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Tesla’s Q3 Earnings; Big Moves In Snap, GSX, And Hertz

Whitney Tilson’s email to investors discussing Tesla‘s Q3 earnings report; Big moves in Snap, GSX Techedu, and Hertz. Q3 2020 hedge fund letters, conferences and more Tesla’s Q3 Earnings Report 1) Tesla (TSLA) reported Q3 earnings after the close yesterday. My friend and former partner, Glenn Tongue, was kind enough to share his take: Tesla […]
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Whitney Tilson’s email to investors discussing Tesla‘s Q3 earnings report; Big moves in Snap, GSX Techedu, and Hertz.

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Q3 2020 hedge fund letters, conferences and more

Tesla's Q3 Earnings Report

1) Tesla (TSLA) reported Q3 earnings after the close yesterday. My friend and former partner, Glenn Tongue, was kind enough to share his take:

Tesla reported Q3 earnings yesterday that, as usual, provided support for both the bears and the bulls. As usual, the earnings call was a love-fest, with little substantial discussion.

Revenue of $8.8 billion was the company's best ever, as were bottom-line results of $0.27 per share in GAAP earnings ($0.76 non-GAAP). These results were driven by record deliveries of 139,583 units, somewhat offset by price reductions taken during the quarter.

One unusual expense item in the quarter was a non-cash accrual of $543 million for the compensation package for CEO Elon Musk, which to my knowledge is by far the most lucrative in history.

A somewhat offsetting unusual revenue item was the $397 million in regulatory credits.

The company's manufacturing footprint continues to expand, with the new plant in China continuing to lead the manufacturing ramp. Next year, Tesla intends to open two new manufacturing facilities located in Texas and Germany. Clearly Tesla believes that if they build it, they will come.

Bulls were happy with the results, as revenue and earnings beat expectations. This is the fifth quarter in a row the company reported positive earnings. The company also reaffirmed its 500,000 unit target for 2020 and announced battery innovations at its recent "battery day," which it believes will drive increased efficiency, reduced costs, and significantly enhanced profitability. Musk again promised that innovative solar products, an area that has been a black eye for years, are just around the corner.

Bears will pick apart many elements of the report. Without the regulatory credits, Tesla would have once again lost money in the quarter. The financials continue to have funny characteristics, such as earning only $6 million on its $15 billion cash balance – a suspiciously low amount, even in this interest rate environment.

As China continues to grow in importance, more of Tesla's consolidated capital will be siloed offshore, not available to U.S. shareholders. And bears continue to point to Standard & Poor's refusal to admit Tesla to its S&P 500 index, suggesting this is confirmation that S&P doesn't trust the company's financial reporting and/or future prospects.

Bottom line: Tesla continues to be a battleground stock. There is no doubt that it's growing much faster than other major automotive manufacturers and will almost certainly continue to do so for quite some time.

But with a market capitalization of approximately $400 billion, equal to more than 15 times trailing revenues, an awful lot of optimism is built into today's stock price.

Thank you, Glenn!

I continue to think Tesla is neither a good long, nor a good short... so I recommend staying on the sidelines.

Big Moves In Snap, GSX Techedu, And Hertz

2) There were big moves yesterday among three stocks I've written about numerous times:

  • Snap (SNAP) soared 28% to $36.50 per share on a surprise earnings beat. It was my Stock Idea of the Day in my e-mail on February 8, 2019, when shares were at $9.10, so the stock is up more than 300% since then. I wrote follow-up e-mails about it on February 19, 2019, April 24, 2019, and July 24, 2019.
    By the way, Twitter (TWTR) jumped 8% in sympathy to hit a five-and-a-half-year high above $50 per share. It's up 34% since we recommended it to Empire Stock Investor subscribers on August 5.
  • Chinese online-education provider GSX Techedu (GSX) crashed 31% after an analyst cut his rating from neutral to underperform. Here's a MarketWatch article about it: GSX Techedu's stock plunges, after Credit Suisse analyst turns bearish, slashes price target. Excerpt:

[Alex] Xie cut his rating to underperform from neutral, and slashed his price target to $71 from $95. Xie said he expects third-quarter margins will suffer from intensified competition, and expects "record low conversion rates" in the summer promotion due to the company's mistaken focus on the normal-price summer programs.

I've written four times about GSX, most recently in my October 14 e-mail, in which I said:

One of the best known activist short-sellers, Carson Block of Muddy Waters Research, called the company a "near-total fraud" in a report he published back in May.

