and-shovels" of this industry, as we enjoy doing in this newsletter. So, while oral treatments are being developed by Pfizer and others, for now, the only way for people to blast themselves with this weight loss goo is with syringes.
Therefore, if sales forecasts come to fruition, then we're going to need a lot more syringes. This begs the question: who is making them?
Turns out, a handful of companies are battling it out to win more of this "fill-finish" work — the process of filling the syringes used in the pens.
Catalent (CTLT) is building "significant" pre-filled syringe capacity at factories across the globe. The company is already doing the fill-finish work for Wegovy.
Meanwhile, Thermo Fisher (TMO) CEO Marc Casper told a Morgan Stanley health conference last month that his company is converting facilities used to fill COVID-19 vaccine syringes to handle pens for obesity and diabetes medicines.
He added that there is a huge shortage of capacity, which is backed up by The Insight Partners. According to their research, the fill-finish market will more than double between 2019 and 2027, to $12.5 billion.
As we always say, none of this is investment advice. It’s simply meant to get you thinking on this lovely Sunday. But who knows? Maybe in the next century, economists will be touting the “pens-and-syringes” play.
PRESENTED BY LONELINESS & COMPANY
Last quarter, roughly 40 percent of companies in the S&P 500 mentioned AI or related terms in their earnings calls. Wall Street and Silicon Valley are buzzing with ideas about which names could be next when it comes to benefiting from the new technology.
But what will the human-tech relationship be like 10 years from now? That’s what one novelist is exploring in her latest book, Loneliness & Company. Take a step back from the spreadsheets and dive into a captivating story focused on a main character who is tasked with gathering enough research to train an AI how to be a friend.
Don’t wait: Now available for pre-order, click here to get your copy.
Review
U.S. stocks were mixed on Friday as investors digested a slew of big bank earnings, higher inflation expectations, and a jump in oil prices.
Geopolitical tensions in the Middle East continue to escalate, weighing on the markets, while the U.S. imposed sanctions on two shipping companies carrying Russian crude and violating the $60 per barrel price cap.
All this drove oil prices up some 5%, with Brent crude, the global oil benchmark, rising above $90 a barrel.
The Dow Jones Industrial Average added 39 points or 0.1%, while the S&P 500 declined 0.5%. The Nasdaq Composite was down 1.2%. For the week, the Dow and the S&P 500 registered modest gains, while the Nasdaq fell slightly.
In economic news, consumer sentiment dropped in October, according to preliminary findings from the University of Michigan’s survey of consumers, as people’s assessment of their personal finances soured and inflation expectations rose.
Elsewhere, Philadelphia Fed President and voting member of the FOMC Patrick Harker said he believes the Fed can hold rates “where they are”.
In company news, Q3 earnings season kicked off in earnest with three of America’s biggest banks reporting. JPMorgan beat expectations with a 35% increase in profits and 21% rise in revenue, largely driven by interest income and lower-than-normal credit costs. JPMorgan shares closed up 1.5%. Earnings from Citigroup and Wells Fargo also topped expectations.
Meanwhile, Microsoft officially closed its $69 billion acquisition of Activision Blizzard, more than 20 months after the initial agreement. The deal adds the likes of Call of Duty, Overwatch, and World of Warcraft to Microsoft’s portfolio.
And for one non-finance-related tidbit we learned this week, how about this: 42 buildings in New York City are so large they have their own zip codes.
Preview
The week is starting out on a quiet note, with the spotlight on the NY Empire State Manufacturing Index. After a decline in the previous month, it rebounded in September, indicating some stabilization in business activity in the New York state region.
On Tuesday, we will get a look at September retail sales. In August, U.S. retail sales recorded a promising 0.6% growth month-over-month, hinting at continued consumer spending despite mounting costs.
Housing market data will dominate on Wednesday, with building permits, housing starts and an update on the 30-year mortgage rate. At last reading, the average mortgage rate hit its highest level since November 2000.
And as usual, the Department of Labor will reveal initial jobless claims for the week ended October 14.
