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market notes, ABB 1Q22 results, Westport & Nokia schedules ?3

10:28 21-Apr-22

A few more notes now that we're past the open....

The rebate rate on XEBEF is now above 125% and natural gas didn't take long to regain $7.  The latter makes weakness in NFE slightly attractive ahead of earnings along with KNTK.  I've actually been doing a lot of research on what to shift toward once commodities and inflation stop dominating the market.  Ask if you must, but there is no indication at all that the time to change investment strategies is close.

Tesla is helping to power the market this morning as analysts cheer the margins it reported last night.  To me this just signals that consumers will be increasingly willing to pay any price for a maintenance-free ride.  Ours has been completely that, though minor issues persist.  Even so, we're more than glad to have made the switch.  I also think my perception of public attitude is supported by the increasing frequency of inquiries on the car when I am out and about, for whatever that's worth.  GGPI hasn't really moved with the other EV stocks, and I see that as a good think in advance of the SPAC merger.

Last and least is the dilution I warned about on OEG.  Existing shareholders are probably getting hit for somewhere between a quarter to a third of their stakes.  The company is doing good work, but it's hard to justify it as a viable investment in this environment.

The most interesting thing I've noted in the market recently is the rebate rate on XEBEF jumping to 95% yesterday and then continuing to rise to 108% on somewhat light volume.  I still don't see this signaling an immediate short squeeze without further news, but it's coming eventually, even with American natural gas having given up the $7 level to trade at $6.84.

I see now as a time for patience; ABB posted good results:

• 31 cents of EPS beats by 3 cents
• from $6.97b of revenue, which missed by $0.2b

but maybe not as good as first glance and the 4% initial jump in share price would indicate.  The Robotics & Automation business that I am most interested in was hampered by component shortages and the company had negative cash flow for the quarter.  Management is dragging out decisions on Russia and spinning off the Accelleron turbocharging business, but says its e-mobility IPO is on track for this quarter. Orders jumped by over 20%, but I expect deliveries to lag as inflation and supply chains take their toll.  The effect of the former in the face of reopening is illustrated by Netflix losing over a third of its value yesterday.

That made Telus offering a streaming bundle including the premium service noteworthy, and TU trading at less than 4% yield shows how much the market craves stable, predictable yield.  I'd still rather wait on LUMN to get there at twice the income than pay up, though.  Names that don't offer any yield continue to trade at value levels lead by AMSC and AKTS.  I have no way of calling a bottom, but think they will eventually be snapped up by larger businesses looking for growth.  In the meantime, story stocks like VUZI continue to drift lower, but a "low six figure" defense follow-on order means I still wouldn't buy at half the price.

It's arguable which side of the argument applies to WPRT at the rock bottom pricing that I had anticipated.  Macro conditions are horrible for Westport's business in the western world, but I have to wonder if there will be a break with WeiChai in China.  Management has taken the unusual step scheduling first quarter earnings to be released after market close of Friday, May 6th, but not discussing them until after market open the following Monday.  A half dozen analysts expect the company to lose 5 cents per share from $72.6M of revenue, increasing to 78.8M this quarter.  It would take a particularly far-sighted buyer to acquire the company, and I don't expect that right away.  Still, with almost 20% of the stock's pitiful value as net cash on the stabilizing balance sheet, I am intrigued, and will cover the call.

In the middle ground is Nokia, which has reminded the market that its first quarter results will be presented overnight on April 28th.  The average of 7 analyst estimates is for EPS of 7 cents from $5.9b of revenue, increasing to $6.2b this quarter.  Its currency has regained €/$1.09 from lows over a penny beneath that, but the reinstated dividend is still unappealing.  Quality business wins have kept NOK too high for my tastes for the time being, but the latest supports my constructive view on MTSI.  Thus, I may not cover the report in real time, but I will certainly review it for macro data points.  Current conditions should continue to create at least pockets of instability in the market, and I'll continue to call out brief opportunities as I see them.

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