E Freezing Friday

While markets are hot, today we are into deep winter, with temperatures in the teens in Manhattan, plus icy sidewalks and roads. There was at least one nasty accident on first avenue during my morning shopping trip. But at least it is Friday, and next week will see a new month. I am happy for small wins these days. Happily, TD Ameritrade, while still barely accessible, is providing guidance to new investors in special columns today, helping mitigate the ban on gangbuster buys of GameStop. It doubled by mid-day. ValueLine also published guidance for retail investors today and estimated that as many as 3 million newbies were buying the shares tipped on Reddit.

Business newspaper article

image source

Today is a good day for being into non-US shares as well as homeland ones. This despite our having one reporting company with less than fab results, and lots of backup movement from the battles during the week between retail investors joining up on websites to boost shares, while professional investors and brokerages went short. This has now become a matter of politics and survival, with congressional support for the retail buyers against the pros from both the hard left and the right.

Volatility is not good for markets and the DJIA is back in the red by ~700 points today on fear of trading excess and new worries about inoculation beating the coronavirus. GameStop doubled today at the opening, after Robinhood brokerage, following a $1 bn funding bailout, resumed allowing its retail customers to trade the video machine store company's shares. But at the opening, GameStop was only up 75% as some smart money took profits at $341, below the Thursday close, but above the trend in the aftermarket yesterday when it hit $311.99. The bulls vs bears movements continue.

Citron Research, exposer of naked stock darlings run by Andrew Left, is now only going to do bull calls and no more short skeptical articles. I'll miss it.

Drugs

*Indian drug company Dr. Reddy's reported cruddy results and RDY duly retreated 6.81% to $61.7 before recuperating a bit. RDY was recommended by Abhimanyu Sisodia when it fell below all reason and we are ahead by 52.2% even with the drop today. In Q3 its sales rose 12% from Q3 2019, but only 1% sequentially to 4.93 crores of rupees (about $675 mn). It gross margin fell to 53.8% from higher levels last year and in the first 2 quarters, which expenses rose 14% from prior year and 10% from H1. Pretax profits came in at 284 crores ($7 mn), a mere 5.8% of sales, vs prior-year level of 14.21%, a huge drop. Aftertax profits were derisory, a mere 0.4% of revenues, down from 9.6% the year before, at crore 198 (or $3 mn). The drop in profits was from a Q3 impairment charge over Nuvaring, according to co-chair G.V. Prasad, so it is not recurrent. It was the result of a rival generic hitting the market.

Eps was 0.2 cents or crore 1.19, really bad. Another red flag was cash on hand which dropped to crore 2.28—about $291 mn, from Sept. level of $357 mn and that for the prior Q3 of $280 mn. Its inventories of unsold medicine rose $44.3 mn from $562 mn for the Sept. quarter, and its goodwill and intangible assets fell to $562 mn from $624 mn.

By product, generics kept revenues up, but there wasn't enough room to let prices steady particularly in emerging markets outside Mother India. Its active ingredients and services markets also steadied (bought by drug makers) but again the growth came at the expense of profits which “eroded”.

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William K. 4 weeks ago Member's comment

I don't really feel sorry for the short-sellers who got stung so intensely this time. Greed and gambling can be a deadly combination, and betting against somebody who is already a bit struggling is not nice, even if profitable. And remember that half of all wagers lose! And even worse, just because a share price spikes does not make one rich. The rich part only happens when somebody buys those shares. And of course when lots of folks want to get rich by selling the shares, the price drops.

And the whole mechanism of short sales is a serious gamble to begin with. And only one horse can come in first. (Is that a new insight?)