Goldman Sachs Raises The Target Price For Facebook

Facebook Inc. (FB) is one of the few companies that played a massive role in the decade-long bull market that started during the fallout of the global financial crisis. Since its IPO in 2012, shares have gained a staggering 526% and its financial performance has improved every year since its IPO. The company is relentlessly pursuing growth opportunities in both domestic and international markets, and the deceleration of company growth seems a distant reality.

The promising outlook has prompted Goldman Sachs analyst Heather Bellini to boost the target price from $220 per share to $250, which indicates approximately 5% upside from the current market price of around $238. The upside, however, is likely to be much larger considering Facebook’s recent investments.

Recent Developments

In a bid to monetize WhatsApp’s 400 million users in India, Facebook invested $5.7 billion in Reliance’s Jio Mobile which is the largest telecommunications services provider in the country.

The company is likely to develop WhatsApp as an all-in-one social messaging platform such as WeChat in China by enabling users to purchase and pay for products on the platform itself. WhatsApp Pay was launched in India as a pilot project in 2018 and it could soon go mainstream. This will pave the way for the company to generate billions of dollars in the future as the fintech industry evolves.

At the time of completing this investment, Facebook wrote in a press release, “India is in the midst of one of the most dynamic social and economic transformations the world has ever seen, driven by the rapid adoption of digital technologies. In just the past five years, more than 560 million people in India have gained access to the internet.” It only makes sense for Facebook to target this high-growth market.

Facebook Shops was launched last month to support small businesses go online amid the favorable outlook for the e-commerce industry. Facebook will face it off with the likes of Shopify Inc. (SHOP) to gain market share in this booming industry, and with over a billion daily active users on the platform, it would only be a matter of time until the company gains traction in the e-commerce market with Facebook Shops.

Messenger Rooms is another recently launched feature by Facebook to tap into the lucrative video conferencing industry.

The Stock Will Continue To Rally

Facebook does not have any long-term debt, and its cash balance stood at $60 billion at the end of the first quarter this year. This strong liquidity position will not only help Facebook invest billions of dollars to secure long-term growth but will also help the company reward shareholders through stock repurchases. As Facebook captures new markets and establishes itself as a leader in many industries such as e-commerce, video conferencing, and mobile payments, the market value of the company will eventually follow earnings, leading to substantial investment returns.

Three Stocks To Buy As The Cannabis Industry Makes A Comeback

Empirical evidence pertaining to many disruptive developments such as the invention of the World Wide Web, the growth of social media platforms, and the over-the-top content streaming industry, reveals that identifying and investing in these developing trends early could lead to multi-bagger returns.

Recent market developments, the improving regulatory outlook, and the latest transparency data released by Leafreport confirm the CBD industry has what it takes to become the next disruptive force in the global business world and grow into a multi-billion dollar industry in just a few years. Growth investors, therefore, should pay close attention to this space.

The Industry Outlook Is Promising

Two tailwinds are driving the CBD industry forward.

First, the many use cases of cannabidiol are taking the industry mainstream. Data from CBI Insights reveal that CBD products are used in the following business sectors.

  • Health and wellness
  • Food and beverages
  • Cosmetics
  • Haircare
  • Sports
  • Pet industry

The wide variety of use cases available for cannabidiol will help the industry grow as consumer awareness grows toward these products.

Second, the maturing nature of the industry which is evident from the latest data released by Leafreport gives reason to believe that consumer engagement will increase in the future as products are now becoming trustworthy. The chief executive officer of Clever Leaves, a company that produces medical cannabis, believes that transparency is one of the key considerations of CBD buyers. In an interview with Forbes, he said:

“Consumers are getting more savvy on the benefits of CBD and they will begin to insist on knowing exactly what they are paying for and what they are getting when they purchase CBD products.”

Leafreport revealed in a report that out of the 36 CBD products tested in its study, 26, or 72% of products, had CBD levels within 10% of what was stated in the label of these products, which is considered as a sign by many industry experts that the manufacturer is delivering the promised goods. The industry, in fact, has come a long way to overcome the transparency issues faced as recently as 2018.

The Improving Regulatory Outlook

The legalization of cannabis is critical to the continued growth of the industry. Canada became the first G20 nation to legalize the use of cannabis products in 2018, and this led to a monumental shift in the market sentiment toward the CBD industry. Since then, the United States has made some noteworthy moves to approve the use of cannabis products for medical purposes.

