Strong Earnings Confirm the Goldilocks Economy  | | Luke Lango | The stock market continued its comeback rally today, with all the major indices rallying on the day. Much like yesterday, this is a broad rally, with everything from small-cap growth stocks to large-cap value stocks joining the party. The only parts of the market in the red are defensive sectors like consumer staples and utilities – a sign that investors are putting Covid-19 risks in the rear-view mirror. Also of note, the 10-2 Treasury yield spread – a widely followed leading indicator of economic growth – is up 7 basis points on the day, as of this writing, gaining more than 15 basis points over two days. Strong earnings are the catalyst for this renewed optimism on Wall Street. A handful of market-moving companies reported earnings last night and this morning – and, for the most part, everyone’s beating expectations. Verizon beat earnings and revenues. So did Coca-Cola. And United Airlines. And Anthem. And Seagate Technology. And ASML. And Johnson & Johnson. And SAP. And Qualtrics. And Intuitive Surgical. Pretty much everyone’s beating expectations – and those expectations were supercharged, calling for the fastest earnings growth in over a decade. We believe these strong earnings confirm that we are entering a Goldilocks Economy. That is, high-frequency economic data continues to show that we’ve reached peak growth, and that the economic recovery is losing steam. However, corporate earnings are painting a picture of an economic recovery that, while slowing, is still expanding quite nicely. Combine these two data-sets, and voila, we have our Goldilocks Economy – wherein expansion is cool enough to ease inflation pressures and keep the Fed on the sidelines, but just hot enough to sustain healthy corporate earnings growth. In this Goldilocks Economy, our stocks should perform very nicely. But, even if this doesn’t come to be, we reiterate that the world-changing potential of the stocks we own extends beyond the day-to-day gyrations in the market – regardless of where the markets go over the next few months, our stocks will head significantly higher over the next several years. Stick with that long-term mindset, and you’ll do great in the markets over the next 3 to 5-plus years. With that in mind, let’s dive into today’s Daily Notes:
Innovation Investor - ChargePoint (CHPT) stock rallies as Tesla opens up its Supercharger network to other EVs. Tesla’s Supercharger network is one of the largest EV charging station networks in the world, and it has traditionally been a closed network reserved only for Tesla cars. However, Elon Musk tweeted yesterday that Tesla will be “making our Supercharge network open to other EVs later this year”. That means more competition for ChargePoint. But it also means that the EV adoption cycle should accelerate thanks to a more-accessible nationwide charging network, which should in-turn lead to more investment dollars pouring into building out an even bigger charging network to support more drivers. Wall Street is smartly taking the “big picture” view here, and pushing ChargePoint stock higher on the day.
- Bank of America grows bullish on Peloton’s (PTON) healthcare partnerships. Yesterday, Peloton announced a big healthcare partnership with UnitedHealthcare Group. Today, in response to that news, Bank of America issued a bullish note in which the firm basically said that this could be the start of Peloton becoming a staple in the healthcare world. The thinking is that if Peloton can use the UnitedHealthcare partnership to prove that Peloton machines lower healthcare costs for members, then Peloton can leverage that data to win over more healthcare partnerships, and become a standard part of healthcare coverage plans in the future. We love this idea. It gives us greater confidence in our claim that commercial partnerships – not consumer purchases – will drive the next leg of growth at Peloton.
- JPMorgan starts coverage on QuantumScape (QS) stock with a $35 price target. This morning, JPMorgan launched coverage on QuantumScape stock with a slightly bullish tone, saying that the company’s underlying solid-state battery technology is very impressive. However, JPMorgan did say that there remain some execution risks on the commercialization front. We agree with both claims, and that’s why we view QuantumScape as a buy-and-hold stock for the next 5-plus years. The tech here is legit, and the potential upside is enormous. But so are the execution risks. We think it is very likely that this stock bumbles about for the next few years, before breaking out in 2024 and beyond like Tesla did in the late 2010s. Patient shareholders could see 10X to 20X gains in this name – but don’t expect those gains to happen overnight, or even anytime soon.
- UBS points out that Virgin Galactic (SPCE) could team up with Ritz-Carlton for an end-to-end space tourism experience. Today, UBS released a research note in which the analyst team tried to answer the question of what comes next for Virgin Galactic, Blue Origin, SpaceX, and the broader space tourism industry. The most interesting tidbit from the note was a piece where UBS expects these space tourism companies to partner with traditional tourism companies – like hotel operators and airlines – to create more a robust space tourism experience that ties in first-class flights, luxury suites, and the rocket flight. We think that’s a total possibility, and more broadly believe that a lot is going to happen on the commercial space tourism front over the 12 months, from new partnerships, to a ton of flights, to an influx of new demand, to the construction of new ships. We’re very bullish on Virgin Galactic and Astra stocks at their currently depressed levels.
- Square (SQ) launches Square Banking service for small businesses. Square’s goal has always been to be the all-in-one financial services provider for small businesses – and today, the company took a huge step forward in accomplishing that goal by launching Square Banking. With Square Banking, Square customers can save a percentage of every Square sale they make, immediately spend funds with a Square Debit Card, pay staff with Square Payroll, and access increased credit with proactive loan offers. This is a dream solution for small businesses across America, and soon enough, every small business will be a Square Banking customer. This an example of the relentless innovation at Square. Because of this relentless innovation, the company will sustain 20%-plus revenue growth for the foreseeable future, and the stock will simply keep powering higher.
Exponential Growth Report - IZEA (IZEA) nabs another big Fortune 500 contract expansion, but we are growing cautious on the turnaround. Today, IZEA announced that it has been awarded a new $1 million contract expansion to provide influencer marketing services to a Fortune 500 consumer electronics manufacturer, building on top of what was 187% growth in the company’s Managed Services bookings in the second quarter of 2021. That’s great news – but at the same time, we know that the Managed Services business is not the key to unlocking huge returns in this stock. The software business is, and we are disappointed in the new updates to IZEAx as well as the traction of the Shake platform. We still believe there is an opportunity for IZEA to be a be big winner. But we are growing more and more cautious on the turnaround as time goes by and the software business fails to scale. We will wait to see how the Q2 earnings report plays out.
Sincerely, 
Luke Lango
Editor, Innovation Investor & Exponential Growth Report New to Innovation Investor? Click here to access Innovation Investor's Special Report archive. Get more from your subscription by reading our owner's manual and watching our introductory video. Exponential Growth Report Disclaimer: Small-cap stocks that can rise 10X over the long run are often volatile. If you are interested in these stocks, understand the risks and buy them like a professional. Learn more about the risks of nano- to small-cap stocks and how to buy them here. |
Comments
Post a Comment