Expect more price gyrations and far less predictability in gold prices than perhaps ever before. Here are the stories driving investors’ favorite electric-car stock today. Traders were bidding Chewy higher on Monday thanks to rumors about a new e-commerce deal. Here’s why CHWY stock is a long-term buy anyways. Schaumburg, Ill.-based Atlas Financial Holdings Inc. has extended its agreement with National Interstate Insurance Co. (National Interstate) under which
Gold backed investment funds are gaining popularity among investors, raising both prices and risks … [+] for holders
Gold fundamentals are rapidly changing as investment funds take market share from jewelry buyers and central bankers.
The current surge in gold prices has rewarded holders of the precious metal with healthy returns thus far in 2020, with prices approaching levels not seen since 2011. This is good news for current owners of gold and gold mining securities, but with reward comes risk. Those holding or acquiring gold at today’s elevated price levels need to understand that along with prices, volatility and financial risks will rise as well.
The demand for gold is changing, that is to say, the types of buyers of gold are different now than they were in the pre COVID-19 world. This shift in the demand side of the traditional supply/demand equation will result in more price gyrations and far less predictability in gold prices than perhaps ever before.
Traditionally, the top buyers of gold, in order by volume, have always been individuals in the general population via jewelry, Investors, Central Banks and Technology Companies. Jewelry purchases have generally dwarfed all other gold purchase categories combined.
It is important to understand that individuals and Central Banks typically buy gold and hold it for long periods of time. Central Banks buy gold to fulfill economic and strategic policy goals, and individuals usually buy gold out of cultural tradition and custom. Technology companies buy gold to fulfill their manufacturing needs. In all three cases, gold is purchased when it is needed, usually regardless of price. In these instances acquisition is the intent, and there is generally no plan or intention to ever sell.
These buyers won’t sell their gold just because the price rises; they will sell because of economic necessity, not because of absolute price. They provide steady, mostly non-speculative demand for gold, which, over time, can tend to limit, or at least diminish, gold’s price volatility.
Gold investors, however, behave differently. Investors are not buying gold to fulfill any policy objective, like a central bank, nor are they buying gold to mark a special event in life, nor or they manufacturing anything. Gold investors have no objective other than to profit financially from their purchase.
The advent of Exchange Traded Funds backed by gold has enabled Investors to access gold markets easily and quickly. Over time, this ease of access to gold has shifted the patterns of gold ownership. At first, investment funds just added another dimension of demand for gold to the marketplace, but recently, the effects of the COVID-19 pandemic have caused gold backed investment funds to become the main source of global gold demand. Suddenly jewelry purchases have plummeted; imports of gold by India and China, the largest buyers of jewelry in the world, have fallen dramatically this year. Central banks have actually reduced their rate of gold buying in 2020 from 2019 levels. But the amount of gold put into bank vaults on behalf of investment funds backed by gold has skyrocketed in the past several months.
In short, the share of gold purchases and of gold in storage controlled by investors is rising. As investors increasingly turn to gold in their investment accounts, the ups and downs of gold prices will likely become more dramatic and rapid, because investors with no reason to own gold other than for profit now control a larger share of the gold market.
It has become easier than ever for investors to buy gold due to the rising popularity of gold backed Exchange Traded Funds. Conversely, it is also easier to sell gold than ever before. When gold falls out of favor as an investment vehicle, for whatever reason, the ability of investors to trade gold backed investment funds on the sell side will make downward changes in the price of gold happen far more quickly than ever before. Downside price moves in gold could become as rapid and dramatic as downside corrections tend to be in the stock market. Current holders and new buyers of gold alike should be prepared not just for higher prices, but for higher price volatility in gold markets as well.
Author: Sal Gilbertie
Tesla News Roundup: A German Court Nixes the Autopilot Name, and Piper Sandler Goes Fully Bullish
Shares of Tesla (NASDAQ:TSLA) were moving higher on Tuesday, as auto investors reacted to a very bullish note from Piper Sandler — and a court decision in Germany that didn’t go Tesla’s way.
Here are the stories that were moving Tesla’s shares on Tuesday morning.
In a note that gained wide attention after its release after the market closed Monday, Piper Sandler analyst Alexander Potter raised his firm’s price target on Tesla’s shares to $2,322, from $939, while unsurprisingly maintaining the equivalent of a buy rating on the stock.
