Why Stocks Could Be Ready To Rally


It’s been a painful week for growth investors given significant declines in technology-oriented indexes and exchange traded funds. The NASDAQ 100 ETF (QQQ) fell over 11% from its intraday high this month to its intraday low this week, and returns were worse for software investors given the iShares Expanded Tech-Software Sector ETF (IGV) 12.5% drop from its month-to-date high to low point.

Source: Top Stocks for Tomorrow.

Many individual stocks fared worse. For example, high-flying Tesla (TSLA) lost over one-third of its value and Zoom (ZM), Wayfair (W), and Shopify (SHOP) declined by over twenty five percent.

Since many of the baskets and individual stocks that fell most were also those most extended to their 200-day moving average, it isn’t surprising they took the brunt of the sell-off.

Source: Top Stocks for Tomorrow.

However, our overbought indicator is still extended with over 50% of our 1,500 stock universe trading 5% or more above its 200-day moving average.

Historically, readings above 50% have preceded significant corrections, including the one we experienced this week and ideally, a correction would normalize this reading in the 20% to 40% range. Since we’re still north of 50%, it’s hard to argue all the pain has been felt when it comes to individual stocks.

The market itself could be finding its footing, though. Volatility can remain elevated for weeks following a 3% one-day decline in the S&P 500, but the market usually trades higher at some point within 30-days. In my experience, picking bottoms is more art than science, so it’s best to focus on ranges and be flexible. Ideally, I’d like to see a retest of this week’s intraday low followed by a heavy volume reversal day for confirmation, but as I said, flexibility is key. Many leading stocks may officially bottom before the market, so selectively buying leaders could be the best approach for investors.

Overall, it’s too soon to declare every stock has found its footing, but using down days to buy leaders in strong sectors and industries could be savvier than indiscriminately selling at this point. It’s far easier to proactively and non-emotionally prune portfolios into strength, than weakness, so the best time to raise cash was when we recommended doing it in August, not today.

Top-rated sectors now

Weekly, we rank major sectors so members can see which baskets have alpha-friendly tailwinds. It also helps investors spot emerging positive or negative trends. For example, consumer goods — a defensive group — strengthened throughout August as technology weakened, adding conviction to thinking the market was due for a correction.

Currently, industrials, services, consumer goods, financials and technology are the best ponds to fish in large cap. The top mid-cap sectors are consumer goods, services, and basic materials, while basic materials, services, consumer goods, and industrials are best in small cap.

Because utilities and energy stocks remain weak across all market caps, it’s best to focus elsewhere for stocks to buy.

Source: Top Stocks for Tomorrow.

It can also be useful to track sector strength by market cap. For instance, large-cap industrials score better than small cap industrials, and small-cap basic materials scores higher than large-cap basic materials.

Source: Top Stocks for Tomorrow.

The strongest-scoring stocks now

Our scores provide a systematic and objective way to rank over 1,500 high-quality stocks. Weekly, we run every stock in our universe through a 7-factor gauntlet explained more here. Overall, our model assigns scores based on the following factors:

  • Forward earnings growth expectations
  • Historical trends in reporting earnings that beat Wall Street estimates
  • Insider buying
  • Short-term and long-term institutional money flow
  • Forward valuation relative to historical valuation
  • Contra-trend short interest analysis
  • Quarterly seasonality over the past decade

Because stock prices follow earnings over time, insiders buy for one reason; money flow reflects institutional sentiment, and seasonal patterns can rhyme, high-scoring stocks offer a solid source of new ideas.

This week, over 100 top-rated stocks were shared with members, including these 80 stocks. I’ve highlighted the stocks seeing the biggest increase in score for convenience.

