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Analyst Report: Snowflake Inc
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Super Micro Computer Stock Has Fallen 30%. Before Buying or Selling, Here’s What You Need to Know.
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Super Micro Computer (NASDAQ: SMCI) started the year off with a bang. The stock soared 188% in the first half, even surpassing the performance of market darling Nvidia, and was invited to join both the S&P 500 and the Nasdaq-100. And for good reason. Earnings have soared at the equipment maker, thanks to demand from artificial intelligence (AI) customers.
The company sells workstations, servers, and other products essential for AI data centers. And considering forecasts for AI market growth — today’s $200 billion market is expected to reach $1 trillion by the end of the decade — the future looks bright too. But a few pieces of news in recent times have weighed on the company, and the stock has dropped nearly 30% since late August.
From a short report alleging troubles at the company to an article in The Wall Street Journal about a possible Justice Department probe, Supermicro has faced headwinds in recent times. So, if you’re a shareholder or potential shareholder, you may be wondering what to do. Before buying or selling, here’s what you need to know.
Image source: Getty Images. The Hindenburg report
The Hindenburg Research short report was published on Aug. 27. Hindenburg, following a three-month investigation, alleges “accounting red flags,” “evidence of… export control failures,” and other troubles at Supermicro.
It’s important to note that Hindenburg has a short position in Supermicro stock, meaning it benefits from any declines in the share price. In short selling, an investor borrows shares of a particular company, sells them — then ideally buys them back at a lower price to return to their original owner. Because of this position, Hindenburg has a bias toward the stock’s decline, making it difficult to rely on the firm as a source of information.
Supermicro responded to the report, calling statements “false or inaccurate,” and saying it would address them “in due course.”
In unrelated news, but around the same time as the Hindenburg report, Supermicro informed the market that it was delaying the filing of its 10-K annual report — a move that made some investors worry about potential changes to earnings figures. But Supermicro followed up by saying it didn’t expect any significant adjustments to its fourth-quarter or full-year numbers.
A new element of uncertainty
The comments addressing both of these issues should ease investors’ minds. But a third piece of news, just this past week, offered another element of uncertainty. The Wall Street Journal, citing people familiar with the matter, reported the Justice Department had launched a probe into Supermicro following the Hindenburg report.
The probe still is in the early stages, the WSJ reported, with a prosecutor from the U.S. attorney’s office in San Francisco recently contacting people who may have “relevant information.” Supermicro and the U.S. attorney’s office declined to comment, the Journal said.
Following this newspaper report, Supermicro shares fell 12% in one trading session.
So, now you may be wondering if this top AI equipment maker is really in trouble — and if you should stay away from the stock or sell. Or you may wonder, considering the recent decline in valuation, if this is an opportunity to get in on a recovery story at a good price.
Take a long-term view
Well, first, it’s important to remember that a Justice Department probe hasn’t been confirmed — and even if it is confirmed, this doesn’t mean Supermicro has done anything wrong. And, if we imagine a more difficult scenario, one in which a probe happens and potential problems are found, this wouldn’t necessarily spell disaster over the long term. So, it’s essential to follow the story and take a long-term view when considering any developments — positive or negative.
And if you’re a shareholder, avoid panic selling. Consider the facts, and again think of how they may impact the company over the coming five to 10 years. At the moment, from what we know, the future remains bright for Supermicro. The company has a solid track record of earnings growth, its products are in high demand, and growth of the AI market suggests Supermicro’s earnings growth could continue for quite some time.
Now, if you’re not yet a shareholder, should you buy the stock or wait? Very aggressive investors may see this as a good time to pick up a few shares of Supermicro, as it’s trading for about 11x forward earnings estimates, which is very cheap for a growth stock.
Still, most investors would be better off staying on the sidelines — temporarily — until we know more about the current issues. After all, Supermicro did say it would further address the statements in the Hindenburg report, and those words could ease investors’ minds.
All this means that, yes, there’s reason to be optimistic about Supermicro over the long term, but with some uncertainty weighing on the shares right now, it may be best to wait for some of those clouds to lift before buying.
