Ticker Reports for July 2nd
RXO Shares Surge Following New Acquisition Deal
Shares of RXO Inc. (NYSE: RXO) are up more than 20% on the week, something investors probably didn’t see coming out of the ‘boring’ transportation sector. This sector is notorious for having a low beta, English for low volatility. RXO stock has a beta below 1.0, meaning the company’s stock price will move less than the daily move in the broader S&P 500 index.
Because of this quiet behavior, investors need to investigate why the stock is moving so aggressively quickly. The answer lies in an announcement made earlier in the week when RXO management announced a new potential acquisition deal. United Parcel Service Inc. (NYSE: UPS) would be letting go of its Coyote Logistics branch for a stipulated $1 billion valuation. RXO will be there to pick up the bill.
Considering that shares of United Parcel Service were flat to negative upon the news release, investors can somewhat assume that letting go of Coyote Logistics is actually not the best move for the company, but what is one man’s trash quickly becomes one man’s treasure, or so do Wall Street forecasts suggest for the future of RXO stock today.
RXO Dominates the Market with Promising Growth Prospects for Investors
The transportation industry is due for a change, particularly the truckload brokerage and services sector, which is exactly where investors can expect RXO to start churning out some bigger steps moving forward. The company’s size is the main factor enabling this to be the case.
A $3 billion market capitalization for RXO stands well below United Parcel Service’s $117 billion and peer KnightSwift Transportation Holdings Inc. (NYSE: KNX) and its $8 billion market capitalization. Some investors may view a smaller size as an issue. Still, this could benefit a changing economy, which has remained constant since the COVID-19 pandemic.
Why? RXO can adjust and move from one strategy to another quicker than its bigger peers, as a tanker ship takes longer to change course than a speedboat. Wall Street analysts know this, so they are now forecasting up to 261.1% earnings per share (EPS) growth for RXO stock this year.
While bold, the market is welcoming these assumptions, as the stock is now bid up to a forward P/E ratio of 41.9x, commanding a premium of 141% over KnightSwift’s 17.4x valuation and a premium of 200% over United Parcel Service’s 14.1x forward P/E multiple.
Of course, price action needs to be considered as another proxy. RXO stock trades at a new 52-week high, even discounting the recent news rally, leaving KnightSwift stock behind on its 81% and United Parcel Service as the bottom performer at only 70% of its 52-week high.
What the New Deal Means for RXO Stock: Key Takeaways for Investors
The company was kind enough to make a detailed presentation for investors on its website, but those typically involve a lot of marketing and ‘feel good’ viewpoints. Moving outside of those factors and into the meat of the deal, here’s what investors can expect.
Scale and diversification are the two main effects this acquisition could have on RXO stock. Considering it is the fourth largest truckload broker in the U.S., adding Coyote Logistics will diversify the company’s transport into food and beverage and make it—reportedly—the third biggest in the nation.
While RXO only counts 4,000 customers today, Coyote Logistics would bring roughly 15,000 customers and over 97,000 carriers on board. More than that, adding Coyote’s $3.2 billion in revenue would nearly double RXO’s current $3.9 billion.
And the best part? The company is taking no debt and using no cash to make this transaction happen, so investors don’t need to worry about RXO swallowing up a mountain of debt to make this deal happen, as is often the case in other mergers and acquisitions examples.
The financing for this acquisition will come from outside investors MFN Partners and Orbis Investments, who are sponsoring RXO in this new venture to exchange equity in the new combined company. This won't affect current shareholders. It's brilliant.
Of course, this is far from a done deal, so investors must wait for regulatory approval and other paperwork to be cleared. Because of this, management expects the deal to close by the end of 2024, so any dips in RXO stock could be an excellent opportunity.
