Gautam Adani calls off $2.5 billion equity sale as regulatory concerns grow

Gautam Adani calls off $2.5 billion equity sale as regulatory concerns grow

A signage of Adani group is pictured outside the Chatrapati Shivaji Mumbai International Airport in Mumbai on July 28, 2021. (Photo by Indranil MUKHERJEE / AFP) (Photo by INDRANIL MUKHERJEE/AFP via Getty Images)

Indranil Mukherjee | Afp | Getty Images

On Wednesday, Gautam Adani announced he’s scrapping his firm’s $2.5 billion equity sale.

He withdrew the offering for shares in Adani Enterprises, the flagship of the Indian conglomerate Adani Group, after the stock tanked by nearly 30%.

Breaking his silence to the media, Adani said, “Today the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the Company’s board felt that going ahead with the issue will not be morally correct.”

In a Jan. 24 report, short seller Hindenburg Research alleged that “Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme.” The report went on to raise concerns around the debt and valuations of seven Adani companies.

Adani Group has denied the allegations, saying they have “no basis” and stem from an ignorance of Indian law. The group has always made the necessary regulatory disclosures, it added.

Speculation is growing that the Securities and Exchange Board of India (SEBI) will conduct some type of investigation into Adani’s businesses.

“My understanding is that a cancellation would mean a mandatory SEBI inquiry,” said Pramit Chaudhuri, Eurasia Group’s head of South Asia practice, to CNBC.

Chaudhuri, like many, said he was “surprised” to see Adani scrap plans after achieving the $2.5 billion target.

The stunning reversal caps a week in which Adani went on a full mission to ensure his equity sale was successful following immense pressure tied to his falling stock price.

Adani tapped high net worth individuals inside India and looked to the Middle East as well. International Holding Co., an Abu Dhabi-based conglomerate, contributed $400 million to the deal. It was widely seen as a vote of confidence. Goldman’s trading desk participated in the deal as well, a source familiar with the matter told CNBC. Adani Enterprises’ stock ended higher on Tuesday following news of the fully subscribed $2.5 billion offering.

Investors woke up to an ugly picture on Wednesday when Adani Enterprise’s stock plunged, falling by as much as 28% and prompting Adani to cancel his equity sale.

“We are working with our Book Running Lead Managers (BRLMs) to refund the proceeds received by us in escrow and to also release the amounts blocked in your bank accounts for subscription to this issue,” added Adani.

The move also raises questions about where else Adani will look for financial support.

As CNBC reported, Adani has established relationships with a slate of international banks and private equity investors. The tycoon, once the second richest person in the world, has slipped to the 13th position in the Bloomberg Billionaires Index as of Feb. 1.

Robots could surpass workers at Amazon by 2030, Cathie Wood says

Robots could surpass workers at Amazon by 2030, Cathie Wood says

Cathie Wood, chief executive officer and chief investment officer, Ark Invest, gestures as she speaks during the Bitcoin 2022 Conference at Miami Beach Convention Center on April 7, 2022 in Miami, Florida.

Marco Bello | Getty Images

The growth of automation in the workplace will accelerate this decade, with robot workers possibly surpassing human employees at one of the world’s biggest companies, according to Ark Invest’s Cathie Wood.

Amazon‘s use of automated robots will dramatically change the company’s workforce in the coming years, the portfolio manager said Wednesday.

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“Amazon is adding about a thousand robots a day. … If you compare the number of robots Amazon has to the number of employees, it’s about a third. And we believe that by the year 2030 Amazon can have more robots than employees,” Wood said on CNBC’s “Squawk Box.”

“So we are just at the dawn of the robotics age. And I would say artificial intelligence and battery technology are all a part of that movement as well,” she added.

The robot revolution will not be limited to Amazon; it will spread across manufacturing, Wood said, as improving technology and falling costs speed up the transition.

“If you look at the cost declines, which drive all of our models … for every cumulative doubling in the number of robots produced, the cost declines are in the 50-60% range,” she said.

Amazon had more than 1.6 million workers at the end of 2021, according to its most recent annual report. The company is expected to release fourth-quarter earnings on Thursday.

However, like many other tech companies, Amazon has begun to lay off workers in recent months. Amazon announced more than 18,000 job cuts in January, though that leaves company still well above its pre-pandemic level of employees.

Wood’s bets on new technologies made her a star investor in 2020, when the Fed cut interest rates and the work from home boom fueled interest in high-growth tech stocks. Some of those stocks are back in favor again, as Wood’s Ark Innovation ETF (ARKK) just finished its best month ever, rising 27.8% in January.

However, the rally only made a small dent in the fund’s losses over the past two years. The ETF is still more than 70% below its peak from February 2021.

Silvergate Capital shares jump after BlackRock reports increased stake in the crypto bank

Silvergate Capital shares jump after BlackRock reports increased stake in the crypto bank

Cryptocurrencies have been under immense pressure after the collapse of a so-called stablecoin called terraUSD.

Umit Turhan Coskun | Nurphoto via Getty Images

Silvergate Capital jumped on Tuesday afternoon after BlackRock reported a 7% stake in the crypto bank. 

Shares of Silvergate rose 7.5% after a Jan. 31 filing with the Securities and Exchange Commission became public. BlackRock increased its holding in Silvergate to 7.2%, an increase from the 5.9% it previously reported, according to the filing. 

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More than 70% of Silvergate Capital shares that are freely available to trade are sold short, according to FactSet data.

While cryptocurrencies and related stocks have enjoyed a strong January rally this year, Silvergate has been struggling in the aftermath of the FTX blowup. Shares of the bank slid sharply November, when the crypto exchange FTX, a Silvergate customer, collapsed in scandal.

Silvergate shares are now down about 20% in 2023. They are off by about 87% over the past year.

Earlier this month, shares of Silvergate tanked more than 40% after the bank reported massive withdrawals in the fourth quarter in light of the FTX collapse. Despite the rise in cryptocurrencies and stocks this month, investor confidence is still shaken.

BlackRock, the largest asset manager in the world, has maintained a positive stance toward crypto and blockchain technology. In addition to being an investor in FTX, late last summer the firm launched a private trust to give clients exposure to spot bitcoin.

Top Wall Street analysts like these stocks for maximum returns

Top Wall Street analysts like these stocks for maximum returns

A logo of Meta Platforms Inc. is seen at its booth, at the Viva Technology conference dedicated to innovation and startups, at Porte de Versailles exhibition center in Paris, France June 17, 2022.

Benoit Tessier | Reuters

As the earnings season rolls on, many companies are hinting at a challenging year ahead.

Meanwhile, it can be intimidating to invest in such a stressful environment. To ease the process, here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performances. 

Alphabet 

After languishing in the stock market last year due to numerous factors affecting the tech sector, Alphabet (GOOGL) will report its seasonally weakest quarter of the year on Thursday. From relatively low digital ad spending and regulatory crackdowns on digital ads to increasing costs and interest rates, Google endured it all. Needless to say, the company expects sequential growth deceleration in the fourth quarter. 

Nonetheless, Monness, Crespi, Hardt, & Co. analyst Brian White expects the results to be in line with his expectations. The analyst anticipates a 10% sequential sales increase, implying a quarter-over-quarter deceleration in growth. This is notably lower growth than what is usually expected of a typical Alphabet fourth-quarter report (17% on average in the past four December quarters).  

However, although Google Advertising revenue growth was significantly hurt by the slowdown in digital ad spending, White notes that “Alphabet proved more resilient than Meta and Snap that were   disproportionately impacted by Apple’s privacy initiatives, most notably App Tracking Transparency, along with other factors.” 

The analyst expects year-over-year digital ad spending comps to improve in the second half of the year. Also, White’s estimates suggest that Google Ad revenues should return to growth in the second quarter of 2023. (See Alphabet Blogger Opinions & Sentiment on TipRanks) 

White reiterated a buy rating on the stock with a price target of $135. The analyst holds the 66th position among almost 8,300 analysts followed on TipRanks. His ratings have been profitable 64% of the time, and each rating has generated an 18% average return.

Meta Platforms 

Another technology name in Brian White’s list is Meta Platforms (META), which is scheduled to report its fourth-quarter earnings on Wednesday “after taking a savage beating in 2022,” according to the analyst’s words. 

The headwinds that the company faced last year, including Apple’s privacy initiatives with App Tracking Transparency, the slowdown in advertisement spending, exorbitant investments in the metaverse, and regulatory scrutiny, are not expected to entirely dissipate in 2023. (See Meta Platforms Website Traffic on TipRanks) 

Over the past 52-weeks, Meta shares were cut nearly in half. Gains in early 2023, are helping to trim last year’s losses.

However, a leaner cost structure, thanks to its significantly downsized business and other initiatives, as well as softening challenges, will be a relief this year. Additionally, in the long run, White expects Meta to benefit from the secular digital ad trend and innovations in the metaverse.  

“With sales up 34% per annum over the past five years, EPS turning in a 32% CAGR and generating an   attractive operating margin, we believe Meta Platforms should trade at a premium to the market and tech sector in the long run; however, we expect the current macroeconomic and geopolitical environment will weigh on advertising spending in the coming quarters,” observed White, who reiterated a buy rating on the stock with a price target of $150. 

WNS 

India-based business process management company WNS (WNS) is next on our list. The company’s solid sales pipeline reflects a healthy demand environment that overshadows economic headwinds. This gives Barrington analyst Vincent Colicchio the “confidence in its ability to generate solid revenue and adjusted EPS growth in fiscal 2023 and beyond.” 

The company recently reported its quarterly earnings, where it beat Street estimates, thanks to the strong demand for its services and products. “As of the close of fiscal Q3/23, the company’s sales pipeline was strong and at record levels and sales cycles declined sequentially, reflecting strong demand. Sales cycles have declined in recent quarters as clients accelerated decisions to improve efficiency ahead of a potential recession,” observed Colicchio. (See WNS Stock Chart on TipRanks) 

The analyst was encouraged by the fact that WNS did not realize any meaningful pressures from the economic headwinds that have hung heavily on peers. Challenges like volume pressures, productivity issues, delays and cancelations, etc., did not deter the business from its growth path. 

Colicchio reiterated a buy rating on the stock with a price target of $97 and even raised his fiscal 2023 and fiscal 2024 earnings-per-share forecasts to $3.86 and $4.14 from $3.78 and $4.12, respectively. 

The analyst currently stands at #282 among almost 8,300 analysts tracked by TipRanks. Moreover, 62% of his ratings have been profitable, each generating a 13.1% average return. 

