Tech Buy Alert: Is Motorola Solutions (MSI) Poised for Massive Growth Ahead?

Posted on by The INO.com Team

 

Motorola Solutions, Inc. (MSI) was once the market leader in cellular phones, from analog phones to digital phones such as the Motorola Razr. Motorola’s market share peaked in 2006 when market intelligence firm IDC placed it in a second position behind Nokia Oyj (NOK).

However, like many of its peers, the electronics manufacturer lost ground to smartphones from companies, including Apple Inc. (AAPL), Samsung, and several Chinese brands. Critics point to Motorola’s slow reaction to evolving consumer needs as the primary reason behind its downfall.

In 2010, Motorola was split into two companies: Motorola Mobility, which housed the company’s consumer electronics division, and Motorola Solutions, which manufactures telecommunications equipment. Google bought Motorola for around $12.50 billion in August 2011, and three years later, it offloaded to China-based tech company Lenovo for just $2.90 billion.

Now, Lenovo, the world’s largest personal computer maker, which acquired Motorola Mobility from Google in 2014, believes that the brand is all set for a major comeback. In recent years, Lenovo has sought to uplift the brand and position it as a higher-end smartphone player to compete with industry leaders like Apple and Samsung.

“I would bet a paycheck that in three years we will be number three around the world,” Matthew Zielinski, president of international markets at Lenovo, told CNBC at the World Economic Forum in Davos, Switzerland. Lenovo has turned around the Motorola business and “hyper-prioritized” it, a decision that is now paying off, he added.

This statement underscores Lenovo’s ambitious vision for Motorola’s position in the competitive landscape of the global smartphone market.

At present, Apple and Samsung are the top two brands in the smartphone market. According to the recent report from IDC, Apple grabbed first place in 2023 with a record-high market share of 20.1%, followed by Samsung at 19.4% market share. Two Chinese brands, Xiaomi Corp (XIACF) and Oppo, come in third and fourth place at 12.5% and 8.8%, respectively.

Counterpoint Research, another market intelligence firm, placed Samsung in first place with a 20% market share, as per data up to the third quarter of 2023. Apple comes in second with 16%, followed by Oppo and Xiaomi.

While the firm did not list Motorola in the top five, it did note that the brand reported double-digit growth last year. Motorola and Lenovo combined had about a 4% market share in the third quarter, making it the eighth-largest player worldwide. But Motorola might be doing well in individual markets. It came in second in Latin America, as per publicly available data from Canalys and Counterpoint.

Motorola is the third biggest smartphone maker by market share in the U.S., according to Counterpoint.

Currently, Motorola is banking on foldable smartphones, bringing back its Razr brand in the game. The latest version of the Motorola RAZR costs less than $1000, making it far more affordable than Samsung’s foldable offering.

Zielinski characterized the launch of the Razr foldable smartphone as a strategic move, describing it as “taking a stab at the premium market.”

MSI’s stock has shown rising strength, with more than 28% gains over the past year. Moreover, the stock has surged nearly 6% over the past month and more than 11% over the past six months.

Now, let’s discuss several other factors that could influence MSI’s performance in the near term:

Positive Recent Developments

On December 18, 2023, MSI acquired IPVideo, the creator of the HALO Smart Sensor, an all-in-one intelligent sensor that detects real-time health and safety threats. This acquisition reinforces Motorola Solutions’ commitment to enhancing safety and security by offering a cost-effective sensor that is easy and convenient to deploy and operate for enterprises of all sizes.

On November 28, MSI introduced the LTE-enabled V500 body camera, the newest addition to the company’s mobile video portfolio that brings critical real-time field intelligence to emergency response. Along with other of the Motorola Solutions mobile video portfolio, the V500 body camera uses the VideoManager evidence management software.

In addition, the V500 integrates with Motorola Solutions’ ecosystem of technologies, from radio and in-car video systems to control room solutions and Holster Aware Bluetooth sensors. These new product offerings are expected to extend MSI’s market reach and drive its profitability.

Robust Capital Deployment

On November 16, MSI’s Board of Directors raised its regular dividend by 11% to $0.98 per share. The quarterly dividend was paid in cash on January 12, 2024, to shareholders of record at the close of business on December 15, 2023.

The company pays a regular annual dividend of $3.92, translating to a yield of 1.19% at the current share price. Its four-year average dividend yield is 1.35%. Moreover, MSI’s dividend payouts have increased at a CAGR of 11.2% over the past three years. Motorola has raised its dividends for 11 consecutive years.

Additionally, MSI’s Board of Directors approved a $2 billion increase to the share repurchase program, raising the total authorization since July 2011 to $18 billion, with no expiration date for the program. Under its previously authorized $16 billion share repurchase program, nearly $599 million in repurchase authority remained at the end of the third quarter of 2023.

Robust Last Reported Financials

For the third quarter that ended on September 30, 2023, MSI reported net sales of $2.52 billion, surpassing analysts’ estimate of $2.52 billion. That compared to the revenue of $2.37 billion in the same quarter of 2022.

The Product and Systems Integration segment rose 5% year-over-year, driven by growth in land mobile radio communications (LMR) and video security and access control (Video). The Software and Services segment grew 12%, driven by growth in the command center, LMR, and Video.

