The Ax Man Cometh (Again!)
We’ve been vocal in our opinions recently that 2022 will be the “Year of the Shortseller”. Tough sequential comps, a deteriorating macro situation, and rising interest rates with high inflation are a few reasons why shorts are enjoying the first quarter of 2021, with most major global markets negative YTD. While much of the selling has been in growth industries that caught a bid from easy money and market momentum in 2020, a new report from Ben Axler’s Spruce Point targets Stryker (NYSE: SYK), a $118 billion market cap medical technology company.
Spruce Point took aim at the company’s debt-to-cash imbalance and says that the company’s shareholders have enjoyed a good ride for far too long, as they “believe holding shares at this level represent a poor risk/reward”. Shares of SYK were down nearly 20% before recovering in mid-afternoon trading.
Buyside Take:We’re no strangers with Ben and Spruce Point - he’s our #2 ranked analyst and our #1 ranked short analyst on SumZero. We’ll be discussing the idea with Ben sometime this week that we will be sharing to our YouTube, but in the meantime, you can check out Ben’s previous work on other companies such as Oatly Group (OTLY: NASDAQ) and C3ai Inc. (AI: NYSE).
Source: Yahoo Finance
Banking on Zelle
Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC) are among a number of large U.S. banks looking to bring their co-owned payments system, Zelle, to more markets. A Wall Street Journal article Wednesday reported on high-level discussions between Zelle’s seven owner banks to expand the Zelle platform and try to sidestep Visa (NYSE: V) and MasterCard (NYSE: MA) in merchant payments.
According to the article, some banks are opposed to the plan for a variety of reasons, and it would need a universal agreement with all of Zelle’s owners before any move could be made. That said, Zelle expansion could allow the banks to set their own rules and fees for payments independently and take market share from the likes of V and MA.
Buyside Take:This report, from a PM based in Canada and updated in late January, analyzes Visa and some of the features of its competitive moat. “Threat of major disruption overstated,” writes our author, as he believes “people misunderstand how Visa makes money and casually dismiss its long-term prospects.” Bottom line: while V does face growing competition, its brand, switching costs, and fragmentation/specialization in the payments space leaves V well-positioned for future growth.
Source: Wall Street Journal
Can't Get Much Higher
Cannabis stocks were beaten down Wednesday after a solid run in the last few weeks, primarily on news of the U.S. House of Representatives passing legislation providing for legalizing recreational marijuana use in the US. The AdvisorShares US Cannabis ETF was down 3% as investors reconsidered their investments in high-growth pot companies.
The driver for today’s price action was growing pessimism that the Senate will fail to pass the legislation. Republicans in the Senate would filibuster any House version containing additional government spending, which Democrats included in the House bill. While Senate Majority Leader Chuck Schumer plans to introduce a new version of the bill, and it remains to be seen what that will stipulate, what is abundantly obvious is that Washington’s indecisiveness is weighing on investors’ appetite for cannabis exposure.
Buyside Take: While we await for our duly-elected representatives to screw up an issue that enjoys wide support in the American public, let’s take a step back and assume that eventually, marijuana will become legal recreationally. From an investor standpoint, our SumZero contributors think opportunities reside in names such as Ayr Wellness (AYR/A:CN) and Agrify Corp (AGFY:NASDAQ). Both ideas are down >20% to date, but if you’re looking for cash-flow generating businesses with a legalization call option, check out those reports.