Last Week in a Nutshell
Another week of very low volume on the major indices, especially the Nasdaq. In the chart above, I added a new row, “Last Week Volume” to illustrate the level of activity (buying & selling) occurring on a weekly basis. For example, the Nasdaq's overall volume for week ended 4/9/21 was 31% below its 10-week average.
The quietness could very well be due to the fact that institutions (the ones who actually move the market) are sitting tight with the market at these levels and are awaiting quarter one (Q1) 2021 earnings season. In particular, these institutions will be looking at the Q1 earnings results of sectors who should benefit from a ‘red hot’ economy: Banks, Consumer Discretionary and Transportation.
On a positive note, some of the high-flying stocks (SQ, TSLA, ROKU, PINS) that I mentioned in last week’s Blogue had extremely strong weeks. Unlike the major indices who are slowly moving up on below average volume, some of these stocks produced double digit gains last week on strong volume. Of the four stocks I highlighted, Tesla (TSLA) had the weakest return on the week only moving up 2.31% and its biggest volume day (Monday) was met with heavy selling resulting in what I call a ‘reversal.’ See below chart for detail:
On the other hand: Square (SQ), Pinterest (PINS) and Roku (ROKU) dominated last week. SQ, in particular, moved up 14% on 18% above average volume. This is a very healthy indicator to me and as I said last week, leaders lead us up. In the case of TSLA, it may be that it has temporarily fallen out of favor.
To close off last week’s news, the 10-year yield fell 5 basis points (which translates to a 2.91% decrease). This fall could be due to the Labor Department reporting weekly jobless claims on Wednesday. Jobless claims for the week came in 7.2% higher than the Dow Jones estimate thanks to New York and California. According to ZeroHedge, JPM stated that the $300 unemployment benefit enhancement is, “…encouraging more people to give filing a shot...” I mentioned in last week’s Blogue that the current unemployment benefits system may derail individuals from returning to the workforce.
A second reason for the 10-year yield retracement may be in due part to the rise in U.S. Covid-19 cases with Friday's number coming in at 81,769, the highest reported number of daily cases since March 8th.
Both of these factors may be reducing future inflation expectations a bit as shown in the 10-year yield pullback.
Are the ‘high-fliers’ such as SQ, PINS and ROKU leading us up again and the overall indexes are set to follow? My conviction in this occurring raised dramatically last week.
Notable companies set to report Q1 earnings results this week:
Continue to keep your eye on the 10-year yield, weekly jobless claims and U.S. Covid cases.
Overall, I believe this week’s market activity may prove to be very crucial. If the economic sensitive companies report less than optimal numbers, then the recovery trade may begin to fizzle. If that happens, will institutions reduce equity exposure completely or rotate back over to the tech/growth play?
Stock of the Week ** I have a position in that security
Peloton Interactive (NASDAQ:PTON)**
Leading connected-fitness company (didn’t need to tell you guys that one).
Following a 850%+ run over a 10-month span, the stock retreated 40+% from mid-January of this year to the beginning of March. A pullback was due, and this is healthy for the stock – stocks don’t only go up.
Investorplace.com published my article detailing why I am bullish about PTON over the long term, but I wanted to summarize my reasonings for the positivity on this week’s newsletter. Gym fads have come and gone but I believe the ‘connected-fitness’ aspect of Peloton completely changes the game.
Traditional Gym Flaws
A survey done by Better reveals that some of the most common reasons for people skipping out on the gym are lack of time, lack of confidence, the gym is too busy and childcare needs.
There are other reasons for people avoiding the gym, but the reasons emphasized above are solved by the working out at home trend.
The “connected” aspect of working out has proven to hold users accountable through external motivation and incentive-based programs.
However, the most important aspect of the connected-fitness trend is its recurring revenue component via monthly customer payments. Recurring revenue: reliable, predictable and has high gross margins (higher gross margins = higher earnings).
In the company’s latest quarter, the recurring revenue segment grew 152.53% year over year and had a 60% gross margin
The Peloton bike is extremely, ‘sticky’. When a product is sticky, it delivers value to the consumer consistently and is used regularly.
Over the last 10 quarters, Peloton’s churn (the number of subscribers who cancel their membership) has yet to eclipse 1%. At the same time, the subscriber base has grown 90+%every quarter for those same quarters.
A big reason for this stickiness is the connected-fitness aspect of the bike. Individuals become almost attached to a community of riders or a particular instructor (i.e. Alex Touissaint).
Pre-pandemic and pandemic, Peloton users loved their Peloton. Post-pandemic this trend will continue.
It is common for one to ascertain that Peloton is already very widely known and it might be too late to invest in them. As of year-end 2020, the company had just over 1.6 million subscribers.
According to Wellness Creative, at the end of 2019 there were:
64.2 million gym members in the U.S.
More than 10 million in the UK
The company has only recently expanded their product offering to the U.K. and in my opinion, they have barely scratched the surface in the U.S.
To add on to the size and potential of the fitness industry, the pandemic has caused individuals to start caring more about their health.
And lastly, the company recently partnered with Adidas to start, “...a line of performance wear and lifestyle pieces made in collaboration with Peloton instructors Ally Love, Robin Arzon and Cody Rigsby.” My two thoughts from this are 1) the proven ‘stickiness’ (sorry for using this word so much) will lead to existing Peloton users buying this gear and 2) Adidas is an international based company whose international revenue segment accounted for 73.6% of total net sales in 2020. In my opinion, this should heavily accelerate the adoption and penetration of Peloton into international markets.
Since the stock bottomed in early March, PTON stock has risen 31.5% and on Thursday (4/8/21), the stock rose 7.31% on 77% above average trading volume. This tells me that institutions have either started a new position in PTON stock or have begun adding to their existing position. Either way, as a holder of PTON stock, that is what you want to see!
Crypto Story of the Week
For this week, I wrote a separate blog on the U.S. dollar, the central authority's history of dollar abuse and how Bitcoin ties into it. To read more, follow the below link: The U.S. Dollar, the Central Authorities and Bitcoin
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