Short sellers triumph as Wirecard collapses – but who’s next?

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Equities

Those shorting Wirecard will have been rubbing their hands with glee after the events of the past few days.

The company, once one of Germany’s tech darlings, last week filed for insolvency after admitting that almost €2 billion in cash missing from its balance sheet likely didn’t exist.

In the space of 11 days the stock price collapsed from just over €100 to as low as €1.15. In the week ending June 26th, Wirecard short sellers made $1.2 billion, with hedge funds accounting for the bulk of that.

Wirecard has been a heavily-shorted stock for a long time, thanks in part to negative coverage by the Financial Times, which has long warned that the company’s finances don’t add up. The stock was so heavily shorted that in February the German financial regulator took the unprecedented step of banning new short positions on Wirecard for an entire month.

Wirecard stock is a fraction of its former value after the 95% drop witnessed over the past 12 days. While hedge funds are still piling in to short the stock, many shorts have already locked in their profits. So what might be the next big target for short sellers?

GSX: Inflated revenues and fake users?

GSX Techedu is a tech company and online education provider focusing on after-school tutoring for primary and secondary school children, as well as courses in foreign language, and professional development amongst others.

The company has been the focus of short sellers for some time now. As of mid-May over a fifth of its publicly traded stock was sold short – 27.3 million shares, worth $815 million at the time. This makes GSX the fourth largest Hong Kong or Chinese equity traded short on US exchanges after Alibaba, Pinduoduo and JD.com.

The company faces claims from Citron Research and Muddy Waters that it has inflated its revenue figures. Citron, which has called GSX “the most blatant Chinese stock fraud since 2011”, has questioned the 431% year-on-year revenue surge reported by GSX in 2019. Additionally, Muddy Waters believes that around three quarters of the company’s reported students are actually bots rather than paid users.

GSX listed on the New York Stock Exchange on June 6th 2019 with an initial offer price of $10.50. The stock is now trading at around $58, and has surged 146% this year.

You can trade this hotly-watched stock on the Marketsx platform.

Tesla shorts down but not out

Tesla founder Elon Musk has been battling against short sellers for a long time. The huge rally seen in the stock price in recent months, while dealing a painful financial blow to short sellers, seems to have only hardened their resolve. Back at the end of January, a stronger than expected earnings report from Tesla saw shorts lose $1.5 billion in a single day. Then, at the beginning of March as the pandemic panic set in, Tesla’s tumble netted shorts $2.8 billion.

Tesla is the most shorted US stock, with the value of its float out on loan rising around $3 billion in the last two months to over $16 billion. That’s around 11% of its publicly available stock. The stock recently rose to trade above $1,000 per share for the first time, helped by resilient demand for its vehicles in China and progress towards a one million mile battery, which could revolutionise the electric vehicle market.

However, shorts believe there is still a large disconnect between where the stock is now and the fundamentals of the company – it went public ten years ago and, while the stock is up over 4,000% since then, Telsa has never delivered a full year of profitability. Shorts are betting that a lot of the recent gains seen in Tesla stock is because of momentum traders, and that the bubble will eventually burst.

Will Hammerson follow Intu into administration?

In the UK, shopping centre owner Hammerson attracted a lot of attention from short sellers during the height of the pandemic panic in March. It’s the most shorted UK stock, with 13% of its publicly traded shares out on loan. A total of nine hedge funds are betting against the stock, as the impact of the lockdown to battle Covid 19 and the prospect of a sluggish reopening hampered by social distancing measures, threatens the outlook for the company.

Rival Intu, owner of some of the UK’s largest shopping centres, entered administration this month. The company was already heavily laden with debt, and the coronavirus pandemic proved to be the final straw.

The fate of Intu shows just why short sellers are interested in Hammerson: as of the end of last week the collapse in its stock price left Intu valued at just £16 million, down from £13 billion in 2006.

While Hammerson raced higher from its mid-May low as its tenants prepared to reopen their stores, the stock has since lost nearly half its value again.

