Some Funds Will Net Massive Gains in Next 24 Hours: Taking Stock

(Bloomberg) -- Stock futures keep edging higher, with the S&P 500 poised to open just 16 handles away (or 0.6%) from the late January record of 2,873.

The cash index has climbed 1.7% in the past five sessions, led by tech as the sector gets closer to erasing the Facebook-fueled selloff from two weeks ago, while the Nasdaq is up 3% in the same time frame.

Newsflow was quiet overnight, but gains in overseas markets are helping buoy the tape: Europe’s Stoxx 600 is up 0.6%, led by metals/miners and energy, despite the weak Germany industrial production numbers and a couple of shaky moves -- $6 billion market cap jewelry maker Pandora A/S cratered 20% on a profit warning that hit during the U.S. trading day and Syntel suitor Atos fell over 9% after an analyst questioned the company’s "financial arrangements" -- Meanwhile, the Shanghai composite bounced 2.7% (after tumbling almost 7% in the past 9 sessions) for its largest one-day gain in over two years.

Pockets of Volatility

Earnings season is practically over, with 85% of the S&P 500 already on the wire, but there are pockets of volatility over the coming week that may make or break some hedge funds’ quarters -- for example, what we saw last night with some of the big swings in select software and Internet names like Twilio +17%, Etsy +10%, Five9 +9%, Rapid7 +8.7%, Owens & Minor -9%, Dean Foods -11%, Dentsply Sirona -13%, and Zillow plunging ~17%.

Here are some companies set to report over the next ~24 hours with elevated implied one-day moves and relatively high hedge fund ownership:

Snap Inc. (SNAP) -- Implied move 20%, short interest 26% of float (according to Markit), hedge funds own ~10% of shares -- This’ll be the one to watch tonight, as I can’t imagine any of the longs are feeling safe after what happened to Twitter and Facebook this quarter. Meanwhile, the bears are fearing a massive squeeze as the climbing short interest could catapult the stock higher on better-than-feared metrics or sanguine outlook.

Snap’s stock has been battered since the redesign, but it’s market value remains relevant at around two-thirds of Twitter’s cap (admittedly much larger than I would have guessed without looking), and there’s definitely potential for read-across impact to other social media-exposed names, or even a broader swath of tech depending on which direction the stock flips post-earnings.

Others to watch:

  • Match Group (MTCH) -- Implied move 10%, short interest 28% of float, hedge fund ownership 20% -- A similar amount of investor contentiousness as Snap, this social media name has been under pressure from competition concerns ever since Facebook announced the rollout of its new dating feature; IAC Interactive holders (almost a quarter of which are hedge funds) will also be tuning in given the company’s large ownership stake in Match, and the tendency for its shares to get caught up in any major swings from the latter
  • 3D Systems (DDD) -- Implied move 12%, short interest 27% of float, hedge fund ownership ~9% -- The rally year-to-date was undercut a couple weeks ago after Piper Jaffray downgraded the 3D printing stock to an equivalent sell on competition and demand concerns
  • Axon Enterprise (AAXN) -- Implied move 13%, short interest ~5% of float, hedge fund ownership 13% -- The company formerly known as Taser has more than doubled in the past five months, though DA Davidson cut its rating Monday on near-term noise around expenses and risk from the Vievu acquisition
  • Papa John’s (PZZA) -- Implied move over 9%, short interest 21% of float, hedge fund ownership 12% -- Pick your poison (pill) on this one as we await fallout from the chairman resignation to an update on any strategic alternatives
  • Cars.com (CARS) -- Implied move over 9%, short interest 20% of float, hedge fund ownership 21% -- Plenty of M&A speculation on this one recently
  • Avis Budget (CAR) -- Implied move 11%, short interest ~8% of float, hedge fund ownership 25% -- Follows better-than-feared numbers last night from Hertz, which is another rental car company that has had hedge funds circling it for some time now
  • Specialty retailers -- Fossil Group (implied move 21%, short interest 14% of float, hedge fund ownership 11%) and Michael Kors (implied move ~10%, hedge fund ownership 13%), which have a watch brand licensing agreement, have both been on an absolute tear over the past year (FOSL +156%, KORS +74%)
  • Others that have the potential to rally/squeeze or plunge: Infinera (INFN implied move 14%, though they already preannounced), Lumentum (LITE implied move 10% as we await an update on the Oclaro merger), Shutterfly (SFLY implied move ~9.5%)