So far, he's been very wrong. At the time, GSX shares were trading around $33 – and then proceeded to soar to more than $130 in early August, before settling back to today's level around $115.

While Carson has taken a lot of pain on this short, he still thinks he'll be proven right. On Monday, he tweeted:

I continue to believe that Block will be proven right here...

  • Bankrupt car-rental company Hertz (HTZ) fell 13% to $1.60 per share. It was one of eight stocks I warned my readers about in my June 9 e-mail about the bankruptcy bubble, when HTZ shares were at $5.53. I issued another warning in Monday's e-mail, reiterating that the stock is "worthless," after it soared 143% on Friday to $2.50 per share.

The post Tesla’s Q3 Earnings; Big Moves In Snap, GSX, And Hertz appeared first on ValueWalk.

Economics

SNB expected to hold the course

The Swiss franc is trading quietly in the Wednesday session. USD/CHF is currently trading at 0.9220, down 0.17% on the day. Markets await FOMC decision…

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The Swiss franc is trading quietly in the Wednesday session. USD/CHF is currently trading at 0.9220, down 0.17% on the day.

Markets await FOMC decision

The Federal Reserve will be in the spotlight, as the FOMC holds an important policy meeting later today. We may see another twist in the taper-on-taper off saga, as expectations are running high that the Fed may signal that it will make an announcement at the November meeting as to whether it will commence tapering. Fed Chair Powell has stated on numerous occasions that there is no link between a decision to taper and a hike in rates. Still, the markets are keenly following any clues about rate movements, which makes the dot plot at today’s meeting a potential market mover. If the dot plot indicates that FOMC members have brought forward projections of a rate hike, the US dollar could get a significant lift in the North American session.

In sharp contrast to the FOMC meeting, the markets are not expecting any interesting developments at the SNB policy meeting on Thursday with regard to monetary policy. The SNB will maintain its deposit rate of -0.75% (the lowest of any major central bank) and there are no plans for any changes in policy. SNB Vice President Fritz Zurbruegg said in an interview earlier this month that the negative rate policy was essential to ensure that the Swiss franc does not appreciate and curb economic growth. Taking a page for the Fed’s playbook, Zurbruegg said that the spike in inflation was temporary, and he expected inflation to remain low in the medium term. For the SNB, it’s business as usual, despite other central banks hiking rates or moving in that direction.

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USD/CHF Technical

  • USD/CHF is testing support at 0.9216. Below, there is support at 0.9110
  • There is resistance at 0.9377, followed by resistance at 0.9432

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Economics

TSX gains on Trudeau’s re-election, loonie up

Canada s broader TSX Index on Tuesday September 21 lifted post the re-election of Prime Minister Justin Trudeau as investors see it as largely a continuation…

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Canada’s broader TSX Index on Tuesday, September 21, lifted post the re-election of Prime Minister Justin Trudeau as investors see it as largely a continuation of the present economy although few jitters might be witnessed due to the bankruptcy of Chinese property developer, Evergrande. Thus, the TSX Composite Index closed with a gain of 89.75 points or 0.45% to settle at 20,244.29.

The one-year price chart (as on September 21).

Volume active

Canadian Natural Resources was the most actively traded stock where 16.46 million exchanged hands, followed Cenovus Energy Inc. where 10.30 million exchanged hands, and the National Bank of Canada with 6.31 million shares exchanging hands.

Movers and laggards

Wall Street update

Wall Street was turbulent as traders awaited the Federal Reserve's monetary policy statement on Wednesday. Following the sell-off observed during trading on Monday, stocks exhibited a lack of direction throughout Tuesday's trading session.

The Dow Jones Industrial Average was down 50.63 points or 0.2% to 33,919.84, while the S&P 500 fell 3.54 points or 0.1% to 4,354.19, while the Nasdaq climbed 32.50 points or 0.2% to 14,746.40.

Commodity update

As Evergrande concerns continued, gold climbed 0.82% to $1,778.20. Brent oil rose 0.60% to US$ 74.36/bbl as the aftermath of the US hurricane Ida squeezed supplies, while Crude oil rose 0.38% to US$ 70.56/bbl.

Currency news

The loonie stood higher against the U.S. dollar on Tuesday, while USD/CAD closed at 1.2815, a slide of 0.08%.

The U.S. Dollar Index was down against the basket of major currencies on September 21, and ended in the red at 93.22, falling 0.06%.

Money market:

The U.S. 10-year bond yield traded higher on September 21, and ended in the green at 1.328, up 1.17%.

