#5things: Before the Bell
Trump trade deepens, Tesla saves the day, UPS turns around, big blues for IBM
I’ll be back at Capitalize for Kids today. The best ideas conference is already well on its way to raising $150,000 for children’s mental health. Yesterday we heard from former Prime Minister Stephen Harper who cautioned the room about the widening gap between Canada’s interest rates vs rates in the US. Noted activist investor Jeff Smith was there saying there is more room to run in Salesforce and Pfizer. And I’ve decided that instead of buying zombies and skeletons for Halloween, I’m just going to scare my kids by telling them what Jeffery Gundlach had to say about the future.
Firehose of earnings: The markets are looking to stage a recovery today following a three-day sell-off for the S&P 500. The Magnificent 7 have led the declines, but today enthusiasm around Tesla’s results are lifting spirits (more on that below). The Dow is under pressure because heavyweight Boeing is down 3.5% right now after factory workers rejected a new labour contract that would have increased wages by 35% over four years. Aside from earnings (there are more than 70 American companies reporting today), I’m also watching the Trump Trade take further hold in the markets. As I mentioned in my previous newsletter, while the polls are split on who will win, markets are betting on a Trump Presidency. Shares of Trump Media hit a 3-month high, treasuries have been selling off (although this can be attributed to lower rate cut odds as well), and solar stocks (Harris trade) continue to languish at four-year lows. What I don’t know is whether this is predictive. I guess we will find out (hopefully) in November.
All systems go: Shares of Tesla are pumping nearly 14% in pre-market after better earnings and strong profit margins. The fear around Tesla has been threefold: slumping sales, eroding profitability due to discounting, and delays around its cheaper self-driving car. And maybe a CEO who likes to tweet too much. This quarter put to rest three out of four concerns. Sales grew 8% and while that was slightly less than expected it is better than the 9% drop in sales to start the year. Profit came in much higher than expected on the back of strong margins, even with elevated spending. Elon Musk also said to expect 20-30% vehicle growth as they look to roll out low cost and autonomous cars in the first half of 2025. Shares of Uber and Lyft are down about 3% right now on this possible competitive threat.
Big Blues: IBM is slumping in the pre-market as sales fell short of expectations. The stock is trading near a record high on enthusiasm that they can capture AI. While their AI book of business is more than $3 billion, adding $1 billion in the last quarter alone, overall sales grew a tepid 2%. Software sales came in better than expected, but the consulting business continues to hold back overall performance. Meanwhile, one of IBM’s offspring is thriving (see below).
Thriving: Shares of Celestica are pumping up nearly 10% in the pre-market. The company, which was spun out of IBM in 1996, boosted its outlook for profit and sales after announcing it will be helping Groq (X’s AI platform) to build its AI servers. Celestica also managed to lure another hyperscaler away from a competitor, though it didn’t name names. Shares of Celestica have doubled so far in 2024, but analysts think the party can continue. “We believe the AI capex cycle, and CLS's market position, will be more durable than the stock's current valuation implies—and see further upside to the stock, particularly given CLS's consistent margin execution,” wrote BMO’s Thanos Moschopoulos in a note to clients.
Turning the corner: It’s been an abysmal year for package delivery companies, but perhaps things are starting to turn around. Shares of UPS are up about 9% in pre-market after it beat revenue expectations for the first time in two years. Profit also beat expectations as sales in its US domestic business climbed nearly 6%. It wasn’t a perfect quarter, the company lowered its sales forecast for the year. But given the stock is down nearly 20% so far this year, investors are glass half full today. Shares of Fedex are rallying in sympathy.