A beginners guide to spread betting

Spread bets offer an alternative way to trade the markets compared with CFD trading. In this guide, we show you how to get started with spread betting.

Spread Betting 

What is Spread Betting? 

Spread betting is similar to CFD trading with some key differences. 

It is a tax-free, alternative to traditional trading or CFD trading. 

Spread betting lets traders speculate on the movements of stocks, shares, and other and instruments and assets without owning them. 

That makes Spread Bets derivatives, like CFDs. 

Instead, you are speculating on what’s called on a spread 

A spread is made around an underlying market, for instance, gold. In fact, spread betting originated in gold trading markets. 

With a gold spread, you would be betting on whether the price of gold would rise or fall. 

So, if the price of gold goes up, then you can make a profit. However, if it goes down, you can lose money. 

We will tackle the specifics later. 

Spreads are tied to a huge range of markets. Traders are able to pick from the usual range of markets, and instruments, such as forex, commodities, stocks, and so on. 

Remember: like CFDs, spread bets are leveraged products. Betting is inherently risky, so you should only start spread betting if you have enough capital and are clear of the relevant risks. 

The Spread 

The spread is the difference between the buy and sell prices of the underlying asset’s market price.  

In the context of spread betting, buy and sell prices are also known as the offer and the bid 

Spread bet costs are factored between the buy and sell prices. Usually, you’ll buy a bit higher than the marketplace and sell just below it. 

Let’s use the FTSE 100 as an example. As a market index, its performance is measured in points. 

If the FTSE 100 is trading at 6,000.5, and the spread is one point, the Offer Price (buy price) would be 6,001. The Bid Price (sell price) would be 6,000. 

Bet size 

Bet size is the amount you want to bet on a unit of movement of the underlying market you’re trading on. 

The way profit or loss is calculated on spread betting comes from the difference between the opening price and the closing price of your market multiplied by your bet value. 

Let’s look at an example. 

You open a £5 bet on the FTSE 100. It moves 100 points in your favour. Therefore, your profit would be £500: 

  • £5 bet 
  • 100 point movement 
  • £5 x 100 = £500 = £500 profit 

The reverse is true for losses: 

  • £5 bet 
  • -100 point movement 
  • £5 x 100 = £500 = £500 loss 

Bet Duration 

Bet duration is the length of time that passes before your position closes. 

All spread bets have a fixed time duration. They can vary from just a day to several months, depending on the asset and market conditions. 

Short-term positions may just be daily, for example. These may subject to overnight funding charges, so please be aware of that.  

Why trade via Spread Betting? 

Spread Betting presents many benefits when compared against traditional share trading. 

Tax efficiency 

Spread bets are popular because, in the UK, you do not currently pay any capital gains tax on profits made when spread betting. 

UK traders who spread bet also do not pay any stamp duty on their profits. This is because they do not own the underlying asset they are trading. 

Please be aware that tax treatments are dependent on individual circumstances and can be liable to change. Other jurisdictions will have their own tax laws. 

Variety 

Spread bets can be placed across a wide variety of different markets 

Markets available include: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

2,200 different options are available for you to bet on via the Markets.com platform giving you free rein to spread bet as you like. 

Low capital requirements 

Much like their cousin the CFD, spread bets are leveraged products. You bet using leverage and margin.  

This means you do not have to place down the entire value of the asset you wish to spread bet on, only a percentage. How much will depend on the margin, but it means you can start betting on a budget. 

Even so, it is always best to consider if you have enough capital to spread bet with. Spreads are subject to market volatility. They can go up, but they can also go down. Always ben aware of the risks when spread betting. 

Flexibility  

You can take long or short positions on spreads. 

If you think prices on the spread will rise, then you take a long position. 

Likewise, if you think prices on the spread will fall, you will take a short position. 

This means you can trade on markets that are going down as well as up and still potentially make a profit.  

This offers traders quite a lot of flexibility – another reason why spread betting is a popular way to trade. 

Hedge your share portfolio 

If you are already trading shares, and have an existing portfolio, then spread betting can help you offset some risk or limit your losses. 

In this case, you might want to use a spread bet against an asset that is moving in a different direction to your existing shares. 

Let’s say you own shares in Apple. The company has underperformed according to its latest earnings report, so its shares are sliding. You may want to open a short spread betting position on the Nasdaq technology index to offset your losses.  

This would mean that any loss to one position would be offset by profit to the other. 

Risks of Spread Betting 

Like any financial product, spreads hold inherent risks. 

Please read the below carefully and understand the potential risks you will undertake if you decided to start spread betting. 

Spreads are Leveraged Products 

Leveraged products like spreads give you market exposure for a percentage of the full trade you wish to make. This means that you can potentially make profits if the market moves in your favour. 

You can also lose money if the market moves against you and you are not using adequate risk management tools. 

Let’s look at an example. 

If you bet on a spread worth £1,000 with a margin rate of 5%, you would only have to put down a deposit of £50. 

However, if the price of the spread moves against you by 10%, you would lose £100, i.e. double your initial stake in your initial bet. 

This is because your exposure to the market, i.e., your risk is the same as if you had purchased £1,000 worth of physical shares, foreign currency, commodities and so on. 

This means that any move in the market will have a greater effect on your capital than if you had purchased the same value of shares.  

