Prepared by Dr. Christopher F Davis, founder and team leader Quad 7 Capital
Hi everyone. Today I wanted to share with you a snippet of the weekend pieces I publish at BAD BEAT Investing, Seeking Alpha's Premier Investing service. I also wanted to remind you, for those looking to join, we still have 2 spots left in our flash sale that we started thanks to members leaving reviews. We invite you to check it out and save $200 off and if you cancel theres a money-back guarantee.
That said, here are our thoughts on the market. There is a lot of opportunity ahead. After a week where we cashed in heavily here at the service, as i sit to share my thoughts, it comes after a whirlwind week brimming with pivotal events, with a very notable Federal Reserve meeting, unexpected labor market data yesterday, and a deluge of corporate earnings reports. As we come into next week, many traders are left scratching their heads, attempting to decipher the implications for a stock market struggling to find its footing. The curtain closed on the week with all three major market indexes registering gains, fueled by a late-week rally on Friday. This surge was ignited by weaker-than-anticipated job figures for April, which nudged the unemployment rate slightly upwards and triggered a decline in Treasury yields. This rekindled hopes that, contrary to earlier anxieties, interest rates might be cut later this year, and raised chances that it could come sooner than later.
This positive momentum served as a welcome reprieve from the three-week-long correction that saw the S&P 500 correct nearly 6%, plummeting from its late-March all-time high to a mid-April low. The week's gains were more modest, with the Nasdaq Composite climbing roughly 1.4%, the Dow Jones Industrial Average adding 1.1%, and the S&P 500 experiencing a more subdued rise of 0.6%.
The Federal Reserve and its economic policies were a focal point this week, with all eyes glued to the central bank's decision on Wednesday to maintain interest rates, a stance they've held since last summer. While Chair Jerome Powell's remarks appeased traders by hinting that the Fed's next move is unlikely to involve higher rates, the three major stock indices ended the day with mixed results.
The central bank has consistently emphasized that their policy decisions are contingent upon the trajectory of inflation, while acknowledging a lack of significant progress in taming price increases. However, the absence of new inflation data next week leaves crucial questions unanswered – are prices truly showing sufficient signs of cooling to warrant a shift in the Fed's stance? The market is experiencing a degree of confusion in my opinion. Investors might find themselves in a bit of a nebulous zone, unsure of what to anticipate. Indeed this coming week, while slightly less busy than this week, still comes with a ton of earnings reports. Apple (AAPL) really delivered in their report, despite slowing phone sales. It announced the highest buyback ever. That led also to the market rallying hard to end the week.
But it was Friday's payroll report that really triggered a retreat in bond yields. The 10-year Treasury yield concluded the day hovering around 4.50%, following a climb above 4.6% earlier in the week. Similarly, the 2-year yield eased to around 4.81% after surpassing the 5% mark. This pull back saw a commensurate rise in small caps and speculative names that make no money (as whole, individual action as always varied).
So as we get deeper into May, market anxieties have centered around excessively robust economic growth and a stalled fight against inflation. That jobs report tilted the scales in the opposite direction, pleasing both the equity and bond markets.
So, should we sell in May and go Away? That has kind of been debunked, but we do expect seasonal weakness in the summer, but April was particularly weak. Now we will see how market handle their moving averages. With the age-old adage sell in May and go away being circulated, investors have been grappling with whether the recent weakness signifies a brief period of consolidation or the harbinger of a more substantial downturn. But this correction phase is a natural occurrence within the context of a market that recently scaled unprecedented highs, just five weeks ago. It was very very healthy and needed. April was the first month of the year to exhibit losses across all three major market indices. It also proved to be the Dow's worst monthly performance since September 2022, while it was the worst since October 2023 for the SP500 and Nasdaq. While the three major indexes remain in negative territory for the second quarter, they are all still positive year-to-date. Has the market regained its momentum?