BRC 

BRC (BRCC) is a unique company. The operator of the Black Rifle Coffee Company is founded and led by military veterans. The company was built to serve premium coffee, content and merchandise to active military, veterans and first responders. 

BRC has been on Tigress Financial Partners analyst Ivan Feinseth‘s buy list in recent weeks. The analyst has a $19 price target on the company. (See BRC Insider Trading Activity on TipRanks) 

Feinseth is confident that the company is a solid emerging high-growth lifestyle investment opportunity, serving a loyal and niche customer base and offering meaningful growth opportunities through product innovation and a digitally native omnichannel distribution strategy. 

BRCC recently announced that it will “shift focus from the near-term buildout of restaurants (Outpost) and DTC (Direct-to-consumer) sales to a faster growth and higher return opportunity in the expansion of the sales of its RTD (Ready-to-drink) beverages packaged and premeasured (k-cup) coffee through an increasing FDM (food drug and mass-market) focus,” explained the TipRanks-rated 5-star analyst. 

Feinseth’s convictions can be trusted, given his 185th position among nearly 8,300 analysts in the TipRanks database. This apart, his track of 63% profitable ratings, each rating delivering 12.1% average returns, is also worth considering. 

Starbucks 

The world’s largest specialty coffee chain retailer Starbucks (SBUX) is also one of Ivan Feinseth’s favorite stocks for this year. The company continues to put its numerous growth drivers into action. This includes new product development, a global coffee alliance and ongoing store growth. Starbucks also enjoys strong brand equity and a committed customer base, which will help drive its new reinvention plan for long-term growth, according to the analyst’s observations. 

“SBUX continues to improve operating efficiencies and customer experience by leveraging ongoing   innovation, new technologies, and new store formats,” said Feinseth, reiterating a buy rating on Starbucks with a price target of $136.  

Moreover, the company’s focus on expanding its product portfolio to include new health and wellness beverages, teas, and core food offerings can boost customer traffic during later hours. (See Starbucks’ Dividend Date & History on TipRanks) 

Staying up to date with the changing industry trends, Feinseth noted that Starbucks is investing in new   digital initiatives to improve customer service, supply-chain management, its loyalty program, and mobile ordering and e-commerce capabilities.  

Op-ed: Salesforce appoints ValueAct’s Morfit to its board and a proxy fight may loom ahead

Op-ed: Salesforce appoints ValueAct’s Morfit to its board and a proxy fight may loom ahead

The Salesforce West office building in San Francisco, California, on Wednesday, Jan. 25, 2023.

Marlena Sloss | Bloomberg | Getty Images

Company: Salesforce (CRM)

Business: Salesforce is a global leader in customer relationship management (“CRM”) technology that brings companies and their customers together. It was founded in 1999 and is a pioneer in the cloud software space. It started as a tool to help sales teams to increase their productivity while also improving the end customer experience. Over the last 20 years, they have expanded into other areas to help companies connect with and better serve customers, including Sales Cloud, Marketing & Commerce Cloud, Platform & Other, Integration Cloud, Analytics Cloud and Service Cloud.

Stock Market Value: $165.6B ($165.59 per share)

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Salesforce shakes up its board, a much-needed move amid executive, activist turmoil

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Activist: ValueAct Capital

Percentage Ownership: n/a

Average Cost: n/a

Activist Commentary: ValueAct has been a premier corporate governance investor for over 20 years. The firm’s principals are generally on the boards of half of ValueAct’s core portfolio positions and have had 55 public company board seats over 22 years. ValueAct has previously commenced activist campaigns at 25 information technology companies and has had an average return of 45.98% versus 18.70% for the S&P 500 over the same period.

What’s Happening

On Jan. 27, Salesforce announced that it is appointing three new directors to the board, one of whom is Mason Morfit, CEO and CIO of ValueAct Capital.

Behind the Scenes

This is a very interesting activist situation. Four major activists in the same company at once: ValueAct, Starboard Value, Inclusive Capital and Elliott Management. Marc Benioff needs a CRM just to keep track of the activists in his stock. Adding Morfit to the board of Salesforce makes a ton of sense regardless of the activist environment.

ValueAct has extensive experience in technology companies like Salesforce, most notably Microsoft and Adobe. Morfit was on the board of Microsoft from March 2014 through the end of 2017 as the company transformed into a cloud-based enterprise software business. During that transition, the board set cloud targets for management and tied them to a unique executive compensation plan that paid out at stretch goals for the cloud. Microsoft blew away those cloud targets and annual cloud revenue went from approximately $1 billion in 2013 to over $100 billion today. The company’s market value went from approximately $250 billion to $1.8 trillion. At Adobe, ValueAct took a board seat as the company transformed from a package software provider to a subscription cloud service. Adobe went from a $14 billion market cap when ValueAct invested to $168 billion today. ValueAct also presently has positions in Insight Enterprises (NSIT), one of the largest software distribution companies where ValueAct partner Alex Baum is on the board, and Trend Micro, a cloud cybersecurity company. When you get a ValueAct partner on the board, you get the whole ValueAct team and the collective experience of the 55 public company board seats they have taken to work on strategy, succession, compensation, financial planning and analysis, M&A, capital allocation and cost reduction.

Salesforce’s transformation has the potential to be as notable as many of ValueAct’s other successful investments, even if the playbook is customized. Salesforce has a leading market position and has historically had strong annual top line growth. But, as Starboard noted in its presentation on the company, Salesforce has underperformed peers, the technology sector and broader market over the past three years and is valued significantly below the peer median multiple on forward revenue (3.8x vs. 6.7x for peers) and free cash flow expectations (18.7x vs. 22x for peers). This valuation discount can be largely attributed to Salesforce’s subpar mix of profitability and growth, which has come down significantly from its historic levels. As shown in Starboard’s detailed presentation, Salesforce peers are operating at a “rule of 50” – the average revenue growth plus adjusted operating margins of peers equals 49.4. Salesforce currently has a revenue growth rate of 17.0% and 20.4% operating margins, which brings it to 37.4 combined. Morfit has experience helping management increase both growth and margins from a board level, and both can be improved at Salesforce.

The looming question is whether he will initially be doing this with an activist cloud hanging over the company’s head in the form of a proxy fight by one of the other activists involved. We have followed every activist campaign over the past 17 years. We strongly believe that appointing Morfit to the board certainly decreases the chance of another activist being successful in a proxy fight, but to be clear, that is not why the company appointed him. Based on ValueAct’s history and philosophy, the firm would not take a board seat unless it had a large investment, and the firm would not make a large investment until it evaluated the company for many months. It likely had been engaging with Salesforce management for several months, and this appointment may have happened just as a threatened proxy fight was reported. Moreover, there is no way a company the size of Salesforce would appoint an activist to their board without previously having deep discussions with him or for the primary purpose of heading off a potential proxy fight.  

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.

Jeff Ubben's Inclusive Capital takes stake in Salesforce as more activists target the software giant

Jeff Ubben’s Inclusive Capital takes stake in Salesforce as more activists target the software giant

Signage on a Saleforce office building in San Francisco, California, U.S., on Tuesday, Feb. 23, 2021.

David Paul Morris | Bloomberg | Getty Images

Jeff Ubben’s Inclusive Capital has taken a position in Salesforce, according to sources, CNBC’s David Faber reported Monday.

It’s unclear what his presence will mean for the cloud-based software company.

Salesforce has also attracted activist investor Elliott Management’s interest, which made a multibillion dollar investment, the Wall Street Journal reported late Sunday. In October, Starboard Value announced an undisclosed stake in Salesforce, saying the company was suffering from a valuation discount due to a “subpar mix of growth and profitability.”

Salesforce is in the middle of restructuring amid slowing growth and recession fears. Earlier this year, the firm said it planned to cut jobs by 10%, or 700 employees, and close some offices.

Salesforce said it expects its employee restructuring to be complete by the end of the 2024 fiscal year and real estate restructuring to finish in the 2026 fiscal year.

The company had expanded rapidly during the pandemic and the years before as cloud adoption skyrocketed. It also completed large acquisitions such as Slack and Tableau.

The company’s share price has climbed 14% this year but is off over 30% in the past year.

The first ETF is 30 years old this week. It launched a revolution in low-cost investing

The first ETF is 30 years old this week. It launched a revolution in low-cost investing

(An excerpt from the book, “Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange,” by Bob Pisani.)

Thirty years ago this week, State Street Global Advisors launched the Standard & Poor’s Depositary Receipt (SPY), the first U.S.-based Exchange Traded Fund (ETF), which tracked the S&P 500. 

Today, it’s known as the SPDR S&P 500 ETF Trust, or just “SPDR” (pronounced “Spider”).  It is the largest ETF in the world with over $370 billion in assets under management, and is also the most actively traded,  routinely trading over 80 million shares daily with a dollar volume north of $32 billion every day. 

How ETFs differ from mutual funds

 Holding an investment in an ETF structure has many advantages over a mutual fund.

 An ETF:

  • Can be traded intraday, just like a stock.
  • Has no minimum purchase requirement.
  • Has annual fees that are lower than most comparable mutual funds.
  • Are more tax efficient than a mutual fund.

Not a great start

For a product that would end up changing the investment world, ETFs started off poorly.

Vanguard founder Jack Bogle had launched the first index fund, the Vanguard 500 Index Fund, 17 years before, in 1976.

The SPDR encountered a similar problem. Wall Street was not in love with a low-cost index fund. 

“There was tremendous resistance to change,” Bob Tull, who was developing new products for Morgan Stanley at the time and was a key figure in the development of ETFs, told me.

The reason was mutual funds and broker-dealers quickly realized there was little money in the product.

“There was a small asset management fee, but the Street hated it because there was no annual shareholder servicing fee,” Tull told me.   “The only thing they could charge was a commission. There was also no minimum amount, so they could have got a $5,000 ticket or a $50 ticket.”

It was retail investors, who began buying through discount brokers, that helped the product break out.

But success took a long time.  By 1996, as the Dotcom era started, ETFs as a whole had only $2.4 billion in assets under management.  In 1997, there were a measly 19 ETFs in existence.  By 2000, there were still only 80.

So what happened?

The right product at the right time

CNBC’s Bob Pisani on the floor of the New York Stock Exchange in 2004 covering the launch of the StreetTRACKS Gold Shares ETF, or GLD, now known as the SPDR Gold Trust.

