Market Pulse 10-10-2024
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[00:00:00] As salamu alaykum everyone. I hope you are doing well. Today is Thursday, October 10th, and all eyes today will be on the Tesla Robotaxi event, which will be live at 7 p. m pacific time. So at 10 p. m. if you are on the east coast, so you may want to tune into a summary tomorrow morning, but today Tesla is basically unchanged in anticipation of the event trading at around two 40.

Which is well off the highs that it experienced earlier this year. We had the local high of two 60 and then a high before that of actually reached closer to two 70. Now what will happen after the robot taxi event? I do think that we'll probably get [00:01:00] a bump in price tomorrow. Unless of course they really.

Flop with what they present, but I have to think that if they did postpone the original date of the event, that means that there's something material that they'd like to show with regards to robo taxes and perhaps with regards to some of its ancillary businesses as well. So we'll be keeping a close eye on that for you guys.

And we'll. Summarize the event for you and give you what you need to know inshallah now as it relates to indexes today we did see a pullback but it does seem like a lot of names are recovering alhamdulillah dow jones is basically flat nasdaq is up 0. 16 S and P is a 0. 03. So flat Russell is down 0.

72%. [00:02:00] Talk about why in a second dollar index is flat. VIX is up slightly a quarter of a percentage point. Why is this the case? We had inflation numbers today that came in a bit hotter than expected. Wall street the broad market index Wall Street was digesting September consumer price index which rose 0.

2 percent on a monthly basis, bringing the annual inflation rate to 2. 4 percent from the previous year that came ahead of the 0. 1 percent monthly gain and 2. 3 percent year over year rate expected by analysts. Now, what does this mean? Why is it important for investors? If you'll recall we did get a hotter than expected jobs report.

And so if the economy is doing well and inflation seems to be sticky, it's hard to make an argument for why [00:03:00] the fed should be easing monetarily, why the fed should be cutting interest rates. And given that fact. Given that fact the anticipation in the market for a interest rate cut and which is generally supportive for asset prices has actually fallen.

And that impacts negatively the price of risk assets. So if you look at the September meeting and what's anticipated there right now there's an 88. 8 percent chance of a 25 base point cut, at least that's what the market is expecting versus an 11 percent cut 11 percent chance for a 50 base point cut.

And then if you look in December. Another 25 base point cut has a probability of 88%. Now I would suggest that these numbers in normal times, maybe don't make any [00:04:00] sense at all, because as I mentioned, if inflation is sticky, And the economy seems to do be doing fine. Then the argument for cutting interest rates is rather weak.

However, there may be another thing that is impacting these forecasts, which is the interest payments and the need to refinance the debt that the U S continues to accrue. And therefore. The clear incentive for interest rate cuts that may be not really in service of any of the feds to mandates, which is low unemployment and stable and low inflation.

This is partly what has caused the market or at least some [00:05:00] names to pull back in the way they have. If we look at what is doing well today, we can see, let me make sure this is we can see that energy is up. That's typically what happens when the rest of the market isn't doing too well. NVIDIA is the only sort of big name that is up close to 2%.

Micron Energy is up 4%. And Tesla's flat, as I mentioned. And so generally speaking, we were either flat or we're down with exception to energy. Now, something that did catch my eye and is basically, I think a good way to invest is I found first solar was down today, close to 8%. And I've mentioned before that I think Solar energy is [00:06:00] a great place to be invested.

And I was looking for the right name to pick up in that space. Now, first solar down 8 percent gets me interested in that. I wonder if this is a good company. I know this company has solid margins. We'll take a look at that. So maybe there's a, an opening here, an entry point for this particular position and by the way, it's not just for solar.

That is down. A lot of solar names are down today. So you have a run it's down 6 percent and phase is down close to 4%, but first solar is down the most, and that's because. An analyst came out with a revised estimation for what their revenue will be in their next report. And That got me thinking, Hey, maybe I should take a closer look at first [00:07:00] solar.

Now, if you do look at first solar, just eyeballing it, eyeballing the numbers market cap of 22 billion PE ratio of 18, which is quite reasonable if it has margins to support it. Revenue in the last quarter was a billion, the net income. Now this is a very important number. The net income was 350 million on a billion dollars in revenue.

That's 35 percent net income. And you can see the year over year changes about a hundred percent. That's very healthy. 35 percent net income is. A great profit margin to have for a business. It means it's gross margins are probably extremely healthy as well. So it has a lot of room for error as a company.

It does mean when you have higher profit [00:08:00] margins, that the. That the company either enjoys a lot of demand for its product. So demand is exceeding supply in a big way, and therefore it has a pricing power there. Or the their product is differentiated to a point where it can command higher prices because no other company offers something exactly like it.