Motorola ended the quarter with a record third-quarter backlog of $14.30 billion, an increase of 6% from the prior year’s quarter, inclusive of $321 million of favorable currency rates.

The company’s non-GAAP operating earnings rose 9.6% year-over-year to $741 million. Also, non-GAAP net earnings attributable to MSI grew 6.4% from the year-ago value to $547 million. The company posted earnings per share of $3.19, compared to the consensus estimate of $3.03, and up 6% year-over-year.

MSI’s cash inflows from operating activities were $714 million, an increase of 84% from the previous year’s period. The company’s free cash flow increased 104.1% year-over-year to $649 million.

Upbeat Business Outlook

“Q3 was another strong quarter, with record third-quarter revenue, earnings and cash flow,” said Greg Brown, chairman and CEO of Motorola Solutions. “Safety and security have never been more important and we continue to see robust demand which drove our record Q3 backlog. As a result, we’re again raising our revenue and earnings expectations for the full year.”

For the fourth quarter of 2023, the company expects revenue growth of nearly 4% year-over-year. MSI also anticipates non-GAAP EPS in the range of $3.65 per share.

For the full year 2023, Motorola expects revenue in the range of $9.93 billion to $9.95 billion, an increase from its previous guidance of $9.975 billion to $9.90 billion. The company’s non-GAAP EPS is expected to be between $11.65 and $11.70 per share, up from its prior guidance of $11.40-$11.48 per share.

Impressive Historical Growth

MSI’s revenue and EBITDA grew at respective CAGRs of 9.4% and 12.3% over the past three years. Its EBIT increased at a CAGR of 15.4% over the same period. Moreover, the company’s earnings from continued operations improved at a CAGR of 24.7% over the same time frame.

Furthermore, the company’s net income and EPS increased at CAGRs of 29.7% and 30.3% over the same period, respectively, while its levered free cash flow improved at a CAGR of 8.7%.

Favorable Analyst Estimates

Analysts expect MSI’s revenue for the fiscal year (ended December 2023) to grow 9.2% year-over-year to $9.95 billion. The consensus EPS estimate of $11.71 for the same period indicates a 13.1% year-over-year increase. Moreover, the company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.

For the fiscal year 2024, the company’s revenue and EPS are expected to increase 5.7% and 8.2% year-over-year to $10.51 billion and $12.67, respectively.

High Profitability

MSI’s trailing-12-month EBIT margin and net income margin of 24.74% and 17.30% are considerably higher than the respective industry averages of 4.88% and 2.04%. Likewise, the stock’s trailing-12-month EBITDA margin of 28.60% is 204% higher than the industry average of 9.41%.

Furthermore, the stock’s trailing-12-month ROTC and ROTA of 23.62% and 13.69% are significantly higher than the industry averages of 2.70% and 0.55%, respectively. Its trailing-12-month levered FCF margin of 16.65% is 89.3% higher than the industry average of 8.79%.

Bottom Line

MSI’s revenue and EPS topped analysts’ estimates in the third quarter of fiscal 2023. As a result of record third-quarter sales, earnings, cash flow, and backlog, the company raised its financial expectations for the full year. Also, analysts appear bullish about Motorola’s outlook, driven by strong demand for its innovative offerings, strategic acquisitions, and investments.

Furthermore, Motorola’s Board of Directors recently increased its quarterly dividend and approved a $2 billion increase in the stock repurchase program, reflecting the company’s robust shareholder return strategy.

Now, Lenovo believes the brand is poised for a big comeback. The Chinese tech company foresees Motorola emerging as the world’s third-largest mobile brand by 2027. Last year, the company unveiled its foldable, the Motorola RAZR, which has the potential to compete with industry leaders like Samsung with its innovative features and affordable pricing.

Moreover, smartphone recovery this year could be beneficial for Motorola. Canalys forecasts smartphone shipments to reach 1.17 billion units in 2024, up 4% from last year.

Given these factors, MSI could be a wise investment now.

Short Squeeze Alert: Analyzing the Impact of JetBlue's Blocked Acquisition on SAVE Stock

Posted on by The INO.com Team

The past few days have proven to be quite turbulent for Spirit Airlines, Inc. (SAVE), with notable fluctuations in its market value. From a federal judge opposing a proposed merger, sending SAVE stock into a nosedive, to David Portnoy investing in and promoting the company on January 18, resulting in SAVE's share price surge – the airline stock garnered significant attention.

The initial blow to the ultra-low-cost carrier's stock unfolded last week when JetBlue Airways Corporation’s (JBLU) $3.8 billion bid to takeover SAVE was thwarted by court intervention. This resulted in a sharp drop of as much as 74% over three days, throwing the fate of the previously secure deal into uncertainty. This drew attention to the mounting question about the survival prospects for SAVE.

Navigating the airline industry presents several complications. The inevitable costs associated with acquiring aircraft and employing relevant staff mount up, especially considering the volatile nature of jet fuel prices. This renders the sector vulnerable to bankruptcy, as demonstrated by prominent airlines, such as Pan Am, and countless smaller entities. Occasionally, airlines can re-emerge post-Chapter 11 restructuring, emulating the revival of American Airlines in 2013.