That is the question investors are now pondering. Whether the 3 week pullback we witnessed from March 28th through April 19th has run its course still remains open. While there's still a possibility of the market experiencing a slightly deeper decline, it's unlikely to morph into a severe correction or even the beginning of a new bear market, that I can say confidently, unless some black swan even rolls along. There is just too much positive data to justify it. However, as we noted this week in chat, it is undeniable that some recent earnings reports have cast a shadow of doubt on the economy's health, with prominent brands like McDonald's (MCD) and Starbucks (SBUX) exhibiting signs of consumer strain. In case you missed it, our thoughts on the latter were shared on the public site, we do a lot of earnings coverage for the public, while reserving our best conviction trades for the service.
Starbucks: The Coffee Giant Gets Crippled
Then we had a Fed Policy meeting which admittedly had my team on edge. However traders expressed a sense of relief following Powell's commentary suggesting that the Fed's next move is unlikely to involve raising rates, with a great line in the presser, that he sees neither the "stag" nor the "flation." That was tremendous. However, this doesn't resolve the question that continues to perplex Wall Street: when will borrowing costs actually start to decline? Make no mistake, it is getting extremely expensive for consumers to live. High rent. High mortgages on high home prices. High gas prices, food prices through the roof. Student loan repayments back and weighing on budgets. There is a lot of pressure out there. But so far, the data as a whole, is still holding up, the earnings reports aforementioned notwithstanding.
As for cuts, for more than a year we have said those cuts would not come until H2 2024, the market has now joined us in that belief, with odds on favorite of the first one not until fall, but I will say, economists hold a wide range of views on the potential number of rate cuts this year, with Citigroup predicting four and Bank of America anticipating just one. We think there are 2 at this point. But Friday's weaker jobs report has reignited the possibility of an interest rate cut as early as September. Even in a scenario of prolonged high interest rates, the fact that the economy is still expanding and contributing to earnings growth provides reasons to remain optimistic.
While no new inflation numbers are scheduled for release next week, investors will see reports on March wholesale inventories, March consumer credit and May consumer sentiment from the University of Michigan, but otherwise the economic calendar is rather quiet.
Next week we will be watching for the action in companies tied to the artificial intelligence boom amid the stocks’ recent choppiness. (SMCI) dropped almost 9% for the week after missing revenue expectations in its fiscal third quarter. (NVDA) however the dominant AI name, was able to move into the green with Friday’s rally, putting it 1.2% higher on the week. Despite this week’s mixed action in these and many other AI related stocks, keep in mind that despite the correction, most all of them have scored huge gains this year. The week to week will be volatile but keep AI positions long-term, its the best innovations since the internet and related tech. We are coming out of the other side of earnings, but next week is still busy. While about 80% of S&P 500 companies have already reported earnings, key names including Uber (UBER) and Disney (DIS) are on tap for next week.
Week ahead calendar
All times ET.