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Biotech Stock Breakout: IBB Eyes Resistance with Amgen and Vertex
The biotechnology sector, represented by the iShares Biotechnology ETF (NASDAQ: IBB), has experienced a year of consolidation. With the ETF up just 0.8%, it has underperformed the broader market, making it one of the worst-performing sectors year-to-date. However, as the year's second half begins, the IBB is trading just 3% away from its 52-week high and a significant resistance level, suggesting a potential breakout.
Should the sector be on your watchlist for the year's second half? Let's take a closer look.
Technical Analysis: Biotech ETF Nears Resistance
Biotech stocks, represented by the IBB, reached a two-year high in February but have trended sideways despite several mergers and positive clinical news. The consolidation within the sector may be attributed to various factors, including macroeconomic concerns, sector rotation, and a waning interest in biotech stocks after the intense focus during the pandemic.
In 2020, the industry gained significant attention during the pandemic as companies like Pfizer with BioNTech, Moderna, and Johnson & Johnson developed COVID-19 vaccines. However, as society adapted to living with COVID-19 and other economic and political concerns emerged, interest in biotech waned. Despite these headwinds, the underlying fundamentals of the biotech sector remain robust, with continued innovation and a strong pipeline of clinical trials.
Fund flows have been unfavorable year-to-date, with a negative 2.14% flow percentage representing net fund flows of the ETF as a percentage of Assets Under Management (AUM). More recently, the flow percentage for the past month is 2.61%, indicating a potential shift in momentum.
From a technical analysis perspective, the sector ETF is trading near its resistance and above all of its major moving averages. While it has moved sideways for most of the year, it is now making consecutive higher highs, approaching its breakout level. This pattern indicates that investor sentiment might be shifting positively, positioning the sector for potential gains in the year's second half. Assessing the momentum of the ETF's top players can help investors determine which biotech stocks they should invest in.
Amgen's Role in the IBB ETF: Weighting and Impact
Amgen (NASDAQ: AMGN) is the largest holding in the IBB ETF with a 9.26% weighting. Similar to the sector ETF, Amgen is consolidating near its 52-week high, forming a tight wedge pattern and setting up for a potential breakout.
Year-to-date, the stock has outperformed the sector, up almost 8%. Analysts are bullish on the stock, with a Moderate Buy rating based on 21 analyst ratings, though the consensus price target forecasts a nearly 1% downside. The company last reported earnings on May 2, announcing an EPS beat of $3.96, compared to the consensus estimate of $3.76. Amgen's revenue for the quarter was $7.45 billion, up 22% year-over-year.
Evaluating Vertex's Strong Uptrend and Stock Potential
Vertex Pharmaceuticals (NASDAQ: VRTX) is the second-largest holding in the IBB ETF with a 9.16% weighting. VRTX has been a standout performer in the sector year-to-date, boasting a 15.8% return. Unlike Amgen and the broader sector, Vertex has significant upward momentum, trading in a firm uptrend and consolidating just 3% away from its all-time high.
After reporting impressive earnings, the stock broke out of a lengthy consolidation in May. Vertex last issued its quarterly earnings results on May 6, posting an EPS of $4.76, beating the consensus estimate of $3.66 by $1.10. The company had revenue of $2.69 billion for the quarter, compared to analysts' expectations of $2.58 billion, marking a 13.3% year-over-year increase.
Vertex's strong performance can be attributed to its focus on innovative treatments for serious diseases, including cystic fibrosis, which is where it leads the market. The company's robust pipeline and strategic collaborations have also been critical to its success.
Breakout Potential: Biotech Sector's Promising Indicators
The biotechnology sector is beginning to show signs of life, showing potential for a breakout after a lengthy consolidation. The performance of its top holdings, like Amgen and Vertex Pharmaceuticals, will be crucial in determining the sector's direction and ability to break out.
Investors should closely watch these key stocks and the sector's resistance levels to gauge the next move. The recent shift in fund flows and the technical setup suggests that the sector could be poised for a strong performance in the year's second half.
