War, Oracle preview and Lennar earnings. Read everything you need to know about the week ahead in my Globe and Mail column.
Geopolitics has jolted the oil market — but according to Eric Nuttall, the real story for investors was already unfolding long before the latest headlines. The Partner & Senior Portfolio Manager at Ninepoint Partners, joins In the Money with Amber Kanwar for an emergency session to break down the implications of the Iran crisis, why the market may be dangerously complacent about global oil supply, and why he believes energy stocks remain in a multi-year bull market.
This week BC will spring forward for the last time. Fed up with losing one hour, the province is taking a stand. But the secret that parents of young children know is that this is the good time change. 5am wake ups become 6am wakeups. When you are a parent…losing an hour, is gaining an hour. Few understand this.
Here are five things to know:
Fog of war: Futures are plunging and oil is surging as war rages on in the Middle East. US futures are indicating a drop of more than 1% at the open. Oil prices are above $100/bl this morning surging 14% after notching the biggest weekly gain on record. It’s notable that energy stocks haven’t participated in the rally – up only 1% in the US and half a percent on the TSX. The TSX is down 4% from the all-time high while the S&P 500 is down 3.4%. In a week where energy prices soared, it wasn’t the energy stocks that were the best performers – it was beaten up tech stocks. In a world of uncertain growth, investors were going back to software stocks with the group up 5.5% last week. Reading the strategist notes this morning it is clear that no one has any idea how this is going to play out. It’s a lot of “if this, then that” analysis with incredibly divergent scenarios. The consensus is that if the Strait of Hormuz can open, things will get better. Right now the Strait is closed and oil production is falling in the worst supply shock since the 1970s, so things are not better. Iran picked a new Supreme Leader – Ayatollah Khamenei’s son. The effect of the war so far is: spiking oil prices, civilian deaths and a new, younger, Khamenei. Will he be different? As RBC’s Helima Croft points out in her morning note it is unlikely. “Given that Khamenei has lost his father, mother, wife, and son in US airstrikes, he may not be in the mood to extend an olive branch to Washington,” she wrote.
Answer is in the stars: Constellation Software reported mixed results so its a good thing they are hosting a conference call with investors and analysts for the first time since 2018. Profit missed expectations and dropped from last year on a one-time non-cash charge related to rising value of an investment. Constellation said it won’t face this kind of charge again. So investors may look through this to revenue which increased 18% – more than the 17% expected. The results come as investors are nervous that AI is going to start to lower sales growth. Shares are down 43% from their peak. The fact that long-time CEO and founder Mark Leonard isn’t at the helm is also compounding these concerns. Its against this backdrop the company is holding its first conference call since 2018. Below are key takeaways from the call:
- President and COO Mark Miller says “fundamentals haven’t changed” and “technology will be new, the pace is different, but we’ve got the right business to respond”
- Mark Leonard still there: Mark Miller noted that Leonard was key in their latest minority investment in publicly traded Sabre – a travel and tech company that recently hit a record low
- Mark Miller vs Mark Leonard: Mark Miller says Leonard is more of an investor and he is more of a product guy but their core philosphies are the same
- Are they getting push back on increasing prices? “No changes on that at all”
- Buying back stock? Have formed a subcommittee within the board to evaluate, but right now deploying via M&A is more attractive than buying back stock and at this point they are not looking at buying back shares
- Terminal value: No thoughts on new terminal value that should be applied to software stocks
- Taking minority interests in public companies: calls it a new strategy and option for deploying capital
Cleaning house: Controversial FDA figure Vinay Prasad will be leaving the agency supporting a relief rally in certain biotech stocks. Prasad is a controversial figure and took heat for denying vaccine applications and rejecting treatments of rare diseases. One of those includes Uniqure’s treatment for Huntington’s Disease. Shares of the biotech are surging 36% in the pre-market. Shout out to Eden Rahim who put this on our radar when he was on three weeks ago. Rahim called Prasad a “wrecking ball” and spoke specifically about his decision on Uniqure. Prasad did an “about-face” by denying the treatment despite Uniqure following FDA guidelines. “So I think it’s a buy, and here’s the reason why: They just can’t do something like that,” said Rahim on the podcast. Other stocks like Sarepta, Moderna, Regenxbio, and Biohaven are surging on Prasad’s impending departure.
Frenemies: Novo Nordisk and Hims & Hers are ending their feud announcing they will sell obesity drugs together. Shares of Hims & Hers are surging 44% in relief they will be able to sell Ozempic and related drugs again. This comes after a very public breakup in which Novo accused the telehealth platform of selling a knock-off version of their drug on the platform. Now they are making up as Novo has been hobbled, losing market share to Eli Lilly’s Mounjaro. Shares are Novo are up 2% in the pre-market but have lost over 50% in value over the past year.
Notable call: Bank of Nova Scotia is getting downgraded at Canaccord. This is the second downgrade in a week. “Last summer, we saw a significant opportunity for a BNS re-rate with the bank trading at a ~2.0x P/E discount to the group, far below its historical range,” wrote Canaccord’s Matthew Lee in the downgrade this morning, “While we previously believed that BNS would close the P/E gap to 5%, given the firm’s relatively modest ROE expectations, we now expect the discount to remain unchanged at ~10%.”
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