Day: June 3, 2024

Goldman Sachs announced the June update for its “European Conviction List – Directors’ Cut” report today, showcasing the latest top Buy-rated stock additions for the region.

More concretely, the bank’s analysts added Centrica (OTC:CPYYY) and Signify NV (AS:LIGHT) stocks to the curated list, while removing Veolia Environnement SA ADR (OTC:VEOEY).

For Centrica, a British energy and services company, analyst Ajay Patel argues there is a notable cash flow and return story at the stock that remains “underappreciated by the market.”

Patel believes the commodity prices have reached an inflection point, with the market stabilizing after a weak first quarter. He anticipates over 10% upside to 2024 consensus earnings, driven by the UK supply business, gas storage, and Centrica’s trading operations. This is expected to result in strong free cash flow generation, further enhanced by a working capital unwind.

In the long term, Ajay expects Centrica to invest £2.9 billion in green-focused projects, which could notably shift towards a sustainable mix and downstream businesses, justifying a higher valuation multiple.

“As compared to FY 2022 these activities move up from being 54% of the overall group profits to being 80% by FY 2028,” the note writes.

Potential catalysts for the stock include the upcoming financial results for the first half of 2024 on July 25. Goldman believes the report “should provide the market with greater clarity on Centrica’s capital allocation and Ajay’s view of strong cash return to shareholders, with scope for the company to extend its current buyback program.”

Meanwhile, Dutch lighting company Signify NV also made its way to Goldman’s conviction list.

Analyst Daniela Costa is 12% and 19% above the consensus for the company’s expected adjusted EBITA in fiscal years 2025 and 2026, respectively, citing “idiosyncratic margin acceleration amid bottoming end-market destocking.”

To be more specific, Costa expects Signify’s €200 million fixed cost savings plan to impact margins from 2Q/3Q24, following a labor union agreement in April, reaching full effect by FY25/26.

Moreover, the analyst observes that inventory destocking in wholesale and retail channels is bottoming out, with early signs of demand improvement in the Consumer segment.

“While the near-term Construction outlook has been dampened by delayed rate cut expectations, leading indicators have bottomed, raising the likelihood of an inflection in 2025,” analysts said in the note.

“Our Construction analyst notes continued improvement in the EU lending survey, stabilizing mortgage applications and construction PMI new orders trending above the Nov-23 trough levels. Daniela argues Signify will be a key beneficiary of this inflection, given construction is the largest end market (c.76%) for this company.”

J.P. Morgan has updated its U.S. Analyst Focus List for June 2024, featuring a selection of stocks targeted for growth, income, value, and short ideas investment strategies.

In its June update, the Wall Street giant added three stocks to the Focus List, including CarGurus (NASDAQ:CARG), Carvana Co (NYSE:CVNA), and L3Harris Technologies (NYSE:LHX).

For CARG, JPMorgan analysts see a strong revenue and earnings growth trajectory for the company in the near term, with upside revision risk to consensus estimates. Moreover, he sees downside support from recently ramped-up share repurchases.

Also added under the growth strategy, JPMorgan expects CVNA to continue strong near-term unit growth and margin trends.

“There is potential for upward revisions to consensus and further re-rating potential as confidence grows in the long-term story,” the note writes. “In addition, there is optionality around tapping into capital markets to reduce debt burden and improve out-year FCF.”

Meanwhile, the LHX stock has been added under the value strategy as the company continues to show progress on profitability “with limited risk to 2024 and potential upside to estimates.”

The December 2024 price target of $250 equates to approximately 18x the estimated adjusted free cash flow per share for 2025. Also, the target yield of around 5.5% aligns with historical trading ranges for defense stocks, suggesting LHX can close a portion of its current valuation gap with a return to cash flow growth.

On the other hand, three names, CarMax Inc (NYSE:KMX), Cars.com Inc (NYSE:CARS), and Inspire Medical Systems Inc (NYSE:INSP) were removed from last month’s Focus List.

Standard Chartered (OTC:SCBFF) strategists believe the potential July interest rate cut is “more likely than priced,” saying that current futures market predictions are underestimating the likelihood of such a move.

Specifically, strategists said that futures markets’ forecast of only a 3 basis points reduction at the upcoming July meeting is “too low.” In fact, the bank contends that a cut is not only likely but also their baseline expectation.