Monday, May 6
No economic data of note
Key Earnings
Loews, Spirit Airlines, Tyson Foods, BioNTech, Hims & Hers, Vertex Pharmaceuticals, Lucid Group, Palantir Technologies, Simon Property Group, Aecom, Microchip Technology, Rocket Lab, Goodyear Tire, Flavors & Fragrances, Marriott Vacations, Noble Corp., Vornado Realty, Coty, BellRing Brands, Cabot
Tuesday, May 7
Economic data
3 p.m. Consumer credit (March)
Key Earnings
UBS, BP, Nintendo, Squarespace, Kenvue, Aramark, Gogo, Energizer, Tempur Sealy, Bloomin’ Brands, Crocs, Datadog, Duke Energy, Rockwell Automation, Spirit AeroSystems, TransDigm, Expeditors, Nikola, Walt Disney, Ferrari, GlobalFoundries, NRG Energy, Perrigo, Electronic Arts, Cirrus Logic, iRobot, Redfin, Lyft, TripAdvisor, Adaptive Biotech, Arista Networks, Dutch Bros., Kyndryl, Marqeta, Oddity Tech , Olo, Sonos, Toast , Upstart Holdings, Virgin Galactic, Twilio, IAC/InterActive, Match Group, McKesson, Rivian Automotive, Brighthouse, Occidental Petroleum, Assurant, Angi, Kinross Gold, Astera Labs, Diamond Offshore, Reddit
Wednesday, May 8
Economic data
10 a.m. Wholesale inventories (March)
Key earnings
Anheuser-Busch InBev, Edgewell Personal Care, Embraer, Elanco Animal Health, United Parks & Resorts, ODP, Emerson Electric, Brookfield, New York Times, Performance Food Group, Reynolds Consumer Products, Shopify, Teva Pharma, Uber Technologies, Brink’s, Tegna, Hain Celestial, Choice Hotels, Dine Brands, Liberty Broadband, Affirm Holdings, Fox Corp., Cushman & Wakefield, Liberty Media, Valvoline, Arm Holdings, Airbnb, Robinhood, Beyond Meat, Bumble, Kodiak Gas Services, NuSkin, SolarEdge Technologies, TKO Group, Vizio, AMC Entertainment, Cheesecake Factory, News Corp., Toyota Motors, Celanese, Instacart, Klaviyo
Thursday, May 9
Economic data
8:30 a.m. Continuing jobless claims
8:30 a.m. Initial claims
Key Earnings
Nissan, Cedar Fair, Six Flags, Yeti, Hanesbrands, Planet Fitness, Sally Beauty, Tapestry, US Foods, Warby Parker, Krispy Kreme, Hyatt Hotels, Warner Bros. Discovery, Roblox, Viatris, Papa John’s, Hilton Grand Vacations, Warner Music Group, Solventum, Dropbox, Akamai, Figs, Sweetgreen, Unity Software, Yelp, Synaptics, H&R Block, Iamgold, Fidelis Insurance, Gen Digital, Savers Value Village
Friday, May 10
Economic data
10 a.m. Michigan sentiment (May)
2 p.m. Treasury budget (April)
Key Earnings
Honda Motor, AMC Networks
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We are on our chat interface during market hours providing market insight to the day's trading and key events. We even provide daily key analyst call summaries to understand action in key stocks. We have a standing policy. Whenever we receive a service review, we offer new members a flash sale, a chance to join at a ridiculously discounted rate, so take advantage. And, there is a money-back guarantee if you decide to cancel. Below are our two most recent reviews, along with some of our recent closed trades, and redacted open trades.
From user CCovey:
Only Regret...Wish I found BB (Bad beat) sooner!
Bad Beat Investing has been one of the BEST investment services I have ever subscribed to--and trust me I have wasted a lot of money over the years trying to find the "right" fit for my needs, interests, and support that I expect. I have learned so much already and it's only been 5 months since I started the service. And most importantly, I have been able to make steady gains on stocks they recommend weekly. What I appreciate about Bad Beat is their level of knowledge, integrity, professionalism, and most of all patience! I have never experienced a paid service that is willing to answer questions I have and other investors in the group have in an incredibly timely manner (same day! and within minutes!) and with deep-level understanding of the stock, market environment, political news, cutting edge information, and of course the financial picture of the individual company. If you are ready to expand your portfolio's horizons, I recommend you stop wasting your precious time and money on other services and join Bad Beat! I sleep well at night knowing that I can continue to grow my money no matter what the market is doing, what political climate we will be in, or what the interest rate is, because I trust that Bad Beat will find exactly what I need to invest my hard-earned money in and turn it into profits. I am so grateful to the Bad Beat Team! Thank you for ALL you do for us.
And then Sam Reid last month left this feedback:
If you want to get serious about investing
Before BB I was getting involved with a lot of risky calls. I was making a lot, but also seeing huge losses. BB not only saves you time with investment ideas which they come up with constantly, but they provide a tremendous education value into investing itself. This subscription is worth the cost several times over.