Source: CNBC

Staying in low-cost, well-diversified funds with low turnover and tax advantages (ETFs) gained even more adherents after the Great Financial Crisis in 2008-2009, which convinced more investors that trying to beat the markets was almost impossible, and that high-cost funds ate away at any market-beating returns most funds could claim to make.

ETFs: poised to take over from mutual funds?

After pausing during the Great Financial Crisis, ETF assets under management took off and have been more than doubling roughly every five years.

The Covid pandemic pushed even more money into ETFs, the vast majority into index-based products like those tied to the S&P 500.

From a measly 80 ETFs in 2000, there are roughly 2,700 ETFs operating in the U.S., worth about $7 trillion.

The mutual fund industry still has significantly more assets (about $23 trillion), but that gap is closing fast.

 “ETFs are still the largest growing asset wrapper in the world,” said Tull, who has built ETFs in 18 countries. “It is the one product regulators trust because of its transparency. People know what they are getting the day they buy it.”

 Note: Rory Tobin, Global Head of SPDR ETF Business at State Street Global Advisors, will be on Halftime Report Monday at 12:35 PM and again at 3 PM Monday on ETFedge.cnbc.com.

Top Wall Street analysts pick these stocks to climb 2023’s wall of worry

Top Wall Street analysts pick these stocks to climb 2023’s wall of worry

The Spotify logo hangs on the facade of the New York Stock Exchange with U.S. and a Swiss flag as the company lists its stock with a direct listing in New York, April 3, 2018.

Lucas Jackson | Reuters

Coming off a week that was packed with corporate earnings and economic updates, it is still difficult to determine whether a recession can be avoided this year.

Investing in such a stressful environment can be tricky. To help with the process, here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performances. 

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Six stocks Goldman Sachs likes ahead of earnings

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Apple

Ahead of Apple’s (AAPL) December quarter results, due out on Feb. 2, investors are fairly aware of the challenges that the company faced during the period. From production disruptions in the iPhone manufacturing facility at Zhengzhou in China to higher costs, Apple’s first quarter of fiscal 2023 has endured all. Needless to say, the company expects a quarter-over-quarter growth deceleration.

Nonetheless, Monness Crespi Hardt analyst Brian White expects the results to be in line with, or marginally above, Street expectations. The analyst believes gains in Services, iPad and Wearables, Home & Accessories revenue could be a saving grace.

Looking ahead, White sees pent-up demand for iPhones come into play in the forthcoming quarters, once Apple overcomes the production snags. (See Apple Stock Investors’ sentiments on TipRanks)

The analyst feels that the expensive valuation of approximately 27 times his calendar 2023 earnings estimate for Apple is justified.

“This P/E target is above Apple’s historical average in recent years; however, we believe the successful creation of a strong services business has provided the market with more confidence in the company’s long-term business model,” said White, reiterating a buy rating and $174 price target.

White holds the 67th position among almost 8,300 analysts followed on TipRanks. His ratings have been profitable 63% of the time and each rating has generated a 17.7% average return.

Spotify

 Audio streaming subscription service Spotify (SPOT) is also among the recent favorites of Brian White.

“Spotify is riding a favorable long-term trend, enhancing its platform, tapping into a large digital ad market, and expanding its audio offerings,” said White, reiterating a buy rating and $115 price target.

The analyst does acknowledge some challenges that await Spotify this year but remains optimistic about its margin improvement plans and several favorable industry developments. While it may be tough to attract new premium subscribers, while facing continued pressure from a lower digital ad spending environment, Spotify should benefit from ad-supported monthly active users (MAUs) this year. (See Spotify Stock Chart on TipRanks)

White is particularly upbeat about the waning mobile app store monopolies, after the European Union passed the Digital Markets Act last year. The act will be imposed from May 2023. One of the benefits for Spotify will be the ability to promote its cheaper subscription offers. Now, it can make the offers available outside Apple’s iPhone app. (This had been a challenge, as Apple previously would allow it to only promote its subscriptions through iPhone app.)

CVS Health Corp.

CVS Health (CVS), which operates a large retail pharmacy chain, has been on Tigress Financial Partners analyst Ivan Feinseth‘s list in recent weeks. The analyst reiterated a buy rating and a $130 price target on the stock.

The company’s “consumer-centric integrated model” as well as its increasing focus on primary care should help make health care more affordable and accessible for customers, according to Feinseth. CVS bought primary health-care provider Caravan Health as part of this focus. Moreover, the impending acquisition of Signify Health “adds to its home health services and provider enablement capabilities.”

The analyst also believes that the ongoing expansion of CVS’s new store format, MinuteClinics and HealthHUBs, will increase customer engagement and thus, continue to be a key growth catalyst. (See CVS Health Blogger Opinions & Sentiment on TipRanks)

Feinseth is also confident that CVS’s merger with managed healthcare company Aetna back in 2018 created a health-care mammoth. Now, it is well positioned to capitalize on the changing dynamics of the health-care market, as consumers gain more control over their health-care service expenditures.

Feinseth’s convictions can be trusted, given his 208th position among nearly 8,300 analysts in the TipRanks database. Apart from this, his track record of 62% profitable ratings, with each rating delivering 11.8% average returns, is also worth considering.

Shake Shack

Fast food hamburger chain operator Shake Shack (SHAK) has been doing well both domestically and overseas on the back of its fast-casual business concept. BTIG analyst Peter Saleh has a unique take on the company.

“Shake Shack is the preeminent concept within the better burger category and the rare restaurant chain whose awareness and brand recognition exceed its actual size and sales base,” said Saleh, who reiterated a buy rating on the stock with a $60 price target. (See Shake Shack Hedge Fund Trading Activity on TipRanks)

On the downside, the analyst points out that the expansion of services outside New York has weakened Shake Shack’s margin profile by generating low returns per unit and exposing the company to greater sales volatility. However, margins seem to have bottomed, and the analyst expects profitability to gain momentum over the next 12-18 months. A combination of higher menu prices and deflation of commodity costs are expected to push restaurant margins up to mid-teen levels.

In its preliminary fourth-quarter results, management at Shake Shack mentioned that it plans to tighten its hands with general and administrative expenses this year, considering the macroeconomic uncertainty. This “should prove reassuring for investors given the heightened G&A growth (over 30%) of the past two years.”

Saleh has a success rate of 64% and each of his ratings has returned 11.7% on average. The analyst is also placed 431st among more than 8,000 analysts on TipRanks.

TD Synnex

Despite last year’s challenges, business process service provider TD Synnex (SNX) has benefited from a steady IT spending environment amid the consistently high digital transformation across industries. The company recently posted its fiscal fourth-quarter results last week, where earnings beat consensus estimates and the dividend was hiked.

Following the results, Barrington Research analyst Vincent Colicchio dug into the results and noted that rapid growth in advanced solutions and high-growth technologies were major positives. Even though the analyst reduced his fiscal 2023 earnings forecast due to an expected rise in interest expense, he remained bullish on SNX’s efforts to achieve cost synergies by the end of the current fiscal year. (See TD Synnex Dividend Date & History on TipRanks)

Looking forward, the analyst sees a largely upward trend in growth, albeit a few hiccups. “The key growth driver in the first half of fiscal 2023 should be advanced solutions and high-growth technologies and in the second half should be PCs and peripherals and high-growth technologies. We expect Hyve Solutions revenue growth to slow in fiscal 2023 and slightly rebound in fiscal 2024 versus fiscal 2022 growth,” observed Colicchio, reiterating a buy rating and raising the price target to $130 from $98 for the next 12 months.

Importantly, Colicchio ranks 297th among almost 8,300 analysts on TipRanks, with a success rate of 61%. Each of his ratings has delivered 13% returns on average.

Inclusive Capital takes a stake in Bayer — 3 ways it may build value with a sustainable focus

Inclusive Capital takes a stake in Bayer — 3 ways it may build value with a sustainable focus

Logo and flags of Bayer AG are pictured outside a plant of the German pharmaceutical and chemical maker in Wuppertal, Germany.

Wolfgang Rattay | Reuters

Company: Bayer AG (BAYRY)

Business: Bayer AG is a 55-billion euro German multinational pharmaceutical and biotechnology company. It operates through three segments: (i) Pharmaceuticals (roughly 6 billion euros of EBITDA); (ii) Consumer Health (about 1.5 billion euros of EBITDA), and (iii) Crop Science (approximately 6.5 billion euros of EBITDA). The company acquired Monsanto in 2018 for 54 billion euros and has since been plagued with several lawsuits related to Monsanto’s Roundup herbicide product causing cancer.

Stock Market Value: $60.5B ($15.41 per share)

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Activist: Inclusive Capital Partners

Percentage Ownership: 0.83%

Average Cost: n/a

Activist Commentary: Inclusive Capital Partners is a San Francisco-based investment firm focused on increasing shareholder value and promoting sound environmental, social and governance practices. It was formed in 2020 by ValueAct founder Jeff Ubben to leverage capitalism and governance in pursuit of a healthy planet and the health of its inhabitants. As a pioneering active ESG (“AESG”) investor, Inclusive seeks long-term shareholder value through active partnership with companies whose core businesses contribute solutions to this pursuit. Their primary focus is on environmental and social value creation, which creates value for shareholders.

What’s Happening?

Inclusive Capital Partners has acquired a 0.83% interest in BAYRY for investment purposes.

Behind the Scenes

As an impact-focused investor, Inclusive’s portfolio companies always have a dual mandate of being a compelling value proposition and generating a measurable positive impact on the environment and society. The firm’s thesis at Bayer is no different. Inclusive believes that Bayer, as a leader in the global agribusiness industry, is well-positioned to develop and proliferate technology which addresses humanity’s challenge of boosting food supply in the wake of increased global demand while also decreasing environmental impact.

Crop farming is a large contributor to global greenhouse gas emissions. Bayer’s crop science division accounts for approximately 25% of global crop farming. Bayer has been doing a good job at its core value objective of increasing crop yields and agricultural productivity by using innovative technologies and developments in crop science that also offer substantial positive environmental impact. For example, their short-stature corn adds 15% more productivity while also retaining more carbon in the soil and resulting in less waste than standard tall corn varieties that are more easily knocked over by the wind. Also, dry rice seed has the potential to increase yield per acre and produces less methane emissions than wet rice. Additionally, Bayer is working to advance gene-edited crops using CRISPR technology, which Inclusive believes will be more accepted and faster to move to market than genetically modified crops. Emerging crops, including those that are gene-edited, are expected to offer a myriad of benefits, such as improving yields, thus decreasing agricultural land demand and deforestation and reducing reliance on pesticide and fertilizer. Ultimately, these crops result in increased food security and yields of staples like corn, wheat, rice and soy.

