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The Children’s Place stock has short squeezed; time to buy?

The Children’s Place (PLCE) stock price has staged a strong comeback in the past few days, making it one of the best-performing companies in the retail industry. It soared to a high of $17.20, its highest point since March 6, and 233% above its lowest level this month.

Short squeeze continues

The Children’s Place has been one of the worst-performing companies in the retail industry in the past few years. After peaking at $155.30 in 2018, the stock dropped to a low of $4.66 earlier this month.

This crash happened as its sales growth decelerated and as its profits dropped, raising concerns that it may go bankrupt. Its sell-off has been in line with other specialty retailers, who are struggling as competition from general stores like Walmart and e-commerce platforms like Amazon rise.

For example, a pharmacy giant like Rite Aid has gone bankrupt while popular brands like CVS and Walgreens Boots Alliance are some of the top laggards in the industry.

Similarly, discount retailers like Dollar Tree, Dollar General, and Five Below are some of the worst-performing companies in the S&P 500 index as they plunged by almost 50% this year. Ulta Beauty, which focuses on cosmetics items has also dropped.

The Children’s Place stock has underperformed as its annual revenues dropped from $1.8 billion in 2020 to over $1.6 billion last year. In the same period, it has moved from being a profitable company into a loss-making one. It made a net loss of $154 million in the last financial year. 

At the same time, the company’s balance sheet has been under pressure as its cash and short-term investments fell from $68.5 million in 2020 to $13.6 million in 2023. It had over $316 million in short-term loans and $165 million in long-term debt. 

As such, the combination of rising debts and a weak balance sheet pushed many short sellers to short the company, pushing its short interest to over 22%.

Improved financial metrics

The ongoing PLCE stock price happened after the company published its financial results last week.

Its total revenue dropped by 7.5% in the third quarter to over $319 million because of its ongoing e-commerce division. 

Like other retailers, The Children’s Place has been ramping up its e-commerce operations, which has led to more marketing spending. This revenue decline happened as the company reduced its marketing spending and other offers like free shipping. 

The results also showed that its comparable retail sales dropped by 7.2% while its gross profit rose to $111.8 million. 

The Children’s Place’s net sales for the first half of the year fell by 11% to over $587 million while its gross profit jumped to $204.5 million. 

These results mean that the management is doing well to reduce its costs and improve profitability.

The risk, however, is that it has substantial inventories in its stores. These inventories rose from over $362 million in February to $520 million in the last quarter. 

Also, there is a risk that the management will want to raise capital to boost its balance sheet. It has lease liabilities worth $45 million for the remainder of 2024 and $64 million in 2025. It will likely use its remaining revolving credit to pay this debt. Fortunately, it does not have any debts maturing in the remainder of this year, 2025, and 2026.

The Children’s Place stock price analysis

The weekly chart shows that the PLCE share price made a strong rebound recently. This recovery happened after it formed a falling wedge chart pattern, a popular bullish sign. 

The stock has now soared above the 50-week and 25-week Exponential Moving Averages (EMA), a positive sign. Also, the two lines of the MACD indicator have made a bullish crossover while the Relative Strength Index (RSI) has tilted upwards.

Therefore, the stock will likely continue rising as buyers target the next psychological point at $20. In most cases, however, these short squeezes tend to be short-lived, meaning that it could lose momentum soon.

The post The Children’s Place stock has short squeezed; time to buy? appeared first on Invezz

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Politics

Wage growth is still losing the battle against inflation: Will paychecks finally catch up?

American workers have faced an uphill battle over the past few years, as wages continue to lag behind the persistent rise in prices.

Despite signs that inflation is cooling from its pandemic-era highs, the gap between what employees earn and the cost of living remains a significant concern.

For many, real wages have barely budged, leaving workers struggling to maintain their purchasing power.

This article delves into the state of wage growth versus inflation, examining the latest data, projections for the future, and what policymakers are doing to address this ongoing issue.

The wage-inflation gap persists

Since the beginning of 2021, inflation has surged by 20%, while wages have only risen by 17.4%, according to Bankrate’s Wage to Inflation Index.

This 2.6% gap might not seem alarming at first glance, but for millions of American workers, it represents a considerable loss in purchasing power over time.

While wages have seen nominal growth, real wages—those adjusted for inflation—have stagnated, or in some cases, even declined.

Bankrate’s latest data highlights that wage growth has actually been slowing down in recent months. In the second quarter of 2024, wage growth was just 0.84%, down from 1% growth seen in previous quarters.

This slowdown has pushed back earlier forecasts that wages would outpace inflation by the end of 2024. Now, experts don’t expect wages to catch up until at least the second quarter of 2025.

Source: Bankrate

For workers, this means that despite seeing slight pay increases, their real income continues to fall short of covering the rising cost of essential goods such as food, housing, and healthcare.

In fact, according to the US Department of Labor’s consumer price index (CPI), shelter costs alone have risen by 5.2% over the past year, accounting for the majority of the core inflation rate, which excludes food and energy.