In other instances, they vanish indefinitely, leaving travelers in the lurch. According to TD Cowen analyst Helene Becker, SAVE may also be at risk.

Additionally, there is fervor among the investment community fueled by a return to bullish attitudes and a robust performance by S&P 500 and Nasdaq in the past year. Such success encourages “get rich quick” mentalities, evidenced by a flood of social media messages advocating for SAVE shares to skyrocket imminently without any factual basis.

Despite this, some analysts do not predict either a bankruptcy or a dramatic escalation for SAVE. Furthermore, the company reaching a book value of $12.06 per share is also not anticipated.

This article sheds light on the latest updates, evaluates SAVE's fundamentals, and provides prospective investors with guidance regarding SAVE's future value.

The Merger

The proposed merger would position JBLU as the fifth-largest airline in the U.S., vigorously contesting long-standing dominators Southwest, American, Delta and United Airlines. With an estimated domestic market share of 10%, it promised to diversify flight options and stimulate industry competition.

The acquisition was conjectured to enhance JBLU's cancellation policy through the planned substitution of SAVE’s non-refundable fares with JBLU’s Passenger Bill of Rights, which ensures an automatic reassessment upon inevitable delays and cancellations. The resultant entity could minimize flight delays and cancellations due to the availability of an expanded fleet and heightened pilot workforce following the merge.

Furthermore, JBLU's route network was expected to broaden, encompassing SAVE's reach in Central and South America and the Caribbean, supplementing its existing local and international destinations.

A federal judge, however, recently blocked the merger, arguing that SAVE's cost-sensitive customer base could be harmed. The court determined that the consolidation would infringe on antitrust law, which is designed to prevent anti-competitive harm to consumers. The decision highlighted a potential decrease in affordable ticket options for price-conscious travelers nationwide.

Concerns were voiced about escalating ticket prices, particularly for low-cost seekers, considering JBLU's previous estimation of a 30% price hike in the absence of SAVE as a competitor.

A surge in SAVE's market value triggered by the proposed merger piqued the interest of arbitrage investors looking to capitalize on price gaps between company equity and the offer price. However, the merger's block prompted investors to withdraw, subsequently depreciating SAVE's stock value.

A joint appeal by JBLU and SAVE against the ruling in hopes of reviving the merger is another interesting twist in the carriers' merger attempt. SAVE's stock price experienced a slight rebound in response to this move.

SAVE's stock witnessed an upward trend after Barstool Sports founder Dave Portnoy took to Twitter and openly commended SAVE’s value. His proclamation of SAVE as a "mega buy" sparked a late-week rally.

Despite these developments, it seems improbable that the judicial verdict will be overturned. The merger blockage is anticipated to persist. Potential investors should assess SAVE on individual merit and without expectations for the completion of such a corporative action.

Let’s delve deeper into the fundamentals of SAVE.

The airline, with a market cap of approximately $898 million, boasts an extensive workforce numbering over 11,000 employees. The ownership structure of the company shows a mix of roughly 0.5% insiders and about 67.7% institutional holders.

Since the onset of the COVID-19 pandemic, SAVE has grappled with financial sustainability. Their ticket sales have not seen recovery at the pace anticipated, and several of its planes are being temporarily grounded due to engine problems necessitating inspection and possible replacements. SAVE anticipates an average of 26 grounded aircraft, over 10% of its fleet, during 2024. As a result, Pratt & Whitney engines on numerous Airbus jets could drastically hamper immediate growth predictions for the company.

SAVE raised $419 million through the mortgage of many of its airplanes. However, the future options for raising liquidity seem limited. As per results for the fiscal third quarter that ended September 30, 2023, SAVE's overall operating revenue stood at $1.26 billion, a 6.3% year-over-year decline. The net loss for the quarter was reported at $157.55 million, a 333% rise year-over-year, while net loss per share surged by 336.4% from the year-ago quarter to $1.44.

The precarious liquidity situation at SAVE is hinted at by its quick ratio of 0.69. Its Total Debt/Equity ratio exceeding 500% indicates that for every dollar of equity, the company holds five dollars in debt. This high leverage exposes the company to greater risk while settling its debt.

On December 31, 2023, SAVE's liquidity stood at $1.3 billion, including unrestricted cash and equivalents, short-term investment securities, and $300 million under a revolving credit facility. The company is currently in talks with Pratt & Whitney to negotiate compensation for the geared turbofan engine faults that may provide significant liquidity in the next few years.

While SAVE is not bankrupt and still commands liquidity, they are not without challenges. Their $1.3 billion is barely above their debt due in 2025 – amounting to $1.1 billion, which is slated for restructuring next year.

Given that higher risk-free rates have led to a cooling of corporate debt markets, creating an unfavorable environment for debt refinancing, SAVE's management team must explore severe measures to ensure the corporation’s ongoing viability, especially when the likelihood of the merger being off the table is high.

Credit rating company Fitch has issued a warning regarding the "significant refinancing risk" SAVE is expected to encounter in the coming year due to the $1.1 billion debt owed by its loyalty program, which is due for repayment in September 2025. Although Fitch has maintained a B/Negative credit rating for SAVE's debt, it has encouraged the airline to formulate a near-term strategy to increase liquidity, reduce refinancing risk, and boost profitability to prevent further negative ratings.

