VHT - Wall Street Breakfast Catalyst Watch: Weight Loss Drugs Make An Impact

2023-10-14 07:00:00 ET

Summary

• September retail sales data will provide insight into the health of the American economy and consumer spending.
• Netflix, Tesla, and Taiwan Semiconductor Manufacturing are reporting earnings next week, with a focus on operating income, margins, and future plans.
• The impact of weight loss drugs, particularly Ozempic by Novo Nordisk, is affecting various market sectors, including dialysis stocks and consumer packaged goods companies.

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Catalyst watch for the week of October 15. Seeking Alpha Senior Executive Editor Kim Khan on the release of September retail sales data next week and what the numbers say about the health of the economy. (00:21) He also discusses the impact of weight loss drugs on different stocks , most notably Ozempic by Novo Nordisk (NVO). (03:24) Julie gives a brief earnings preview of Netflix (NFLX), Tesla ( TSLA ) and Taiwan Semiconductor Manufacturing (TSM). (02:00)

Julie Morgan: So Kim, next week we have retail sales.

Kim Khan: Yeah, we've moved past our Fed-specific data points. We've got the Jobs Report and the CPI report in the bag. So now we can look little more granularly on what the data means for the economy and the health of the economy overall. So you're looking at it through a bit of a different lens, not just like will this spook the Fed into keeping rates higher, or will this suddenly give the Fed a reason to cut sooner than expected. You're going to look at it as, just how is the American economy humming along and it's going to be like just kind of now is what's considered the start of the holiday shopping period.

I've noticed that as I know everybody is already saying that the Christmas shopping and holiday shopping start in October now. People are saying it's also -- they have started to gear up for deals in September. So, September should give us our first inkling of how the consumer is holding up. And that's a really important part of the soft landing equation. If there isn't a complete shutting up of wallets for the holiday season because of the cost of living going up, then that's a better chance for the economy to kind of like ride out this really unprecedented tightening cycle.

What the economists are looking for in the September numbers is overall headline up 0.3% a little, smaller rise 0.2% if you back out auto sales. But interestingly, the retail sales control group, which is what goes into GDP is expected to decline. And the control groups all sales excluding auto dealers, building materials, retailers, gas stations, office supply stores, mobile homes and tobacco stores. And that's kind of what the Fed will be looking at as far as like GDP numbers coming up and the strength of the overall economy.

JM: Now, let's talk about three major companies that are reporting earnings next week: Netflix (NFLX), Taiwan Semiconductor ( TSM ) and Tesla (TSLA). Let's first of all start off with Netflix. Our editor Jason Aycock says, operating income and margins are expected to rise year-over-year. Of course, eyes will be on the company's password crackdown. Jason also says the ad supported service level will be in the spotlight after the company made some leadership changes in that area. The changes were alongside reports that the business has not kept up with its ambitions.

Also looking to the future, be aware that there is a possible price increase on the horizon after the Hollywood actors strike comes to an end. Again after that comes to an end. But it looks like that's not ending because they just said that we are stepping away from the table and they're still on strike.

Clark said for Tesla, look out for full year’s deliveries guidance, commentary on demand and pricing trends in China . In addition, keep an eye on the status of the Cybertruck production and deliveries. And as always any word on new models.

Chris informed me that for Taiwan Semi , we should keep an eye on gross margins, the push to 3-nanometer node, updates on the Arizona factory and any changes in capital spending for this year and in 2024.

Now, Kim, let's change the topic and talk about weight loss drugs. This week and last week, we've reported on Seeking Alpha about the impact that Ozempic by Novo Nordisk ( NVO ) is having on other stocks. For example, this week on Wall Street Breakfast, I talked about how Novo ended a kidney failure study early due to efficacy data. And then, based on that news, dialysis stocks were down double digits, Kim, what do you have on this?

KK: Well, it's really interesting how this has kind of taken on a life of its own on how much is going to impact the rest of the market sectors. And it goes to show you how much people have been continually betting on an ever hungry American consumer, lots of consumption, more and more. And now suddenly there's an easy way in many people's minds of just curtailing that right away, taking the hunger edge-off completely and saying okay, people's habits are going to change. They're not going to be going through drive-throughs as much as they're not going to be picking up that extra snack. They're not going to go shopping hungry, so they'll be buying less. And we've seen that Walmart has said ( WMT ) that they've seen some impact already in how much people are putting in their shopping cart due they say to these weight loss drugs. You've got on the other side, Pepsi ( PEP ) saying they haven't seen any impact yet. And you think that their sugary drink and salty snacks business might be the ones that would be impacted if those cravings are gone.

And also we've seen faces you might not expect. Citi ( C ) was out with a note cautioning against the consumer packaged goods companies, or the package companies that are focused on those with -- make take-out boxes and cutlery and things like that. If suddenly people are going to be changing their habits, they're going to be buying fewer of these impulse takeaway items and maybe there's just going to be less demand for that packaging.

JM: Yeah, I thought that was interesting when we talked about that offline. This is really affecting everything from top to bottom, all across the board.

KK: Yeah. And I mean, the dialysis stocks really took a hit. They're stabilizing, today as we record this, Thursday. But you look at DaVita , ( DVA ) which is the one really in the crosshairs, not only saw its stock fall, but its credit default swaps. And those are instruments that, derivatives that people use to hedge against the possibility of a company not paying its obligations, or defaulting on its debt. Those swaps surged up about 40% to premiums not seen since 2020. And so that's basically the people saying this dialysis stock in particular and this company in particular is possibly in a materially dangerous position giving the impact that Ozempic could have on its bottom line.

JM: And I also noticed about WW International (WW), they were up double digits one day this week and that again was because of Ozempic.

KK: Yeah, we're going into earning seasons now . And so I'd say that everybody who is looking for what the buzz word in the earnings conference call, it's going to be about weight loss drugs and it's going to be Ozempic. You can search on Seeking Alpha, you can get all the transcripts of the earnings conference calls. And it's a great thing to do to see what companies are focused on and just do a search for the term. Well, you know AI recently as everybody was talking about that and that was the buzzword, before that it was supply chain issues. So maybe the weight loss drugs for this earnings period is going to be like one question that everybody gets.

JM: Kim, is there anything else you want to add?

KK: I just want to say in case anybody heard my cat meowing earlier that I apologize for that. But if there's one thing that's not going to curtail, it's my cat's appetite.

JM: Oh my goodness. I'm just going to move on and say that's all we have folks. We'll see you next time.

KK: Thanks Julie.

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