Which industries are falling behind?

Wage growth has not been uniform across all sectors. Workers in industries like leisure and hospitality have fared better than others, seeing wage increases of 23.7% since January 2021, surpassing the national average.

These gains, however, are largely a recovery from the steep losses these industries experienced during the pandemic.

In contrast, sectors like education have struggled to keep up, with wage growth of only 13.6% over the same period, well below the overall inflation rate.

Workers in these lower-performing industries are feeling the pressure more acutely as the cost of living continues to rise faster than their earnings.

This disparity in wage growth has contributed to growing inequality among workers, with those in slower-growing sectors finding it increasingly difficult to keep pace with inflation.

Despite the appearance of a strong job market—characterized by low unemployment and steady job creation—the reality is that wage growth is falling short in many sectors, leaving millions of workers vulnerable.

Does the Fed care?

The Federal Reserve’s mission is to combat inflation, and they have done so by raising interest rates 11 times since March 2022, bringing the benchmark rate to 5.33%—its highest level in over two decades.

The goal of these rate hikes is to reduce borrowing and spending, which in turn should help ease upward pressure on prices. However, these rate hikes have also contributed to slowing wage growth.

The slowdown in the job market is a direct result of the Fed’s higher interest rates, which have made it more expensive for businesses to borrow money, invest, and expand.

This has led to more cautious hiring and smaller wage increases, even as inflation begins to ease.

The Federal Reserve now faces, among others, yet another dilemma: it must continue to reduce inflation without putting too much strain on wage growth and overall economic activity.

There are signs that inflation is indeed cooling, with the CPI rising by just 0.2% in August 2024, in line with economists’ expectations. But core inflation, which strips out volatile food and energy prices, remains elevated at 3.2%.

As the Fed prepares to engage the first rate cutting cycle in more than three years, it attempts to ensure that it doesn’t “slam the brakes” too hard on economic growth.

This could provide some relief to workers, as businesses might feel more confident in raising wages with lower borrowing costs.

Is there still hope for workers?

Despite the Fed’s efforts and the slight cooling of inflation, it’s unlikely that workers will see substantial improvements in real wages until mid-2025.

This extended timeline is frustrating for many Americans who have already been grappling with higher prices for the better part of three years.

The rising costs of everyday essentials like food, housing, medical care, and insurance are still outpacing wage growth, leaving many workers with less purchasing power than they had before the pandemic.

The wage-inflation gap represents more than just a numbers game; it’s a tangible economic strain that affects people’s daily lives.

For those in lower-wage sectors or industries with slower wage growth, the impact is even more profound. Many families have been forced to cut back on discretionary spending, delay vacations, and reduce savings just to make ends meet.

While some relief may be on the horizon in the form of potential interest rate cuts, the overall outlook for wage growth remains uncertain.

Even if inflation continues to ease, wages are expected to lag behind for some time, leaving many Americans in a precarious financial position.

What’s certain is that employers will keep “trimming the excess fat” and continue to lay off workers, all in the name of higher profits.

In addition to the easing monetary policy that is ahead, we can only expect that profit margins will grow as wages continue

The post Wage growth is still losing the battle against inflation: Will paychecks finally catch up? appeared first on Invezz

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Business

Here’s why Sui price is in an ‘unstoppable’ bull run

Sui price has embarked on an unstoppable bull run, making it one of the best-performing cryptocurrencies in the industry. It soared to a high of $1.1752 on Wednesday morning, its highest point since April 30th and 151% above its lowest point in August.

Sui’s performance happened at a relatively difficult period for the market as the crypto fear and greed index remained in the fear zone. It also happened at a time when most cryptocurrencies like Ethereum, Solana, and Bitcoin have remained in a tight range in the past few weeks.

Sui is seen as a Solana alternative

The first main reason why the Sui token price has surged is that it is often seen as a viable alternative to Solana, one of the biggest players in the crypto industry.

Solana is known for its quick speed and low transaction costs, which makes it one of the best layer 1 alternatives to Ethereum. However, the network is also known for its congestion and outages.

Solana’s congestion has happened because of the vast number of developers and users in its ecosystem. Data by DeFi Llama shows that it has over 3.4 million active addresses, higher than Ethereum and Tron combined.

Sui, on the other hand, has fewer developers and active addresses, which makes it a more friendly environment for developers. Some of the most notable players in the ecosystem are Cetus, Suilend, Aftermath Finance, and NAVI Protocol.

A good example of this is a Coindesk opinion writer who said that he selected Sui for their Decentralized Public Infrastructure Network (DePIN) because of Solana’s congestion. Data shows that Sui can handle over 297k transactions per second, with the average transaction cost being less than $0.0010.

Sui’s ecosystem growth

The other main reason why Sui price is doing well is because of its ecosystem growth. Data by DeFi Llama shows that the network has 40 dApps in the DeFi industry with over $735 million in total value locked. These assets make it to be the 9th biggest player in the DeFi industry.

