Author: Dorian Holden

The coronavirus has become unstoppable.

With no vaccines, there’s a race to develop something, anything to stop the spread.  

Globally, 78,442 people have been infected and more than 2.456 have already died. And, according to Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, “This new virus represents a tremendous public health threat.”

The World Health Organization (WHO) is warning of a shrinking window of opportunity to stop the spread of the deadly virus, as it spreads to 30 countries. “The window of opportunity is still there. But our window of opportunity is narrowing,” said WHO Director-General Tedros Adhanom Ghebreyesus. “We need to act quickly before it closes completely.”

There’s evidence the virus has become unstoppable. 

According to CNN, Italy had more than 165 confirmed cases, which makes the region the hardest hit in Europe. It’s gotten so bad that towns and areas impacted by the virus in Italy have now been placed in lockdown. 

Japan has 738 cases with three deaths. South Korea has 602 cases with five deaths. Singapore now has 89 deaths. Hong Kong has 74 cases and two deaths. There were 50 deaths in Iran, with 13 new cases confirmed. In South Korea, the number of cases doubled in 24 hours, reaching 204. Australia confirmed six new cases.

With fear quickly escalating, investors have been turning to volatility investments, including:

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. 

VelocityShares Daily 2x VIX Short-Term ETN (TVIX)

This ETF  tracks an index of futures contracts on the S&P 500 VIX Short-Term Futures Index. 

iPath S&P 500 VIX Short-Term Futures (VXX)

The VXX ETN provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return.  As volatility shoots higher, so does the VXX.

Broker consolidation has only just begun.

Just months ago, Charles Schwab bought TD Ameritrade in a $26 billion all-stock deal, creating a company with more than $5 trillion in client assets.  

“We believe the combination of our two great companies positions us to be competing and winning in the investment services business for the long run — the very long run,” said Charles Schwab president and CEO Walter Bettinger at the time, as quoted by CNBC.

Morgan Stanley is Buying E-Trade for $13 Billion

Then, just today, Morgan Stanley announced it will buy E-Trade for $13 billion, or $58.74 a share.  The all-stock takeover will now add $360 billion worth of client assets to Morgan Stanley’s current $2.7 trillion.  It’ll all give Morgan Stanley access to E-Trade’s five million customers, and $56 billion worth of deposits.

“E*TRADE represents an extraordinary growth opportunity for our Wealth Management business and a leap forward in our Wealth Management strategy,” Morgan Stanley Chairman and CEO James Gorman said, as also quoted by CNBC.  “In addition, this continues the decade-long transition of our Firm to a more balance sheet light business mix, emphasizing more durable sources of revenue,” he added.

“We’ll take on Schwab. We’ll take on Fidelity. This isn’t about legacy-building; it’s about getting [Morgan Stanley] ready for prime time.”

When the deal is all said and done, Morgan Stanley will have successfully broadened its business with a direct to consumer brokerage firm. It’ll also help serve as a counter-weight to the more volatile side of its business, such as its institutional trading of stocks.  

This may just be the start of further consolidation efforts

The retail brokerage industry is being transformed with no-fee price wards, and consolidation, which isn’t likely to end soon.  In fact, “The market is going to incentivize and favor and push for consolidation because when commissions are no longer a revenue stream … it favors large cash on hand,” said Wakerfield Research partner, Paul Bragan.  “Expect more consolidation throughout the industry,” said Michael Spellacy, a capital markets expert at Accenture, as quoted by MarketWatch. “We are in the early innings.”

Huawei isn’t having much luck in U.S. courts.

Earlier today, a U.S. judge rejected a suit filed by Huawei that challenged the legality of banning federal agencies from buying its products.

Huawei “argued that part of the National Defense Authorization Act (NDAA) infringed on the company’s constitutional rights and harmed its existing and future business,” reported ABC.

But a U.S. court ruled the ban is not punitive, and that the federal government can take its business elsewhere.  In fact, U.S. District Judge Amos Mazzant said Congress has the right to restrict federal agencies from doing business with Huawei and ZTE altogether.  

Judge Rules Huawei Arguments are “Unpersuasive”

The judge also found Huawei arguments to be “unpersuasive” and that, “Contracting with the federal government is a privilege, not a constitutionally guaranteed right.”  The court also noted Huawei is not prevented from participating in its line of work. In addition, Huawei “can still conduct business with every other company and individual in America as well as the remaining 169 countries and regions it currently does business with throughout the world.”

Part of the reason for the move to cut off Huawei is the Trump Administration.

In fact, it’s been argued that installing Huawei’s equipment in U.S. networks could allow China to spy on sensitive communications.  Huawei denies those allegations and says none of its products pose a security risk to the U.S.

Obviously, the company is not pleased with the outcome, pledge to consider other options.”While we understand the paramount significance of national security, the approach taken by the US government in the 2019 NDAA provides a false sense of protection while undermining Huawei’s constitutional rights. We will continue to consider further legal options,” Huawei said.

If you thought Tesla (TSLA) was explosive, take a look at Virgin Galactic Holdings (SPCE).

