Plus, Citi says gold could hit $1,700 per ounce in the next 6 – 12 months, Tesla shares topped $930, and one speculative space stock has seen its trading volume explode.
Stocks were higher to start Wednesday with the Dow adding 92 points, or 0.3%. The S&P 500 gained 0.5%, breaking above its all-time high of 3,385.09, while the Nasdaq rose 0.8% to a new record high.
China’s National Health Commission said there were 1,749 new confirmed cases of COVID-19 on the mainland and 136 additional deaths, bringing total confirmed cases to more than 75,200 and total deaths from the virus to at least 2,000. International Monetary Fund Managing Director Kristalina Georgieva called the coronavirus the global economy’s “most pressing uncertainty,” and said the outbreak will slow China’s growth for the year, though just how much will depend on how quickly the fast-spreading virus is contained. “There are a number of scenarios, depending on how quickly the spread of the virus us contained,” Georgieva wrote. If the spread of COVID-19 is contained quickly, China’s overall 2020 GDP would be hurt, but only slightly and international spill-over would be minimal. “However, a long-lasting and more severe outbreak would result in a sharper and more protracted growth slowdown in China. Its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China,” she said.
Gold could rally to $1,700 per ounce over the six to twelve months if the coronavirus outbreak impacts supply chains and earnings in the U.S., according to Citi analysts. Investors have flocked to the safe-haven asset as the outbreak has spread, pushing it to close above $1,600 per ounce yesterday. The firm said that prolonged market jitters will push investors into the metal, and they expect nominal highs to reach $2,000 in the next 12 to 24 months. “Gold should perform as a convex macro asset market hedge, resilient during ongoing risk market rallies but a better hedge during sell-offs and vol spikes,” the Citi analysts said. “With STIR [short-term interest rate] markets pricing in ~1.5 Fed cuts in 2020 and global growth risks skewed to the downside, gold is a direct beneficiary of the low nominal and negative real yield environment,” they said, adding that the precious metal can also “outperform on a risk market unwind should coronavirus risks impact supply chains and thus US earnings momentum.”
Tesla shares have soared above $930 this morning after Piper Sandler hiked its price target for the electric car maker from $729 to $928 per share, rating the stock the equivalent of a Buy. “It’s easy to forget that TSLA sells batteries and solar power products; after all, the segment was only 6% of sales in 2019,” wrote analysts Alexander Potter and Winnie Dong in a note. “But management says that the solar+storage business will one day rival the Automotive segment, and if this is true, then investors will eventually need to pay attention.” The analysts also wrote that they recently installed a solar-based system to charge a Tesla Model X to gauge the company’s chances of success in generating and storing solar power, and called the results “illuminating” thus far. Tesla shares are up 105% year-to-date, and up more than 68% over the last month.
But there’s another stock whose momentum tops even that of Tesla’s. Shares of Virgin Galactic are up more than 14% this morning, and have gained 162% so far this year and nearly 94% over the last month. Daily volume for the speculative space tourism stock has been pushing higher for the last week, with Friday’s trading volume hitting 45.6 million shares and yesterday’s reaching 104.1 million shares. SoFi said that “trading activity on [SPCE is] up 7x this year compared to 2019,” and that yesterday was “by far the largest purchase day ever for the stock.” Strategic Wealth Partners’ Mark Tepper said to CNBC, “The stock is just moving at a hypersonic pace. Why has it gone from $10 to $32 over the last few months? They’ve generated no revenues to date, so right now even bulls are concerned about the price. …I see a stock that’s trading in hype similar to Tesla, but without the revenues to back it up and then the stock goes up and shorts are getting crushed and that takes the price up even higher.”
And in earnings news, Groupon shares are down nearly -44% this morning after the e-commerce company posted disappointing fourth quarter results, announced plans to divest part of its business, and disclosed plans for a reverse stock split. For the quarter, the company reported revenues of $612.3 million, down 23% year-over-year, and far below analysts’ consensus estimate for $709.4 million, while adjusted profits came in at $0.07 per share, falling short of forecasts for $0.15 per share. “We did not deliver the financial performance we expected during the fourth quarter and we recognize we must move swiftly to put Groupon back on a growth trajectory,” said Groupon CEO Rich Williams in a statement. The company said that after a “comprehensive review of opportunities and strategic alternatives,” it has decided to “exit the Goods category and focus on our local experiences marketplace.” “Our failure to meet the expectations we set will understandably frustrate our shareholders,” Williams wrote in a letter to shareholders. “This performance shortfall, coupled with the significant headwinds we continue to face, call for profound change. We’re taking immediate and decisive action to return the company to growth.”
Stocks We’re Watching
Millendo Therapeutics Inc (NASDAQ: MLND): Millendo Therapeutics shares are up 34% over the last week after the company announced last week that it expects to report topline results from its Phase 2b portion of its pivotal Phase 2b/3 ZEPHYR clinical trial for its livoletide treatment in patients with Prader-Willi syndrome (PWS) in the second quarter of this year. Millendo has received both Orphan Drug Designation and Fast Track Designation for livoletide for the treatment of PWS from the FDA, as well as Orphan Drug Designation from the European Medicines Agency.
Kroger Company (NYSE: KR): Kroger shares gained nearly 9% yesterday after Warren Buffett’s Berkshire Hathaway revealed he had taken a position in the beaten-down grocer worth roughly $570 million. Berkshire now has about a 2.3% ownership stake in the company, making it one of the top 10 shareholders in the grocer.