Best Scoring 9/10/2020 4 WEEK MA
Company Name Symbol Sector INDUSTRY SCORE SCORE
BASIC MATERIALS
Enviva Partners, LP (EVA) BASIC MATERIALS LUMBER & WOOD PRODUCTION 105 107.5
The Sherwin-Williams Company (SHW) BASIC MATERIALS SPECIALTY CHEMICALS 100 98.75
Cleveland-Cliffs Inc. (CLF) BASIC MATERIALS STEEL 90 88.75
The Scotts Miracle-Gro Company (SMG) BASIC MATERIALS AGRICULTURAL INPUTS 90 92.5
Air Products and Chemicals, Inc. (APD) BASIC MATERIALS CHEMICALS 85 83.75
FMC Corporation (FMC) BASIC MATERIALS AGRICULTURAL INPUTS 85 81.25
Compass Minerals International, Inc. (CMP) BASIC MATERIALS OTHER INDUSTRIAL METALS & MINING 85 82.5
Ferro Corp (FOE) BASIC MATERIALS SPECIALTY CHEMICALS 85 83.75
CONSUMER GOODS
Wolverine World Wide, Inc. (WWW) CONSUMER GOODS FOOTWEAR & ACCESSORIES 115 108.75
Simply Good Foods (SMPL) CONSUMER GOODS PACKAGED FOODS 110 108.75
Fox Factory Holdings (FOXF) CONSUMER GOODS RECREATIONAL VEHICLES 105 106.25
Constellation Brands, Inc. (STZ) CONSUMER GOODS BEVERAGES 100 93.75
Archer-Daniels-Midland Company (ADM) CONSUMER GOODS FARM PRODUCTS 95 92.5
Bunge Limited (BG) CONSUMER GOODS FARM PRODUCTS 95 87.5
Newell Brands Inc. (NWL) CONSUMER GOODS HOUSEHOLD & PERSONAL PRODUCTS 95 90
The Procter & Gamble Company (PG) CONSUMER GOODS HOUSEHOLD & PERSONAL PRODUCTS 95 98.75
National Beverage Corp. (FIZZ) CONSUMER GOODS BEVERAGES 95 98.75
The Hain Celestial Group, Inc. (HAIN) CONSUMER GOODS PACKAGED FOODS 95 91.25
FINANCIALS
Aon plc (AON) FINANCIALS INSURANCE BROKERS 105 91.25
Bank of Montreal (BMO) FINANCIALS BANKS-DIVERSIFIED 100 91.25
Brown & Brown, Inc. (BRO) FINANCIALS INSURANCE BROKERS 100 101.25
FactSet Research Systems Inc. (FDS) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 100 98.75
Marsh & McLennan Companies, Inc. (MMC) FINANCIALS INSURANCE BROKERS 100 97.5
Assurant, Inc. (AIZ) FINANCIALS INSURANCE-SPECIALTY 100 100
Eaton Vance Corp. (EV) FINANCIALS ASSET MANAGEMENT 95 82.5
Intercontinental Exchange, Inc. (ICE) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 95 98.75
Royal Bank of Canada (RY) FINANCIALS BANKS-DIVERSIFIED 95 93.75
Sun Life Financial Inc. (SLF) FINANCIALS INSURANCE-DIVERSIFIED 95 95
HEALTHCARE
Dr. Reddy’s Laboratories Limited (RDY) HEALTHCARE DRUG MANUFACTURERS 100 96.25
Medpace Holdings, Inc. (MEDP) HEALTHCARE DIAGNOSTICS & RESEARCH 100 105
LeMaitre Vascular, Inc. (LMAT) HEALTHCARE MEDICAL INSTRUMENTS & SUPPLIES 100 101.25
Alexion Pharmaceuticals, Inc. (ALXN) HEALTHCARE BIOTECHNOLOGY 95 85
Amgen Inc. (AMGN) HEALTHCARE DRUG MANUFACTURERS 95 86.25
DexCom, Inc. (DXCM) HEALTHCARE DIAGNOSTICS & RESEARCH 95 97.5
Edwards Lifesciences Corporation (EW) HEALTHCARE MEDICAL DEVICES 95 98.75
Merck & Co., Inc. (MRK) HEALTHCARE DRUG MANUFACTURERS 95 93.75
Penumbra, Inc. (PEN) HEALTHCARE MEDICAL DEVICES 95 96.25
Inspire Medical Systems, Inc. (INSP) HEALTHCARE MEDICAL DEVICES 95 98.75
INDUSTRIALS
