Day: October 18, 2024

Investing in struggling stocks that are also heavily shorted can be an incredibly risky move. But if these types of stocks are able to turn things around and prove their doubters wrong, the upside can also be significant. It’s not a suitable investment strategy for most investors, but if you have a high risk tolerance, there are three potential contrarian plays to consider.

Medical Properties Trust (NYSE: MPW), Beyond Meat (NASDAQ: BYND), and Plug Power (NASDAQ: PLUG) are three beaten-down stocks that many short-sellers are betting will continue to struggle. Below, I’ll look at just how heavily shorted these stocks are, what has to happen for them to turn things around, and whether they are worth potentially investing in today.

Medical Properties Trust: 50% short interest

A real estate investment trust (REIT) can sometimes be an attractive investment for its recurring dividend income and stability. But a REIT is only as stable as its tenants. And Medical Properties Trust is a REIT which has had problems with key tenants in the past, including Steward Health, which filed for bankruptcy protection earlier this year.

The turbulence in Medical Properties’ earnings has resulted in a disastrous performance for the stock, which is down a whopping 79% since 2021. And while the REIT has distanced itself from Steward Health and is relying on new tenants, short interest remains incredibly high at around 50% of the stock’s float.

For Medical Properties to turn things around, it needs to prove that it can get back to generating positive earnings numbers and that its new tenants are much safer. The healthcare REIT has incurred a net loss for three consecutive quarters. It’ll take time for Medical Properties to demonstrate it’s a safer option for investors, and with the company cutting its dividend twice since last year, it won’t be easy for many investors to trust this stock.

With interest rates potentially coming down further next year, I think there could be a contrarian play here as REITs may become more attractive investments amid lower rates. And with so much bearishness priced into its valuation, Medical Properties may not have to perform too well to impress the market these days. This is a highly risky stock, but there are reasons to consider taking a chance on it. The safe option, however, would be to wait at least a couple of quarters to see if Medical Properties is able to find some stability in its earnings.

Beyond Meat: 40% short interest

Another heavily shorted stock is Beyond Meat. The fake meat company hasn’t been doing well for multiple reasons. Not only has demand been unimpressive, but its gross margins are also often negative, which makes it difficult to see a path to profitability for the business anytime soon. With short interest as high as 40%, investors clearly aren’t believing the hype around Beyond Meat’s plant-based foods. Since 2021, Beyond Meat has lost a staggering 95% of its value; it’s nearly impossible for the stock to have performed worse since then.

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In the trailing 12 months, Beyond Meat’s net loss of $314.4 million is nearly as high as its revenue of $317.8 million. Unfortunately, there’s no easy way to see a turnaround for Beyond Meat. It needs a plant-based product that is in high demand and for which it can charge a high enough price to significantly bolster its margins. And until that happens, it’s difficult to even see a path for a turnaround.

This food stock may be too risky an investment, even for contrarian investors.

Plug Power: 29% short interest

Shares of Plug Power are also down more than 90% since 2021 as the hype surrounding hydrogen energy has crumbled drastically in recent years. The company has reported massive losses, which make Beyond Meat’s numbers almost look decent. Over the past four quarters, Plug has incurred a net loss of nearly $1.5 billion on sales of $684.5 million. And like Beyond Meat, it regularly reports a negative gross margin, which is a huge red flag for investors. Short interest in Plug Power is just under 30%.

If you’re a believer in hydrogen energy, you might be tempted to take a chance on Plug Power. But the risk is that the company may not be around even if hydrogen energy takes off and becomes the preferred power solution in the future. While Plug Power may boast about a leadership position in the hydrogen industry, that hasn’t amounted to a strong financial position for the business, and that’s what’s arguably more important for investors.

Plug Power reported $285.2 million cash (including restricted cash) as of the end of June. And for a company that has burned through $422.5 million in just the past six months from its day-to-day operating activities, the problem is clear: The business needs to drastically slow its cash burn and cut expenses. Regardless of the potential in hydrogen, it’ll be all for naught if Plug Power continues to accumulate these types of losses. That’s why I think it may be the riskiest stock on this list, and the one which may have the hardest path to turning things around.

Without clear evidence of a significant improvement in its financials, this is a stock that you’ll probably want to steer clear of.

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3 Heavily Shorted Stocks That Are Down More Than 75% Since 2021. Can They Turn Things Around? was originally published by The Motley Fool

In a stroke of unbelievable fortune, Jeanne, a Sandusky, Ohio resident, won $15 million in the state’s 50th Anniversary scratch-off game this past June.

Describe when Jeanne told the Ohio Lottery Commission that she had “dropped to the floor” after realizing her win. At the store, the clerk and Jeanne had cried together, leaving bystanders wondering what on earth had just happened.