So is it right for you? Well we cater to income seeking investors by teaching and embracing selling covered calls, as well as selling puts to either collect premium or define entry. We have a special options only sub room.
We have a once a month "speculation and high risk" rapid return idea in another room.
There is also a room dedicated to short ideas (used sparingly) and daily key analyst calls
I write a weekly game plan every weekend for what to watch in the coming week and my expert thoughts on is happening on a macro scale.
And, every investment comes with clear common stock entry and exit points. We keep a very simple tracking table, no complicated spreadsheet. A snippet of that is below, showing some recent wins and redacted open trades, many of which are still in their buy ranges with the recent market correction.
This is the direct link to the summary table, of course only members can access it fully, but this is where it is housed. Within the table we provide links to the column to read the idea, or denote if the trade was an alert sent in our chat
BAD BEAT Investing Idea Tracking And Summary Table | Seeking Alpha Investing Groups
Now, we left open the closed trades so you could see the recent wins. Several open was are close to the exit. We left off (GCT) because we are providing that idea below for free as a thank you for reading this far.
But consider joining up, if you really are unhappy you get a prorated refund as part of our money-back guarantee!
What the hell, let's give it a shot---> Get started
No thank you
Well here is a sample idea of our trades, this one is a long-term idea we posted and got a full position on which is up about 20% compared to our basis
we are taking a look at GigaCloud (GCT). I have looked at this before and felt it was a speculative buy with upside. This stock is skyrocketing in the last few months, with investor optimism at all-time highs for this growth company. I think the stock makes for a good long-term buy. Consider buying some on Monday morning, and then waiting for a likely pullback of 15%-25% to add more. Buckle up. This will be VERY volatile. Take a look at this beautiful chart:
Data by YCharts
The play
Target entry 1: $40 (40% of position)
Target entry 2: $34-$36 (60% of position)
And if we get a gift, I would back the truck up at $25 (double the position)
For options, this is RIPE for put selling. You can sell $35 puts for April 19th 2024 for $2.50, add on if it falls more, then look to $30 puts (this was the option trade suggested at the time)
This play assumes the stock does not surge Monday, or fall. Guys, you should really expect some volatile action in this name. But I really think this stock can double again from here this year.
Now here is something to consider. The stock had debuted 2022, and took flight, hitting nearly $22 as an intraday high in its debut. It quickly fell to single digits and moved mostly sideways for a year. The stock enjoyed a speculative bounce in the late summer of 2023, only to falter. Then, it started catching fire in mid-December 2023. The question is whether this run can continue. The stock has run hard with the market rally of 2024. We could easily see a reversal, and one that hits the stock for a correction on the order of 30% in a week. It is tough to say what will trigger it, but often stocks that make runs like this often give a significant portion back. Investors should understand this reality. With that said, we see not catalyst to reverse sentiment. We see the stock moving higher long-term, as the growth has been impressive, and management is executing well. So in the short-term, expect some chop, but we do think this run continues long-term, with some healthy corrective action in between.
GigaCloud Technologies Operations and Ratings
For our followers who may not be familiar with the company, GigaCloud is an online B2B marketplace that facilitates the international trade and transport of bulky goods, including furniture, appliances, fitness equipment, and gardening equipment. In addition to the marketplace, GigaCloud also manufactures its own furniture and provides fulfillment services. We see shares a buy. It also enjoys positive ratings from our colleagues at Seeking Alpha, Street Analysts, and also has some solid Quant ratings:
Seeking Alpha GCT ratings
So what is so exciting about this operation? This is a high growth story, and even with the share ramping up significantly, it still is not wildly overvalued. The valuation is certainly stretched versus just a week ago, but the growth in our opinion justifies this expansion in valuation. One of the catalysts for more growth has been a recent overhaul of the business model to simplofy operations. The new business model streamlines the supply chain by bringing fulfillment in-house, managing the process from factories directly to customers. This should reduce complexity, costs, errors, and delays, potentially boosting GigaCloud's efficiency and profit margins. However, the transition is ongoing, and recent acquisitions aim to bridge any shortfalls. The long-term impact remains to be seen, so while it appears to be a winning proposition, it needs to monitored for success. All that said, a simplified operation suggests financial improvements are likely to continue.
