Wall Street Breakfast

Tesla shares gaining more momentum

Tesla Q2 deliveries handily top expectations. (0:15) Fed's Powell sees disinflation resuming. (1:43) Disney content set for a 'major turnaround'? (4:28)

Show Notes
The top 10 U.S. ideas for Q3: 9 buys, 1 underperform - BofA
M&A thrills: Meet the new theme park sector giant
SA subscribers believe this will be the top-performing S&P 500 stock in H2

Episode transcripts: seekingalpha.com/wsb

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Duration:: 7m
Broadcast on:: 02 Jul 2024
Audio Format:: mp3

Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action news and analysis. Good afternoon. Today is Tuesday, July 2nd, and I'm your host, Kim Kong, our top story so far. Tesla rallied with shares approaching a 2024 high after it reported 443,956 deliveries for Q2, beating expectations of a little more than 439,000 vehicles. Reports of Tesla sales came from the smaller and cheaper models 3 and Y lines, with the company selling only 21,551 of its more expensive models that include X and S as well as a new cyber truck. Wedbush Security's analyst Dan Ives said Q2 was a huge comeback performance from Tesla and CEO Elon Musk, with the street expecting a clear missed this quarter amid choppy EV demand. Ives reiterated that Wedbush sees the automaker as more of an AI robotics play than a traditional car company. Meanwhile, CFRA analyst Garrett Nelson noted that Tesla continues to ride a wave of positive momentum following its annual meeting in June at which shareholders re-approved Musk's 2018 compensation plan. At the meeting, we think Musk successfully shifted investor focus to long-term opportunities in AI, robotics, energy storage, and other business lines diverting attention away from the near-term challenges, he said. In addition, Rivian Automotive said it produced 9,612 vehicles at its manufacturing facility in normal Illinois during Q2 and delivered 13,790 vehicles during the period. The EV maker said that was in line with expectations and management reaffirmed foliar guidance for annual production of 57,000 total vehicles. Turning to the economy, Fed chairman Jay Powell said their assigns consumer prices are resuming their paths of disinflation. While trying to strike as usual balance, his remarks at the Forum on Central Banking in Portugal leaned a little dovish. He said he would like to see more data like the recent figures to be more comfortable cunning but also said risks between inflation and the labor market are coming into better balance. We're getting a gradually cooling economy, a gradually cooling labor market, progress on inflation, 4% unemployment, 2% growth, we're getting kind of what we want to have, Powell said. Following the event, expectations for a quarter-point rate cut in September rose about 5% percentage points. Fed funds futures are now pricing in about a 70% chance that rates are lower after the meeting. Chances of three cuts by the end of 2024 move back above 20%. Looking at today's data, it's still a labor market that just won't quit. The May job openings and labor turnover survey, or jolts, showed openings at 8.1 million higher than forecast and up from a downwardly revised 7.9 million in April. The quit's rate stayed steady at 2.2% and the layoff rate stayed steady at 1%. Simon James, Chief Economist, Eugenio Allen, unnotes, "The largest decline in job openings occurred in the leisure and hospitality sector as job openings in the accommodation and food services sector declined by 147,000 job openings. It is clear that state and local governments are bucking the overall job opening trend and contributed to an increase in job openings in May compared to the previous month." Among active stocks, city-downgraded home builders Lenire and D.R. Horton to neutral firm buy on softening housing activity this summer. City says it sees a limited near-term catalyst for the stocks until 2025, with September rate cuts at least partially priced in. Susquehanna Financial upgraded PayPal to positive from neutral on valuation with a price target of $71. Analyst James Friedman is positive on PayPal making profitable growth a top priority. Crabot and Costello fan Susquehanna Financial is not affiliated with the Susquehanna hat company. In addition, Bank of America reiterated a bullish view on Disney. Analyst Jessica Reeve-Ehrlich says she believes Disney will outperform peers in 2024 as a result of recent price increases across the Disney+ Hulu ESPN+ universe, stronger advertiser demand for the recently launched ad-supported tier on Disney+, cost discipline across the direct-to-consumer business, and continued robust theme park demand with several levers for future growth. Crucially, she also thinks that the content slate is showing signs of a turnaround after Inside Out 2 surpassed $1 billion at the global box office in its first three weeks. Disney is trying to strike a better balance of originals and leveraging IP with the studio business. And speaking of amusement parks, a combined Six Flags Entertainment, Simple Fun, started trading today following the closing of the merger between Cedar Fair and Six Flags late Monday. The new theme park operator will control dozens of theme parks, water parks, and resort properties across the U.S., as well as Canada and Mexico. The boosted geographic mix may help smooth out the impact of severe weather events on earnings. The newly formed company will have its headquarters in Charlotte, North Carolina. CEO Richard Zimmerman says, "Our enhanced financial flexibility will enable us to invest in new rides, attraction, food and beverage options, and state-of-the-art consumer technologies, ensuring continuous improvement in innovation, and that each park visit is more exciting and memorable than the last." Ahead of the closing, Morgan Stanley said its bullish on Six Flags, even with both stocks up at least 30% on a year-to-date basis. Analysts Thomas Yeh expects synergies and revenue catch-up opportunity to support high single-digit EBITDA growth and valuation upside. Morgan Stanley's overall rate rating is pinned by the view that current valuation still under appreciates the growth potential of the pro form a company. Yeh and his team see opportunities for the new company to continue executing on an attendance recovery within the legacy Six Flags footprint. Meanwhile, Wall Street breakfast newsletter readers weighed in on what they thought would be the best-performing S&P stock in the second half of the year. Surprise! Surprise! Surprise! They like AI. Nvidia was the clear winner, with 31% of the more than 500 responses to the survey. Other big AI names also scored silver and bronze, with Microsoft and Apple receiving 8% and 6% of the total vote, respectively. Amazon, Alphabet and Super Microcomputer rounded out the list. And in the Wall Street research corner, BFA Securities is out with a new list of 10 short-term stock recommendations for the third quarter in nine industries. Strategist Anthony Caso-Massina says the list of nine buys and one underperform are believed to have significant market and business-related catalysts in the quarter ahead. Among the buys are GE Aerospace, which is strongly positioned to benefit from secular commercial aerospace growth, Goldman Sachs, which has a compelling risk-reward to gain exposure to a cyclical rebound in investment banking activity, and Palantir, which is at the early stages of its network effect, as each additional user brings tremendous value to the connected network. The one sell idea is CarMax, as the sourcing environment for used cars is still challenging, especially for late-model-used vehicles, a dynamic that will likely continue through 2025, and onwards, which should hinder CarMax's same-store unit growth. You can see the full list in our story on Seeking Alpha, check out the link at the top of Show Nuts. That's all for today's Wall Street Lunch, look for links for stories in the Show Nuts section. Don't forget, these episodes will be up with transcriptions at SeekingAlpha.com/WSP. And join the highest-level discussion of any stock or ETF in our community of serious investors like you. See you at SeekingAlpha.com/subscriptions. [ Music ]