Weekly Update: Did Higher Rates Just Kill the Bull Market? By Luke Lango and the InvestorPlace Research Staff Tough week. No other way to put it. Hypergrowth stocks with big long-term potential – like the ones we tell you about every single day in these very issues – got slammed this past week as the market freaked out about rising interest rates. On one end, this "freak out" makes sense. The 10-Year Treasury yield has sprinted higher. It's up about 50 basis points over the past month. On Thursday, it hit 1.6% – a level we haven't seen since well before the Covid-19 pandemic emerged. A higher 10-Year Treasury yield equals a higher cost of equity, which equals lower valuations for stocks, especially for growth stocks that derive a lot of their value from future (not present) cash flows. From that perspective, this week's sell-off in hypergrowth stocks makes sense. On the other end, though, it's completely overblown. The 10-Year Treasury yield sits at 1.5% today. Since 1990, it has averaged 4.5%. So, despite the rapid rise, we are still sitting at historically low levels with the 10-Year. Will a 10-Year yield at 1.5% actually fundamentally pressure valuations? It shouldn't. Since 1990, the median spread between the S&P 500's trailing earnings yield and the 10-Year Treasury yield has averaged about one percentage point. By that analysis, then, a "fair" trailing earnings yield for the S&P 500 is 2.5%. We currently sit at 3.5%, so we basically have an additional 100 basis points of "breathing room" here. Now, of course, the big fear is that the 10-Year Treasury yield keeps rising at a frenetic pace, and soars to 2.5% in a hurry – at which point equity valuations will come under real pressure. But that won't happen in the near-term, because if the 10-Year yield does keep rising quickly, the Fed will likely intervene and do something like yield curve targeting in which they will purchase Treasury notes to keep the yield fixed at some level (likely 2%). It also won't happen in the long-term, because there are huge deflationary forces at work like automation, technology, and globalization which should offset stimulus and broadly keep us stuck in a lower-for-longer situation on the rates front. In other words, the market is freaking out about something that it doesn't need to freak out about. Yields will remain lower for longer. The economy is still rapidly improving. Earnings are bouncing back with vigor. Vaccine rollouts are picking up momentum. Stimulus is in the pipeline. The core fundamentals underlying the stock market are good today – and so this sell-off will be short-lived. That's great news, because it has created some dislocations in the market that will turn into amazing buying opportunities – especially in the hypergrowth sector. So… what's the game-plan here? Let that 10-Year cool off. Let the Fed do something to stop the wild rise. Then, buy the dip in your favorite growth stocks with both hands. Long-term, things still look great. With that in mind, let's dive into this edition of The Daily 10X Weekly Update, and break down some DTX stocks that have staged big moves over the past few weeks. Virgin Galactic (SPCE) Drops on Another Space Flight Delay Space tourism is coming soon to a spaceport near you, and because of such, we highlighted Virgin Galactic in our June 30 issue as an explosive way to play the space megatrend. Since then, Virgin Galactic stock has taken off like a rocket-ship (no pun intended), soaring as much as 307%. But shares came under pressure this week after the company announced in its fourth quarter earnings report that it would be delaying its next test-flight from February to May, causing commercial space operations launch to get pushed back into 2022 (from 2021). To contextualize this, Virgin Galactic has a history of delays. Since 2007, the company has been saying it will fly people into outer-space. Yet, here we are in 2021, and still Virgin isn't flying folks into orbit. And while this is yet another delay in a long history of delays… there's something different this time around. The company is planning multiple test flights this summer, and its newest ship — the SpaceShip III — is now ready for testing. Virgin Galactic also scored a big deal with the Italian government, and will do a revenue-generating research-focused space flight for them this fall. Further, the company has created a brand-new Space Advisory board that comprises some of the world's most renowned experts in space. They've also brought on a former Disney exec (who was integral in bringing to life multiple Disney theme parks) to design a one-of-a-kind Virgin Galactic consumer experience. Management also announced a new class of spaceships, dubbed the "Delta" series, that are highly scalable and can be built much more quickly than the current class of spaceships. And they doubled down on the call multiple times that these spaceships will be the key to unlocking the company's goal of 400 flights and $1 billion per year per spaceport. Does that sound like a company that's just blundering around? No. Far from it. It sounds like a company that's doing all the final prep work before it launches into hypergrowth mode. That's why I think recent weakness in SPCE is shortsighted and overdone. Fisker (FSR) Soars on Earnings & Price