Connect with us

Economics

Ease Into ContextLogic Stock If You’re Betting on a Turnaround

ContextLogic (NASDAQ:WISH) stock may still rank as one of the most talked-about stocks on Reddit’s r/WallStreetBets subreddit. But as the “meme stock”…

Share this article:

Published

on

This article was originally published by Investor Place

ContextLogic (NASDAQ:WISH) stock may still rank as one of the most talked-about stocks on Reddit’s r/WallStreetBets subreddit. But as the “meme stock” trend has continued to cool, don’t count on this giving WISH stock the momentum it needs to bounce back toward prior price levels.

Source: sdx15 / Shutterstock.com

That goes for any potential it may have once had as a “short squeeze” play as well. Just as I wrote previously, the percentage of its outstanding float sold short continues to come down. Between August and September, short interest fell from 31.7 million shares, to around 25 million shares.

Without the meme stock/short squeeze angle, there’s only one real reason to buy ContextLogic: as a turnaround play. If it can get itself back into high-growth mode and on the path to profitability? WISH stock, which at $5 per share is down around 79% from its IPO price of $24 per share, could see a tremendous rebound in price.

The problem? Issues like rising interest rates, inflation, and upcoming Federal Reserve tapering, continue to weigh on markets. The risk of stocks, speculative stocks in particular, selling off further remains high. With this, even if you’re bullish on this e-commerce company’s comeback, easing into WISH shares is the way to go.

The Pros and Cons of Buying WISH Stock as a Turnaround Play

As you may know, ContextLogic benefited greatly from the “stay-at-home economy” created by the Covid-19 pandemic. When households made a hard pivot to e-commerce when it came to consumer spending, the company’s platform saw tremendous revenue and user growth. But since the “reopening” kicked off by the vaccine rollout? Revenues have fallen year-over-year, its user base has shrunk and its operating losses have widened.

Putting it simply, what worked for it last year no longer works in a post-lockdown environment. That’s why WISH stock has tanked, and it’s why the company’s management is pursuing a major change in strategy. As my InvestorPlace colleague David Moadel wrote on Sept. 23, this includes reducing its digital ad spend, as well as improving the quality of the products offered on its platform.

Last month, I became more optimistic about WISH’s turnaround plans working out. However, I’ll concede there are pros and cons when it comes to buying this as a turnaround stock. On the pro side, you mostly have the high amount of potential upside if its new game plan proves successful. In other words, if it’s able to get back to growing its sales, and improving its margins. By doing so, ContextLogic may be able to bounce back from $5 per share today, to the $10, $15, or even $20 per share it traded for earlier this year.

The cons? Mostly the time it’s going to take for this turnaround to start playing out. Per the company’s own statement, it won’t be until mid-2022 that revenue growth resumes. Also consider the risk that stocks overall, despite taking a tumble last month, could see further declines in the months.

Timing With Stocks is Tough, But it May be Wise in This Situation

Typically, trying to time the market or individual stocks is difficult. Buy a stock when you think it’s cheap and has bottomed-out, and it ends up becoming cheaper, hitting a new low. Wait too long to make a move, fearful of further volatility, and you can miss getting in before it makes its recovery.

Yet in the case of WISH stock, you may want to employ a timing strategy. I don’t mean sitting out until it drops another 50%—Given how much it’s declined, it may not see another big drop, even if we see the stock market’s recent slide turn into a sell-off. I’m talking more along the lines of acquiring a toehold position now, and adding to your position if it makes subsequent moves lower.

Of course, not even this strategy is guaranteed to be profitable. If ContextLogic’s in-motion changes fail to spark a comeback? There’s a chance of it seeing a dramatic rebound in price. Instead, as it continues to flounder, it really could fall down to $3 per share—And stay there.

Whether you buy now, or at lower prices, this remains a risky stock. Position accordingly.

Even if You’re Bullish on it Making a Comeback, Move Slowly Instead of Fast With ContextLogic

Admittedly, the main appeal with ContextLogic is not the high likelihood that its turnaround succeeds. It’s more the high level of payoff one could see if it does pan out. The odds may be in your favor, yet it’s questionable whether it’s a lock, a long-shot, or something in-between.

WISH’s comeback chances are murky, and there’s market volatility that appears set to continue. Bottom line: even if you’re bullish on WISH stock, move slowly into it instead of fast.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

More From InvestorPlace

The post Ease Into ContextLogic Stock If You’re Betting on a Turnaround appeared first on InvestorPlace.




