Macrosynthesis

That's a Wrap

In a volatile session Friday, US stocks closed lower with the chip rally fizzling out. Nvidia's 5.4% drop led to a 0.6% and 1.5% decline in the S&P 500 and Nasdaq 100, respectively, pulling them from recent highs. The Dow, however, saw a minimal loss of 68 points as Apple's 1% gain ended its seven-day losing streak. The jobs report, showing unexpected unemployment rate rise and revisions in previous job gains, suggests potential Fed rate cuts from June. Broadcom's 7% drop was due to a disappointing forecast and missed profits.

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Jobs Grow Faster than Expected

In February 2024, the US outperformed job growth expectations by adding 275K jobs, surpassing the predicted 200K and a revised January figure of 229K. Significant increases were noted in health care, government, food services, social assistance, transportation, and construction sectors. However, manufacturing saw a slight decline.

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Wage Growth Slows

In February 2024, US private nonfarm payroll employees saw a minor wage increase of 0.1%, reaching $34.57 hourly, the smallest rise since February 2022 and below expectations.  Yearly, wages grew by 4.3%, slightly under the anticipated 4.4%.

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BRICS Currency?

The BRICS nations are developing a blockchain-based payment system to reduce reliance on the US dollar and enhance their influence in the global monetary system.

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All That Glitters IS...Gold

In response to ongoing global de-dollarization efforts and the US's battle with inflation, various central banks are also bolstering their gold reserves as a defensive strategy against the US dollar's volatility. Countries like China, Germany, and Turkey are leading this shift, viewing gold as a reliable asset amidst uncertainties with the US dollar. This move aligns with the BRICS alliance's goal to reduce global dependence on the dollar, showcasing a growing trend towards diversification and the pursuit of financial stability through gold investment.

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State of the Union

During his State of the Union address, President Biden positioned himself as a defender against threats to democracy. Biden highlighted the need Ukraine support, immigration reform, and border security

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Meanwhile, global obesity rates are set to double in the next decade, as Novo Nordisk pointed out in its recent annual report. This creates a large a lucrative market for weight loss drugs from NOVO and LLY.

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NYCB Gets a Life Raft

Steven Mnuchin, leading a team of investors including Kenneth Griffin's Citadel, has injected over $1 billion into New York Community Bank (NYCB) to rescue it amidst a struggling real estate market and internal challenges. The investment, with Mnuchin's firm contributing $450 million, aims to stabilize the bank facing regulatory scrutiny and financial instability. This move comes as NYCB grapples with losses and seeks to recover from rapid expansion challenges and the fallout from acquiring assets of the failed Signature Bank.

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Commodity Movers

Coal

+12.92% (1M Chg)

-25.55% (YoY Chg)

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Uranium

-8.29% (1W Chg)

+83.33% (YoY Chg)

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Gold

+4.57% (1W Chg)

+18.99% (YoY Chg)

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Wheat

-5.63% (1W Chg)

-11.45% (1M Chg)

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Noteworthy Events

Novo Nordisk

Novo Nordisk soared almost 8.9% Thursday to a record high following the announcement of encouraging results from a Phase I trial of its innovative weight loss medication, amycretin. Late Friday afternoon, the FDA approved use of its weight loss drug to combat heart disease. The approval means insurers will now cover the high priced drug, enabling greater sales and revenues.

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Marvell Technology

Marvell Technology's stock dropped over 11% Friday due to weaker-than-expected guidance for the first quarter. The company forecasted adjusted earnings of 23 cents per share, significantly below analysts' expectations of 40 cents.

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Carvana

Carvana saw an increase of over 7% Friday following an upgrade by RBC Capital Markets from "underperform" to "sector perform," based on the assessment of its valuation as reasonable.

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Victorias Secret

Victoria's Secret was bad earnings. It stock plummeted 29.7% Thursday, marking its most substantial decline ever, following the announcement of mixed results for the fourth quarter. The company also provided a disappointing outlook.

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Nordstrom

‍Nordstrom's shares dropped by 16.1% Wednesday following the company's conservative revenue forecast for 2024, anticipating a potential decrease of up to 2% or a modest increase of 1% compared to the previous year.

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CASE STUDY: Level 2 Alert Yields 50% in 1 month

Below is the text from a Level 2 alert sent out Feb. 4th 2024. It resulted in a share price increase of 50% in a month. A subsequent alert was sent out last week with instructions on how to manage the gains after the stock hit $180.

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Ticker: AVAV

Product: Equity

Price: 121/share

Target Exit: >200

Risk: Medium

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Rationale

In Ukraine, Israel, and the Red Sea, we’re seeing what modern war looks like and how it will evolve over the next decade.  It's autonomous. It's AI-driven. And it's robotic. One of the hottest defense contractors in the space of autonomous, weaponized drones is AVAV (AeroVironment), based in California. They make a variety of different types of drones for aerial surveillance, aerial targeting, and ground-based operations.

They are growing revenue at 100% year over year, and 60% quarter over quarter, thanks in large part to soaring demand created by global conflicts. In Ukraine, their Switchblade drone product has been a huge hit. Think of a mortar that fires a 4lb autonomous drone carrying a payload that can destroy a tank while the operator watches through the video camera.

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Highlights:

• Almost a $500 million order backlog
• Multitude of government contracts with the U.S. Defense Dept, including a pending IDIQ contract
• Demand from 20 countries outside the U.S.
• $100 million in cash and actively paying off debt
• Expecting $700m in annual revenue for FY 2024 and $45m in profit
• $3.33 in projected EPS (adjusted) and forecasting lower EPS due to acquisition costs (1.80/share)
• Growth areas include equipping Hummers and other vehicles with their combat drones building drones for Mars for NASA

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The stock has pulled back recently, due to concerns that Congress will not be able to pass another big defense aid bill for Ukraine. But it really doesn't matter. Ukraine was like a giant demo project the whole world watched, and AVAV delivered, driving demand for its products globally and through the U.S. Defense Department that spends nearly $900B per year. An Israeli aid package is coming, and you can bet that the drone attacks on U.S. bases in Iraq by Iranian-back groups have prompted urgency for the U.S. to drone up their surveillance and tactical response capabilities.

For those outside of Washington D.C., it is VERY hard to get contracts with the U.S. government and the system favors those who have already received contracts. The contracts rarely shrink, and companies able to do 7-figure contracts often go on to get 8, 9, and 10-figure contracts (aka billions) sequentially.  

At a market cap of just $3.4B, AVAV is also a likely acquisition target for Lockheed Martin or one of the other megacap defense contractors. Buy this stock, don't worry about short term volatility - there will be some due to politics - and hold onto it until it's above 200/share or acquired.

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Upcoming Catalysts:

EARNINGS

Monday

• Oracle (ORCL)
• Vail Resorts (MTN)

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Tuesday

• Kohl's (KSS)
• Archer-Daniels-Midland (ADM)

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Wednesday

• Williams Sonoma (WSM)
• Lennar (LEN)

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Thursday

• NuScale (SMR)
• Build-a-Bear Workshop (BBW)
• Dicks Sporting Goods (DKS)
• Dollar General (DG)
• Hello Group (MOMO)
• Adobe (ADBE)

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Friday

• Jabil (JBL)

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The LevelFields Team