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While $15 million might seem like a life-altering sum, Jeanne’s final payout will be much less due to taxes, leaving her with around $4.5 million. It’s a classic example of a lottery winner facing a significant reduction in winnings after taxes – an issue many winners don’t see coming.

Jeanne had the option of receiving $600,000 annually over 25 years (which totals the advertised $15 million) or a lump sum of around $7.5 million. She chose the lump sum. According to Moneywise, Jeanne will be left with around $4.5 million after paying federal and state taxes, a far cry from the headline-making prize.

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So, why is there such a huge difference between the $15 million jackpot and her final earnings?

The IRS requires lottery agencies to withhold 24% of any prize over $5,000. For Jeanne, that meant $1.8 million was withheld for federal taxes from her $7.5 million lump sum. But the story doesn’t end there.

Since lottery winnings are taxed as ordinary income, Jeanne’s windfall pushes her into the highest federal income tax bracket of 37%. This means her total federal tax liability rises to approximately $2.73 million, Moneywise reported.

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State taxes also take a bite out of Jeanne’s winnings. Ohio taxes lottery income at 3.5%, which means Jeanne will owe around $262,000 to the Buckeye State. Jeanne’s total tax burden is nearly $3 million, leaving her with just $4.5 million. It’s not bad for a $50 scratch-off, but far from the $15 million advertised.

Given these eye-watering deductions, one might wonder if Jeanne should have opted for the annuity. Would she have taken home more money in the long run?

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By choosing the $600,000 annual payment for 25 years, Jeanne would receive the full $15 million over time. Her tax burden would be spread out and she’d pay yearly taxes based on her income.

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In 2024, that means she’d owe roughly $180,000 in federal taxes and $20,000 in state taxes on the first $600,000 installment, according to current tax brackets. However, tax rates could shift over the next two decades, potentially lightening her tax load if Ohio’s proposed income tax elimination passes.

Many financial experts advocate for the annuity option as it ensures a steady income stream. According to certified financial planner Michael Kitces, annuities can reduce the risk of quickly burning through a lump sum. Steady payments help prevent financial risks.

That said, the lump sum offers immediate financial freedom, likely why Jeanne chose it. Many winners use lump sums to pay off debts, buy homes or invest in growth opportunities.

But as tempting as immediate access to millions might be, experts warn that having a plan in place is essential. Without solid financial advice, it’s easy for winners to blow through their money faster than they think.

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This article Ohio Woman Scores $15M Lottery Win, But A Huge Tax Bill Means She May Only Take Home $4.5M – Here’s Why originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Legendary investor Stanley Druckenmiller, when he wasn’t beating himself up for selling out of Nvidia too early, made an interesting observation in a Bloomberg Television interview: the market, particularly as seen in bank stocks and in crypto, has already started to price in an election victory by former President Donald Trump.

Nikolaos Panigirtzoglou, global markets strategist at JPMorgan, has reached a similar conclusion, and pointed out that markets are increasingly pricing in not just a Trump victory but a sweep by Republicans in the Senate and House.

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“The rising probability of a Republican sweep is also seen in the market moves over the past two weeks with stronger U.S. equities and in particularl U.S. banks, a stronger dollar, tighter credit spreads and higher U.S. Treasury yields,” he says. He did say that the market is not pricing in as high a probability of a so-called red sweep as the 45% chance implied in betting markets.

But then again, there’s something funny going on in betting markets. Particularly at the crypto-fueled Polymarket, betting odds are pricing a much higher probability of a Trump victory than the roughly 50-50 odds that polls — and poll readers like Nate Silver — are assessing.

One of the advantages of crypto markets is that observers can trace trades back to individual user handles, if not know who the person is behind that handle. And the big whale on Polymarket goes by the handle Fredi9999, who was betting for Trump, and against Vice President Kamala Harris, even as this article was being written.

Over on the social media service X, an account calling himself Domer says he’s interacted with Fredi9999 — and also come to the conclusion the same person is behind three other accounts, that as of Wednesday had cumulatively placed at least $25 million in bets for Trump or against Harris. Another user found that the four accounts rarely trade at the same time, and all are funded from crypto exchange Kraken in either $500,000 or $1 million deposits.

Domer says clues as to the whale’s identity comes from comments that Fredi9999, and another user called Michie, made on Polymarket.

“You can see the uncommon spacing around punctuation which strongly implies a French speaker. The French also use ellipses much more than other languages utilize them,” according to this analysis. “Fredi uses a mix of British and American English in their comments, sometimes using the ‘ou’ in a word like favourite and sometimes dropping it. They called math ‘maths’ which is the British version. All in all, AI thinks the writing/spelling/weird misspellings points to a Frenchman who has learned British English and spent time in America.” And then, in an apparent exchange over Discord, the user confirmed that he or she was French.