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3 Mining Stocks to Watch as Silver Prices Reach 12-Year High
The new commodity cycle is underway, and typically, two items take the lead wherever the cycle is headed. Of course, these two widely watched leaders are oil and gold prices, as both are reliable fundamental and psychological indicators to show investors where the economy could be headed tomorrow. Here’s what’s making them move.
Oil prices struggled to break above $80 a barrel for some weeks, but now the commodity is moving upward. Why? Expectations of a new manufacturing sector uproar are making the energy companies ramp up production to sponsor this breakout, not to mention plenty of geopolitical conflicts that could disrupt the oil supply chain.
More than that, gold prices are now at an all-time high. These two commodities usually carry close companions, with natural gas prices typically following oil and silver going right behind gold. This is why silver prices have broken out to levels not seen since 2012 and why stocks like First Majestic Silver Corp. (NYSE: AG), Coeur Mining Inc. (NYSE: CDE), and even Pan American Silver Corp. (NYSE: PAAS) could be worthy watchlist additions soon.
Markets Recognize First Majestic Silver's Role in the Energy Transition
According to the company’s latest investor presentation, released in June 2024, silver is the best conductor of electricity, making it essential for fulfilling the hopes of an energy transition involving solar energy and electric vehicles. While some focus on uranium stocks, copper, and lithium, silver may be the best-underrated agent here.
This could be why Wall Street analysts feel comfortable forecasting up to 170% growth in First Majestic Silver’s earnings per share (EPS) for this year, standing head and shoulders above the rest of its peers in the sector. Since the stock now trades at only 68% of its 52-week high, investors have much more upside to face with this stock than meets the eye.
Consensus price targets stand at an average level of $7.5 a share for First Majestic Silver stock, which dares the company to rally 30.2% from where it trades today. Considering how bullish the price of silver is becoming, these projections seem very conservative compared to the company's EPS projections analysts have set.
But these analysts aren’t the only ones watching the stock; Van ECK Associates Corp (First Majestic Silver’s largest shareholder) just boosted its stake in the stock by 5.1% in the past quarter. This brings the asset manager’s net investment to $187.4 million today.
Coeur Mining's Premium Valuation: A Look at Investor Sentiment
There’s a reason investors are willing to pay a price-to-book (P/B) ratio of 2.2x for Coeur Mining stock today, which, compared to the rest of its peers, the company commands a premium of roughly 50%. Considering what’s happening in silver prices, momentum could be the reason.
Speaking of momentum, the stock trades at 89% of its 52-week high levels, showing investors the sentiment behind the company today. More than that, Wall Street analysts now forecast up to 287.5% EPS growth this year for the stock, leading the pack in that regard as well.
The Van ECK Associates guys couldn’t leave this one behind either in their hunt for higher silver prices; the asset manager boosted its Coeur stock by 6.5% in the past quarter, making its position as big as $145.6 million today.
According to the latest quarterly earnings report, the company reported a 14% increase in revenue for the year, helping them make these decisions. That press release also includes information on new breakthroughs made in new mines, which can help achieve the EPS projections set by analysts.
Analysts Take Note of Pan American Silver's Financial Momentum
Over the past year, Pan American Silver nearly doubled its revenues, going from $390.3 million in 2023 to $601.4 million in the first quarter of 2024. Riding on this momentum, those at Van ECK held out their most significant cash allocation for this company amongst all three on this list.
Upping their stake by 11.8% in the past quarter brought Van ECK asset managers to a net investment in Pan American Silver stock of $748.5 million today.
Like Coeur Mining stock, Pan American Silver trades at 86% of its 52-week high. This can help drive momentum traders and investors into the stock for another run higher. How much higher? Wall Street forecasts a consensus price target of $22.2 a share, daring Pan American Silver stock to rally 13.1% from today’s price.
Even if the stock takes a bit longer to reach these valuations, investors can count on the company’s annual 2% dividend yield to cushion them in the meantime.
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