GameStop’s Reddit-fuelled trading surge could plunge 94% as it faces growing competition from rival digital games, one Wall Street analyst says

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  • GameStop’s shares could tumble 94% on strong competition from rival digital games, one analyst said.
  • The Reddit favorite’s meme popularity will likely have less of a long-term impact on its stock, he said.
  • Edward Woo downgraded GameStop’s rating to “sell” from “hold” and lowered his 12-month price target.
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GameStop, the video-game retailer cheered by day traders this year, is likely to see its Reddit rally fade because of strong digital competition from Microsoft and Sony, Ascendiant Capital analyst Edward Woo wrote in a research note on Saturday.

Woo has raised questions about GameStop’s low market share in digital game sales and expects the company’s long-term share price to drop sharply.

He further said GameStop’s popularity on Reddit will at some point stop driving the movement in its stock.

“Due to the popularity of GameStop on Reddit chat boards and with Robinhood retail investors, GameStop shares appears to no longer trade on traditional fundamental valuations or metrics, but on retail investors’ sentiment, hope, momentum, and the powers of crowds,” he wrote.

“This makes short term price movement forecasts nearly impossible (and we acknowledge can drive shares much higher), but we believe that over the long run GameStop’s current elevated share prices will come back down to match its current weak results and outlook.”

Woo downgraded the company’s stock to “sell” from “hold,” and lowered his 12-month price target to $10 per share from $12.

GameStop didn’t immediately respond to Insider’s request for comment.

The company’s stock was up almost 4,000% from a year ago after it found itself at the center of a stock market storm between Reddit day traders and short-sellers.

Its shares were last trading 10% lower in the pre-market, at $141.09 per share on Tuesday, after GameStop was said to be looking for a new CEO to replace George Sherman, sources told Reuters.

News of the management shake-up followed Woo’s stock downgrade. The company is already going through wide “transformation” in culture and strategy under board member and activist investor Ryan Cohen.

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The broader stock market is not in a bubble, but these 5 sectors are, according to JPMorgan

NYSE trader
  • Concerns over a potential bubble forming in the stock market have been growing as equities continue to hit record highs.
  • But according to a Thursday note from JPMorgan, the broader stock market is not in a bubble.
  • Instead, five sectors in particular seem to be in bubble territory after more than tripling in price, the bank said.
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A continued rise to record highs in the stock market has some worried that a bubble is forming as valuations appear stretched and rising inflation seems imminent.

But according to a Thursday note from JPMorgan, there is no bubble to be found in the broader stock market. High expectations for historic economic growth amid a reopening of the US economy supports the move higher in stocks, according to the bank, which expects US GDP growth of 6.3% for 2021.

But within certain sectors, there does appear to be pockets of froth that are likely experiencing a bubble, JPMorgan said. These are sectors that “have more than tripled in price over a short period of time,” the bank explained.

These are the five sectors of the stock market that appear to be in a bubble, according to JPMorgan.

1. Clean Energy

Anything related to ESG has seen a boom in prices as investors continue to gravitate towards sustainable investing. Clean energy is one sector that comes top of mind to investors that are looking to invest in a green future, and the top holdings in the iShares Clean Energy ETF represent companies in the fuel cell and wind energy space.

Since its pandemic low last year, the ETF rallied as much as 324% in less than a year, meeting JPMorgan’s criteria for a potential bubble.

2. Solar Energy

The sector saw a strong boost as the prospects of a Joe Biden presidency and democratic-controlled Senate became more apparent. President Biden has pointed to solar as a core technology needed to combat climate change. The industry is expected to significantly benefit from Biden’s $2.2 trillion infrastructure bill.

Solar stocks staged a strong rebound after its pandemic low, with the Invesco Solar ETF rallying as much as 496% in less then a year.

Read more: We asked 5 renowned growth-fund managers for their favorite stock picks. These are the 4 that multiple managers think will crush the market going forward.

3. Electric Vehicles

Following the theme of clean energy and Biden’s green agenda, electric vehicles have staged monster rallies over the past year, mostly led by Tesla. Now, investors are holding out hope for more gains as Biden’s infrastructure bill includes $174 billion for the electric vehicle industry.

EV stocks have rallied by as much as 178% since its pandemic low last year, as measured by the iShares Self-Driving and Electric Vehicle ETF.