Sui has become a bigger network than many blockchains that have been in the industry for a long time. For example, it is bigger than Cardano, a layer-1 network that was often seen as an alternative to Ethereum. It is also larger than popular chains like Algorand, Near Protocol, EOS, and IOTA.

Sui also has over $360 million in stablecoins in its ecosystem. This is notable because stablecoins are the currencies used across industries like DeFi, payments, and Non-Fungible Tokens (NFTs). 

Sui’s stablecoin growth will likely continue after the decision by Circle to move to its ecosystem. This means that Circle’s USDC will be moving to Sui. It will also launch the cross-chain transfer protocol, enabling developers to build cross-chain flows from other chains.

Sui is also used by some of the biggest companies in the world like Alibaba Cloud, Oracle RedBull Racing, and Bluefin. On Tuesday, Sui said that it was teaming up with MoviePass to help decentralize the film industry. Moviepass became popular for offering a subscription package for movie theatre attendance.

Additionally, Sui is a big name in the decentralized exchange (DEX) industry. Data shows that DEX networks in its ecosystem handled volume worth over $350 million in the last seven days, a 34% increase. This makes it the eleventh biggest chain in the industry.

Sui and the gaming industry

Sui has also become a big name in the gaming industry, thanks to its features that are tailored to the sector. For example, it has the zkLogin feature that lets game developers onboard users easily. 

Sui also has closed-loop tokens that lets creators limit where a token is used, a kiosk, that lets users set custom trading policies, and parallel transaction processing. 

Sui is also working on a handheld gaming console known as SuiPlay that will be launched next year. It is selling the Nintendo-looking device for $600.

Sui price technicals

Sui chart by TradingView

Additionally, Sui has risen because of higher volume in the spot and futures market. Data by CoinGlass shows that its open interest in the futures market has surged to a record high of over $317 million, higher than $57 million in May this year.

It also has some encouraging technicals. On the daily chart, there are signs that it formed an inverse head and shoulders pattern, a popular bullish sign. 

Sui is also about to form a golden cross as the spread between the 200-day and 50-day moving averages narrow. That crossover would lead to more gains, with the next point to watch being at $1.4437, its highest swing on April 21. 

Sui’s Average Directional Index (ADX) has risen to 24 while the Relative Strength Index (RSI) has moved to 71, a sign that it has a bullish momentum. 

The post Here’s why Sui price is in an ‘unstoppable’ bull run appeared first on Invezz

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Business

Here’s why Avalanche (AVAX) price is at an elevated risk

Avalanche (AVAX) price has moved sideways this month as it continued underperforming other cryptocurrencies like Tron, Toncoin, Bitcoin, and Mantra. It was trading at $23.63, down by more than 63% from its highest point this year, giving it a valuation of over $9.5 billion. 

Losing market share

Avalanche, a layer-1 network that is similar to Ethereum, Solana, and Sui. Its goal is to give developers a chance to build decentralized applications (dApps) thanks to its faster speeds and low transaction costs.

However, there are signs that Avalanche is losing market share to layer-1 networks like Sui and layer-2 blockchains like Arbitrum and Base, the blockchain network started by Coinbase. 

Data by DeFi Llama shows that Avalanche has 405 dApps in its ecosystems and a total value locked of over $905 million. It is the 7th biggest chain in the industry and is now smaller than Arbitrum and Base, which has over $2.4 billion and $1.6 billion, respectively. Base’s growth has been more phenomenal since it was launched a year ago. 

More data shows that Avalanche has over 26,000 active addresses, down from over a million a few years ago. This means that the network is losing momentum among users. 

Most importantly, the volume of stablecoins in the ecosystem has continued moving downwards. After peaking at over $4.3 billion in 2022, the amount has dropped to $2.1 billion.

In contrast, the amount of stablecoins in Tron has jumped to $60 billion while those in Ethereum have soared to over $83 billion.

Stablecoins are important assets in any blockchain because of their growing market share in payments. 

A blockchain like Tron handles over $40 billion in stablecoins each day, more than other popular companies like Visa and Mastercard. Analysts believe that stablecoins will continue playing an important role in the financial services industry in the future. 

Avalanche DEX and meme coins

Meanwhile, Avalanche has also lost market share in the Decentralized Exchange (DEX) industry. DEX networks in its blockchain handled transactions worth over $2.3 billion in July, lower than other blockchains like Ethereum, Arbitrum, Base, Solana, and BNB Smart Chain.

The same happened in August as the network handled $2.7 billion. Arbitrum’s volume was $21.23 billion while Base handled $16 billion. Month-to-date, Avalanche has handled $1.2 billion, lower than other top layer-1 and layer-2 networks.

The biggest DEX networks in Avalanche are the likes of Trader Joe, Pharaoh Exchange, Dexalot, Woofi, Dodo, and GMX. Trader Joe handled $346 million in the last seven days while the rest had less than $60 million each. 

DEX is an important part in the blockchain industry because of the volume they are handling and the potential fees.