Some account types, however, such as retail client accounts have negative balance protection. That means losses will be limited to the value of the funds in your account. 

Market volatility & gapping 

Markets are inherently volatile. They can go up, but they can also go down. 

Small changes may have a big impact on returns when it comes to spread betting. 

These are similar to the types of external factors that can affect CFD trades, such as government policies, unexpected information and unforeseen changes in market conditions. 

Margin calls may also be applied due to negative effects on the spread’s underlying asset. If they cannot be met, the provider may close your position, or take a loss. 

Gapping may also occur. Gapping happens when prices of instruments suddenly shift from one level to another skipping any intermediate levels

The above may also mean stop-loss orders are applied to your open spread positions. 

Client Money Risk 

There are client money protection laws that apply to spread betting in countries where such trading is legal. 

They are designed to protect investors from potentially harmful practices from irreputable financial product providers. 

Money transferred to spread providers must be kept separate from the provider’s money. This is to prevent providers from hedging their own investment. 

Even so, some laws may not prohibit clients’ money from being pooled into one or more accounts. 

A provider withdraws an initial margin when a contract is agreed upon. The provider also has the right to request further margins from pooled accounts. If clients in the pooled account cannot meet margin calls, the spread provider has the right to draw from the pooled account. This can have a negative impact on returns. 

How to Start Spread Betting 

Here is a quick guide on how to start spread betting. 

Much of the basic principles of CFD trading also apply to spread betting, but there are some differences, which we’ll explain in more detail in this section. 

Margin & Leverage: a reminder 

As with CFD trading, margin and leverage are the two main concepts you need to know before you start spread betting. 

Margin is the money you need to lay down in order to open a leveraged trade, i.e. betting on a spread. 

Both the terms are related. Leverage, based on the leverage ratio, determines the amount of margin you need to have in your account to begin. 

Remember: margin rates vary across different regions and asset classes.  

Leverage lets you gain full exposure to a market without investing the full amount of an underlying asset. You only need a small fraction of the normal capital. 

Margin value is needed to open a transaction. It will be held as collateral until the relevant transaction is terminated. 

The amount of the margin payments is dependent on the leverage ratio of the CFD, the underlying financial instrument and the contract value of the transaction. 

Decide what you want to trade 

Markets.com offers thousands of assets you can place spread bets on, covering sectors such as: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

Don’t forget to use the in-platform streaming service XRay and our Insights service for advice on the leading stocks, indices performance, and current affairs information, to help you decide.  

Build your trading plan 

Think about what you want to achieve from spread betting. Remember to ask yourself the key questions: 

  • How much profit are you hoping to make? Will spread betting help you achieve that? 
  • How much time can you realistically spend trading? 
  • How much can you safely spend? 
  • Are you comfortable assuming the risk?
  • What does acceptable loss look like to you? 

Answering them will give you a clearer picture of how you wish to proceed and what trading strategy you want to undertake. 

Open your first position 

When you’ve decided which market you want to trade, you’re ready to bet on a spread. 

The first thing to decide is whether you want to go long or short.  

  • If you think the spread will rise, you take a Long Position. 
  • If you think the spread will fall, you take a Short Position. 

Once you’ve taken your position, your profit or loss will move in line with the underlying market price. You can use the Markets.com platform to monitor all your open spread bets. 

Putting spread betting into practice 

Let’s look at a spread bet using Google as an example so you can see how the theory comes together in practice. 

In this example, Google is currently trading with a sell price of 11,550 points (£115.50). The buy price is £115.60. 

Because of its recent good earnings, you predict that Google shares are going to rise soon. As such, you decide to take a long position (or buy) Google shares for £10 per point of movement at the buy price, or 11,560 (£115.60). 

If your bet is correct, and Google share prices do rise, you might want to trade when the sell price hits 11,590 (£115.90).  

The market has increased by 30 points (11,560 – 11,590). As such, your bet would have turned a profit of £300 (30 points x £10 = £300). 

However, markets are volatile. They can rise as well as fall. Below’s an example of what would happen if the market moves against you. 

The price of Google shares has fallen to a sell price of 11,510. That would mean you would end up with a loss. 

The market has moved 50 points (11,560 – 11,510). Therefore, you would have made a £500 loss (£50 x 10 = £500).  

Start trading your way with Markets.com 

Now you know your way around spread betting and CFD trading, put your knowledge into practice with Markets.com. 

Remember: spread betting carries significant risk of capital loss. Only take part if you can afford to take any potential losses.

US pre-mkts: Bank earnings strong, Cat upgrade

Equities
Investments

Very strong bank earnings coming through this morning – JPM led the way yesterday and the latest numbers from peers also look strong. Real good signs of improving loan growth in particular is a positive for BAC.

US pre-market key pointers

Bank of America (BAC)

Strong performance from Bank of America.

  • Net income of $7.7bn, EPS of $0.85 vs $0.71 expected
  • Revenues up 12% year-on-year – JPM was just up 2.2%
  • Net interest income up 10% to $11.1bn – most rate-sensitive of the big banks
  • Record M&A activity – Noninterest income up 14% to $11.7bn, driven by record asset management fees, strong investment banking revenue and higher sales and trading revenues
  • Expenses down on the quarter, flat on the year
  • $624m clawback from bad loan provisions – bottom line flattered less than the JPM numbers.
  • Stock up pre-mkt to tune of 2.5%, having fallen 0.92% yesterday in sympathy with JPM, which is trading mildly higher in pre-mkt.

