What Happened Last Week in Special Situations?
  • Western Digital $WDC announced review of strategic alternatives after Elliott's push to split.

  • Zymeworks $ZYME adopted shareholder rights plan after All Blue Falcons’ proposal.

  • Aerojet Rocketdyne $AJRD feuding CEO and Chairman filed opposing shareholder presentations.

  • Hasbro $HAS activist Alta Fox lost battle for board seats.

  • Hemisphere Media $HMTV shareholder Edenbrook Capital says takeover price dramatically undervalues company.

  • New Relic $NEWR activist JANA won two board seats.

"Since 2008 [JANA's activism campaigns are] averaging a return of 16.2% versus 9.4% for the S&P 500 over the average nine-month holding period."

  • $GSK spin-off Haleon starts life with target on its back.

"Those factors may lead some investors to steer clear, depressing Haleon’s valuation. It could prove more appealing to a rival...Haleon may find it harder to repel a suitor next time around."

  • Vodafone $VOD preps spinoff of IoT biz.

"Buried in Vodafone's annual report is the revelation that IoT is being prepped for a spinoff. Greater independence from the parent company 'will help to accelerate the platform's growth and attractiveness...'

  • JetBlue $JBLU submitted an improved proposal to acquire Spirit $SAVE.

Meta/FB Earnings, Pending Home Sales: Daily Contrarian (April 27)
Good morning contrarians! Stock futures are rising a day after a brutal sell-off on Wall Street. Tech saw the worst of it yesterday, with the Nasdaq down 4% to slip deeper into bear market territory. Other U.S. indexes were down 2%-plus.

Today’s issue is reprinted here in its entirety for the CommonStock community. You may also listen to the podcast here.

State of Play
As of 0620, stock futures look to rebound with major indexes up 1%. Among individual stocks, $MSFT and $V are rallying after earnings yesterday, both up 5%. Losers include $GOOG and $TXN, both down about 3%.

Commodities are mostly flat, with WTI crude up about 0.5% to trade around $102/barrel. Bonds aren’t doing much either with the 2-year yield sitting on 2.58% whilst the 10-year is 2.77%, both roughly unchanged. Cryptos are dropping again, with bitcoin off 3% to trade around $39,000.

$FB is the main event today but that’s not until after the close at 1600.
$GSK and $BG just reported a beat of top- and bottom-line estimates. $SPOT revenues missed expectations but MAUs and premium subscribers grew by 19% and 15%, respectively. Not sure what was expected but Spotify is moving higher this morning, up 2%.

We’re waiting to hear from $KHC, $BA, and $TMUS before the market opens at 0930. After the close we’ll also get $AMGN, $QCOM, and $F.

Economic Data
Pending home sales are out at 1000. Economists surveyed expect a 1.6% drop month-over-month in March, less than the 4.1% decline seen in February. Yesterday’s new home sales were in-line with estimates, at least on the headline number.

U.S. Trade Balance is out at 0830. Last month the trade deficit was $107 billion. U.S. trade deficits are a good thing where the health of the global economy is concerned. If Americans are buying more stuff (especially stuff they don’t need) then that means factories in China and elsewhere are churning out more stuff, which means those factories are ordering more raw materials from developing markets, which makes for a healthy global supply chain. Of course there are periodic hiccups in this global supply chain, such as when China shuts down over Covid concerns as they have done recently. Not sure that will work its way into this data yet. It could.

Retail inventories are also out at 0830. Crude oil inventories at 1030. Seeing how it’s Wednesday we’ll also get MBA Mortgage Applications at 0700.

The Bottom Line
Yesterday’s sell-off was as brutal as Monday’s rally was encouraging. Lately it seems the sell-offs have more velocity than the rallies. That’s typical for a bear market. We aren’t there yet for the S&P or Dow, but we are (again) for the Nasdaq.

There doesn’t seem to have been a catalyst for yesterday’s selling either. That too is typical of bear markets. Unless acted upon by an outside force, markets take on the direction of their spirit bull (bear or bull).

If there is a sign of encouragement, it’s that the global economy looks to be in good shape
(certain supply chain issues notwithstanding). But for now stocks have a few precious days left to salvage a positive month for April. So much for it being such a great month for stocks. Consider that your reminder that past performance does not equal future results.
The Coming Credit Crunch and Death of Unicorns (Podcast)
Leo Schmidt of River Eddy Capital Management rejoins the Contrarian Investor Podcast to discuss the coming credit crunch, its impact on stock market sectors, and where to invest to protect one’s portfolio.

