#5things to know by @baystreetamber
The Moo Deng lie, Chinese stimulus hopes, Pepsi, and notable calls
If you follow me on Instagram (plug: follow me @baystreetamber) you know I’ve been swept up in the Moo Deng craze. The loveable pygmy hippo that’s got that “I’m an independent woman, I don’t need no man” vibe at the tender age of 10-weeks old. But at the same time she possesses an innocence that make you want to take care of her if only she would let you and stop biting your knee. Amidst all this cuteness, you’d be forgiven if you forgot that hippos kill an estimated 500 people per year according to the BBC. That’s more than lions and sharks combined. I’m embarrassed to say this critical journalist has been duped by a succulent grey little rubber ball of a hippo. Kudos to Moo Deng’s PR team for pulling the wool over our eyes. Maybe its the same people who represent the squirrels that got them a free pass to roam the open streets while their rodent cousins mice and rats scurry around in shame.
Show me the money: Chinese exposed stocks are taking a thumping this morning. The Chinese markets reopened after its Golden Week holiday and the markets wanted to hear more about stimulus. However, the head of China’s National Development and Reform Commission did not provide any more details around the fiscal support that has been announced. The Hang Seng closed down more than 9%. The CSI 300 rallied as much as 11% before closing up only 6% higher. Chinese exposed stocks like Alibaba, Yum China, Teck Resources are all lower in the pre-market. In the face of this sell-off, Citi is out with a note this morning touting investments in China. “MSCI China remains attractive,” wrote Chinese equity strategist Pierre Lau. He noted the Chinese market is cheaper than the rest of the emerging market. Even with this China dampness, futures are higher this morning, rebounding from a sell off yesterday. Nvidia and Super Micro are leading the charge.
Pepsi falls flat: Like a can of soda that has been left open for too long, Pepsi’s earnings results are falling flat. The stock is down a little bit right now after the soda and snack maker cut its sales forecast for the year. The company is blaming a recent recall, boycotts in the Middle East and a generally sluggish consumer. Interestingly they say they can still deliver their profit targets for the year which will be achieve through cost-cutting. I wonder if this will be a recurring theme this earning season. The stock is flat for the year underperforming the 20% move in the S&P 500.
Hurricane watch: Hurricane Milton is expected to make landfall in Tampa on Wednesday as a very strong category 5 storm. It’s a region close to my heart, I named my daughter after one of the Gulf Coast beaches. But the market cares not for matters of the heart and while we watch mother nature devastate the region for the second time, analysts are sharpening their pencils on some buying opportunities. Shares of Emera, which owns Tampa Electric, have plunged to a 2-month low and are down more than 7% from its recent peak. Scotia says investors should use the dip in Emera as a buying opportunity. The analyst asserts utilities are prepared for hurricanes. “We do not expect a storm would meaningfully impact Emera’s long-term earnings outlook and that any costs would be recovered from customers,” Robert Hope wrote in a note to clients. They also point out that Emera is trading at 15.3x 2025E P/E versus Fortis at 17.8x and Hydro One at 21.8x.
Don’t let the door hit you on the way out: Shares of Honeywell are moving higher pre-market after announcing pans to spin off its advanced material business. This is part of a plan to simply for industrial conglomerate to focus on aerospace and industrial automation. It is likely also part of a plan to inject some life into a stock that has gone nowhere all year compared to the S&P 500 industrials group which is up 20%.
Notable calls: Microsoft was downgrade to hold at Oppenheimer saying expectations for sales and profit are overly positive and that there isn’t enough consideration to Open AI losses. The analyst says the losses could be in the region of $2-3 billion for 2025. While the street overwhelmingly still loves Microsoft, I’ll note this is the second downgrade in less than a month. American Express is catching a second downgrade in as many days. BTIG is downgrading to sell saying fundamentals are more likely to get worse than better, but expectations continue to go higher. After 5 downgrades and a 26% drop in the stock, one analyst is willing to upgrade Humana. Bernstein is upgrading the embattled managed care company saying all the risks have been priced in.
CORRECTION: An earlier version misstated the Hang Seng’s overnight close. I regret the error.