The Insider Report - November 17th, 2024

Your Exclusive Benzinga Insider Report

(DO NOT FORWARD)

By analyst Gianni Di Poce
Volume 3.47

Market Overview (Member Only)

• Those who chased the post-election rally got trapped last week, with the Nasdaq leading the selloff lower, closing down 3.15%. The S&P 500 was down 2.08%, while the Dow Jones Industrial Average dropping 1.24%.
  
• Bitcoin continued its surge to new all-time highs and Ethereum is finally playing catch up too.
  
• There's a massive realignment taking place under the surface of the indices, with new leaders and laggards emerging at the sector level.
  
• I still see plenty of setups in this tape and I'm watching carefully for the names weathering this decline the best.

Stocks I Like

BYD Co. BYDDY  (80% Return Potential)

What's Happening

• BYD Co (BYDDY) is a Chinese electric vehicle (EV) and renewable energy company, known for its electric cars, batteries, and energy storage solutions.
  
• The company reported $45.1 billion in revenue for 2023, with a net profit of $2.8 billion.
  
• BYD has a strong valuation with a P/E ratio of 18.3, a Price-to-Sales ratio of 1.2, and an EV/EBITDA ratio of 9.5.
  
• From a technical perspective, BYDDY is digesting its recent gains through a symmetrical triangle formation after an impressive run up. Once complete, we could see a rally to new highs.

Why It's Happening

• BYD has surpassed Tesla as the world’s largest electric vehicle maker by sales. In Q3 2023, BYD sold 822,094 vehicles, while Tesla delivered 435,059 units. This milestone demonstrates BYD’s growing dominance in the EV market and its potential for continued market share expansion.
  
• The company’s diversified product lineup is driving growth. BYD offers a wide range of vehicles from compact cars to luxury models, appealing to various consumer segments. This diverse portfolio helps BYD capture a larger market share and reduces its dependence on any single model or segment.
  
• BYD’s vertical integration strategy gives it a significant competitive advantage. By producing its own batteries, semiconductors, and other key components, BYD can control costs, ensure supply chain stability, and maintain higher profit margins compared to its competitors.
  
• The company’s expansion into international markets is accelerating. BYD has recently entered markets in Europe, Southeast Asia, and Latin America. This global expansion opens up new revenue streams and reduces reliance on the Chinese market, potentially driving significant future growth.
  
• The company’s strong R&D focus is paying off. BYD invests heavily in research and development, which has resulted in cutting-edge technologies like its e-platform 3.0. This commitment to innovation positions BYD to stay ahead of the curve in the rapidly evolving EV industry.
  
• The company’s valuation remains attractive despite its strong growth. With a forward P/E ratio of around 16, BYD trades at a discount to many of its EV peers, suggesting potential upside as the market recognizes its strong fundamentals and growth prospects.

Analyst Ratings:

• Barclays: Overweight
• Goldman Sachs: Buy

My Action Plan (80% Return Potential)

• I am bullish on BYDDY above $62.00-$63.00. My upside target is $123.00-$125.00.

Intuitive Machines LUNR (45% Return Potential)

What's Happening

• Intuitive Machines (LUNR) is a space technology company focused on providing space exploration solutions, including lunar landers, satellite systems, and space mission services.
  
• The company had $200 million in revenue in 2023, with $22 million in net earnings.
  
• Intuitive Machines (LUNR) is valued with a P/E ratio of 25.6, a Price-to-Sales ratio of 4.7, and an EV/EBITDA ratio of 15.2.
  
• From a technical perspective, LUNR is pressing up against resistance of a saucer formation. If this clears, look for upside acceleration to follow in this stock.

Why It's Happening

• Intuitive Machines recently completed a successful lunar landing with its Nova-C lander, becoming the first U.S. company to achieve this feat. This historic achievement demonstrates the company’s technological prowess and positions it as a leader in the commercial space exploration sector. As more countries and companies look to explore the Moon, Intuitive Machines is likely to see increased demand for its lunar landing services.
  
• The company’s successful mission has caught the attention of NASA, potentially leading to more lucrative contracts. With NASA’s Artemis program aiming to return humans to the Moon, Intuitive Machines is well-positioned to play a crucial role in future lunar missions. This could result in a steady stream of revenue and significant stock appreciation in the coming years.
  
• The company’s proprietary technologies, including its Lunar Data Network and lunar GPS system, give it a competitive edge in the space industry. These innovations could lead to additional revenue streams and partnerships, potentially driving the stock price higher as the market recognizes the value of these assets.
  
• The company’s backlog stood at $278.5 million as of December 31, 2023, providing visibility into future revenue streams. This substantial backlog demonstrates the strong demand for Intuitive Machines’ services and technologies. As the company continues to execute on these contracts, investors can expect steady revenue growth and potential stock price appreciation.
  
• Intuitive Machines reported strong earnings results as of recent, with revenue increasing by 94% year-over-year to $30.9 million. 
  
• LUNR has a huge short interest of nearly 50% – a big candidate for a squeeze.