4. Cryptocurrencies

Bitcoin remain the most popular cryptocurrency, but thousands of other crypto assets exist, and many of them have seen marked price increases over the past year. Those crypto assets tend to move in tandem with bitcoin, which saw a more than 1,400% increase since last year’s pandemic low. The total market value for cryptocurrencies recently exceeded $2 trillion, and even XRP caught a bid as it faces a lawsuit from the US Securities and Exchange Commission.

While JPMorgan views cryptocurrencies in a potential bubble, the firm believes bitcoin could hit a long-term price objective of $130,000.

5. SPACs

The boom in SPACs over the past year has been unprecedented, as companies seeking to go public sidestepped the traditional IPO process in favor of the quicker and cheaper SPAC process amid the pandemic. In the first quarter of 2021, SPACs raised more money than the did in the entirety of 2020. Some estimates even suggest that the current stable of SPACs have more than $1 trillion in buying power. But the SEC is starting to set its focus on SPACs and the lofty earnings estimates firms are setting when going public.

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Not owning Tesla stock is the greater risk ahead of massive infrastructure package, Morgan Stanley says

Tesla Shanghai China Factory
Tesla TKed Wall Street’s expectations.

  • Morgan Stanley said Tesla will have a huge advantage ahead of President Biden’s infrastructure bill.

  • Biden’s $2 trillion proposal carved out $174 billion for the electric vehicle sector alone.
  • If this passes, the bank said this would exacerbate Tesla’s advantage over other players.

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Among the companies that stand at an advantage ahead of President Joe Biden’s massive infrastructure bill is Tesla, according to Morgan Stanley analysts, and owning the stock they say may be a bigger risk than not.

Biden’s $2 trillion infrastructure proposal carved out $174 billion for the electric vehicle sector alone, as the president aims to better equip American companies to compete with China, which is currently the market leader in the electric vehicle space.

Analysts at Morgan Stanley led by Adam Jones said in a note published Wednesday that Biden’s bill will increase Tesla’s advantage over legacy players and new entrants altogether.

The policy used to accelerate sales of electric vehicles will slow sales of internal combustion engine cars, the analysts said.

The analysts did warn that the build-out may follow a volatile and non-linear path.

“It will likely be complicated by a labyrinth of national and local laws that will present advantages and disadvantages to various automakers, depending on the year that you choose to analyze,” they said. “Put it all together and we believe auto investors face greater risk not owning Tesla shares in their portfolio than owning Tesla shares.”

The electric carmaker last week revealed that 184,800 vehicles were delivered and 180,338 cars were produced for the first three months of 2021, despite major production and supply-chain headwinds. Tesla in the final quarter of last year delivered 180,570 cars.

Wedbush analyst Daniel Ives said the first-quarter results were a “paradigm changer” and show that the global pent-up demand for Tesla’s Model 3 and Y is just about to hit its next stage of growth.

The strong start of the year for the company proved that founder Elon Musk’s efforts to shore up global operations in Europe and China are paying off.

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Bank stocks could jump 45% on rising bond yields and attractive relative value, Morgan Stanley says

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo
FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

  • Bank stocks could jump as much as 45% on a range of macroeconomic factors, according to Morgan Stanley.
  • “Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% YTD,” the note said.
  • Historically, bank stocks have benefitted from rising yields and a steepening curve, the note added.
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Bank stocks could jump as much as 45% on various macroeconomic factors, from a steepening yield curve to attractive relative valuation that supports the sector’s outperformance, according to Morgan Stanley.

In a note published on Wednesday, the bank listed five factors that could drive the cohort higher, especially on the expectation of a rotation to value stocks rotation continuing in the near term.

“Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% [year-to-date], outperforming the broad S&P 500 index by 15.4%,” the note, led by quantitative strategist Boris Lerner, said.

Higher rates, strong economic growth, and fiscal stimulus all contribute to the growth of support value stocks, the note said. The analysts are seeing a a 20%-45% relative upside in the base case scenario.

(1) Rising yields

Banks have historically benefitted from rising yields and a steepening curve, the note said. As yields are expected to continue going up, which will result in a steeper yield curve, bank stocks are expected to keep performing well.

(2) Attractive relative valuation

Banks trade at a significant discount to the market, the note said, and because valuations are near median levels, market valuation at this point looks relatively high. Banks are cheap relative to the market, the note said. The analysts added that the current macroeconomic environment is supportive of value stocks, which have been outperforming growth stocks since the fourth quarter of 2020.

