2023-11-09 13:15:00 ET
Summary
- DraftKings considered making an all-stock offer for 888 Holdings.
- HSBC initiates coverage on Tesla with "Reduce" rating.
- BofA says the magnificent 7 stock ownership has hit 'critical mass'
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DraftKings reportedly held talks with 888 for an all-stock deal. (0:15) Tesla gets a Sell-equivalent from HSBC on deadlines, Elon Musk risk. (1:44) Magnificent 7 stock ownership hits ' critical mass .' (3:41)
This is an abridged transcript of the podcast.
Our top story so far
DraftKings ( DKNG ) discussed a potential offer for William Hill owner 888 Holdings ( EIHDF ) with some of the betting operator's top shareholders.
DraftKing's CEO, Jason Robins, held discussions with a group of 888 shareholders—FS Gaming—about a potential all-stock offer for 888, the FT reports. The early-stage talks took place in June and July.
DraftKings walked away from the 888 talks after it was disclosed in mid-July that the UK gambling regulator had placed 888's license under review.
DraftKings told the FT that it talks to “a variety of companies regarding various matters in the normal course of business."
In today’s trading
The major stock averages are little changed with Fed Chief Jay Powell up to bat again this afternoon. The 10-year Treasury yield ( US10Y ) is back to 4.55% after dropping below 4.5% overnight for the first time since September.
In a week starved of economic indicators, there was a lot of focus on the weekly jobless claims figures . But they continued to show little change, falling slightly to 217K from an upwardly revised 220K the week before.
Pantheon Macro's Ian Shepherdson says: "Looking further ahead, we still think that the biggest risk to growth next year is a wave of layoffs as firms seek to respond to downward pressure on gross margins due to slowing growth in final demand.
"For now, though, most of the near-term risk to payroll growth is slowing gross hiring rather than increased firing."
Looking to active stocks and earnings
HSBC started off coverage on Tesla ( TSLA ) with a "Reduce" rating. HSBC says it struggles to challenge the feasibility of Tesla's ideas but is cautious as TSLA rarely adheres to its promised timelines.
Analyst Michael Tyndall also says: "Elon Musk’s global fame has afforded the group a customer awareness that far outweighs the money it has spent on marketing and advertising, which is therefore a tangible benefit to the P&L. Leaving aside the current legal issues Elon Musk faces, we think his prominence presents a considerable single-man risk at the group."
Disney ( DIS ) rose after reporting better-than-expected results and an additional $2 billion in cost cuts.
Wells Fargo says Disney got its mojo back. Analyst Steven Cahall says, “CEO Bob Iger has been under the hood for about a year now, and the strategy is taking shape.”
And Anheuser-Busch InBev ( BUD ) landed an upgrade from HSBC to Buy from Hold. Analyst Carlos Laboy pointed to attractive valuation and the strength of key markets across the world. Crucially, he says BUD is large enough that investors do not need the U.S. business to work for the stock to gain, with softness in Bud Light already priced in.
In other news of note
The Federal Reserve is looking into Morgan Stanley's ( MS ) wealth management business to ensure proper controls to prevent wealthy foreign clients from laundering money . That’s according to The Wall Street Journal.
The regulator has been scrutinizing Morgan Stanley's processes after it found lapses in due diligence processes and anti-money-laundering efforts.
Andy Saperstein, the head of Morgan Stanley's wealth management unit, has been meeting with Fed officials. The Fed found lapses in vetting foreign wealth-management clients in 2020 and had directed Morgan Stanley to fix the issues. But the Fed found that many of those issues were not addressed in 2021 or last year.
And in the Wall Street Research Corner
BofA says ownership of the Magnificent 7 —Apple (AAPL), Amazon (AMZN), Alphabet ( GOOG ) (GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—has reached "critical mass" with few funds left to buy, strategist Savita Subramanian wrote in a note.
Looking at holdings of active long-only funds through the end of September, Microsoft is held by more than 90% of funds, with Apple and Amazon held by more than 70%, followed by Alphabet, Meta, and Nvidia at more than 60%. Tesla has the most buying potential, with more than 40% of funds owning it.
Only Apple and Tesla are underweight in long-only funds relative to the S&P weighting. At the same time, the short interest in the Magnificent 7 is at an all-time low, a little above 1% of the market cap.
But these stocks could continue to do the heavy lifting in the near term. The average earnings estimate for 2024 for the big seven is 0.7%, compared to -0.5% for the S&P 500, according to DataTrek.
They say: “US big tech is in better fundamental shape than the broader U.S. equity market right now, which should enable these stocks to outperform and help drive the S&P higher into year-end, as long as rates remain stable or lower.”
For further details see:
Wall Street Lunch: A Potential DraftKings-888 Talked Tie-Up