There will also be several speeches from Fed officials throughout the week. Chairman Jerome Powell will speak at the Economic Club of New York on Thursday.
Earnings Spotlight
Charles Schwab (SCHW) will kick off the earnings week. While the company surpassed expectations last quarter, year-over-year revenue declined 9% due to customers reallocating to higher interest rates.
Tuesday is a busy day with several big names releasing earnings. Albertsons (ACI), Bank of America (BAC), Goldman Sachs (GS), and Johnson & Johnson (JNJ) are among the headliners.
On Wednesday, heavyweights Morgan Stanley (MS), Procter & Gamble (PG), Tesla (TSLA), and Netflix (NFLX) will all report earnings. Last quarter, Netflix said the full benefits of its crackdown on password sharing and ad-supported tier on revenue would be reflected in the second half of the year.
On Thursday, AT&T (T) and Blackstone (BX) will step into the spotlight. In the previous quarter, AT&T’s cost-cutting plan led to operating expenses dropping $1 billion. The company is now targeting another $2 billion or more over the next 3 years.
On Friday, American Express (AXP) will conclude the earnings week. In the previous quarter, the company reported record revenue and highlighted its extended partnership with Hilton (HLT).
Blockbuster Deal Has AGCO Primed for Growth
The Art of the Deal
Precision agriculture, the science of applying modern technology to agriculture, is the future of farming. And the industry just experienced its largest deal yet.
As of September 28, two of the largest companies in this space, AGCO (AGCO) and Trimble (TRMB), decided to join forces with a $2 billion deal. AGCO shelled out $2 billion to own 85% of the joint venture.
But it isn’t just company brass that’s happy about the deal. Wall Street analysts see it as a match made in heaven that could send the stock soaring. In fact, some are so bullish that they can see the joint venture competing with industry giant Deere (DE) in the near future.
The Future of Farming
Precision agriculture is modernizing the way we grow our food, and more farmers are turning to it to improve their processes.
Everything from seed placement to spreading fertilizer can be done smarter using PA.
This new technology doesn’t only appeal to farmers. Farm equipment companies love it too, and for good reason. It improves their margin and revenue as well. There should be no shortage of demand for AGCO’s tech.
Oh Deere
However, AGCO will have some stiff competition from Deere, a true icon of the farming industry. Deere is a pioneer in the precision agriculture space, and they have been very successful thus far.
However, AGCO’s competitive edge will benefit from its new Trimble alliance. It will allow AGCO to develop and produce its technology at a much faster clip than before. As their tech team grows, analysts think the Trimble JV has a good chance to catch up to their competition.
Analysts are bullish that the deal will allow AGCO to improve its operating margins significantly over the next few years. This could allow the company to see stock returns similar to Deere’s impressive 21% return over the last 5 years. Of course, it’s not guaranteed, but some bulls are betting the farm.
Are you bullish or bearish on AGCO (AGCO) stock? |
Wells Fargo’s Q4 Stocks To Watch
Analyst Believes Apellis Pharmaceuticals Could Pop
Wells Fargo (WFC) is laying out its top picks for the end of the year, headlined by a pharmaceutical company that’s seen shares thumped over the last few months.
The bank believes Apellis Pharmaceuticals (APLS) could bounce back by more than 60%. The company saw its shares plummet in July after safety concerns were raised over its prescription eye injection, Syfovre.
Wells Fargo analyst Derek Archila wrote that the Street is underestimating Apellis’ third quarter results, and he anticipates any safety fears about the eye injection drug to be calmed.
Others To Watch
Wells Fargo also likes hotel and casino operator Caesars Entertainment (CZR). The stock is well off its highs in 2021 when shares were trading at over $100.
Additionally, the bank keyed in on retailer Ollie’s Bargain Outlet (OLLI). The discount chain is already up more than 50% in 2023. Ollie’s has benefited as consumers seek out deals while inflation remains hot.
