Yahoo Finance Coinbase Global and Li Auto have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – May 31, 2024 – Zacks Equity Research shares Coinbase Global COIN as the Bull of the Day and Li Auto Inc LI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on iShares MSCI United Kingdom Small-Cap ETF EWUS, First Trust United Kingdom AlphaDEX Fund FXU and iShares MSCI United Kingdom ETF EWU.
Here is a synopsis of all five stocks:
Bull of the Day:
Coinbase is a company I have covered several times in the past, dating back to the middle of 2023. We have owned the stock on and off in the Technology Innovators portfolio service I run, including capturing a 58.92% gain from June to December last year. Though the stock has nearly tripled over the past twelve months, I want to cover it again because several new bullish catalysts have emerged, the fundamental picture is stronger than ever, and the stock is still dirt cheap. That said, below is my bullish thesis for Coinbase.
Company Overview
Zacks Rank #1 (Strong Buy) stock Coinbase Global is the third-largest crypto exchange globally and the leading crypto exchange in the United States in terms of trading volume. Coinbase, which was founded in 2012, has one of the broadest selections of cryptocurrency listings to trade. Clients can choose to trade some ~250 cryptocurrencies, three fiat currencies, and nearly 600 crypto trading pairs.
Bitcoin ETF Success: A Blueprint for Future Revenue Streams
The launch of several spot Bitcoin ETFs, such as the iShares Bitcoin Trust,marked a turning point for the U.S. crypto industry. The spat of Bitcoin ETFs was not only the most successful launch in history, they overwhelmingly beat the previous winner, the SPDR Gold Shares ETF (GLD) launch from 2004.
Obvious beneficiaries of the spot Bitcoin ETF launch include ETF operators such as institutional investors and Bitcoin investors as well as proxies such as MicroStrategy.However, the biggest beneficiary is Coinbase.
Not only does Coinbase have a stranglehold on crypto investing in the U.S., but it is uniquely positioned to take advantage of the influx of new institutional and retail investors using the ETFs as their preferred Bitcoin vehicle. Because Coinbase is the largest and only major publicly traded crypto exchange, it provides custody services for the major ETFs and is seeing its earnings benefit dramatically as a result.
Ethereum ETF: A New Bullish Catalyst for Coinbase
The Bitcoin ETF launch was a milestone for the industry beyond just Bitcoin adoption; it marked a distinct change in the Securities and Exchange Commission's (SEC) crypto stance. After losing several court cases, regulators are warming up to crypto markets, loosening regulations. Meanwhile, after the blockbuster launch of the Bitcoin ETF, Blackrock, the world's largest asset manager, has its eyes set on the second largest cryptocurrency globally, Ethereum.
Approval Looks Likely as Blackrock Files a FORM S-1
A FORM S-1 is a filing that details the initial registration for a new security. Blackrock's new FORM S-1 registration statement is for an "iShares Ethereum Trust" ETF. Eric Balchunas, the top ETF analyst at Bloomberg, puts the chances of Ethereum ETF approval at ~90%. But don't just take his word for it; look at Blackrock's ETF approval history. Nobody is perfect, but Blackrock's ETF approval history is close. BLK has enjoyed 576 ETF approvals and just one rejection in its history!
Ethereum ETF approvals are expected to occur later this summer, and assuming they are approved, Coinbase will undoubtedly be the custodial exchange for the majority of ETH ETFs, assuming they are approved.
Technical Breakout + Relative Strength
Last week, COIN broke its short-term downtrend line, cleared the 50-day moving average, and is exhibiting relative strength versus equities.
Fundamentals are Strong
Even if investors were to assume that the Ethereum ETF does not receive approval, COIN's fundamentals paint a pretty picture as total assets have soared in recent quarters.
Bottom Line
Coinbase is benefitting dramatically from the approval of spot Bitcoin ETFs. However, the stock may just be getting started as a potential Ethereum ETF approval looms.
Bear of the Day:
Zacks Rank #5 (Strong Sell) stock Li Auto Inc is an innovator and leader in China's emerging electric vehicle (EV) market. Li Auto is a pioneer in the Chinese EV market, particularly regarding extended-range electric vehicles, sport utility vehicles (SUVs), and "smart EVs." Though Li Auto offers a premium product, it has a premium price tag.
The Mega multi-purpose vehicle, the company's first fully electric model, comes with a sticker price of nearly $80,000. Though it was once considered the "Chinese Tesla," other Chinese EV makers have taken off while Li's fully electric model fell short of Wall Street's delivery expectations by more than 50%.
Biden Hikes Tariffs on Chinese EVs
Until recently, former U.S. President Donald Trump was thought by investors as being a bigger stickler on China than current president Joe Biden. On both sides of the political aisle, U.S. politicians, auto manufacturers, and business people are growing concerned about China's dominance in the EV market.
Recently, the Biden administration shocked Wall Street and made headlines by quadrupling tariffs on Chinese EV imports to 100% while also taking aim at other EV-related products, such as lithium-ion batteries. Though Li Auto does not currently sell cars in the United States, investors have been hoping to eventually expand internationally. However, the dramatic EV hikes likely ended Li's chances of accomplishing expansion any time soon.