Trinity Industries, Inc. (TRN) INDUSTRIALS RAILROADS 110 100
Arconic (ARNC) INDUSTRIALS SPECIALTY INDUSTRIAL MACHINERY 100 96.25
BWX Technologies, Inc. (BWXT) INDUSTRIALS AEROSPACE & DEFENSE 100 77.5
Emerson Electric Co. (EMR) INDUSTRIALS INDUSTRIAL EQUIPMENT & COMPONENTS 100 98.75
Old Dominion Freight Line, Inc. (ODFL) INDUSTRIALS TRUCKING 100 103.75
Republic Services, Inc. (RSG) INDUSTRIALS WASTE MANAGEMENT 100 98.75
The Middleby Corporation (MIDD) INDUSTRIALS DIVERSIFIED MACHINERY 100 101.25
Kforce Inc. (KFRC) INDUSTRIALS STAFFING & EMPLOYMENT SERVICES 100 95
AMETEK, Inc. (AME) INDUSTRIALS INDUSTRIAL ELECTRICAL EQUIPMENT 95 97.5
Deere & Company (DE) INDUSTRIALS FARM & CONSTRUCTION MACHINERY 95 93.75
Illinois Tool Works Inc. (ITW) INDUSTRIALS DIVERSIFIED MACHINERY 95 97.5
REITS
Iron Mountain Incorporated (IRM) REITS REIT-SPECIALTY 90 88.75
Prologis, Inc. (PLD) REITS REIT-INDUSTRIAL 85 86.25
CorePoint Lodging Inc. (CPLG) REITS REIT-HOTEL & MOTEL 85 67.5
Independence Realty Trust, Inc. (IRT) REITS REIT-RESIDENTIAL 85 65
Equinix, Inc. (REIT) (EQIX) REITS REIT-SPECIALTY 80 81.25
Global Net Lease, Inc. (GNL) REITS REIT-OFFICE 80 82.5
Monmouth Real Estate Investment Corporation (MNR) REITS REIT-INDUSTRIAL 80 81.25
PennyMac Mortgage Investment Trust (PMT) REITS REIT-MORTGAGE 80 80
SERVICES
Churchill Downs (CHDN) SERVICES GAMBLING 110 112.5
Americas Car Mart (CRMT) SERVICES AUTO & TRUCK DEALERSHIPS 105 102.5
Group 1 Automotive, Inc. (GPI) SERVICES AUTO & TRUCK DEALERSHIPS 105 102.5
Equifax Inc. (EFX) SERVICES CONSULTING SERVICES 100 101.25
Vail Resorts, Inc. (MTN) SERVICES RESORTS & CASINOS 100 93.75
GameStop Corp. (GME) SERVICES SPECIALTY RETAIL 100 100
Booz Allen Hamilton Holding Corporation (BAH) SERVICES CONSULTING SERVICES 95 98.75
Brunswick Corporation (BC) SERVICES LEISURE 95 96.25
CarMax, Inc. (KMX) SERVICES AUTO & TRUCK DEALERSHIPS 95 97.5
Comcast Corporation (CMCSA) SERVICES ENTERTAINMENT 95 98.75
TECHNOLOGY
Fortive Corp (FTV) TECHNOLOGY SCIENTIFIC & TECHNICAL INSTRUMENTS 105 103.75
Black Knight, Inc. (BKI) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 103.75
Guidewire Software, Inc. (GWRE) TECHNOLOGY SOFTWARE-APPLICATION 100 98.75
Open Text Corporation (OTEX) TECHNOLOGY SOFTWARE-APPLICATION 100 102.5
Palo Alto Networks, Inc. (PANW) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 100
Verizon Communications Inc. (VZ) TECHNOLOGY TELECOM SERVICES 100 91.25
Coupa Software Incorporated (COUP) TECHNOLOGY SOFTWARE-APPLICATION 100 103.75
Fastly, Inc. (FSLY) TECHNOLOGY SOFTWARE-APPLICATION 100 102.5
Gogo Inc. (GOGO) TECHNOLOGY TELECOM SERVICES 100 88.75
ANSYS, Inc. (ANSS) TECHNOLOGY SOFTWARE-APPLICATION 95 98.75
UTILITIES
Brookfield Infrastructure Partners L.P. (BIP) UTILITIES UTILITIES-DIVERSIFIED 90 81.25
Brookfield Renewable Partners L.P. (BEP) UTILITIES UTILITIES-RENEWABLE 85 88.75
CenterPoint Energy, Inc. (CNP) UTILITIES UTILITIES-REGULATED GAS 85 82.5