Wells Fargo (WFC)

Wells Fargo results showed:

  • Net income of $5.1bn, EPS $1.17 vs $0.98 expected
  • Net interest income was down 5%, due to lower loan balances that reflect soft demand, also higher prepayments, lower yields
  • Results include $1.7bn decrease in credit loss provisions – equivalent to $0.30 per share.
  • Pre-mkt trades +1%, having slipped 1.3% yesterday.

Meanwhile, ahead of the cash open on Wall Street, US futures indicate all the major averages will open higher. SPX seen opening up 30+pts at just under 4,400, Dow Jones +200pts at 34,610, NDX at 14,900. Risk looking solid.

  • Walgreens Boots Alliance reported earnings $1.17, vs $1.02 expected, revenues $1bn ahead of expectations, cost-cutting programme a year ahead of schedule. US comparable sales up 8.1% from a year before.
  • UnitedHealth shares +2% pre-mkt after reporting earnings beat and raised guidance.
  • Caterpillar +1% pre-mkt, bouncing of its weakest level since Jan, as Cowen advises clients to buy ahead of the first ‘megacycle’ in 14 years, initiates with ‘Outperform’ rating and PT of $241.
  • Tesla shares are up pre-mkt to their best level in 7 months.
  • Boeing down 1% pre-mkt after report says co. dealing with new Dreamliner defect, production problems
  • FTSE 100 at HOD just a whisker under 7,200
  • Dollar continues to struggle. GBPUSD making a fresh 3-week high at 1.37334.
  • Gold also trades at HOD at $1,800, sitting on its 100-day SMA.
  • Treasury yields lower, 10s at 1.532%

Earnings season: five stocks on Goldman’s radar

Equities
Investments

Earnings season is underway. Now’s the time to take a look at some stocks that could provide investors with more than the Wall Street consensus would tell you.

US earnings season Q3 2021

Goldman reviews earnings season stocks

Sometimes investors like to break away from the pack. To dare is to do.

It’s all about spotting opportunities from stocks that may be overlooked by Wall Street.

As reported by CNBC, Goldman Sachs has been scanning Wall Street for stocks it believes hold promise for investors looking for something different this earnings season.

Earnings season began in earnest this week with major US banks leading the charge as always. You can use our earnings season calendar to see which megacaps are reporting this quarter and when.

In a note to investors published on Wednesday, Goldman said it expects stocks to rise 6% this quarter. Its spotlighted stocks, however, could offer upsides of 14%.

The investment bank deployed a fairly complex methodology when analysing Q3 2021 earnings season stocks. 1,000 companies in Goldman Sachs’ coverage universe were scanned at the 25 best opportunities were selected when considering EPS of $5 per share over the next four quarters.

After this, the results were filtered through analysts which were above or below Thomson Reuters’ consensus for the upcoming quarter, and the year ahead, “on a key financial metric.”

“Single stock put-call skew is at its highest level in over a year,” Goldman said, encouraging investors to make out-of-money calls on its out-of-consensus stock picks. “Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months).”

The out-of-consensus stocks to pick

Please note these are only Goldman Sachs’ recommendations – not hard and fast must-buys. Only invest if you are comfortable with the risk of potential capital loss.

The top five stocks Goldman has selected to watch this earnings season are:

  • Uber
  • Signature Bank
  • Yeti
  • Bank of America Corp
  • Lowe’s

Let’s start with Uber. The ride-hailing service burst onto the scene several years ago as a taxi industry disruptor. Goldman’s Eric Sheridan thinks the app can deliver a 37% upside over the coming year. Sheridan’s earnings estimates put Uber 20% higher than Wall Street consensus right now too.

The idea is that if Uber can close the supply/demand gap, then this should lead to normalised ride pricing, higher demand in general, and thus pre-pandemic profits.

Outdoor retailers Yeti could offer even better upsides than Uber. Goldman considers Yeti a “growth compounder with best in class authentic brand positioning.” It could deliver upsides of 44% if Goldman is on the money. In terms of EPS, Yeti’s could be 8% higher than analysts think in the third quarter and 3% higher in the next.

Investment banks are usually amongst the first to start reporting on Wall Street come earnings season. It’s certainly true this year. Of these, Goldman flags Bank of America as the one to keep an eye on. Goldman’s analysis puts BoA’s upside at 7% – some 10% higher than consensus.

Bank of America’s potential has been pegged to “significant remixing of cash into securities” by Goldman.

Smaller banks are represented by Signature Bank. Ryan Nash, a Goldman stock analyst, forecasts earnings-per-shares to come it at 7% higher than Wall Street forecasts this quarter and 5% for the next four. Signature is on course for a revenue-beating Q3, driven by an acceleration in loan growth.

Rounding off Goldman’s section of potentially consensus-beating stocks is Lowe’s. The DIY probably benefitted more than most from the pandemic last year, but this quarter it could offer investors an upside of 12%.

Goldman’s Kate McShane said Lowe’s position is stronger now than in the last 6-12 months, thanks to bringing forward its seasonal inventory purchases.