Domestic Competition is Fierce in China
With international expansion unlikely, prospective Li Auto investors should evaluate the Chinese EV market. Elon Musk, the "Godfather" of the electric car and the world's richest man, knows a thing or two about electric cars. In a recent talk, Musk called Chinese EV manufacturers "extremely good."
A great example of a Chinese EV maker firing on all cylinders is Warren Buffett–backed BYD Auto. Unfortunately for Li Auto, BYD's cheapest model starts at a bargain basement price of $9,700, which should make Li's expensive models a tough buy in the struggling Chinese economy. Meanwhile, Li Auto faces fierce competition from Tesla (who has cut prices dramatically in China) and other Chinese EV makers.
Relative Weakness
LI is a laggard, is down nearly 40% year-to-date, and is stuck below its moving averages.
Eps Falling
Last quarter, EPS plunged 68% year-over-year, illustrating that the company's fundamentals mirror the poor price action.
Bottom Line
Deteriorating fundamentals, relative weakness, and a cutthroat Chinese EV market spell danger for Li Auto shareholders.
Additional content:
UK ETFs in Focus on Election Impact
The U.K. is heading for a General Election on July 4, and history may indicate a neutral to positive stock market reaction if the Labour Party ousts the Conservatives, per analysts, as quoted on CNBC. iShares MSCI United Kingdom Small-Cap ETF has gained 9.3% over the past month (as of May 28, 2024), the highest performer among the UK ETFs. Election activities and improving economic activities probably boosted this domestically focused fund.
Let's delve a little deeper.
Stock Market Expectations
Analysts anticipate a positive reaction from stock markets if the center-left Labour Party wins the UK General Election, with historical trends suggesting that UK stocks tend to perform better following Labour victories compared to Conservative wins.
Leaders of the Labour Party, including Shadow Finance Minister Rachel Reeves and party leader Keir Starmer, are determined to engage in fiscal discipline to lower the country's debt. Along with business leaders, they aim to steer the economy with more confidence.
Historical Stock Performance
According to Citi's analysis, the MSCI UK index of large- to mid-cap stocks has delivered a 6% gain on average six months after Labour victories and a 5% fall following Conservative wins since 1979. The FTSE 250 has generally outperformed the FTSE 100 after elections, with stronger outperformance seen following Labour victories, a CNBC article revealed.
Defensive stocks and financials typically perform better after elections, with energy stocks performing well irrespective of the election outcome. Investors should note that First Trust United Kingdom AlphaDEX Fund, which does not invest more than 3% on any stock, and iShares MSCI United Kingdom ETF, which has high company-specific concentration risks, have returned respectively 6.9% and 6.4% past month. The fund EWU's top-10 holdings section has about 12% exposure to the energy sector.
Past Labour Government Performance
Under the past Labour governments, the UK stock market has faltered on five occasions, but this cannot solely be attributed to the party. Historical events such as the Great Depression, post-war periods, oil market shocks, and financial crises played significant roles, indicating that such falls are event-driven, not election-driven.
Current Market Perception
Despite historical trends, some analysts, like John Higgins of Capital Economics, believe that the return of the Labour Party to power would not significantly impact investors this time around, given the broader economic context since 2010, as quoted on CNBC. After all, the current situation of the global economy depends largely on the interest rate policy, the Fed's decision, geopolitical crises, the transition in the energy market and the AI boom
UK Economic Situation
UK's economic growth in Q1 of 2024 was 0.6% and surveys have indicated that the improvement will continue into the second quarter. Both business and consumer confidence have received positive momentum. Notably, the UK economy fell into a technical recession in the second half of 2023, which marked two successive quarters of negative growth in the real GDP.
Inflation in the UK has fallen from a high of 11.1% in October 2022 to 2.3%, only just above its target. Consumer prices were down sharply in April from a 3.2% increase in March and the lowest since July 2021, when it was at 2.0%. But April's figure missed economists' (polled by Reuters) expectation of a 2.1% increase. The Bank of England's inflation target is 2%.
Having said that, we would like to note that the Bank of England is likely to be cautious about cutting interest rates as service sector inflation is still high at 5.9%. Inflation did not fall as sharply as expected in April. The UK economy is approaching a soft landing, with 2024 likely to see a recovery in growth and 2025 expected to see further strengthening, IMF said.
Sterling Outlook
Analysts predict that the outlook for sterling and UK government bonds will remain connected to the interest rate outlook due to the lack of fiscal divergence between the parties. Market reactions are expected to be modest, as historical precedent suggests.
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iShares MSCI United Kingdom ETF (EWU): ETF Research Reports
iShares MSCI United Kingdom Small-Cap ETF (EWUS): ETF Research Reports
First Trust Utilities AlphaDEX ETF (FXU): ETF Research Reports
Li Auto Inc. Sponsored ADR (LI) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