Inclusive highlights Bayer’s incumbency in crop science exemplified by the company’s size, talent, significant cashflow and a $2 billion R&D budget. All of this can be used to acquire, develop and scale emerging technologies with the potential for systems change. Inclusive’s focus on impact at scale is why the firm sees the conventional ESG approach to “reject and replace” imperfect incumbents as insufficient to address global challenges.

Often Inclusive invests in companies where ESG improvements drive shareholder value. In this case, it is almost the opposite: Creating shareholder value in the form of a higher stock price and a lower cost of capital will allow Bayer to finance additional ESG opportunities that will also increase crop yield and profitability.

There are several ways to create this shareholder value. First, the board should explore de-conglomerating, primarily by spinning off Monsanto, which would pave the way for a sale of at least the Consumer Health business. Bayer currently trades at approximately 7x earnings while its pure-play crop science peer, Corteva, trades at closer to 20x earnings. If Monsanto got a 20x multiple as a pure play, even after deducting $10 billion of litigation liability, it would be worth the entire market cap of Bayer today. Second, the company could put this Roundup-related litigation to bed with a global settlement. Between August 2018 and May 2019, Bayer lost three lawsuits. This resulted in approximately $11 billion in settlements. However, the company has won its last six lawsuits, which should make settling the remainder easier. Even a $10 billion global settlement would likely benefit the stock price as it would remove a ton of uncertainty and make Bayer a buyable stock for many investors who would not touch it right now. Third, Inclusive is looking to bring in a new CEO as early as its next annual meeting in the spring of this year. Werner Baumann has been serving as CEO since 2016. In September 2020, the company extended his contract until the end of April 2024. Baumann was instrumental in the Monsanto acquisition and is probably the last person who would now support spinning it off and settling its claims. This needs to be done by a fresh CEO who holds no ownership over the Monsanto deal.

Inclusive is an amicable investor that is often invited onto boards and rules by the power of persuasion. We expect this situation to be no different, particularly since the firm is likely receiving a lot of support from other shareholders who have shown their displeasure for many years. In 2019, Baumann lost a vote of no confidence at the company’s annual meeting, with 55.5% of investors voting against ratifying the top management’s actions. In March 2022, Temasek Holdings (a 3% shareholder at the time) called for the replacement of Baumann as CEO. In April 2022, shareholders voted against a management compensation plan.

Jeff Ubben has always liked companies that were misunderstood by the market, and he has another one here. Due to the Monsanto litigation, Bayer is perceived as a bad actor and is somewhat uninventable to many. Spinning off Monsanto and settling the litigation should remove that stigma. Focusing on the ESG innovations that increase crop yield and efficiency will change the company’s image to one of impact and value. This is a prime example of how Inclusive actively and qualitatively uses ESG and activist value creation together to benefit shareholders.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.

Investors are holding near-record levels of cash and may be poised to snap up stocks

Investors are holding near-record levels of cash and may be poised to snap up stocks

Dollar banknotes.

Simpleimages | Moment | Getty Images

Investor cash holdings are near record highs, and that could be good news for stocks since there is a wall of money ready to come right back into the market.

But the question is this: Will those investors return any time soon, especially with sentiment still so sour and stocks at risk of a major selloff?

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Total net assets in money market funds rose to $4.814 trillion in the week ended Jan. 4, according to the Investment Company Institute. That eclipses the prior peak of $4.79 trillion during May 2020, back in the earlier months of Covid-19.

These sums include money market fund assets held by retail and institutional investors.

The level of assets in these money market funds has come off the highs since the start of the year, but Wall Street has already noticed the cash pile.

“It’s a mountain of money!” wrote Bank of America technical research strategist Stephen Suttmeier. “While this seems contrarian bullish, higher interest rates have made holding cash more attractive.”

Staying in a holding pattern while earning income

Investors, worried about earnings and interest rates, may be willing to wait before they put more money into stocks. At the same time, money market funds are actually generating a few percentage points of income for the first time in years.

That means investors may be finding a safer way to generate some return while they wait for the right moment to invest. Consider that sweep accounts, where investors hold unused cash balances in their brokerage accounts, can park those amounts in money market mutual funds or money market deposit accounts.

Cresset Capital’s Jack Ablin said the change in behavior toward money markets reflects a bigger shift in the investing environment.

“Cash is no longer trash. It’s paying a reasonable interest and so it makes the hurdle higher over which the risky assets have to jump to generate an additional return,” Ablin said.

Julian Emanuel, senior managing director at Evercore ISI, said the surge into money markets was a direct result of selling stocks at year end.

“If you look at the flow data for the middle of December, liquidations were on the order of March 2020,” he said. “In the short-term, it was a very contrarian buy signal. To me this was people basically selling the market at the end of the year, and they just parked it in the money market funds. If the selling continues, they’ll park more.”

In search of relatively safe yield

Emanuel said anecdotally, he is seeing signs of investors moving funds from their lower paying savings accounts to their brokerage accounts, where the yields can be close to 4%.

Be aware that money market accounts issued by banks are insured by the Federal Deposit Insurance Corporation, while money market mutual funds are not.

Still, with December’s inflation rising at a 6.5% annual rate, higher prices for consumers are chiseling away at any gains.

Ablin said the change in investor attitudes about money market funds and also fixed income came with Federal Reserve interest rate hikes. Since last March, the Fed has raised its fed funds target rate range from zero to 0.25% to 4.25% to 4.50%. Those money market funds barely generated interest prior to those rate hikes.

For instance, Fidelity Government Money Market Fund has a compounded effective yield of 3.99%. The fund generated a 1.31% return in 2022.

Ablin said bonds have become attractive again for investors seeking yield.

“We like the fact that the bond market is finally carrying its own weight after years and years,” he said. “From that perspective, you would expect a rebalance away from equities into bonds. They’ve essentially been fighting equities with one hand tied behind their back for 10 years or more.”

Morgan Stanley CEO Gorman says he's confident deal activity will return once the Fed pauses

Morgan Stanley CEO Gorman says he’s confident deal activity will return once the Fed pauses

Morgan Stanley Chairman and Chief Executive James Gorman speaks during the Institute of International Finance Annual Meeting in Washington, October 10, 2014.

Joshua Roberts | Reuters

Morgan Stanley CEO James Gorman said he’s more confident on the markets than the rest of Wall Street, seeing a return of deal-making as soon as the Federal Reserve stops hiking interest rates.

“I’m highly confident that when the Fed pauses, deal activity and underwriting activity will go up. I would bet the year on that, in fact,” Gorman said on an earnings call Tuesday. “We’re not of the view that we’re heading into a dark period. Whatever negativity in the world is out there. That’s not our house view.”

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His comments came as his New York-based firm reported fourth-quarter earnings that topped Wall Street expectations, boosted by the bank’s record wealth management revenue and growth at its trading business. The company’s shares traded up 6% on Tuesday following the results.

Despite the overall stronger-than-expected results, Morgan Stanley’s investment banking business suffered a big slowdown amid a collapse in IPOs and debt and equity issuance.

Revenue from investment banking came to $1.25 billion in the fourth quarter, down 49% from a year ago. The bank said the drop was due to the substantial decline in global equity underwriting volumes and lower completed M&A transactions.

Gorman said deal activity will get a boost once financial conditions start to loosen. He said the Fed’s next move will likely be a smaller 0.25 percentage point rate hike, followed by a pause. He added he’s not sure if the central bank will cut rates this year.

“I’m a little more confident about the medium-term outlook for the markets,” Gorman said. “We want to make sure we’re positioned for growth. This thing will turn. M&A underwriting will come back, I’m positive of it. So we want to be well-positioned for it.”

The Fed has raised its benchmark interest rate to a targeted range between 4.25% and 4.5%, the highest level in 15 years, marking the most aggressive policy moves since the early 1980s.

“There’s a lot of money sitting around waiting to be put to work. Our job is to be the flow of capital between those who have it and those who need it. So I’m pretty confident actually about the outlook,” Gorman said.

Top Wall Street analysts like these stocks amid easing inflation

Top Wall Street analysts like these stocks amid easing inflation

The logo of Alphabet Inc’s Google outside the company’s office in Beijing, China, August 8, 2018.

Thomas Peter | Reuters

Last week, December’s consumer price index reading showed that prices are cooling.

The index dropped 0.1% on a monthly basis, but the metric gained 6.5% from the prior year. Investors seemed to appreciate the news, as the three major indexes closed higher on Friday.

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Nevertheless, investing in this uncertain environment can be tricky.

To help the process, here are five stocks chosen by Wall Street’s top pros, according to TipRanks, a platform that ranks analysts based on their track records. 

Alphabet

Google-parent Alphabet (GOOGL) is a frontrunner in every major trend in technology, including the growth of mobile engagement, online activities, digital advertising and cloud computing. Additionally, its focus on artificial intelligence is driving the development of better and more functional products.

Tigress Financial Partners analyst Ivan Feinseth recently reiterated a buy rating on the stock. His bullishness is attributed to robust trends in cloud and search, which “continues to highlight the resiliency of its core business lines.” (See Alphabet Blogger Opinions & Sentiment on TipRanks)

AI-focused investments and efforts to achieve cost and operating efficiencies should continue to drive Alphabet’s growth. Feinseth said that any weakness in the near term is a great buying opportunity.

The analyst is also upbeat about Alphabet’s financial health. “GOOGL’s strong balance sheet and cash flow enable the ongoing funding of key growth initiatives, strategic acquisitions, and the further enhancement of shareholder returns through ongoing share repurchases,” said Feinseth, who is ranked No. 229 among more than 8,000 analysts on TipRanks.

The analyst’s ratings have been profitable 60% of the time and each rating has generated average returns of 11.1%.

Hims & Hers

Another stock that Feinseth has recently reiterated as a buy is the multi-specialty telehealth company, Hims & Hers (HIMS). The analyst also raised his 12-month price target on the stock from $11 to $12.

Feinseth is confident in HIMS’s strong brand equity and customer loyalty, which he expects will continue to drive business performance. Moreover, new product innovations are supporting the company’s highly scalable business model, and they are expected to boost this year’s profits. (See Hims & Hers Health Hedge Fund Trading Activity on TipRanks)

The massive health-care market is always evolving and requires strong players with flexible business models to serve the growing demand. The analyst thinks that HIMS is well positioned in this area to be one of the top beneficiaries.