This was evidenced by the just-reported earnings. We mentioned this was a strong growth stock. Need some evidence? How about the fact that in the quarter total revenues were $244.7 million surging 94.8% from $125.6 million in Q4 2022. Not only did sales ramp up, but there was notable margin improvement that lead to better gross profit. Gross profit was $69.8 million in ballooning 161.4% from $26.7 million in Q4 2022. Gross margin increased to 28.5%, a 730 basis point improvement from 21.2% in Q4 2022. Outstanding improvement. Adjusted EBITDA was $43.8 million jumping 188.2% from $15.2 million in Q4 2022. And, this is not a company that is not turning a profit either, unlike so many tech companies. Net income was $35.6 million in the also surging 184.8% from $12.5 million a year ago. This translated to EPS of $0.87. We expect this stock can continue rising, as this growth in our opinion justifies the expansion in the valuation metrics we have seen. And even with this massive leg higher in the stock, the valuation remains reasonable. Check out the valuation quants:
Seeking Alpha GCT valuation
The overall ratings have slipped, to coming in around 'average' value. But folks, you need to balance this with the extreme growth. Check out the growth quants:
Seeking Alpha GCT growth quant
The numbers really speak for themselves.
But what beyond the business model transformation is driving such growth? Well the company has now successfully integrated Noble House and Wondersign, and that has aided in GigaCloud taking a huge step forward in its global expansion. With this integration the company is now operating in diverse geographies, and has a much wider product portfolio with premium products and expanded its business network. That comes on top of the core business' organic growth. The company is spending working capital to bolster research and development to boost its cloud infrastructure. This company is really making strides in innovating, and enhancing the supply chain. It is extremely impressive.
But we are not without risk. First, surging stocks usually give a chunk back. While it is not 100% a guarantee, history suggests there will be corrective moves. That is more of a short-term risk for traders to be aware of. For investors, we do expect ongoing growth. The second risk, is that this is a Chinese company. While they are operating in new and diverse geographies, Chinese stocks have been tough. However, GigaCloud's customers are outside of China. A meaningful improvement in China and that market could really send a further boost to the stock. A third risk to be aware of is the exposure to shipping and freight costs. A lot of the margin expansion has stemmed from a correction/reduction in ocean shipping rates. We saw some interesting trading patterns with the Red Sea and Houthi attacks. But longer-term a significant rise in oil prices, and of course shipping fuel, is a risk that is largely to be ongoing. Other disruptions to shipping routes are also a risk to be cognizant of. Finally, as we move forward, it is likely unreasonable to expect that the massive growth on a percentage basis year-to-year can continue. This does not mean that the stock is going to crater, but investors need to be aware that explosive growth is likely to moderate.
As we look ahead to 2024, we are expecting another year of growth on tap. Management guided total revenues to be between $230 million and $240 million in the first quarter of 2024. This comes even with a warehouse fire in Japan. To be clear, this is a near doubling of revenue expected year over year. Cash flows have been ramping up, and the company continues its push forward in expansion efforts. Finally, there are repurchases which are further boosting shareholder value. Based on the present growth patterns, and assuming 2024 comes with a 33% increase in revenues, which may be conservative, and margins that remain in the high 20% range, EPS could hit $2.50 this year.
That implies a stock at just 17X FWD. Folks, this is still pretty cheap. (NOTE it is now 15X)
So join today while spots remain at this heavy discount. Try us you'll like us!
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