According to data from the National Conference of State Legislatures, a total of 33 states in the U.S. and the District of Columbia, Guam, Puerto Rico, and U.S. Virgin Islands have approved publicly available cannabis programs. The U.S. Food and Drug Administration, on the other hand, is currently working in unison with the leading companies in this space to fast-track the approval process of cannabis drug products.

Elsewhere in Europe, Luxembourg is set to become the first country in this region to legalize the use of cannabis. This could mark the beginning of a new wave of optimism regarding the regulatory outlook for CBD products in the all-important European region.

As the industry matures, the transparency and accuracy of CBD products are bound to improve. This, in return, will be leveraged by industry participants to push regulators to speed-up the approval process of cannabis products around the world.

Best CBD Stocks To Buy

It’s always a prudent idea to invest in the leading companies of a young industry as these first movers often build economic moats that bring in sustainable earnings in the long run. Here are three such stocks to consider.

Aurora Cannabis Inc. (ACB)

Aurora Cannabis (ACB) is one of the first players to enter the CBD industry and is among the leading companies in this sector as well. The primary business activity of the company is producing and distributing medical cannabis products. However, the company has diversified its business operations to sell vaporizers and herb mills as well, in a bid to boost its market dominance. Aurora’s recent investment in Reliva, a U.S. CBD company, is an indication of its plans to grow inorganically as well, which might prove to be rewarding in the long run.

Shares have remained under pressure in the last 12 months primarily as a result of macro-economic headwinds facing the cannabis industry, including the oversupply of legal cannabis in Canada and the black market that sells the same products at fraction of the cost. To counter these threats, Aurora launched a budget-friendly product line in February with prices as low as $5/gram with high THC potency.

This move will help the company face it off with illegal products, and consumers now have little incentive to purchase cannabis products from the black market. The company management has emphasized its commitment to bringing low-cost products to the market in the coming months as well, which should help Aurora establish itself as a top contender for the market share in the cannabis industry.

New store openings in Canada were delayed as a result of the spread of Covid-19, and this was a direct hit to Aurora’s strategy of expanding its scale to establish its presence in important regions such as Ontario. However, as the country reopens for business in the coming weeks, the regulators expect to authorize up to 20 new store openings per month. These new physical locations will boost the revenue of the company.

Aurora Cannabis has reported stellar growth in the last three years, supported by favorable macro-economic conditions. The company reported just $1.1 million in revenue in 2016 but in the last 12 months, Aurora brought in more than $217 million in revenue. This goes on to reveal the high-growth nature of its business operations.

Even though Aurora has a long way to go to become a profitable company, this can easily be achieved if revenue growth remains at elevated levels for a few years, which is likely to happen. The new store openings, low-cost products, and its acquisition of Reliva that allows them to enter the American market will act as catalysts for Aurora to become profitable in the next few years, and shares will follow earnings and trend higher in this period.

Canopy Growth Corporation (CGC)

Canopy Growth is another leading player in the industry that was hit hard in recent months. The company remains focused on optimizing its cost structure to improve margins and its focus is on introducing novel products such as cannabis-infused chocolates and beverages into the market. This strategy will likely help the company generate attractive revenue growth from its stores in Canada.

Canopy Growth is the largest cannabis player in Canada, and the company is capitalizing on its scale to reach new customers. Even though the company has grown its revenue from $1 million in 2014 to $283 million in 2019, the first calendar quarter of this year was disastrous as the company could not keep its stores open as Covid-19 continued to wreak havoc.

Similar to many other companies operating in this sector, Canopy Growth failed to gain momentum in recreational cannabis sales and reported a decline of 28% on a year-over-year basis in the first quarter. In addition to Covid-19, the strong black market in Canada played a major role in this decline. To overcome this threat and the oversupply in the market, Canopy Growth has decided to reduce production capacity by 40%, which seems to be the right decision to stabilize prices and reduce operating costs.

In other measures aimed at improving operating margins, the company is reducing its headcount by 200 employees in Canada, the United States, and the United Kingdom. These bold measures are required to ensure the sustainability of the business and the company was criticized by many analysts in the past for not taking these steps. The company decided to shut down its hemp farming operations in New York as well. Because of the uncertain regulatory condition in the U.S., the company is now focusing more on its core markets such as Canada, which is a positive sign.