Meanwhile, Avalanche has no market share in the meme coin industry that is now dominated by Solana, Ethereum, and Tron. Solana’s Pump.fun tokens have accumulated over $500 million in market cap while Tron’s SunPump have also crossed the $550 million valuation. These ecosystems have generated millions of dollars in fees.

Avalanche collects a minuscule amount of money in fees compared to other blockchains. According to DeFi Llama, it made just $20,800 in fees in the last 24 hours, down from over $5 million in December last year. 

Avalanche token unlocks and dilution

Additionally, the network still has millions of tokens being locked, meaning that more token unlocks are coming. The most recent token unlock happened in August when 9.54 million AVAX tokens were released. These unlocks happen after every two or three months, with most of them going to the team followed by strategic partners, foundation, and airdrop.

Avalanche has a circulating supply of 405 million tokens against a maximum supply of 715 million, meaning that holders should expect dilutions until July 2030. 

Dilution is a big deal for Avalanche because many investors buy it for its 7% staking yield. However, a combination of falling network fees and more tokens in staking pools means that the rewards will continue falling. Data by Staking Rewards shows that the staking reward has been in a strong downward trend, moving to 7.90%, down from almost 8% in August.

Avalanche price analysis

The AVAX price underperformed the market after it formed a death cross on June 17 as the 200-day and 50-day Exponential Moving Averages (EMA) made a bearish crossover. In price action analysis, this pattern is one of the most bearish signs in the market.

The token has remained below all moving averages and the 61.8% Fibonacci Retracement point. Therefore, the path of the least resistance for the Avalanche price is downwards, with the next point to watch being at $17.37, its lowest swing on August 15. 

However, the only hope for the coin is that Bitcoin is seeing more ETF inflows, meaning that it could bounce back soon. If this happens, other altcoins like Avalanche and Solana could stage a strong comeback.

The post Here’s why Avalanche (AVAX) price is at an elevated risk appeared first on Invezz

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Business

GBP/USD forecast ahead of Fed and BoE interest rate decisions

The GBP/USD exchange rate is bracing for volatility as the UK releases the August inflation report ahead of the Federal Reserve and Bank of England (BoE) interest rate decisions. It was trading at 1.3165 on Wednesday, a few points below the year-to-date high of 1.3267.

UK inflation data and BoE

The Office of National Statistics (ONS) will publish the latest inflation report on Wednesday, a day before the BoE delivers its monetary policy decision.

Economists expect the data to show that the headline inflation rose slightly in August. The CPI is expected to move from minus 0.2% in July to 0.3% in August. On an annual basis, the CPI is expected to have remained at 2.2%.

Core inflation, which excludes the volatile food and energy prices, is expected to rise from 3.3% in July to 3.6% in August. 

These numbers will come out a week after the UK published an encouraging jobs report, which showed that wage growth remained strong in July.

If analysts are accurate, then these numbers will reduce the chances of a rate cut by the Bank of England when it concludes its two-day meeting on Thursday.

The data will also mean that the UK’s inflation remains stubbornly high and is above the bank’s target of 2.0%. 

Economists believe that a series of interest rate cuts will follow this week’s pause as the bank works to stimulate an economy that is slowing.

However, some analysts believe that the bank will deliver a 0.25% rate cut in this meeting. Data by Refinitiv shows that odds of a cut have risen to about 35%.

Some economists favor a cut because of the soggy summer activity, service inflation, and the recent wage growth numbers. Also, some analysts believe that a rate cut will help to reduce sterling’s rally, which may make the UK attractive as an exporter. 

Federal Reserve decision ahead

The next important GBP/USD news will come from the United States where the Federal Reserve is expected to deliver its first cut in over four years. 

Conditions for a cut are appropriate because of the recent economic data from the US. First, a report earlier this month showed that the labor market is worse than previously believed. The economy created 818k fewer jobs in the 12 months to March.

The unemployment rate has remained above 4% while the number of monthly jobs additions has been weak. In its nonfarm payrolls data, the BLS has revised the figures downwards in most months this year.

Second, US inflation is moving in the right direction. A report released last month showed that the headline Consumer Price Index (CPI) dropped to 2.5% in August, the lowest level in over two years. 

Inflation will likely continue moving downwards because of falling crude oil prices. Brent, the global benchmark, has dropped to $73 while the West Texas Intermediate (WTI) has moved to below $70. This means that transportation costs, which impact most things, will continue moving downwards.

Therefore, traders have raised bets that the Fed will cut interest rates by 0.50%. Just this week, Senator Elizabeth Warren and some of her Democratic colleagues, pressured the bank to deliver a 0.75% rate cut, which is highly unlikely to happen.

Traders in Polymarket, a leading crypto-enabled prediction market, have raised their expectation of a 0.50% rate cut. 