These stocks could help you ride the next crypto surge

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Investments

Bank of America has picked out a number of stocks that could help investors get a slice of the cryptocurrency pie. Here they are.

Cryptocurrency stocks

Digital tokens on the rise?

Despite what some objectors and sceptics might say, it looks like cryptocurrency is here to stay.

Bitcoin has recently started heading upwards again. The token, which is the most popular in the world, recently passed the key $57,000 level – the highest levels since May. April’s $65,000 all-time high is still the target for BTC, but the industry is not just Bitcoin.

There are hundreds, thousands, of other digital tokens available. The industry’s collective valuation is currently north of $2 trillion – higher than the GDP of Canada with its bountiful natural resources.

Coins like Ether, Ripple, Cardano and even meme-based internet favourite Dogecoin, all have their own fans, representing billions in capital.

Cryptocurrencies seem like they’re becoming more resilient to outside pressures too. For example, Bitcoin’s current high performance flies in the face of China’s recent crypto ban. Before, such a measure would have sent the token spiralling downward. Now, even a flat out ban from one of the world’s foremost crypto markets isn’t enough to slow it down.

That being said, digital token prices can still show high volatility. Many investors and traders are still unsure if it’s a smart investment. Others prefer to stick with old school wealth stores like gold. But many are finding crypto a worthwhile pursuit. It’s basically down to how much volatility you can stomach.

But coins do not just generate themselves. To operate, the crypto industry requires an extensive ecosystem. It incorporates everything from technology providers, blockchain developers, payment platforms and plenty in between.

For investors to get involved in the next crypto gold rush without committing to coins, there are ways they can get involved. Of course, it goes without saying that any investments carry risk of capital loss. Investing should only be undertaken if you are comfortable taking any losses.

With that in mind, Bank of America analysts have selected several stocks they believe could offer investors value as the crypto industry grows.

Bank of America’s crypto stocks to watch

“A new generation of companies for digital assets trading, offerings and new applications across industries, including finance, supply chain, gaming and social media has been created. And yet we’re still in the early innings,” Bank of America said in a note, as reported by CNBC.

The bank’s digital finance stock selections look at the wider cryptocurrency sector.

Let’s start with power. Cryptocurrency mining, the process of minting fresh coins, is power intensive. Very power intensive. In fact, in 2020, Bitcoin mining alone used as much energy as Sweden.

According to Bank of America, nuclear power firms could be ready to pounce on the crypto sector. Environmental concerns around token mining’s emissions could push miners to look for low-carbon alternatives to their current options. With low emissions and round-the-clock reliability, nuclear could be the ideal fuel source for crypto mining.

With that in mind, BoA suggests Exelon, NRG Energy and Vistra could be energy companies to watch if they move into the crypto space.

Let’s talk data centres. Since China prohibited crypto mining in its territories, there’s been a mass exodus of mining operations. It looks like North America might become mining next hotspot.

“As digital asset mining migrates to North America due to China’s near complete ban of mining activities, public data-centre companies could view this niche market as an opportunity,” BoA analysts said.

A data centre boom may be on the way. To capitalise on this, Bank of America analysts recommend two stocks: Digital Reality and Equinix.

“Greater focus on the energy consumption of digital asset mining could increase demand for data centre operators with greater renewable energy sources,” the analysts said. “Equinix data centres are powered with 37% renewable energy with a target of 100% over the next decade.”

Payment platforms and banks should also be considered.

PayPal in particular is a “must own” for Bank of America.

“We view [Paypal] as a scarce asset with accelerating structural tailwinds, while the company is well on its way to transforming its digital wallet/app into a financial ‘Super App’ for its massive global consumer base,” the bank said.

Analysts flash their headlights at these Tesla-rivalling EV stocks

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Investments

More EV stocks to potentially rival Tesla have been flagged by a couple of big investment banks this week. Are they about to put the pedal to the metal?

EV stocks

Are these EV stocks worth watching?

Most of the conversation around electric vehicles includes Tesla in some shape or form – even pieces about its rivals.

But Tesla, despite its reputation and size, is not the only electric car manufacturer in town. Legacy marques are starting to rapidly expand their battery-powered vehicle ranges. VW, Ford, and GM alone are planning to spend in excess of $150bn to develop batteries and cars going forward.

Tesla’s competitors are now a mix of the old and the new. It’s likely the EV space won’t just be dominated by Elon Musk’s brand. It will no doubt remain a big player, for sure, but other companies, both established and up and coming, are revving their engines to get their own share of the EV market.

As such, electric vehicle stocks are quickly driving their way into many investors and traders’ portfolios.

JPMorgan’s electric vehicle stock picks

JPMorgan’s head of European autos equity research, Jose Asumendi, recently said that his two top EV equities to watch are Stellantis and Daimler.

“Stellantis is one of the leaders with electrification in Europe,” Asumendi told CNBC. “What I like about Stellantis’ strategy is not only the product launches but also the battery strategy,”

Stellantis is a joint venture between two of Europe’s most revered car builders: Peugeot and Fiat. A constellation of 14 brands fall under this umbrella. Vauxhall, Opel, Citroen and EV-spin off DS, Chrysler, Dodge, Jeep and Maseratti are just some of the badges Stellantis boasts.

Importantly, the brand is committed to EV development as well as battery research and construction.

