November 4, 2021

Allbirds takes flight

Good morning traders,

Welcome back to The Daily Setup. Markets turned positive yesterday afternoon after the Fed announced it will taper asset purchases, driving the S&P 500 to close at a record high. Here’s what’s on the docket today:

  • The Fed tapers asset purchases
  • Allbirds IPOs
  • Merck has an antiviral covid pill

Let’s make today a good one.


BBBY, Hertz, and Fed Minutes Biggest Mover


New day, new short squeeze

Bed Bath and Beyond has had itself a week. The triple B spiked as much as 90% to $32 in after-hours trading Tuesday before pulling back overnight, and opening Wednesday’s trading session higher by 53% at $25.63. According to FactSet, “Bed Bath & Beyond has been among the most heavily shorted stocks in the country with 27% of its shares available for trading sold short. That’s the third-highest among the 1,500 largest U.S. stocks.” The run up in price could be attributed to a handful of announcements by the company.

  • The company announced it was launching a new digital marketplace that would sell their goods as well as those from 3rd-party retailers. So, basically Amazon, but not as good…probably.
  • They will also enter into a tie-up with Kroger. For those whose minds are not in the gutter, the tie-up will allow Bed Bath & Beyond to sell their products on Kroger’s website and in some of their physical stores.
  • The company hired Anu Gupta and Rafeh Masood as Chief Growth Officer and Chief Customer Officer (sounds made up) respectively in order to support its stronger business model.
  • The company said that its $1B share repurchase program will be completed by the end of fiscal 2021, which is two years ahead of schedule.

Whether shares of BBBY remain elevated for an extended period or revert back to where they were trading pre-announcement remains to be seen (no sh*t sherlock). That said, if you are considering trading these types of moves, make sure your trading strategy weighs the risks and rewards. Oh, and always keep those way too large blue coupons handy (even if they’re expired) because you never know when you’ll need them. *clearly mocking my wife as I write this*


Hertz So Good

Hertz Global Holdings (HTZZ) is pushing forward with a “re-IPO“, which will consist of a sale of 37.1M shares with a price target of $35 to $39 per share. In a ginormous version of Pimp My Ride, the two firms that bought Hertz out of bankruptcy in May, Knighthead Capital and Certares Management, are offering the shares.
  • The offering is scheduled to price on Monday with trading to follow the next day under the ticker symbol HTZ.
  • The company itself will receive no proceeds from the sale, but is planning to buy $250M-$500M of shares from the underwriters of the transaction. These guys definitely seem like the type to buy the extended vehicle warranty and walk out of the dealership thinking they got a great deal.
  • Shares of HTZZ were down 9.3% on Wednesday, so the market seems to like this deal about as much as a Pontiac Aztek.

It’s been quite a ride for Hertz, from filing for bankruptcy in May of 2020, to becoming a meme stock favorite of the Robinhood crowd. In just the past month the company has announced former Ford CEO Mark Fields as interim CEO as well as plans to buy 100k Teslas. Right now, it seems as though trading in Hertz could remain as wild as riding shotgun with Lindsay Lohan nearly ten years ago. So, plan accordingly.


Let the Tapering Begin

Excited Andy Samberg GIF - Find & Share on GIPHY

Tapering is here at last. During the Federal Open Market Committee meeting on Wednesday, the Fed announced that they’ll do what everyone expected of them and begin tapering asset purchases in mid-November. This will occur at the rate of $15B/month, reducing long-term Treasury bond purchases by $10B and mortgage-backed securities by $5B. This will bring November bond purchases down from $120B to $105B and puts the Fed on track to stop coddling the economy entirely by July 2022.

  • In addition to the tapering, the Fed doesn’t plan to raise interest rates anytime soon, and even has the gall to insist that inflation’s 30-year high is still “transitory.” J-Pow believes that inflation will abate when supply chain issues do, around mid-2022.
  • According to the Fed, we shouldn’t expect them to raise the interest rate until about that time. Because bond purchases and interest rate hikes serve opposite purposes, the Fed wants to avoid doing both simultaneously and will probably wait until tapering is done to implement a hike.
  • In classic dove fashion, J-Pow attributes the Fed’s decision to sit on the interest rate to an employment rate that’s still lower than they’d like.

