Mid-Morning Look

Monday, March 08, 2021

Stocks are pushing higher to start the week, extending Friday’s gains as Treasury prices look to snap their 5-week losing streak with yields pulling back from morning highs and sentiment rises following the approval of the latest fiscal $1.9 trillion stimulus bill. The reflation trade continues higher as Smallcap stocks (Russell 2000) outperform along, while tech with an early rebound after being used as a source of funds over the last week. The S&P 500 and Dow turned things around premarket after bullish comments from Appaloosa’s David Tepper, as reported by CNBC. Appaloosa Management’s David Tepper told CNBC: “Basically I think rates have temporarily made the most of the move and should be more stable in the next few months, which makes it safer to be in stocks for now.” Tepper believes another catalyst for stocks in the near term is the fiscal stimulus package that was just approved by the Senate. He said he finds it difficult to be bearish on stocks right now and thinks the sell-off in Treasuries that has driven rates higher is likely over”. The Senate passed President Joe Biden’s $1.9 trillion stimulus package on Saturday, sending the amended bill back for a vote in the House followed by the president signing the legislation. European markets moving higher as the German DAX hit a record high. Brent crude oil topped $70 per barrel for the first time since the start of the pandemic (before retreating), and WTI crude rises to 2-year highs after Saudi Arabia said one of its oil export facilities had been attacked, raising supply concerns (but oil prices and stocks have since slipped). Giant tech stocks including Apple, Microsoft and Alphabet fell after the opening bell, but have since turned higher.

Sector Movers Today

·     Semiconductors; COHR said it plans to accept a revised takeover proposal from IIVI and scrap its prior deal to be acquired by rival LITE as Coherent’s board determined that II-VI’s new bid, which includes $170 in cash and 1.0981 shares, represents a superior proposal to LITE’s offer – However, MKSI later this morning revised its bid for COHR to $250 per share ($135 cash and $115 in shares); MRVL upgrade from Market Perform to Outperform with $50 tgt at BMO saying a yield-driven sell off along with a harsh reaction post the recent earnings call offer an opportunity; INTC to Collaborate with MSFT on DARPA Program

·     Retailers; sector seeing early strength following the stimulus bill passage this weekend (HBI, ROST, PVH among top S&P leaders early); GME said its board has formed a ‘Strategic Planning and Capital Allocation Committee’ to identify initiatives that can further accelerate the company’s transformation; MYTE is at a bargain price as more luxury buyers opt for online shopping during the pandemic, according to Barron’s. The company should get a further boost from its expansion in the U.S. and China. It’s trading below its IPO price and at a lower multiple than FTCH and REAL; TGT upgraded to Buy with $200 tgt at Guggenheim, using last week’s 6% pullback in the shares as an opportunity; PTON was upgraded to Buy from Neutral, price target $130 at MKM Partners; VFC upgraded to buy from Hold, price target $94 from $86 at Pivotal

·     Leisure and Gaming; California officials said theme parks and stadiums can reopen as soon as April 1 provided, they meet local requirements and take precautions against the coronavirus (helped boost sentiment on theme parks (DIS, SIX, SEAS); SEAS was downgraded to neutral at Citigroup saying benefits from recent initiatives likely baked in and the upside from prevailing levels may be relatively muted; CNK demanded a discount to show “Raya and the Last Dragon” since it was debuting simultaneously on the Disney+ streaming service, but Disney wasn’t willing to give much up; BYD and FanDuel are partnering to launch Stardust-branded online casinos in New Jersey and Pennsylvania

·     Utilities & Solar; FSLR was upgraded to Neutral from Underperform at Credit Suisse after the recent pull back, with an unchanged $70 pt; ENPH was upgraded to Market Perform from Underperform at Raymond James after being hit harder than other clean tech stocks in the recent pullback (-18% YTD vs -9% for benchmark ECO index), though valuation is still too rich for a more bullish stance; NEE was upgraded to Outperform at Credit Suisse on valuation after recent underperformance with unchanged 2021-22 estimates but slightly lowered their pt to $85 from $87; KeyBanc downgraded ETR to Sector Weight on regulatory concerns; UBS think that the recent dip in PWR presents a buying opportunity and they see upside to earnings from major grid investments; Bank of America downgraded DTE to Neutral from Buy with a $133 pt

Stock GAINERS

·     AER +11%; GE is nearing a $30 billion-plus deal to combine its aircraft-leasing business with Ireland’s AER, according to people familiar with the matter https://on.wsj.com/2OuuHAv

·     ATH +7%; to be acquired by APO for the stake it doesn’t already own in stock transaction valued at around $11B as ATH holders to received a fixed ratio of 1.149 shares of Apollo, reflecting a roughly 16.5% premium over Athene’s closing price on Friday https://on.mktw.net/3sRVIwy

·     COHR +2%; said it plans to accept a revised takeover proposal from IIVI and scrap its prior deal to be acquired by rival LITE as Coherent’s board determined that II-VI’s new bid, which includes $170 in cash and 1.0981 shares, represents a superior proposal to LITE’s offer

·     GME +10%; said its board has formed a “Strategic Planning and Capital Allocation Committee” to identify initiatives that can further accelerate the company’s transformation

·     LUV +4%; early strength in airlines after sliding on Friday (ALK)

·     MCFE +11%; said it would sell its cybersecurity business for companies to a group led by Symphony Technology Group, a private equity firm focused on software providers for $4 billion in cash as it looks to focus on consumer needs for digital security.

·     PS +6%; and Vista Equity Partners have reached a new go-private agreement that raises Vista’s offering price for Pluralsight to $22.50 in cash, an increase from the previous agreement at $20.26 a share

·     PTON +7%; was upgraded to Buy from Neutral, price target $130 at MKM Partners as believe the recent selloff in shares has created an attractive buying opportunity

·     TTD +6%; upgraded to Overweight from Sector Weight at KeyBanc with an $851 tgt as believes advertising technology stands to benefit from Google’s changes by offering an authenticated solution that delivers stronger return on investment

Stock LAGGARDS

·     ANAB -40%; shares fall after Phase 2 clinical trial of imsidolimab for the treatment of moderate-to-severe palmoplantar pustulosis failed to meet its primary endpoint

·     KLAC -4%; pocket of weakness in tech with semiconductor stocks moving lower (TER, NVDA), while software rebounds after selling pressure last week

·     MRO -4%; as energy stocks pare last week gains, with pullbacks in PXD, XOM, EOG, FANG

·     SLNO -39%; after the FDA said an additional controlled clinical trial will be necessary to support a new drug application submission for once-daily DCCR extended release tablets in Prader-Willi Syndrome