Potter’s take is eye-opening, to say the least. He thinks Tesla’s annual sales will rise to about 4 million vehicles per year by 2025, giving the company 7% market share in China and 9.5% in the United States. Even better, as Potter sees it, Tesla should be able to generate operating margins in the mid-20% range by then.
Software will drive industry-leading profit margins for Tesla, a Piper Sandler analyst wrote. Image source: Tesla.
We should note that margins over 20% would be unprecedented for mass-market automakers, whose margins tend to fall in the 8% to 11% range during good times. Only Ferrari (NYSE:RACE), which had an operating margin of 24.4% in 2019, regularly breaks 20%. But Ferrari is an ultra-luxury brand that limits its own production to preserve its pricing power — exactly the opposite of Tesla’s mass-market strategy.
What will be the driver of this astounding profitability? Software, Potter wrote. Potter thinks the up-front price of Tesla’s “Full Self Driving” option will eventually rise to nearly $40,000, from $9,000 at present, with a six-year subscription plan costing about 125% more. As he sees it, by the 2030s, Tesla could be selling its vehicles — the hardware — at or even below cost, while still posting high operating margins.
And the bear case? He doesn’t have one. While he admits to some uncertainties around the timing of these achievements, Potter insists that “the general upward trajectory seems certain” and that “Tesla’s own capacity is the biggest constraint to [market] share gains.”
“In our view, Tesla is the most consequential company in the mobility ecosystem, and this is unlikely to change in the next decade,” he wrote. “It’s hard to see how competitors can catch up.”
A German court ruled that Tesla can no longer promote its advanced driver-assist system under the “Autopilot” name in Germany, on the grounds that Level 5 “autopiloted” driving systems do not yet exist and aren’t yet legal in the country.
Germany’s non-profit Center for Protection Against Unfair Competition, which brought the case against Tesla, said that the Munich Regional Court also ruled that Tesla’s claim (last year) that its cars would have automatic city driving by the end of 2019 was misleading, as that obviously didn’t happen.
(Note that while the court’s decision refers to “advertising,” Tesla’s disputed claims were made on its German-language website, not in separate ads.)
Tesla had no immediate comment on the decision. The company has the right to appeal.
Author: John Rosevear
Chewy Stock Benefits Your Wallet and Your Furry Friends
Chewy (NYSE:CHWY) caught a bid on Monday, if briefly. At one point, Chewy stock was up over 8%. A market-wide fade undercut the gains, but CHWY still closed positive on a red day for the major indices.
The catalyst appears to be rumors about the company’s sales and a potential strategic partner. As always, those rumors might be true, especially as both make some sense.
But the good news when it comes to Chewy stock is that the rumors don’t have to be true. This isn’t a stock that is a buy because of short-term factors. It’s the long-term case that’s truly attractive. Of course, a near-term catalyst or two wouldn’t hurt, either.
According to Seeking Alpha, it was trader chatter that drove Chewy stock higher in early trading. Channel checks showed strong sales. And a rumor went around that Walmart (NYSE:WMT) was set to take a stake in the company.
Again, neither fact is confirmed. But both make some sense.
After all, Chewy is coming off an impressive fiscal first-quarter report. Revenue increased 46% year-over-year, and handily beat analyst expectations. And that growth came with the novel coronavirus only boosting the last half of the quarter, and providing only about six points’ worth of growth according to the first-quarter conference call.
But the pandemic’s impact wasn’t limited only to Q1 revenue. Rather, stay-at-home orders led pet owners to choose Chewy for the first time. Chewy added over 1.5 million customers in the quarter, more than double the figure in the quarter before.
Those customers likely aren’t going anywhere. And so it makes sense that Q2 sales would be strong as well.
As far as the Walmart deal, that too makes some sense. Walmart has been spending aggressively to build out its omnichannel model. In fact, its acquisition of Jet.com in 2016 was the largest e-commerce acquisition ever — until PetSmart bought Chewy the following year.
There isn’t a pet-focused business Walmart can buy at this point. Chewy simply is too far ahead. But a stake in Chewy could lead to a closer integration between the two companies. Chewy could benefit from Walmart’s massive customer base and its distribution capabilities. Such a deal truly would be a win-win.
But here’s the good news: Chewy stock doesn’t need Walmart to be a buy here.
