Peloton Stock (NASDAQ: PTON)
“While uncertainties remain high, Peloton stated that tread leads have been ‘incredibly strong,’ and we believe that the excitement surrounding the launch (8/30) is not unwarranted. Importantly, Peloton guided FY22 sub net adds to 1.3 million versus the Street’s 1.2 million, and we believe sub adds will be more important for stock in 6 months than margins.”
According to the report, Peloton reported a larger-than-expected loss and announced a price reduction for its flagship bike.
According to Bank of America, lowering the price of the bike may be a wise decision in the long run.
“Bears will argue that Peloton is foregoing $500+ million in profit to add a few hundred thousand more subs,” the note said.
Furthermore, the company announced on Friday that it had been subpoenaed by two federal agencies regarding its treadmill injury reporting. The company had previously issued a treadmill product recall. Peloton’s stock was down 24% year to date as of Thursday’s close, owing in part to the controversy surrounding those products.
After the earnings results, Bank of America was not the only Wall Street firm to issue a bullish report on Peloton. JPMorgan and Loop Capital Markets both reiterated their buy and overweight recommendations.
Despite the bullish forecasts, the stock was down more than 8% in early trading.
According to Loop Capital Markets, a significant price adjustment for Peloton’s highest profile product is not a reason for worry for investors.
Furthermore, the company announced that it will be lowering the price of its flagship exercise bike by hundreds of dollars.
“With the benefit of hindsight, selling AAPL shares when the company reduced the price of its first-generation iPod would have been a bad idea. For the same reason, we believe it is unwise to sell PTON rashly after lowering the price of the Bike,” the note stated. “For better or worse, falling hardware prices are a reality for tech companies like PTON. However, we believe it is critical not to overlook the fact that lower price points expand the addressable market.”
Since lowering iPod prices 12 years ago, Apple has returned 32% per year, more than doubling the return of the S&P500.
The company’s forward guidance fell short of expectations as well, but according to Loop, the company should be able to outperform its own projections.
“Although bears will point to F1Q and FY22 guidance that fell significantly short of Street estimates, we have a strong suspicion that the outlook is overly cautious (e.g., the 1Q and FY guides bake in zero contribution from Tread+). For these reasons, and with the stock trading down 6% after-hours, we see this as a good time to buy for long-term investors.”
On Friday, the company announced that it had received subpoenas regarding how it reported treadmill injuries. Shares were down more than 24% year to date as of Thursday.
Investors love these Japan stocks
While it is still too early to declare that Japanese stocks have peaked, the catalysts could provide the perfect storm for a rally in Japanese equities, according to the US investment bank.
In a research note, Japan equity strategist Ryota Sakagami wrote, “We see three catalysts that could initiate an upward trend: (1) rise in US long-term interest rates; (2) increase in expectations for domestic economic reopening; and (3) news flow related to COVID-19 treatments.”
The report noted progress in the United States, where three frontrunner programs are currently developing Covid-19 treatments: “We are starting to see a roadmap to the launch of oral treatments, with companies getting ready to provide the treatments needed to bring this pandemic to an end.”
As the end of the pandemic becomes more certain and expectations for a resumption of the domestic economy strengthen, certain stocks will rise, according to the bank.
JPMorgan expects the following five Japanese stocks to benefit:
Following a series of cost-cutting measures implemented during the pandemic, Asahi, the food and beverage company, is poised for a “top-line recovery” as countries prepare to reopen. Asahi has a price target of 6,200 yen, representing a 19% increase from Thursday’s close.
Dentsu, the Internet and media conglomerate, should benefit from its recent share buyback and the upcoming sale of its Tokyo headquarters. JPMorgan has a neutral rating on Dentsu and a price target of 4,000 yen, which the stock briefly exceeded on Thursday.
JPMorgan is bullish on Sony and has set a target price of 15,800 Japanese yen, which is nearly 40% higher than the previous close.
Mitsui Fudosan, a real estate company hit by Japan’s renewed state of emergency, may benefit from the ongoing vaccine rollout and gradual reopening. The investment bank set a price target of 3,350 yen, a 34% premium over the previous day’s close.
Nippon Express, a logistics company, should benefit from “above-expectation” air cargo volumes and increased movement once restrictions are lifted. JPMorgan has an overweight call on the stock and a target price of 10,000 yen, which is 32% higher than Thursday’s close.
Overweight stocks are those that analysts believe will outperform the average total return of all stocks they cover in the next six to twelve months. Stocks with a neutral rating are expected to perform in line with expectations over the same time period.
Why is JPMorgan so optimistic about Japan?
Following a peak in mid-March, Japanese stocks have seen a swing as the country — which is currently in an extended state of emergency — battles the coronavirus pandemic, fueled by the more infectious delta variant.
However, JPMorgan expects stocks to begin trending higher in the coming weeks, similar to the trend seen in Japan last year.
We see little room for them to fall any further and, in fact, see significant upside potential.
Ryota Sakagami’s formal name is Ryota Sakagami.
JPMORGAN EQUITY STRATEGIST IN JAPAN
“Japanese stock market conditions over the last three months or so appear to be similar to conditions seen between June and October 2020,” Sakagami wrote in the report. “However, given the market’s P/E [price-to-earnings] decline to the level reached in May 2020, we expect Japanese stocks to resume an appreciation trend similar to the one seen beginning in November 2020, when similar catalysts were emerging.”