Never miss a money-making idea. Get all the ideas we sent to members this week, plus weekly large cap, mid cap, small cap and ADR rankings. Know what sectors, industries, and stocks to buy and when to buy them. Over 400 bps of excess return in the following 52 weeks since 2017. Free trial, special introductory pricing, and you can cancel anytime. Join the conversation. Sign up for Top Stocks For Tomorrow.

Disclosure: I am/we are long IGV, TSLA, SHOP, ZM, AAPL, AMGN, DXCM, INSP, FSLY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Oil: Sector Ready To Double – How To Play It


Co-produced with Trapping Value

In our last update on oil, we noted that the bullish developments continued but we saw a near-term cap for oil prices. Moving past $45/barrel seemed unlikely in the short term. As expected, crude prices have hovered near the $40/barrel mark and have pretty much gone nowhere. We want to share the developments since then and provide an update on our outlook.

Demand

Previously, we had showed that the demand for gasoline had rebounded rather sharply off the April lows. This was due to easing of the lockdowns alongside a disdain for carpooling and public transportation usage, both of which significantly added to net demand.

Source: LPL Research

Since then, overall gasoline demand has more or less stabilized.

7-Eleven Deal Shows Virus-Era Appeal of Gas-Station Beer, Snacks

Source: Bloomberg

While, so far it’s settling under the previous highs, this is still far more impressive than what we envisioned in early April. Across the globe, even hard-hit economies are seeing their gasoline usage rise in a familiar pattern. Take Europe, for instance. Spain’s GDP was hit extremely hard and it’s contending with a second wave in July. Even there, we are seeing gasoline consumption rebound rather notably.

Image

Overall, the Google mobility data suggests that we are now basing at a level lower than the period prior to the pandemic lockdown.

Source: S&P Global

On the other hand, jet fuel demand has followed a different path. Firstly, it actually has moved up notably since our last update.

Looking at Crude Oil Production - TradingGods.net

Source: ino.com

However, it’s still far below the previous peak. Total passengers screened through TSA checkpoints averaged 75% below 2019 levels in July.

Source: Statista

Jet fuel demand actually has outperformed what the decline in passenger numbers would suggest, for two reasons. The first being that the commercial and cargo side has been rather strong and declines there are minimal. The second reason is that flight fuel consumption varies very little with the number of passengers carried. So a half-full flight will still consume almost all the fuel that a fully loaded flight will.

Our take here is that jet fuel demand will continue to move up but the recovery will be slow and cautious.

Supply

Non-OPEC supply was fully onboard with the idea of restraining production as a result of which oil supply fell by over 4.0 million barrels per day in May. This was following a 2.5 million drop in April. Delta is change vs. previous expectations. The chart below shows the two points. Shaded blue was its earlier guidance.

Source: EIA

As impressive as those numbers are, we believe that EIA is still underestimating either the drop in production or the consumption of fuels. We say this because inventory builds in both OECD and outside of OECD were substantially lower than what the balance implied. The production rebound in June was weak, but we expect a bigger bounce when the July data is out.

OPEC increased its supply as well and July data suggests an increase of almost 1 million barrels per day.

Source: Reuters

The bulk of that came from Saudi Arabia which had previously restrained production even below officially-mandated quota. Saudi Arabia’s internal demand increases in summer months significantly as air conditioners are dialed up to counter the desert heat. A vast majority of this increase will be absorbed via internal consumption with net exports remaining flat.

More importantly, from a forward perspective we saw more favorable developments. We lay them out below.

FRAC Spread and Rigs, Out For The Count

The US nationwide FRAC spread count is a sound indicator of future oil supply in the shale patch. There has been a weak rebound off the lows but in essence the market participants are looking for $50/barrel before they deploy any additional capital.

