Top US stocks: Semiconductor and crypto shares in focus

Hopes improve the semiconductor shortage will ease next year, crypto stocks to come under pressure amid China’s ban, NIKE cuts its sales guidance, Costco smashes expectations, McDonalds resume buybacks, and Uber set to provide pensions to UK drivers.

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Semiconductor stocks

Confidence is growing that the shortage in semiconductors that is plaguing industries around the world will swiftly improve as the White House met with a number of big name companies yesterday to try and find a resolution.

TSMC, the largest semiconductor foundry in the world, said it is confident that plans to expand capacity will provide a boost to supplies, nodding to its new plant in Arizona that represents one of the largest foreign direct investments in US history. Meanwhile, Tesla boss Elon Musk said the string of chip fabrication plants being built means the company will have ‘good capacity for providing chips by next year’.

A number of companies spanning automakers to foundries to tech giants met with White House representatives yesterday, where secretary of commerce Gina Raimondo said it was ‘time to get more aggressive’ and warned the situation could actually be getting worse rather than better. Still, the White House stressed it was down to the industry to take the lead on the matter. Officials have also asked companies to give more notice on future shortages and threatened to introduce further rules if necessary.

Robinhood and Coinbase

Companies such as Robinhood and Coinbase will be on the radar today after China declared all transactions involving cryptocurrencies as illegal.

The People’s Bank of China said ‘virtual currency-related business activities are illegal financial activities’ and said cryptos ‘seriously endangers the safety of people’s assets’. The move marks an effective ban in the world’s largest market for cryptos. Trading cryptos has been banned since 2019 but has continued nonetheless.

It follows on from the government warning citizens they had no protection when trading in cryptos and introducing bans on mining, which is how new coins are produced using powerful computers.

Twitter

Meanwhile, Twitter said it is rolling-out its new tipping feature that allows users to tip their favourite content creators, adding that it will allow tips to be made using cryptocurrencies.

The service, named Tips, will make it easier for users to tip and is initially being launched on iOS before being expanded to Android ‘over the coming weeks’. Twitter will not take any cut from the tips that are made. Users will be able to utilise a number of payment services to complete the transaction, including Venmo and Patreon.

In terms of cryptos, users will initially be able to top with Bitcoin thanks to a partnership with Strike, which offers instant free payments around the world but is only available to those in the US and El Salvador, the latter of which became the first coutry to accept cryptos as legal tender.

NIKE

NIKE shares are in play after the athleisure giant warned it has had to trim its sales forecast for the rest of the year amid concerns of delays during the upcoming holiday season.

It said supply problems in Vietnam due to the coronavirus was the main problem, alongside longer transit times and labour shortages, prompting it to state full year sales will grow by mid-single digits rather than the low double-digit increase it was previously targeting. That compares to the 12% annual growth anticipated by analysts before the update.

Revenue rose 16% to $12.2 billion in the first quarter and diluted EPS grew 22% to $1.16. The topline was markedly below the $12.46 billion expected by analysts, but earnings came in ahead of the $1.12 forecast. Although tighter supplies have limited its growth, it has boosted profitability as NIKE has less reasons to discount or offer incentives to customers whilst stocks are low.

Other stocks such as Under Armour are likely to be on the move today following the update.

Costco

Costco smashed expectations when it released fourth quarter earnings late yesterday, but warned it is starting to feel the impact from the pressure being applied to supply chains around the world.

Comparable sales jumped 15.5% in the fourth quarter. That marked a slowdown from the 21% growth delivered in the last quarter but was well ahead of the 8% growth anticipated by Wall Street. Revenue rose 17.5% to $61.44 billion with EPS rising to $3.76 from $3.13. That was also ahead of the $61.29 billion in revenue and $3.58 in earnings forecast by analysts. Earnings were partly boosted by fewer one-off costs related to Covid-19, which exploded last year as it scrambled to adapt to new restrictions.

However, Costco also warned that it is having to introduce limitations on some key items like toilet roll amid an uptick in demand and said shortages meant there were some delays for customers ordering furniture. It also revealed it is chartering more ships to boost distribution next year, but warned it is paying six times the usual price amid skyrocketing freight costs.

Still, despite the challenges, brokers became more bullish on Costco after the earnings update. No less than five brokers hiked their target price on the stock yesterday and, on average, the 35 brokers covering the company have an average Buy rating with a target price of $461.68, implying there is just 2% potential upside from the current share price.  

Uber

Uber is set to introduce pension plans for its UK drivers after reclassifying 70,000 drivers as workers earlier this following a decision by the Supreme Court.

The company said it will offer pensions, a minimum wage, and other entitlements like holiday pay to all eligible drivers. The pension plan will see Uber contribute 3% of a driver’s earnings into the pot, with drivers required to contribute at least 5% of their wages. Importantly, this will all be backdated to the start of May 2017.

Trade unions welcomed the move, but some criticised it for falling short of what is needed. The ADCU union said it will be staging a 24-hour strike among its Uber drivers across eight UK cities on September 28 as a result.

Baidu and JOYY

Regulators in China are unlikely to give the green light for Baidu’s proposed acquisition of JOYY’s live video streaming business, according to reports from Reuters.

Baidu agreed to buy the YY Live business from JOYY last November in a $3.6 billion deal but is now thought to be at risk amid the regulatory crackdown in China that has seen regulators and officials target large private companies, especially those listed in the US. The report suggests the matter could pose a stumbling block to rumours that JOYY’s two largest shareholders want to take the company private because markets are undervaluing it.

Baidu responded to the report by stating it had not received any communications from regulators suggesting the deal will be blocked. An unnamed source claims the problem lies in allowing Baidu to expand its gaming and streaming business at a time when the government is clamping-down on the entire sector.

DoorDash

DoorDash has taken part in a new funding round conducted by German delivery outfit Flink, according to several media reports.

Reports suggest the funding round values Flink in the region of $2.1 billion to $2.5 billion. Reuters said it is looking to raise $600 million after tapping investors for $240 million back in June. That comes as competition in the last-mile delivery market intensifies.

Flink predominantly competes with other super-fast grocery delivery platforms like Getir, but is increasingly coming up against larger food delivery firms like DoorDash.

McDonalds

McDonalds said it is was bumping up its dividend and resuming its share buyback programme after suspending repurchases during the pandemic.

The fast food giant suspended its $15 billion buyback back in March last year as it conserved cash but now has the confidence to resume with sales now back above pre-pandemic levels. It will return over $1 billion to investors with a $1.38 per share dividend for the fourth quarter, up 7% from the year before.

Analyst Recommendations: Roku, Accenture and Cheesecake Factory

Roku has been downgraded to Equal Weight from Overweight by Wells Fargo, which said markets have overestimated its revenue growth prospects amid intensifying competition in the streaming market. Notably, Guggenheim upgraded the stock yesterday to Buy.

Accenture had its target price raised to $370 from $365 by Cowen & Co following its strong set of results this week twinned with a buoyant outlook.

Cheesecake Factory had its price target raised to $60 from $55 by Jefferies on an upbeat outlook underpinned by consistent consumer demand.

Chocolate firm Hershey saw its price target nudged up to $181 from $180 by JPMorgan after recently raising its outlook.

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