Aug 18, 2023 | Peel #525

In this issue of the Peel:

• Moderna sees an uptick due to potential new C-19 wave, while Cisco Systems reports impressive earnings; CVS Health drops with Amazon's entry and First Solar faces labor issues.
• Clean energy projects see a boom with over $224bn and 100,000 jobs pouring into the space since the Inflation Reduction Act. Significant investments in semiconductor production by major names like Intel and TSMC also noted.
• Walmart reports strong Q2 earnings with $1.84/sh on $160.63bn, a 53% net income jump for the year, but faces challenges with potential long-term inflation impacting their margins.

Market Snapshot

Happy Friday, apes.

It’s about damn time for the above sentence, huh? It’s been a rough week for macro, markets, and of course, those of us who didn’t get the return offer. It’ll get better.

And for once, that isn’t just a wildly sarcastic comment. Equity markets continued their hissy fit seen in recent days into Thursday as US indices fell across the board. The risk-on trade took a giant leap back as only the energy sector was able to get the people (and the apes) goin’.

Meanwhile, treasury markets set record highs once again, only to end up closing another roller-coaster session with a slight decline. With the risk-on trade turned off for the day, piling into Treasuries and the USD was the only move. With that, we have to ask: are treasuries the new meme stonks? Maybe.

Let’s get into it.

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Don’t miss this opportunity to invest in your career and achieve your PE goals.

Banana Bits

• An uptick in consumer spending in China could be indicative of a not-so-bad economy, and the rest of the world took a slight sigh of relief
• BTC prices absolutely nosedived out of nowhere, and I’m sorry, but I can’t stay up any later to see if this holds up overnight, alright?
• Take a glimpse at the elite SpaceX’s “earnings report”...after you drop a bag on a WSJ sub, of course

Macro Monkey Says

A Whole Lotta Green

Boston has the Green Monster, Tucker Carlson has an obsession with the Green M&M, and everyone, despite not touching it for quite a while, knows that grass is green.

Basically, we all love the color green, and you better believe President Joey B does too.

Since taking office, Big Dawg Joey B has been pounding the table on clean, green energy. When the green that backs those investments in clean energy isn’t being sent to Ukraine, we find a few dollars to toss as those energy projects.

Specifically, and according to the FT, in the 1-year and 2-days since the Inflation Reduction Act—maybe the most fraudulently named piece of legislation in American history—has gone into effect, over $224bn and 100,000 jobs have poured into the clean energy space. Just take a look:

Source

Basically, it’s exactly the kind of thing green energy nerds would want to see. Common arguments against things like solar panels on homes, widespread adoption of electric cars, and mostly green energy grids rest on the idea that the infrastructure simply isn’t there.

Well, this is exactly how it starts. Like it or not, with dollars like this behind it, the green energy wave is coming. It’s not only green energy. Some of the largest infrastructure commitments from private companies have centered around the “new oil,” or even better, the “new oxygen” that is semiconductors.

Names like Intel, TSMC, Micron, and plenty of others have announced up to $30bn investments in onshoring the production of such essential gadgets. Thankfully, the FT did the hard work and summarized this list below for us:

Source

With dollar amounts like that flowing into semis and green energy, it’s hard for investors not to take notice. Considering the impact of interest rate hikes and other moves leading to a tighter monetary regime, dusty ol’ boomer industrial names might just be cool again.

At the same time, young & dumb companies growing up in these spaces right now couldn’t be more blessed with this kind of investor appetite and, the ultimate hack to any industry, federal funding. While Silicon Valley tweaks over the race to artificial general intelligence, just remember what happened to industries like DeFi.

Whatever you do, just please don’t put all your eggs in one basket. Now go charge your EV with your brand-new GPU.

What's Ripe

Moderna (MRNA) ↑ 7.40% ↑

• You know it can’t be good news when vaccine makers like Moderna rise, and (spoiler alert) it’s not.
• If you’re unlucky enough to be a shareholder in this stock, which is still down >75% from recent highs, this may have been your portfolio’s first good day in a while.
• Driving the surge seen yesterday was news out of NPR from experts at the CDC alleging that—brace yourself—yet another C-19 wave could be in play as this summer rolls to an end in the coming weeks. Naturally, that means more vax orders from Moderna and other one-time world savers like Pfizer ($PFE, +2.85%).
• I know, absolutely absurd. Entering 2023, I thought we all agreed this whole “pandemic” thing was long gone, but apparently, it may be time to run it back. One more time for old times’ sake?