“HIMS’s scalable business model, expanding services, and rapidly growing customer base will drive significant revenue growth. Its asset-light business model of connecting patients to service providers and providing access to high-quality branded healthcare products will eventually drive a significant Return on Capital (ROC), grow Economic Profit, and increase shareholder value creation,” said Feinseth.

OrthoPediatrics Corp.

As the name suggests, OrthoPediatrics (KIDS) deals in the design, manufacture, and commercialization of products that are used in the treatment of orthopedic conditions in children. The company operates in more than 35 countries worldwide.

The pediatric orthopedic market is a niche market that is relatively underserved, which has worked to the company’s advantage. OrthoPediatrics has dominance in this market, giving it a competitive edge in the medical equipment industry. BTIG analyst Ryan Zimmerman notes that the company stands to benefit from this space as larger players have mostly overlooked the opportunity. (See OrthoPediatrics Financial Statements on TipRanks)

Last week, Zimmerman reiterated his buy rating and $62 price target on KIDS stock. In addition to the market opportunity, the analyst said that “with a leading brand among pediatric orthopedic surgeons and a concentrated customer base that performs the majority of cases at a limited number of hospitals, the model is scalable and defendable.”

Zimmerman has the 660th ranking among more than 8,000 analysts tracked on TipRanks. Moreover, 47% of his ratings have been successful, generating 9% average returns per rating.

Intuitive Surgical

Medical technology company Intuitive Surgical (ISRG) is a pioneer in robotic-assisted, minimally invasive surgery. The company is also one of Zimmerman’s favorite stocks for the year.

Recently, Intuitive Surgical announced preliminary 4Q22 results and growth guidance for procedures in FY23, which were as Zimmerman expected. Following the results, the analyst reiterated his bullish stance on the company with a buy rating and $316 price target. (See Intuitive Surgical Stock Investors on TipRanks)

“There continue to be headwinds entering FY23, but we think ISRG is poised to continue to see improving market dynamics coupled with the potential for the launch of a next-generation system. We would be buyers on today’s weakness,” said Zimmerman, justifying his bullishness.

The analyst is bullish on the company’s long-term growth potential in the area of robotic surgery, and sees ISRG as a “clear leader in the space.” Zimmerman said that the pandemic has increased the importance of computer-aided surgery, thanks to accurate clinical outcomes. This is expected to drive the adoption of Intuitive Surgical’s products over time.

The Chefs’ Warehouse

Another BTIG analyst, Peter Saleh, who has the 491st ranking in the TipRanks database, has recently reiterated his bullish stance on food distributor Chef’s Warehouse (CHEF). The company is a premier distributor of food to high-end restaurants and other expensive establishments. 

Saleh sees several upsides to share growth thanks to its “compelling business model as a niche foodservice distributor, more upscale and differentiated customer base, and unfolding sales recovery in key markets.” (See The Chefs’ Warehouse Stock Chart on TipRanks)

The analyst is upbeat about the reopening of markets in key regions and gradual recovery in serviceable areas like hospitality. These upsides are expected to drive sales this year. Saleh said that these upsides, combined with CHEF’s long-term opportunity to enhance market share, underpin his bullish stance on the company.

The analyst gave a “Top Pick” designation to CHEF stock, with a buy rating and $48 price target. “While the capital structure has changed and the technical overhang from the recent convertible issuance seems to remain, we view shares as simply too cheap given fundamentals,” said Saleh.

The analyst has delivered profitable ratings 61% of the time, and each of his ratings has generated returns of 10.9% on average.

A battle between Disney and activist Peltz brews. Here’s how the situation may unfold

A battle between Disney and activist Peltz brews. Here’s how the situation may unfold

A masked family walks past Cinderella Castle in the Magic Kingdom, at Walt Disney World in Lake Buena Vista, Fla.

Orlando Sentinel | Tribune News Service | Getty Images

Activist investor Nelson Peltz plans to mount a proxy fight for a seat on Disney’s board.

Disney offered Peltz, founding partner of Trian Fund Management, a role as a board observer and asked him to sign a standstill agreement, which Peltz declined. Here are our thoughts on the situation.

Offer of a board observer position

Sometimes a board observer position can be beneficial, particularly for investors who do not have a lot of board experience and are less likely to be a regular contributor to board discussions. But offering Peltz a position as a board observer is like saying to Whitney Houston, “You can join the band, but you are not allowed to sing.” There is no way that Disney thought for a second that Peltz would accept this offer, and there is no way he should have accepted it.

Why is this happening?

It is curious as to why Peltz started this proxy fight in the first place and why Disney is resisting it. Peltz acquired his position when Bob Chapek was CEO and likely had a plan to replace him with someone Peltz had already identified. That would have been a great activist plan, but it went awry a week later when Disney announced that it had replaced him with former CEO Bob Iger. Knowing Trian’s history and process, the firm had probably been working on that plan for many months and was waiting for the perfect time to build its position. It is unfortunate that all of Trian’s hard work developing its plan somewhat went to naught, but at that time the firm should have regrouped and developed a different approach taking into account the new circumstances. That plan should not have included opposition to Iger. While Trian says it is not opposing Iger as CEO now, the firm initially opposed him and that made it very hard for the board to agree to a settlement for a board seat for Peltz. Having said that, a strong board with a strong CEO – who is admittedly a short-term CEO – should not have a problem with an experienced shareholder in the room who might have an unpopular opinion. In fact, the board should welcome it.

Trian’s claims

Trian put out a presentation making its case. In proxy fight presentations, each side uses the facts and data to paint a picture that benefits them and often those claims do not withstand scrutiny. For example, Trian takes issue with Disney’s total shareholder return under Iger: 270% versus 330% for the S&P 500 over the same time. I am not sure how that compares to the industry, but I expect if the industry returns were more favorable to Trian, they would have used those. As the British economist Ronald Coase had said: “If you torture the data long enough, it will confess to anything.” In this case, we can get it to say that Bob Iger was a bad CEO for Disney. Trian also takes issue with Iger’s decision to acquire Fox, and he should – it was a terrible decision in retrospect. But he should also include in that analysis, Iger’s decisions to acquire Pixar, Marvel and Lucasfilm, which have grossed Disney more than $33.8 billion at the global box office, and billions more in merchandise and theme park extensions.

Nelson Peltz as a director

All this criticism of proxy fight tactics and strategy aside, and regardless of how we torture the data of Peltz’s record as a director, of course he should be on the board of Disney. He is a large shareholder with a strong track record of creating value through operational, strategic and capital allocation decisions. No, Peltz is not going to be the most valuable director when it comes to deciding who should star in the next blockbuster Disney movie or which rides should be built at the entertainment parks – the board relies on management for those insights. But he will be the most prepared and valuable board member when it comes to doing the financial analysis on the various strategic and capital allocation opportunities available to Disney and advising the board on which decisions would be best for shareholders. Peltz also has proven to be a valuable director in helping management teams cut operating costs and improve margins, something Disney could use. And if his past is any indication, at the end of his term he will probably be good friends with Bob Iger.

Chance of winning

Unfortunately, I think the deck is stacked against Peltz here. It is a herculean effort to get large institutional investors to vote against the board of an iconic company like Disney. That task becomes even harder when the company has just removed its CEO and replaced him with a respected prior CEO and replaced its chairperson. Adding to that, Disney recently settled with another top-tier activist, Third Point, which had a lot of the same suggestions Trian is making. I believe that Institutional Shareholder Services and large institutional shareholders are going to want to give this new team at least a year to work on their plan before supporting more change at the company. And I do not think the universal proxy is going to make that much of a difference in a proxy fight for one director on a unitary board. However, having said that, while I do not own any Disney shares in my fund, my 10 year old and 12 year old have a small amount of shares and when their ballots come in the mail, we will be voting for Nelson.    

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies. 

Top Wall Street analysts pick these stocks to celebrate the new year

Top Wall Street analysts pick these stocks to celebrate the new year

Apple CEO Tim Cook poses in front of a new MacBook Airs running M2 chips display during Apple’s annual Worldwide Developers Conference in San Jose, California, June 6, 2022.

Peter Dasilva | Reuters

With the brutal 2022 behind us, we look ahead to a year of relatively predictable challenges. This calls for careful investing with a longer-term view. To help the process, here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their track record.

DoubleVerify Holdings

As its name suggests, DoubleVerify (DV) helps to improve the safety and security of online advertising. A pioneer in this area, the company’s services are employed by customers in the financial services, retail, automotive, travel, telecom, and pharmaceutical sectors. (See DoubleVerify Holdings Stock Chart on TipRanks)

Truist analyst Youssef Squali sees multiple growth opportunities, especially in the social media field. Interestingly, DoubleVerify’s social media client roster includes names such as TikTok, Microsoft (MSFT)-owned LinkedIn, Reddit, Amazon’s (AMZN) Twitch, Meta’s (META) Facebook and Instagram, and YouTube. Looking at this, Squali expects “social media as a channel has unlocked incremental spend for DV to attack within walled gardens, which advertisers value vs. letting these platforms ‘grade their own homework.'”

Moreover, the analyst pointed out that DoubleVerify’s sophisticated software solutions help client companies safeguard their brand reputation while maximizing their return on ad spend. This is particularly important as the digital advertising ecosystem is growing and so is competition. A safe, fraud-free, and appropriately targeted ad environment also helps companies draw traffic.

Squali is “incrementally bullish” on DoubleVerify, with a Buy rating and $36 price target. The analyst stands 92nd among more than 8,000 analysts tracked on TipRanks. Moreover, 57% of his ratings have been profitable, bringing 17.6% returns per rating on average.

Apple

Investors may be spooked by Apple’s (AAPL) weakening demand and production issues right now (as evident from the sharp decline in stock value). However, taking into account the value that the company has returned to shareholders in the past years, even through market downcycles, these headwinds seem to be mere hiccups in the company’s long-term journey.

Tigress Financial Partners analyst Ivan Feinseth agreed, adding that the “near-term production headwinds create a long-term buying opportunity, and its massive installed user base, increasing ecosystem, and growing Services revenue will continue to drive accelerating Business Performance trends, and greater shareholder value creation.”

Feinseth is particularly upbeat about the company’s foray into the metaverse with the launch of its mixed-reality headset this year.

Moreover, strong balance sheet and cash flow generating capabilities should enable Apple to continue to invest in growth-driving initiatives and enhance shareholder returns through share repurchases and dividend hikes. (See Apple Dividend Date & History on TipRanks)

The analyst reiterated a Buy rating on AAPL stock with a price target of $210. “AAPL is on our Research Focus List and in our Focus Opportunity Portfolio,” emphasized Feinseth, who holds the #269 position among more than 8,000 analysts on TipRanks.