However, not all analysts are fully convinced of a 0.50% cut. In a note, those at ING predicted that the cut will be 0.25% while cautioning that it would be a close call. Their statement said:

“We favoured a larger move as an insurance policy against the prospect of more significant job weakness in the future, but the most recent jobs report was not as weak as feared, and August core CPI came in hotter than hoped at 0.3% MoM. Given this backdrop, we have to admit that 25bp looks like the most probable outcome.”

GBP/USD technical analysis

GBP/USD chart by TradingView

The GBP/USD exchange rate has been in a strong bull run in the past few months. It bottomed at 1.2290 in May and then staged a strong comeback to a high of 1.3268 in August. Along the way, the pair formed an ascending channel pattern. 

It has also moved slightly above the crucial resistance level at 1.3141, its highest swing in July last year. The pair has remained constantly above the 50-day and 25-day Exponential Moving Averages (EMA) while the Relative Strength Index (RSI) has moved slightly above the neutral point.

The pair has also formed a small double-top chart pattern, a popular reversal sign. Therefore, the likely scenario is where the pair retreats since the Federal Reserve rate cut has been priced in by market participants. If this happens, the pair could drop to the next psychological point at 1.3000.

The post GBP/USD forecast ahead of Fed and BoE interest rate decisions appeared first on Invezz

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Business

Is it safe to buy gold, GLD, and IAU ETFs ahead of FOMC rate cut?

Gold price was hovering near its all-time high of $2,587 on Wednesday morning as investors waited for the Federal Reserve interest rate decision. It has been one of the best-performing metals as it jumped by over 40% from its lowest point in December last year. 

Gold has jumped by 25% this year while metals like iron ore, platinum, and palladium have struggled. Platinum is barely moved this year while iron ore has dropped by over 20% from its highest point in 2023.

The closely-watched SPDR Gold Trust (GLD), the biggest gold ETF, has also soared to a high of $240. Other gold ETFs like the iShares Gold Trust (IAU) and the SPDR Gold MiniShares Trust (GLDM) have also surged this year.

Federal Reserve decision

The main catalyst for gold prices is the rising optimism that the Federal Reserve will start to cut interest rates when it completes its two-day meeting on Wednesday.

Officials have already telegraphed that the cut is coming. For example, the last FOMC minutes showed that some committee members supported cutting interest rates during that meeting. 

This view has been supported by the recent economic data from the US. A report by the Commerce Department showed that retail sales remained under pressure in August. 

Additional data showed that the country’s consumer inflation continued falling in August, with the headline figure coming in at 2.5%, its lowest point since 2021. 

Also, the labor market has softened, with the unemployment rate rising to 4.2% in August, much higher than last year’s low of 3.5%. 

The Federal Reserve cuts interest rates when the economy is not doing well to stimulate demand. What is unclear, however, is the size of the upcoming interest rate cut. Some analysts expect the bank to cut rates by 0.50% while others see the rate cut coming in at 0.25%.

A 0.50% cut will be a sign that Fed officials believe that the economy is in a worse shape or that it is heading towards a hard landing.

The market is predicting a rate cut

The market has also priced in a rate cut. American stock indices like the Dow Jones, Nasdaq 100, and S&P 500 are nearing their all-time highs while the US dollar index (DXY) has dropped to $101. 10-year and 30-year Treasury yields have pulled back to 3.67% and 3.956%, respectively 

Gold, unlike other metals, is more sensitive to the actions of the Federal Reserve. In most cases, the metal rises when the bank is cutting rates and vice versa. The recent gains are likely because investors anticipate the Fed to start cutting rates. 

Gold’s sensitivity to interest rates is because it is often seen as an alternative to the US dollar and other fiat currencies. This explains why many central banks have accumulated tons of gold as their reserves.

The US holds over 8,133 tons of gold in its reserves while Germany, Italy, France, Russia, and China have over 1,947 tons. Some of these countries have continued to accumulate gold this year. 

Analysts believe that China will want to own more gold in the future as it aims to become the biggest economy in the world. Recently, however, its central bank has not bought more gold because of the elevated prices. 

Impact on gold miners

A likely catalyst for the soaring gold prices is that miners will be among the top beneficiaries. The closely watched VanEck Gold Miners ETF, which has over $15 billion in assets, has jumped by over 35% in the last 12 months and by 325 this year. 

Other smaller gold mining ETFs like the VanEck Junior Gold Miners ETF (GDXJ) have risen by almost 30% while the Direxion Daily Gold Miners Index Bull 2x Shares (NUGT) has soared by 45.45% this year.

One of the best-performing gold mining companies is Wheaton Precious Metal, which has soared by 16% in the last 3 months and 41% in the past 12 months. Wheaton, unlike other mining companies, is a streaming company that makes money from the rights it holds in mines.

The other top gold mining companies this year are Newmont, Agnico Eagle Mines, Barrick Gold, and Franco-Nevada. 

Gold price analysis

Gold price chart

The daily chart shows that gold has been in a strong bull run in the past few months. This rally happened in anticipation of Fed rate cuts. Gold has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

However, gold has also formed a rising wedge chart pattern. In most periods, this is one of the most bearish patterns, especially when it is nearing a confluence zone. The Relative Strength Index (RSI) has formed a symmetrical triangle pattern, which is nearing the confluence level.