Details concerning this scenario are expected to emerge on February 8, 2024, when the company will disclose its 2023 fourth-quarter results.

Despite the challenges, SAVE is optimistic about its future earnings – projecting that total revenue will surpass prior estimations. The airline anticipates its fourth-quarter revenue to come at $1.32 billion, which exceeds the higher benchmarks established in its prior projection. This optimistic outlook is primarily attributed to the robust bookings received during the 2023 year-end travel peak.

The airline also forecasts a fuel cost reduction that would help relieve some revenue pressure and enable increased earnings. Operational costs for the quarter are expected to be lower than predicted, primarily due to decreased fuel expenses driven by improved fuel efficiency, reduced airport costs, and other factors. Additionally, SAVE predicts a significant contraction in its negative margin, foreseeing it to shrink down to between 12% and 13% from the previously anticipated negative margin of up to 19%.

Is SAVE a Worthy Investment?

When a stock encounters difficulties as notable as those faced by SAVE, the conversation invariably turns toward short-squeeze speculation. Despite recent losses, SAVE's share trajectory appears to have rebounded. However, it's plausible that this upward momentum results in more from short-squeeze speculation among retail investors than it does from positive news about the airline itself.

The current high level of short interest in SAVE stock further buttresses this theory. Data pulled from the short analysis platform Fintel corroborates this, showing that the short interest is 19.75%. Short sellers presently only have a minuscule 0.27-day window to cover their positions.

Considering SAVE's shaky foothold, Citi's analyst, Stephen Trent, has downgraded the company from a Hold to a Sell, simultaneously lowering the price target from $13 to $4.

While there remains the possibility of an appeal, Trent questions its logic, stating, “…it is unclear why JetBlue wouldn’t cut its losses here and recognize that it avoided a risky bid on a highly levered carrier with steep losses.”

He further predicts that SAVE's EBITDA isn't likely to turn positive until 2025. A bond yield surpassing 40% augments the hurdles SAVE faces in securing another merger proposal.

Bottom Line

Undoubtedly, the previous week proved to be a stormy period for SAVE. However, some observers are optimistic that the company may recover and could potentially regain its value.

The future now hinges on the appeal filed jointly by SAVE and JBLU; its potential impact on the stock price in the coming weeks remains unknown.

Given the various challenges currently plaguing SAVE, the trend of short selling seems almost unavoidable. Indeed, SAVE presents a distinct possibility for a short squeeze, given its bleak future, which might include bankruptcy or liquidation. It's feasible that investors could identify it as their subsequent target. Nevertheless, this offers no guarantee of sustained squeeze or any significant profits.

It becomes crucial for investors to closely monitor SAVE’s overall performance moving forward. Unlike its competitors, the company hasn’t been able to recover due to a host of difficulties. This includes the availability of pilots, engine malfunctioning, saturation in certain domestic markets, and pronounced exposure to regions impacted by air traffic control adversities.

Considering the broader context, investors are advised to exercise caution and look for more favorable entry points in the stock.

Bitcoin's Performance Amid ETF Flux – a Closer Look at Fidelity and BlackRock

Posted on by The INO.com Team

On January 10, 2024, the Securities and Exchange Commission (SEC) authorized 11 U.S.-listed exchange-traded funds (ETFs) focused on Bitcoin investments, subsequently unlocking a new asset class for a broad spectrum of investors and simplifying the path to gaining direct exposure to the digital currency.

This highly anticipated decision garnered significant participation from institutional and retail investors in the cryptocurrency market, spurring substantial inflows. Notably, new U.S. spot Bitcoin ETFs witnessed $4.6 billion in volume on their inaugural trading day, as per data from the London Stock Exchange Group.

A week after the launch of these ETFs, intriguing patterns began to materialize. Spot Bitcoin ETFs currently command more than 100,000 Bitcoin, which implies an Asset Under Management (AUM) estimated at approximately $4 billion. This important revelation signifies the escalating amalgamation of Bitcoin into traditional financial systems and underlines the amplified role of cryptocurrency within the investment community.

Grayscale, leading the pack as the largest Bitcoin holder in the ETF segment, remains at the cutting edge of this Bitcoin acquisition drive. Its holdings reached an impressive tally of 552,681.2268 BTC. This substantial investment further solidifies Grayscale's standing as a major contributor in the crypto sphere and hoists Bitcoin ETFs above Silver to rank them as the second-largest commodity ETF based on holding size.

Following Grayscale's lead, BlackRock’s ishares Bitcoin Trust (IBIT) secures its position as the runner-up in terms of Bitcoin holdings with an impressive 39,925 BTC in its vault. Fidelity Wise Origin Bitcoin Fund (FBTC) continues to hold robust with 34,126 BTC. These figures exhibit significant engagement from leading financial institutions in the expanding cryptocurrency market, marking a considerable shift toward digital assets in investment strategies.

Upon winning ETF approval, Bitcoin's price momentarily soared to $48,000, only to face a subsequent downturn. This volatility alludes to an unpredictable market where current selling pressures seem to outweigh buying activities.