In H1 2021, just 14% of Stellantis deliveries were electrified vehicles. In the US, the figure was 4%. With sustained multi-billion-dollar investment, the carmaker expects this to rise to 70% and 40% in these respective territories by 2030.

Key to Stellantis’ stock success will be how the brand copes with a) the global chipset shortage and b) ongoing restructuring of some of its constituent brands.

“We thought all these brands [that Stellantis owns] were going to die at some point and go bust, but it turned out to be different,” Asumendi said. “But now CEO Carlos Teveres is doing the same thing with Alfa Romeo, Maserati and Fiat. So Stellantis offers real opportunity to invest into this European restructuring equity story.”

The company also formed an entity ACC to develop property battery tech alongside Asumendi’s next pick Daimler.

Daimler is Mercedes-Benz’s parent company.

It is planning to split out its truck division away from the Mercedes cars section by the end of the year, creating two separate entities without diluting the brand.

“You will have two companies clearly run under the same hat: Mercedes-Benz Cars and Mercedes-Benz Trucks,” Asumendi said.

Asumendi was also keen to heap praise on Daimler CEO Ola Kallenius and CFO Manish Thakore. Together, the pair have been able to drop the fixed cost base of a Mercedes-Benz car by 20%. That suggests better margins for the prestige brand going forward.

But as this is an EV-focussed piece, we have to mention Daimler’s electric ambitions. In July, the German giant announced its plan to spend $47bn on overhauling its output to fully embrace electric power. No new petrol-powered models will be introduced from 2025 onwards. Bad news if you enjoy the throaty roar of an AMG V12, good news for Mother Earth.

Asumendi set price targets for both Stellaris and Daimler based on their backing of electric transport. For Stellantis, the figure is €28 – quite above the current level of €16.51 (up 3.5% on the day at the time of writing. Asumendi’s Daimler price target sits at €98. Daimler is also currently up around 3.5%, trading for €78.38.

Goldman upgrades NIO

NIO is essentially the Chinese Tesla.

The company’s stock has pulled away somewhat from highs seen at the start of January to the tune of 50%. But, according to Goldman Sachs, the EV brand has high potential.

Goldman recently upgraded NIO from a neutral to a buy with a target price of $56. At the time of writing, NIO was up 6.1% on the day, exchanging hands for $35.81.

As well as launching a collection of SUV models aimed squarely at the domestic market, NIO has also brought the ET7 saloon to market. This has caught Goldman’s eye.

The ET7 itself is a luxury sedan, designed to compete with the Tesla Model S and European rivals like the BMW 7 Series or Mercedes-Benz S-Class. The two German models regularly push $200,000 in China.

That’s why the ET7’s pricing, more in line with the BMW 5 Series or Mercedes E-Class, has attracted Goldman.

“The price point makes ET7 China’s most expensive car model ever launched by domestic manufacturers, strengthening NIO’s brand equity in the premium space,” Goldman explained in a research note.

NIO’s battery as a service model, where users essentially lease their battery from the car maker, is also a plus point for Goldman. It does seem like a rather anti-consumer move, essentially a subscription to power your car on top of tax, insurance, and electricity, but it would present an extra revenue stream for the brand.

EV stocks: legacy marques hit the electric accelerator

Equities

Tesla might be the face of electric vehicles, but long-standing manufacturers are matching its spending. Here are some EV stocks to watch.

EV stocks

2021 & electric vehicles

Electric vehicles really do look like the future.

Sales volume tripled year-on-year in H1, according to Woods Mackenzie research. WoodMac predicts 6 million electrically-powered vehicles will be sold by the end of 2021. That’s even with chipset supply constraints.

No year to date will have seen such internal combustion engine sales displacement should WoodMac’s forecast prove true.

We all know of Tesla’s electric vehicle market dominance. Many newcomers in the EV space are in danger of being left in Tesla’s shadow. While the likes of NIO and Li Automotive are attempting to put up a fight, as new brands go Tesla is driving far into the distance.

But what about legacy carmakers? These, in theory, have the supply chain capability, resources and existing market presence to potentially dwarf Tesla going forward. It’s only a matter of time before the sleeping or drowsy giants wake up and put their full industrial might behind EVs.

We’ve already seen the likes of Citroen and Volvo spin off their electric offer into new brands (DS and Polestar in this instance). Indeed, Polestar looks like it’s becoming very much its own entity and is even planning a $20bn SPAC IPO sometime soon.

Even Ferrari, which has resisted the call of pure electric power, for so long is following in the wake of luxury automakers Porsche and Aston Martin in offering a fully EV supercar by 2025.

But not all car manufacturers are created equal. There are those that dominate with their major global presence. These are the ones responsible for the global prevalence of motor vehicles to begin with. And it’s these that have enormous potential.

The largest automakers and conglomerates are pouring billions into electric vehicle research. Some are better prepared than others, but this level of investment can pay dividends in terms of positive stock price movements.

Traders and investors thinking about diversifying their portfolios with EV stocks may find some inspiration below.

Legacy EV stocks to watch

Ford

Henry Ford pioneered mass auto manufacturing as we know it. Now the company he started is keen to add his level of ingenuity to their model line-up.