Therefore, gold could have a bearish breakout in the coming days since the Fed rate cut has already been priced in by market participants. If this happens, gold ETFs like GLD and IAU and miner funds like GDX and NUGT will also do the same.

The post Is it safe to buy gold, GLD, and IAU ETFs ahead of FOMC rate cut? appeared first on Invezz

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Stocks

Teladoc rises on increased demand, should you buy this high risk play?

Teladoc Health stock is setting up for a good short-term trading opportunity after Jefferies analysts noticed the possibility of a short-term surge due to increased demand.

The brokerage house has boosted its price target on the stock from $8 to $10.

The short-term optimism comes from the analysis of the web traffic to the company’s mental health business website, BetterHelp.

The web traffic was consistently declining for the last 12 months. However, July and August traffic has shown an increase in demand for the company’s mental health services.

Analysts are already estimating an 11% decline in revenues for the BetterHelp division in the third quarter.

Overall, they expect a 5% drop in revenue. The web traffic data has prompted them to reevaluate their expectations of the company’s earnings.

Combining the above information with the fact that Teladoc has a 16% short interest, there is room for a short-term rally in the stock.

As interest rates start going down, beaten-down stocks could produce a rally simply because of the availability of cheaper money.

New management is driving optimism

On the 10th of June, Teladoc appointed Charles Divita as its new CEO. This would usually be considered good news. But it didn’t stop the stock from continuing to slide.

The new CEO withdrew guidance for the fiscal year 2024 and also dropped the 3-year outlook. This would usually be considered a high risk move. Some would even call it a sign of bad management.

However, for a stock that was down over 95% from its all-time highs, it wasn’t a big deal.

Three months on, one can observe a noticeable change in trend. This stock is recovering.

And the web traffic data is pointing to an increase in people using Teladoc’s services. Whatever the new CEO did in the three months he has been in charge seems to be working.

A manageable debt situation

The company has $1.6 billion in convertible notes outstanding. Half of these mature in 2025.

Its cash position of $1.16 billion would help it cover the $800 million due next year. A health-positive free cash flow should cater to the rest of the payment too.

Shareholders should be alert for one thing though. Convertible notes can also be converted into equity. If that happens, existing shareholders will get diluted.

To conclude, Teladoc’s healthy cash position, positive cash flow, and determined management should help it finally recover from a horrible stock slump.

The short interest and a changing trend should be good enough reasons for traders to drive the stock price up.

An entry at this point could be a safe bet because of the short-term triggers. If they materialize, holding the stock for the long term will become easier, though the journey will be volatile.

The post Teladoc rises on increased demand, should you buy this high risk play? appeared first on Invezz

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Stocks

Is it safe to buy gold, GLD, and IAU ETFs ahead of FOMC rate cut?

Gold price was hovering near its all-time high of $2,587 on Wednesday morning as investors waited for the Federal Reserve interest rate decision. It has been one of the best-performing metals as it jumped by over 40% from its lowest point in December last year. 

Gold has jumped by 25% this year while metals like iron ore, platinum, and palladium have struggled. Platinum is barely moved this year while iron ore has dropped by over 20% from its highest point in 2023.

The closely-watched SPDR Gold Trust (GLD), the biggest gold ETF, has also soared to a high of $240. Other gold ETFs like the iShares Gold Trust (IAU) and the SPDR Gold MiniShares Trust (GLDM) have also surged this year.

Federal Reserve decision

The main catalyst for gold prices is the rising optimism that the Federal Reserve will start to cut interest rates when it completes its two-day meeting on Wednesday.

Officials have already telegraphed that the cut is coming. For example, the last FOMC minutes showed that some committee members supported cutting interest rates during that meeting. 

This view has been supported by the recent economic data from the US. A report by the Commerce Department showed that retail sales remained under pressure in August. 

Additional data showed that the country’s consumer inflation continued falling in August, with the headline figure coming in at 2.5%, its lowest point since 2021. 

Also, the labor market has softened, with the unemployment rate rising to 4.2% in August, much higher than last year’s low of 3.5%. 

The Federal Reserve cuts interest rates when the economy is not doing well to stimulate demand. What is unclear, however, is the size of the upcoming interest rate cut. Some analysts expect the bank to cut rates by 0.50% while others see the rate cut coming in at 0.25%.

A 0.50% cut will be a sign that Fed officials believe that the economy is in a worse shape or that it is heading towards a hard landing.

The market is predicting a rate cut

The market has also priced in a rate cut. American stock indices like the Dow Jones, Nasdaq 100, and S&P 500 are nearing their all-time highs while the US dollar index (DXY) has dropped to $101. 10-year and 30-year Treasury yields have pulled back to 3.67% and 3.956%, respectively 

Gold, unlike other metals, is more sensitive to the actions of the Federal Reserve. In most cases, the metal rises when the bank is cutting rates and vice versa. The recent gains are likely because investors anticipate the Fed to start cutting rates. 