The company will unlock many growth opportunities through the novel products introduced into the market. Canopy Growth is aggressively pursuing opportunities in the cannabis-infused food and beverage market and the cosmetics industry, and this will set them apart from the competition in the coming years.

As business activities return to normalcy in Canada, Canopy Growth’s increased focus on this region will start paying off, and that would be the catalyst to drive the company forward in the coming years. Concentrating on its top market is a good strategy rather than to invest millions of dollars in all of its target markets when there’s a significant level of uncertainty surrounding the regulatory approval of its products.

A quick look at the liquidity position of the company reveals that Canopy Growth will not be exposed to any liquidity traps at least until the end of this year as the company had more than $1.4 billion in cash as of March 31. This strong financial position will play a key role in helping Canopy Growth survive these difficult times and this is a luxury many new cannabis companies do not enjoy.

As many investors continue to look at the short-term woes, a contrarian investor might find Canopy Growth shares an attractive investment as the company is finally making important changes to its business structure that could help consolidate its leading position in Canada.

Aphria Inc. (APHA)

Aphria is another cannabis company with a strong liquidity position. The company is betting on its store openings across Canada to bring in meaningful revenue in the coming quarters and is one of the few companies that have continued to emphasize the importance of a strong omnichannel presence, which might play to the advantage of the company in the future. Aphria is investing to improve its e-commerce platforms, which is the right thing to do to address dynamically changing consumer habits.

The online presence of the company, in fact, helped report better-than-expected numbers for the fiscal third quarter that ended in February. While many cannabis companies struggled in this period, Aphria reported a 64% increase in net cannabis sales for fiscal Q3, which was driven by the sale of recreational cannabis products. This sets Aphria apart from other cannabis companies as its dependency on medical cannabis products is below the industry average.

Even though the majority of cannabis companies operating in Canada suffered from the oversupply in the market, things were different for Aphria in the previous quarter as the demand for its products far exceeded supply, which was confirmed by the management by highlighting the fact that the company had to buy cannabis from the wholesale market to cater to the additional demand. This is a very positive sign for investors and is proof that Aphria is slowly but surely grabbing market share in this billion-dollar industry.

Aphria is in good shape from a liquidity perspective as well. There are no debt maturities scheduled for this year and the company has a cash balance of over $500 million.

Aphria’s business strategy is to price its products low to gain market share in this competitive industry and to improve its online presence. Going by the recently reported financial results, this strategy seems to be working. The expected increase in its market share will drive future earnings of the company. This, coupled with the expected revival of the Canadian cannabis industry in the latter part of this year, makes Aphria a good investment at the current price levels.

Conclusion

The CBD industry is benefiting from various macro-economic tailwinds and many companies representing this industry are increasingly focused on developing high-quality products that meet agreed-upon standards in testing and manufacturing. As the transparency of CBD products increases, so will the market value of the industry. The industry is on pace to mature in the next couple of years, which makes now the best time to be betting on the shares of companies that are driving the CBD industry forward.

Chesapeake Energy Soars 180% But The Future Is Bleak

Chesapeake Energy Corp. (CHK) shares gained 181% on June 8, marking a historic day for energy investors. The favorable outlook for crude oil prices resulting from the supply cuts proposed by the OPEC+ alliance was behind this dramatic rally. The resumption of business activities around the world is also a positive development as this would lead to robust growth in demand for energy sources. The party, however, might come to an abrupt end as Chesapeake might file for bankruptcy protection as early as June 15.

According to a Bloomberg report released after the market close on June 8, the company is debating whether to skip interest payments due on June 15 and invoke a grace period to negotiate better terms with its creditors. The market will react to this news today and the stock will likely open at a steep discount to the closing price on June 8.

The Management Had Already Warned Of This Outcome

A bankruptcy filing by Chesapeake would not be a surprise to many investors. In the first quarter 10Q filing, the company wrote, “There is substantial doubt about the company’s ability to continue as a going concern.” Investors seem to have brushed off this warning in the last couple of trading sessions, but things are likely to take a different turn when the market opens for trading on June 9.

A Prominent Analyst Believes The Equity Value Could Fall To Zero

On May 12, CFRA analyst Paige Meyer downgraded the stock to a sell and wrote, “We do not expect Chesapeake to be in compliance with its financial covenants beginning in Q4 2020, which would result in an act of default on the credit facility.” He went on to claim that the stock could be worth zero by the end of this year if this risk materializes. Going by the recent report of Bloomberg, the probability of this worst-case scenario is now very high.

Wall Street analysts have a median target price of $16.50 for Chesapeake shares as well, which indicates a downside of more than 76% from the current market price of around $70.

Investors who are betting on the recovery of oil should ideally focus on energy companies that have access to ample liquidity to remain solvent until the headwinds pass.

Twitter Gains Momentum Amid The Political Unrest

In one of the most controversial moves by a social media platform ever, Twitter Inc. (TWTR) decided to classify a Tweet from the American President as “glorification of violence” on May 29. As a retaliation for this action, President Trump signed an executive order targeting social media companies in abid to defend free speech on these platforms.

Many legal experts have warned that this order is on shaky legal ground and might fail to hold inside a courtroom and tech giants have already filed a lawsuit challenging this order. Twitter shares initially dropped 10% because of this uncertainty but recovered in the last week as investors shifted their focus from short-term troubles to long-term gains resulting from this development.

A Blessing In Disguise

The political unrest in America and the clash between the government has brought Twitter to the spotlight once again. According to data from Apptopia, the Twitter mobile application was downloaded 677,000 times on June 3, which is the highest-ever number reported by the company since it was founded in 2006. On the same day, Twitter hit a new record of daily active users in the U.S. with 40 million Americans using the platform.

For the best part of the last decade, other social media platforms such as Facebook Inc. (FB) and Snap Inc. (SNAP) have dominated the industry, leading to meager returns from Twitter. For instance, Facebook shares have gained a staggering 37% this year while Twitter stock is down 3% in the same period. The current situation, however, might turn the tables in favor of Twitter as the platform is once again rising in popularity which is evident from app download data.

A Turnaround Is On The Cards

Twitter has never been able to monetize its userbase as Facebook does. For instance, Twitter brings in $20 per user whereas Facebook earns $30 per user, and the latter has over a billion daily active users whereas Twitter still averages around 170 million users per day. This suggests that there’s leeway for growth if the company adopts the right strategy.

In a promising move, activist investors Elliott Management and Silver Lake Capital reached a deal with Twitter CEO Jack Dorsey to make radical changes that could lead to a 20% growth in daily users. Commenting on the recent changes to its business model, Twitter product lead Kayvon Beykpour told Barron’s, “We’ve really cranked up the engine. We’re taking bigger swings and moving way faster.”

With daily active users booming and the company focusing more on monetizing its users, Twitter could deliver attractive returns in the next 12 months on par with other social media giants.

Gilead Sciences Stock Drops With Mixed Results From Remdesivir Trials

Biotech stocks have been on a roll this year as the sector has taken center stage in the fight against Covid-19. Gilead Sciences, Inc. (GILD) is considered to be one of the few companies that could come up with a formidable treatment for the virus, and this expectation has sent shares higher since late-January. Gilead’s drug remdesivir made headlines in March as an experimental treatment for the novel coronavirus and the U.S. Food and Drug Administration issued an emergency use authorization of the drug on May 01.

Last Monday, Gilead announced the results from its Phase 3 trial of remdesivir in patients with moderate pneumonia resulting from Covid-19, and the results were not as promising as many investors thought it would be. Even though the results indicated the drug responds better than most of the standard medicine prescribed to patients, epidemiologists were expecting a significant improvement in patients under the drug, which did not prove to be the case. This led shares lower – from $78 to $73 in the space of two trading sessions.

Analysts Have Cast Doubt Over Gilead’s Success In Fighting The Virus

After the release of trial results, Raymond James analyst Steven Seedhouse wrote in a research note that remdesivir might not become the standard treatment against Covid-19. This comes as a blow to investors who were predicting the drug to bring in more than a billion dollars in revenue by 2021. Elaborating further on his concerns, the analyst wrote, “As soon as a better therapy comes along, which we expect, there would, in fact, be something to lose by choosing remdesivir and forgoing better treatment.”

Jefferies equity analyst Michael J. Yee, the JPMorgan biotechnology research team, and the Barclays health care team have all raised doubts over the ability of remdesivir to become the go-to treatment against the virus.

Gilead’s Promising Outlook

The outlook beyond the pandemic seems to be positive for Gilead as the company has a strong footprint in the fields of oncology and HIV treatment. For instance, BIKTARVY, the HIV treatment launched by Gilead, was the number one prescribed HIV regimen in 2019. This is a billion-dollar market and the company will likely bring in multi-billion dollars in revenue in the coming years. The company is focused on expanding its oncology portfolio as well. Gilead currently has many treatments in early and mid-stage clinical trials that could reach commercialization as early as next year.

The strong pipeline and the success of its existing products will help Gilead deliver good numbers in the coming years, which is a good reason for investors to consider buying Gilead shares on every weakness in the stock price.

Zoom Surges 13% Ahead Of Earnings

Zoom Video Communications (ZM) shares surged past $200 on June 1 to end the day with a 13% gain. The latest price action came as a result of the optimism surrounding the first-quarter earnings of the company which would be released after the market close on June 2.

Investors never really paid attention to Zoom before the pandemic, but the company emerged as the go-to video conferencing platform for stay-at-home professionals and students in the last few months. This virus-proof nature of the company has helped shares soar 200% in 2020 so far.

Even as shares continue to rise, some analysts are questioning the ability of Zoom to remain relevant in the long run as billion-dollar tech giants such as Facebook Inc. (FB) and Alphabet Inc. (GOOG) have unveiled plans to grab market share in the booming video conferencing industry.

Zoom Has A History Of Beating Estimates

Empirical evidence suggests that Zoom is likely to beat estimates for the first quarter. Since its IPO in April 2019, Zoom has beaten earnings and revenue estimates 100% of the time, and the same thing could happen later today as well. However, this is not a guarantee for a surge in the stock price. For instance, shares dropped by 10% following a strong earnings report in the previous quarter.

Latest Analyst Actions

Rosenblatt boosted its target price for Zoom from $95 to $150 on June 1, and the research firm now has the highest price target among Wall Street analysts for Zoom. However, even this revised target represents a downside of over 25% from the current market price of $204.

Even though daily active users have surged since March, some analysts have cast doubt over the ability of Zoom to monetize these users as the majority are non-paying subscribers who do not plan to pay for a video communication platform ever. The reopening of the economy, in any case, will lead to a decline in active users as well. Morgan Stanley analyst Meta Marshall recently wrote, “In order for us to get more positive on Zoom, we would need to see evidence that the monetization is higher than expected, meaning the installed base to sell additional services into is larger.”

Analysts unanimously agree that Zoom is overvalued from many perspectives.

Profit-Taking Seems To Be A Rational Decision

Zoom has many things going right for them, but at an EV/sales multiple of 80, shares are overvalued. As the global economy slowly returns to normalcy, Zoom will see a gradual decline in its daily active users, which would not be taken lightly by market participants. The company has a plethora of security and privacy issues to address as well. Booking profits now and waiting for a better opportunity seems to be the rational move.

Southwest Airlines Poised to Move Higher With Domestic Bookings Picking Up Steam

The global airline industry is among the hardest-hit business sectors of this virus-induced recession, and stock prices of publicly listed airlines have plummeted this year as the global travel industry came to an abrupt standstill as a result of the mobility restrictions imposed by governments around the world to curb the spread of the virus. There are, however, early signs of recovery.

To attract health-conscious passengers, many airlines in the country have introduced a plethora of safety measures such as limiting the number of tickets available per flight, deep cleaning and sanitizing the aircraft before the takeoff, and ruling it mandatory to wear a face mask before onboarding the flight. These measures seem to be working, and Southwest Airlines Co. (LUV) is likely to be one of the first airlines to report promising numbers.

The Strong Footprint In The Domestic Market Will Help Southwest

In 2019, Southwest Airlines was the leading domestic carrier with a market share of 19.52%. It’s reasonable to assume that domestic travel will pick up well before international and business travel, which tilts the odds in favor of Southwest to become the first player in this space to report some sort of an improvement in the bookings for the third and fourth quarters of this year.

The Liquidity Position Makes Southwest The Best Bet For The Recovery In Demand

A strong balance sheet position is required to weather the current economic storm, and Southwest is in strong financial health. The company had $9 billion in cash on hand at the beginning of May, and to further improve the liquidity position, Southwest raised an additional $4.6 billion in May through the issuance of equity and debt. Company CFO Tammy Romo said in April, “We are the only domestic airline to be rated investment grade by all 3 rating agencies.” This statement highlights the commitment of the management to maintain a robust balance sheet, which will likely be proven the differentiator during these trying times.

Wall Street analysts have a median target price of $41.70 per share, indicating an upside of 29% from the current market price of around $32.

For a look at all of today’s economic events, check out our economic calendar.