“There are two more PCE releases before the July meeting, so there is considerable room for core PCE to slow,” Standard Chartered’s team wrote in a note.

“Also, 2024 February, March and April m/m core PCE deflator growth were below the corresponding months in 2023; January was almost the same,” they added.

The consistent month-over-month inflation being lower than the previous year supports the notion that the PCE trend may be influenced by residual seasonality, which tends to elevate month-over-month changes earlier in the year, strategists explained.

They also point to a modest downtrend that keeps the 2024 monthly changes below those of 2023, thereby sustaining the overall decline in PCE inflation. Furthermore, signs of economic softening are evident, with real PCE increasing at an annualized rate of only 1.1% this year, coupled with indications of stress in consumer finances.

“In addition, we estimate that 46% of the 269k average NFP gain in Q1 was due to undocumented immigrants getting employment authorization,” the team noted. “So NFP growth is on the tepid side net of the contribution of undocumented immigrants.”

Nvidia’s (NASDAQ:NVDA) recently announced 10-for-1 stock split could act as a potential catalyst for increased market volatility, Evercore analysts said in a Sunday note.

Following Nvidia’s earnings report on May 22, which was coupled with the announcement of the stock split effective June 10, Nvidia shares surged by 20.9% over four sessions while the S&P 500 index dropped by 0.75%. According to Evercore, this divergence in performance between the pair had “no precedent whatsoever.”

Evercore’s team pointed out that similar past events also resulted in notable momentum shifts and higher volatility. One such “extreme” episode happened on August 31, 2020, amid Apple (NASDAQ:AAPL) and Tesla’s stock splits, when a similarly strong Nasdaq 100-led market rally. According to Evercore, momentum shifts around the split-effective dates were substantial.

“The result in late 2020 was increased downside, market volatility, and a rotation of leadership from NDX/Growth to Small Cap stocks,” Evercore analysts noted.

Now, with the potential for Nvidia’s June 10 split to “shift the narrative” and lift volatility from its subdued levels, along with other catalysts such as new jobs report, CPI and FOMC data, and the Trump sentencing, Evercore said it will position for higher volatility.

In addition, Evercore reiterated their preference for “Small Cap Standouts,” specifically Russell 2000 names with improving earnings per share (EPS) outlooks, strong momentum, and high short interest. These stocks are expected to outperform during the seasonally favorable month of June, particularly in the lead-up to the Russell indices rebalance on June 28.

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By Medha Singh

NEW YORK (Reuters) -GameStop shares jumped around 30% on Monday after the stocks influencer known as “Roaring Kitty” returned to Reddit with a post showing a $116 million bet on the embattled videogame retailer.

Shares of GameStop (NYSE:GME) had surged as much as 75% earlier on Monday, and some $3.8 billion worth of GameStop shares had changed hands as of 2:15 p.m. ET (1815 GMT), making it the most heavily traded stock on the NYSE, according to LSEG data.

The post was the first in three years by Keith Gill, the Roaring Kitty stocks influencer behind the 2021 retail trading frenzy, from his Reddit account. In 2021, screenshots on Reddit of his bullish GameStop trades triggered a rush of demand for “meme stocks” – often companies with weak fundamentals that gained a cult-like following through social media hype among retail traders.

The screenshot posted on Sunday showed a GameStop holding of 5 million shares, or 1.8% of its publicly available stock. Gill’s last post from April 2021, titled “final update,” showed a holding of 200,000 shares worth $30.9 million.

Reuters could not verify the screenshot on Reddit, and Gill did not respond to a request for comment on Reddit or email.

Sunday’s post also revealed $65.7 million worth of call options expiring on June 21 at a strike price of $20.

GameStop shares on Monday afternoon were trading at around $31.00

The stock wrapped up a volatile month at $23 on Friday, about 33% higher since Gill began sharing cryptic posts and memes from his “Roaring Kitty” account on X in May, sparking speculation over whether he would resume sharing his trades online after the hiatus.

“Keith Gill is putting his money where his tweets are, and some investors are clearly following his lead and rekindling interest in meme stocks,” said Ben Laidler, global markets strategist at digital brokerage eToro.

“This is having a disproportionate share price impact given the short position in the stock combined with its relatively small market capitalization.”

Monday’s surge put GameStop short sellers on track to rack up nearly $1 billion in paper losses, according to data and analytics firm Ortex Technologies. The short position in GameStop stood at 57.6 million shares, or 18.4% of the outstanding shares, Ortex data showed. That compares to 162% in 2021, when the stock had its initial, eye-popping rally.

