Energy Relief | The Daily Peel | 9/16/22

Market Snapshot

Stocks may have gotten slammed earlier in the week, but it was commodities’ turn Thursday.

Crude futures sank nearly 4%, wheat fell 3%, and nat gas dropped over 9%. The latter is a sigh of relief for Europeans that were planning on wearing parkas inside all winter.

This is what JPow wants to see. Lower commodity prices means lower costs to make goods, which means less inflation. Hopefully.

At the close, the Dow slipped 0.56%, the Nasdaq fell 1.43%, and the S&P dropped 1.13%.

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Let’s get into it.

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What's Ripe

Wynn Resorts ($WYNN) — Credit Suisse likes what it sees from Wynn, and it recently upgraded the stock to outperform, sending shares soaring Thursday.

They think this thing can double from its current levels. A combo of an expanded Vegas convention center and the prospect of Macau (China’s version of Vegas) reopening drove the call.

Inflation and recession risks will continue to hang over Wynn, but for now, its prospects are enticing.

It ended the day up 7.48%.

Roku ($ROKU) — Queen Cathie herself snapped up huge amounts of Roku this week amid a broader dip-buying spree.

This is one of the uglier stock charts out there—Roku has lost $30bn in market value over the last 12 months. Its fortunes have been tied at the hip with Cathie’s, and she’s doubling down.

There’s a lot to like about a gateway towards the hotly-contested streaming TV market. Roku’s bread and butter are connected TV ads, which are basically what you see before you log into Netflix, Hulu, etc.

Recent losses and shrinking margins remain a concern for investors, but broader industry tailwinds are giving it support.

$ROKU ended the session up 7.99%.

What's Rotten

Adobe ($ADBE) — Adobe announced a mammoth acquisition of cloud-based design company Figma for $20bn Thursday. Investors weren’t impressed.

Figma has some heavyweights in its cap table, including Kleiner Perkins, and was valued at $10bn last year in its most recent funding round. This deal will line the pockets of a lot of VCs.

It remains to be seen how Adobe will wring out tens of billions in value from the purchase. Integrating Figma with its other products is supposed to add to its value, but it better be more than just a facelift for that kind of price.

$ADBE ended the day down 16.79%.

Ethereum (ETH) — The much-anticipated Merge for Bitcoin’s little brother finished Thursday, resulting in a more energy-efficient blockchain.

Essentially, the Merge moves the network from proof-of-work to proof-of-stake. The former is how Bitcoin verifies transactions and requires huge amounts of energy that environmental advocates have balked at.

This new model requires users to put digital coins up for collateral while performing transactions, which can be confiscated if they behave badly. This means much less required energy use for the market to function.

Bugs are inevitable with this big of a change, and investors dumped their holdings on the news.

Ether was down 8.23% by the end of the day.

Thought Banana

Don’t Forget the Real Economy — SaaS is the golden goose on Wall Street. Hire a few engineers, build a product that people love, spread it as quickly as possible, and print money. Rinse and repeat.

Tech has gobbled up so many industries that the remains are referred to as the “physical economy.” While they don’t command similarly lofty valuations, these are the companies that keep the world running on a daily basis. Think steel producers, railroads, and garbage disposers.

Companies in these industries are rarely given the light of day until they stop functioning as expected, and we all freak out.

That could happen soon with railroads.

Rail companies and unions are engaged in contentious negotiations right now over a new labor contract, and fear is building that a strike could happen and add to the existing supply chain mess.

Just yesterday, Amtrak announced a suspension of long-distance routes to avoid strike disruptions. It could quickly create contagion.

The Association of American Railroads says that stopping the 7,000 long-distance trains in America would cut $2bn in GDP every day it’s closed. That’s way more than I initially thought—I assumed most goods just traveled by Amazon trucks.

Take that with a grain of salt, as a lot of those dollars would be made up once they opened back up.

But the fact remains that, until we’re spending the majority of our days in the metaverse, the physical economy will have the biggest impact on our daily lives. Don’t sleep on railroads.

Wise Investor Says