Senin, 31 Januari 2022

Elliot? More like Selliott

January 31, 2022

Good morning traders!

Welcome back to The Daily Setup. Markets were up yesterday and somehow ended the week right where they started on Monday. WTF. Here's what's on the docket today:

  • Knightscope has itself a day
  • Chevron reported earnings
  • Blackstone looks toward Asia

Let's get off to a good start this week.

Nick

How'd the markets look?

Market Outlook

DOW 34,725.47 +1.65%
S&P 500 4,431.85 +2.43%
NASDAQ 13,770.57 +3.13%
BITCOIN $35,908.50 -0.74%

 

Knightscope, Chevron, and Blackstone

BIGGEST MOVER

A Knightscope in Shining Armor

Despite being a public company for only two days, Knightscope (KSCP) has already taken investors on an absolutely wild ride. Shares of the autonomous security robot maker fell by 28% last Thursday after its IPO, only to rocket higher on Friday by more than 175%. The silicon valley company has built a real life R2D2 that uses self-driving technology to patrol areas in order to observe, report, and deter suspicious activity.

  • After the disappointing debut, the company reported that security company Securitas will purchase a K5 unit to patrol the parking garage of a large financial firm to deter car theft and loitering. K9 would've been cooler but I digress.
  • Knightscope took a non-traditional IPO path, allowing investors to purchase shares for $10 via the company website, selling 2.23M of the 4M allotted shares. Sounds like season ticket sales for the Cleveland Ind.. err, Guardians.
  • The company was founded in 2013, shipped its first robot in 2015, and has used crowdfunding to raise several rounds of equity.

The thought of security guard droids that detect weapons, read license plates, and call the cops is both intriguing and terrifying. Let's just hope somebody uploads the footage to YouTube the first time one of these things is sent on patrol in Philadelphia... I give it an hour before the snitch-bot is captured, stripped and sold for scrap metal. If the first two days of public life are an indication, volatility oriented traders may want to keep KSCP on their radar.

 

There's Just No Pleasing You

People

And by you people I mean Wall Street analysts of course. Chevron (CVX) reported results on Friday and the highlights included $15.6B in net income for the year 2021, a 6% dividend increase, and a $6B reduction in debt. Naturally, shares were down 3.5% because Q4 results missed analysts' estimates. These analysts definitely harp on their kids for a missed free throw instead of focusing on 20 points and 10 rebounds in a youth basketball game.

  • Chevron reported Q4 earnings of $5.1B, or $2.65 per share, which was lower than the $3.12 estimate.
  • Oil and gas production fell by 5% to 3.12M barrels per day driven by loss of licenses in Thailand and Indonesia. An interesting nugget from management was that they expect oil prices to fall back to "mid-cycle levels" and would manage the business for lower prices.
  • Outside of Friday's drop, CVX shares hit an all time high earlier in the week.

Chevron was the first of the big integrated oil companies to report for the period, so results could be a harbinger of things to come. Exxon (XOM) and ConocoPhillips (COP) report this week, while Phillips 66 (PSX) already reported a beat on Friday. Suck it CVX. Analysts were expecting bigger positive impacts from higher oil and gas prices, so if shares continue to fall there could be some opportunity for long term investors. Some of us would just like to see prices of 87 octane not start with a 4.

 

The best of the West invests in the

East

High-resolution footage of what Blackstone's doing to Asia

Blackstone, the world's biggest supervillain alternative asset manager, raised $11B of capital in its latest fundraising round with an intention to buy more businesses in Asia. That's nearly triple what the firm raised for its first Asia fund in 2018, and since then Blackstone's poured $20B into Asian investments, half of which were raised in 2021 alone. Jeez, Blackstone, don't spend it all on one continent... 

  • On the one hand, it's a risky time to go all-in on global investments. Geopolitical tensions are rising (looking at you Putin), supply chains might snap this year, and inflation is running high all over the place. Blackstone's own CEO has warned of a coming slowdown thanks to tech's recent nosedive.
  • That matters because Blackstone's MO is redirecting companies' focus towards cutting edge tech, like helping auto companies expand into the EV sphere or linking outsourcing companies to the cloud.
  • But on the other hand, Blackstone's absolutely crushing it. Its net income nearly doubled in Q4 2021 when the firm brought in $155B, with distributable earnings growing by over half to $2.3B. Okay, guess I'll shut up, then. Nearly all of Blackstone's investors pitched in for this most recent round of funding, emboldened by the asset manager's competence and ESG aims.

