Advisors in Focus- March 7, 2021

It took Bill Clinton nearly two weeks to realize the success of his programs depended on the Fed and interest rates.

In 2021…we required an extra week because hey…why not?

The recent interest rate rally obliterated the 2020 low rate investor playbook: Buy tech early and often… and level up while you do it.

You see, low-interest rates justify higher stock prices by making existing and future earnings of a company more valuable- perfect for tech stocks.

The change in investment philosophy was evident last week when the Dow and S&P posted gains of 1.8% and 0.8%, respectively, while the tech-heavy Nasdaq fell 2.1%

The quick rise in yields creates near-term volatility but the economic backdrop remains favorable. Advisors create shopping lists to buy pullbacks in this type of environment. 

Want to know what your peers are shopping for? TrackStar can help you. We are able to track searches from advisors with AUMs of five million to multi-billion dollar asset managers. 

TrackStarIQ Data

Here are some highlights from ALL FAs searches this week –

RankTOP STOCKS – BY ALL FAs (Total Traffic) Last WeekTickerTOP STOCKS- BY FAs AUM >$1 bln (Total Traffic) Last WeekTickerTOP STOCKS By RETAIL (Total Traffic) Last Week Ticker
1Rocket Companies Inc Cl ARKTZomedica Pharmaceuticals CorpZOMAMC Entertainment Holdings IncAMC
2Amc Entertainment Holdings IncAMCImageWare Systems, Inc.IWSYRocket Companies Inc Cl ARKT
3Tesla IncTSLAStorage Computer CorpSOSStorage Computer CorpSOS
4Storage Computer CorpSOSRocket Companies Inc Cl ARKTNio IncNIO
5KemPharm, Inc.KMPHfuboTV IncFUBOTesla IncTSLA
6Nio IncNIOAMC Entertainment Holdings IncAMCGamestop CorpGME
7Gamestop CorpGMERoku IncROKUApple IncAAPL
8Ocugen IncOCGNOcugen IncOCGNOcugen IncOCGN
9fuboTV IncFUBOBlue Diamond Ventures, Inc.BLDVPalantir Technologies Inc Cl APLTR
10Churchill Capital IV Cl ACCIVOptec International, Inc.OPTIKemPharm, Inc.KMPH
11Zomedica Pharmaceuticals CorpZOMNet Savings Link, Inc.NSAVChurchill Capital IV Cl ACCIV
12Apple IncAAPLOpti IncOPTIEversource EnergyES
13Palantir Technologies Inc Cl APLTRWells Fargo & CompanyWFCCastor Maritime IncCTRM
14Digital TurbineAPPSHealthier Choices Management Corp.HCMCSundial Growers IncSNDL
15Sorrento TherptSRNESuper League Gaming IncSLGGZomedica Pharmaceuticals CorpZOM
16Bionano Genomics IncBNGOKemPharm, Inc.KMPHWorkhorse GrpWKHS
17Castor Maritime IncCTRMOmeros CorpOMERAmazon.com IncAMZN
18Workhorse GrpWKHSGreene Concepts, Inc.INKWZoom Video Communications Cl AZM
19UWM Hldg CorpUWMCItau Unibanco Banco Holding S.A.ITUBfuboTV IncFUBO
20Freeport-Mcmoran IncFCXQ.E.P. Co., Inc.QEPCNewStar Financial IncNEWS

Rocket Companies (RKT)

Top search by All FAs; #4 search by FAs w/ AUM >$1 bln; #2 search by retail.

The Detroit-based company provides mortgage, personal, and car loans as well as real estate services. It is one of the largest lenders in the United States and its online platform resonates with younger first-time home buyers entering the mortgage market.

  • RKT shares saw strong demand when it went public in August. The stock rallied from $18 to $34 before getting caught up in the Labor Day market correction. RKT watched its shares languish between $18-24 for the next five months.

  • Analysts’ opinions are mixed as questions remain about RKT’s ability to increase market share. The weaker employment situation due to COVID-19 leads to closer examination around credit quality.

  • The debate ushered in a rise in short-sellers, those borrowing shares betting the stock moves lower. Short interest represents 38% of the 113 million share float, a huge bet on a company with a $45 billion market cap.

  • On February 25, RKT would have its say in the debate as it provided a blowout quarter, beating top and bottom-line expectations. The 143% revenue growth highlighted demand in the mortgage refinance business. Gain on sales margins increased 30 basis points to 3.90% as they benefit from a rising yield spread. Just for good measure, RKT announced a special dividend of $1.11 per share.

  • The news jolted the shorts into a squeeze above the $20 psychological number. The bigger problem for shorts is that it raised the curiosity of the WallStreetBets crowd. This group of short crushers saw blood in the water and attacked, driving shares of RKT over 100% to $43 on March 2. Shares of RKT have tumbled back to $24 as the euphoria cools off.

