The Insider Report - October 20th, 2024

Your Exclusive Benzinga Insider Report

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By analyst Gianni Di Poce
Volume 3.4

Market Overview (Member Only)

• It was an all-time party in stocks last week. The Dow Jones Industrial average led the way, closing up 0.96%. The S&P 500 was up 0.85%, while the Nasdaq closed up 0.80%, and at its highest weekly level in history.
  
• Gold hit a new all-time high and silver a multi-decade high. We've been extremely bullish on precious metals all year.
  
• I think crypto's bull run is still early and Bitcoin could hit $100-$120k.
  
• Real estate stormed back last week with financials and utilities. It looks like interest rates could continue their decline.

Stocks I Like

SoFi Technologies (SOFI) – 47% Return Potential

What's Happening

• SoFi Technologies (SOFI) is a financial and credit service platform in the United States.
  
• The company made $2.07 billion in revenue in 2023, but still lost $300.74 million on the year.
  
• SOFI has a modest valuation. Its P/E is at 7.99, its Price-to-Sales is at 0.34, and its EV to EBITDA is at 4.51.
  
• From a technical standpoint, SOFI is starting to press into resistance of a saucer formation. If it clears, we could see some major upside in this name.

Why It's Happening

• SoFi’s member base grew by over 40% year-over-year in 2023, reaching 8.8 million members in Q2 2024. This rapid expansion demonstrates the company’s strong retention and cross-selling capabilities, positioning it for sustained growth as it deepens relationships with existing customers and attracts new ones.
  
• The ratio of financial services products to lending products increased from 2.7x in 2021 to 6.2x in 2024. This shift towards higher-margin financial services offerings is likely to boost SoFi’s lifetime value per customer and drive profitability improvements in the coming quarters.
  
• SoFi has consistently beaten EPS estimates in recent quarters, with 11 upward revisions in the last 90 days. This trend of outperformance suggests that analysts may be underestimating the company’s earnings potential, potentially leading to positive surprises and stock price appreciation.
  
• Management raised full-year 2024 guidance, projecting top-line growth of 17-19% year-over-year to $2.425-2.465 billion. This optimistic outlook suggests that SoFi’s momentum is likely to continue, potentially driving the stock price higher.
  
• SoFi reported strong Q2 2024 results, with adjusted net GAAP revenues of $599 million, up 20% year-over-year and beating estimates of $567 million. This robust top-line growth demonstrates the company’s ability to execute its strategy effectively.
  
• SOFI has a free quarterly cash flow of $2.27 billion.

Analyst Ratings:

• Needham: Buy
• Barclays: Equal-weight
• Deutsche Bank: Hold

My Action Plan (47% Return Potential)

• I am bullish on SOFI above $9.00-$10.00. My upside target is $15.00-$16.00.

Zebra Technologies (ZBRA) – 33% Return Potential

What's Happening

• Zebra Technologies (ZBRA) provides enterprise asset intelligence solutions and data capture services.
  
• The company made $4.58 billion in revenue in 2023, along with $296 million in earnings.
  
• ZBRA has a high valuation, with its P/E at 85.08, its Price-to-Sales at 4.48, and its EV to EBITDA at 39.03.
  
• At a technical level, ZBRA is bullish so long as it remains within the ascending price channel. These are continuation patterns too, and the trend is up.

Why It's Happening

• Zebra is positioning itself as a leader in AI innovation within its industry3. The company’s focus on integrating AI into its products and services could lead to new growth opportunities and competitive advantages, potentially driving the stock price higher as these initiatives bear fruit.
  
• The company’s CEO, Bill Burns, highlighted a return to growth in enterprise mobile computing across all vertical end markets. This broad-based recovery suggests that Zebra’s products remain in high demand across various industries, positioning the company for sustained growth and potential stock price increases.
  
• Zebra is on track with its 2024 Productivity Plan and Voluntary Retirement Plan, aiming for $120 million in annualized net expense savings. These cost-cutting initiatives demonstrate the company’s commitment to improving profitability, which should lead to better financial performance and potentially higher stock valuations.
  
• The company has raised its full-year 2024 guidance, now expecting net sales growth between 4% and 7%. This upward revision in guidance reflects management’s confidence in the company’s prospects and could attract more investors looking for growth opportunities.
  
• Gross margin improved to 48.4% in Q2 2024, up from 47.9% in the prior year2. This margin expansion, driven by lower supply chain costs and favorable currency impacts, indicates improved operational efficiency and could lead to higher profitability in the future, making the stock more attractive to value-oriented investors.
  
• Revenue for Q2 2024 reached $1,217 million, surpassing analyst expectations of $1,181 million.
  
