Earnings season: Tesla drives through Q3 with another earnings beat

Despite supply shortages, Tesla comes out on top with another record-breaking earnings quarter.

Tesla earnings

Tesla’s headline stats

It’s another expectation-beating quarter for Elon Musk’s Tesla.

The electric carmaker was buoyed by record deliveries in Q3. This translated into higher net income and better margins. Tesla appears to have found chipsets no one else can locate, giving it the edge over its rivals as the world experiences a global computer chip shortage.

The key takeaways from Tesla’s Q3 2021 earnings are:

  • Earnings per share – $1.86 vs. $1.59 estimated
  • Revenue – $13.76 billion vs $13.63 billion estimated

In income terms, Tesla reported net income of $1.62bn. This is the second consecutive quarter the auto manufacturer has reached a $1bn income quarter. It only goes to show just how far Tesla has come. Last year, third quarter net income totalled $330m.

It was reported at the start of October that Tesla vehicle deliveries had outstripped Wall Street estimations. According to Tesla, it delivered 20% more vehicles against Q2 for a total of 241,300. Its Model Y and Model 3, more “affordable” cars, were the most popular models. Ultimately, Q3 vehicle deliveries were up 73% year-on-year.

Analysts had forecast that Q3 deliveries would stack up at 229,242 vehicles.

Gross margins improved from 26.6% overall and 30.6% for Tesla’s main automotive business – another record-breaking metric for Elon Musk’s brand.

Tesla also generated $806 million in revenue from its energy business, which combines solar and energy storage products, and $894 million in services and other revenue. Other revenue comprises maintenance, insurance and merchandise.

Tesla insiders show pre-earnings sell off

In a move that may signal something greater (but also maybe not), Tesla insiders began selling shares prior to the company’s third quarter earnings release.

As you can see from the below, Tesla company insiders have been releasing stocks. Over 450m Tesla stocks have been sold over the past 3 months, worth $7.1m. Compare that with buys of just 764,446.

Tesla inside earnings tool results.

Could this be part of a broader trend? Is Musk planning to sell some of his own Tesla holdings? It’s hard to say at this stage, but it’s worth keeping an eye on.

Tesla stock fell 1.5% in after-market trading. As of Thursday morning, the stock was still relatively flat, trading at $866.56. On the whole, Tesla shares are up around 23% across 2021.

According to the Markets.com analyst recommendations tool, Tesla holds a neutral rating.

Tesla analyst recommendations chart.

Contrasting with that is news sentiment which places Tesla in a firmly bullish position.

Tesla news sentiment rating.

Where next for Tesla?

Tesla is in the process of expanding its production capabilities with new factories under construction around the world.

“There’s quite an execution journey ahead of us,” Chief Financial Officer Zachary Kirkhorn said in the brand’s quarterly earnings call.

The centrepiece of its expansion plans is its Berlin “Gigafactory”. The $7 billion project could see cars start rolling off the production line in the next month, but there are still global parts shortages and high commodities prices to contend with.

This didn’t seem to really hold Tesla back in the third quarter. The EV builder seemingly has the ability to pull parts, chipsets, and micro components out of thin air.

“Q4 production will depend heavily on availability of parts, but we are driving for continued growth,” Kirkhorn said.

Also expect to see acceleration of the so called “Full Self-Driving Systems” Tesla is developing. As we reported yesterday, this new tech has its fair share of detractors, not least the National Highway Traffic Safety Administration. The self-driving technology is already under investigation by the NHTSA, and some Tesla fanboys/girls see this as an attack on the brand.

Others just don’t want to see a repeat of several fatal incidents caused by Tesla vehicles on autopilot. It’s imperative Tesla gets this right, otherwise there good be a major clampdown on its autopilot ambitions. But if people are getting hurt, or being killed, by wayward Tesla cars, it’s only right to take a cautious approach.

Let’s mention batteries. Tesla says it is about to make a switch to its standard-range models who currently use a lithium-ion battery with a nickel cathode. Tesla says it will start using a lithium iron phosphate (LFP) mix. Basically, iron is more abundant than nickel. It should make it easier for Tesla to source supplies.

The end goal, says Tesla VP of Powetrain and Energy Engineering Drew Baglino, is to localise battery and car production.

Some supply and critical safety challenges to overcome then for the world’s most valuable car maker.

S Q3 earnings season is in full swing. Stay tuned for more updates. In the meantime, check out our earnings calendar to see which megacaps are reporting and when.

IPO watch: Volvo Cars seeks $23bn valuation on public launch

In one of the largest IPOs of 2021, Volvo Cars is going public. Here’s what you need to know about the Gothenburg carmaker’s stock market debut.

Volvo IPO

Volvo Cars hopes to raise $2.9bn in initial public offering

Chinese-owned Volvo Cars will make its public stock market debut on October 28th, 2021.

The company has set its sights on a $23bn valuation when it debuts on the Nasdaq Stockholm stock exchange in ten days.

In its prospectus, Volvo said it would be offering shares priced between 53-68 krona ($6.12-7.86) per share, initially offering $2.9bn worth to investors. Volvo Cars’ offering is made up of 367,647,058–471,698,113 newly issued common class B shares.

The transaction, including expected converted investments by investors AMF and Folksam, was seen resulting in a free float of about 19.5% to 24.0%, Volvo said.

That would give its owners, Geely Motors, a substantial ROI. The Chinese firm picked up Volvo from the ailing Ford back in 2010 for a cool $1.8bn.

Part of Volvo’s potential valuation is the fact it owns 50% of EV spinoff Polestar. Polestar is preparing its own IPO, which is expected to place a $20bn valuation on the premium electric car brand, due to launch in 2022.