These are the most popular stocks for day trading

CFD Trading
Equities

Goldman Sachs recently reported that a basket of stocks favoured by retail day traders had outperformed their hedge fund basket by nearly 20% when the coronavirus sell-off was at its worst.

Retail day traders have helped fuel the market recovery from the March 23rd low, struck as fears over the economic impact of the Covid-19 pandemic reached their zenith.

Here’s what our signals tools have to say about some of the most popular stocks amongst day traders.

Moderna

Moderna is a hotly watched biotech company whose stock has seen a surge in popularity as markets try to bet on the winner in the race for a Covid-19 vaccine.

The stock is up 144% since March 23rd and over 230% year-to-date. Our Analyst Recommendations tool shows a consensus “Strong Buy” rating amongst Wall Street analysts, with the average price target of $87.64 representing a 35% upside even after months of incredible growth.

Tesla

Even CEO Elon Musk tweeting that the stock in his own company was overvalued couldn’t put the brakes on the Telsa stock rally this year. Day traders have helped drive this stock up 131% since March 23rd. Since January 1st the stock is up 140%.

The stock broke above $1,000 for the first time on June 10th, although it has since struggled to hold this level. The rally has left Wall Street analysts struggling to catch up – the average price target of $678.82 represents a -32% downside. Hedge funds snapped up three million shares in the last quarter, and news sentiment around the stock has been almost evenly split between bullish and bearish.

Snap

Snap is up 106% since March 23rd, although on a year-to-date basis the stock is up a more ‘modest’ 35%.

Our signals tools are sending bearish signals, however. Although the consensus rating amongst analysts is a “Buy”, at $19.91 the average price target represents a downside of -14%. Hedge funds dropped five million shares in the last quarter, and company insiders sold $206 million worth of shares.

MGM Resorts

MGM Resorts has been hit hard by the coronavirus pandemic, with its stock down 44% for the year. However, traders who bought it at the depths of the March sell-off would have netted a return of 103%.

The average price target amongst analysts of $17.92 represents an upside of just 1%, and the stock has a “Hold” rating. Hedge funds scooped up 48 million shares in the last quarter, while company insiders bought $24.5 million worth of the stock.

Spirit Airlines

SAVE is another stock that is down heavily on the year, but has surged from the March low. Since the market bottomed out, Spirit Airlines has recovered 102%, although it remains down -51% since January 1st.

Analysts rate the stock a “Hold”, although it has an average price target 11% higher than the current price of $20.56. Hedge funds trimmed their holdings by one million shares in the last quarter.

Day traders are beating Wall Street pros

CFD Trading
Equities

Some of the world’s top money managers have been outperformed by retail day traders recently.

Goldman Sachs reports that a portfolio of stocks traded by retail investors grew 61% in March, compared to just 45% for a basket of hedge fund picks.

Watch our video to find out more and discover how Marketsx stock trading tools can give you the edge when trading the most popular stocks amongst both retail investors and hedge fund bosses.

Find out more about our stock trading tools here.

May’s top Blends: Einhorn rises, Corona falls

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Equities

The top performing Blends in May and the latest YTD performance.

May’s Star Performer: Einhorn Blend

David Einhorn led the way in May as global stocks continued their bounce back. The hedge fund boss – founder of Greenlight Capital – enjoyed a strong month as holdings like General Motors and Green Brick Partners rose along with other holdings such as AerCap and Chemours. The Einhorn Blend rose 15% in May but remains down 23% for the year.

 

The second-best performing Blend in May was the Cannabis Blend, which rose almost 14%. Earlier in the month it had been down but recovered strongly in the last two weeks. The blend is flat for the year, at -0.11%. Tilray (40% of the blend by weighting) and Canopy Growth (33%) both rallied in May but remain significantly off the 2018 peak.

Third place goes to the Gerstner Blend, which climbed 12% last month. As the Analyst Recommendation tool shows, the portfolio is made up of a stocks rated as ‘strong buys’ by Wall Street analysts.

As risk appetite improved across the month of May, some of the better performers lagged. Notably, the Corona Blend, which had been doing well, was the only basket to record a fall over the month of May.

