In the spirit of the great Eric Miller, Chief Strategist at Donaldson, Lufkin and Jenrette when I worked there in the 1990s, here are some Random Gleanings from today's market activity.
Nike (NKE) . There is no bigger Duke Blue Devil fan than me. In fact I was on campus at my alma mater last night during the Duke-UNC game. To see Zion Williamson go down 36 seconds into the game after his Nike PG 2.5 blew out was really disheartening to Duke fans everywhere.
It does raise an important point, though: Nike does not make high-quality shoes. I learned that the hard way about 15 years ago while training for a marathon and will certainly never wear Nike running shoes again. The company has always been proficient at branding and marketing, but ASICS (ASCCY) and Saucony make much better running shoes. With Jay-Z now running Puma's (PMMAF) basketball brand (in addition to his influential sports agency, Roc Nation) and two-time NBA MVP Steph Curry shod by Under Armour (UAA) , one also wonders where Nike's cool factor will come from.
Zion will be back and he will be the number one pick in 2019's NBA Draft. Will he be wearing Nike in the NBA, though? Last night's sneaker explosion makes me doubt that, and is further evidence that I should avoid Nike shares, off slightly today but still trading near an all-time high.
Tesla (TSLA) . As a long-time auto analyst, Tesla is an unending source of amusement to me. The narrative on the company and its stock seems to have turned to the negative in the past two weeks, and I believe that is justified by the loss of momentum in the marketplace.
Tesla has entered the "air pocket" in Model 3 sales as the full federal tax credit of $7,500 was halved on January 1. Since the company does not report monthly sales, estimates are all we can go on, and those have varied widely in the past few weeks. Clearly, though, Tesla is not selling as many Model 3's in the U.S. as it did in the fourth quarter. Loading its production output onto boats bound for Europe and China is going to make Tesla's famous "working capital uplift"-- Tesla's payables run at about 5x its receivables -- less of a tailwind.
So, Elon will be Elon, and stories will come out on Tesla on a daily basis. In the middle of an air pocket, though, those stories are much more likely to be received negatively by the market, and thus you should be very careful with Tesla stock. Trading at 150x Wall Street's consensus EPS estimate of $1.89 for 2019 still implies much more downsize for Tesla shares.
Boeing (BA) . BA's run has been massive, and actually somewhat puzzling to me. In a Real Money column a few weeks back I mentioned Boeing as a good way to play a "buy beta" trend in the market. As of yesterday's close, BA shares had rocketed $100 per share higher in 2019, a gain of over 30%.
Jessica Rabe and my old competitor in the arena of auto analysis, Nick Colas, do excellent work on market technicals at their firm DataTrek Research. They noted today that BA's rise has accounted for 30% of the price-weighted DJIA's 2,450 point gain thus far this year. A thaw in the U.S-China relationship would clearly help Boeing's fortunes, but I believe that has been priced in -- and more -- in the stock's major move. Look for a pullback in the next few weeks, then a more market-hugging performance for the rest of 2019.
Wells Fargo (WFC) . In the five years I have written for RM, I have always known that there was one reader I could count on for unbiased, constructively critical feedback on my columns: my mom. Unfortunately she passed away last Thursday. I will greatly miss her counsel on all aspects of my life and also will miss her Toll House cookies.
She was a longtime stockbroker and growing up with the WSJ, Forbes and Barron's on the coffee table sparked my interest in the markets, which continues to this day. She had been with Wells Fargo for many years, and had grown wary of defending the brokerage side of the house from the seemingly endless stream of bad news emanating from the bank.
So, to honor my mom, I will say this: Wells Fargo is a terribly-run operation. With WFC shares trading at 1.6x tangible book value I believe the stock's massive recent underperformance versus both its group and the broad market will continue. She taught me to always stand up for myself and to tell it like it is, so here goes: Wells is an embarrassment to the U.S. banking system and you shouldn't own the stock. Somewhere she is looking down and smiling after reading that last sentence. I will have more random gleanings tomorrow.