There's no way to know for sure how complex issues like supply chains and international relations will affect the global economy (and thus Blackstone's investments). But it's clear that people believe in Blackstone, and the firm's recent performance is obvious evidence for why. That, in addition to Blackstone's tendency to invest on the right side of history, makes it look like a strong buy. $BX gained 4.45% Friday.

A Super App for some super debt

Token Talk

Sounds super responsible.

Affirm Holdings, Inc., the buy-now, pay-later fintech firm, debuted a new "super app" that's designed to become an all-encompassing financial services hub. On it, users will be able to invest and manage their finances, which pending approval, will include digital assets. On top of that, Affirm's already on its way to becoming a universal payment option thanks to a Google Chrome extension that allows users to pay with Affirm... even if retailers don't have it as a checkout option. You little snake, you.

  • Them's some big plans for a company whose stock lost over two-thirds of its value in the past three months. The general tech selloff combined with the across-the-board slump caused by impending rate hikes helped drag Affirm straight to hell.
  • But some see the dip as an opportunity. On Friday Affirm was upgraded by DA Davidson analysts from neutral to Buy and given a $75 price target. Shares had risen 17.06% by markets' close.
  • Still, there are reasons to be wary. The Consumer Financial Protection Bureau announced back in December that it was launching an investigation into the buy-now, pay-later model due to the danger that users might accrue debt by it (duh). An unfavorable ruling would hit Affirm hard.

The trends, however, are encouraging. Affirm's universal access to retailers via its Chrome extension is no laughing matter. Similarly, its partnerships with Amazon and Shopify have set it up for success-- especially since the 2021 holiday season brought a buy-now, pay-later boom that proves that customers are getting more comfortable going into financial servitude paying in installments. I'd still wait to buy until we hear more from the CFPB.

Elliot? More like Selliott

Deals and Rumors

^The East Bank of Asia showing Elliott the door

The Bank of East Asia announced Friday that it will buy back Elliott Management's 8.43% stake in the company in an off-market deal. The $372.65M price tag means the Bank of East Asia will get the shares back at a 7.2% discount on Friday's closing price. Sounds like TJ Maxx prices.

  • Elliot's stake made it the bank's fourth-largest shareholder. The Bank of East Asia will cancel all repurchased shares to give current shareholders larger stakes.
  • This parting of ways has been a long time coming. Elliott-- famously a thorn in the side of companies they've invested in-- has owned shares since 2010. In 2016 Elliot urged the Bank of East Asia to sell itself, claiming the bank could sell shares for as much as triple their (then) current closing price. As one of Hong Kong's last family-owned banks holding out from corporate takeover, the Bank of East Asia really didn't like that.
  • The bank did, however, sell its $650M life insurance business to AIA Group in September 2021 under pressure from Elliott. So it's one of those hot-and-cold relationships.

This isn't literally a done deal just yet. The Bank of East Asia needs three-quarters of its shareholders (minus Elliott) to approve the transaction first, but given Elliott's difficult reputation and the bank's intention to cancel repurchased shares to the benefit of existing shareholders, it's basically a guarantee at this point. The move has been generally well-received by investors as a sign of confidence, with shares up 0.94% on Friday's close, and the bank's consolidation moves last year puts them on track for future growth. It could be a buy.

Link Roundup

Other News

Other News Link Roundup

  • Checking in with the diamond hand apes – Where are the meme stock investors now? (link)

  • Running hotter than the Roth era of Van Halen – Key inflation gauge sees fastest rise since September 1983 (link)

  • Let's just forget about the 737 Max – Boeing may be making a new plane (link)

  • Who Dey – The Cincinnati Bengals are headed to the SuperBowl for the first time since your humble correspondent was a fifth grader (link)

  • As inevitable as the Thanos snap – Fidelity has filed to create a Metaverse ETF (link)

 

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