Source: Primary Vision – Aug 3rd

This is being dictated by their own cash flow needs, as well as the rather insane wall of debt maturities being faced by the second and third tier shale oil producers. This bodes very well for oil prices into late 2020 and early 2021. World rig counts are continuing to move lower and are again sending the same message. We need higher oil prices before a bounce.

Source: Baker Hughes

Capex Cuts

A key aspect of the bullish thesis was that we need to see the supermajors capitulate and this week we saw just that. Exxon Mobil (XOM), in a bid to defend its dividend, slashed this year’s capex all the way down to $23 billion from an initially estimated $33 billion. Next year’s capex is now projected to be $19 billion. Neither of these numbers will be sufficient to maintain its production and that will add to supply woes.

Chevron Corporation (CVX) was next and guided for lower Permian production as well. Early in 2020, CVX was guiding for a 3% growth based on capex of $20 billion. With the run-rate now at $12 billion, we are seeing the Permian dreams being shattered.

What we are showing is just an outlook based on current activity level. We, early on, guided to Permian production being about 20% lower on the exit rate relative to our investor day guidance. And actually, we’re doing a bit better than that, so that would have taken us down a little bit lower than what you’re seeing on that chart. And then executing this plan and staying at this activity level, yes, we project that kind of guidance.

Source: Q2-2020 Earnings Call Transcript

CVX now expects about a 250,000 barrels/day delta vs. its earlier expectations.

https://static.seekingalpha.com/uploads/2020/8/4/47392447-15965653418838015.png

Source: CVX Q2-2020 presentation

CVX also racked up a lot of debt in Q2-2020 and we expect deleveraging before it scales up capex again.

While XOM and CVX were good developments, BP (BP) won the prize. It started taking its Beyond Petroleum logo really seriously and planned to funnel a large amount of capex into renewable energy. It pledged to increase low-carbon spending to $5B a year by 2030 and boost renewable power generation to 50 gigawatts while shrinking oil and gas output by 40% compared to 2019. These are great developments for a decade-long bull market in energy as everyone moves away from oil and gas.

Sentiment

Net managed long positioning has pulled back just a bit since we last updated investors.

Chart

This is still the biggest short-term risk as elevated positioning usually prevents runaway upside moves. While sentiment on the commodity is slightly stretched, the commodity producers, however, are still hated. Below, we show the spread between Energy Select Sector SPDR ETF (XLE) and high-yield spreads in the energy sector. In essence, it shows that while high-yield spreads have come in, and bankruptcy risk has reduced markedly, XLE has still lagged.

Source: Teddy Valley

A normalization would require XLE and other energy stocks to jump more than 50%! While we don’t expect a move like that at present, there will be lots of upside in 2021. Energy sector also is benefiting from a bull run in natural gas which we recently highlighted in our “best play article” for the next year.

Conclusion

COVID-19 is still the elephant in the room but vaccine timelines continue to improve. In late April, only 5% of healthcare professionals expected 25 million doses to be available in the US between Oct. 1, 2020, and March 31, 2021. That number has climbed to 40%.

https://static.seekingalpha.com/uploads/2020/8/4/47392447-15965615086816955.png

Source: Goldman Sachs

Alongside that, those that thought that April 1, 2022, will mark such a date have capitulated. While that is positive, do keep in mind that 25 million doses still represent less than 8% of the US population. Global deployment will be even more challenging with an estimated 10-15 billion doses required. That timeline uncertainty, however, is keeping capex in check and keeps bolstering our upside case for when things normalize. We are picking up shares of many E&Ps on pullbacks and expect 100% upside in them in the next two years.

The full list offers our best picks in the oil patch and is shared exclusively with members of our investment community. They include Canadian Natural Resources Limited (CNQ) with a yield of 6.3% and Occidental Petroleum (OXY) with a yield of 0.2%. As for the integrated oil companies, we like most Chevron – yield 5.7% which offers a 50% to 70% upside rather than 100% upside, and is a solid buy too. If you are looking for the ride with way up high yields, CNQ is one of our picks in the sector with 6.3% yield likely to be sustainable.

Thanks for reading! If you liked this article, please scroll up and click “Follow” next to my name to receive our future updates.

