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Moody’s cuts ratings on small- and midsize banks and puts six big lenders on watch. (0:15) Weight loss pill cuts heart disease risk by 20%. (3:28) Which stocks are loved by hedge funds and which are shunned? (4:14)
This is an abridged transcript of the podcast.
Our top story in today’s session –
Another ratings agency is getting attention after the Fitch cut of U.S. debt. This time it’s Moody’s, which cut credit ratings on multiple small and mid-sized banks and placed six larger lenders on review for downgrade.
The move reflects U.S. banking stresses, including funding pressures, regulatory capital weaknesses, and commercial real estate exposure.
Analysts say many “banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital” while also pointing to a “mild recession” on the horizon.
Banks will benefit from the Fed’s liquidity backstops and the Federal Home Loan Bank system funding, but these sources require collateral and come at a greater cost than deposits.
Moody’s says small and mid-size banks with greater exposure to commercial real estate, especially in construction and office lending, face more risks.
They downgraded M&T Bank (MTB), Pinnacle Financial Partners (PNFP), and Old National Bancorp (ONB).
The lenders on review for downgrade are Bank of New York Mellon (BK), U.S. Bancorp (USB), State Street (STT), Truist Financial (TFC), Cullen Frost (CFR), and Northern Trust (NTRS).
Moody’s also revised its outlook to negative for some banks, including Capital One (COF), PNC Financial Services (PNC), and Fifth Third Bancorp (FITB).
Now a look at today’s trading –
Among active stocks –
Beyond Meat (BYND) plunged as the company warned it would miss its cash flow target and said second-quarter revenue missed estimates. For the full year, net revenue is expected to be in the range of $360 million to $380 million, a decrease of about 14% to 9% compared to 2022. Wall Street was looking for $386.5 million.
AMC (AMC) topped consensus for Q2. AMC knocked out a four-year high for revenue in Q2 with $1.35 billion (+16% year-over-year) and noted that it is on a glide path for an eventual recovery. Attendance was up 15% year-over-year in the U.S. and was 4.6% higher for international markets.
Datadog (DDOG) tumbled after cutting full-year revenue outlook. Q3 revenue guidance came in below estimates. The company now sees full-year 2023 revenue outlook to be in the range of $2.05 billion to $2.06 billion, down from prior range of $2.08 billion to $2.10 billion. Consensus is $2.09 billion.
UPS (UPS) fell after the company posted a mixed Q2 earnings report. The company reported revenue decreased 10.9% year-over-year to $22.1 billion, driven by a 9.9% decrease in average daily volume, which was partially offset by a 3.3% increase in revenue per piece. Looking ahead, UPS now expects full-year 2023 consolidated revenue to be about $93 billion vs. $96.6 billion consensus and an adjusted operating margin of around 11.8%.
In other news of note –
Novo Nordisk (NVO) announced that its weight loss therapy semaglutide led to a 20% reduction in adverse cardiovascular events in a Phase 3 trial for obese or overweight adults with cardiovascular disease.
Novo shares rose, as did that of its closest rival in the weight loss space, Eli Lilly (LLY).
The SELECT study involved more than 17,000 adults aged 45 years and older who didn’t have a prior history of diabetes. In addition to the standard of care, they received semaglutide or a placebo to prevent major adverse cardiovascular events (OTCPK:MACE).
According to the company, the drug branded as Wegovy for weight loss indicated a statistically significant 20% reduction of events compared to those on placebo over a period of up to five years.
In the Wall Street Research Corner –
BofA is out with an analysis of hedge fund positioning, and they say long-short funds are no longer chasing gains as much as they were in the first half of the year.
Real Estate (XLRE) has seen the largest increase in short interest from hedge funds this year and is the most shorted sector. Consumer Discretionary (XLY) is the second-most shorted sector, followed by Industrials (XLI).
Communication Services (XLC) has seen the biggest rise in net relative exposure. But it trails Materials (XLB) as the sector with the most exposure. Industrials (XLI) is in third place here as well.
Hedge fund short exposure to the Magnificent 7 has “dropped precipitously since the beginning of the year.”
The top three stocks most overweight by hedge funds are Incyte (INCY), Bath & Body Works (BBWI), and TransDigm (TDG).
The top three most underweight stocks are Paramount (PARA), Ralph Lauren (RL), and C.H. Robinson (CHRW).
Meanwhile, Credit Suisse is out with its Top of the Crop List. Those are stocks the research team has the highest conviction in with the least demanding market expectations.
Just three stocks fit both right now: Apple (AAPL), Amazon (AMZN), and UnitedHealth (UNH).
Read the full article here