The Social Media Blend rose over 5% in May despite the sector attracting the ire of Donald Trump. Twitter, which makes up 10% of the index, came in for the most brutal attack by the president but shares in Facebook (45% weighted) also slipped in the final week of May.

YTD, the leaders remain the ESG, Corona, Crypto and Warren Buffett Blends. Buffett continues to do well despite admitting to ditching airline stocks after a bad call on the sector.

The worst performer this year is the UK High Street Blend, which is hardly surprising given the structural shift in retail coming up against the lockdown measures enacted by the British government which has slashed footfall.

Blends 2020 Leader Board

Blend YTD
ESG 194.01%
Corona Blend 118.86%
Crypto 29.15%
Warren Buffett 28.63%
Ecommerce 26.79%
US Tech 10.04%
Bill Ackman 2.33%
Trade War Winners 2.21%
Cannabis -0.11%
Soros -2.12%
Social media -5.22%
Brexit Winners -6%
Fashion -6.06%
Dogs of the Dow -11.90%
Gerstner -14%
Trade War Losers -14.36%
David Einhorn -23.08%
Icahn -24.11%
Brexit Losers -30.06%
Oil and Petroleum -32.32%
High Street -35.88%

Warren Buffett dumps airlines, Berkshire posts biggest quarterly loss

CFD Trading
Equities

Is Warren Buffett losing his touch? Stock in Berkshire Hathaway, the legendary company founded by the Oracle of Omaha, is down 22% year-to-date, compared to a 12% loss for the S&P 500. It’s the company’s worst performance against the benchmark index in a decade.

On top of that, earnings released over the weekend revealed a near $50 billion loss in the first quarter; the company’s biggest ever.

According to Berkshire Hathaway, up until the coronavirus pandemic hit the US proper many of its businesses were showing year-on-year revenue and earnings growth, but that quickly changed in April:

As efforts to contain the spread of the COVID-19 pandemic accelerated in the second half of March and continued through April, most of our businesses were negatively affected, with the effects to date ranging from relatively minor to severe,” the company said in its regulatory filing.

Chart: Berkshire Hathaway (blue) performance versus the S&P 500 cash market (purple) since January 1st 2020, Marketsx.

Turbulence for airline stocks hits Berkshire earnings

Buffett announced during the company’s AGM that he had sold off his stakes in American Airlines, Delta Airlines, Southwest Airlines and United Airlines. “Our airline position was a mistake,” Buffett told investors during the virtual gathering, after disclosing that he sold the airline stocks for $6.1 billion, much less than he paid for them.

The news sent AAL down 7.7%, DAL down 6.4%, LUV down 5.7%, and UAL down 5.1% on Monday. Buffett put the blame for the sale squarely on the pandemic, stating that he believes the companies are well-managed, but that “the airline business… changed in a very major way” and that the future was much less certain.

Even if passenger volumes do return to normal within the next few years, airlines could  struggle with the repercussion of taking billions of dollars in loans as part of the US government’s bailout package. As well as repaying these, the Treasury now has warrants to acquire their shares at a discount if it chooses to exercise the right.

Why isn’t Berkshire Hathaway snapping up cheap stocks?

Berkshire had a record $137 billion in cash at the end of the first quarter. The company’s shareholders have been wondering why the Oracle of Omaha hasn’t taken advantage of the huge drop in stock prices on the back of the COVID-19 pandemic. By March 23rd the S&P 500 was down 35% from the February 19th record.

Buying while others are selling is a classic Buffett move, after all. One of his (many) famous suggestions is to be greedy while others are fearful. He used the financial crisis to snap up shares in major US banks like Bank of America and Goldman Sachs for cheap.

But currently he doesn’t “see anything that attractive”. He told investors during the AGM that Berkshire is “willing to do something very big” should the right opportunity come along.

I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion,” Buffett said. “And if we really like what we are seeing, we would do it.”

Three ways to trade like Warren Buffet with Marketsx

Looking to trade like the Oracle of Omaha? Marketsx gives you plenty of options. You can take a position on CFDs for Berkshire Hathaway stock or some of Buffett’s favourite companies, like Apple, Bank of America, and Coca-Cola individually.