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The price-to-earnings ratio compares the value of a company’s stock to its earnings. A low P/E ratio may indicate that the stock price is relatively low in comparison to the company’s earnings.
“We see little room for them to fall any further, and we actually see significant upside potential,” he said.
The global recovery will benefit Japan, according to HSBC.
Separately, HSBC stated that the role of Japanese companies in the global recovery should not be overlooked.
“Japanese companies are not only beneficiaries of Asia’s growth, but also connected to key structural themes of the post-pandemic world – Asia’s rising middle class, automation and robotics, and sustainability,” wrote James Cheo, HSBC’s chief investment officer for Southeast Asia, Private Banking and Wealth Management.
“In Japan, sectors such as technology, automobiles, and manufacturing are already seeing improved demand.”
Profit winners stocks
As the second quarter winds down, several businesses have had strong margins throughout the time and are expected to continue to grow their profit from here.
Companies faced higher input costs in the second quarter, but maintained high net margins by passing on inflation to customers through price increases. It remains to be seen how long customers will tolerate higher prices as the pandemic-era stimulus fades.
′′[A]t some point, the real economy will find it difficult to pass on higher costs without necessarily seeing demand subside,” said Sean Darby, global equity strategist at Jefferies, in a note Thursday. ”[A] close eye should be kept on margins, as investors are concerned about a quick suffocation if costs are not passed on.”
Last quarter, analysts identified S&P500 members with at least a 30% operating margin. The metric demonstrates how effectively a company generates profit.
From that pool, we identified the companies with expected earnings-per-share growth of 20% or more this year, based on consensus analyst estimates. We also made certain that these names are well-known on Wall Street. Our search yielded a number of household names as well as under-the-radar candidates.
Alphabet, the parent company of Google, is the most popular stock in our screen, with 82.6 percent of analysts recommending it as a buy. During the second quarter, Alphabet’s operating margin was 31.3 percent, and analysts predict that earnings per share will increase 72 percent in 2021.
Facebook, Alphabet’s Big Tech rival, made our list. In the second quarter, Facebook reported an operating margin of 42.5 percent and is expected to increase earnings per share by 39.1 percent this year.
McDonald’s also came out on top in terms of profit. The fast-food behemoth had an operating margin of 43.2 percent in the previous quarter, with earnings-per-share growth of 49.4 percent expected in 2021. In its July earnings call, the company warned of “muted inflation” and supply chain issues, but raised its full-year forecast.
Synchrony Financial had the highest operating margin at 66.2 percent. The financial services firm is best known for its private label credit cards, which are associated with brands such as Lowe’s, Sam’s Club, Amazon, and PayPal.
Pioneer Natural Resources took the top spot in terms of expected profit growth, with earnings per share expected to increase 512.5 percent this year, from $2.07 in fiscal year 2018 to $12.68 in fiscal year 2021. Jim Cramer frequently recommends the oil and gas exploration and production company. According to the “Mad Money” host, Pioneer Natural Resources is attempting to reduce its carbon footprint and has a track record of returning capital to shareholders.
Other names include semiconductor company Nvidia, software company Adobe, and miner Freeport-McMoRan. by screening for stocks with a buy rating from at least 60% of analysts.
There is little historical precedent to suggest how the stock market would react to the Fed’s tapering. After the Great Recession, the Fed used quantitative easing — when the central bank buys financial assets in the market to increase money supply and stimulate the economy — for the first time in the United States.
“The 2013-2014 [quantitative easing] taper period is a useful, if imperfect, analog for the likely upcoming taper,” said Ed Clissold and Thanh Nguyen of Ned Davis Research in a note Wednesday.
When the central bank announced the policy change in 2013, markets reacted with a so-called “taper tantrum.” The ensuing investor panic resulted in bond sell-offs and rising Treasury yields.
The Fed is hoping to avoid a meltdown right now. Fed Chair Jerome Powell said on Friday that the central bank’s easy-money policies will most likely be phased out by the end of 2020.
While it remains to be seen how the market will react to tapering in this current scenario, certain stocks that performed well during the country’s previous tapering period are now popular names.
analysts looked through the S&P500 for stocks that gained 30% or more during the 2014 taper. We selected names that have at least 60% of analysts recommending them as buys, as well as those with an average 12-month price target that is at least 10% higher than current prices.
analysts’s screen returned a number of cyclical names associated with the economy from industries such as industrials and energy. The list includes Southwest Airlines, Union Pacific, and Diamondback Energy. Southwest Airlines shares gained the most during the 2014 taper of any stock on analysts’s list, rising 82.6 percent during the period.
When it comes to implied upside, Micron Technology shares take the top spot. The semiconductor stock has dropped more than 11% in the last three months, underperforming the S&P500. Wall Street expects the chipmaker’s stock to rise 62.6 percent over the next year.
Alaska Air Group is the most popular name on the list, with 93.8 percent of Wall Street analysts recommending that the stock be purchased. The airline stock gained 45.5 percent during the previous tapering period and is expected to gain 39.5 percent over the next year.
Analysts’s screen includes major technology stocks such as Facebook and Apple. Rising interest rates are thought to depreciate the value of future earnings and, as a result, to be particularly damaging to growth stocks such as technology names. Despite popular belief, Facebook and Apple both gained around 37% during the 2014 taper.