Reddit Stocks: What meme stocks are trending today? – October 19, 2023

US futures

• Dow Jones Industrial Average is up 0.1%
• S&P 500 is up 0.2%
• Nasdaq 100 is up 0.4%

US futures are trading higher today but risk appetite continues to be tested just as earnings season ramps-up. US treasury yields have spiked once again and are sapping energy out of stocks, with the yield on 10-year US bonds hitting fresh 16-year highs of 4.979%. Rising geopolitical tensions amid the conflict in the Middle East also isn’t helping sentiment.

US initial jobless claims

US initial jobless claims rose by 198,000 in the week to October 14. That was down from the 209,000 rise we saw the week before and was lower than the 212,000 forecast by economists. That suggests the job market is not weakening as much as economists expected.

That data comes ahead of speeches from several Federal Reserve members later today, headlined by chair Jerome Powell. Markets will be on the lookout for the latest commentary on interest rates and inflation. For now, markets are hopeful that rates will be left alone as the Fed waits for existing hikes to feed through and relies more on data going forward, although the higher for longer narrative is holding strong.

Gold hits 11-week high

Gold prices have continued to gain ground today as appetite for safe haven assets increases amid rising geopolitical tensions and an uncertain economic landscape. The metal is up 0.2% today at $1,950 an ounce.

Most discussed Reddit stocks

Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the last 24 hours, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) and other instruments have been excluded:

1. Tesla
2. Visa
3. NVIDIA
4. Netflix
5. C3.ai
6. Apple
7. Rivian
8. Eli Lilly
9. Morgan Stanley
10. Microsoft

Most active US stocks before the bell

Below are the most active stocks with a valuation of at least $500 million before the bell, based on trading data taken from Bloomberg:

1. Tesla
2. AT&T
3. Nikola
4. Lucid Group
5. American Airlines
6. Palantir
7. Rivian
8. Peloton
9. SoFi
10. Ford

US premarket winners and losers

Here are the stocks worth at least $500 million experiencing the sharpest movements in premarket trade, according to data from Bloomberg:

Top US stocks to watch

Let’s have a look at the top stocks to watch today.

Tesla stock drops on margin crunch

Tesla shares are down 6.7% this morning and at a two-month low of $227.65 after the electric carmaker revealed that the big delivery miss in the third quarter and series of price cuts have hammered margins more than expected, causing it to miss expectations.

Tesla said its operating margin came in at just 7.6% in the third quarter. That was down from over 17% the year before and the smallest margin posted in two-and-a-half years. Deliveries, while severely down from the previous quarter, were over 19% higher than last year but the price cuts means revenue only grew 9% to $23.35 billion, which came in below estimates.

Still, the contraction in margins meant adjusted EPS plunged 37% to $0.66 and came in short of the $0.74 forecast. Tesla said it is laser focused on cutting costs of production and said more reductions are to come as it aims to be a “cost leader”.

We also got an update on the Cybertruck. Shipments should start at the end of November, although CEO Elon Musk warned that ramping-up production of the new model is a big challenge. “We dug our own grave with Cybertruck”, Musk said, adding it is “just incredibly difficult” to bring the entirely new model to market. Elsewhere, management cited more caution about their plans to establish a new factory in Mexico given the uncertain economic climate.

Morgan Stanley said the bar was low ahead of the results, making the miss all the more significant. Citi said it thought management’s tone on the conference call was “noticeably more cautious” about the economy and said analysts are likely to downgrade their earnings estimates in wake of the update. Several brokers cut their target price on Tesla as a result, including Wells Fargo to $250, Citigroup to $255, Cannacord Genuity to $267, Goldman Sachs to $235 and BofA Global Research to $290.

The update is also weighing on smaller electric vehicle stocks today after Musk warned he was increasingly worried that higher interest rates would make its cars less affordable and could weigh on demand. Rivian and Lucid Group are down 2.1% and 1.6%, respectively, while Chinese rivals NIO, Li Auto and Xpeng are all down 2% to 4%.

