Dow reshuffle: Exxon, Pfizer, Raytheon out; Amgen, Salesforce.com, Honeywell in

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Indices

Major changes to the Dow Jones Industrial Average have been announced in the wake of Apple’s 4-for-1 stock split.

Exxon Mobil, Raytheon and Pfizer are to be dropped – all stocks dropped on Tuesday after the announcement late on Monday. As of August 31st, they will be replaced by Honeywell, Salesforce.com and Amgen. All three rose sharply on anticipated rebalancing into these stocks by passive and tracker funds.

It leaves United Health the largest stock on the Dow, with the Apple stock split reducing its weighting as the Dow is a price-weighted index. Many may question why the likes of Amazon, Facebook or Alphabet have not been included instead, but the thinking around index composition for the Dow has never been entirely clear.

What do hedge funds, analysts and insiders say about these new Dow components?

Amgen (AMGN)

Honeywell (HON)

Salesforce.com (CRM)

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.

Moderna vaccine: what do we know so far?

Equities

Moderna shares jumped another 20% and the S&P 500 rallied over 3% after the US drug maker reported positive results from its early stage trials of its potential Covid-19 vaccine. The news sent risk assets higher as a vaccine would help economies get back to a true normal far quicker than any other measure. But has Moderna really got the goods?

What we know so far:

  • All 45 participants in its early stage trial developed Covid-19 antibodies
  • Each were given a 25, 100 and 250 micogram dose – 15 people in each group. For each group they received two doses, 28 days apart.
  • Two weeks after the second dose, antibodies similar to people who have recovered from the disease were found in the 25-microgram group. In the 100-microgram group antibodies ‘significantly exceeded levels’ in recovered patients. Data for the final group was not available.

“These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 [micrograms],” Moderna chief medical officer Dr Tal Zaks said in a statement.

“When combined with the success in preventing viral replication in the lungs of a pre-clinical challenge model at a dose that elicited similar levels of neutralizing antibodies, these data substantiate our belief that mRNA-1273 has the potential to prevent COVID-19 disease and advance our ability to select a dose for pivotal trials,” he added.

Moderna is just one of many drug companies racing to be the first to develop a vaccine against Covid-19.

Shares in Moderna have soared this year by at least 300% to $80 by Monday’s close. It has just announced a new placing to raise $1.3bn at $76, yet shares keep rising and Wall Street still has a strong buy rating on the stock.

Needham recently upgraded its price target on the stock to $94 from $58.

“Based on these data, we believe the vaccine is likely to be found effective for prevention of infection in a Phase 3 trial,” said Needham analyst Alan Carr. “We expect Moderna to have meaningful supply by 4Q20. We have therefore added an mRNA-1273 revenue stream to our model and are raising our price target to $94.”

Is Harley Davidson finally a buy at $20?

Equities

Harley Davidson stock has collapsed, trading down about 70% over the last few years. The Covid-19 outbreak has only made matters worse. But at $20 is HOG finally a buy?

New CEO Jochen Seitz is buying shares. Our Insiders Tool shows he purchased over $2m in HOG this week – the biggest insider transaction in 13 years. Seitz was the interim CEO and was made permanent on May 7th – he’s trying to lead from the front and show confidence in the stock. The Insider Activity indicator shows positive sentiment over the last 3 months as well.

Analysts though are more cautious with an average Hold rating on the stock. Last month JPMorgan analyst Shawn Quigg sounded the alarm bell over the financial services side of the business, which makes up almost half of the operating income. Quigg estimates about a fifth of the financial services business is ‘sub-prime’ and will face severe headwinds as a result of the economic shutdown.

Disney earnings preview: analyst downgrade

Equities

Disney is a three-part business now – theme parks, films and streaming. Whilst streaming is going very well – thanks in no small part to lockdown – the other units are not performing so well.

DIS was downgraded to neutral from buy by MoffettNathanson ahead of the company’s earnings to be released after the market close on Tuesday (May 5th).

There are a number of risks that could lead this unprecedented event to have a longer impact, with earnings revisions massively skewed to the downside,” 5-star analyst Michael Nathanson wrote in the update.

Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.

MoffettNathanson expects the theme parks unit revenues to fall 33% from $26.2 billion to $17.7 billion this fiscal year, which ends in September. Revenues are seen down 1% next year as the drag from Covid-19 lingers before bouncing back 22% in 2022. In films, the analyst sees earnings down 20% this year to $2.7bn on a 23% drop in revenues.

Where next for TSLA after Musk’s ‘price is too high’ tweet?

Equities

Tesla CEO Elon Musk knocked $14 billion off the value of his own company on Friday after tweeting that he thought the stock price was too high.

Musk posted “Tesla stock price too high imo” during a bizarre tirade of messages, that included railing against lockdown and sharing lyrics to The Star Spangled Banner. TSLA dived over 12% in response.

Musk is no stranger to expensive tweets. He had to pay the US Securities and Exchange Commission $20 million in 2018 after posting that he was planning on taking the company private again. He suggested a premium of $420 and that funding for the move was secured, causing the stock to leap over 6%.

The SEC alleged that, “in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies.  Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact.”

Tesla was also required to pay a $20 million settlement, remove Musk from the board, and implement new procedures and controls with regard to the CEO’s Twitter account. An in-house lawyer for Tesla is supposed to approve his tweets relating to company financial matters.

Musk breaks SEC settlement guidelines with TSLA tweet?

These controls clearly weren’t working too well on Friday – in response to an email from the Wall Street Journal asking if the messages had been authorised or vetted, Musk simply replied “No”.

Is Musk facing another spat with the SEC? Potentially. It’s unclear whether commenting on the stock price counts as a ‘financial matter’, and therefore whether it should have been vetted before it was posted. However, if the SEC deems that it does count, Tesla’s board of directors could also be in trouble, as it’s the company’s responsibility to see that these compliance procedures are followed.

A small fine here or there is nothing a billionaire need concern himself with, but the danger for shareholders is that the CEO and the board need to be on top form during these extraordinary times. The last thing a company like Tesla needs is for its CEO to be fighting with the US authorities – or the board of his own company.

Where next for Tesla shares?

Tesla shareholders have always had to contend with Elon Musk’s erratic behaviour.

In October 2013 he claimed “the stock price that we have is more than we have any right to deserve” while opening a new showroom in London. He told reporters in September 2014 that “I think our stock price is kind of high right now, to be totally honest”.

In February 2015 Musk took a different angle, claiming that Tesla could reach the same market capitalisation as Apple had ($700bn at the time) within 10 years. He repeated the claim in May 2017, but a couple of weeks later was back to stating that the current market cap was “higher than we have any right to deserve”.

Even if Musk and Tesla escape repercussions from the latest tweet, this is just the latest in history of tweets from the CEO on the company’s share price. Traders and investors need to be prepared for unexpected surprises.

Find the latest Tesla ratings with Analyst Recommendations

Tesla currently holds a consensus “Neutral” rating amongst Wall Street analysts and the average price target of $621.33 represents a 14% downside on the current share price.

Many analysts updated their ratings on Tesla on April 30th – the day before Musk’s tweet about the share price. Check the Analyst Recommendations tool to see whether the CEO’s comments change the view on the Street.

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