Ford recently announced it was planning on spending $30bn on EV R&D by 2025 and expected 40% of its total sales to come from this market segment by 2030. Its goal is to launch 16 fully electric vehicles by 2022.

Pre-orders for the electric F-150, the truck that the company is essentially built on, have already reached 150,000. Oh, it also has plans afoot to invest $11.5bn in a battery-making facility to support the F-150 exclusively.

F-150 sales average 100 trucks sold per hour. Mr Musk with your Tesla Cybertruck: Ford is coming for you.

In terms of share price performance, Ford is up nearly 2% in day trading at the time of writing.

As well as its electric plans, Ford has been boosted across the previous months by its Q2 2021 earnings. During this time, the brand recorded a surprising $1.1bn profit, readjusting its earnings per share from a loss of $0.03 per share up to EPS of $0.13.

Ford raised its expectation for full-year adjusted earnings before taxes by about $3.5 billion, to between $9 billion and $10 billion.

Additionally, since CEO Jim Farley took control in October 2020, Ford’s share price has soared 113%.

General Motors

According to its website, General Motors plans to invest $35bn between now and 2025 towards creating a fully electric future.

With this 30% rise in dedicated electric vehicle spending, the US’ number one carmaker certainly has Tesla and other rivals squarely in its crosshairs.

In practical terms, this means a complete model overhaul and construction of dedicated production facilities. That includes two new battery megafactories. One of these is already underway in partnership with Korea’s LG Energy Solutions, while another site is being prepped in Tennessee.

GM confirmed in November it would speed up the rollout of new EVs, with plans to offer 30 models globally by 2025, up from a prior target of 20 by 2023. Chief Executive Mary Barra said the automaker wants to exceed annual sales of 1 million EVs in the United States and China by 2025.

General Motors also recently announced it plans on investing $300m into Chinese auto-pilot developers Momenta to help grow develop self-driving technologies. This could also help GM get its own slice of the lucrative Chinese automotive market – the largest in the world.

In terms of share price outlook, Goldman Sachs recently came out as saying it thinks GM is undervalued.

“General Motors (NYSE:GM) is seen as an attractive stock that captures the benefit from an industry recovery in production as well as opportunities to benefit from EVs and advanced driver-assistance systems,” Goldman analyst Mark Delaney said.

GM started the week on a good footing, rising 2.25% on Monday 27th September. It has subsequently flattened but there are reasons to look at the stock in a bit more depth.

Its E/P ratio of 6.04 makes it undervalued. Additionally, analysts expect its earnings to fall by 5.3% this year before rising at an average annual rate of 13.25% over the next five years. Might be worth a look in the short term.

Volkswagen

Volkswagen’s own spending plans dwarf those of the American rivals above.

Across the next five years, the Wolfsburg-based marque will have spent $86bn on a fully comprehensive overhaul of its production capabilities and model collection. Looking further afield, it plans to make 70 fully electric vehicles by 2030.

231,600 VW EVs were sold in 2020. It has plans to double that to 500,000 by the end of 2021. Adding in plug-in hybrid models, overall sales target for vehicles involving some modicum of electric power comes to 1.5m.

VW also has its eyes on the Chinese prize. It has announced it is launching its ID.3 and ID.4 models in China soon. The ID.4, an electric SUV, will be key to Volkswagen’s Asian expansion plans as this particular car style is a favourite amongst Chinese consumers.

The company’s stock has increased 120% from 2018 up until now, although Forbes believes it is currently reaching the limits of its mid-term potential.

Future earnings will be key in accruing decent performance for VW.

Forbes’ breakdown of the FY2022 outlook is as follows:

  • Revenues – €254 billion
  • Net income – €13.8 billion
  • EPS – €2.75
  • Stock price valuation – $47

Of course, VW’s work also includes that of Audi which is launching its own range of luxury EV models. All of its eggs are currently in one big electric basket, but it could pay off as the world moves away from fossil fuels.

Some cannabis stocks are popping. Here’s why.

Equities
Investments

A number of cannabis equities are showing strong movement today as a cohort of pro-marijuana congressmen has taken the chance to potentially push some legalisation legislation through.

Cannabis stocks to watch

Major growers and distributors of cannabis, both medical and recreational, are starting to pop in trading.

Tilray is up 3.6% while Canopy Growth is showing similar numbers at 3.7%. Sundial Growers and Curaleaf had gained 1% and 3.7% respectively yesterday too. Aurora Cannabis joins its coteries in showing growth, clocking in at 3.7%.

Our Cannabis Blend, which groups together five leading growers, is also showing a 3% daily bump.

It’s clear that marijuana stocks are doing well today. The question is why?

Pro-cannabis bill tacking onto Pentagon budget resolution sends stocks upwards

The US military and the worldwide cannabis industry don’t seem like the ideal bedfellows. However, some congressmen have spotted an opportunity to tie the two together – or at least piggyback off the back of Pentagon budget bills.

On Tuesday, the House of Representatives’ version of the SAFE Banking Act was tacked onto the 2022 National Defence Authorisation Act (NDAA). The NDAA basically approves the Pentagon’s budget for the coming year.

For context, the SAFE Banking Act makes it legal for companies to make profit off the sales and marketing of recreational marijuana products. There are billions of dollars at play here, so if it passes into law, the stocks mentioned above could gain massive traction.