Cisco Systems (CSCO) ↑ 3.34% ↑

• One of few tech companies to survive the dotcom bubble, GFC, and post-pandemic…uh, let’s call it a “sh*tshow” for now, Cisco is still going strong.
• Shares went Cisco Mode yesterday on the back of an earnings report that had us more confused than when your partner says, “I’m fine,” in a clearly upset tone. The stock beat, reporting $15.2bn and $1.14/sh adj against estimates for $15.1bn and $1.07.
• In addition to the BS “adjusted” earnings, CFO Scott Herren sprinkled some more manure to drive gains by following the classic playbook of hyping up AI. According to Herren, the firm is “well positioned to win in that space.” Mhm, sure, you and everyone else, but we’ll see.

What's Rotten

CVS Health (CVS) ↓ 8.14% ↓

• Sure, their products might be good for your health, but their stock sure isn’t. This anxiety-inducing name tumbled on news that Amazon had arrived.
• A key and highly profitable business segment for CVS and other big players like Cigna and UnitedHealth is their pharmacy benefits manager (PBM). Companies use PBM services to negotiate drug prices, run mail-order pharmacies, and do other random things above my monkey brain.
• One company, Blue Shield of California, said “f*ck that” to CVS’s PBM line of business. Obviously, losing a big customer like that in a key business unit driving huge profits for the firm is bad enough, but when they switch to Amazon…
• It’s time to sound the alarm. The US PBM biz is controlled essentially by CVS and the other two named above. Any uncertainty around earnings from that unit is horrifying to investors, but this is also a sign of a 4th entrant into the market via Amazon’s push into healthcare. Just check Bezos’ quote below to see why that fear is so deep.

First Solar (FLSR) ↓ 4.40% ↓

• Slavery was banned in the United States on December 6th, 1865. 158 years later, First Solar apparently still hasn’t gotten the memo.
• Yesterday, an internal audit revealed some less-than-free labor practices going down at a company-run factory in Malaysia. Things like withholding wages and stealing passports from employees of the plant seemed to be the vibe over there, but after the share price’s move today, that’s clearly not the case.
• While objectively horrible actions, props to First Solar for at least telling us about it. Many other companies (looking at you, Apple, Tesla, and probably the 497 other companies in the S&P 500) probably do the same, but then again, releasing the news = share price go down. Tough call…

Thought Banana

Earnings Spotlight: Walmart

The company that still boasts the prestigious title of “Most Revenue in the World” is hanging onto the crown and its share price. At least, for now…

Yesterday, the Store of Stores reported their Q2 earnings. On a weak day for the market, shares did underperform, but we all know Mr. Market gets a little hangry when we think inflation might be coming back.

"Walmart put up a 53% jump in net income for the year, with big gains coming from frugal customers in the heat of big, scary inflation."

Walmart raked in $1.84/sh on $160.63bn vs. the estimated $1.71/sh on $160.27bn for the quarter. To get shareholders even more excited, Walmart put up a 53% jump in net income for the year, with big gains coming from frugal customers in the heat of big, scary inflation.

Both online and in-store sales grew along with the average amount spent by those consumers. Same-store sales jumped 6.4% in the meantime, a deceleration from recent quarters but still enough to smack around investor expectations.

Tip of the cap to the company, but certainly not shareholders after losing 2.24% on the day. Walmart basically just benched 350 lbs with a previous PR of 285 lbs, and Wall Street laughed.

The idea seems to be that long-lasting inflation could, in theory, inflate away Walmart’s already narrow margins and/or interfere with the value proposition.

"... lasting inflation could, in theory, inflate away Walmart’s already narrow margins ..."

On the other hand, it was a rough day for large caps outside of, like Google, basically, so it could just be Mr. Market’s mood swings.

We’ll see if traders can keep that energy for long. If not, f*ckin Buffett will probably load up on shares or something and bring the returns with him.

The big question: Will inflation become the bane of Walmart’s existence in a long enough timeframe? How will the company perform through the rest of the year?

Banana Brain Teaser

Yesterday —

My first is not as useful as it used to be
My second is an object of delivery
My whole is literature that you get for free

What am I?

Answer: Junk mail.

Today —

My first serves as positive recognition
My next's played in a friendly competition
My whole is a pay-later proposition

What am I?

Shoot us your guesses at [email protected].

Wise Investor Says

“Your margin is my opportunity.” — Jeff Bezos

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team

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