Adding to the uncertainty is BitMEX founder Arthur Hayes foreseeing a further dip in Bitcoin's value below the $40,000 mark, a prediction affirmed by acquiring 29Mar $35k strike puts. Hayes' cautious approach mirrors his acquisition, amounting to 5 BTC, revealing a reserved perspective for the immediate future of this cryptocurrency.

The existing market landscape, combined with expert evaluations and forecasts, hints at a potential slump for Bitcoin in the near term. While the approval of spot Bitcoin ETFs stands as a critical step in Bitcoin's mainstream acceptance, the path ahead presents an element of vagueness.

U.S. Spot Bitcoin ETF fluctuations could be rooted in various factors apart from Bitcoin's price oscillations. The spot Bitcoin ETFs depend on Authorized Participants (APs) to create and redeem ETF shares in return for Bitcoin. These APs procure Bitcoin from varied platforms, which might differ in liquidity levels, fees, and risks; these variations can impact the price of the ETF and the NAV of funds. Furthermore, management fees could also have an impact on the returns on ETFs.

Of the 11 freshly introduced spot ETFs, two funds particularly stood out in terms of net inflows: BlackRock’s ishares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC).

BlackRock and Fidelity commanded the investors' attention, jointly netting 68% of all inflows during the first week (IBIT accounting for 37% and FBTC for 31%). IBIT swiftly amassed $1 billion in assets within four days of trading, while FBTC achieved the same feat on the fifth trading day. The two funds have each generated over $2 billion in trading volumes since inception.

The regulatory nod sparked intense competition for market share among the issuers. The issuers have deployed strategies to cut expense ratios and offer fee waivers. For instance, the FBTC underwent an initial proposal of a 0.39% fee, which was later reduced to 0.25%, coupled with a fee waiver effective until July 2024. Meanwhile, IBIT charges a 0.12% fee for the first 12 months for assets up to $5 billion. Both IBIT and FBTC charge 25 basis points in fees.

Investors considering a Bitcoin ETF should bear in mind that although these ETFs generally operate in a similar fashion with minor disparities, the expense ratio remains a pivotal factor in the decision-making process.

Let's delve deeper into the Bitcoin ETFs leading the pack now.

ishares Bitcoin Trust (IBIT)

IBIT, the BlackRock-owned Bitcoin ETF, emerges as a leading choice for retail investors due to its superior liquidity and affordable expense ratio. As a titan in the financial world, BlackRock remains unparalleled in its position as the most extensive ETF manager globally, with an AUM of $3.5 trillion across its portfolio of global ETF investment vehicles as of December 31, 2023. This powerhouse backing makes IBIT an assured choice for those seeking Bitcoin offerings buttressed by a sophisticated and large-scale financial structure.

The planning is such that IBIT vows an accessible expense ratio of 0.12% for the fund's initial $5 billion in assets over the ensuing year. An annual expense ratio of 0.25% is projected to kick in from January 2025.

Standing true to its promise of liquidity, IBIT has already amassed over $1 billion worth of Bitcoin in its reserves, a feat rivaled only by the SPDR Gold Trust (GLD), which impressed the markets by garnering $1 billion in assets within three days of its inauguration in 2004.

As of January 22, IBIT had $1.34 billion in AUM and an impressive NAV of $22.86. It registered net inflows of $1.12 billion over the past five days. IBIT holds about 39,925 BTC, valued at roughly $1.62 billion.

Despite experiencing a dip of 7.2% over the last five days, closing the last trading session at $22.95, IBIT maintains its allure among investors. Its swift popularity underscores it as an ideal option for those looking to diversify their portfolio with cryptocurrency and cultivate growth over time.

Fidelity Wise Origin Bitcoin Fund (FBTC)

FBTC, another notable name in Bitcoin ETFs, boasts a low expense ratio. However, investors with significant capital ready for deployment into Bitcoin ETFs are in luck, as FBTC has decided to waive even these modest fees until August 1, 2024. After this date, it will implement an expense ratio of 25 basis points.

Notably, Fidelity serves as the largest 401(k) plan and service provider in the nation. This development positions both individual investors and asset managers to seamlessly incorporate Bitcoin into comprehensive retirement strategies.

Crypto bears might argue against such a move, but it's worth considering: Would a competent asset manager willingly forsake prospective gains by excluding a Bitcoin ETF from their client portfolio? Allocating even a small portion toward this asset could potentially yield substantial returns in relation to the total investment, given Bitcoin's impressive performance trajectory over the past decade. Concurrently, with individuals reevaluating their 401(k) strategies leading up to 2024, a surge of capital directed toward FBTC is predictable.

As of January 22, FBTC had $1.21 billion in AUM and an NAV of $35.08. Its net inflows were $1.07 billion over the past five days. FBTC holds about 34,126 BTC, valued at roughly $1.37 billion.

Despite these positive indicators, FBTC plunged 7.3% over the past five days, closing its last trading session at $35.18.

Bottom Line

With the advent of Bitcoin ETFs, investing in this unique asset class has become less complex, potentially elevating its position within the financial industry. These recently launched ETFs provide a broad spectrum of investors with a simpler approach to gaining exposure to the crypto asset.