Author: Thomas Niel

Share this article:

Economics

Treasury Secretary Says US Not Losing Control Over Inflation As Twitter CEO Issues Dire Warning

Treasury Secretary Says US Not Losing Control Over Inflation As Twitter CEO Issues Dire Warning

Authored by Jack Phillips via The Epoch Times,

Twitter…

Share this article:

Treasury Secretary Says US Not Losing Control Over Inflation As Twitter CEO Issues Dire Warning

Authored by Jack Phillips via The Epoch Times,

Twitter CEO Jack Dorsey issued a warning about rising inflation over the weekend as Treasury Secretary Janet Yellen on Sunday said the United States isn’t losing control.

“Hyperinflation is going to change everything. It’s happening,” Dorsey wrote on Twitter, later continuing to say:

“It will happen in the U.S. soon, and so the world.”

Jack Dorsey, CEO of Twitter and co-founder & CEO of Square, attends the crypto-currency conference Bitcoin 2021 Convention at the Mana Convention Center in Miami, Fla., on June 4, 2021. (Marco Bello/AFP via Getty Images)

During an interview on Sunday with CNN, Yellen said that inflation levels would return to normal by the second half of next year. The Treasury Secretary made the remarks in context of promoting President Joe Biden’s domestic infrastructure and social spending packages worth trillions of dollars combined, saying the two programs would be implemented over 10 years.

“I don’t think we’re about to lose control of inflation,” Yellen said. 

“On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement by the middle to end of next year… second half of next year,” she added.

Supply chain snags have bedeviled the United States and other countries as economic reopenings have spurred a surge in demand, she continued.

“As we make further progress on the pandemic, I expect these bottlenecks to subside. Americans will return to the labor force as conditions improve,” she said.

Treasury Secretary Janet Yellen testifies during the House Financial Services Committee hearing in Washington on Sept. 30, 2021. (Sarah Silbiger/Pool via Reuters)

However, a group that represents UPS, FedEx, and other air cargo companies issued a warning that the looming Biden vaccine mandate for federal contractors on Dec. 8 will trigger supply chain chaos. With that mandate coming in the midst of the Christmas shopping season, they argued that will further “adversely impact needed operations” and noted that worker shortages are already persistent.

Meanwhile, a report from the Department of Labor released earlier this month found that the U.S. consumer price inflation is running near a 30-year high. Year-over-year prices in September are up by 5.4 percent, its report found, noting price increases for food, cars, and other staple goods.

Procter & Gamble and Unilever, which both make consumer goods, both announced in recent days that they would increase prices on certain goods amid worsening inflation.

Unilever finance chief Graeme Pitkethly saw little letup in inflationary pressures and warned that “we expect inflation could be higher next year than this year,” Reuters reported.

Procter & Gamble’s price hikes are not being implemented on all its products, but they will be marked for specific items such as razors and in some sub-categories, CFO Andre Schulten said, reported Reuters. U.S. retailers are aware of the new sticker prices, he added.

“We announced price increases to retailers in the U.S. on oral care, skin care, and grooming,” Schulten said in a conference call. “It’s item by item,” he added.

Tyler Durden
Sun, 10/24/2021 – 20:30

Author: Tyler Durden

Share this article:

Continue Reading

Economics

“Euphoria Is Increasing”: Goldman Doubles Down On Market Meltup Call, Sees $90BN In New Stock Buying This Week

"Euphoria Is Increasing": Goldman Doubles Down On Market Meltup Call, Sees $90BN In New Stock Buying This Week

Last weekend we published a…

Share this article:

“Euphoria Is Increasing”: Goldman Doubles Down On Market Meltup Call, Sees $90BN In New Stock Buying This Week

Last weekend we published a note by Goldman flow trader, Scott Rubner, who explained why despite a huge wall of worry which included such worries as a stagflation, China property bust, China slowing, Covid, tapering, corporate margin fears, snarled supply chains, energy, rate hikes, global growth slowing, higher rates, etc, stocks would melt up for a handful of simple reasons including a flood of buybacks and equity fund inflows, collectively amounting to roughly $8 billion per trading day, muted buyside sentiment, gamma flipping positive, a buying thrust from Vol Control funds and favorable seasonals.