You can also trade our Warren Buffett Blend – a hand-picked basket of stocks designed to mimic the performance of the Oracle of Omaha’s portfolio. Bet with or against him with a single position.

Trade the race for a COVID-19 vaccine with our new Corona Blend

CFD Trading

Scientists across the globe are racing to pull off an incredible feat – reducing the time it takes to develop a vaccine from years to months. 

Our new Corona Blend allows you to trade a basket of the top stocks directly linked to the search for a COVID-19 vaccine. There are currently over 70 potential vaccines in development – the Corona Blend focusses on seven companies who are well positioned to lead the race. 

Johnson & Johnson (JNJ) 

Pharmaceutical giant Johnson & Johnson is facing stiff competition across the globe, but the company has a distinct advantage: it has two backup vaccine candidates in case its primary candidate encounters unexpected setbacks during trials. JNJ also has immense production capabilities – the company reckons it could produce 900 million doses by April 2021. 

Our Analyst Recommendations tool gives Johnson & Johnson a 24% upside, but the consensus rating is a ‘Hold’. Hedge funds sold almost 100 million shares in the last quarter, while company insiders sold nearly 3.5 million in the last three months.

Pfizer (PFE) 

Pfizer, working in conjunction with BioNTech, has just received clearance to start running trials of its vaccine candidate in Germany. If all goes to plan the two companies expect to be able to produce millions of vaccines by the end of the year.  

Pfizer is currently trading below the year’s opening levels, but analysts and hedge funds are bullish on the stock. PFE has a 17% upside and hedge funds bought 65 million new shares in the previous quarter. 

Gilead Sciences (GILD) 

Gilead has seen some huge gains on the back of news surrounding its ‘remdesivir’ antiviral drug, but the stock remains highly volatile. Overall our stock sentiment tools are showing positive signals – company insiders and hedge funds have been snapping up the stock, although GILD is already trading around the consensus price target from Wall Street analysts. 

Regeneron Pharma (REGN) 

REGN is up nearly 50% this year, with recent gains coming on the back of hopes for a ‘cocktail’ of antibodies that may help protect health workers from COVID-19 until a vaccine is created. Many companies are attempting to produce such an elixir, but Regeneron is well-positioned to lead the search. 

Hedge funds added a total of 1 million REGN shares to their portfolios in the past quarter. Sentiment amongst top money managers is positive, while analysts rate the stock a ‘Buy’ and see a 10% upside. 

Sanofi (SNY – NYSE) 

Sanofi has partnered with GlaxoSmithKline to accelerate production of its vaccine, and the two companies are hoping to start clinical trials in the latter half of 2020. According to Sanofi CEO Paul Hudson, the company will be able to produce 600 million doses of the vaccine in 2021 if everything goes to plan. 

Moderna Inc (MRNA) 

Moderna stock jumped 10% on April 20th as investors began piling into pharmaceutical companies. The company’s mRNA-1273 vaccine candidate will receive $483 million in funding for Phase II and III clinical trials from the US Biomedical Advanced Research and Development Authority (BARDA). 

MRNA has a ‘Strong Buy’ rating according to our Analyst Recommendations tool, although the average price target is 19% below the current trading price. 

Vir Biotechnology (VIR) 

Vir recently announced that it was joining forces with GlaxoSmithKline to combat COVID-19. GSK stated that it will make a $250 million equity investment in Vir, and that some ‘promising antibody candidates ‘ will be ‘accelerated into phase 2 clinical trials within the next three to five months’. 

Vir Biotechnology currently has a ‘Neutral’ rating, according to our Analyst Recommendations tool. The average target price is $31, barely above the current price. Estimates range from $20 up to $41.  

Trade the vaccine trials with the Corona Blend 

Will one of these companies be the one to develop a working coronavirus vaccine, or will an outsider beat them to it? Trade the Corona Blend long or short to capture the performance of these top pharma stocks. 

Sterling rallies, European markets drift after Trump backs Hong Kong protestors

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