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Super Micro Computer Stock Has Fallen 30%. Before Buying or Selling, Here’s What You Need to Know. was originally published by The Motley Fool
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The true bull market may finally ‘wake up’ as investors eye rate cuts
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Since the start of the bull market in October 2022, stocks’ move higher has largely been about artificial intelligence and the outperformance of a few large equities, driving investor concern that gains aren’t widespread enough for the rally to continue.
That could be changing.
Thursday’s better-than-expected inflation reading has sent the stock market into a tizzy in recent trading days. As investors have rapidly priced in higher chances of an interest rate cut from the Federal Reserve in September, the most loved areas of the market of the past year have underperformed as investors rotate into sectors outside of tech.
The Roundhill Magnificent Seven ETF, which tracks the group of large tech stocks that led the 2023 stock market rally, is down more than 1.5% in the past five days. Meanwhile, Real Estate (XLRE) and Financials (XLF), both interest rate-sensitive sectors, have been the market’s biggest winners over the same time period. The small-cap Russell 2000 (RUT) index is up more than 7% and finally breached its 2022 high for the first time during the current bull market.
In another sign that a wide swath of stocks are rallying, the equal-weight S&P 500 (^SPXEW), which ranks all stocks in the index equally and isn’t overly influenced by the size of the stocks moving higher or lower, has outperformed the traditional market cap-weighted S&P 500.
Ritholtz Wealth Management chief market strategist Callie Cox told Yahoo Finance the market action as of late has been “refreshing” and could be the sign of a maturing bull market, where a wide range of stocks are contributing to the rally, providing more support for stock indexes at record levels.
“If this trade continues, if the prospect for a rate cut is still in play for this fall, then we could finally see the bull wake up, and that’s good news for all investors,” Cox said.
It’s not the first time strategists have been optimistic about market rotations like the one currently happening. Other spurts of widespread rallies were celebrated in December 2023 and during the first quarter of this year.
The question is whether a big broadening of stock market gains is finally underway this time, or if this is yet another head fake as the market becomes overly optimistic about Fed rate cuts.
“The conviction level that we have is higher right now than back in December [during the Fed pivot-driven market rally],” Bank of America Securities senior equity strategist Ohsung Kwon told Yahoo Finance.
Kwon notes that the narrative driving the rally — hopes of a soft landing and gradual interest rate cuts from the Fed — is largely unchanged from the prior broadening spurts. But this time, he said, “the earnings backdrop is really supporting this rotation as well.”
Bank of America’s earnings analysis shows the 493 stocks not including the Big Tech “Magnificent Seven” are expected to grow earnings year over year for the first time since 2022 during the current reporting period. As seen in the chart below from JPMorgan Asset Management’s midyear outlook in June, the earnings growth of those stocks is expected to pick up in the coming quarters, while Big Tech is expected to see its earnings growth slow.
Given that earnings are typically the key driver of stock prices, this would support the theory of a broadening rally. But the key caveat is that these are just expectations. And given the market’s struggle thus far this year to produce a wide array of winners, some strategists want to see actual earnings growth to confirm the narrative that’s currently seen in the estimates.
“I want to see earnings growth come from more sectors than just tech,” Cox said. “I think that that’s the big theme of this particular season. You know, seeing how many sectors can actually pitch in and move the S&P 500’s profit expectations higher.”
The same could be said for the other narrative backing the recent rotation. Markets are now pricing in a more than 90% chance the Fed cuts interest rates in September, per the CME FedWatch tool. But again, Cox is wary of declaring the broadening will certainly continue.
“Until we’re officially in that rate cut cycle, it’s hard to say that this broadening trade is here to stay,” Cox said. “I hope it is. I’m optimistic it is, but you’re still going to have a market that’s hanging on every piece of economic data that comes across the tape.”
Charles Schwab senior investment strategist Kevin Gordon is also cautious about declaring the big broadening has arrived. Gordon noted “more clarity” on the Fed’s cutting cycle and why it would start cutting remains paramount, particularly for the most interest rate-sensitive areas of the market like small caps.