Garrett DeSimone, head of quantitative research at OptionMetrics, said individual investors likely comprise a large part of the recent trading in GameStop.

But while GameStop’s 2021 surge saw retail traders banding together against Wall Street institutions that were short the stock, the apparent lack of a common enemy could give some investors less reason to stay with their bullish bets this time around, DeSimone said.

“It’s always good to have a common enemy that gets people riled up. … But there’s really no boogeyman or no ‘sticking it to the man situation here,'” DeSimone said. “I think retail investors that bought in this morning are probably not going to be too happy with the outcome in the next couple of days.”

Other shares associated with the meme stock phenomenon also rallied on Monday. Shares of AMC were recently up around 13%, while Reddit shares were up 2.8%.

GameStop was the second most-traded stock on retail brokerage Fidelity.

MAY’S MEME RALLY

GameStop raised $933 million by selling shares to cash in on a meme stock rally last month, when the stock doubled in value. Still, shares are down sharply from their May peak and down about 70% from 2021 highs.

“Even as it (GameStop) faded from public consciousness and the headlines since mid-May, it remained a very active stock on our platform, consistently among the top 10 names,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:IBKR).

GameStop has been grappling with slowing sales as its core business of selling new and pre-owned videogame disks takes a hit from consumers’ moving to downloading games digitally or streaming.

It is expected to post first-quarter results on June 11. Last month, it warned that first-quarter net sales would drop to between $872 million and $892 million, from $1.24 billion a year ago.

Investing.com — The Dow closed lower Monday, led by a slump in energy stocks on falling oil prices and weaker manufacturing data pointing to a slowing in the economy.     

At 16:00 ET (20:00 GMT), the 30-stock Dow Jones Industrial Average dipped by 115 points or 0.5%, though closed well above session lows as dip-buyers emerge late in the session. The benchmark S&P 500 rose 0.2%, the tech-heavy Nasdaq Composite was up 0.6%. 

Energy stocks start June on back foot

Energy stocks fell more than 2% to pressure the broader market following a slump in oil ongoing as OPEC and its allies, or OPEC+, agreed to extend the current production curbs through 2025, though said they would face would begin to phase out some voluntary cuts after the third quarter.

The move to ease some of the production curbs stoked fears of a supply surplus at a time when many are questioning the strength of the crude demand.   

The phasing out  “represents a stronger indication that extreme levels of market support by OPEC+ (principally Saudi Arabia) may not last forever,” Macquarie said in a note, warning that it “appears problematic for 2025.”

Halliburton Company (NYSE:HAL), Diamondback Energy Inc (NASDAQ:FANG). Baker Hughes Co (NASDAQ:BKR) were among the biggest decliners  

Paramount reportedly agrees to Skydance merger, Marinemax spikes on takeover report

Paramount Global Class B (NASDAQ:PARA) rose more than 7% after media company agreed to merger terms from Skydance, CNBC’s David Faber reported Monday. 

Skydance sweetened its offer for Paramount to $8 billion, up from $5 billion previously, but the deal still requires the backing of National Amusements owner, who owns, which owns 77% stake in Paramount.

MarineMax Inc (NYSE:HZO) was also rising sharply on merger news after Bloomberg reported that the company is in sale talks with OneWater Marine in a deal worth $40 per share.

Chips in focus as AMD, Nvidia unveil new AI chips

Advanced Micro Devices Inc (NASDAQ:AMD) fell more than 2% even as the chipmaker unveil new artificial intelligence chips, while rival NVIDIA Corporation (NASDAQ:NVDA) was up more than 4% after revealing its next generation superchips to succeed its current blackwell chips.

Manufacturing activity dips; nonfarm payrolls eyed

Ahead of busy week on the economic calendar for top tier data, manufacturing activity fell more than expected in May as high interest rates continued to weigh on investment and expansion plans. 

“The environment for capex investment remains very challenging so long as interest rates remain elevated,” Jefferies said in a note.

The focus week will be on the upcoming nonfarm payrolls data for May, due later this week, which is set to offer more cues on the labor market — another key consideration for the Fed in cutting interest rates.

The central bank is set to meet next week and is widely tipped to keep rates steady.

(Scott Kanowsky, Ambar Warrick contributed to this report.)