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Disclosure: I am/we are long OXY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Vonage: Ready For A Chair Next To Twilio (NASDAQ:VG)


Vonage Holdings (NASDAQ:VG) was undertaking a multi-year transformation that was to help the business grow sales faster, make better margins doing that, and thus get a better trading multiple from the market. The lockdown has slowed down the process, but there is enough to suggest that the company is well on its path to achieving the same.

The stock is trading around levels seen two years ago, when the company was at an early stage of expanding beyond the core VoIP services to consumer markets. Indeed, revenue from the consumer segment used to be more than 60% of the total revenue, compared to less than 1/3rd today.

Why it matters?

Long-term growth, better profitability, and thus better trading multiple from the market.

Vonage, with help from several acquisitions, has moved successfully moved towards a Cloud communications services company providing an API Platform, contact center capabilities, and conversational-related AI, services that are at the start of each of their adoption curves.

Industry trends supportive, lockdown blues temporary

The business did experience some setbacks due to the lockdown, be it lengthening sales cycles or offering goodies to some customers, i.e. things like one-time credits or extended payment term, but the setbacks weren’t big enough to cause any major jump in churns, etc. Much of the impact was also restricted to verticals hit hard by the pandemic, e.g. travel and retail-related businesses.

These temporary setbacks notwithstanding, the long-term argument supporting the company’s transition from premise to Cloud-based services provider is stronger today than it was before the pandemic. The speed of the transition has probably accelerated.

Today, workers and enterprises have adopted multi-cloud environments, there is consensus that the number of mobile workers will rise, and Cloud services will play a key role in simplifying operations as well as delivering services.

Time to treat Vonage as an adult in the API and applications business

Steadily, the company over the last few years has continued to add features to its platforms for the business customers, including some recent ones like video collaboration capabilities and API-based messaging and voice channels, and the result is that both API (Application Programming Interface) and Applications Group are major engines of growth going forward and serious players in their respective fields.

“Software is eating the world”

Marc Andreessen

API is a language in which software talk to other software.

The company’s API platform, offering CPaaS for embedded communications into apps, websites, etc., is growing fast, up 44% last quarter, even though relatively small at approximately 30% of the total revenue.

The leader in the space is clearly Twilio Inc. (NYSE:TWLO), even though several other players are getting traction, including Bandwidth Inc. (NASDAQ:BAND), China-based Agora Inc. (NASDAQ:API), a name we like, and India-based Tanla Solutions (NSE: TANLA.NS), a name we like and own in our portfolio.

Vonage, after buying Nexmo in 2016, has built upon standard telephone, SMS, and video APIs by adding Messages and Dispatch APIs. Within the API platform, high-value APIs, like programmable video, voice, and IP messaging, are growing at a much faster clip, up 70% last quarter.

Today, Vonage is probably the market leader in the embedded video market, delivered through programmable APIs, and used extensively by telehealth service providers. During the last quarter’s conference call, management talked about video API usage increasing by more than 700% in March, compared to February.

Application Services Group

Offering UCaaS to business customers, the Application Services segment continued to grow even during the first quarter that saw a significant impact due to the lockdown on its business customers.

The 10% revenue growth was slightly above the earlier expectations, but more importantly, bookings from mid-market and enterprise customers grew 39%, comprising 64% of total segment bookings. We believe this momentum in middle-market and enterprise markets will gain pace over the coming quarters given the company’s push to expand both channel partnerships and product partnerships, like the one with Salesforce.com (NYSE:CRM).

The company achieved Summit Status, reserved for the top 25 software vendors, with Salesforce in March, the only UCaaS supplier to reach such status with Salesforce. A similar integration program was also launched with ServiceNow (NYSE:NOW), earlier this year, offering further confidence in Vonage’s partnership programs.

The big question, but is it a good bargain now?

Okay, even if we agree that the transformation is real, sustainable, and gaining pace, the key question is whether the stock is a good bargain or not?

Next Yr. P/E P/ Sales Market Cap (M) Gross margins Last FY Sales Growth Next Yr.
Vonage Holdings 64.5 2.3 $2,860 57% 7%
Twilio Inc. Loss 26.8 $34,980 58% 25%
Bandwidth Inc. 3,300.0 14.0 $3,390 46% 16%
Agora Inc. Loss 37.7 $4,570 68% 33%

As the chart above shows, compared to other API plays, the stock is trading at a massive discount, which the Bears will likely attribute to the difference in the company’s ability to grow revenue, compared to other high flyers in the space.