Both cases are good, although I prefer the latter scenario over the former because demand can go away. And oftentimes it does supply ends up increasing production increases in order to balance out the squeeze. That demand is putting on supply, but with a differentiated product, if you have some proprietary technology, that's more defensible and other companies can't cut into your profit margin, like they [00:09:00] can when your profit margin is demand based.

Now the other financials for this company, cash and short term investments, 1. 7, 4 billion, not something to necessarily be. Concerned about that is their cash cushion. Net income, as we mentioned, three 50 cash from operations, one 93. That's great. So they're cash flowing in a positive way.

Their operations are producing cash for the company cash from investing. So there's some things like expanding plants. And investing in new locations, that's around a hundred million. That's good. If I see it negative, it's not a bad thing. So long as the free cash flow. So net of the cash from investing is positive.

That means there's something sustainable here. Otherwise the company is probably going to have to raise money cash from financing. So this would be like [00:10:00] paying down debt. That's negative 68. So again, Having it be negative is not a problem for me. The important thing is that the free cash flow is positive and it is positive to the tune of 85 million.

So everything here looks good for solar. I think it's in for solar, it look, it's in a secular, has a lot of secular tailwinds working in its favor that is being in the solar industry and the strong, robust growth that is expected for that industry. Okay. Yes, it has some transient headwinds in terms of delay in deliveries and perhaps a less than expected revenue revision.

But the numbers of this company are very solid. If we look at their last investor presentation, which I took a look at. It was quite solid. So these will probably not these numbers [00:11:00] in by the way it's notable that it seems like First Solar doesn't put much effort into their investor presentations.

This was quite short and paradoxically, I've found that the companies that put more effort into their. Presentations often have more to hide the ones that are brief and to the point are more confident on themselves. Just something that I've noticed over many years of investing. And it does seem for solar falls into that second, more brief to the point, less effort on investor presentations, a bucket.

So that is a good sign. So speaking of their investing, so they have, they're expanding their Ohio facility, which includes research and development, which I always like to see Alabama manufacturing facility expected Q3 of [00:12:00] 2024, Louisiana manufacturing facility expected in the second half of 2025.

And by the way, I think that. Probably first solar will benefit from, I think it will do well regardless of who wins the election, but I think it'll probably benefit more from a democratic win because of solar being a renewable considered a renewable and the incentives that may flow their way as a company.

But again, I think this is a. Secular trend, regardless of who is in office, that is solar will be growing as a a source for power generation in the United States and globally as well, it just makes the most sense.

They do, I have to say, they do have a lot of concentration in North America. That's something that, should be taken [00:13:00] into account, but also in the event, considering the. Most notable competitor is in China. In the event, there is a tariff war between the United States and China. Then a first Solar's competition in the United States will actually ease, and this may be a beneficial for the company.

So maybe a Republican win may not be that bad because it's more likely that we see something on the issue of tariffs with a. Trump as president, then we do with Harris. Here's another look at their income statement. So gross profit margin, this is basically a heart this is in the elite category here in terms of gross profit.

We're talking close to 50%. Margin on their sales, which is [00:14:00] excellent. So they can do a lot in terms of research and development and investing in the company itself when you have that type of margin. And so this is something that I always like to see. And there's also a margin for error. So in case they have a line item in their expenses, that is not common.

They can deal with that without really threatening their profitability in any serious way. again, their net income is 35 percent as of the last quarter, which is fantastic. And you can see that their margins are actually Improving with time. So 38. 3%. If you compare the Q2 of 2023, if you compare with the quarter, right before the quarter that they reported, that's 43 percent Q2 49%.

So it's going in the right direction, which is what you want to see balance sheet, as I mentioned, cash is, [00:15:00] I think, add a, a healthy amount of cash at 1. 7 billion, especially considering that. The free cashflow for the company is actually positive. This is important for investors because it means that the company doesn't really have a huge incentive to dilute shareholders anytime soon.

And so this is basically. Summary and highlights and then it's done. So 12 slides and their earning presentation is done. Like I said, they're, they do seem like on on the light side of effort with regards to investor presentations, which is a positive sign. And that's what I've found in my experience, the less they're trying to convince you to invest the better.

So something that is definitely on my radar, I do want to look a bit more closely into what makes their product unique. They do manufacture solar modules [00:16:00] and they actually are in the business of maintaining solar systems and installing them as well, even on the utility scale. So they do big projects.

And As I mentioned, it makes all the sense in the world that of the renewable energy sources that humanity uses, that the largest and fastest growing one B solar, because after all that's solar is how this planet is everything living on this planet basically gets its energy. That's my take on first solar.