(3) Bank earnings are set to increase

Five key factors are driving EPS growth for banks, Morgan Stanley said. They are: (1) a steepening yield curve due to rising interest rates, (2) high GDP growth, which will boost loan growth, (3) lower credit losses, (4) accelerating job growth, and (5) accelerating buybacks as earnings grow.

(4) Light positioning

Exposure to financials among equity hedge funds is at a 10-year low, Morgan Stanley said, despite the recent rally in financials stocks.

“Active long-only managers are also underweight the sector relative to passive funds,” the note said.

(5) Momentum

The recent rally in financial stocks is expected to increase the net exposure of financials within the S&P 500 from -2% to +15% in the next 3 months, the note said. “Currently, 12-month S&P 500 momentum strategies are net short financials,” the note added. “Shorter-term momentum strategies, based on 9-month or 6-month returns often lead the 12-month momentum, and these portfolios currently have financials at 15% to 23% (highest exposure relative to other sectors).”

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UBS more than doubles its Tesla price target, citing huge upside in the automaker’s software business

Tesla model S

UBS more than doubled its price target for Tesla on Tuesday, from $325 to $730, while keeping its neutral rating, citing the electric car maker’s emerging leadership in software.

“Tesla has the potential to become one of the most valuable software companies,” the team of analysts, led by Patrick Hummel, said in a note.”This is the next battleground and main driver of valuation from here, in our view.”

Tesla’s narrative, the analysts said, is no longer about winning in electric vehicles where it has already established market leadership, but rather in software. 

They predict Tesla will become one of the largest and most profitable original equipment manufacturers globally by 2030, projecting an estimated $200 billion market value for that segment of its business. 

“We think the lion’s share of this value can be generated by software, mainly autonomous driving,” UBS analysts said. “No other carmaker is closer to monetize fully autonomous driving for everyday use, and the scalability of Tesla’s technology creates the biggest software-driven revenue opportunity in the industry, in our view.”

They also said Tesla will be the most profitable player in the electronic vehicle space for years to come, even as competition heats up.

Tesla shares have jumped 360% in the past year. Shares were lower on Wednesday, trading at $669.20 at 2:43PM ET. 

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Nvidia pares Thursday gains after spiking on Citi analyst’s strong outlook

Semiconductor manufacturing.
Nvidia semiconductor manufacturing.

  • Nvidia stock trimmed gains Friday after a strong showing on the back of Citigroup’s positive note on Thursday.
  • Analyst Atif Malik’s EPS estimates are 2%-5% ahead of street estimates, which implies Nvidia could post a $2.94 EPS figure when the company reports earnings on February 11.
  • Nvidia now boasts 30 Buy ratings, 5 hold ratings, and just 4 Sell ratings from analysts.
  • Visit Business Insider’s homepage for more stories.

Shares of Nvidia trimmed gains Friday after surging some 4.3% Thursday on a strong outlook from Citigroup. The stock was down around 1% early Friday afternoon. 

Citigroup analyst Atif Malik said in a note that Nvidia’s stock has lagged its chip manufacturing peers and could offer upside potential ahead of next week’s virtual CES conference.

Nvidia was added to Citi’s “Catalyst Watch List” and the bank maintained its $600 price target.

Malik noted Nvidia has fallen over 15% from its early November high of over $580 per share, while the iShares semiconductor index SOXX has gained over 24% during the same period.

Read more: Wall Street experts are calling Georgia’s runoff results ‘the first surprise of 2021.’ Here’s how 4 of them recommend positioning your portfolio for what could happen next.

Citi expects hyperscale-led data center demand recovery in the first half of 2021 and sustained PC gaming demand to drive an EPS boost.

Their analysts’ EPS estimates for Nvidia remain 2%-5% above street projections.

That’s worth noting, as Street analysts already expect Nvidia to grow its earnings by 48% in the January quarter to $2.80 per share. That’s on top of 55% year-over-year sales growth which will see Nvidia closing on the $5 billion revenue mark for the quarter.

Read more: Investing legend Terry Smith’s $30 billion equity fund returned 449% to investors over a decade – Here’s his 4-part strategy for success and 10 pieces of investing wisdom to take into 2021

This news comes just weeks after Wells Fargo boosted their price target for the chip manufacturer to $625 per share from $600 per share.

As of Friday, Nvidia boasted 30 Buy ratings, 5 Hold ratings, and just 4 Sell ratings from analysts, per MarketBeat.

Shares of Nvidia are down over 1% Friday afternoon, trading at $529.07 per share as of 12:55pm E.T.

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