The analyst’s ratings have been profitable 59% of the time and each rating has generated average returns of 10.5%.

Booking Holdings

Booking Holdings (BKNG) is an online platform for making travel and restaurant reservations, which, needless to say, has been benefiting lately from the easing of Covid-related travel restrictions. The stock joins Apple in Ivan Feinseth’s “Research Focus List” and “Focus Opportunity Portfolio.”

Continued travel demand has been transcending the current macroeconomic uncertainties, and that is a boon for Booking. Feinseth also points out that the reopening of China after a prolonged period of strict zero-Covid policy “creates a massive upside catalyst.” (See Booking Holdings Hedge Fund Trading Activity on TipRanks)

The company is also gaining increased penetration in the direct travel booking market thanks to its Genius loyalty program and its concept of travel integration. “BKNG’s ability to optimize its market reach and profitability through new technology, including machine learning and other forms of AI (Artificial Intelligence), enables it to expand its global reach, drive more competitive pricing, and increase profitability,” said the analyst.

Feinseth reiterated a Buy rating on Booking, with a price target of $3,210.

Bumble

The challenging economic environment has led to too many problems for the public to be thinking about love. This has left investors swiping left on online dating service provider Bumble (BMBL), leading to a sharp drop in share prices.

Nonetheless, Stifel Nicolaus analyst Mark Kelley maintains a solid relationship with Bumble. “We view Bumble as one of the most innovative companies in the global online dating space offering a compelling and differentiated value proposition for consumers, which we believe will lead to a long runway of paying user/ARPPU growth, and a multi-year operating leverage story,” noted Kelley.

In the last quarter, Bumble launched its message-before-match feature, “Compliments,” which is expected to boost user engagement and thus, support monetization efforts. (See Bumble Blogger Opinions & Sentiment on TipRanks)

Additionally, the analyst believes that Bumble’s mission to prioritize user safety, accountability, and control helps the company stand out in the crowd of competing platforms. Importantly, Kelley also believes that Bumble may be heading into its best days as users increasingly open up to real-life dating after the COVID-19 pandemic disrupted the dating ecosystem since 2020.

Despite reducing the near-term price target to $27 from $30, Kelley maintains a Buy rating on Bumble.

The analyst’s track record shows that his conviction is worthy of consideration. Kelley has a 103rd ranking among more than 8,000 analysts. Moreover, 70% of his ratings have been successful, generating 31.5% average returns per rating.

Perion Network

Global technology player Perion Network (PERI) is another stock that Mark Kelley has vouched for recently. The analyst’s optimism was reflected in the reiteration of his buy rating and higher price target ($34 from $29). Its recent quarterly results showed positive trends, which led to the renewed conviction.

The analyst views Perion as a “unique ad tech offering,” boasting a portfolio of technology for helping advertisers and publishers scale their business. Perion’s growth journey has been a combination of organic expansion and expansion through acquisitions. Together, they have built a suite of assets that serve the “three pillars of digital advertising” — search, social media, and display/CTV. (See Perion Network Financial Statements on TipRanks)

Kelley expects the global digital advertising market to reach $650 billion by the end of this year. Within that, the analyst estimates the exact opportunity of Perion in terms of TAM (total addressable market) to be around $190 billion, keeping aside the $460 billion TAM estimate for Google search.

Traders who bet against stocks made a killing in 2022, as short sellers netted $300 billion

Traders who bet against stocks made a killing in 2022, as short sellers netted $300 billion

Traders on the floor of the NYSE, June 24, 2022.

Source: NYSE

Traders who shorted stocks won big in 2022, according to S3 Partners.

Shorted stocks had a return of 30.8% in 2022, said Ihor Dusaniwsky, the firm’s managing director of predictive analytics. That means short sellers outperformed the broader market, which suffered its biggest losses since 2008. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite lost 8.8%, 19.4% and 33.1%, respectively, last year.

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U.S. short sellers tallied $300 billion in mark-to-market profits on average short interest of $973 billion, Dusaniwsky wrote.

But even with the huge win in 2022, short sellers still lag in recent history. In the past five years, an average annual return for short sellers was a loss of 4.4% while the Dow gained 6.8%, the S&P 500 rose 9.3% and the Nasdaq climbed 12.5%.

How short holdings performed over the last 5 years

Dow return (%) S&P 500 return (%) Nasdaq return (%) Short return
2018 -5.6 -6.2 -4.7 8.9
2019 22.3 28.9 35.2 -22.1
2020 7.3 16.3 43.6 -27.1
2021 18.7 26.9 21.4 -12.6
2022 -8.9 -19.4 -33.1 30.8
5-year average 6.8 9.3 12.5 -4.4

Source: S3 Research

When an investor sells a stock “short” they borrow shares from a broker and sell them in hopes of buying the stock back later at a lower price. It’s a tactic that does best when the broader market is hurting. Short seller returns came in below the major indexes when the market gained value in 2019 through 2021, but beat the averages when they ended the year down in 2018.

It’s worth noting that the total amount shorted last year was below 2021, when the $1 trillion threshold was broken, but higher than in 2018 through 2020.

Short sellers still needed to be good stock pickers in 2022 as different sectors and individual holdings could produce vastly different results, Dusaniwsky said.

For instance, the best sector to short last year was beat down communication services stocks, which produced a return on shorted holdings of 56.7%. Energy was the worst, and posted a 28% loss on shorted holdings, S3 Partners said.

Short- and long-term performance are typically inversed. That’s because investors usually move short on holdings that they expect to lose value, so energy — which was the only winning S&P 500 sector in 2022 — would not be a target for shorting as investors watched share values rise despite the broader market’s decline.

And choosing sector orientation is “only half the battle” given the variety of stocks within each one. Within consumer staples, for example, Beyond Meat had the biggest return on short selling at 128.2%. French fry producer Lamb Weston was the least profitable in its sector, and lost 43.9%.

Carvana, which was beat down as used car demand slid, had the best short performance of all stocks with at least $100 million in short interest, recording a 377.6% gain.

On the flip side, Madrigal Pharma was the worst to short. Bets against the company lost 345.4%. The stock rallied in December on the back of well-received drug trial data.

Alibaba, other China ADRs surge as Ant Group capital plan approval fuels hope for relaxing scrutiny

Alibaba, other China ADRs surge as Ant Group capital plan approval fuels hope for relaxing scrutiny

Alibaba has faced growth challenges amid regulatory tightening on China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the e-commerce giant’s growth could pick up through the rest of 2022.

Kuang Da | Jiemian News | VCG | Getty Images

Chinese tech stocks that trade in the U.S. jumped Wednesday morning after Chinese officials approved an expanded capital plan from Ant Group.

American depositary receipt shares of Alibaba jumped more than 6% in premarket trading after the news, as did stock of JD.com. Elsewhere, shares of Baidu and NetEase rose more than 5% each, while Trip.com popped 4.5%.

The moves come as investors are seeing signs of a more relaxed Chinese regulatory environment. Ant Group, which previously had its own IPO plans scuttled by regulatory concerns, was allowed to double its registered capital as part of the new plan.

A softer regulatory touch among its tech stocks, as well as the reversal of zero-Covid policies, is seen by some investors as a sign the Chinese government will be supportive of private sector growth this year.

“China has struck a notably accommodating tone in recent months, pivoting away from its stringent COVID controls and dialing back its regulations on previously highly depressed sectors (i.e., property). The recent Central Economic Work Conference (CEWC) has set government’s priority for 2023 to revive consumption and support the private sector,” Fawne Jiang of Benchmark wrote in a note to clients Wednesday.

ADRs are similar to common stock, but represent a more indirect form of ownership. They also allow Chinese shares to trade in the U.S. without the companies having to follow U.S. accounting regulations, which has led to concern that they may be delisted at some point.

However, last month the Public Company Accounting Oversight Board — a U.S. accounting watchdog — announced it had received access to examine accounting firms in China and Hong Kong. That move is seen as a positive step in lowering the risk of delisting.

— CNBC’s Michael Bloom contributed to this report.

Correction: Chinese tech stocks that trade in the U.S. jumped Wednesday morning. An earlier version misstated the day.

Top Wall Street analysts like these stocks in 2023

Top Wall Street analysts like these stocks in 2023

Source: Papa Johns

We step into the new year with a largely unchanged macroeconomic backdrop and a recession waiting for us. However, investors can maintain a healthy portfolio if they keep a longer-term view, shutting out all the noise.

In that context, we kickstart 2023 with five stocks picked by Wall Street’s top analysts, according to TipRanks, a service that ranks analysts based on their past performance.

STAAR Surgical

Medical technology company STAAR Surgical (STAA) is benefiting from solid demand for refractive corrections (surgical corrections for eye conditions) across the world. Moreover, BTIG analyst Ryan Zimmerman believes that favorable demographic trends, including an aging population and a rising number of myopia cases, are also driving demand for STAAR’s products.

Earlier in December, the company announced that its president and chief executive officer, Caren Mason, is retiring by the end of the month. Mason will be succeeded by Thomas Frinzi, who has earlier served as head of Johnson & Johnson’s vision unit and president of Abbott Medical Optics. Zimmerman said the appointment of Frinzi can appease investors, thanks to having 40 years of experience in medical optics. (See Staar Surgical Hedge Fund Trading Activity on TipRanks)​

The analyst is also upbeat about the demand environment for STAAR’s products across different time periods. “Next-gen lenses to new markets should drive near-term growth, while expanded indications, presbyopia, and cataract companion drive long-term growth,” noted Zimmerman, who reiterated a buy rating on the stock with a price target of $80.

Zimmerman ranks No. 861 among more than 8,000 analysts tracked on TipRanks. Moreover, 44% of his ratings have been profitable, with each rating generating 7.2% average returns.

Papa John’s 

Quick-service pizza chain Papa John’s (PZZA) stock has depreciated significantly this year due to challenges in the U.K. and inflationary pressures, but its longer-term outlook remains resilient. BTIG analyst Peter Saleh noted that during these times when inflation is high and a recession is on the horizon, lower-income consumers are spending less on eating out. Therefore, Papa John’s value offerings like Papa Pairings are attracting new lower-income guests.

