Tech Leads the Turnaround | The Daily Peel | 7/6/22

Market Snapshot

Futures pointed towards a lower open yesterday morning, but the Nasdaq led a massive rotation that looked like a maximum pain, old growth trade. ETH and BTC are still doing a lot of nothing, and oil retreated more than 8% back below 100 bucks a barrel.

The Nasdaq was our leader, closing up 1.75%. The Dow was our loser, down 0.42%. The S&P was up 0.16%. Not a bad turnaround after seeing huge losses early in the trading session.

Interested in honing your modeling and valuation skills? This virtual, 2-day bootcamp will help you master MS Excel, leveraged buyouts, financial statements, M&A models, and valuations. This session is filling up; don’t miss your chance to master these vital skills. Master Financial Modeling and Valuation

Let’s get into it.

Banana Bits

Banana Brain Teaser

Macro Monkey Says

WSO Financial Modeling & Valuation Bootcamp

What's Ripe

Lululemon ($LULU) — Shares of $LULU closed markedly higher yesterday, gaining 7.69% during the session.

Short interest in the fab-letica brand has declined during the last four trading weeks, according to Market Beat, but this name is down almost 27% YTD.

Lululemon doesn’t just sell yoga pants; it sells a lifestyle. At least that’s what people say when they swipe their platinum cards for $120 leggings.

Best Buy ($BBY) — After its recent downgrade, $BBY has been struggling. The stock appears to be down 35% without any real end in sight.

However, yesterday was a great day for the electronics retailer. Shares moved higher after a muted opening. At the closing bell, $BBY was up 4.81%.

What's Rotten

Energy ($XLE) — When WTI Crude backslides by more than 8%, you bet your a** that energy names are going to trade lower.

Most of the S&P’s top losers were energy tickers: Halliburton, ConocoPhillips, Hess Corp, Marathon Oil Company… the list goes on. The S&P Energy ETF $XLE lost 3.97% yesterday.

Caterpillar ($CAT) — Shares of $CAT were amongst the top decliners in the DJIA, losing 2.41% yesterday.

These cats, pun intended, had quite the slump in June, losing more than 17% of their market cap.

Caterpillar’s end markets tend to move in lockstep with the economy, so a recession would mean a pullback in their revenues and bottom line.

Thought Banana

What’s Next? — Sometimes, when I reflect back on the last two years or so, I’m flabbergasted at the chain of events that brought us to July of 2022.

If there’s one thing I think many of us have learned to live with, it’s volatility, particularly when it comes to news.

We’ve watched a lot of buying and selling of the news, more so than I have seen in another decade of closely following markets.

One has to wonder: can this possibly persist, or will there be a logical return towards some nominal mean?

When I say a return towards the mean, I mean less of a focus on emotion surrounding news and more of an emphasis on fundamentals, profits, and performance.

In the words of Michael Burry, “The preference, always, would be to buy a long-term franchise at a substantial discount from growing intrinsic value.”

It would appear that hype has outperformed intrinsic value growth lately.

When I still see 11-year-olds becoming overnight millionaires, celebrities pumping NFTs, or Tom Brady flamethrower-ing in an FTX commercial, I don’t think we have bottomed just yet. It does, however, scream that there’s a hype bubble.

With some of the juiciest names from the last couple of years down one- to two-thirds of their market cap in the last six months, there are some deals out there.

There are also some losers who won’t experience the same growth until the Fed has tamed inflation and makes cheap money available like a drunken sailor.

In the short term, I’m thinking defensively. Some call it wealth preservation. You do you, though.

Wise Investor Says