Vonage Holdings
Total Revenue 2020 ($M) $1,200
API Segment % 30%
API Revenue $360
API Comps Avg. P/ Sales 26
API Comps P/ Sales 50% Discount 13
API Business Value $4,706

Purnha: Academic exercise for our internal use only.

To address the issue of growth differential at a consolidated level, we tried to value Vonage’s standalone API business, which is growing faster than most other API players. As the chart above shows, even when we offered half the average price to sales multiple of leading API players, the business is worth more than 160% of the market cap of the total company.

Disclosure: This is purely an academic exercise for our internal use and we are NOT recommending buying or selling based on these projections. We are Long Tanla Solutions, listed on NSE India.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors





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GOP’s McConnell says COVID-19 package ready, ball is in Democrats’ court


Senate Majority Leader Mitch McConnell speaks on Capitol Hill on July 21.


AFP via Getty Images

Senate Majority Leader Mitch McConnell said Monday that Republicans were unveiling their long-awaited opening gambit for the next round of coronavirus aid, as Democrats remained wary.

“Just like in March with the CARES Act, Senate Republicans have authored another bold framework to help our nation,” McConnell, a Kentucky Republican, said on the Senate floor.

McConnell provided few details, though, saying the senators who wrote component of the package — dealing with reopening schools, direct checks to individuals, extending aid for small businesses, boosting testing and vaccine efforts and shifting some supply chains back to the U.S. as well as setting a higher legal liability bar on coronavirus lawsuits — will introduce them today. He called the package of proposals the HEALS Act, saying it dealt with health care, economic assistance, education, liability and schools.

McConnell’s announcement came after Senate Republicans had trouble uniting behind a plan last week, and representatives of the White House were at the Capitol over the weekend to meet with leadership staff.

But Republicans appeared to have settled the most divisive issue, how to extend the federal add-on to state jobless benefits. Through last week, jobless workers qualified for a $600-a-week federal add-on, which Democrats are proposing to extend at the same level through early next year.

According to a Senate GOP aide, the Republican plan would cut the add-on to $200 per week for two months before switching over to a system where the payment would equal 70% of the worker’s old wages. States, many of which have antiquated benefit processing systems, would get a waiver for up to two more months if they could not meet the initial deadline, according to the aide.

McConnell said Democrats should work with Republicans on the package.

“I know our Democratic colleagues know this crisis is still urgent. I know they know American families need more help,” he said.

Senate Democratic Leader Chuck Schumer said Republicans had wasted time after House Democrats had put forward their bill in May.

“In short, the Republican plan is too little, too late,” Schumer said.

“It also appears the Republican proposal will not be an actual coherent bill, but rather a series of small, piecemeal ideas,” he said. House Speaker Nancy Pelosi has repeatedly said she does not want to deal with issues individually but rather on a comprehensive basis.



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Congress has a million-plus documents from Big Tech antitrust investigation, and are ready to grill big-name CEOs


For more than a year, the federal government has circled Big Tech and its business practices. On Wednesday, members of the House of Representatives will roll out evidence their staffs have found and put pressure directly on some of the most prominent executives in the world.

Four of tech’s most prominent chief executives — Sundar Pichai of Google parent Alphabet Inc.
GOOGL,
-0.56%

GOOG,
-0.25%

, Jeff Bezos of Amazon.com Inc.
AMZN,
+0.74%

, Tim Cook of Apple Inc.
AAPL,
-0.24%

and Mark Zuckerberg of Facebook Inc.
FB,
-0.81%

— are scheduled to answer questions from lawmakers about their business practices and enormous influence over the economy and Americans’ day-to-day life. (The hearing, originally scheduled for Monday, was delayed until Wednesday due to plans for the late Rep. John Lewis to lie in state at the U.S. Capitol.)