In retrospect, and with the S&P hitting new all time highs just a few days later, the Goldman trader was spot on.

Fast forwarding one week, some may ask if Goldman’s enthusiasm has tapered. The answer, as the flow trader wrote in his latest Tactical Fund Flow note, is not at all, and instead Rubner is doubling-down on optimism, once again predicting nothing but meltups for stocks in the weeks to come. If one had to summarize his sentiment with one word it would be FOMO – the money just keeps flowing into stocks as the mechanistic Pavlovian response to just keep buying because the Fed will never let stocks sink proves simply far too strong. As a result, the bank now expects a gargantuan $90 billion in global equity demand for the coming week (more below).

Global Equities logged >$1 Trillion dollars worth of inflows during the last 51 weeks and the start of positive vaccine news. This is the biggest market structure dynamic of the year. For context, the prior best rolling 51 week record was +$250 Billion. 2021 is 4x larger than the next best yearly inflow. I think the equity TINA money flow train keeps charging to close the year and accelerates aggressively in November. I calculate a significant, +$18B worth of non-fundamental equity demand every day this week and this increases with massive November monthly inflows and corporate demand after >47% of the S&P reports next week.

Below Rubner lays out his latest detailed take on why the most likely path for stocks is a continued meltup higher.

  • 1. S&P 500 just logged its 55th new all-time high of 2021 after 7 straight gains and highest level since September 2nd.  Watch CNBC “boo-ya Jim” headlines.
  • 2. S&P 500 logged a new all-time high in every month so far this year and that has only happened one other time since 1928. (2014)
  • 3. There have been 15 times since 1928, that the S&P is up >20% or more through October. The median return for the rest of the year (last two months only) is +5.92%, with an 80% hit rate. 2021 would be the 16th time.

  • 4. As of Friday, Goldman Sachs Sentiment Indicator, which pulls in 9 positioning indicators, logged the lowest reading (-.9), since May 22nd, 2020 (covid times), which was 73 weeks ago. (SPX was 2,955.45 vs. SPX 4,532.65 currently).

  • 5. We are entering the strongest month (and best two month period) of the year with a median return of 2.1% and positive hit rate of 71% going back to 1985. VIX below 15, through pandemic lows.

  • 6. November Inflows is the biggest dynamic in the market next week. Goldman models +20bps of AUM ($23 Trillion) or +$46B of new demand (I expect double given money has completely halted going into bonds).

  • 7. Improving tax headlines dampen my biggest flow-of-funds worry for December. I am reducing my probability of December selling, no selling of tech stocks is positive in itself.
    • a) The timing of a potential capital gains tax rate hike has been a key focus of many investors. Long-term capital gains and qualified dividends are currently taxed at a maximum rate of 20%, along with a separate 3.8% tax on investment income. Vice President Biden has proposed taxing these as ordinary income for filers with over $1 million in annual income. This would roughly double the tax rate on capital gains and dividend income from 23.8% to 43.4%. Link
    • b) Using Federal Reserve data, GS Research estimates the wealthiest households now hold around $1 trillion in unrealized equity capital gains. This equates to 3% of total US equity market cap and roughly 30% of average monthly S&P 500 trading volume.
    • c) Past capital gains tax hikes have been associated with declines in equity prices and in total household equity allocations. In addition, high-momentum “winners” that had delivered the largest gains to investors ahead of the rate hike have usually underperformed. The Tech and Consumer Discretionary sectors have led the market this year and have also been the largest sources of capital gains within the US equity market during the last 3, 5, and 10 years.
    • d) The wealthiest 1% were the biggest net sellers of equities across US households around the last capital gains rate hike in 2013. In the three months prior to the hike, the wealthiest households sold 1% of their starting equity assets, which would equate to around $100 billion of selling in current terms.

Just in case his euphoria outlook was not clear enough, Rubner then repeats what he wrote in various client chat rooms this week, explaining – again – he expects another epic liftathon.

  • 1. CTA – GS systematic strats estimate $47B to buy over the next 1 week assuming a flat tape. (and $23B to buy in a down 2.5 standard deviation move lower). ~$10B of global equity demand per day.
  • 2. Corporates – US Corporates are expected to purchase $3.80B shares per day. 47% of S&P reports next week.
  • 3. Retail – This week Global equities logged +$25B worth of inflows or ~5B per day.
  • 4. Retail (2) – US households currently own 38% of the $75 Trillion US Corporate Equity Market. There is a max frenzy around the new Bitcoin ETF launches. Pull up the DWAC SPAC, Euphoria is increasing.

