Falling Yields
“I just don’t buy the story that the economy is slowing, that’s what the bond market is telling us,” Yardeni said on “Halftime Report,” referring to the recent drop in the 10-year Treasury yield, which hit 1.15 percent on Monday. It had reached 1.7 percent as recently as mid-May.
“The truth is that we are nearing the peak of earnings growth. The economy is nearing its peak, but we’re only talking about peak growth rates. We are not discussing negative growth rates. We’re talking about slower growth rates, which is a good thing,” added the president of sell-side research firm Yardeni Research.
Yardeni believes that stock valuations do not have to fall simply because earnings growth in future quarters may be less robust than what companies report for the quarter ended June 30. “The forward P/E ratio is stuck at a startlingly high 22. That, I believe, speaks to the fact that bond yields are extremely low and are likely to remain so. “I think it speaks to the fact that there is an enormous amount of liquidity out there that hasn’t all been absorbed and is still available to keep valuation multiples high,” Yardeni said.
Yardeni, whose previous Wall Street stops include Prudential and Deutsche Bank, believes the S&P500 will reach 5,000 by the end of 2022. This represents a little more than a 13% increase from Monday’s levels near 4,400.
“I believe the valuation multiple will remain elevated, and earnings will continue to grow.” “Look, all I need is a 15% increase in earnings between now and 2023, and the market can easily discount that into a 5,000 S&P500,” Yardeni explained.
Increased worker productivity is one reason Yardeni believes corporate earnings will continue to grow – albeit at a slower rate than they are now. “I think this one could go down in history because the technology available to augment… the mental and physical productivity of workers is, in some ways, unprecedented,” Yardeni said.
“The question is, why will interest rates remain low? The answer, I believe, is that productivity is making a strong comeback. It will be a significant offset to the labor shortage. “I believe wages can rise while being offset by productivity, which means real wages can rise,” Yardeni added. “It’s truly a win-win situation. I know it’s difficult to believe a scenario in which everything goes perfectly for a long time, but that’s what I’m looking at.”
Robinhood stock
Wood purchased approximately 1.85 million additional shares of newly public Robinhood on Friday, valued at $65 million based on Robinhood’s closing price of $35.15 per share.
The rash investor bought 213,484 shares of the ARK Fintech Innovation ETF and 353,630 shares of the ARK Next Generation Internet ETF. Wood increased her holdings of Robinhood in her flagship fund, the ARK Innovation ETF, by nearly 1.3 million shares. Robinhood owns approximately 0.8 percent of ARK Innovation, which trades under the ticker ARKK.
In midday trading Monday, Robinhood shares were up 5%.
The stock closed higher on Friday, but still below its opening price.
On Thursday, Wood purchased approximately 1.3 million shares of Robinhood for her ARK Innovation fund. Her company now owns 3.15 million shares of the trading app, which is worth approximately $114 million at Monday morning’s prices.
Some of Wood’s most ardent supporters are the same Reddit traders who used Robinhood’s platform to force a significant short squeeze in GameStop in January.
Cannabis Stocks
“It’s a dream scenario for the cannabis industry that not many would have predicted two years ago,” Seymour said. However, “it is flawed in that it is overly comprehensive and may not pass as written,” he added.
Seymour, portfolio manager of the Amplify Seymour Cannabis ETF, suggested that Congress prioritize banking and financial reforms, which were not explicitly addressed in the bill but will undoubtedly be key items to watch as stakeholder comments come in and negotiations begin.
The legislation requires 60 votes, including at least ten Republican votes, to pass through the Senate, but he believes the bill’s chances of garnering the support of ten Republicans are slim.
“It is time for Congress, particularly the Senate, to address banking and taxation issues that will allow the industry to be built on a more solid foundation and provide minority and social equity applicants with access to affordable capital while we address the larger federal issues and social issues in the long run,” he said.
Cannabis stocks have fallen 30% from their mid-February highs because investors are no longer pricing in near-term federal banking access, despite the fact that fundamentals have improved, according to Seymour.
Green Thumb Industries, Curaleaf, Cresco Labs, Terrascend, and Green Leaf Innovations were among Seymour’s top cannabis stock picks. Tilray, a Canadian company, was also mentioned as one to watch.
“This country has always had a cannabis culture,” Seymour said of the United States. “This was a massive market before legalization, so it’s not a question of where the federal government is going. It is not a question of when or why, but of how much, how large, how sophisticated, and how segmented it will be. You don’t need a legislative victory in Washington to be excited about investing here right now.”
Two things to think about as an investor
Profitability and location, according to Seymour, are the driving forces behind investing in cannabis-related names.
According to Seymour, one of the main reasons he is so bullish on cannabis stocks is that they are highly profitable and face little competition from some of the largest and most sophisticated consumer product companies. In the last six calendar quarters, he added, the industry has transitioned from a loss-making industry to one in which the best companies are operating with EBITDA margins ranging from 40% to 65%.
“The great irony is that by keeping out Big Pharma, Big Alcohol, Big Tobacco, and just big [consumer packaged goods], you’re putting a bigger moat around the top ten operators in the industry,” he explained.
Seymour expects significant mergers and acquisitions as today’s strong cannabis brands consolidate their leadership positions and the market grows, but he notes that the size of the addressable market is still unknown and growing. Furthermore, there are new drivers of cannabis demand.
“This will be a lifestyle wellness choice,” Seymour explained. “It’s not just going to be for recreational or medical purposes; it’s going to be an alternative to what a lot of people walk into Walgreens or CVS to buy in terms of sleep aid, pain relief, or anxiety treatment.”
When selecting cannabis stocks, investors should prioritize where a company is located after profitability, according to Seymour. If they are based in the United States, each state is slightly different and offers different benefits. For example, California has one of the most sophisticated cannabis markets, making it more difficult for investors to succeed.
“It has been one of the more difficult places to invest because some of the companies there, even those that are public, have had a lot of issues because the regulatory environment in California has been very tough and the black market has remained very strong,” Seymour explained. “It’s fiercely competitive.”