Geely and Volvo also jointly own 8.2% of Volvo Trucks.

Volvo enjoys strong brand recognition and sales in key markets, such as China, mainland Europe, the UK, and the US.

The Swedish carmaker sold 770,000 vehicles last year, spearheaded by the popular XC family of SUVs. If it can pull of that $23bn target, Volvo would sit firmly alongside premium contemporaries like Daimler and BMW in terms of market cap, if not cars sold.

BMW shipped 2.3m cars worldwide in 2020. Mercedes-Benz shipped 2.2m.

Volvo’s electric outlook

Raising capital to develop its EV product offer and production capabilities is one of the key reasons behind this IPO. Volvo is aiming for annual car sales of 1.2m per year – an increase of 56% against 2021’s numbers.

“Volvo Cars believes that its unique structure and focused strategy makes it one of the fastest transformers in the global automotive industry, with mid-decade ambitions dedicated to electrification, sustainability and digitisation.” the Swedish company said in a statement.

As with pretty much all legacy car manufacturers, Volvo is looking to electrify its line up away from the Polestar brand. New electric models from Volve Cars will be badged as such. Think of Polestar as the premium of the premium. Volvo Cars are more in line with midrange BMW models, like the 1, 2 and 3 series, although it does offer models that can compete in the saloon and SUV/Crossover classes.

Could Volvo become one of the top EV stocks to watch?

The float, if successful, will help fund Volvo’s electric ambitions.

By 2030, Volvo aims to have removed internal combustion engines from its range. It expects 50% of total sales to come from electric-powered vehicles by 2025. In an interesting move, the auto manufacturer also expects 50% of its sales to come from online via the Volvo website by this time too rather than bricks-and-mortar dealerships.

“There is no long-term future for cars with an internal combustion engine,” Henrik Green, Volvo Cars’ Chief Technology Officer, said earlier in the year. “We are firmly committed to becoming an electric-only car maker and the transition should happen by 2030.”

September saw global Volvo sales fall 30% year-on-year. Supply chain chaos, chipset shortages, and worker COVID-19 breakouts all impacted manufacturing and delivery at this time. Volvo has said all workers have been given vaccines in its Southeast Asia factories, but it will still be hampered by semiconductor supply constraints.

US pre-mkts: Bank earnings strong, Cat upgrade

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

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

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

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

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.

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.

IAG take off on US travel news

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

US pre-markets: futures extend losses

Scores on the doors midway through the European session and an hour before the US cash open: in summary, not good. As per the morning note, China risks abound with eyes on the Evergrande contagion. Markets also have one eye on inflation and the Fed meeting this week, plus the German election coming on Sunday. Many people – most investors seemingly – have been eyeing a correction in Sep/Oct after such a solid ramp this year and they’re getting one, it seems. If you have the Fed post max-accommodation – that is, on a path to tightening not loosening, inflation sticking around much more than optimists had thought, earnings growth stalling, and the economy past peak growth, you have the kind of perfect powder keg for a pullback and Evergrande may be the spark to set it off. Add to that a German election and an energy crisis in Europe and it is not the ideal backdrop for risk. The end game is not set here – a lot depends on what Beijing is prepared to do – or when it thinks it has sent a strong enough message to indebted companies in the property sector.

Euro Stoxx 600 down 2.3%, set for worst day since Dec 2020. DAX – 2.7% – its life as a 40-constituent index not off to the best start. FTSE 100 –1.7%, not as badly hit – make-up of the index and some pronounced sterling weakness alleviating some of the worst effects. Basic materials -4%, led by Anglo American -6% as iron ore prices collapse. Polymetal, Sainsbury’s, Astra and IAG managing to rally but 9:1 decliners to advancers tells the story of the day.

US futures keep extending losses – no signs of let up today and whilst we can expect some bounce at some point when cash equities are open for trade this may well get a lot uglier before it’s better. Dow called off 650pts, biggest decline since July 19th, while the S&P 500 is called down roughly 80pts at 4,353 for its biggest fall since May – looking perhaps to test the 100-day SMA at 4,326. Tails up for volatility longs with VIXX is north of 24 and highest since July 19th. There were ~10% corrective moves in Sep 20 and Oct 20 – a similar move would see SPX return to test its 200-day SMA near 4,100.

The 5-min chart for e-minis shows how relentless the selling has been this morning – not a freefall, but very steady.

US 10yr yields slipping sharply to 1.31%, on track for biggest decline in 5 weeks – reflects broader market tensions around the sell-off and the potential fallout Evergrande could have on the Chinese property sector and therefore growth. Gold not doing an awful lot despite the risk-off sentiment and drop in yields as the dollar is catching some very solid bid, keeping the metal’s progress in check around $1,760.

Bitcoin continues to feel the heat as the entire crypto space gets a pounding today. Who knew the crypto market was so correlated to Chinese property stocks…suffice to say this is not an uncorrelated asset. Bitcoin -9% with a $42k handle as it tests the Aug lows.

Bitcoin Chart 20.09.2021 PM

The FTSE 100 keeps making new lows today – the rally of 6% from Jul 19th through to the August peak is now in jeopardy as the index trades around 6,840. Looking for a bounce here, perhaps to around 6,900 but longer-term momentum clearly with the bears. That July swing low around 6,800, which sits right on the 23.6% retracement so we look to this level to offer some near-term support. If this cracks – and we look to see what kind of follow through we get when the US cash equities open at 14:30 for a guide – then we consider the next level to watch out for is around 6570, the 38.2% retracement.

UK 100 Futures 20.09.2021

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