Shortly before the SEC approved the ETFs, it re-emphasized its previous "no FOMO" cautionary message to investors. Aimed at highlighting the volatility of digital assets, the warning underlines how investments tied to current popular trends like cryptocurrencies can experience periods of severe fluctuations, translating into drastic changes in value both positively and negatively.

The SEC's approval brings much-needed standardization and regulatory supervision to digital asset investment. However, experts are advising mainstream investors to proceed with caution, pointing out that Bitcoin still distinguishes itself as a speculative asset.

News of Bitcoin ETFs has made headlines, even though their trading results may not meet the initial hopes of crypto bulls. Nevertheless, many see brighter days closing in. Potential future record cash inflows into these funds might be on the horizon as financial advisors and wealth managers consider incorporating them into their clients' diversified portfolios.

Bitcoin's primary utility arises from its function as a form of value storage akin to gold. The day that central banks initiate the acquisition and storage of Bitcoin will signify its arrival at the forefront of the financial world. The price is now around $39,000, and it appears to be headed lower. After the establishment of a true base, a progressive increase in its price over time could be projected as governments devalue their fiat currencies.

With the introduction of spot ETFs, we're starting to see the beginnings of real price discovery. This process could further develop in a couple of months.

Prestigious investment managers such as Fidelity and BlackRock’s iShares should not be overlooked in this space. Their competitive edge in the traditional ETF fees arena may eventually give them an advantage over smaller rivals. Considering the slight disparity in fees between these funds and market leaders, long-term Bitcoin ETF investors might consider opting for these established alternatives.

Although the issuer’s role is arguably minor, ETFs governed by larger asset managers could be more resistant to liquidity issues arising from insufficient demand.

As an example, the IBIT ETF concluded January 22 trading at a 0.41% premium to its net asset value, indicating high demand. On the other hand, the FBTC traded at a 0.30% discount relative to its net asset value, suggesting weaker demand.

In view of the overall market situation, adopting a strategic position in IBIT and FBTC once the price stabilizes would be prudent.

Breakout for Stocks or Fake Out?

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

SPY – Once again stocks flirted with the all time highs for the S&P 500 (SPY). This has happened 2 times recent both leading to failure and this 3rd time doesn’t seem to be the charm either. What is holding stocks back from making new highs? And what should an investor do to find better performance? 43 year investment veteran Steve Reitmeister shares his view including a preview of his 11 favorite stock picks now. Read on below for the answers…

 

In my recent commentaries I have speculated that we were due for a trading range to digest some of the rampant gains at the end of 2023. However, so far it has been more of a consolidation under the all time highs at 4,796 for the S&P 500 (SPY).

Consolidations are simply much tighter trading ranges. That investors refuse to have a serious sell off while also not being ready to climb higher. Kind of feels like cars revving up at the starting line of a race…lots of noise, but going nowhere.

We will discuss more of the reasons behind this consolidation and when stocks should be ready to race ahead.

Market Commentary

Stocks have tried twice over to make new all time highs above 4,800 for the S&P 500. And twice thwarted at that level followed by share pullbacks.

Yes it looks like Thursday’s action signals a 3rd such attempt. Yet that was a very hollow rally with the usual suspects in the S&P 500 doing well with small caps and other riskier stocks lagging. That is not the sign of a healthy bull. And give very low odds of breaking to new highs.

(1/20/24 update: Yes, the S&P 500 officially made new highs above 4,800 on Friday. I honestly thought it was a fairly hollow rally mostly led by the usual mega cap tech stocks and not such a broad rally. Meaning I do not believe this rally has staying power and likely will fall back below 4,800 this coming week. And at best we consolidate just above 4,800 with little true upside coming in the days ahead).

Some are pointing to economic data being too weak as the problem. Such as the horrific -43 showing for the Empire State Manufacturing Index on Tuesday.

While others are pointing to economic data being too strong like Retail Sales being above expectations on Thursday. This had 10 Year Treasury rates breaking further above 4% and also lowered the odds of the first rate cut coming at the March Fed meeting.

Sorry folks…you can’t have it both ways. And perhaps the answer is that neither of these theses are correct.

Meaning I don’t believe that investors are truly worried about a looming recession. Nor are they fearful of rates spiking again as they did in the Fall of 2023.

Simply, the market has come a long way from bear market bottom in October 2022. A total gain of 37% from that valley to now is a lot of profit in a short time when the long term average annual gain for the S&P 500 is only 8%.

So now is a healthy time for an extended pause. The same way you would take a long break after running a marathon.

Rest is what is needed. And then gaining the strength for the next run higher.

In the stock market world that typically comes hand in hand with a pullback in price leading to a trading range. Along with that you will see these investment terms show up more often:

  • Profit taking
  • Sector rotation
  • Change of leadership
  • Buy the Dip
  • The Pause that Refreshes
  • And so on…

Yet right now the most apt term is consolidation. As shared up top, that is simply a very tight trading range right under a point of resistance. Currently that resistance corresponds with the all time closing highs at 4,796…but for simplicity easier to think of it as 4,800.

