PARA - Stocks To Watch: Tesla Earnings Labor Strikes And Russell 2000 Revival In The Spotlight

2023-07-15 10:30:00 ET

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The earnings calendar in the week ahead include big reports from Netflix (NFLX), Bank of America (BAC) ( preview ), IBM (IBM) ( preview ), and Tesla (TSLA) ( preview ). Economic reports of note include the latest Empire Manufacturing readout, the June Retail Sales report, Existing Home Sales report, and another jobless claims update. Federal Reserve members will be in a blackout period ahead of the Federal Reserve meeting scheduled for July 25-26. At publication time, the probability of a rate hike at the July meeting had risen to 92% based on fed funds futures trading. Looking ahead, Seeking Alpha Investing Group Leader Stone Fox Capital said the signs inflation problems are coming to an end and rate hikes are nearly over has the Russell 2000 (IWM) stocks rallying. After a big rally in the major indexes of large cap stocks focused on the Magnificent Seven stocks, the advice doled out is that investors should have a preference for small-cap stocks in the Russell 2000.

Earnings spotlight: Monday, July 17 - Equity LifeStyle Properties (ELS).

Earnings spotlight: Tuesday, July 18 - Bank of America (BAC), Novartis (NVS), Morgan Stanley (MS), and Lockheed Martin (LMT).

Earnings spotlight: Wednesday, July 19 - Goldman Sachs (GS), Tesla (TSLA), Netflix (NFLX), IBM (IBM), U.S. Bancorp (USB), United Airlines (UAL), Las Vegas Sands (LVS), and Nasdaq (NDAQ).

Earnings spotlight: Thursday, July 20 - Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Taiwan Semiconductor Manufacturing (TSM), Philip Morris International (PM), Travelers (TRV), American Airlines (AAL), Capital One (COF), and CSX (CSX).

Earnings spotlight: Friday, July 21 - American Express (AXP), Schlumberger (SLB), AutoNation (AN), and Huntington Bancshares (HBAN).

Volatility watch: Short interest on both Coinbase Global (COIN) and Arhaus (ARHS) is at more than 20% of total float. Options trading volume is elevated on Nikola (NKLA) and FingerMotion (FNGR) once again. The judge in the settlement hearing over AMC Entertainment's (AMC) plan to convert preferred equity units (APE) could issue a ruling during the week.

IPO and spinoff watch: The IPO pipeline includes Oddity Tech (ODD), BioNexus Gene Lab Corp. (BGLC), Fitell Corp. (FTEL), and SRM Entertainment (SRM), all of which could price their IPOs next week.

Dividend watch: Companies forecast to boost their quarterly payouts include Bank of New York Mellon (BK) to $0.42 from $0.37, Goldman Sachs (GS) to $2.75 from $2.50, Regions Financial (RF) to $0.22 from $0.20, Morgan Stanley (MS) to $0.85 from $0.78, and Corteva (CTVA) to $0.16 from $0.15. See Seeking Alpha's list of Quick Dividend Stock Picks.

Labor pains: Investors are likely to hear more next week about the labor battles between major companies and unions representing workers. At the top of the list is United Parcel Service (UPS), which is facing a contract expiration date with the Teamsters Union of July 31. The Teamsters union has claimed UPS (UPS) walked away from negotiations over a new contract and has "clearly" chosen to go down the wrong road. For its part, UPS (UPS) denied the claim and stipulated that the union had stopped negotiating, despite the company's "historic offer" that builds on industry-leading pay. "Refusing to negotiate, especially when the finish line is in sight, creates significant unease among employees and customers and threatens to disrupt the U.S. economy," read a statement from the shipping giant provided to the media. Last week, The Teamsters said the shipping giant's latest proposal included "miniscule raises and wage cuts to traditional cost-of-living adjustments." The union said it reached consensus on 55 non-economic issues with the company on June 19, but UPS has continued to seek a cost-neutral contract during the economic negotiations. By some estimates, a 10-day UPS strike could cost the US economy $7.1 billion. That could make it the costliest work stoppage ever in U.S. history. Meanwhile, anxiety continues to ramp up in the automobile sector as the expiration of the United Auto Workers labor contract with the Big Three Detroit automakers gets closer. The current collective bargaining agreement, which covers more than 150K employees, will expire on September 14. Stellantis (STLA) will be the lead negotiator with the UAW this cycle to set the stage for later talks with General Motors (GM) and Ford (F). The labor talks are anticipated to center around key sticking points such as job security during the electric vehicle transition, cost of living adjustments, organizing EV Gigafactories, and the tiered pay structure of the UAW, where senior members earn more from OEMs. UAW President, Shawn Fain has already publicly taken an aggressive, hardline stance on negotiations and has promised a long fight with no further concessions. Ahead of the late summer showdown, Evercore ISI analyst Chris McNally said the probability of a UAW strike is always around 25%, although the other 75% outcome typically means a last 48-hour nail-biter. 'Furthermore, we believe this year's edition of negotiations represents a much higher, 50/50 chance of strike, well beyond our normal' base case but a (manageable) risk to stocks regardless of the probability. Of note, automobile stocks have traded higher following resolution and contract ratification in the past, in what has typically been a recovery from aggressive selloffs during the contract talks. This time around, McNally thinks Stellantis (STLA) is the North American automaker with the most risk, while suppliers Mobileye (MBLY) and Magna International (MGA) are the suppliers that could see some selling pressure around fears of a long strike. Aptiv (APTV), BorgWarner (BWA), and Lear (LEA) are also identified as potential buy-the-dip stocks around UAW developments.

