This Week in Episodic Pivots: August 27, 2023
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Markets bounced a bit this week, which helped out our remaining positions. And we’re up to a quick 7% gain in the first week of holding Adecagro ( AGRO 0.00%↑ )
But the S&P isn’t out of the woods yet. The index rose to the 50-day MA last week and reversed hard on Thursday. It gave us an ugly red candle. That’s scary.
The one bright spot in this chart is that the markets did bounce back a bit on Friday.
And those markets bounced even though Fed Chairman Jerome Powell gave a hawkish speech at the Jackson Hole retreat. He said that the inflation target will remain at 2% and that rates may need to be higher for longer to reign in inflation.
Now regular readers of this letter know that is not a change in message. Powell’s been pretty on key. But analysts and journalists believe this will lead to volatile markets this week. They were hoping to hear talk about a reversal.
The recent Fed coverage is some of the dumbest analysis I’ve seen in my nearly two decades of working in financial markets. These people want something to happen, so they write about it happening. But they’re not listening to the facts.
And with core inflation still around 5%, the Fed’s job of creating price stability is still a long ways from being done.
We’ll get to hear a bit more about that this week. The two big economic releases are personal consumption expenditures (CPE) release and a jobs report. If these numbers come in hot, we could even see a 25 basis point increase in the Fed’s September meeting.
So we can probably expect a little volatility this upcoming week. Hang on for that. But that’s not going to stop us from putting on a couple new positions.
Splunk ( SPLK 0.00%↑ )
Splunk helps companies gather all the data their enterprise collects from their hundreds of cloud services and makes it easily accessible for data analysts. Their main product is a unified security and observability platform.
Although Splunk started as a data collection company, it recently has used the data it collects to increase the online security profile of its customers.
And they had a great beat and raise quarter last week. The company has long talked about getting the free cash flow (FCF) to over $1 billion a year. They ran into a couple hiccups over the past couple of years, but now they’re likely just a quarter or two to hit that mark.
If the company trades at current levels, it would have a P/FCF ratio of about 20 at that time. And that’s cheap compared to a company that’s going to grow FCF over 20% in 2024.
I think investors are beginning to figure this out and are methodically establishing positions in Splunk.
This propelled the company to 52-week highs. And now the chart faces no price resistance as the stock heads higher. We can also use a tight stop at the 200-day moving average.
MoneyLion ( ML 0.00%↑ )
MoneyLion is a small, $186 million fintech company. They deliver mobile banking, lending, and investment solutions to clients. And they’re quite good at it.
On August 8, they announced amazing revenue growth in the earnings results. Unfortunately they missed on earnings per share (EPS) numbers. But those are often gummed up by accounting adjustments.
But if you look at the FCF numbers, we can see that analyst project the FCF number this year to be $40 million. If that can be sustained going forward, that means the company currently trades about 4.6x P/FCF. Now that’s deep value territory. And the company projects 20%+ revenue growth the next couple of years.
I’m guessing they’ll be raising their profit numbers as those sales work their way through the income statement.
What moved the stock last week was investment bank B Riley raising its price target from $21 to $30. They did that because of the big numbers from the quarterly release.
And now the company trades above all its moving averages and is in a nice uptrend. And we can use the 50-dy MA as our stop. That’s a little wider of a stop than normal, but this is a smaller company and may be impacted more be outside forces.
And that’s all for this week.
Happy Investing!