That this trader is French, or not, doesn’t really matter; this person’s outsized betting is the issue. This $25 million or so outlay in the comparatively tiny political betting market seems to be moving around stock, bond and currency markets that are orders of magnitude larger. Some $514 billion exchanged hands in the U.S. stock market on Wednesday.

The other question is whether betting markets should be given greater weight than polls. It’s true that, for instance, Trump was noticeably given less credit in polls in 2016 than he should have, and also performed better (though he lost) in 2020 than polls suggested. On the other hand, in the midterm elections in 2022 Democrats outperformed the betting market anticipation of a red wave. Domer, who says he has followed political betting markets since 2007, also points out that whales have backed losing Republican presidential candidates in both 2008 and in 2012.

The markets

U.S. stock index futures ES00 NQ00 were mostly stronger early Thursday, given a lift by Taiwan Semiconductor’s results. Gold GC00 surpassed but then fell back below $2,700 an ounce. The yield on the 10-year Treasury BX:TMUBMUSD10Y moved higher after the economic data.

The buzz

A flurry of economic data saw a better-than-forecast rise in U.S. retail sales in September, of 0.4%, as initial jobless claims fell by 19,000 to 241,000.

The European Central Bank meanwhile cut interest rates by a quarter-point as the eurozone economy struggles.

Taiwan Semiconductor Manufacturing Co. TSM — the contract chip manufacturer for clients including Nvidia — reduced some of the fears around the semiconductor market after forecasting fourth-quarter sales between $26.1 billion and $26.9 billion, well above the $24.9 billion forecast in a FactSet-compiled analyst poll. Its CEO said the AI revolution is for real.

Lucid Group stock LCID tumbled as the EV maker forecast heavy losses and planned to sell more stock.

After the close, Netflix NFLX reports results. Read preview of Netflix results.

Expedia stock EXPE climbed on a report that Uber Technologies UBER may bid for the company.

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The chart

The ECB decides on Thursday, will likely join the net proportion of central banks whose latest move is an interest rate cut. “This move is pre-emptive in the sense that the authorities want to get ahead of a recession threat that hasn’t yet materialized. Pre-emptive easing is typically bullish for risk assets,” says TS Lombard strategist Dario Perkins. Perkins says the path ahead is full of pitfalls and the destination — a neutral level — is fuzzy. Labor markets will be key as to how this new easing cycle plays out, he adds.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

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Need to Know starts early and is updated until the opening bell, but to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

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Oklo (OKLO) — the nuclear power startup backed by OpenAI head Sam Altman — has surged more than 125% in October as major hyperscalers have decided to double down on the nuclear renaissance to fuel data centers and artificial intelligence.

Nuclear energy-related plays, including Oklo, have been on a tear since late September when Microsoft (MSFT) announced a two-decade contract with S&P 500 component Constellation Energy (CEG) to provide nuclear power for the tech giant’s data centers.

Now, Amazon.com (AMZN) and Alphabet (GOOGL) have also inked nuclear deals, sending nuclear-related stocks higher. However, many of the stocks are extended.

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Both Amazon and Google announced in recent days decisions to invest in developing the emerging small modular reactors, or SMRs, technology. SMRs do not currently exist but there are a number of companies working to develop the technology. In March, Amazon made an early move toward nuclear, paying $650 million for a Talen Energy (TLNE) nuclear-powered data center campus in Pennsylvania.

Top hyperscalers — the largest cloud, data center and AI operators, which include Amazon, Microsoft, Alphabet and Meta (META) — are increasingly looking to nuclear power as a solution to vaulting energy consumption from data centers.

AI And Nuclear Energy

So far in 2024, nuclear power and utility stocks have been riding the artificial intelligence energy wave.

Artificial intelligence — and the data centers needed to train the systems — are expected to boost energy demand throughout this decade. In the U.S., McKinsey & Co. projects that data center energy demand will grow from around 4% currently, as percentage of total energy demand, to 11%-12% by 2030.

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Many technology companies are investing in or partnering with nuclear power providers to ensure energy supplies for their data centers.

Morgan Stanley analysts have proclaimed in recent months that a “nuclear renaissance” is underway.

They wrote that nuclear power, while still a divisive issue, is making a comeback. The firm sees $1.5 trillion in investment in new capacity through 2050.

Meanwhile, Morgan Stanley analyst David Arcaro wrote that the Constellation-Microsoft deal “proves out the value of nuclear power for hyperscalers, with higher prices for future deals.”