The Canada 10-year bond yield also gained on Tuesday’s trade and closed at 1.229, up 0.49%.

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Economics

The Market is Deeply Oversold And Looking For A “Dovish” Fed

As we will discuss, the market is deeply oversold and looking for a "dovish" Fed to spark buying. Traders and investors will be laser-focused on the Fed…

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As we will discuss, the market is deeply oversold and looking for a “dovish” Fed to spark buying. Traders and investors will be laser-focused on the Fed meeting adjourning at 2 pm ET. Of importance, the decision on taper and their characterization of the economic recovery and inflation. If they do elect to announce a taper schedule, the pace of tapering and any caveats that may delay tapering will be of utmost importance.

Like yesterday markets are opening up a half to one percent higher. Will they hold onto the gains, unlike yesterday? The answer likely lies with the Fed at 2 pm.

What To Watch Today

Economy

  • 7:00 a.m. ET: MBA Mortgage Applications, week ended September 17 (0.3% during prior week)
  • 10:00 a.m. ET: Existing home sales, month-over-month, August (-1.7% expected, 2.0% in July)
  • 2:00 p.m. ET: FOMC policy decision

Earnings

Pre-market

  • 7:00 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 89 cents per share on revenue of $4.30 billion

Post-market

  •  4:10 p.m. ET: KB Home (KBH) is expected to report adjusted earnings of $1.62 per share on revenue of $1.57 billion
  • 5:05 p.m. ET: BlackBerry (BB) is expected to report adjusted losses of 7 cents per share on revenue of $166.80 million

Politics

Market Deeply Oversold – Looking For Some “Dovish” Tones

The rolling correction over the last 3-weeks has pushed the market into deeply oversold conditions on a short-term basis. Such provides plenty of “fuel” for a decent rally over the next month or two given some news to spark buying. Today, the Fed could do the trick with Jerome Powell delivering his post-FOMC press conference with a “dovish” tone. With Congress battling over the debt ceiling, the Treasury running out of money, and the risk of a Government “Shutdown” looming, the Fed has all it needs to provide plenty of “caveats” to its “taper” plans.

Fear Greed Index Near Lows

Another reason for near-term bullish optimism, is that both the AAII bullish allocation and the “Fear/Greed” index are near their respective lows. Combined with the oversold market conditions, such typically provides a buying catalyst as traders reposition themselves in equity risk.

Trading Game Plan for the S&P 500

The markets are trading well in overnight trading following yesterday’s flat-trading day. The bounce provides us with another set of levels, in addition to the 50, 100, and 200-dmas, to guide our trading. The graph below shows the Fibonacci retracements from the recent high to low. If this rally proves to be a bull trap, it is likely to give up between the 38% retracement (4395) and the 62% retracement (4451). There is also a gap between 4400 and 4430.

It is common for such gaps to fill and then reverse direction. If the market surges higher through the gap and retracement levels, the outlook becomes more bullish. A rally above the 4451 retracement level and well through the 50dma (4436) will likely lead to new highs. Conversely, the 50 dma (4436) may prove to be resistance. The first line of support is yesterday’s lows and the 100dma (4328). A break of the recent low leaves a target of 4106, the 200dma.

Follow Up to Monday Market Mayhem

Easy Lending Standards

Employment and inflation tend to get the headlines as far as rationales for the Fed to take action. As we consider what the Fed may do tomorrow, we should also consider lending standards. The graph below shows the lending standards for large banks’ credit card customers are as easy as they have been in 20 years. On its own, very easy lending standards, as we have, push the Fed toward a more hawkish stance. Easy borrowing conditions incentivize personal consumption. More consumer activity, especially given current supply line problems, is likely to further agitate inflationary conditions.

Chinas & Evergrande. Will They or Won’t They?

In addition to concerns with China, Evergrande, and possible contagion, the markets are also grappling with Wednesday’s Fed meeting. In what was likely a purposeful leak last week, the WSJ laid the groundwork for a taper announcement Wednesday and the reduction in asset purchases in November. With the U.S. and foreign markets skidding yesterday some are asking how the Fed might react. In a Bloomberg interview, ex-New York Fed President, Bill Dudley, warns “They’re not going to react to small market moves and defer the tapering on that basis. They have to change their economic forecast,” he said Monday during an interview on Bloomberg Television with Lisa Abramowicz, Tom Keene and Jonathan Ferro. “At this point, it’s really premature to reach that conclusion.”

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