Appearing via video links, the quartet — whose companies are collectively worth $5 trillion — should expect withering queries and statements from the House Judiciary Antitrust Subcommittee as investigations into their business practices by the Justice Department and Federal Trade Commission deepen. Senior subcommittee aides held a call with members of the media on Thursday and outlined their planned approach.

Armed with 1.3 million documents collected from the companies and third-party sources, the subcommittee will be “laser focused” on competition and whether current law can adequately keep their power in check, the aides said. One line of questioning they mentioned will deal with the mountains of personal data collected and used by the companies to build their formidable market share. A report based on the CEOs’ testimony is due later this year — as early as late summer.

“Since last June, the Subcommittee has been investigating the dominance of a small number of digital platforms and the adequacy of existing antitrust laws and enforcement. Given the central role these corporations play in the lives of the American people, it is critical that their CEOs are forthcoming. As we have said from the start, their testimony is essential for us to complete this investigation,” House Judiciary Committee Chairman Jerrold Nadler, D-N.Y., and Antitrust Subcommittee Chairman David Cicilline, D-R.I., said in a joint statement on Saturday.

Amazon declined comment. Facebook, Apple, and Alphabet did not reply to emails seeking comment.

Bezos and his corporate brethren are under the regulatory microscope for the considerable sway they hold over multiple markets, ranging from shopping (via Amazon and Google), entertainment (Apple and Google’s YouTube), news and how-to tutorials (Google search), and socializing (Facebook). The steep ascent of Big Tech, which is fueling a resurgent stock market despite a deepening pandemic, underscores the enduring power of the industry as consumption escalates in a work-from-home economy.

Read more: Tech shares fall as U.S. finally admits it is investigating Big Tech for antitrust

“It won’t be a condemnation as much as part of an ongoing investigation,” Matt Stoller, research director at the American Economic Liberties Project and author of “Goliath: Hundred Year War between Monopoly Power and Democracy,” told MarketWatch in a phone interview. “The committee members are trying to understand their business models, where their revenue comes from, and how they operate.”

Heading into Wednesday’s virtual face-off, all four companies present distinct and different antitrust issues, and each is taking steps to downplay their influence. Last week, Apple issued third-party economic research showing fees it collects from developers are in line with those charged by other digital platforms — a possible preview of Cook’s testimony.

The company’s App Store, which hauls in about $15 billion in annual revenue according to analysts, gets a 30% cut of sales and strongly influences how developers market and price apps. Because it is the only app store available on more than 900 iPhones worldwide, it collects roughly twice the sales as its largest rival, Google Play Store. Apple says it collects a portion of sales from a small percentage of the nearly 2 million apps available in the store, which does not make it a monopolist.

Read more: Big Tech’s latest reckoning is coming as it continues to rack up record valuations

Zuckerberg’s case may hinge on its strong competition, particularly with Alphabet and Amazon for advertising, and Twitter Inc.
TWTR,
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, Snap Inc.
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+0.81%

and TikTok in social media. Facebook has consistently called for government regulation in areas where it has been criticized: election integrity, privacy, and harmful content.

Bezos, meanwhile, is expected to explain how small sellers on its third-party marketplace platform continue to “thrive despite competition from Amazon” and online purchase options available for consumers. His argument, in essence, is the pandemic has boosted e-commerce overall, including that for large retail rivals like Walmart Inc.
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, according to a report by Reuters.

It remains unclear what Alphabet will say, though it arguably faces the most fierce reception. The company, which reportedly hopes to avert an EU antitrust investigation into its planned $2.1 billion acquisition of Fitbit Inc.
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by promising not to use Fitbit’s health data to help it target ads, could be sued in the coming months by the Justice Department for alleged abuse of power in the market for advertising technology and search products. The government is also examining allegations that Google abused its dominance in search, according to published reports.

The “overhang of regulatory scrutiny” remains a constant source of anxiety for Wall Street with Amazon, Google, Apple, and Facebook expected to be targets of a “political football” between now and the November election, Wedbush Securities analyst Dan Ives said in a research note on Thursday.

Ultimately, what conclusions federal lawmakers take from Wednesday’s hearing might come down to a simple question, monopoly expert Stoller said.

“It really comes down to this: How do you become super powerful without answering to anyone?” he said.



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