Quite cleverly, Rep. Ed Perlmutter of Colorado, one of the SAFE Act’s key exponents, rationalised the bill’s importance on a national security level. It’s an impressive piece of theatre to equate legalised cannabis with a safer, securer United States, but in a military-focussed nation like that, it’s an important piece of rhetoric.

Perlmutter said: “This bill will ill strengthen the security of our financial system in our country by keeping bad actors like foreign cartels out of the cannabis industry. This is a public safety and a national security matter — very germane to the issues at hand, dealing with foreign cartels.”

As the representative for Colorado, Perlmutter will have had first-hand experience with legalised cannabis. As of 2021, over $10bn worth of marijuana products have been legally sold in Colorado – the first state to fully legalise recreational use. Of that, the state government has taken a $1.6bn slice.

But what about crime? Perlmutter’s words are based on public safety. According to a report by the Colorado Department of Justice, between 2012 and 2019, the state reported a 68% drop in cannabis-related arrests. This stands to reason. Makes something legal that was once illegal then the arrest rate will drop.

However, the number of DUI arrests went up by 120% across the same period. Not a great look when making a public health argument.

The SAFE Act’s overall passage will presage a wider debate on whether to just federally legalise marijuana anyway, rather than legislate it piece by piece. It would perhaps be an easier option than a lengthy legal process.

It’s thought that, sooner or later, cannabis will become fully legalised for recreational use in the United States. If that happens, it may be a bellwether for other countries and usher in legalisation on a global scale.

But let’s not get ahead of ourselves. Movement is being made, which is good for cannabis stocks like those mentioned above, but there is still some way to go yet.

The likes of Tilray and Canopy Growth have posted strong growth numbers this year. Canopy’s Q1 revenues 2022, for example, were up 23% year-on-year in August.

Reports show Tilray’s revenue grew by 27% to stand at $513 million. The company also reported an adjusted EBITDA of $40.8 million, representing a massive 598% year-over-year increase.

There are big, big sums coming out of these companies – but everything now hinges on how the US proceeds regarding further Cannabis industry growth prospects and share price performance.

How are investors buying September’s dip?

Equities
Investments

In recent weeks, stock markets around the world dropped to new monthly lows. As ever, eagle-eyed investors were keen to buy the dip. Here are some stocks they were keen to snap up.

The September stock market dip: what caught investors’ eye

Market turmoil has been rocking the bourses in the wake of the Evergrande wobble and a general risky asset sell-off.

Although things have since stabilised, with the S&P 500, Nasdaq, and Dow Jones all up 1% this morning and the FTSE making gains, investors were still keen to take advantage of the dip.

In particular, many stocks on the S&P 500 have been subject of retail investor attention. The index experienced its largest drop since May at the start of the week.

A new report from Vanda Research suggests a $3bn spending spree occurred on Monday and Tuesday as stock buyers looked for some perceived bargains.

According to Vanda Senior Strategist Ben Onatibia, retail investor activity contradicts earlier statements that their appetite for stocks may have been waning. With indices down, this gave them a great opportunity to add to their portfolios.

The stocks investors were buying

Vanda Research shows the below individual stocks were retail customers’ favourites during the recent market downturn.

Stock Ticker Retail purchase volume (last 5 days from September 22nd)
Apple AAPL $362,100,000
Advanced Micro Devices AMD $154,5300,000
AMC Entertainment AMC $90,570,000
Microsoft MSFT $89,700,000
Alibaba BABA $83,420,000
Verizon Communications VZ $79,660,000
Wynn Resorts WYNN $73,700,000
Las Vegas Sands LVS $55,350,000
Nvidia NVDA $54,490,000
Intel INTC $53,900,000

 

Let’s start with Apple. The California tech giant is coming hot off announcing a fresh wave of iPad, iPhone and Apple Watch models at last week’s California Streaming event. The company continues to dominate in the smartphone field. As of June, sales of the latest iPhone 12 had already exceeded 100 million units, and Apple’s laptops and tablets continue to post similarly strong sales numbers.

No new AirPod headphones were released, despite markets thinking Apple would launch its next-gen EarPods at its most recent big conference. However, with such strong sales from the iPhone, it probably doesn’t need to launch them just yet. Consumer confidence in the brand is already exceptionally high.

We can see from the list a heavy leaning towards tech stocks. Excluding Apple, investors spent a combined $378.38m on companies within the tech sphere, including Microsoft, Verizon, and chip manufacturers AMD and Nvidia.

Computer chipsets are hot property globally right now. A general shortage means prices are up. Chipsets are used in practically all the modern conveniences of modern life. Everything from the aforementioned iPhone to cars and graphics cards needs these tiny pieces of electrical microengineering to work – hence their sky-high demand, and why investors are eyeing up companies like AMD.

Graphics cards in particular are coveted by cryptocurrency miners. Each powerful mining rig requires stuffing computers to the brim with components to solve the complex equations that result in fresh digital tokens like Bitcoin.

Speaking of Bitcoin, AMC Entertainment, the memestock and cinema chain, recently gave itself a boost. CEO Adam Aron has announced the company will soon start accepting Bitcoin and other cryptos as payment.

Aron also mentioned AMC is flirting with the idea of entering the burgeoning non-fungible token (NFT) market – possibly through offering commemorative digital cinema tickets.