Some hawks and Wall Street analysts expect more and faster rate hikes than the mild once-a-year mid-2022 forecast the Fed gave in September. If they’re right, the market will contract as borrowing becomes more expensive. Keep an eye out for any adjustments the Fed may make to their timeline, because as inflation has remained elevated they’ve taken a more uneasy tone, and admitted the timeline might change.

Jagged Little Pill

Rumor Has It

Merck (MRK) has a potential blockbuster new drug in the form of “Molnupiravir” which is an antiviral pill intended to treat the ‘rona. The company is predicting that sales could be worth $5B-$7B in 2022 assuming it receives FDA authorization.

  • The FDA is currently reviewing the emergency use authorization application and a decision is expected by year end. No word on whether the FCC is reviewing any potential commercials for the drug, but we can only assume they will be as ridiculous as the ads with couples sitting in separate bathtubs. Outdoors.
  • If approved, Molnupiravir would be the first at-home oral treatment for use against COVID, assuming of course you haven’t listened to Joe Rogan.
  • Merck says they are on pace to deliver 10M pills ready to go in 2021 and double that number in 2022.

Keep an eye out for additional news about the pill’s approval by the FDA, as the sale projections of roughly $6B amounts to 8% of Merck’s full year revenue estimate for this year. Investors didn’t seem to be impressed by the news today, as $MRK dropped 0.38% during trading.

Allbirds, CVS, and SPACs

Other News

Allbirds takes flight

Shares of Allbirds surged more than 41% on their opening day from $15 to $21.20, netting a valuation of over $4B. The shoe maker focuses on making comfortable footwear from natural, sustainably-sourced materials– an angle that’s evidently very attractive now that businesses all over the world are setting ambitious environmental goals at COP26.

  • BIRD’s specific claim to fame in the CO2 department is that it produces shoes with a carbon footprint 30% lower than that of the average pair of sneakers. But are they fly?
  • Allbirds’ sole and central issue is that they have yet to turn a profit.Their $14.5M net loss in 2019 grew to $25.9M in 2020, which they hope to mitigate by opening way more brick-and-mortar stores. Bet you didn’t see that coming.


Mo Shots, Mo Money

Health care giant CVS Health (CVS) announced their fiscal Q3 earnings and full-year forecast before the opening bell Wednesday. Both numbers topped analysts’ expectations, which sent shares of the company higher by 5.7% on the day.

  • Q3 earnings came in at $1.97/share on $73.8B in revenue, compared to the Street’s estimates of $1.79/share on $70.5B.
  • Full-year adjusted earnings were raised to a range of $7.90-$8.00/share, compared to previous expectations of $7.70-$7.80/share.
  • The company’s earnings continued to be boosted by consumers coming to the store for Covid tests and vaccinations.
  • CVS expects 2022 adjusted EPS to be $8.20/share as they continue to increase the number of booster shots given and start vaccinating kids aged 5-11 years old. Start ’em young I guess….


Return of the SPAC

SPACs are back in a big way. October saw 57 new special purpose acquisition companies begin trading, which was almost twice as many as there were in September, and the most since March’s 109. Always the one to poop on a party, SEC chairman Gary Gensler has voiced a less than enthusiastic opinion on SPACs, citing a need for greater disclosure, suggesting a skepticism about the structuring of financial deals.

  • SPAC issuance plummeted over the spring and summer but has bounced back now that the SEC has issued new guidance on how to account for SPAC warrants.
  • Some might say we are in a SPAC bubble, but now that Nets star Kevin Durant has been named co-CEO of one such company, I’m sure those fears will be put to rest. Odds are the team already had an amazing roster and he’s just joining for another ring.

Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

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