WC-10/23: Borderline Irrational Exuberance in the Market, Buying GitLab (GTLB), Astra's Launch for the U.S. Space Force is a BIG Catalyst
Other than the supposedly strong earnings season we're having, it's not clear why the market's turned bright green again. We're heavily eyeing GitLab (GTLB), as Astra (ASTR) is set for takeoff.
Watchlist
Update: Facebook just said that they might not buy Pinterest (PINS) so, if it goes lower we’re buying and taking it off the list. We might just buy Johnson Controls (JCI) soon regardless of the dip and not think about it too much. We’re more actively keeping an eye on these:
T2 Biosystems (TTOO) - This is roughly $1.00/share for a company that makes blood tests which “provide actionable results in just 3 to 5 hours.”, along with a Covid test (T2SARS-CoV-2 Panel test), that can detect both the Mu (B.1.621) and Iota (B.1.526) variants of Covid. Big dip-buy for us.
Agile Therapeutics (AGRX) - Women's healthcare, prescription birth control patch, Twirla (from website: Twirla® is a weekly hormonal birth control patch for women with a body mass index (BMI) less than 30 kg/m2 who can become pregnant). Insiders are buying, they've hit a local low, and there’s a general uptrend in YoY revenue. We need a bit more market research on the contraceptives market, but feel this is a big buy soon.
Affirm (AFRM) - Market leader and well first-mover in the ‘Buy Now, Pay Later’ space, that’s getting a lot of attention, partially from it’s trading activity. Our conviction is the same as before, but we need a dip.
Tattooed Chef (TTCF) - They’ve been trending downward for a while we might actually begin buying them. Again: vertical (e.g. acquisition of a food distributor and tortilla factory) and horizontal integration for company expanding at this rate is usually a good growth story.
Catalyst Calendar
Wednesday - October 27
YouTubers’ Portfolio’s Space Stock Might Takeoff This Wednesday (*joke rimshot*)
All day - Astra Space's (NASDAQ:ASTR) plans to launch a rocket named "LV0007," this Wednesday (10/27), carrying a test payload weighing a few dozen kilograms for the US Space Force. In the past, ASTR has rallied in after successful launches, and we wouldn’t be surprised if this happens again.
In case you’re not familiar, they make payload spacecraft, which are just spaceships that take stuff into space.
Astra has had an enormous year in terms of securing government contracts, securing 10.4m so far per govtribe.com, and this launch could be the nail in the coffin for continued funding.
Very very big money has invested in Astra, including the following:
BlackRock
Advance
ACME
Airbus Ventures
Innovation Endeavors
Salesforce co-founder Marc Benioff
former Disney CEO Michael Eisner and many more.
Please remind anyone who knocks Astra for shaky government funding in previous years that this is a company that makes and launches literal space ships (I know I’m misusing the word, but you get the idea). These take decades to develop correctly and they’re finally taking off with their own.
Thoughts on the Market: We’re Experiencing Irrational Exuberance
There are positive catalysts, which push stocks up, and negative catalysts, which push stocks down. However, a lack of negative catalysts is not the same as a positive catalysts.
Yes, most major negative catalysts have died down, but that doesn’t justify immediate all-time highs again. Where are the positive catalysts? Some might say the market’s behavior seems … “irrational”.
We agree, and in fact there’s a phrase for this: irrational exuberance.
Investopedia says, “Irrational exuberance is unfounded market optimism that lacks a real foundation of fundamental valuation, but instead rests on psychological factors.”
Relevant Definition
Irrational exuberance - Irrational exuberance refers to investor enthusiasm that drives asset prices higher than those assets' fundamentals justify.
We never cared about Evergrande or the debt ceiling.
Ray Dalio clearly articulated that Evergrande’s (known) debt is mostly yen-denominated and can likely be reconciled as a result. The debt ceiling debacle is always just a scare — kind of like the government crying wolf — and we rarely actually default on it.
Only rarely does the Fed not raise it in time for them to not run out of money, resulting in very short government shutdowns. The market always rebounds right after and it’s not obvious that this will happen now.
But just because there’s nothing big pushing the market down, doesn’t mean it should go up.
It’s not obvious why everything is all dandy and green again.
Although you can never know for sure, the big negative catalysts are seemingly gone. But there are still smaller, significant negative catalysts and market forces lurking:
Margin debt is still at unethical highs and trending downward
It doesn’t seem like anyone knows how worried they ought to be about inflation
The job market is still fickle with no obvious signs of fast recovery
By market “forces”, we mean any excuse for the motion of stocks you might hear on the news. After reading and listening to so many analysts and pundits, our usage of common finance language has been tainted, and at this point we can’t take a lot of this jargon at face value.
Our “positive” earnings season is the only positive catalyst it seems.
The only positive catalyst you may have heard about is the “strong” earnings season we’re in.
Explanations for behavior of stocks after an earnings report are honestly one of the bigger gimmicks in financial news, speaking frankly. A company could have a superb earnings, in a superb market environment, but the stock will tank right after the report, and analysts will point to some random technical analysis ratio, or find a video of an executive farting in a meeting and say that investors didn’t feel good about it.
In all seriousness, earnings are just so hit-or-miss kind of catalyst, so much so that Investopedia has a piece specifically on strange earnings behavior. Just like the stock market itself, a stock’s reaction to the respective company’s earnings report is extremely speculative. There are tons of factors of an earnings report, the company, and the market at large that anyone can appraise and bolster as a reason for any kind of reaction to any company’s earnings. Some include:
Earnings expectations and whispers (see investopedia’s article on “whisper numbers”, which are just predictions of a company’s earnings)
The price of the stock before earnings and whether it’s overbought or oversold according to RSI
The most recent earnings guidance from the company and how it compares to the earnings report
As a reminder, “guidance” refers to the company’s public claim about what they expect their earnings report to look like.
There are too many more factors to list, but those are the main ones. The point is that the only positive catalyst is one of the more speculative things in corporate finance and investing.
M&A, IPOs, Deals - Reconsidering GitLab (GTLB)
Two weeks ago, Gitlab IPO’d priced their stock at $77. It flew for good reasons, and we mistakenly didn’t look at it.
It’s safe to say that almost every company whose main product is software or Software as a Service (SaaS) product (e.g. SAP, Google, Facebook, Microsoft with their Windows products, etc.) uses some form of version-control.
Version control is software used to manage the changes made to some piece of software. Github is arguably the most popular version of version-control software, and Gitlab (not GitHUB) has been catching up to it in popularity
GitHub was an expensive buy for Microsoft, and GitLab is their main competitor.
In case you’ve never heard of GitLab, it’s a version-control management system that is a new-ish competitor to GitHub,
Okay, in case you haven’t heard of Github or “version-control”, version-control is what software engineers, developers, and programmers use to manage different versions of their code, and is often used by software development/engineering teams at companies to manage their codebase.
Analysts we’re increasing price targets before the IPO
GTLB initially filed to offer 10.4M shares at a price range of $55-$60, which was further raised to $66-$69.
GitLab (GTLB) has priced its IPO of 10.4M shares of Class A common stock at $77.00/share, consisting of 8.42M shares to be sold by GitLab and 1.98M by an existing stockholder (the “Selling Stockholder”).
By Friday 10/22, it was above $118
With the market’s irrational exuberance, we think it will continue to trend upward. Market trends aside though, we think this is undervalued and probably a good buy even before any correction in the market.