The point is at this stage it is healthy and normal for stocks to relax after such a long run higher. Don’t be surprised if the consolidation does turn into a wider trading range with a subsequent test of the 50 day moving average at 4,628 being a likely downside target.

Moving Averages: 50 Day (yellow), 100 Day (orange), 200 Day (red)

A break below 4,600 is unlikely without some greater fundamental concerns arising. But let’s do appreciate the 2 next levels of price support rest at 4,488 for 100 day moving average and about 4,400 for the 200 day moving average.

Your trading plan should be to stay bullish. Use any subsequent pullback as a buy the dip opportunity. NOT for the stocks that led the charge in 2023. That game plan is played out.

Instead valuation and quality will be held in higher regard this year as the overall PE of the market is not cheap. GAARP is fine (Growth At A Reasonable Price)…but not growth at ANY price like last year.

If you want my favorite stock ideas for 2024, then read on below…

What To Do Next?

Discover my current portfolio of 11 stocks packed to the brim with the outperforming benefits found in our exclusive POWR Ratings model.

Yes, that same POWR Ratings model generating nearly 4X better than the S&P 500 going back to 1999.

Plus I have selected 2 special ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

These 13 top trades are based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these lucky 13 hand selected trades, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!


Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return

 

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

Will Google's UPI Expansion Make GOOGL a Must-Have Tech Stock?

Posted on by The INO.com Team

Alphabet Inc. (GOOGL) has decided to help globalize India’s home-grown payments service, Unified Payments Interface (UPI). This instant real-time payment system was developed by the National Payments Corporation of India (NPCI) in 2016 and allows individuals to use a single app to make peer-to-peer payments to or from multiple bank accounts.

Third parties can include UPI in their payment systems or apps, with payments flowing smoothly between all participants. The interface has more than 300 million active users and manages around 10 billion transactions per month. The traffic is not far behind Mastercard Inc. (MA) and nearly half the volume that Visa Inc. (V) handles.

UPI is ubiquitous in India and is one of the largest retail payment systems in terms of transaction value and volume. The payment service has already been made available in other nations, partly to assist Indian tourists as they travel and to facilitate cross-border transactions.

Now, Google has decided to spread these use cases around the globe. On January 18, 2024, Google Pay India and NPCI International Payments Ltd (NIPL), a wholly owned subsidiary of NPCI, signed a Memorandum of Understanding (MoU) to broaden the transformative impact of UPI to nations beyond India.

The MoU has three key objectives. Firstly, it seeks to expand the use of UPI payments for travelers out of India, allowing them to make transactions abroad seamlessly and conveniently. Secondly, it will help establish UPI-like digital payment systems in other countries, offering a model for seamless financial transactions.

Lastly, the MoU intends to ease the process of remittances between countries by utilizing the UPI infrastructure, thereby simplifying cross-border financial exchanges. These listed objectives are expected to accelerate UPI’s global acceptance, providing foreign merchants easy access to Indian customers who will no longer have to depend only on foreign currency and credit or forex cards to make payments.

“We are delighted to support NIPL towards expanding the reach of UPI to international markets. Google Pay has been a proud and willing collaborator to NPCI and the financial ecosystem, under the regulator’s guidance, and this collaboration is another step towards our commitment to making payments simple, safe and convenient,” said Deeksha Kaushal, Director, Partnerships, Google Pay India.

With this strategic collaboration, Google will not only create new digital finance opportunities for itself but also support the Indian government’s initiative to take UPI global.

India’s Digital Diplomacy Strategy

The recently signed MoU aligns with NPCI’s endeavor to boost India’s position in the global digital payment landscape. India’s Prime Minister Narendra Modi has been vocal on the government’s ambitions to take UPI global. At the BRICS summit in August last year, Modi noted that UPI had expanded to other nations, including the UAE, Singapore, and France.

“There are many possibilities of working on this with BRICS countries as well,” he stated.

Further, in an exclusive interview with Business Today, Modi highlighted the fact that 46% of global digital payment transactions today are in India, which he described as “one shining example of the success of our policies,” adding that “the world today sees India as the incubator of innovation.”

Last year, India also topped the global remittance charts. According to a recent report, the World Bank noted that India’s remittance inflows totaled $125 billion in 2023, the highest in the world and well ahead of Mexico ($67 billion) and China ($50 billion). Annual growth was a brisk 12.4%.

GOOGL’s stock has advanced more than 19% over the past six months and nearly 57% over the past year.

Here are other factors that could impact GOOGL’s performance in the near term:

Google’s Remarkable AI Progress

2023 has been a year of significant progress for GOOGL in the field of Artificial Intelligence (AI) research and its practical applications. With generative AI, the company is reimagining its products and services. In February 2023, Google launched Bard, its conversational AI service powered by LaMDA. This tool can generate text, translate languages, write different kinds of creative content, and more.

In May, the tech giant reviewed the results of months and years of its foundational and applied work announced on stage at Google I/O. This included its next-generation large language model (LLM), PaLM 2, which is built on advanced compute-optimal scaling, scaled instruction-fine tuning, and enhanced dataset mixture.

By fine-tuning and instruction-tuning PaLM 2 for multiple purposes, the company was able to integrate it into more than 25 Google products and features, including an update to Bard, which enabled multilingual capabilities.