Netflix’s new strategy delivers early rewards

Netflix shares are up over 14% today and at a one-month high of $397 after beating expectations in the latest quarter as its crackdown on password sharing and the introduction of its new ad-supported tier helped drive its best subscriber growth in years, installing confidence that Netflix’s new strategy is paying-off.

Netflix said it added 8.8 million subscribers in the third quarter, an impressive result compared to the 6.2 million forecast by analysts. That helped revenue rise 7.8% to $8.54 billion and a better-than-expected margin allowed operating profit to come in at $1.92 billion, ahead of the $1.89 billion forecast. EPS at the bottom-line rose to $3.73 from $3.10 and also beat the $3.50 estimate.

Netflix raised its free cashflow target for the year to $6.5 billion, marking a big jump from its previous guidance for at least $5.0 billion. That has also given it the confidence to increase the size of its share buyback programme by a whopping $10 billion!

The password crackdown has encouraged more ‘borrowers’ to sign up for their own account despite the impact of strike action on Hollywood on its content slate, while its ads business saw revenue rise 70% from the previous quarter. The initial success, twinned with news it is raising prices in some of its biggest markets including in the US, UK and France, is raising hopes about Netflix’s industry-leading profitability and its growth prospects.

Netflix said it is aiming for $8.7 billion in revenue during the fourth quarter, which was just shy of the $8.8 billion forecast, although its margin outlook has improved and should hit the top-end of its 18% to 20% guidance range over the full year.

A number of brokers upped their view on Netflix today. Keybanc upgraded the stock to Overweight from Sector Weight while others raised their target prices, including Morgan Stanley to $480, Bernstein to $390, Goldman Sachs to $400, and MoffettNathanson to $390.

Other streaming stocks are also benefiting, with Disney up 0.6%, Roku up 3% and Warner Bros Discovery is up 0.9%.

Microsoft: OpenAI eyes $86 billion valuation

Microsoft shares are up 1% at $333.50. Citigroup raised its target price on the Big Tech giant to $430 from $420 this morning.

We heard this morning that OpenAI, the company behind ChatGPT, is planning to sell existing shares held by employees to potential investors at a valuation of $86 billion, according to reports from Bloomberg citing unnamed sources. The report said Microsoft owns 49% of OpenAI and the valuation suggests Microsoft may have made a tidy profit following its investment earlier this year.

TSMC rises on earnings beat

Taiwanese giant TSMC is up 4% on the NYSE today after beating expectations in the third quarter.

We already knew that sales were down 10.8% from the year before ahead of the results as muted demand for consumer electronics kept weighing on the business. EPS declined from last year to NT$8.14, although that was a milder drop considering analysts had pencilled-in NT$7.34.

It said its newest 3-nanometer chips accounted for 6% of total sales to suggest some customers have started shifting toward more advanced products, although not enough to counter excess inventory in older chips. TSMC said the ramp-up of its 3-nanometer and a recovery in consumer electronics should lead to a sequential improvement in sales during the fourth quarter. It said the lull in demand is very close to the bottom, but said it is too early to confirm it is seeing a sharp rebound. Still, it forecast a “healthy growth year” in 2024, when it expects to outperform the wider industry.

TSMC cut its capital expenditure budget for the year to $32 billion from its previous range of $32 billion to $36 billion.

That is providing support to chip stocks, with NVIDIA and AMD up 1.2% to 1.4%, as they try to regain some of the heavy ground lost this week as markets fret over what tighter US curbs on semiconductor exports to China will mean for the industry.

American Airlines cuts profit outlook

American Airlines is up 2.4% despite posting a loss in the latest quarter and lowering its outlook for the remainder of the year as rising costs weigh on its bottom-line.

Adjusted EPS dropped to $0.38 from $0.69 the year before but came in ahead of the $0.25 forecast. However, it did report an $0.83 loss at the bottom-line compared to the $0.69 profit we saw the year before. The airline is struggling with rising costs for everything from fuel to labour.