AMC was already a popular stock for the younger breed of traders trying to shake up the traditional system. Its embracing of digital currencies may make it a more attractive prospect amongst new, Millennial investors.

But let’s not get too carried away with the tech-related stocks. Retail buyers also snapped up over $100m in travel-related stocks too. As you can see from the table above, the big winners here were Las Vegas Sands and Wynn Resorts.

The holiday firms will no doubt be bracing for a renewed wave in vacations as we approach the US holiday season. Thanksgiving and Christmas are just around the corner. Also, the US has given the green light to inbound travel for vaccinated EU and UK travellers, which could point towards an uptick in bookings for both firms.

As mentioned above, stocks have started to recover with major European and US bourses making ground in trading today. But retail investor activity goes to show that vigilance is required to spot opportunities in periods of volatility.

IAG take off on US travel news

Equities
Investments

IAG shares just took off on reports the US is set to ease restrictions on UK and EU travellers.

Double-vaccinated passengers will be able to fly to the US, ending a total ban that has been in place since the pandemic, according to a report from the FT.

BA-owner IAG is a clear winner from this as its transatlantic business has been all but mothballed since the grounding of its jets due to the US policy.

IAG rallied over 10% on the announcement before paring some gains to trade +9.5% as of send time, whilst Air France KLM and Lufthansa added to earlier gains to trade around +6% higher.

Big read across for associated stocks – SSP rallied from negative territory for the day to trade up 4.5%, whilst WH Smith, which had also been trading lower, is now up 2%. And it’s more good news for Rolls-Royce, whilst TUI and Wizz Air are also having a good day.

EasyJet – though no transatlantic player – also up sharply as it indicates I think a direction of travel for the airlines that is way more positive than we have seen since really the peak of the vaccine optimism late last year and early 2021.

Whether or not the US makes the green list or not come October is another matter. I would assume the loosening of the rules – a win for the EU and UK – is based on the quid pro quo that they will make it easy for their citizens to travel to the US. Levels of vaccinations in the US are high enough to outweigh concerns about cases.

IAG: Big pop but only its highest since late August, though the move higher speaks of a more positive outlook. Lots of caveats and reason to be cautious still – getting bums on seats and filling those planes again will take much longer – who’s going to wear a mask for 9 hours? And what vaccines will be acceptable? Will children need to have a vaccine passport, too? A step in the right direction for sure nonetheless.

IAG price chart 20.09.2021

A record-breaking IPO deluge could be coming this autumn

Equities
Investments

The latest reports suggest that autumn 2021 will be the busiest period for IPO launches to date.

IPO launches

Potentially hundreds of new public offerings are on their way

2021 has already seen the highest number of initial public offerings since the 2000 dot-com boom. It could be about to see more as we transition into autumn.

CNBC reports that up to 110 companies will go public across the next 3-4 months. That would bring the total number of deals up to 375 – valued at a cool $125bn in fundraising.

In the pipeline, we see a mixture of companies but a significant number of FMCG and food firms are on the radar.

Grocery business Fresh Market, deliver service Instacart, and Greek yoghurt producers Chobani are in the process of making their initial filings. Adding to the list of food-related businesses prepping their IPOs are casual salad restaurant chain Sweetgreen and Impossible Foods, a manufacturer of plant-based meat alternatives.

A number of fashion firms are involved too. Warby Parker, the prescription eyewear business, will likely be going live with a direct listing in the coming months. Authentic Brands, which owns the Nautica and Eddie-Bauer brands, has been eyeballed as about to go public, alongside Indian e-commerce retailer Flipkart and sustainable footwear brand Allbirds.

Digital payment processor Toast and mobile payments processor Stripe represent some of the tech stocks possibly launching IPOs.

They may be joined by several cryptocurrency filings. We’ve already seen Coinbase, the US largest crypto exchange, go public, and there are indicators other digital currency businesses will join them. Sustainable crypto mining firm Stronghold Digital Mining is one such company.

Others to watch include EV builder Rivian Automotive, global asset manager TPG and Republic Airways.

In terms of direct listings, the only one mentioned so far is Warby Parker.

What about SPACs?

It’s thought that SPACs – special-purpose acquisition companies – may have a tougher time raising capital for initial offers in the second half of 2021. Greater scrutiny from regulators like the SEC and a drop off in investor returns from SPACs may contribute to this.

The first half of the year, however, was a SPAC bonanza. 310 such offerings were launched then, generating $70bn in funds. A further 410-blank cheque companies smashed records too when they raised $109bn in the same period.

Will investors make returns?

It’s hard to say at this stage. After market performance has generally been negative across 2021 so far. Some much-anticipated tech stocks, like Coinbase or Robinhood, underperformed after going public for a myriad of reasons. In the case of Robinhood, its links to the volatile cryptocurrency market has caused several fluctuations in the share price.

Pricing IPOs towards the lower end may help sustain growth going forward. Some IPO-tracking ETFs, such as the Renaissance Capital IPO ETF, were flat towards the end of H1 2021, but have subsequently gained traction in July and August. Public offerings since then have been had lower pricings, which may have fed into heightened investor interest.

With the rumoured number of new IPOs, however, it may be worth prepping your trading calendar now. Be sure to stay tuned to Markets.com for further initial public offering updates.

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