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It appears the market has already priced in a good amount of fear. Helping, Cleveland Federal Reserve President Loretta Mester just said, “We’re at a point where we’re going to enter a restrictive stance of policy. At that point, I think it makes sense that we can slow down a bit the … pace of increases. We’re still going to raise the fund’s rate, but we’re at a reasonable point now where we can be very deliberate in setting monetary policy, as quoted by CNBC. With that, some of the fear in the market has cooled off, creating a very long list of stocks to watch, including:
SHLS Shoals Technologies $29.85 COIN Coinbase $42.94 MSTR MicroStrategy $165.41 TAN Invesco Solar ETF $81.06 M Macy’s $23.34 ROST Ross Stores $114.33 DIS Walt Disney $95.40
Shoals Technologies (SHLS)
Source: Diyana Dimitrova / Shutterstock.com
Solar energy stocks could see brighter days ahead. For example, Shoals (NASDAQ:SHLS) just reported better-than-expected third-quarter results, with record Q3 revenue of $93 million. The company also increased the lower end of its full-year revenue guidance and announced that it expects its EBITDA, excluding certain items, to come in at an impressive $80 million to $86 million.
CEO Jason Whitaker noted that the company was benefiting from a tariff exemption on Chinese solar panels implemented by President Joe Biden, along with high natural gas prices and the climate bill passed by Congress. Moreover, China, which has clearly made the decision to move towards reopening its economy, is likely to continue doing so, reassuring the Street that the Asian nation is going to continue pumping out solar panels at a fast pace and possibly even accelerate its production of solar products. With solar panel supplies running behind demand, China’s reopening should boost Shoals’ business and SHLS stock next month. Further, providing Shoals and SHLS stock with another positive catalyst, the European Union is likely to continue to implement its package of pro-solar rules and incentives next month.
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Coinbase (NASDAQ:COIN) isn’t a buy just yet, especially with a plethora of negative catalysts. First, the alleged misdeeds of failed crypto exchange FTX, along with the tremendous amount of publicity that the media has given the exchange’s collapse, have undermined confidence in crypto exchanges in general. Although COIN’s contention that it has done nothing wrong may be absolutely correct, fear is likely to cause COIN’s customers to rush to withdraw their crypto from the exchange. There is a high likelihood that such a scenario, in turn, could cause a classic “bank run” event, quickly causing COIN to run out of cash. Since no government or large bank is likely to come to COIN’s rescue and no one is going to want to buy its stock, the bank run could easily result in bankruptcy.
On another front, the U.S. government is also indicating that it will respond to FTX’s failure by more tightly regulating the crypto sector. Increased regulation of the sector could greatly undermine Coinbase’s business. After all, FTX’s failure and alleged misdeeds could give the agency reason to be extremely harsh on Coinbase. As if all that wasn’t enough, Bitcoin has tumbled to two-year lows, likely further deterring investors from placing trades on Coinbase’s exchange. Given all of these points, stocks like COIN are highly likely to keep sinking next month, providing investors with a very good short-selling opportunity.
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Cryptocurrency stocks like MicroStrategy (NASDAQ:MSTR) spent a lot of funds on Bitcoin (BTC-USD). As of June, 30, it held 129,698 Bitcoin. At a (hypothetical) average price of $20,000 per Bitcoin, that works out to a nearly $2.6 billion investment in the crypto. Worse, in Sept. the company sought to sell $500 million of MSTR stock to buy even more Bitcoin. Bitcoin has tumbled an eye-popping 66% this year and 22% in just the last month. After FTX’s implosion and the tremendous retreat of Bitcoin this year, not many investors are going to have the stomach to buy the crypto and most are likely to look to unload it. Therefore, its value is likely to continue to plunge going forward.
Bitcoin seems to have failed completely both as a hedge against inflation and as a store of value. Moreover, few if any consumers or companies are actually using it. Rather, in line with my longtime predictions, it’s now obvious that Bitcoin and other cryptos are primarily bubbles that inflate when there’s a great deal of stimulus in the economy and deflate when the “punch bowl” is taken away. With the bowl being withdrawn, Bitcoin is likely to continue to plunge, causing MicroStrategy’s Bitcoin investment to also continue to tumble. As a result, MSTR stock is likely to keep plunging next month and is not one of the top stocks to buy at this point.
Invesco Solar ETF (TAN)
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With the U.S. and EU providing tremendous support for solar energy, Invesco Solar ETF (NYSEARCA:TAN) could see brighter days ahead. Also worth noting is that the U.S. Commerce Department is due to decide by Dec. 1 whether to accept a petition to impose tariffs on solar panels imported from a number of Southeast Asian countries. As I mentioned when discussing Shoals, President Biden has implemented a two-year exemption on solar panel imports from Southeast Asia. Therefore, an adverse decision by the department will not negatively affect solar companies for some time, and the exemption gives them adequate time to adjust their supply chains in preparation for the imposition of tariffs on panels imported from the affected countries.
If, however, the department decides to reject the petition, solar stocks, including TAN, are likely to rally, due to the removal of a “headline risk” that has been facing the sector. The fact that the climate bill passed by Democrats provides a great deal of financial support for domestic solar companies could give the department the “cover” it needs to reject the petition.
In a separate development, Deutsche Bank (NYSE:DB) recently initiated coverage of a number of U.S.-based solar stocks with “buy” ratings. Among the names to which it gave “buy” ratings are three of TAN’s six largest holdings — Enphase (NASDAQ:ENPH), Sunrun (NASDAQ:RUN), and First Solar (NASDAQ:FSLR).
Source: digitalreflections / Shutterstock.com
Some retail stocks, like Macy’s (NYSE:M) just delivered “beat-and-raise” third-quarter results. The apparel retailer’s revenue fell 4% year-over-year to $5.2 billion, but its sales came in slightly above analysts’ average outlook. Better, on the bottom line, Macy’s reported Q3 EPS of 53 cents, meaningfully higher than analysts’ mean outlook of 19 cents. And the company increased its full-year EPS estimate, excluding some items, to $4.07-$4.27 from $4-$4,20 previously.
In addition, the comparable sales of Bloomingdale’s, Macy’s luxury store, increased 4% year-over-year last quarter. The increase suggests that Macy’s high-end customers could spend a great deal at Bloomingdale’s over the holiday shopping season, boosting Macy’s bottom line and making investors more upbeat about M stock. Additionally, the healthy increase in Bloomingdale’s comparable sales suggests that high-end consumers in general, in line with my previous predictions, are starting to spend more money on goods again. As inflation eases and we enter the heart of the holiday shopping season, middle-class consumers are likely to follow suit, causing investors to become more confident in Macy’s. Given all of these points, M stock will probably rise significantly next month and looks like a good stock to buy at this point.
Ross Stores (ROST)
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Discount retailer Ross Stores (NASDAQ:ROST) reported better-than-expected Q3 results and raised its full-year EPS guidance, leaving its stock well-positioned to rally in Dec. On the bottom line, Ross reported Q3 EPS of $1, versus analysts’ average estimate of 82 cents. Its revenue was little changed YOY, coming in at $4.57 billion, $200 million above analysts’ mean estimate. The retailer’s comparable sales fell 3% year-over-year, but the company pointed out that its comp sales had soared 14% YOY in Q3 of 2021. ROST increased its 2022 EPS outlook to $4.21-$4.34, versus its previous guidance of $3.84-$4.12.
In the wake of Ross’ results, research firm Gordon Haskett raised its rating on ROST to “buy” from “hold,” as it believes that the company’s results were “dramatically better than expected.” The firm thinks that Ross appears to have “turned a corner,” while the discount-retailer sector can reward investors going forward. “We remain in the early innings of a trade-down which, when coupled with material freight expense relief and…healthy [gross margins], paves the way for a very meaningful upward EPS revision cycle,” the firm stated.
The abrupt return of former Disney (NYSE:DIS) CEO Bob Iger seems to have enchanted the Street. Apparently many investors believe that Iger, who replaced the hapless Bob Chapek, can return the old magic to Disney and DIS stock. With Disney not scheduled to report any quarterly earnings until early Feb. and views of the U.S. economy likely to improve as inflation continues to weaken, optimism about Iger’s return could push DIS stock much higher next month.
However, the “changing of the Bobs” doesn’t alter my longtime, bearish stance on Disney and DIS stock. That’s because, with cable continuing to bleed subscribers at a significant rate, the revenue and profits of the company’s lucrative cable channels are going to continue to sink. Meanwhile, the company’s streaming channels are likely to lose money for the foreseeable future, and movie attendance in the U.S. will probably keep trending far below pre-pandemic levels.
From what I’ve read, Iger’s big point of difference with Chapek involves charging less for the company’s streaming channels. That change might push up the number of consumers subscribing to Disney+. But I believe that the Street is well past the point of being impressed by the channel’s subscriber numbers and has figured out that streaming is not, in the near term or medium term, going to offset the profit declines caused by the weakening of the company’s cable and movie businesses. As a result, I recommend that investors sell stocks, such as DIS stock into strength in Dec. and Jan.
On the date of publication, Larry Ramer held a long position in SHLS and a short position in COIN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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