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December 31, 2020 - Elite Stock Chat

Day: December 31, 2020

F – Ford and Indian auto maker Mahindra call off joint venture

Ford Motor Co. and India’s Mahindra and Mahindra Ltd. called off their auto-making joint venture Thursday, a little over than a year after announcing it, citing pandemic-related economic challenges.

In a joint statement, the companies said the dissolution of the venture “was driven by fundamental changes in global economic and business conditions — caused, in part, by the global pandemic — over the past 15 months.”

“Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities,” the companies said.

The two auto makers announced the joint venture in October 2019. Ford F, -0.79% would have transferred most of its auto operations in India to Mahindra 500520, +2.23%, a cost-saving move intended to keep a foot in a growing market where Ford has largely failed to make inroads. The joint venture would have focused on producing vehicles for emerging markets.

Ford said Thursday its operations in India “will continue as is,” and added that it is “actively evaluating its businesses around the world, including India” to boost margins and generate consistently strong cash flow.

Ford shares ended 2020 down about 5.5%, despite a 30% surge in the past three months, compared to the S&P 500’s SPX, +0.64% 16% gain for the year.

PTON – Why Peloton Interactive Stock Is Like Steroids for Your Portfolio

In some ways, Peloton Interactive (NASDAQ:PTON) is doing for exercise equipment what Apple did in the personal computing market. It has taken a mundane product and made it feel special.

That’s an impressive feat given that the exercise equipment market has been crowded for a long time. Competitors like NordicTrack offer equipment with many of the same features as a Peloton Bike, but the latter has the benefit of connecting owners with a growing community of workout enthusiasts. Peloton’s willingness to spend heavily on marketing has helped it build a powerful brand, generate amazing sales growth, and deliver big returns for investors.

And the best is yet to come. 

A woman using a Peloton bike.

Image source: Peloton Interactive.

Doubling sales every year has been routine

What’s most impressive about Peloton’s growth is how consistent it has been. Revenue grew 90% in its fiscal 2018 (which ended in June of that year), 107% in its fiscal 2019, and 99% in its fiscal 2020. But when gyms shut down due to the pandemic and people went looking for appealing at-home workout options, its growth and member engagement jumped to another level.

In the quarter that ended Sept. 30, revenue growth accelerated to 232% year over year. This performance was partly driven by a large backlog of unfulfilled Peloton Bike orders from the previous quarter, but that reflects phenomenal demand for the product. 

On Wall Street, the knock against Peloton has been its lack of profitability, which can be blamed on the exceedingly large percentage of revenue it spends on marketing. But with this year’s high demand, management has been able to pull back on that spending, which allowed some profits to poke through in the last few quarters. Peloton reported net income of $69 million in the first quarter of fiscal 2021, for a net profit margin of 9%. 

Peloton reported a profit much earlier than investors originally expected, given that it’s still investing aggressively in subscription content and new products to drive growth. Its ability to show a healthy profit while making these crucial investments was a key reason the stock rocketed higher as the year progressed.

Further propelling the stock price was a September investor presentation in which management updated its long-term outlook. The company sees the potential to convert millions of people with paid gym memberships to its interactive fitness products, including the Peloton mobile app.

Many people like their gym experience, so management’s goal will be challenging to reach, but if Peloton can convert even a minor percentage of the estimated 200 million paying gym-goers worldwide, that would be enough to make its stock a rewarding investment, even purchased at its current highs.

PTON Chart

PTON data by YCharts

New acquisition strengthens the investment case

Peloton ended the recent quarter with 1.33 million connected fitness subscribers, and 3.6 million total when including digital app memberships. Those relatively low figures reveal a business that is still at the beginning of its growth journey. 

What’s exciting about Peloton is that new growth avenues are still emerging. For example, it recently announced the acquisition of Precor for $420 million, a purchase that will bring several benefits. 

Precor is a leading provider of commercial-grade fitness equipment  for hotels, multifamily residences, and college campuses. The deal not only opens up these markets for Peloton, but it also brings in-house more expertise in product development, which could enhance the feature sets and technology that will go into its future products.

What’s more, Precor provides a large U.S. manufacturing footprint. By producing some of its connected fitness products domestically, Peloton could significantly shorten delivery times and save money on logistics and shipping. All of this will undoubtedly benefit the bottom line. 

The stock has provided a muscular boost to the portfolios of any investors who bought shares during the months after its September 2019 initial public offering. But management sees revenue roughly doubling again in fiscal 2021, and the healthy profit Peloton showed in the last earnings report shows how lucrative its subscription business model will be over the long term.

This growth stock already sports a rich valuation, so investors may have to temper their near-term expectations. However, I wouldn’t underestimate Peloton’s ability to deliver market-beating returns over the next decade even from these lofty levels.

