Friday Four Play: The “Bearish Exhaustion?” Edition
Great Ones, I don’t like to give y’all false hope, but Micron Technology (Nasdaq: MU) just continued a trend I’ve noticed building on Wall Street lately.
A company issues pretty bad news, but the stock rallies anyway.
In the sentiment analysis business, we call this an extreme — or near extreme — in investor sentiment. It happens when either pessimism or optimism gets too out of hand, leading the market to correct in the opposite direction.
You get enough of this type of action going on, and you know the stock market is reaching an inflection point. A reversal, if you will.
Too much optimism? The market/stock sells off.
Too much pessimism? The market/stock rallies.
I don’t believe we’re at a collective market extreme in bearish sentiment. But we are seeing signs that one might just be on the horizon.
Case in point: After the close last night, Micron posted some pretty sketchy fiscal Q4 results, but MU stock actually moved higher on the news.
Here are the numbers:
- Earnings per share: $1.45 versus $1.30.
- Revenue: $6.64 billion versus $6.8 billion to $7.6 billion expected.
- Gross margin: 47.4%, down from 47.9% last year.
Year-over-year comparisons here are abysmal. Earnings fell 40% from 2021, while revenue dropped 21% from last year. Heck, revenue was down 23% from last quarter!
Meanwhile, Micron’s guidance was even worse. The company expects fiscal Q1 revenue of $4 billion to $4.5 billion, whiffing Wall Street’s target for $5.65 billion.
Gross margin is forecast to drop from 47.4% in Q4 to 24% to 28%. And earnings are set to arrive in a range of -$0.06 to $0.14 per share. The consensus is for Q1 earnings of $0.65 per share.
That’s bad all around is what that is. What’s more, we all already knew what Micron’s excuse was going to be before the company’s Q4 report: “rapidly weakening consumer demand and significant customer inventory adjustments across all end markets.”
In other words, the U.S. recession.
If you are already tired of hearing about “significant inventory adjustments” right after “supply chain issues,” I’ve got really bad news for you…
Everyone rushed to catch up with demand, but when they finally have products to sell … nobody has any money to buy, or they don’t want what you ordered six months ago. It’s gonna get worse before it gets better. Just ask Nike. (More on that in a second…)
Hold up. My eyes might not be what they used to … but I know I saw something about “hope” up there somewhere. Where’s the “hope,” Mr. Great Stuff?
Hold on. I got you fam.
You see, despite all that nastiness and horrible guidance, MU stock rallied. The shares actually gained more than 2% in spite of that horrible, no-good, very bad report.
Part of the reason is that expectations were already so abysmally low, that Micron would have had a hard time disappointing investors at this point. And Micron isn’t the only stock doing this.
Yesterday we had Bed, Bath & Beyond. Before that, there was Warby Parker. And before that, we had Twitter.
It’s not the kinda flood that would indicate a bottom in the bear market. It’s more of a trickle, really. But the increasing frequency of stocks rallying despite bad news does indicate that investors are finally setting realistic expectations for corporate earnings and fiscal performance.
And that, Great Ones, is your sign of hope that the bear market bottom might finally be a glimmer on the horizon.
Good thing you tuned into Charles Mizrahi’s emergency broadcast, where he said exactly what to buy right now to set you up down the road, right? What? You didn’t catch it?!
Charles went on air to share a unique investing strategy he’s never shared publicly before.
This is a strategy that he’s waited over 12 years to use … but couldn’t … until this bear market. The last time you could’ve used this strategy, investing in the top-performing stocks in this sector could’ve made you 24,000% on average.
That was not a typo. 24,000% over 12 years.
You can watch the replay of this broadcast here!
And without further ado, here’s your Friday Four Play:
No. 1: Pay To Play
You know, Great Ones, the more biotech companies we cover … the more half-working drugs we see … the more treatments get “approved” after what’s surely oh-so-rigorous research…
I’m beginning to think there’s something not quite right over at the FDA.
Wow. You think?
Umm, yes? Today’s case study is Amylyx Pharmaceuticals (Nasdaq: AMLX) — and the company’s study into Relyvrio, a widely followed drug for ALS.
Relyvrio just received FDA approval … despite the FDA’s “panel of outside advisors” originally voting against the drug’s approval back in March … and despite negative reviews from the FDA’s own internal scientists concerning the drug’s efficacy.
In fact, it’s only after receiving 1,300 comments from the ALS community that the folks at the FDA changed their minds — and wouldn’t you know it? That same independent panel that voted against the drug earlier this year suddenly changed their minds too, now voting in favor of Relyvrio.
Curiouser and curiouser…
Now, I’m all for more treatments for ALS hitting the market — I have a good friend whose father succumbed to ALS — but that’s predicated on the fact that they work. Otherwise, we’re just going to have another Aduhelm on our hands … people filled with hope that they might finally receive treatment and paying out the wazoo for it … only for that treatment to not work.