  • 5. That is roughly $18B worth of global equity demand per day, every day this week, according to Goldman’s calculations.
  • 6. Positioning on the discretionary HF side remains low / negative / short, and Goldman is looking for any dip to be shallow.

Last but not least, seasonals from here are up, up and away.

Tyler Durden
Sun, 10/24/2021 – 19:00


Author: Tyler Durden

Share this article:

Continue Reading

Economics

Lira Tumbles To New Record Low As Critics Blast Erdogan’s Ambassador Expulsion Scandal

Lira Tumbles To New Record Low As Critics Blast Erdogan’s Ambassador Expulsion Scandal

Following Erdogan’s Friday tirade, lashing out at…

Share this article:

Lira Tumbles To New Record Low As Critics Blast Erdogan’s Ambassador Expulsion Scandal

Following Erdogan’s Friday tirade, lashing out at Western countries for issuing a joint letter demanding the immediate release of jailed Turkish billionaire philanthropist businessman and opposition politician Osman Kavala, which was followed by the president’s threat that he had ordered ten ambassadors – including the US – to be deemed ‘persona non grata’ by Turkey’s government, the Turkish lira weakened to another record low against the dollar after electronic trading reopened early in the Asian session.

Around 4pm ET Sunday afternoon, the lira tumbled 1.6% to a new record low against the dollar of 9.73 at the opening of Asian trading; this following the bigger-than-expected rate cut on Thursday despite rising inflation which sparked a furious selloff in the country’s currency as the move was widely derided as a dramatic and reckless and followed’s Erdogan’s erratic firing of three central bankers  the week prior.

The non grata designation targeted the ambassadors of US, Germany, France, Canada, Denmark, Finland, the Netherlands, Sweden, Norway, and New Zealand. Meanwhile, Turkish opposition leaders slammed Erdogan’s lashing out against the United States embassy and other allied Western countries as nothing but a major effort at distraction from Turkey’s economic tailspin and disaster in the making

Kemal Kilicdaroglu, leader of the main opposition CHP, said Erdogan was “rapidly dragging the country to a precipice.”

“I worry … for Turkish financial markets on Monday. The lira will inevitably come under extreme selling pressure,” said veteran emerging market watcher Tim Ash at BlueBay.

“And we all know that (Central Bank Governor Sahap) Kavcioglu has no mandate to hike rates, so the only defense will be spending foreign exchange reserves the CBRT does not have.”

Typically such a designation of foreign ambassadors results in their prompt expulsion from the country, but as of Sunday night that doesn’t appear to have happened yet, suggesting this may be yet more jawboning from Erdogan. It wouldn’t be the first time the president has failed to follow up on his threats: in 2018, he said Turkey would boycott U.S. electronic goods in a dispute with Washington. Sales were unaffected. Last year, he called on Turks to boycott French goods over what he said was President Emmanuel Macron’s “anti-Islam” agenda, but did not follow through.

As Reuters adds, citing a diplomatic source, a decision could be taken at Monday’s cabinet meeting and that de-escalation was still possible. Erdogan has said he will meet U.S. President Joe Biden at next weekend’s G20 summit in Rome. Erdogan has dominated Turkish politics for two decades but support for his ruling alliance has eroded ahead of elections scheduled for 2023, partly because of high inflation.

Emre Peker, from the London-based consultancy Eurasia Group, said the threat of expulsions at a time of economic difficulties was “at best ill-considered, and at worst a foolish gambit to bolster Erdogan’s plummeting popularity”.

“Erdogan has to project power for domestic political reasons,” he said.

Erdogan’s anger erupted after the ambassadors of Canada, Denmark, France, Germany, the Netherlands, Norway, Sweden, Finland, New Zealand and the United States issued a joint statement on Oct. 18, calling for a just and speedy resolution to Kavala’s case, and for his “urgent release”.

Soner Cagaptay from the Washington Institute for Near East Policy tweeted: “Erdogan believes he can win the next Turkish elections by blaming the West for attacking Turkey — notwithstanding the sorry state of the country’s economy.”

Tyler Durden
Sun, 10/24/2021 – 16:20




Author: Tyler Durden

Share this article:

Continue Reading

Trending