Since Dec. 2019, shares have rocketed from a low of $7.22 to $34.80 a share, with no resistance.  It’s literally gone into orbit. The company, which promises to take tourists to the edge of space and back, is up more than 200% to date.

Daily trading volume has been pushing aggressively higher over the last week, as well.  At the moment, volume is up to 38.8 million shares, as compared to average volume of 9.8 million.  It’s now pushed the stock to a $6.65 billion market cap.

According to TD Ameritrade, the stock was “among the top names bought by retail investors” in Jan. 2020, as quoted by CNBC.  Fidelity said the stock was bought more than any other stock earlier this week, topping Apple and Tesla.

However, retail investors may be getting way ahead of themselves.

In fact, from the looks of it, the stock is running on nothing more than blind momentum.  After all, it’s fundamentally difficult to value a company generating no revenue. Two, it’s considerably overbought at its upper Bollinger Band (2,20), with over-extension on relative strength (RSI), MACD, and Williams’ %R.  

However, it does have two strong catalysts.  

One, it’s backed by billionaire Richard Branson. Two, interest in space is growing rapidly.

In fact, “the past decade has seen nearly $25 billion in private capital invested in space companies, according to investment firm Space Angels, and Virgin Galactic is expected to be just the first of a new generation to join the currently small group of public, pure-play space companies,” notes CNBC.

Three, the company has 2020 goals to get the company’s New Mexico facilities up and running.  The company also hopes to scale operations in 2021 when it will reportedly have two spacecraft and a potential increase in revenues.

For a stock to balloon this fast on blind momentum, caution may be required.  The stock could also see sizable profit taking after this monster run.

Apple’s warning wasn’t a shock.  It was the magnitude of it.

Thanks to the coronavirus, Apple just said, “Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors. The first is that worldwide iPhone supply will be temporarily constrained.”

“While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated. These iPhone supply shortages will temporarily affect revenues worldwide.”

Of course, the news rattled tech.

Quorvo (QRVO), which derives 30% of its revenue from Apple, fell 2.6% to $103.26.  Broadcom (AVGO) slipped nearly $10 a share. Micron Technology (MU) was down 2.8%. NVIDIA (NVDA) slid slightly, as did Xilinx (XLNX).  

It’s Creating a “Blood in the Streets” Opportunity

The news is creating a “blood in the streets” opportunity.  

Or, as Sir John Templeton would advise – buy the excessive pessimism.  After all, Apple did add that the worldwide iPhone supply would only be “temporarily constrained.”

Once the news has been priced in, many down and out stocks may be worth buying.

Long-term bulls for example aren’t throwing in the towel, says MarketWatch.   “While trying to gauge the impact of the iPhone miss and potential bounce back in the June quarter will be front and center for the Street, we remain bullish on Apple for the longer term 5G supercycle thesis despite today’s news,” said Wedbush analysts noted.

Apple Analysts are Still Bullish

There appears very little concern that the current issues will have lingering effects.

In addition, some analysts aren’t swayed by the latest news.  Piper Jaffray for example sees the pullback as a buying opportunity, as reported by CNBC.   “We believe any material weakness…will prove to be a buying opportunity, as, in all likelihood, this is a temporary situation that will leave future quarters largely unaffected.”

“In fact, the iPhone supply constraints in the current quarter could result in pent-up demand for future quarters. Looking at the remainder of FY 2020, current iPhone demand (outside of China) appears to be strong, non-iPhone (especially wearables) remains solid and anticipation is growing for 5G iPhones,” they added.

The epic semiconductor may have more room to run.

With U.S. China trade tensions fading with a Phase One deal, 5G, and continued big demand for memory chips, the run in semiconductor stocks may have only just begun.  Better, according to IHS Markit, global semiconductor revenue could rebound to $448 billion this year.  

“Throughout the history of the semiconductor industry, every market downturn has ended with the arrival of a technical innovation that spurred a major increase in demand,” said Len Jelinek, senior director, IHS Markit. “In the past, these innovations have had momentous impacts, such as the advent of the world wide web or the introduction of the iPhone.”

“Now another historic innovation is set will take its place among these advances: 5G. However, 5G’s impact will spread far beyond the confines of the tech industry, impacting every aspect of society and driving new economic activity that will spur rising demand for microchips,” they added.

It’s no wonder stocks like Advanced Micro Devices (AMD), NVIDIA (NVDA), and Micron Technology (MU) are skyrocketing.

Advanced Micro Devices (AMD)

Since 2020 began, shares of AMD have exploded from a low of $49.10 to $55.31 with plenty of potential upside remaining.  The company is still crushing competitors like Intel (INTC) and NVIDIA (NVDA). It’s also running higher on news it’ll provide chips for the new PlayStation and XBOX consoles hitting shelves this December 2020.

RBC Capital Markets just raised its price target on the AMD stock to $66 after better than expected earnings.  “We are increasing our multiple on AMD due to higher conviction in overall demand for gaming and server chips,” they said, as quoted by MarketWatch. “We believe AMD has made the correct long-term bets that will pay off over the next 12 months and beyond.”

NVIDIA (NVDA)

Since the year began, NVDA has run from a low of $236.72 to a current high of $289.79.  