Everyone saw Biogen (Nasdaq: BIIB) getting drugs to the market despite mediocre efficacy. And if Big Pharma can get away with it, why not Amylyx?
But here’s where the murky waters get even muddier: Much of the concern over Relyvrio pertains to its super-small testing pool … though, fear not! Amylyx is running Relyvrio through a whole new 600-person study that should greatly expand the trial’s accuracy.
The problem here, of course, is that those results won’t come out until 2024 — quite a bit of time after Relyvrio might hit the market.
For its part, Amylyx pinky-promised that it would stop selling the drug if this new, broader study finds it’s ineffective. “If the drug isn’t bussin, we’ll just stop, bruh … fr fr.” This was enough to convince the FDA into approving Relyvrio, apparently. A wink is as good as a nod to a blind bat, after all…
And if you buy the drug thinking it’d work, only to find out in a few years that it’s done nothing … then joke’s on you, I guess.
Ugh. There’s a reason why we don’t talk about biotech much here in Great Stuff.
No. 2: When You Try Your Best & You Don’t Succeed…
Please, Great Stuff. The last thing this week needs is Coldplay.
Touché. Though, Nike (NYSE: NKE) investors didn’t get what they wanted or what they needed today.
The problem? Too many shoes — an excellent problem for basically everyone besides Nike and Nike investors. The company reported that it will be forced to sell excess inventory at heavily discounted prices. Sale!
Because of this, the company warned that revenue will only grow in the low- to mid-single-digits this fiscal year. The absolute gall!
Gross margins could shrink 2% to 2.5% as the discount-a-thon continues on, and continue on it shall: Nike’s inventory grew 65% year over year for North America, and the shoemaker’s going to take a massive L on selling off those seasonal inventories.
I can already hear Target chuckling off in the distance, glad to not be the only retail-exposed company taking losses on unwanted merch.
No. 3: How About Renting A Better Stock?
— Rent-A-Center (Nasdaq: RCII) investors, probably.
Ah, Rent-A-Center … the home for buying home goods through “small affordable” payments, as long as you’re comfortable making those payments for the next two years, until you realize you’ve paid $680 for a coffee table that should’ve only cost $200.
What could go wrong in such a magical, consumer-friendly world?
Well, apparently everything, given the company’s latest announcement:
External economic conditions continued to deteriorate over the past few months. While recent inflationary conditions have been especially challenging for customers, we remain confident in the longer-term resiliency of the business. — CEO Mitch Fadel
Not exactly groundbreaking news, but alright. What actually sent RCII shares down 17% yesterday afternoon?
‘Twas guidance: Rent-A-Center only expects earnings per share to fall between $0.85 and $0.95, compared to the Street’s hopes for $1.16 and the company’s own prediction for $1.05 to $1.25. Oof. Revenue wasn’t much better, also missing by a $1 million hair.
Which really brings up the question: How bad would things look if CEO Fadel was not “confident in the longer-term resiliency of the business?” You’re telling me this is your high-confidence mode?!
No. 4: Peloton Needs Dick’s
No … seriously.
Peloton (Nasdaq: PTON) is down bad, and the wannabe bike-seller could use any kind of good attention right now. Like, any.
About a month after the company finally realized that selling your stuff on Amazon is a good idea, the company inked a partnership with Dick’s Sporting Goods (NYSE: DKS).
Peloton will now have another 100 in-person stores where people can physically see the bikes and decide if they’re gonna shell out the dough for one. And they should be in stock and available for the holiday season. (That’s a first.)
Now hold up. You mean to say that getting your product in front of people is going to sell more product? Why I never! Why didn’t Peloton just do that in the first place?
The more I joke about it, the more I wholeheartedly question: Why wasn’t Peloton selling its products at sports stores or on Amazon in the first place? Why is Peloton cycling in reverse to try and grow? Why am I asking you all these questions?
Let’s ask Peloton:
The collaboration is the latest effort by Peloton to reach new audiences, expand its total addressable market and drive Member growth, by having its products available at the largest U.S. sporting goods retailer.
It will expand Peloton’s U.S. geographic footprint and complement its retail presence, as the company pivots to growth, in the next phase of its transformation journey.
Oh, now you’re pivoting to growth? What do you call the past two years of your “transformation journey?!”
I’m shook, Great Ones. Not by the fact that Peloton finally bit the bullet and started selling its products through third-party sellers … but the fact that Peloton thinks this is a big step. Nah … this is most businesses’ first step.
What do you think, Great Ones? Got any thoughts on today’s Great Stuff? Head on over to our inbox to share your side of the conversation: GreatStuffToday@BanyanHill.com.
In the meantime, here’s where you can find our other junk — erm, I mean where you can check out some more Greatness: