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- INTERNAL| February 12th, 2024
INTERNAL| February 12th, 2024
[ good morning ]
Here’s everything you need to know today
As Football Season comes to a close and earnings season starts to calm down—investors are desperate to understand how 2024 could play out as we head into a pivotal week.
Tomorrow’s CPI is going to be a major inflection point given how hot the market is running right now. Stocks like ARM have soared to truly white-hot valuations in the wake of strong performance and optimistic guidance. The AI boom can absolutely keep this growth going—but the Fed can easily ruin this party by delaying rate cuts.
Even with Jerome Powell’s more hawkish commentary last month, investors are still pricing in at least three rate cuts this year starting in Q2. With jobs data coming back fairly mixed for January—there is growing concern that we’ll have to stay in this holding pattern for rates until there is more of a structural slowdown. That could trip up this rally in an instant given how high some of the valuations are in areas where investors are piling into winning stocks.
Of course, a cooler inflationary environment could easily allow the Fed to drop rates early in the year and keep cutting as AI advancements become a truly deflationary force. That would be an even wilder transformation for our economy with massive implications.
For now—the market is in a bit of a holding pattern while analysts try to forecast what direction the wind is blowing. Earnings are solid enough while a few too many mid-tier players are posting more conservative guidance than expected. Is that conservatism justified, or are we setting up for a Q2 highlighted by the Revenge of the Russell 2000?
Tomorrow will tell us a lot more, but let’s explore the big headlines today powering those trends.
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ energy ]
Diamondback to Acquire Endeavor Energy in Blockbuster Permian Deal
Another day, another $50 billion behemoth created in West Texas
BREAKING NEWS
The wave of consolidation in the oil business continued today as Diamondback Energy announced a deal to acquire their old rival Endeavor Energy Resources. Let’s break it down:
WHAT HAPPENED
Diamondback is buying Endeavor in a mixed cash and stock deal valued in the $26 billion range. While Diamondback shareholders will own a majority share of Endeavor after the deal closes—the stock mix here makes this more of a merger than anything. This deal will create a $50 billion energy player big enough to take on some of the mega-deals that have rippled across the Permian basin in West Texas.
HIGH-OCTANE MIX
With bigger players making much bigger and riskier moves in the Permian Basin—this merger is potentially perfectly balanced. Diamondback Energy has only been public for 12 years after storming the energy industry by being one of the fastest-developing fracking players ever. Thanks to those agile roots—Diamondback has been able to expand their oil production at a near-exponential rate since going public.
Meanwhile, Endeavor Energy has been quietly locking up territory in the Permian Basin while not developing their land deals as quickly. Endeavor has been quietly exploring a sale for years as their ability to produce oil from their holdings is lagging behind rivals in the region like ConocoPhillips.
Now—these combined company has nearly as much land as ConocoPhillips and can potentially produce as much as 400,000 barrels of oil a day. The agility of Diamondback and the land holdings of Endeavor give the new entity a strong foundation to stand up against the deals announced by the likes of Exxon and Chevron.
WHY IT MATTERS
This is now the third-biggest acquisition announced during this wave of consolidation hitting the Permian Basin. As the U.S. supercharges its ability to produce oil in an attempt to be the force setting global prices—the biggest players in the world are setting up for one last gold rush in West Texas before the green energy transition fully kicks in. This deal helps set the competitive landscape in the Permian Basin. For once, investors don’t think the acquiring partner in one of these deals overpaid for the transaction, and Diamondback Energy stock popped over 2% in early trading.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | 0.11% | 7.71% | 43.35% |
| Consumer Disc. | 0.71% | 4.04% | 21.44% |
| Consumer Stap. | -0.92% | 0.41% | -0.11% |
| Energy | -1.54% | 0.98% | -7.18% |
| Financials | 0.28% | 4.83% | 7.16% |
| Health Care | -0.08% | 2.74% | 8.68% |
| Industrials | 0.15% | 4.84% | 14.28% |
| Materials | 0.22% | 0.24% | 1.18% |
| Real Estate | 0.26% | -2.39% | -4.62% |
| Technology | 1.35% | 8.25% | 47.48% |
| Utilities | 0.38% | -4.35% | -11.03% |
*Market data based on standard trading hours and calculated close to close
[ software ]
Monday Cracks as Growth Stalls
Ahead of a bold price increase, Monday beat expectations and still fell to start the week
BREAKING NEWS
Despite every conceivable metric going their way—Monday.com’s stock is in freefall this morning thanks to a very conservative outlook for 2024.
WHAT HAPPENED
Monday basically crushed their earnings expectations—tripling The Street’s projections for Operating Income by generating $21.2 million from $202 million in revenue. Those revenue numbers handily surpassed expectations and represent a 35% YoY boost. Monday’s growth appears unstoppable—so why is the stock falling?
GROW OR DIE
Monday has been rallying thanks to a recent announcement that they would be hiking prices anywhere from 13% to 20% within the next week. Despite the positive pricing pressure and the outperformance in Q4—Monday management has projected fairly even-keeled guidance for Q1 and the full year of 2024. If these price increases were going over well with customers, the company would project much more aggressive growth goals for the year.
Instead—investors are taking this as a sign that there may be revenue headwinds hitting Monday as other productivity software plays swoop in with potentially attractive deals to chip away at Monday’s customer base. While Monday’s price hike is the right move—it could potentially create some hefty short-term headwinds.
WHY IT MATTERS
Of course—the most obvious reason Monday stock is getting pulled down is because the company simply ran a little too hot in this recent rally. Monday stock has surged over 30% since New Year’s and is up over 80% since hitting a low late in October. Conservative guidance here simply allows the market to pull back a little and allow Monday’s market cap to find a more stable level. This is one of the main trends we have to watch as this rally sustains current levels. A lot of stocks that have surged since October may suddenly correct several percentage points downward as The Street determines what the real value in each industry is. For now, medium-term holders of Monday stock are still performing great even with the company down over 13% in early trading.
[ pharmaceuticals ]
Gilead to Revive Portfolio with $4 Billion CymaBay Acquisition
The once-king of antivirals is mounting a comeback after stalled growth.
BREAKING NEWS
After struggling through 2023—Gilead Sciences is making a bold move to not be left behind by its rivals with a massive $4.3 billion acquisition of CymaBay Therapeutics. Why would they go after a deal that large?
WHAT HAPPENED
Gilead was one of the early leaders in the war on COVID-19—causing the stock to achieve wild growth in 2020. Since then, revenue has stalled despite some encouraging reports peppered throughout the last 4 years. Now, Gilead is buying CymaBay Therapeutics for $4.3 Billion in order to shore up their portfolio with CymaBay’s promising Seladelpar treatment for liver disease.
ARMS RACE
Fatty liver disease is a broad-spectrum disease that is getting diagnosed more and more for a variety of reasons. Recently, Eli Lilly stock got some solid lift when a new study demonstrated how their game-changing GLP-1 drug Mounjaro actually helps treat certain kinds of fatty liver disease.
CymaBay’s treatment focuses on a different kind of liver disease that GLP-1 drugs might not be able to help with. This acquisition is timed pretty much perfectly by Gilead as it gives them access to liver treatments right when we’re seeing an uptick in development around fighting liver disease.
WHY IT MATTERS
Ultimately—after a rollercoaster 4 years on the market—Gilead is placing a huge bet on liver treatments being an integral part of their portfolio moving forward. This acquisition is pretty expensive, and while it could pay off, this could set up Gilead for years of headwinds if Seladelpar doesn’t pan out. For now, CymaBay shares erupted over 20% in early trading and Gilead managed to net a little more than 1% growth at the same time. The market likes this deal.
Extra Moby Snacks
Amazon stock stayed strong in early trading despite a filing late on Friday announcing that Jeff Bezos sold over $2 billion worth of stock. Is Bezos selling the top or just desperate for more rocket funding? The market seems to think the latter is more likely.
Uranium prices continued to hit new highs last week after the world’s largest Uranium miner announced they had a fairly weak outlook for production in 2024. With nuclear energy on a resurgent path—is Uranium about to be the new Gold or is the metal fundamentally overbought on supply concerns?
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