Gordon reasoned the recent market action has been a “great step in the right direction.” But a broad rally won’t come overnight, Gordon said. He added, “The nature has been for everybody to say that it’s this great rotation, but great rotations tend to take a little bit longer than a couple of days.”
And even if that rotation slowly occurs, recent index performance shows that will mean a different, slower path higher for the S&P 500 too. The S&P 500 closed down last Thursday despite the release of a promising June inflation report as investors moved out of the large tech stocks, which hold bigger weightings in the index than smaller stocks.
“We could see a little bit of this churn where some stocks are passing the baton to other stocks,” Cox said. “Tech stocks are passing the baton to other stocks. Sure, we may not see prices move up as quickly as they have. But this is the kind of movement that strengthens the foundation of a bull. It means that this rally can be stronger and live longer eventually.”
Charging Bull bronze sculpture in the Financial District of Manhattan, N.Y., on Oct. 23, 2022. The sculpture was created by Italian artist Arturo Di Modica in the wake of the 1987 Black Monday stock market crash. (Photo by Beata Zawrzel/NurPhoto via Getty Images) (NurPhoto via Getty Images) Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
Click here for in-depth analysis of the latest stock market news and events moving stock prices.
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Beverly Hills scammer pleads guilty to $18-million cannabis con
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A convicted Beverly Hills con artist with a long history of swindles pleaded guilty to another one Friday, admitting that he duped investors out of more than $18 million by concocting a sham cannabis empire while completing a sentence in a prior criminal case.
Mark Roy Anderson, 69, pleaded guilty to two counts of wire fraud, the U.S. Attorney’s Office said. He duped his victims with false claims that he ran companies invested in hemp farms and cannabis-infused retail products, as well as a sham bottling business.
Anderson, his investors discovered, is a convicted con artist who started swindling people at least three decades ago. He launched his purported hemp business immediately after his May 2019 release from the federal prison in Texas where he had served more than 11 years for an oil investment scam, federal authorities said.
In the first scheme he pleaded guilty to Friday, Anderson tricked investors in 2020 and 2021 into providing funding for his company, called Harvest Farm Group, to harvest and process hemp grown on his farm into medical-grade cannabidiol (CBD) isolate — a chemical found in marijuana — to be sold for a substantial profit.
Anderson persuaded investors to invest in Harvest Farm Group by falsely representing that, through the company, he owned and operated a hemp farm in Kern County. He also lied that he had already completed successful and profitable harvests of hemp from the farm, which the FBI said did not exist.
He also falsely said he was using his own machinery and equipment to convert the hemp into CBD isolate and Delta 8, a psychoactive substance that, like CBD isolate, could be used in consumer products ranging from olive oil to body cream, federal officials said.
In the second scheme, Anderson deceived investors from April 2021 to May 2023 by soliciting money for sham companies Bio Pharma and Verta Bottling companies, by claiming that these businesses successfully manufactured, bottled, and packaged commercial products.
Anderson falsely stated that his bottling companies owned and possessed millions of dollars’ worth of assets, including hemp biomass, CBD isolate, CBD oil, manufacturing equipment and a lease for a warehouse to manufacture and sell its products.
Anderson used some of the money to buy a $1.3-million gated residence surrounded by citrus groves in Ojai, according to the FBI. He diverted another $2.3 million to personal expenses, including more than $650,000 for vintage and luxury automobiles, $13,000 for chartered private jet flights and $142,000 for merchandise from Williams-Sonoma, Ferragamo, Crate & Barrel and other retailers, the FBI alleged in a criminal complaint.
He has agreed to forfeit his ill-gotten gains from these schemes, including 15 cars — one of them a Ferrari — and his Ojai real estate.
Anderson, a disbarred lawyer, has a federal court hearing set for Aug. 23. He faces a statutory maximum sentence of 20 years in federal prison for each count.
Former Times staff writer Michael Finnegan contributed to this report.
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CAVA Group, Inc. (CAVA) Stock Forecasts
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Summary
CAVA Group, Inc., founded in 2006, owns and operates a chain of Mediterranean restaurants. The company has 8,100 employees.