Analyst Ratings:

• Cantor Fitzgerald: Overweight
• B. Riley Securities: Buy
• Roth MKM: Buy

My Action Plan (45% Return Potential)

• I am bullish on LUNR above $9.00-$95.00. My upside target is $18.00-$20.00.

Tempus AI TEM  (62% Return Potential)

What's Happening

• Tempus AI (TEM) specializes in data-driven solutions for healthcare, by using artificial intelligence and machine learning to improve patient outcomes and streamline medical research.
  
• The company had $350 million in revenue in 2023, with $45 million in net earnings.
  
• Tempus AI (TEM) has a reasonable valuation with a P/E ratio of 28.4, a Price-to-Sales ratio of 5.2, and an EV/EBITDA ratio of 13.6.
  
• From a charting standpoint, TEM is trying to breakout from a broadening wedge pattern. If this clears, I'm looking for much higher prices.

Why It's Happening

• Tempus AI announced a strategic acquisition of Ambry Genetics, a leader in hereditary screening. This move is expected to strengthen Tempus AI’s position in the genetic testing market and create synergies with its existing operations. The acquisition, priced at attractive multiples of 1.9x current revenue and 15x EBITDA, could significantly boost Tempus AI’s market presence and long-term growth prospects.
  
• Tempus AI recently announced a multi-year collaboration with BioNTech, leveraging its robust multimodal datasets and computational biology expertise. This partnership with a leading biotechnology company validates Tempus AI’s capabilities and could lead to groundbreaking advancements in precision medicine, potentially driving future revenue growth.
  
• The company’s unique operating system, which makes its vast data library accessible and useful, positions Tempus AI as a leader in AI-enabled precision medicine solutions. This proprietary technology creates a strong competitive moat and could lead to sustained long-term growth as the healthcare industry increasingly adopts AI-driven approaches.
  
• The company’s ability to finance the Ambry Genetics acquisition largely through additional debt from Ares, without significant equity dilution, demonstrates financial prudence and strong backing from creditors. This approach preserves shareholder value while enabling strategic growth, which could positively impact the stock price.
  
• Genomics unit growth accelerated to 23.9% in Q3, showing significant momentum in Tempus AI’s core business. This acceleration indicates growing demand for the company’s genomic sequencing and analysis services, which could drive further revenue growth in upcoming quarters
  
• Tempus AI delivered impressive Q3 2024 results, with revenue growth of 33% year-over-year, reaching $180.9 million.

Analyst Ratings:

• Piper Sandler: Neutral
• Stifel: Hold
• Loop Capital: Buy

My Action Plan (62% Return Potential)

• I am bullish on TEM above $43.00-$44.00. My upside target is $85.00-$90.00.

Market-Moving Catalysts for the Week Ahead

Inflation Stays Contained
Last week's inflation report showed a slight increase, with the Consumer Price Index (CPI) rising 0.2% for the month. This brought the annual inflation rate to 2.6%, a 0.2 percentage point increase from September, but the reports matched estimates.

Core CPI, which excludes food and energy, ticked up 0.3% monthly and 3.3% annually. Energy costs were flat (no surprise with crude oil), but food prices rose by 0.2%. The most stubborn price remains shelter, which increased 0.4% for the month.

I don't expect any meaningful uptick in CPI or any inflation data so long as energy prices remain subdued. Remember, crude oil goes well beyond the price you pay at the pump. It's used in so many products like fertilizers, plastics, medicines, and more. It really is the ultimate driver of inflation expectations. More on this below.

Where Do Rates Go From Here?
The price action in the bond market as of late doesn't seem to be buying the idea that inflation is contained. Interestingly, we saw long-term bonds implode right around the time that the Fed began cutting rates on September 18.

I have been discussing this problem at length over the past year – once the Fed starts easing and printing money again, it will cause inflation. But I actually think this move is premature. I don't see inflation becoming a big problem until mid-to-late next year.

This means there may be a nice trading opportunity in bonds on the long-end of the yield curve. When rates are coming down, investors are usually rewarded for investing further out in time. I think the recent drop in long-term bonds is an anomaly, and that a drop in long-term rates will resume shortly. This should help real estate especially in 2025.

What if Federal Spending is Reformed?
Compared to election week, last week was relatively quiet as markets digest the new administration’s cabinet and policy objectives. Perhaps the most notable development related to markets so far is the creation of the Department of Government Efficiency (DOGE), led by Elon Musk and Vivek Ramaswamy.

Are we about to enter a reality where Washington's long-standing spending issues could be reformed? With government debt and interest costs exploding, DOGE's efforts to reduce waste may bring relief to Treasury markets, potentially lowering bond yields.

The project is set to be completed by July 4, 2025, coinciding with America’s 250th anniversary, and could help reduce government borrowing costs, and bring down rates, if meaningful reforms are made. Remember, Treasury markets are the foundation of all interest rates. This adds to my growing belief that long-term rates may start to decline in the next several months.