After surveying more than 1,000 Papa John’s customers, Saleh found that only a low-single-digit percentage of them find the menu prices too expensive, even after the company raised prices by 3-4 times in 2022. Encouraged by these trends, the analyst mildly raised his 4Q22 domestic same-store sales expectations. (See Papa John’s International Insider Trading Activity on TipRanks)

Saleh reiterated a buy rating on the stock with a price target of $100. “We believe new leadership has the right strategies in place to engineer a turnaround; these efforts have already translated into better operating efficiency, stronger franchisee alignment, and improved net unit growth, and we expect these will continue to build in 2022/23. We see several near- and long-term levers to drive shareholder value that have started to unfold and will allow Papa John’s to again outperform peers, leading to our Buy rating,” said Saleh.

Saleh has a 524th position among more than 8,000 analysts on TipRanks. Each of his 59% successful ratings has garnered an average return of 10.3%.

Alphabet

The next on our list is Monness Crespi Hardt analyst Brian White’s stock pick, Alphabet (GOOGL), which has proved to be more resilient than its peers in the digital ad market this year. Moreover, the company could mitigate impact on its business with the help of strong growth in Google Cloud.

White said as “a challenging year nears an end, but harrowing headwinds persist in 2023,” Alphabet has started to reduce its expenditures to be better prepared. (See Alphabet Class A Stock Chart on TipRanks)

“In our view, Alphabet is well positioned to capitalize on the long-term digital ad trend, participate in the shift of workloads to the cloud, and benefit from digital transformation,” said White, justifying his stance on Alphabet’s prospects for 2023. He reiterated a buy rating on the stock with a price target of $135.

The analyst noted that Alphabet has delivered 23% sales growth per annum and 27% operating profits over the last five years. Along with a dominant position in the search engine area with leadership in digital advertising, White believes that the stock should trade at a healthy premium to the technology sector in the long run.

White, a 5-star analyst on TipRanks, stands at No. 71 among more than 8,000 tracked analysts. Moreover, 62% of his ratings have been profitable, with each rating delivering an average return of 17.2%.

Verizon

Wireless and wireline communications services Verizon (VZ) is another name on our top-5 list this week. One of the picks of 5-star analyst Ivan Feinseth of Tigress Financial Partners, Verizon is well-positioned to gain from ongoing 5G wireless subscription growth as well as new growth opportunities in fiber and fixed broadband connectivity.

Feinseth expects that its “size advantage” and prospects in the rapid deployment of high-speed 5G connectivity in the U.S. should fuel further growth in wireless subscribers. (See Verizon Stock Investors sentiment on TipRanks)

Verizon boasts of a strong balance sheet and cash flow generating abilities that allow the company to invest in spectrum expansion and other growth initiatives. Moreover, a healthy financial position helps the company maintain a compelling dividend yield and consistent dividend hikes.

“VZ’s expected generation of $54.53 billion in Economic Operating Cash Flow (EBITDAR) over the near-term provides it with significant cash to fund its 5G high-speed network rollout, spectrum purchases, other growth initiatives, strategic acquisitions, and ongoing dividend increases,” said Feinseth, who holds the 283rd position among more than 8,000 analysts on TipRanks.

The analyst reiterated a buy rating and price target of $64 (adjusted lower from $68) on VZ stock. 

Remarkably, 58% of Feinseth’s ratings have generated profits, and each rating has brought a 10.3% average return.

MongoDB

General purpose database platform provider MongoDB (MDB) is among Feinseth’s buy stocks that we think is a great addition to portfolios this week. Feinseth said that the company’s “industry-leading open-source database software structure” is attracting new customers.

Despite lowering his price target to $365 from $575, the company is well-poised to profit from gradual increase in enterprise IT spending when companies adopt MongoDB’s highly customizable and scalable Database as a Service, Feinseth said. (See MongoDB Website Traffic on TipRanks)

“The rapid acceleration of hosted and hybrid cloud migration is driving increasing demands for scalable, customizable, and developer-friendly database architectures that will continue to drive growth in MDB’s subscription-based revenue model. This will drive an ongoing acceleration in Business Performance trends, which will drive an increasing Return on Capital (ROC), leading to significant gains in Economic Profit and long-term shareholder value creation,” said Feinseth, justifying his stance on MDB stock.

Land & Buildings spots a chance to build value in a real estate play with Six Flags

Land & Buildings spots a chance to build value in a real estate play with Six Flags

Customers are socially distanced on rides like the Wonder Woman: Lasso of Truth at Six Flags Great Adventure in Jackson, New Jersey.

Kenneth Kiesnoski/CNBC

Company: Six Flags Entertainment (SIX)

Business: Six Flags is the largest regional theme park operator in the world and the largest operator of water parks in North America. They generate revenue primarily from selling admission to their parks and from the sale of food, beverages, merchandise and other products and services within the parks.

Stock Market Value: $1.9B ($23.25 per share)

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Activist: Land & Buildings Investment Management

Percentage Ownership: about 3.0%

Average Cost: n/a

Activist Commentary: Land & Buildings is a real estate focused long-short hedge fund that will try to engage with management on a friendly basis when it sees deep value. It invests in deeply discounted real estate in the public markets and select corporate engagements. The firm’s positions are often under the 5% 13D reporting threshold. It’s prepared to nominate directors and has received board seats at American Campus Communities, Brookdale Senior Living, Felcor Lodging Trust, Life Storage, Macerich, Mack-Cali (now Veris Residential) and Taubman Centers.

What’s Happening?

On Dec. 21, Land & Buildings issued a presentation detailing a potential operational and strategic turnaround of Six Flags Entertainment, which includes monetizing the company’s real estate assets and considering a sale-leaseback.

Behind the Scenes

Land & Buildings (“L&B”) is a real estate focused investor, and this is primarily a real estate play. The firm is suggesting that Six Flags separate its real estate holdings, which L&B believes are worth more than the current enterprise value of the company. L&B has extensive knowledge and experience in this area. In 2015, the hedge fund commenced an activist campaign at MGM Resorts International, which ultimately led to the formation of an MGM real estate investment trust acquired by VICI Properties and significant margin enhancement at the operating company. Recent private transaction comps for gaming real estate, as well as public gaming REIT valuations, point to a 6% to 7% cap rate and mid-teens multiple for assets like theme parks. L&B believes there would be many interested acquirers.

In its analysis, L&B assumes a 7.25% cap rate and a $2.8 billion value for the real estate. A sale-leaseback of the real estate could decrease earnings before interest, taxes, depreciation and amortization from $520 million to $315 million and assuming a 7x EBITDA multiple (SIX’s current multiple is 8x), the operating company would have a $2.2 billion enterprise value. With $2.8 billion in cash and $2.4 billion in debt, that would equate to a $2.6 billion asset value or market cap. With 83 million shares outstanding, that would equal a $31.32 share price, or a 34% upside to Six Flags’ current stock price (47% upside from the company’s unaffected stock price prior to the L&B plan being made public). L&B performed the same analysis on 2024/2025 EBITDA goals, which led to a $6.8 billion value and a 150% upside. Moreover, the hedge fund’s analysis assumes the $2.8 billion stays on the company’s balance sheet. If it is used to buy back shares around where they are trading now,, the return would even be greater.

L&B believes that a sale of Six Flags’ real estate would allow the company to increase share buybacks, reinstate its dividend (which was eliminated at the beginning of the Covid pandemic) and pay down debt. Moreover, this is a shareholder base with many like-minded investors (HG Vora, H Partners, Long Pond Capital) and a relatively new CEO (November 2021) who may be amenable to a plan like this.  

Getting a plan like this done would give the CEO a lot of time and capital (both real and figurative) to do what really needs to be done – fix the operational issues. When Selim Bassoul was appointed as Six Flags’ CEO in November 2021, he embarked on a strategy of trying to enhance the guest experience and create a more profitable, higher margin business by migrating to a more affluent, family-oriented customer base. This new strategy, which included getting rid of several customer perks, led to a significant drop in attendance, alienation of many current customers and subsequent price underperformance to peers. However, the jury is still out on whether it is working. If it results in a higher attendance at higher prices in 2023, then it worked and nothing will need to be done operationally. However, if attendance continues to lag through 2023, Bassoul may have to start giving back many of the perks he had taken away, such as modified dining passes. He may even have to consider lowering prices to their prior levels. Without stabilizing operations, the real estate strategy can only create so much shareholder value. However, optimizing attendance and stabilizing operations will magnify any value created by the real estate strategy.

We would expect that Land & Buildings would want to have some sort of board representation to help with this strategy. Frankly, Six Flags should want the firm’s help if they choose to monetize the real estate. So, it would not be surprising to see an amicable settlement for a board seat or two. However, the director nomination window is between Jan. 11, 2023 and Feb. 10, 2023. If there is no settlement by then, L&B is almost certain to nominate directors, even if it is just to preserve the firm’s rights while it continues to talk with management. Should this go to a proxy fight, the like-minded investors mentioned above — H Partners (13.5%), HG Vora (4.2%) and Long Pond Capital (5.7%) — could be potential supporters of L&B.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies. 

Bob Pisani: What UBS' Art Cashin taught me about the art of storytelling

Bob Pisani: What UBS’ Art Cashin taught me about the art of storytelling

Art Cashin: We may have a bumpy first quarter in 2023

(An excerpt from the book, “Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange,” by Bob Pisani.)

“No one ever made a decision because of a number. They need a story.”
—Daniel Kahneman, in Michael Lewis’ “The Undoing Project”

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If you had met Art Cashin on the street outside the New York Stock Exchange in 2019, you would have thought you were meeting a man one step removed from homelessness.

His suit would have been rumpled. His ties would have been 20 years old, knotted carelessly and skewed to one side. He would be wearing a dilapidated trench coat straight out of “Casablanca.” He would be slouching. He looked like he might have slept outside on the pavement.

But for 60 years, Art Cashin has been one of the most influential men on Wall Street. Head of floor trading for UBS, he is old-school Wall Street to the core: a market historian, a great drinker, but above all a raconteur — a teller of stories.

There’s a lot of great market historians — men and women who can tell you what moved when, where and why. Those types know what they’re talking about, but most don’t sound like they know what they’re talking about. They can’t explain what they know for a general audience.

Then there’s the opposite problem: the vast hoards of Wall Street bull——– that don’t know much, but sound like they know what they’re talking about.