Stocks mentioned here include $SHOP $GSK $OGN $VTRS $PFE $GBDC $NOK $ERIC

Get it here:
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The Earnings Beat Goes On: Daily Contrarian, Feb. 9
Good morning contrarians! Stock futures are green for a change, continuing the rally from yesterday. The Nasdaq is leading things, up 0.9% as of 0645. The S&P 500 is up 0.7% with Dow Industrials 0.5% to the good. The Russell 2000 which tracks small caps is up 0.4%.

Bonds are holding steady, with the 2-year yield at 1.32% and the 10-year at 1.92%.

Commodities aren’t doing much either. WTI crude is down about 0.7% to trade around $89/barrel. Gold is unchanged at 1,827/oz. Natural gas is continuing to drop though, down 2% to get closer to the $4 level (currently $4.17).

Cryptos are flat. Bitcoin is down about 1% to trade around $43,500.

In the after market we had good news from Chipotle ($CMG), which has rallied, and bad from LYFT ($LYFT), whose shares have been punished.

CVS Health ($CVS) just reported, beating earnings and revenue estimates. The stock is up 1% in the pre-market.

CME Group ($CME), Fox Corp ($FOXA), GlaxoSmithKline ($GSK), Yum Brands ($YUM) also report before the open at 0930.

The after market should be interesting again. Uber ($UBER) is expected to report at 1600, followed by Sonos ($SONO), Vimeo ($VMEO), and Disney ($DIS). We’ll also get Twilio ($TWLO), Mattel ($MAT), Zynga ($ZNGA), and MGM Resorts ($MGM) after the close.

The Bottom Line
A lot of volatility has left the market this week. Doesn’t mean it won’t return of course, but things are noticeably calmer. Futures being bright green was a cause for concern during the high vol days of last week and the week before, but it’s difficult to see where the catalyst for ‘risk-off’ could come from. Earnings don’t get interesting until after the close.

Yesterday's bottom line told you it was looking like a blah day but to keep an eye out because those days often turn out to be the most interesting. We ended up getting a rally in risk assets, with the Dow, Nasdaq and Russell all adding north of 1%. This may be a good indication the bull market is alive and well (which it is statistically, anyway) as stocks tend to rally for no good reason during bull markets.
February earnings
I think upcoming earnings are going to be really important in this volatile market. Companies will likely get punished (further) on even slightly bad results or outlook, and I'm hopeful strong earnings like we saw with $TEAM or $AAPL will buoy the overall market or at least software sector that I'm playing close attention to.

Personally, I have a handful of companies on my buy list including $CRM, $COUP, $ESTC, $SMAR, $POSH, but will only do so once they make it past earnings either scathed (lower price) or unscathed (peace of mind) :)

So we've put together our most anticipated earnings for all of Feb!

Keep an eye out!
21: $UIS
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Luka 🦉's avatar
$97.4m follower assets
Unilever 📈
It looks like $UL almost gained back what was lost last week due to the $GSK news.

Long $UL
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Luka 🦉's avatar
$97.4m follower assets
What's up with Unilever $UL?
Yesterday Unilever dropped more than 13% - why that?

The reason is to search in this news:

Apparently, Unilever's shareholders are unhappy about Unilever's offer to buy the Healthcare segment of GlaxoSmithKline $GSK.

I think it is a bit too emotional reaction, and I believe the Unilever CEO when he said:

"Please be assured, Unilever will not overpay for any asset, particularly in the context where GSK consumer health is a very attractive option in the consumer health space."

A juggernaut like Unilever can constantly grow only through acquisitions, and it's in their DNA to expand their brand portfolio with such a system. To evaluate if it's expensive or not, we need to check the revenue/profit of the GSK unit.

Numbers are not easy to sum up, but here is a slide from the $GSK Q3.2021 presentation.

The data are on quarter only, and we have to wait until 9 February 2022 to see the full-year numbers. Anyway, we are speaking about a business unit with:

+ more than $12B revenue
+ operating profit approx 25%

To oversimplify, we can say that P/S = 5.6 of the unit can be an accurate number. It's high. Considering P/S of $UL is just 2.
But it's an improvement from the Operating profit point of view, cause Unilever is under 20%.

It is far from a complete fundamental analysis of the GSK business unit, but it can give us a brief idea. I think 😏

I bought more shares of Unilever yesterday to average down on my position. 👍

Long $UL
No Position on $GSK
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$UL is bouncing, I had a feeling there would be a partial gap fill, and I think eventually a full fill…. Shoulda bought more, so we’ll see what she does in the coming weeks…
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