• ZBRA has a free quarterly cash flow of $278 million.

Analyst Ratings:

• Truist Securities: Hold
• Stephens & Co: Overweight
• Barclays: Equal-weight

My Action Plan (33% Return Potential)

• I am bullish on ZBRAabove $340.00-$345.00. My upside target is $500.00-$510.00.

Sweetgreen (SG) – 75% Return Potential

What's Happening

• Sweetgreen (SG) operates fast food restaurants with healthier options at scale.
  
• The company brought in $584.04 million in revenue in 2023, but still lost $113.38 million on the year.
  
• SG has a generally elevated valuation. The company's not profitable, but its Price-to-Sales is at 6.83 and its Book Value is at 4.12.
  
• From a charting perspective, SG is attempting a breakout from an ascending triangle formation. These are continuation patterns, and the trend is already up in SG.

Why It's Happening

• Sweetgreen opened four new restaurants during Q2 2024, including a new establishment in New Hampshire. The company’s strategic expansion into new markets demonstrates its commitment to growth and ability to capture untapped opportunities. As Sweetgreen continues to expand its footprint, investors can anticipate increased revenue and market share.
  
• The company completed its inaugural Infinite Kitchen retrofit at Penn Plaza, achieving impressive throughput levels and garnering positive customer reviews. This innovative concept has the potential to revolutionize Sweetgreen’s operations, improving efficiency and customer satisfaction. As the company scales this model, it could lead to significant cost savings and increased profitability.
  
• Sweetgreen’s CEO, Jonathan Neman, highlighted that the Infinite Kitchen at Penn Plaza can deliver orders in under 3 minutes, reducing wait times for both walk-in and digital orders. This improved efficiency is likely to enhance customer satisfaction and drive repeat business, potentially leading to increased sales and stock performance.
  
•  Sweetgreen plans to incorporate comprehensive marketing efforts, including out-of-home and digital outreach, to expand its customer base and enhance menu innovation. This multi-channel approach to marketing could help the company capture a larger market share and drive revenue growth, potentially boosting stock value.
  
• Sweetgreen’s strategy to expand beyond lunch into the dinner segment has been successful, with dinner now accounting for 40% of sales. This diversification of revenue streams demonstrates the company’s ability to adapt to changing consumer preferences and could lead to more stable and predictable earnings growth.
  
• SG is a candidate for a short squeeze with over 24% of its floated shares being sold short.

Analyst Ratings:

• B of A Securities: Buy
• Piper Sandler: Neutral
• Oppenheimer: Outperform

My Action Plan (75% Return Potential)

• I am bullish on SGabove $33.00-$34.00. My upside target is $62.00-$64.00.

Market-Moving Catalysts for the Week Ahead

Thank You, ECB!

The European Central Bank came out last week and reaffirmed the trend of monetary easing unfolding across the globe. ECB head Christine Lagarde said that members of the central bank unanimously voted to lower interest rates 25 basis points in Europe.

This move led to a sharp selloff in the Euro, and subsequently, a powerful surge in the U.S. Dollar, which is something I've been alerting readers to in recent weeks. Simply put, the U.S. remains the best house in a bad neighborhood, and the world wants a piece of the action.

This move from the ECB is only going to lead to an acceleration of capital into the U.S. market, and chances are, this money will find its way into stocks. There's a big question right now in the bond market based on inflation concerns, but we'll know more closer to year-end.

A Strong Recession – I Must Say
Last week saw some solid retail sales data, which works against the idea that a recession is imminent in the U.S. economy. As economic observers and market participants, we know that there is a cyclical component to recessions.

I think many are using an entirely wrong timing model for a potential recession right now. This is because the consensus surrounds the last recession having taken place in 2020 – but here's the thing – 2022 had two negative quarters of GDP as well.

I don't care what the narrative may or not be. I care about the facts. I know that the integrity of the economic data isn't the best, but it's the hand that we're dealt as traders and investors. I don't think the recession risk rises until mid-2025 at least.

The Earnings Roll Out
It's that time of year again – it's earnings season! Fortunately for you, there is no better place than Benzinga Pro to stay up to date on all of the latest earnings results, as well as key updates on guidance issued by companies.

I think it's about to be a rocking earnings season. We already saw a small preview of this with Taiwan Semiconductor and Netflix last week. Both posted strong results and saw big gaps higher in their stock afterwards.

Remember that surprises in the tape, more often than not, happen in the direction of the underlying trend. Sometimes, people ask me if I sell a stock before earnings, and my answer is no. I manage earnings risk by sizing my positions accordingly.