Cashin is that rare exception: a man who knows what he was talking about, and sounds like he knows. He never went to college and had little use for academic theories. Holding forth at the bar on the seventh floor of the New York Stock Exchange with a glass of Dewar’s on the rocks in his hand, or at Bobby Vans steakhouse across the street (now closed), or any one of dozens of Wall Street watering holes he frequented with a coterie of friends and hangers-on he dubbed the “Friends of Fermentation,” Cashin would engage anyone in an analysis of what was going on in the markets and the economy, but disdained academic and scholarly digressions on why the market was behaving in a certain way or whether one trading style or another was more successful than others.

It wasn’t that he didn’t care: he cared very much. He just preferred a different style than academics.

He preferred to tell stories.

Tiffany, J.P. Morgan and the art of price discovery

For example, volumes have been written explaining the concept of “price discovery” — how anyone determines what the right price to pay for a stock should be. Scholarly papers have been written about supply and demand and the information available to buyers and sellers at the time of the transaction.

To explain price discovery, Cashin liked to tell the story of the time the jeweler Charles Lewis Tiffany tried to sell an expensive diamond stickpin to J.P. Morgan.

Tiffany, Cashin said, knew that Morgan loved diamond stickpins, which he used to put in his tie. One day he sent a man around to Morgan’s office with an envelope and a box wrapped in gift paper. Morgan opened the envelope, and in it was a message from Tiffany: “My dear Mr. Morgan, I know of your great fascination with diamond stickpins. Enclosed in this box is an absolutely exquisite example. Since it is so exquisite and unusual, its price is $5,000,” which, in those days, Cashin noted, was north of $150,000 in present dollars.

The note continued: “My man will leave the stickpin with you and will return to my office. He will come back tomorrow. If you choose to accept it, you may give him a check for $5,000. If you choose not to accept it, you may give him the box back with the diamond stickpin.”

Art Cashin speaking at the NYSE on Dec. 30th, 2022. 

CNBC

He left, and the next day, Tiffany’s man came back to see Morgan. Morgan presented him with the box rewrapped in a new paper, along with a note, which said, “My dear Mr. Tiffany, as you’ve said, the stickpin was magnificent. However, the price seems a bit excessive. Instead of $5,000, enclosed you will find a check for $4,000. If you choose to accept that, you may send the pin back to me, and if not, you may keep the pin and tear up the check.”

The man returned to Tiffany, who read the note and saw the offer for $4,000. He knew he could still make money on the offer, but felt the pin was still worth the $5,000 he was asking.

He said to the man, “You may return the check to Mr. Morgan, and tell him I hope to do business with him in the future,” and left.

After a couple of minutes, Tiffany took the wrapping off the box, opened it up and found not the stickpin, but a check for $5,000 and a note that said, “Just checking the price.”

How do you tell a story about the stock market?

By the time I met him in 1997, he had been writing a daily column, Cashin’s Comments, for nearly twenty years that was estimated to reach 1.5 million to 2 million people a day. It invariably began with an analysis of an important event. (“On this date in 1918, the worldwide flu epidemic went into high gear in the U.S.”) Then, after a brief history lesson tied that event to the day’s market events. (“Pre-opening Wednesday morning, U.S. stock futures looked like they might be coming down with the flu. Several earnings reports were less than glowing and some of the outlooks were cloudy.”)

Cashin never took a course in literary theory, but he understood that some stories were far more persuasive than others, and that condensed narratives that had a clear storytelling arc were the most memorable and therefore a more effective way to convey information.

Bob Pisani’s book “Shut Up & Keep Talking”

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For Cashin, storytelling is only partly about facts: a series of Post-it notes on the wall, each with a separate fact about something going on in the market that day, is not a story. It’s how you connect the facts and weave it into a narrative that makes it a story.

“I have been fortunate enough over the years to be able to look at very complicated situations or problems and be able to reduce them to understandable items by using a story or a parable,” he once said to me.

He not only uses stories, but he also anthropomorphizes the entire market: he routinely described the market as “in a tizzy,” or that traders were “circling the wagons” to defend a particularly important level of the Dow Jones Industrial Average.

Let’s get back to the story about J.P. Morgan, Tiffany, and price discovery. For Cashin, understanding what a stock was worth was not about a mathematical formula, it was about trying to understand what the other guy was willing to pay: “How can I, in a real estate transaction, in a stock transaction, whatever, delve into your mind and find out what will you really accept? You offer your house at three quarters of a million dollars. Is that really your price? How do I find out what the difference was? And Morgan, in his natural genius, figured out that he would offer the guy somewhat less, and if the guy took it, that was to Morgan’s advantage. And if the guy refused, then that was the price and he had to pay it.”

Art Cashin

Adam Jeffery | CNBC

Cashin’s secret sauce was a natural gift for telling stories with a “dramatic arc,” that is, stories with rising action, a climax, falling action and a resolution. Even a story as short as the Tiffany one contains all these elements: the action rises when Tiffany’s man presents the stick pin to Morgan with a $5,000 asking price, and Morgan counters with a $4,000 offer. The climax occurs when Tiffany declines the counteroffer. The falling action occurs when he sends the courier back with the note. The resolution occurs when Tiffany opens the box and found not the stickpin but a check for $5,000 and a note that said, “Just checking the price.”

Cashin grasped that these kinds of stories pack more emotional resonance than those that don’t have them, and that’s why people remember them.

The Kennedy assassination

Cashin passionately believed that the market did indeed reflect all available information — even if some were able to come to different conclusions than others. And often when the market moved for reasons that were not obvious, Cashin would come up with some plausible but not obvious reason why.

“The truth is on that tape,” he told me. “Don’t just go for the obvious. If you’re good at this business, you gotta be Sherlock Holmes. The improbable, as long as it’s not the impossible, may turn out to be the true fact. And you will learn far more than you ever thought.”

As far as I knew, Cashin never said that to anyone but me. To everyone else, he told a story about a man who looked at the markets during a national disaster and read the tape in a very different way than everyone else.

It was Nov. 22, 1963 — the day President John F. Kennedy was assassinated.

“I was upstairs,” Cashin told me, “And the market was selling off. And the guy who preceded me, the broker on the floor, Tommy McKinnon, called up. I was in the order room. And he said, ‘Is there anything on the tape about the president?’ And I said, ‘No. Why do you ask?’ And he said, ‘Merrill Lynch is all over the floor, selling. And I asked him why, and he said, ‘Something about the president.’

So I went back. And the news ticker, they would ring a bell for ordinary news, two for something that was special, and three for really dynamic news. And the bell rang three times. And I ran back about 15 feet to where the news ticker was. And the headline was, ‘Shots Reported Fired at President’s Motorcade in Dallas.’

And I ran back to call the floor of the Exchange to tell Tommy. And before he could pick up, the bell rang three times again. And it said, ‘President Rumored to Have Been Hit.’ And I went back to call him again. And again, the bell rang three times. And it said, ‘President’s Motorcade Diverted to Parkland Hospital in Dallas.’ And that’s when they shut the Exchange down.

The amazing thing, to me, was how did Merrill Lynch know before anything was on the news ticker? And it was a lesson to me in Wall Street. The story I was told, presidents didn’t travel much in 1963. The manager of the Merrill Lynch, Dallas branch said, ‘You guys go out and watch the parade. I’ll keep a skeleton crew here.’ They went out to watch the parade. A little while later, they all came in down in the dumps. And he said, ‘What’s the matter? You were supposed to watch the parade.’ And they said to him, ‘The parade got canceled.’ And he said, ‘What do you mean?’ And they were here. And the parade was way up there. And they heard the sirens go loud. And the parade turned right.

And this guy was a good manager. And he called the salesmen together. And he said, ‘Give me a good bullish reason to pull the president out of a parade.’ And nobody could think of one. And he said, ‘Give me a bearish reason.’ Nobody thinks, assassination. They were nowhere near there. They were ten blocks away. But they start thinking, nuclear catastrophe, natural disaster, blah, blah, blah. They find 100 reasons to sell. He said, ‘Begin to sell for the discretionary accounts. Start calling our clients. And tell them, ‘We think something bad happened at the parade.'”

For Art, that Merrill Lynch manager was the perfect marketplace Sherlock Holmes: Don’t just consider what you hear. Think beyond what happened.

Art’s preferred method of teaching was storytelling, but he wasn’t above resorting to simple blunt truths about the markets, and particularly about the way people behaved in the face of greed. He was a behavioral psychologist long before the word was coined.

He had seen his fellow humans panic time after time, selling stocks immediately without thinking, and cautioned against it: “It tells me that people have a tendency to overreact — and to not think things through carefully,” he once told me.

“Those who react immediately rarely do well,” he said. “Those who are somewhat suspect, they do much better.”

Bob Pisani is senior markets correspondent for CNBC. He has spent nearly three decades reporting from the floor of the New York Stock Exchange. In Shut Up and Keep Talking, Pisani shares stories about what he has learned about life and investing.

Money managers are hopeful about the stock market in 2023. How they plan to invest

Money managers are hopeful about the stock market in 2023. How they plan to invest

Traders on the floor of the NYSE, Oct. 7, 2022.

Source: NYSE

(Click here to subscribe to the new Delivering Alpha newsletter.)

Despite this year’s market havoc, investors are feeling fairly optimistic going into 2023, according to a new CNBC Delivering Alpha investor survey.

Four out of 10 predict that the S&P 500 will rise 6% to 10% next year. Nearly 2 in 10 are calling for gains between 11% and 19%. Meanwhile, 6% are calling for stocks to jump by more than 20%, which would wipe out this year’s losses for the S&P 500, which is poised to end 2022 lower by 19%.

We polled about 400 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood on the markets for the new year. The survey was conducted over the last week.

Risk in 2023 and the Fed

Nearly half of the respondents are feeling optimistic that the Federal Reserve can orchestrate some sort of “soft landing” for the economy as the central bank continues to raise interest rates. Indeed, policymakers earlier this month increased rates by half a point to the highest level in 15 years.

Notably, when asked about their biggest concern for the market, an overwhelming 73% of the participating money managers said it was Fed policy.

CNBC Delivering Alpha investor survey

Coming in second place was a Chinese invasion of Taiwan. Nine percent of the participants said labor and supply line problems are their biggest fear. Meanwhile 6% cited a massive resurgence of Covid, which is wreaking havoc in China right now.

Inflation and the investing environment

All five of those names have been crushed in the past year. In recent months, however, Netflix has staged somewhat of a recovery. Shares of the streaming giant are up 63% over the past six months, but they are still down 51% for the year.

On Tesla, 61% of the participants said they were losing confidence in the stock and the company’s CEO, Elon Musk.

Finally, don’t expect money managers to wholeheartedly embrace cryptocurrency in the new year: 81% said they wouldn’t touch it.