Again with regards to Bitcoin right now we're at 60,400. We did see a pullback in Bitcoin miners bit. There is actually in the positive Iris energy down 2.5%. Now, Iris [00:17:00] Energy has been hit with a number of lawsuits regarding their representation of their facilities as. Perhaps being,

being possible data center candidates and high performance computing and AI training services being offered from their locations. And the lawsuit is essentially saying they overstated the capacity of their locations for this and this reason. Now they are actually, they have actually.

engaged with a consultant to evaluate their locations for that very reason. That is how prepared are these locations? How realistic is it for these locations? What is, what are the economics of using these locations for data centers, for high performance computing? [00:18:00] And they will, and these consultants are going to offer an opinion on that.

And I suspect that

this opinion will be a positive one.

And I don't really see much merit for these lawsuits that I think, I've been following this company very closely. Every time they mentioned data centers, they always mentioned that, additional investments need to be made that they weren't ready immediately to, service high performance computing and AI customers, additional CapEx would be needed.

This is something that they've consistently said, and I don't think they were misleading. And it's notable that the lawsuit actually tries to bring on investors who were Impacted negatively by their purchase of Iris energy shares between two dates, one in 2020, starting in 2023, ending [00:19:00] in 2024, and the stock is up like 300 percent between those two dates that the lawsuit is alleging investors.

May have incurred losses because of the wrong messaging that the company gave. And so that kind of on the face of it seems like a tough hill to climb for the litigants. Yeah, I'm not too worried about that in case you were wondering about my thoughts on the allegations against iris energy, and we'll wait and see to to see what kind of developments we get in this regard.

In the meantime, I'm considering this as really a buying opportunity for the stock. As I mentioned, I don't really see much merit for the allegations made against the company. With that, let me take some questions. Chakra says, Assalamualaikum, Waalaikumussalam. Ghazi, Assalamualaikum. What? Why are the ads on your [00:20:00] channel running?

I've answered this before, Razi. I don't want to explain it again. Rashad says, Salam Rakan, if the Fed didn't cut rates the rest of the year after election, no pressure. Would you approach the market differently? Thanks. Wa'alaikum Salam, Rashad. If the Fed doesn't cut rates. First of all The market is pricing in close to a 90 percent chance that happens.

I think 90 percent chance is probably, generous that the market is in terms of a probability that's being assigned to rate cuts, but.

I think it's more likely than not that we do get a rate cut. And I think that if you look at the rest of the major economies they too are going in the way of monetary easing. And so the debt that we have needs to be refinanced [00:21:00] and it needs to be refinanced at lower rates. I don't really see a way around postponing rate cuts for too long of a period, if I'm being completely honest and my former fortune 500 company, the lead software developer on my team resigned to go start his own solar company.

Now I understand why. And he's probably doing well. I've heard a lot of people becoming millionaires from solar. So I'm not surprised at all. Your former colleague is probably a really smart person.

Chocolate says I've never seen ads on here, but even if there were, there's a difference of opinion, definitely not unanimously how, yeah, I choose which ads that are shown on my YouTube channel. If I don't do that, then they show whatever they want. Aqib Ahmed says in my technical analysis, I see Tesla at 2 14 before a potential significant rise.

What do you think about this? I think it's going to really depend on what is [00:22:00] revealed in the in the RoboTaxi event and also macro. You could have a really solid event with really solid forecasts for the future and, analysts could get excited, but then the macro could turn on us.

And let's say we're still waiting for Israel to attack Iran. Does still seem like it's, the most likely thing to happen. And so that's going to impact macro, how you're on response to that is going to impact macro. The numbers we get for, consumer sentiment, PPI earnings, that's going to impact macro.

So yeah, it's not going to be solely a function of the charts. And yeah it's tough to say for sure, but I do think If you understand the RoboTaxi opportunity that the price right [00:23:00] now is a discount if you have a long enough time horizon. So 12 to 24 months, I think that you'll be glad you bought at these prices.

It's fun. Nice serious fun. I have a few positions in gold. Might it be a good time to exchange those positions for say, these Those in the growth portfolio. I can't tell you what to do specifically for your positions. I can only show you what I'm invested in. I listened to these lives video on my way back from work.

That's great. I'm glad I'm able to provide some entertainment on your drive back, perhaps in the future. It'll just be autonomous and you can do all sorts of things on the way back besides just listening. Wimbtcmoon I wish I knew, but I think we are close. So there's Still some macro hurdles that we have to [00:24:00] go through and that may impact the price of BTC, but I think

probably the biggest hurdle still upcoming are the elections and perhaps we don't get a BTC moon until after the elections. But then again, if that's what everyone is thinking, perhaps we do, but I definitely think before the year end, we'll start We'll break the all time highs that we made before your end.

And I still think a hundred thousand is in play by the end of the year. But we'll see way back home. Inshallah. Hey, if you didn't leave a make sure to leave a like and subscribe. Hit the notification bell. When we go live next and become a PIF number, if you haven't already until next time, make sure to take care of yourself.

Assalamualaikum and peace be upon you all.