Target Boost We told you – in our October 22 issue – that new EV market entrant Fisker was ready to shake things up with its Ocean e-SUV, and score you enormous gains along the way. Since then, Fisker stock has soared as much as 146%. This past week, Fisker stock got a big boost after the company reported fourth quarter earnings. Fisker is a pre-production company. Therefore, the actual numbers in the earnings report are meaningless. But the business updates are critical – and the updates we got this week were very good. Fisker is partnering with iPhone-assembler Foxconn to produce electric vehicles, which significantly de-risks the company's manufacturing risks. At the same time, the company is considering setting up a battery cell manufacturing facility with a major supplier soon. Once that partnership is secured, Fisker will have decreased its battery supply risk. In other words, Fisker's "platform-sharing" business model is coming to life. This business model was always the biggest risk to the company. What if Fisker can't make the cars? What if the battery supplier goes under (as what happened with the Fisker Karma)? Those risks are rapidly disappearing. As they continue to disappear over the next few months, Fisker's fundamentals will strengthen – and Fisker stock will keep pushing higher. Beyond Meat (BYND) Continues to Win Deals In our June 1 issue, we raised eyebrows when we called plant-based meat maker Beyond Meat the Tesla of the burgeoning plant food industry, and a $100 billion company in the making. This week, Beyond Meat secured some major partnerships which underscored that, indeed, this is the Tesla of plant-meat. Specifically, Beyond Meat announced partnerships with both McDonald's and Yum (owner of KFC, Pizza Hut, and Taco Bell) to be the preferred plant-based meat supplier for both fast food giants. Those partnerships come on top of Beyond Meat products already being at A&W, BareBurger, BurgerFi, Carl's Jr., Del Taco, Denny's, Dunkin', Luna Grill, Subway, and more. Beyond Meat is everywhere. That means that once we all start going back to fast food chains and restaurants more frequently over the next 12 to 24 months as Covid-19 takes a backseat to highly effective vaccines, we are going to see Beyond Meat products on a lot of menus. Some of us are going to order those products. Some of us are going to really like them. And some of us will turn into loyal Beyond Meat customers, buying it at every restaurant we go to and loading up on it at our local grocery stores. In other words, thanks to creating a vast foodservice distribution network, Beyond Meat is on the cusp of going from niche to mainstream over the next few years. As that happens, Beyond Meat's sales, profits, and stock price are all going to soar… Esports Entertainment Group (GMBL) Pops & Drops on M&A Chatter Just two weeks ago – in our February 8 issue – we told you about Esports Entertainment Group, a micro-cap eSports company that we said was quietly laying the foundation to build a global eSports technology empire. Since then, Esports Entertainment stock has more nearly tripled for subscribers, soaring as much as 191% in just over two weeks. This week was unusually volatile for Esports Entertainment stock, as the company found itself in the midst of M&A chatter. Specifically, Citron Research came out with a report in which it said that GameStop should buy Esports Entertainment to give the troubled video game retailer exposure to the hypergrowth eSports megatrend at a relatively low cost. Esports stock soared on the news. Then, it gave back all of those gains, as Reuters reported that GameStop has had talks with Esports Entertainment in the past about a collaboration, but not about a potential acquisition. I like the idea. I think GameStop should do it. It makes sense. GameStop is trying to turn its business around. A lot of folks believe in the company. They now have the resources to go ahead and do something meaningful to change the course of the business. Buying Esports Entertainment could be that catalyst. But I'm not counting on this takeover. It's all rumor-mill, water-cooler talk right now. There's not much to hang your hat on here. Instead, I'm hyperfocused on Esports' internal growth trajectory, wherein the company continues to expand its online eSports betting platform, acquire eSports physical gaming locations, and integrate data analytics services into its business.
In case you missed any of this week's issues, we talked about… - Eos Energy Enterprises (EOSE), an energy storage company that is pioneering a potentially game-changing new class of energy storage solutions built on zinc, not lithium.
- Numinus Wellness (LKYSF), a fully verticalized and integrated mental health company on the cutting edge of commercializing psychedelic-inspired medicines in Canada.
- Lucid Motors (CCIV), a pre-production EV maker that has the talent, resources, branding, technology, and product line-up to challenge Tesla for EV market supremacy.
- Berkshire Grey (RAAC), an automation tech startup that is the leader in AI-powered automated warehouse solutions.
- Blue Bird (BLBD), a well-established bus maker with a powerful electric bus solution that is taking over the U.S. school bus market.
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