Notes From the Sell Side

In response to investor questions about whether tech weakness will be the ultimate cause of the next bear market, Goldman strategists led by Ian Wright and Christian Mueller-Glissmann reiterate their overweight on the sector in all regional equity allocations. The counter to the argument that tech companies are already expensive on a P/E basis is that the PEG ratios "are roughly the same as the rest of the market."

Here’s three key takes on Zillow after the stock gets taken to the woodshed:

  • BofAML downgrades shares to a neutral as results suggest less upside/greater risk to fiscal year 2019 and notes that the investor base is likely less optimistic about the core business outlook
  • Keybanc acknowledges that there was plenty of the bears to like in the report, but reiterates its overweight as it continues to expect the company to be the "category winner" longer term
  • Morgan Stanley is incrementally cautious after a combo of execution missteps at Homes segment and rentals division and glimpses of higher churn in existing Premier Agent business

Goldman boosts its price target on nVidia to $324, among the highest on the Street, though expects a "noisy" quarter (product transitions in Gaming and Datacenter, weakness in crypto mining, potential disruption from TSMC virus attack) versus the past 10 where the company handily beat and raised.

Morgan Stanley boosts its enterprise value estimate for Waymo to $175 billion from $75 billion, noting that Alphabet’s autonomous vehicle arm is key to the new $1,550 per share sum-of-the-parts target (though reiterates its normal price target of $1,325).

Sticking with autos, Morgan Stanley’s Adam Jonas reiterates equal-weighting on Tesla after accounting for the recent run-up after earnings: "At the margin, we think the stock may struggle to sustain sharply higher market expectations," and now forecasts an equity raise of $2.5 billion in 4Q versus prior estimate of $3 billion in 3Q.

And lastly, Berenberg says sell-rated Ford’s quarterly 15c dividend is "looking increasingly fragile as cash flow from the core business continues to deteriorate at a rapid pace."

Tick-by-Tick Guide to Today’s Actionable Events

  • Today -- IPO lockup expiry: EOLS, WHD, HMI, VCTR
  • Today -- INSM amikacin liposome inhalation suspension to be examined by FDA
  • Today -- UBS Financial Services Conference with AIG, BAC, C, CBOE, GS, WFC
  • Today -- Canaccord Genuity hosts Blockchain & Digital Asset Symposium
  • 7:00am -- BHC (formerly Valeant), DISCA, NIHD, CROX, BR, ONDK earnings
  • 7:15am -- TDG earnings
  • 7:30am -- VSH, AYR earnings
  • 8:00am -- ORLY analyst day
  • 8:30am -- EXPD, PPL earnings
  • 8:30am -- HTZ earnings call
  • 9:20am -- ZG CEO Spencer Rascoff on Bloomberg TV
  • 10:00am -- JOLTS job openings
  • 10:00am -- AGCO at Jefferies Global Industrials Conference
  • 2:00pm -- EMR earnings call
  • 2:40pm -- TEX at Jefferies Global Industrials Conference
  • 3:00pm -- Consumer Credit
  • 4:01pm -- DDD, FOSL, AAXN, G, VSLR earnings
  • 4:02pm -- SFLY earnings
  • 4:04pm -- HDP earnings
  • 4:05pm -- DIS, PLT, INFN, AAOI, ALRM, WEN, TWNK, ALB, JAZZ, PXD (roughly) earnings
  • 4:06pm -- LC earnings
  • 4:10pm -- BOOT earnings
  • 4:15pm -- SNAP, DXC, AIZ, MTW (roughly), CAR, CLR, XEC earnings
  • 4:20pm -- PZZA earnings
  • 4:30pm -- MTCH, QTWO, HST, MOS earnings
  • 4:30pm -- API oil inventories
  • 4:30pm -- DIS earnings call
  • 5:00pm -- SNAP earnings call

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