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How to navigate market risk from interest rates, the economy and politics in 2024
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As the U.S. Federal Reserve’s three-year reign in the headlines potentially comes to an end, an analysis of this year’s market themes can offer valuable insights for predicting trends and ensuring attractive returns in 2024.
Beyond the central bank’s actions, pivotal factors shaping the investment landscape this year include fiscal policies, election outcomes, interest rates and earnings prospects.
Throughout 2023, a prominent theme emerged: that equities are influenced by factors beyond monetary policy. That trend is likely to persist.
A decline in interest rates could significantly increase the relative valuations of equities while simultaneously reducing interest expenses, potentially transforming market dynamics. Contrary to consensus estimates, 2023 brought a more robust earnings rebound, leaving analysts optimistic about 2024.
The 2024 U.S. presidential election, meanwhile, introduces a new element of uncertainty with the potential to cast a shadow over the market during much of the coming year.
Choppy trading, modest earnings growth
Anticipating a choppy first half of the year due to sluggish economic growth, we see a better opportunity for cyclicals and small-cap stocks to rebound in the latter part of the year. As uncertainty around the election and recession fears dissipate, a broad rally that includes previously ignored cyclicals and small-caps should help propel the S&P 500
SPX
higher.Broader macroeconomic conditions support mid-single-digit growth in earnings per share throughout 2024. Factors such as moderate economic expansion, controlled inflation and stable interest rates are expected to provide a conducive environment for companies, enabling them to sustain and potentially improve their earnings performance. We estimate EPS growth of 6.5%. This projected growth aligns with the broader market sentiment indicating a steady upward trajectory in earnings for the upcoming year, fostering investor confidence and supporting valuation expectations across various sectors.
“ If the economy has not been in recession at the time of the first rate cut but enters one within a year, the Dow enters a bear market.”
When it comes to U.S. stock-market performance around rate cuts, the phase of the economic cycle matters. When there has been no recession, lower rates have juiced the markets, with the Dow Jones Industrial Average
DJIA
rallying by an average of 23.8% one year later.If the economy has not been in recession at the time of the first cut but enters one within a year, the Dow has entered a bear market every time, declining by an average of 4.9% one year later. Our base case is a soft landing, but history shows how critical avoiding recession is for the bull market as the Fed prepares to ease policy.
Big on small-caps
This past year has posed a hurdle for small-cap stocks due to the absence of a driving force. These stocks typically perform better as the economy emerges from a recession. While they are currently undervalued, their earnings growth has been notably lacking. If concerns about a recession diminish, a normal yield curve could serve as a potential catalyst for small-cap stocks.
Growth vs. value
The ongoing outperformance of megacap growth stocks that we saw in 2023 might hinge on their ability to sustain superior earnings growth, validating their current valuations. Defensive sectors in the value category, meanwhile, are notably oversold and might exhibit strong performance, particularly toward the latter part of the first quarter. Should concerns about a recession dissipate, cyclical sectors within the value category could outperform, particularly if broader market conditions turn favorable in the latter half of the year.
Handling uncertainty
The Fed’s enduring influence regarding the prospect of a soft landing in 2024 remains a pivotal point in the market’s focus. Considering the themes of the past year and the multifaceted influences on equities beyond monetary policy, investors are advised to navigate through uncertainties stemming from unintended fiscal shifts, upcoming elections and the impact of fluctuating interest rates. While a potentially choppy start to the year is anticipated, it could create opportunities for cyclical and small-cap stocks later in the year.
Ed Clissold is chief of U.S. strategies at Ned Davis Research.
Also read: Mortgage rates dip after Fed meeting. Freddie Mac expects rates to decline more.
More: After the Fed’s comments, grab these CD rates while you still can
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Illinois Tool Works Inc. (ITW) Stock Forecasts
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Summary
Illinois Tool Works is a global manufacturer of engineered industrial products and equipment. The company’s operations are divided into seven segments: Test & Measurement and Electronics, Automotive OEM, Polymers & Fluids, Food Equipment, Welding, Construction Products, and Specialty Products. The shares are a component of the S&P 500. The company has 46,000 employees.
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