Gold’s sensitivity to interest rates is because it is often seen as an alternative to the US dollar and other fiat currencies. This explains why many central banks have accumulated tons of gold as their reserves.

The US holds over 8,133 tons of gold in its reserves while Germany, Italy, France, Russia, and China have over 1,947 tons. Some of these countries have continued to accumulate gold this year. 

Analysts believe that China will want to own more gold in the future as it aims to become the biggest economy in the world. Recently, however, its central bank has not bought more gold because of the elevated prices. 

Impact on gold miners

A likely catalyst for the soaring gold prices is that miners will be among the top beneficiaries. The closely watched VanEck Gold Miners ETF, which has over $15 billion in assets, has jumped by over 35% in the last 12 months and by 325 this year. 

Other smaller gold mining ETFs like the VanEck Junior Gold Miners ETF (GDXJ) have risen by almost 30% while the Direxion Daily Gold Miners Index Bull 2x Shares (NUGT) has soared by 45.45% this year.

One of the best-performing gold mining companies is Wheaton Precious Metal, which has soared by 16% in the last 3 months and 41% in the past 12 months. Wheaton, unlike other mining companies, is a streaming company that makes money from the rights it holds in mines.

The other top gold mining companies this year are Newmont, Agnico Eagle Mines, Barrick Gold, and Franco-Nevada. 

Gold price analysis

Gold price chart

The daily chart shows that gold has been in a strong bull run in the past few months. This rally happened in anticipation of Fed rate cuts. Gold has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

However, gold has also formed a rising wedge chart pattern. In most periods, this is one of the most bearish patterns, especially when it is nearing a confluence zone. The Relative Strength Index (RSI) has formed a symmetrical triangle pattern, which is nearing the confluence level.

Therefore, gold could have a bearish breakout in the coming days since the Fed rate cut has already been priced in by market participants. If this happens, gold ETFs like GLD and IAU and miner funds like GDX and NUGT will also do the same.

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Vedanta share price forms a risky pattern as commodities retreat

Vedanta (VEDL) share price has done well this year even as the prices of key commodities like iron ore, aluminum, and copper retreated. It soared to a record high of ₹470.60, meaning that it has jumped by over 1,453% from its lowest point in 2020. This growth has pushed its market cap to over ₹1.75 trillion or $16 billion.

Commodity prices weakness

Vedanta is one of the biggest companies in the commodities industry. It is a key player in commodities like aluminium, zinc, lead and silver, oil and gas, iron ore, steel, copper, and power. 

The company’s goal is to go out there, source key minerals, and then bring them to India, one of the fastest countries in the world. India’s economy is expected to grow by over 7% this year while China is struggling to hit the 5% mark. 

Vedanta also sells its products around the world, especially in the Asian region, which is doing modestly well. It is made up of many subsidiary companies like Cairn India, Hindustan Zinc, BALCO, Talwandi Sabo, and Meenakshi Energy. 

Its challenge, however, is that the prices of key commodities that it specializes in are not doing well this year, which is a sign of low demand. Other items have struggled because of overcapacity from China, a country whose economy is slowing. 

Copper, often seen as a barometer of the world economy, has dropped by over 18% from its highest point this year. Similarly, the price of iron ore has dropped by more than 33% from the year-to-date high. 

Aluminium, a metal used in the engineering and construction industries, has also dropped by 40% from its 2022 highs and by 11% from the YTD highs. 

Vedanta is also a big player in the energy sector, where it produces crude oil. It moved into this industry by merging with Cairn Oil & Gas, and is hoping to grow the share of domestically-produced crude oil in the country. 

Crude oil price has retreated in the past few months as concerns about global demand remain. Its oil and gas production fell to 112 kboepd in the last quarter from 135 in 2023. 

Vedanta earnings

The most recent financial results showed that the company produced 596kt of alumium, up by 3% from the same period in 2023. Domestic sales rose by 27% to 268kt.

Vedanta also continued to break records in its zinc business as its mined and refined production soared to 263kt and 262kt, respectively. 

Altogether, Vedanta’s revenue rose by 6% to ₹35,239 crore or over $4.2 billion. Its EBITDA rose by 47% to ₹10,279 crore while the EBITDA margin was 34%. 

The challenge, however, is that its total debt has jumped in the past few months. It had a net debt of ₹56,338 crore in 2023 and ₹61,324 crore at the end of the last quarter with 83% of this debt being in INR and the remaining being in USD terms.

Outlook for Vedanta

Vedanta is a core part of the Indian economy. It has a close resemblance to Japan trading companies like Mitsubishi, Mitsui, and Marubeni that go out, buy resources, and ship them to Japan. 

The company has operations around the world that do exactly that since India has limited natural resources. Therefore, in theory, there is a likelihood that the company will continue doing well as long as India’s growth is continuing. 