On the tech side, the bank likes Microsoft (MSFT), writing that its Azure cloud platform and bend toward developing AI services will serve as a tailwind for steady future growth. Microsoft has seen its shares rally by over 30% this year, aiding the S&P 500’s double-digit gains.
Watch This Underperforming Aerospace Stock
For a more industrial choice, Wells highlights L3Harris Technologies (LHX).
Analyst Matt Akers wrote that the aerospace and defense tech group is being undervalued compared to its peers. He is hopeful that the company’s shorter-cycle model will expedite the solutions to any large-scale problems like supply chain issues.
Wells believes LHX could rise by more than 30% in the coming months.
Which stock do you think will have the best Q4 Performance? |
PRESENTED BY LONELINESS & COMPANY
Last quarter, roughly 40 percent of companies in the S&P 500 mentioned AI or related terms in their earnings calls. Wall Street and Silicon Valley are buzzing with ideas about which names could be next when it comes to benefiting from the new technology.
But what will the human-tech relationship be like 10 years from now? That’s what one novelist is exploring in her latest book, Loneliness & Company. Take a step back from the spreadsheets and dive into a captivating story focused on a main character who is tasked with gathering enough research to train an AI how to be a friend.
Don’t wait: Now available for pre-order, click here to get your copy.
Are Swift & Beyoncé Setting Cinemark up for a Marquee Q4?
Barbie Leads the Charge
Benchmark analyst Mike Hickey recently reiterated a buy rating on the shares of Cinemark Holdings (CNK) and raised the price target from $21 to $22. On Friday shares closed at $17 flat.
The analyst has revised the Q3 sales estimate upwards to $833 million as box office results have surpassed initial forecasts.
In 3Q 2023, the domestic box office grossed $2.65 billion, a 37.6% increase from 2022, with Barbie leading the charge.
Doing Better Than I Ever Was
The analyst sees an EBITDA of $180 million, a 21.6% margin, surpassing the consensus of $153 million at 19.6%. This is fueled by more attendees and cost efficiency. Q4 2023 has a promising lineup for the box office.
Taylor Swift's upcoming concert film is breaking presale records at Cinemark, with demand 10x higher than any past event film, and is expected to earn $100 million to $125 million on its opening weekend, noted the analyst.
A Swift Recovery
Additionally, the documentary on Beyoncé's "Renaissance" album will premiere in theaters from December 1, running Thursdays to Sundays for four weeks, with a projected $20 million opening.
In comparison to Q3 2019's $2.81 billion gross, 2023 achieved 94.1% of those figures.
Analyst Mike Hickey has confidence in CNK's complete recovery from the pandemic and is optimistic about sustained growth.
Hickey also anticipates a swift resolution to the Hollywood actor strike, followed by a renewed emphasis on outstanding growth driven by captivating film offerings and diverse content like concerts and sports.
After a tough few years, the future of film could be bright lights.
Are you bullish or bearish on Cinemark shares over the next 6 months? |
Last Week's Poll Results
Last Week’s Polls
Which stock do you think will outperform over the next 12 months?
🟨🟨🟨🟨🟨⬜️ 🥣 Neste NESTE (Finland: Helsinki)
🟨🟨🟨⬜️⬜️⬜️ 🇮🇹 ENI S.p.A. (Italy: Milan)
🟩🟩🟩🟩🟩🟩 ♻️ DAR
Which stock do you think will outperform over the next 12 months?
🟩🟩🟩🟩🟩🟩 📱 AAPL
🟨🟨🟨⬜️⬜️⬜️ 👟 NKE
🟨🟨🟨⬜️⬜️⬜️ 🏦 SCHW
🟨🟨🟨⬜️⬜️⬜️ 💱 FCNCA
Which stock do you think will outperform over the next 12 months?
🟩🟩🟩🟩🟩🟩 Health Equity (HQY)
🟨🟨🟨⬜️⬜️⬜️ Bung (BG)
🟨🟨🟨🟨⬜️⬜️ Toll Brothers (TOL)
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