Own Assets or Get Left Behind
The inflation discussion can become very charged emotionally. But when it comes to your portfolio, I cannot stress enough the importance of keeping a cool head. To take that a step further, it's generally a good idea to keep politics out of one's portfolio.

But when it comes to inflation, there are two real refuges for individuals. The first is to increase your income. At the end of the day, expense cutting will only get you so far, since by definition, the cost of living is increasing.

The second prong of the inflation repellent is owning assets. History shows that owning equities is the best way to hedge and even grow wealth during inflation. Fortunately, the barrier to entry has never been lower to own equities. Don't stand by and miss out on this opportunity.

Sector & Industry Strength (Member Only)

I must say – this is quite the tape that we're seeing in stocks this year. Half of the sectors are standing head and shoulders above the rest. They include utilities (XLU), communications (XLC), financials (XLF), industrials (XLI), and technology (XLK).

The rest of the market is lagging behind – by almost 10% at least. I'm not exactly thrilled with utilities (XLU) taking the top-spot in the tape, but the rest of the sectors are still following closely behind, so that can change quickly.

I am encouraged, however, by how consumer discretionary (XLY) has nearly overtaken consumer staples (XLP) year-to-date. This would not be a development we'd be seeing if stocks were about to roll over.

1 week	3 Weeks	13 Weeks	26 Weeks
Real Estate	Financials	Utilities	Utilities

Editor's Note: Real estate and financials take one-week and 3-week leadership roles. Looks like rates may be heading lower again.

Careful With Commodities (Sector ETF: GLD/DBC) 

The commodity sector is a diverse one, to say the least. There are energy markets, "soft" agricultural commodities, livestock markets, precious metals, and more. This week, I want to make sure any attention paid to commodities is in the right place.

This chart looks at the ratio between gold (GLD) and a basket of commodities (DBC). This is a very important chart for those looking for exposure to hard assets, and it's currently saying that gold (GLD) is the better option.

The ratio broke out from a rounding bottom pattern earlier this year. But even before then, a series of higher-highs and higher-lows were printed on this ratio in favor of GLD over DBC. The key thing here is that gold is hanging out near all-time highs, while many other commodities are far from their highs. Always focus on relative strength.

Fight for the Future (Sector ETF: XLC/XLK)
This ratio looks at two of the top-performing sectors in the market right now, and they are closely linked too. The chart displays the ratio between communications (XLC) and technology (XLK).

There's a fair share of overlap in the companies within these sectors, but for most of this year, XLC has been the leader year-to-date. Just last week, communications slipped against utilities, however. A quick glance at this ratio shows that tech has been the dominant sector in the long run against communications though.

The rectangle formation on the ratio between XLC and XLK implies that an eventual continuation of the downtrend may follow. However, for this to be the case, the ratio would need to break below the lower trendline of the rectangle. Communications may not go so quietly into the night.

Don't Overlook Improving Liquidity (Sector ETF: LQD/IEI)
Every couple of weeks, I make a point to bring this chart back onto your radar – it's the ratio between investment-grade corporate debt (LQD) and 3-7 Year Treasuries (IEI). This ratio provides an excellent way to measure market liquidity through credit spreads.

And even though this is a ratio that looks at bond markets, it's significance for stock markets cannot be understated. Simply put, when liquidity conditions are strong, it's very unlikely that the stock market will crash.

The ratio between LQD and IEI is on the precipice of a massive breakout from a rounding bottom formation. If this clears, which I fully expect since the Fed is easing (increasing liquidity), then stocks should continue their climb higher.

Editor's Take:
Simply put, there are few-to-no instances where stocks crash with liquidity levels rising. That's why I make a point to bring this ratio to your attention every couple of weeks. Bull markets climb a wall of worry.

When we had the bear market of 2022 and even the turbulence in late-2023, we saw credit spreads widen. But it's worth pointing out that liquidity conditions started improving well before the Fed started cutting rates.

Don't be fooled – the Fed intentionally let this ratio drop, or credit spreads widen, in 2022. It was part of their battle against inflation, so now the question will be whether this increased liquidity will make its way to commodity markets too.

Cryptocurrency 

Bitcoin’s price action is painting a bullish picture as we head into the latter part of 2024. The cryptocurrency has been making higher highs since late August, signaling a major shift in momentum that could lead to significant upside in the coming weeks.

Support in the $50,000-$55,000-zone was wonderfully held back in early September, and the higher-low from a couple weeks back followed with a surge of upside momentum. If Bitcoin clears $70,000-72,000 – look out above.

We know that Bitcoin leads, and the rest of cryptos follow. If resistance breaks, we could be on the cusp of a new altcoin season too. I would look for Bitcoin to rally as high as $100,000-$120,000 in this case.

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