In addition, Search Generative Experience (SDE) uses LLMs to reimagine how to organize information and help people navigate through, creating a more fluid, conversational interaction model for its core Search product, MakerSuite, an easy-to-use prototyping environment for the PaLM API powered by PaLM 2, and many more developments.

The company also introduced DuetAI, its AI-powered collaborator that offers users assistance when they use Google Workspace and Google Cloud.

In June, Google unveiled Imagen Editor, which offers the ability to use region masks and natural language prompts to edit generative images. Later last year, Imagen 2 was released, which improved outputs through a specialized image aesthetics model based on human preferences for qualities like lighting, exposure, and framing.

Further, on November 22, in collaboration with YouTube, the company announced a new DeepMind model, Lyria. It is the most advanced AI music generative model to date that will create vocals, lyrics, and background tracks mimicking the style of popular artists. This model is available on YouTube through two distinct AI experiments – DreamTrack for Shorts and Music AI tools.

Then, in December, GOOGL launched Gemini. Gemini will include a suite of three different sizes: Gemini Ultra, its largest, most capable category; Gemini Pro, which scales across a wide range of tasks; and Gemini Nano, which will be used for specific tasks and mobile devices.

Robust Last Reported Financials

For the third quarter that ended September 30, 2023, Google parent Alphabet’s revenue came in at $76.69 billion, beating analysts’ estimate of $75.73 billion. This compared to revenue of $69.09 billion in the same quarter of 2022.

The company’s Google advertising revenues were $59.65 billion, an increase of 9.5% year-over-year, and its Google Cloud revenues grew 22.5% from the year-ago value to $8.41 billion. Its income from operations came in at $21.34 billion, up 24.6% from the prior year’s quarter.

GOOGL’s income before income taxes rose 30.6% year-over-year to $21.20 billion. The company’s net income rose 41.5% year-over-year to $19.69 billion. It posted net income per share of Class A, Class B, and Class C stock of $1.55, compared to the consensus estimate of $1.45, and up 46.2% year-over-year.

Furthermore, as of September 30, 2023, the company’s cash and cash equivalents stood at $30.70 billion, compared to $21.88 billion as of December 31, 2022. Its current assets were $176.31 billion versus $164.80 billion as of December 31, 2022.

Sundar Pichai, Alphabet’s CEO, said, “I’m pleased with our financial results and our product momentum this quarter, with AIdriven innovations across Search, YouTube, Cloud, our Pixel devices and more. We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”

Solid Historical Growth

GOOGL’s revenue grew at a 20.1% CAGR over the past three years. Over the same period, the company’s EBITDA and operation income (EBIT) improved at CAGRs of 26% and 32.7%, respectively. Further, its net income and EPS grew at respective CAGRs of 23.2% and 26.3% over the same timeframe.

Additionally, the company’s total assets grew at a CAGR of 9.9% over the past three years, and its levered free cash flow improved at a 36% CAGR.

Optimistic Analyst Estimates

Analysts expect GOOGL’s revenue for the fourth quarter (ended December 2023) to increase 12% year-over-year to $85.20 billion. The consensus EPS estimate of $1.60 for the current quarter indicates a 52.21% year-over-year improvement. Moreover, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

In addition, Street expects GOOGL’s revenue and EPS for the fiscal year (ended December 2023) to increase 8.1% and 26% year-over-year to $305.77 billion and $5.74, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.3% and 15.9% year-over-year to $340.26 billion and $6.66, respectively.

High Profitability

GOOGL’s trailing-12-month gross profit margin of 56.12% is 14.1% higher than the 49.18% industry average. Also, the stock’s trailing-12-month EBIT margin and net income margin of 27.42% and 22.46% are considerably higher than the industry averages of 8.56% and 3.27%, respectively.

Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 25.33%, 17.36%, and 16.82% are favorably compared to the respective industry averages of 3.53%, 3.48%, and 1.38%. Its trailing-12-month levered FCF margin of 23.81% is 200.2% higher than the industry average of 7.93%.

Bottom Line

Alphabet’s shares climbed nearly 58% last year as tech stocks rallied after a disastrous 2022, driven partly by excitement about AI. The company reported an impressive revenue growth of 11%, returning to double digits for the first time in more than a year alongside a recovery in the digital ad market. Sales and profit both surpassed analysts’ expectations.

Moreover, for GOOGL, 2023 was a remarkable year of groundbreaking advances in AI and computing. Last week, in a memo titled “2024 priorities and the year ahead” that staffers received, Google CEO Sundar Pichai stated that the company has ambitious goals and will be investing in its big priorities this year. This includes AI and spans Google’s consumer to enterprise platforms.

Analysts at JP Morgan named GOOGL as one of their top picks for 2024, with AI primarily assisting in the stock’s significant growth.

GOOGL's partnership with the National Payment Corporation of India (NPCI) is geared toward extending India's UPI's reach globally, which is expected to yield advantages for the company.

This partnership seems like a suitable strategic move that would support a vital policy objective of the Indian government to broaden the digital payments landscape and provide Google Pay with new growth opportunities.

Considering these factors, GOOGL seems to be a must-have stock for any investment portfolio.