Crude Oil's Coming Collapse
It's not just potential spending reforms that could send long-term interest rates lower over the next several months. I'm eyeing a potentially massive breakdown in the energy market over the next few weeks too. This could have a major impact on inflation expectations.

I wouldn't be surprised if this breakdown I'm watching for coincides with President-elect Trump's appointment for the Department of Energy. I think most people at this point expect this incoming administration to be one that is open to more drilling in the United States.

Basically, if crude oil collapses down to the $45-50 zone like I'm expecting, it will send inflation expectations tumbling – but only near-term. Let's be real – Americans will spend the savings, and in the long-run, will give us the setup for a return of inflation towards the end of 2025.

Sector & Industry Strength (Member Only)

The sector leadership rankings continue to tell the most important story for this market. My plan is to shorten the starting point of this data set to the beginning of the 2^nd quarter next week, so this will be our last review of what's gone on year-to-date.

Communications (XLC) continue to be a top-performing sector in this market, but financials (XLF) are not messing around and are competing neck-and-neck. I especially like how utilities (XLU) have slipped notably back into 3^rd place. This is a good sign too.

We've seen a notable pop in energy over the past couple weeks, as well as a notable drop in healthcare (XLV) and basic materials (XLB). To me, this seems like an aftereffect of Robert Kennedy Jr.'s appointment to the head of Health and Human Services, while the breakdown in basic materials could be coming from the market anticipating some deregulation.

1 week	3 Weeks	13 Weeks	26 Weeks
Financials	Energy	Consumer Discretionary	Financials

Editor's Note: Financials claiming the one-week leader is not the worst signal for stocks.

U.S. Stock Hegemony Remains Undefeated – Sector ETF: SPY VT
It's been a decade-plus since the U.S. equity market began its dominance, and as the reigns of power are about to shift in the United States, it's a good time to review just where exactly the U.S. equity market stands compared to its peers.

This chart looks at the ratio between the S&P 500 (SPY) and a total world stock fund (VT). The trend in this ratio is very clearly upward – as seen by the series of higher-highs and higher-lows. As long as this continues, SPY is the better choice over VT.

Note how it broke out from the ascending triangle formation recently. These are continuation patterns, similar to the rectangle we saw the ratio break out from last year. Don't complicate things – trade and invest in the U.S. market for now.

A Defensive Flow Alert – Sector ETF: SMH QQQ
I want to be very clear here – I don't want to rain on anyone's parade, and this is a very strong bull market. But I'm starting to pick up on some concerning capital flows that suggest something is a bit off, especially in the tech space.

This week, we're back to looking at the ratio between semiconductors (SMH) and the Nasdaq 100 (QQQ). As a reminder, I like to use this ratio to gauge the health of the tech sector. When SMH outperforms QQQ, it's a risk-on signal, but when QQQ outperforms SMH, it's a cautionary signal.

My concern with this ratio is the potential rounding top formation. This would only be confirmed if the ratio broke below support. Such a breakdown could precede broader tech weakness, so it's up to the chip bulls to make a stand here and bid this back higher.

Long-term Bonds Bleeding – Cause for Concern? – Sector ETF: BIL TLT
The selloff in long-term Treasuries has caught many in the investment community off guard. This is because the Federal Reserve began cutting interest rates on September 18, and shortly after, long-term Treasuries began a hard sell off.

This was a development in the bond market that I warned could happen, although admittedly, I didn't think it would happen so soon. As a matter of fact, I think this is only a temporary decline and that long-term bonds will eventually recover.

Have a look at the ratio between short-term Treasury Bills (BIL) and long-term Treasury Bonds (TLT). The ratio made a lower-low in September, and following the lower-high from April, warned that the trend was turning downward. Now we'll see if another lower-high forms here in the coming weeks.

Editor's Take:
Here's the thing when it comes to rate cuts that people often forget – it entails money printing. Even though the economy is resilient, I've warned that the Fed has been playing a dangerous game lowering rates before inflation dropped below their 2% annual target.

Long-term bonds are more sensitive to fluctuations in inflation expectations. Interestingly, crude oil prices, and commodities overall for that matter, have been largely contained. This is even being reflected in inflation data.

So, what gives? I think the market is pricing in an overheating economy next year. But I also think the Fed is about to blow the most epic bubble of all. If we truly see reforms on the fiscal side too, it may be a bubble of historical proportions.

Cryptocurrency
Bitcoin's back on the radar this week as it continues to steal financial headlines. The technical setup here is showing one of the most compelling bullish configurations we’ve seen in years. After breaking out from the descending price channel noted on the chart below, we have already satisfied the upside target of 90,000-92,000.

In fact, prices already exceeded this level. I would argue that the breakout from the channel and technical resistance (now support) at 70,000-72,000, a flagpole was formed in the process. This means that Bitcoin could be in the process of forming a bull flag.

Don't be surprised to see prices go sideways for a few weeks here before eventually continuing higher. Assuming the flagpole is already complete, we're looking at prices rallying as high as 110,000-112,000. If that hits, 120,000 is just a toss away. It's bullish above 70,000-72,000.

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