Again, Chewy is dominating its space. Walmart and Amazon (NASDAQ:AMZN) have some market share, but Chewy is gobbling up customers at a truly impressive clip. This is a company that generated $200 million in sales in 2014. It’s headed toward $7 billion this year.
And like Amazon, Chewy has the opportunity to branch out from its core business. Chewy Pharmacy is growing nicely. Chewy’s prescription management platform for veterinary offices is potentially the first step toward a broader focus on services.
International expansion is another opportunity, though Chewy would face its counterpart Zooplus (OTCMKTS:ZLPSF) in Europe.
On top of those broad tailwinds, the pandemic should be a plus for the company. Pet ownership is going to rise: Shelters have been emptied across the country. The rise of working from home will allow more people to own more animals going forward.
This is one of the better growth stories out there. But, oddly, investors of late haven’t treated it as such.
Despite the growth potential, Chewy stock has stalled out around $50 since the beginning of last month. Investors even shrugged at the early June earnings beat.
To be honest, I’m not completely sure why that is. Elsewhere in the market, e-commerce stocks have soared. Amazon cleared $3,000, and Amazon Web Services isn’t the only reason why. eBay (NASDAQ:EBAY) keeps climbing. The same is true of Wayfair (NYSE:W). Even long-struggling Overstock.com (NASDAQ:OSTK) has been a big winner.
I’d expect CHWY will follow that trajectory higher at some point. Perhaps this week’s rumors will be the catalyst. Perhaps second-quarter earnings will get investor attention.
Whatever the cause, Chewy stock seems likely to rise from here. The sideways trading of late is just a brief pause. Bullish rumors on Monday weren’t enough to drive a breakout, but it won’t be long before something does.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
Author: By Matt McCall and the InvestorPlace Research Staff, Editor, MoneyWire
Atlas Financial Extends Underwriting Agreement with National Interstate
Schaumburg, Ill.-based Atlas Financial Holdings Inc. has extended its agreement with National Interstate Insurance Co. (National Interstate) under which Atlas subsidiaries will continue to act as underwriting manager for National and transition new and renewal paratransit business to National paper until at least August 2021 for fleets with seven or fewer vehicles and until November 2020 for accounts with eight or more vehicles.
The agreement was originally announced in June 2019.
National Interstate continues to retain the option to purchase renewal rights on either of these segments at the expiration of the agreement periods. Other previously disclosed material terms of the agreements between the parties remain unchanged.
In a prepared statement, Atlas President and CEO Scott D. Wollney said the company has been working “very effectively with the National Interstate team during the past year and are extremely pleased to be able to continue offering a paratransit insurance program to our smaller accounts on a go-forward basis.”
The working agreement “is consistent with our emphasis being placed on generating EBITDA at the MGA level while endeavoring to reduce risk and capital requirements related to traditional primary insurance company operations. We will continue to pursue opportunities to leverage this expertise in other areas of specialty commercial auto as a managing agent as well,” he added.
Over the past year, Atlas has continued to grow its MGA operation through partnerships with strategic external insurance and reinsurance partners, the company said.
In June, Atlas sold its Gateway Insurance Co. subsidiary to Buckle, an insurtech startup focused on rideshare insurance, for an undisclosed price.
Buckle’s purchase of Gateway includes its 47 state insurance licenses. Gateway provides auto insurance to the light automobiles market in the U.S. Atlas primarily focuses on U.S. commercial auto insurance, zeroing in on the “light” commercial automobile sector in areas such as taxi cabs, non-emergency para-transit and limousine/livery.
Atlas has reported that on July 1 it received a delinquency notification letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC sue to the company’s non-compliance with Nasdaq Listing Rule 5250(c)(1) as a result of the Atlas’ failure to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Atlas said it is continuing to work diligently to complete and file the Form 10-K and the Form 10-Q as soon as practicable. However, it said there’s no assurance that it will be able to file the Form 10-K by the July 15, 2020 extension previously granted by the Nasdaq Hearings Panel or that the Panel will grant any further extensions.
Also as previously disclosed, Atlas is currently in violation of additional Nasdaq Listing Rules due to its failure to hold an annual general meeting of shareholders during 2019 and the failure to regain compliance with the minimum bid price requirement.
Source: Atlas Financial Holdings Inc.