All after solid earnings growth.  The company posted a 56% gain in gaming sales year over year to $1.49 billion.  It also posted a 43% jump in data center sales to $968 million, which is more than $140 million above estimates for $825.8 million.

Nvidia reported fourth-quarter net income of $950 million, or $1.53 a share, compared with $567 million, or 92 cents a share, in the year-ago period. Adjusted earnings were $1.89 a share. Total revenue rose to $3.11 billion for its first gain in four quarters, as also noted by MarketWatch.

Micron Technology (MU)

Micron is another high-flier, running from a low of $54.51 to a current price of $58.50.  All thanks to the coming 5G boom, which will require a combination of DRAM and NAND memory.  MU is also running on a UBS upgrade to a buy from neutral with a target of $75.”After only modestly outperforming the S&P 500 over the past two years, we believe the time has finally come when Micron can materially outperform over a sustained period of time,” they wrote, as quoted by MarketWatch. “We consider both the cyclical and structural aspects to both Micron and the memory industry as a whole and conclude that Micron is in a much stronger position in a structurally better industry on the cusp of a cyclical upswing that, for DRAM, should last deep into C2021.”

Tesla is in freefall.

Shares are extending losses after its Model X recall, a $2 billion secondary stock offering, and after revealing they were issued with a new subpoena from the U.S. SEC relating to “certain financial data and contracts, including Tesla’s regular financing arrangements.”

US SEC Issues Subpoena

Tesla’s latest 10-Q noted:

“On December 4, 2019, the SEC (i) closed the investigation into the projections and other public statements regarding Model 3 production rates and (ii) issued a subpoena seeking information concerning certain financial data and contracts including Tesla’s regular financing arrangements.  Separately, the DOJ had also asked us to voluntarily provide it with information about the above matters related to taking Tesla private and Model 3 production rates.”

While the revelation of the inquiry spooked investors, it doesn’t automatically mean TSLA is guilty of any wrongdoing.  It’s far too early to tell with any certainty.

Tesla is Selling New Shares to the Public

In another filing, TSLA announced it would sell about 2.7 million shares to the public, which would raise about $2 billion.  All to “further strengthen our balance sheet, as well as for general corporate purposes,” as quoted by Barron’s.

Selling stock is a great way for the company to capitalize on its soaring stock price.  However, it can also signal that management believes the stock is fully valued, as also noted by Barron’s.  

Analysts at Wedbush note, “It’s a smart, strategic move.  It takes any doomsday scenario around cash crunch… off the table,” as quoted by CNBC.  The firm has a neutral rating on the TSLA sock with a $710 price target at the moment.

Tesla Recalls 15,000 Model X SUVs

The company is recalling the SUVs to replace a part that could potentially lead to a power steering failure.  Reportedly, the bolts connecting the power steering component to the steering ear can corrode and fracture, says Fox News, which could lead to a loss of power assist.

The recall impacts vehicles built prior to October 2016.

Shares of Sprint (S) are up more than 73% this morning after a U.S. District judge ruled in favor of its $26 billion deal to merge with T-Mobile (TMUS) – up 11% on the news.

Should the California Public Utilities Commission approve the deal, we may see closure.

Initially, attorneys from New York, California, Connecticut, Hawaii, Illinois, Maryland, Michigan, Minnesota, Oregon, Wisconsin, Massachusetts, Pennsylvania, Virginia and D.C. argued the merger would limit competition and result in higher prices for consumers. However, Sprint and T-Mobile argued that such a deal would only help them compete against AT&T and Verizon.

Judge Victor Marrero sided with Spring and T-Mobile, noting, “The resulting stalemate leaves the Court lacking sufficiently impartial and objective ground on which to rely in basing a sound forecast of the likely competitive effects of a merger,” as quoted by CNBC.

The Judge’s Top 3 Points for the Merger

One, in his decision, the judge said the counter parties failed to convince the court that the merger party “would pursue anticompetitive behavior that, soon after the merger, directly or indirectly, will yield higher prices or lower quality for wireless telecommunications services.”

Two, the court rejected the idea that Sprint would continue operating “effectively as a wireless services competitor without the merger,” as highlighted by CNBC. “The Court is thus substantially persuaded that Sprint does not have a sustainable long-term competitive strategy and will in fact cease to be a truly national [mobile network operator],” the ruling said.

Three, the court rejected the argument that Dish Network “would not enter the wireless services market as a viable competitor nor live up to its commitments to build a national wireless network.” The deal called for Dish to step in as a new wireless player based on agreements with the DOJ and FCC.”

State attorneys are not pleased with the decision.

New York Attorney General Letitia James, for example, notes that she does, “disagree with this decision wholeheartedly, and will continue to fight the kind of consumer-harming megamergers our antitrust laws were designed to prevent.” She called the ruling and called it a “loss” for Americans who rely on wireless networks and said the states will review their options, including a potential appeal, as also highlighted by CNBC.

“From the start, this merger has been about massive corporate profits over all else, and despite the companies’ false claims, this deal will endanger wireless subscribers where it hurts most: their wallets,” James said.