ARAV – Aravive Announces Board Member Transition to Advisory Role

HOUSTON, Dec. 31, 2020 (GLOBE NEWSWIRE) — Aravive, Inc. (Nasdaq: ARAV), a clinical-stage oncology company developing transformative therapeutics, today announced that Dr. Ray Tabibiazar will be stepping down from the Aravive Board of Directors but will remain an advisor to the company, effective December 31, 2020. This transition will allow Dr. Tabibiazar to focus on a new venture.
Dr. Tabibiazar co-founded private Aravive Biologics and served as the Chairman of its board of directors and as President and Chief Executive Officer from its inception to April 2017 and as Executive Chairman from May 2017 until October 2018. During that time, he led Aravive Biologics through a reverse merger with Versartis, Inc., to form the combined company, Aravive, Inc. Dr. Tabibiazar remained on the Board of Aravive, Inc. since October 2018.“On behalf of my fellow directors, the company’s management team, and shareholders, I’d like to thank Ray for the significant contributions he made to the company as co-founder, CEO, and most recently during his service on Aravive’s Board,” said Fred Eshelman, Pharm.D., Chairman of the Board of Directors. “Ray’s dedication to ensure AVB-500 reaches patients quickly has helped advance our lead program and we wish him the best in his future endeavors.”Dr. Tabibiazar commented, “Aravive’s AVB-500 is a very promising biologic drug with tremendous potential to become a mainstay treatment in several cancers including ovarian and renal, readily combinable with any standard of care therapy given its differentiated mechanism of action and exquisite safety profile. Aravive is in a great position as it advances AVB-500 through the planned registrational study and is tested in additional indications.”About Aravive
Aravive, Inc. is a clinical-stage oncology company developing transformative therapeutics designed to halt the progression of life-threatening diseases. Aravive’s lead therapeutic, AVB-500, is an ultra-high affinity decoy protein that targets the GAS6-AXL signaling pathway associated with tumor cell growth. Aravive recently successfully completed a Phase 1b trial of AVB-500 in platinum resistant ovarian cancer and selected 15 mg/kg as the dose for the Phase 3 trial. While the Phase 1b trial of AVB-500 in platinum resistant ovarian cancer was a safety trial and not powered to demonstrate efficacy, all 5 patients in the 15 mg/kg cohort experienced clinical benefit, with 1 complete response, 2 partial responses, and 2 stable disease. The Company has initiated and is recruiting for its Phase 1b/2 trial in patients with clear cell renal cell carcinoma. For more information, please visit www.aravive.com.
Forward-Looking Statements
This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions and includes statements regarding plans to evaluate AVB-500 in a Phase 1b/ 2 trial in patients with clear cell renal cell carcinoma Forward-looking statements are based on current beliefs and assumptions, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement as a result of various factors, including, but not limited to, risks and uncertainties related to: our ability to initiate a Phase 1b/Phase 2 trial of AVB-500 in clear cell renal cell carcinoma as planned, the impact of COVID-19 on the Company’s clinical strategy, clinical trials, supply chain and fundraising, the Company’s ability to expand development into additional oncology indications, the Company’s dependence upon AVB-500, AVB-500’s ability to have favorable results in clinical trials and ISTs, the clinical trials of AVB-500 having results that are as favorable as those of preclinical and clinical trials, the ability to receive regulatory approval, potential delays in the Company’s clinical trials due to regulatory requirements or difficulty identifying qualified investigators or enrolling patients especially in light of the COVID-19 pandemic; the risk that AVB-500 may cause serious side effects or have properties that delay or prevent regulatory approval or limit its commercial potential; the risk that the Company may encounter difficulties in manufacturing AVB-500; if AVB-500 is approved, risks associated with its market acceptance, including pricing and reimbursement; potential difficulties enforcing the Company’s intellectual property rights; the Company’s reliance on its licensor of intellectual property and financing needs. The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including the risk factors included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, recent Current Reports on Form 8-K and subsequent filings with the SEC. Except as required by applicable law, the Company undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
Sheryl Seapy, W2O Group
Luke Heagle, W2O Group

ABT – Abbott (ABT) Outpaces Stock Market Gains: What You Should Know

In the latest trading session, Abbott (ABT Free Report) closed at $109.49, marking a +0.97% move from the previous day. This change outpaced the S&P 500’s 0.64% gain on the day. Meanwhile, the Dow gained 0.65%, and the Nasdaq, a tech-heavy index, added 0.14%.

Coming into today, shares of the maker of infant formula, medical devices and drugs had gained 0.27% in the past month. In that same time, the Medical sector gained 3.2%, while the S&P 500 gained 3.19%.

Investors will be hoping for strength from ABT as it approaches its next earnings release. The company is expected to report EPS of $1.36, up 43.16% from the prior-year quarter. Our most recent consensus estimate is calling for quarterly revenue of $9.91 billion, up 19.18% from the year-ago period.

For the full year, our Zacks Consensus Estimates are projecting earnings of $3.57 per share and revenue of $33.83 billion, which would represent changes of +10.19% and +6.05%, respectively, from the prior year.

Any recent changes to analyst estimates for ABT should also be noted by investors. Recent revisions tend to reflect the latest near-term business trends. With this in mind, we can consider positive estimate revisions a sign of optimism about the company’s business outlook.

Our research shows that these estimate changes are directly correlated with near-term stock prices. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. Within the past 30 days, our consensus EPS projection remained stagnant. ABT currently has a Zacks Rank of #3 (Hold).

Looking at its valuation, ABT is holding a Forward P/E ratio of 30.41. This valuation marks a discount compared to its industry’s average Forward P/E of 39.41.

Investors should also note that ABT has a PEG ratio of 2.47 right now. The PEG ratio is similar to the widely-used P/E ratio, but this metric also takes the company’s expected earnings growth rate into account. Medical – Products stocks are, on average, holding a PEG ratio of 3.65 based on yesterday’s closing prices.

The Medical – Products industry is part of the Medical sector. This group has a Zacks Industry Rank of 171, putting it in the bottom 33% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Be sure to follow all of these stock-moving metrics, and many more, on Zacks.com.