American Airlines said it is now targeting annual adjusted EPS of $2.25 to $2.50 per share, a sharp downgrade from its previous range of $3.00 to $3.75. It was, however, in-line with the $2.34 forecast that showed Wall Street was bracing for a downgrade after rivals lowered their guidance. Adjusted EPS should be about breakeven in the final quarter, it said.

AT&T delivers beat and raise

AT&T is up 4.9% after delivering a beat and raise. The telecoms giant said revenue grew 1% from last year to $30.4 billion in the third quarter. Adjusted EPS dropped to $0.64 from $0.68 but came in ahead of the $0.62 forecast. IT also added more subscribers than anticipated.

The company said it is now targeting annual free cashflow of about $16.5 billion, up from its previous goal of $16.0 billion, and said adjusted Ebitda will grow closer to 4% rather than 3%.

Blackstone misses estimates as asset sales fall

Blackstone is down 4% after earnings came in lower than forecast in the third quarter as it sold fewer real estate assets.

The private equity giant said distributable earnings fell to $1.2 billion from $1.4 billion. That gave a quarterly EPS figure of $0.94, which came in short of the $1.01 forecast. That came as net profit from asset sales plunged 36%, mostly driven by real estate where higher interests are weighing on dealmaking in the sector.

Las Vegas Sands restarts buybacks

Las Vegas Sands is up over 5% after launching its first share buyback programme since 2020, having reinstated its dividend only a few months ago.

The gambling stock said it will repurchase up to $2 billion worth of shares through to 2025. Dividends and buybacks were halted when the pandemic disrupted the business. That came as sales more than doubled year-on-year in the latest quarter to $2.8 billion, beating forecasts. It turned to a net profit of $380 million from a $239 million loss the year before.

Broadcom-VMware deal held up by China

Broadcom is up 0.6% while VMware is down 4.6% after the Financial Times reported that Chinese regulators are holding up their proposed $69 billion merger, citing unnamed sources.

China’s State Administration of Market Regulation is yet to sign-off on the deal and could delay the transaction after the US government introduced tighter restrictions on exports of advanced US-made chips to the country, the report said. The pair have already secured clearance from the UK, Australia, Brazil, Canada, the EU, South Africa and Taiwan.

Visa chairman stands down

Visa shares are down 0.4% after announcing that chairman Alfred Kelly, who previously led the payments giant as CEO, will step down on January 23, 2024.

Kelly will remain on as a senior adviser until February 15, when he will officially retire. Visa intends to appoint lead independent director John Lundgren as his replacement.

Morgan Stanley target price cut after earnings miss

Morgan Stanley is down 0.1% at $74.79 following its earnings miss yesterday thanks to a lack of dealmaking, which prompted several brokers to lower their view on the bank.

BofA Global Research cut its target to $90, Barclays to $102, BMO to $101, Jefferies to $91, RBC to $85 and KBW to $94.

EPS dropped to $1.38 from $1.47 the year before and came in short of the $1.41 forecast by Wall Street when it reported yesterday. Ultimately, trading was stronger than expected but it was not enough to prevent weakness in investment banking, where fees are under pressure due to more supressed M&A activity.

Can Eli Lilly stock hit fresh all-time highs?

Eli Lilly shares are down 0.4% at $605. BMO raised its target price on the pharmaceutical giant this morning to $710 from $633.

We discovered yesterday that Eli Lilly, which is not far from all-time highs as excitement about its Mounjaro drug being used for weight loss, diabetes and other issues continues to rise, has agreed to buy French biotech firm Mablink Bioscience, according to reports from Endpoints News. Mablink is focused on cancer therapies.

Peloton hit by downgrade

Peloton is down over 6% at $4.50 after the exercise equipment and software firm was downgraded to Underperform from Neutral by BofA Global Research, which cited the threat that declining engagement could “lock Peloton’s flywheel in place”. The price target was slashed to $4.15 from $6.50.

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