Rising rates create a headwind for mortgage refinance demand but the overall housing market is strong. RKT trades at a cheap 14x forward price to earnings, an attractive level in this market. A test of $24 support will be critical price action this week.

AMC Theaters (AMC)

#2 Top Stocks All FAs; #6 Top Stocks FAs AUM >$1 bln; #1 Top Stocks Retail

The movie theater business experienced an outsized impact from the pandemic. The idea of sitting in tight air-conditioned quarters for two hours does not have the same appeal as pre-pandemic. The heavy debt load associated with a brick-and-mortar business adds to the consternation.

  • AMC finds itself in the thick of this debate. Total Debt to EBITDA, a measure of a company’s ability to generate income to pay down debt, stands at 21x. That is not good. It comes as no surprise that AMCs credit rating languishes in junk territory while it remains on Negative credit watch at S&P.

  • Balance sheet concerns led short-sellers to bet against the company. This led to an over-crowded short position. An influx of investors looking for returns in ‘re-opening trades’ would exasperate bearish positions.

  • The stock found another gear when the WallStreetBets crowd piled in to administer its own brand of justice to shorts. AMC shares rallied 400% in late January before running out of steam and pulling back to the $6 level.

  • AMC garnered support at this level and would grind back to $8. 

AMC reports Q4 earnings Wednesday after the close. Commentary around recent trends and management’s ability to maintain the balance sheet are areas of focus for investors.

SOS Limited (SOS

#4 Top Stocks All FAs; #3 Top Stocks FAs AUM >$1 bln; #3 Top Stocks Retail

SOS provides rescue services for cloud companies. Basically, if you lose all that data you have stored in the cloud, then SOS is the company that retrieves it for you. The Chinese-based company saw interest sky-rocket after it announced a line of products for the cloud cryptocurrency space.  

  • In late January, SOS announced the development of a series of security systems based on blockchain and AI technology. The timing was perfect, not by coincidence, as bitcoin was in full focus. Investors were looking for ways to play the digital asset craze and SOS filled that need as a play on the blockchain infrastructure. 

  • Shares of SOS rallied from $2 to $15 in two weeks. SOS took advantage of the rally, announcing an $86 million registered direct offering priced at-the-market. This has been common practice as companies take advantage of wild price action to raise proceeds. SOS said the $86 million would be used to develop its cloud cryptocurrency mining and security solutions.

  • Shares gave up gains after the offering was announced. SOS settled down between $6-7. The price action garnered the attention of two short-selling firms- Hindenburg Research and Culper Research. Both raised concerns alleging SOS made false claims about its business as well as regulatory risks from both Chinese  and United States governments.

  • SOS denied these allegations.

A Chinese blockchain company raises plenty of questions for investors. The short reports elevate caution for investors. Advisors should do their research to assess viability. SOS has been a regular on the TrackStar search lists which suggests persistent interest.

KemParm Inc (KMPH

#5 Top Stocks All FAs; #16 Top Stocks FAs AUM >$1 bln; #10 Top Stocks Retail

KMPH reengineers existing drugs and improves them via its Ligand Activity Therapy. Basically, its ligands combine with a parent drug to improve attributes such as susceptibility to abuse, bioavailability, and safety (i.e.- Making opioids less addictive).

  • KMPH shares exploded 93% on Wednesday. The United States Food and Drug Administration (FDA) approved Azstarys, a drug used for attention deficit hyperactivity disorder (ADHD) in patients age six years and older. This is the first approved prodrug version of any ADHD product and is in a group that generates almost 20 million prescriptions annually.

  • KMPH developed the ligand treatment with its partner Gurnet Point Capital. KMPH will be eligible for up to $468 million in regulatory and sales milestone payments, as well as tiered royalty payments as a result of the FDA approval. The potential cash windfall is garnering attention but there are questions around the final labeling of the drug. This could greatly reduce the final royalty payments.

  • Roth Capital analyst Jonathan Aschoff initiated the stock with a Buy rating and a $28 price target in anticipation of this news.

  • Shares of KMPH jumped to $18 following the announcement. It failed to hold gains, pulling back to $10.

  • Investors should be aware of the small 4.19 million float and 55% short interest. This will lead to plenty of volatility. 

The revenue potential for KMPH raises curiosity. It is evident that financial advisors need to do their due diligence around the terms with its partner GPC.

Yield volatility  drives choppy action in stocks. The speed of change, coupled with an unwinding of leverage, can lead to over corrections. Financial advisors find opportunity during these times. 

Review your clients’ portfolios. Ask yourself whether you accounted for these updated risks.

Happy shopping! 

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