Tesla earnings preview: Tesla (TSLA) will report earnings for the second quarter on July 19. Analysts are expecting revenue to grow 47% year-over-year to $24.7B and EPS to come in at $0.81. The biggest focus for investors could be the impact of the price cuts by Tesla during the quarter. Gross margin is seen falling to 18.7% in Q2 from 19.3% in Q1 and EBITDA is seen slipping to $4.14B from $4.27B in the prior-year quarter. Other items of interest will be the energy storage update, and the outlook for the Austin, Shanghai, and Berlin gigafactories. Tesla's current guidance is for 1.8M vehicles deliveries in 2023 vs. the 1.37M vehicles delivered in 2022. On the earnings conference call, Elon Musk could stir things by updating on the sub-$30K Model 2, which is expected to be built out of Mexico sometime in 2025. Tesla (TSLA) may also set a date for its Cybertruck event, add context to the upside from automakers across the industry adopting the NACS charging standard, and add color about the planned Model 3 refresh. Options trading on Tesla (TSLA) implies a share price swing of 8% following the report. Tesla (TSLA) shed 9.8% after its last earnings report. Over the last 90 days, the electric vehicle stocks with the strongest trading correlation to Tesla (TSLA) have been Rivian Automotive (RIVN) and Lucid Group (LCID).

Corporate events: Splunk Inc. (SPLK) will host its 14th annual user conference at The Venetian Las Vegas. The event is expected to be heavily focused on security, with some mention of the company's abilities with generative artificial intelligence. Shares of Splunk have rallied in the past immediately after the flagship conference. On the same day, Dell Technologies (DELL) will host an "Ask the Experts" Q&A session. Leaders from Dell will discuss current technology trends and how the company is innovating across its leading capabilities, with a focus on AI/ML, multicloud, edge, and Zero Trust. On July 18-19, Microsoft (MSFT) will hold its biggest partner event of the year, with CEO Satya Nadella scheduled to give the Inspire keynote address. Key sessions will cover Microsoft Cloud and AI integration across products. See a detailed list of key events for next week in Seeking Alpha's Catalyst Watch .

Quant ratings: Stocks with recent quant rating changes include Jack in the Box (BOX) to Strong Buy from Hold, Lions Gate Entertainment (LGF.A) to Buy from Hold, and Steakholder Foods (STKH) to Strong Sell from Hold. See the stocks with the very highest rated Seeking Alpha Quant Ratings.

Box office preview: The Hollywood film industry is facing up to its first double acting/writing strike in 63 years, but there's still some unfinished business this month in salvaging what has been a disappointing summer at the box office with the weekend opening of Mission: Impossible - Dead Reckoning Part One (NASDAQ:PARA) (PARAA). After gaining $15.5M on its Wednesday opening day, M:I - Dead Reckoning Part One is setting up for a five-day weekend total of at least $90M. That wouldn't only serve as the best opening in Cruise's seven-film series, it would also mark the best summer opening since June 2 brought the animated hit Spider-Man: Across the Spider-Verse (SONY), which opened to $120.7M and has become the year's second-biggest domestic film. Looking at the back half of the year, Macquarie has IMAX (IMAX) slotted as its top theatre pick for 2023 due to a strong projector backlog, improving margins, and a focus on blockbuster movies. Cinemark (CNK) is the firm's second-favorite name, given its clean balance sheet, superior margins, better theatre locations (lower rent), and what is called a top-notch management team.

Barron's mentions: Netflix (NFLX) is viewed favorably just ahead of its earnings report, even with the Hollywood film industry facing the major acting/writing strike. The quarterly results from Netflix are expected to reflect some of the streaming giant's restructured business model, including the addition of an ad-backed subscription tier and a crackdown on password sharing. The latest breakdown on subscriber growth indicates that the consensus estimates may be too low. Netflix (NFX) could also reveal cuts in content spending in an effort to boost its free cash flow, as well as boost buybacks. Those topics will be of high interest to the striking writers and actors.

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