The Final Frontier (of Investing)
An article in the Wall Street Journal this Wednesday touched on Amazon (Nasdaq: AMZN) and the e-commerce company’s announcement that it will be entering the commercial space market. The company plans to launch thousands of commercial satellites to provide broadband internet access globally and take on Elon Musk’s StarLink. Last May, Amazon’s founder and former chief executive Jeff Bezos said the company would spend over $10 billion on the project.
Amazon’s shares slipped over 2% on the news, and are down 6% since Bezos left the firm, WSJ notes, compared to a nominal gain for the S&P 500. We will cautiously add here that our most recent report on AMZN makes zero reference to Amazon’s ambitions in space. With a huge price tag, investors are concerned that Amazon’s growth efforts will harm overall profitability and shareholder value. Amazon has bet big and won before, but time will tell if Amazon’s intergalactic empire turns out to be like AWS, or the Fire Phone.
Buyside Take: While billionaire pet projects and tech company space launches may get a lot of press, our research contributors at SumZero have found several commercial space companies with established businesses, solid growth outlooks, and specific technical and scientific expertise. Spire Global (NYSE: SPIR), written about in this report that was a runner-up for our Top Stocks ‘22 contest, provides commercial satellite-based data on weather, maritime, and air traffic to governments and commercial customers.
Source: Wall Street Journal
Fed Balance Sheet
For months, investors have faced the prospect of a curtain call on the Federal Reserve and global central banks’ accomodative monetary stance, implemented during the onset of the COVID-19 pandemic and corresponding economic shutdown. With markets already on edge as the Fed raises interest rates into a high inflation environment and credit spreads signal a recession, Fed Governor Lael Brainard’s comments spooked investors Tuesday, sending equities lower across the board.
Brainerd, typically a monetary “dove” who favors more accommodative policy, sounded surprisingly hawkish today, stating: “Currently, inflation is much too high and is subject to upside risks. The [Federal Open Market] Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”
Buyside Take:Markets always react to comments by Fed members aggressively, but we’re used to seeing this sort of hawkish take from Bullard, not Brainard. For investors, Brainard’s comments of an especially aggressive Fed should be even more cause for concern. Undoubtedly, next week’s print of the CPI will be a decisive moment and may determine how the Fed approaches its interest rate and quantitative tightening policies. We’ve received comments on the Fed’s policy approach on SumZero as well. This piece says the Fed’s 25 bps hike in March wasn’t nearly enough. Meanwhile, other commentators say that while the Fed may have been “behind the 8-ball” on inflation, investors should focus on the road ahead, noting that even marginal improvement in the economy creates conditions for where the equity market “is set up nicely to perform.”
Hertz goes big on EVs
We mentioned in our last note that Tesla (NASDAQ: TSLA) shareholders might be worried that Elon Musk is setting his eyes on Twitter instead of his own company, especially amongst competitive pressures as noted in the short reportwe highlighted. It didn’t take long to prove us correct, with Hertz (NASDAQ: HTZ) announcing a $3.2 billion deal with Polestar (NASDAQ: GGPI), providing 100,000 EVs to the Hertz fleet. This deal follows a similar agreement between TSLA and HTZ several weeks ago.
The deal is a significant victory in the EV wars for Polestar, which is being taken public by Alec Gores and Guggenheim Partners. The takeaway from this, of course, is that it’s not just TSLA and the rest when it comes to EVs anymore. Competitive pressures are creating an increasingly fragmented market, in which the winners are uncertain.
Buyside Take: Fragmented consumer markets create opportunities for their suppliers, logistics, and infrastructure providers, and EVs will be no different. A recent idea from a SumZero PM calls Ideal Power (NASDAQ: IPWR) a “debt free microcap with massive exposure to electrification beyond EV's”with a small yet diverse revenue base. The PM thinks IPWR has 120% upside, making this an interesting name to watch in the electrification space.
Source: The Verge