However, the firm also faces some challenges. The most notable one is that China has overcapacity in key areas and is flooding the market with them. As a result, prices of key items like steel, copper, and aluminium will likely continue falling in the near term, which will affect Vedanta’s profits. 

The other challenge is that the company is relatively overvalued as these concerns remain. It has a price-to-earnings ratio of 33.7, higher than its five-year average of 5.5x, according to data by Fintel. 

Vedanta share price analysis

Turning to the weekly chart, we see that the Vedanta stock price peaked at ₹470 earlier this month as its bull run accelerated. It then formed a double-top pattern at that level. In most cases, this is one of the most bearish patterns in the market. The neckline of this pattern was at ₹387. 

Vedanta stock has remained above the 50-week and 200-week Exponential Moving Averages (EMA), meaning that bulls are in control.

Therefore, the short-term outlook for Vedanta is relatively bearish, with the next point to watch being the double top’s neckline at ₹387. A break below that level will see it move to the 50-week moving average at ₹350. 

However, a move above the double-top level of ₹468 will point to more upside as bulls target the next key resistance level at ₹500.

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Digital Realty stock is severely overvalued; sits at a key resistance

Digital Realty (NYSE: DLR) stock price has staged a strong comeback this year and is hovering near its highest point on record. It has soared by almost 100% from its lowest point in 2023, bringing its market cap to over $53 billion. 

DLR has risen by almost 20% this year, outperforming other data center REITs like CyrusOne and Equinix. It has also done better than other companies in the REIT industry like Realty Income and VICI Properties.

Data center demand is rising

Digital Realty is one of the biggest players in the data center industry, where it provides the buildings used by large technology companies. Some of the most notable data center players are firms like Amazon, Microsoft, IBM, and Google.

Instead of building or buying their data center buildings, these firms typically lease them from real estate companies and pay monthly rents. This happens because these firms have the scale that is needed to operate data centers globally. 

In the case of Digital Realty, the company has a presence in five continents and 25 countries. It also has over 300 data centers, which it offers to over 5,000 of companies.

Digital Realty and other data center REITS like Iron Mountain have been in the spotlight this year because of the ongoing demand for data centers because of artificial intelligence. Altogether, analysts expect that large firms will continue investing over $1 trillion in data center as data demand rises. 

This growth explains why a company like Nvidia has become a $3 trillion organization while OpenAI has achieved $150 billion valuation in the private market. 

Digital Realty has grown over the years through acquisitions. In 2015, it acquired telx followed by companies like DuPont Fabros, Ascenty, Interxion, and Teraco, which has helped it to grow in more metros. 

Digital Realty income statement and balance sheet

DLR has been in a strong growth in the past few years, helped by the rising demand for data and acquisitions. Its annual revenue has jumped from over $3.2 billion in 2019 to over $5.4 billion last year. 

Its funds from operations (FFO) figure has jumped from $1.43 billion to $1.91 billion in 2023 and $1.92 billion in the last twelve months. FFO is an important metric for REITs because it provides a more accurate measure of their operational performance. It excludes non-cash depreciation and focuses on core operations.

The most recent financial results show that Digital Realty’s revenue came in at $1.4 billion in the second quarter, a 2% increase from Q1 and a 1% drop from the same quarter in 2023. Its net income was $75 million while its EBITDA rose by 2% to over $727 million. 

Most importantly, Digital Realty’s FFO per share was $1.57, up from $1.52 in Q2’23 while core FFO dropped to $1.65 from $1.68. 

Analysts expect that Digital Realty’s revenue will be $5.57 billion this year, a 1.8% increase from the same period in 2023. For 2025, its annual revenue will be about $6 billion.

Valuation and dividends

Digital Realty and other REITs are invested in because of their dividends. In its case, the company has a dividend yield of 3%, which is lower than most REITs. The small yield is because of the company’s strong stock performance over the years. 

Digital Realty has not boosted its dividend payouts in the last two financial years. It paid a dividend of $4.88 in the last two years straight years. On the positive side, the company will likely boost its payouts in the future. 

In addition to a frozen dividend, there is a risk that the company is highly overvalued because of its exposure in the data center industry. 

Digital realty has a price-to-AFFO ratio of 27, much higher than the sector median of 16. Its forward P/AFFO has moved to 25, higher than the industry’s median of 17. Therefore, it needs to grow its revenue and profitability to justify the valuation multiples.

Digital Realty stock price analysis

Digital Realty stock

The weekly chart shows that the DLR share price has been in a strong bull run in the past few months. It bottomed at $79.23 in 2023 and has rebounded to $157 today. 

Most recently, the stock formed an ascending channel pattern shown in blue. It also remains a few points below the key resistance point at $160, its highest swing in 2022. 

Digital Realty has remained above the 50-day and 200-week moving averages, which made a bullish crossover in November last year. In most periods, this pattern is one of the most bullish signs in the market. 

Therefore, the stock needs to move above the resistance point at $160 to continue the uptrend. If this happens, it will likely retreat and retest the lower side of the rising channel at $150.

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