Stocks Rally

S&P 500 leader Vistra (VST), a nuclear power utilities play, jumped 3% to 131.16 Friday during market trade. Fellow S&P 500 component Constellation Energy edged down 0.4% Friday.

Vistra and Constellation Energy have surged 40% and 30%, respectively, since The Microsoft-Constellation Energy deal on Sept. 20.

JPMorgan on Thursday initiated coverage of S&P 500 components Constellation Energy and Vistra Energy. The firm handed both VST and CEG an overweight rating.

JPMorgan has a 342 price target on Constellation Energy and a 178 price target on Vistra. This represents further 22% upside to CEG and 31% upside for VST compared to current trading levels.

Meanwhile, Oklo ballooned 15.9% to 18.23 on Friday after declining 5% Thursday. Oklo stock surged 40.5% on Wednesday and clearing an early entry Tuesday. The Altman-backed SMR developer, had soared 125% in October and around 190% since the Microsoft-Constellation Energy deal.

ARK Invest’s Cathie Wood has been building a position in Oklo worth more than $2 million since mid-July. Peter Thiel is also a major investor in Oklo.

Fellow SMR-focused company Nano Nuclear Energy (NNE) also gained 8.8% Friday. NNE shares leapt 37.8% on Wednesday. NuScale Power (SMR) jumped 1% Friday after retreating 5.6% Thursday. SMR shares soared 40% on Wednesday.

Uranium refiner Cameco (CCJ) gained 2.4% Friday. The stock jumped 7.8% to 55.77 during market trade on Wednesday, gapping above a 52.32 buy point. CCJ was Wednesday’s IBD Stock Of The Day.

Canada-based Cameco is one of the world’s largest providers of uranium with utilities around the globe relying on the company to provide nuclear fuel solutions.

Meanwhile, Uranium Energy (UEC), which engages in uranium exploration and development in the U.S. Southwest and Paraguay, advanced 1.3% Friday, adding to 4.7% gain from Thursday.

The company said Thursday it received approval from the Wyoming Department of Environmental Quality to increase uranium production capacity at a major processing plant.

Please follow Kit Norton on X @KitNorton for more coverage.

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By Georgina McCartney

MIDLAND, Texas (Reuters) – A new pipeline carrying shale natural gas from west Texas toward export hubs on the U.S. Gulf Coast has eased constraints that crashed local prices this year, and will help pave the way for higher U.S. oil production, energy executives said.

Pipeline companies largely quit adding new capacity following the pandemic, when shale production dried up and pipeline utilization plummeted. The 580-mile (933-km) Matterhorn Express pipeline is the first new natural-gas pipeline built in the Permian basin in three years.

Matterhorn began operations last month, relieving bottlenecks that had forced producers at times to pay other parties to receive their gas, or to seek state permits to burn the gas.

The line, a joint venture between WhiteWater Midstream, EnLink Midstream, Devon Energy and MPLX, can carry up to 2.5 billion cubic feet of gas per day, adding 14% in new regional capacity as it ramps up this year.

The Permian basin, which straddles Texas and New Mexico, accounts for half of U.S. crude output and is the second-largest shale-gas producing region.

“Matterhorn has freed up space, and the price we are getting for gas now has been positive for almost a month,” said Mike Oestmann, CEO of Midland producer Tall City Exploration. “We produced a lot of gas that we not only didn’t get paid for, we paid for it to be taken away,” he added.

Gas prices at the Waha hub in west Texas have been broadly pricing above zero since mid-September, after Matterhorn started operating. Last week, Waha prices reached their highest level since mid-June, at $2.35 per million British thermal units.

For oil and gas producers, the pipeline is helping drive up profits with gas fetching higher prices, allowing them to increase crude production growth with less gas flaring, analysts said. Natural gas is a byproduct of oil production.

“If you cannot move the gas out and you have to increase flaring levels or bring in other mitigating measures, then that just really puts a ceiling on how much oil you can produce,” said Jason Feit, advisor at consultancy Enverus.

Matterhorn will help unlock higher Permian oil output, said David Seduski, head of North American gas analysis at consultancy Energy Aspects. It estimates Matterhorn carried 0.6 bcf/d last week.

Most of the Permian’s estimated 2025 oil-production growth would be unfeasible without more gas pipeline capacity, said Seduski, who forecasts an additional 350,000 barrels per day next year.

A fifth of Permian oil producers polled in September reported plans to increase well completions once the pipeline bottleneck is cleared, according to the Federal Reserve Bank of Dallas’ quarterly energy survey.

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Permian crude-oil production is forecast to rise by 6.1% to 6.27 million bpd this year, and hit 6.5 million bpd next year, according to the Energy Information Administration, due in part to improved drilling efficiency.

SHORT-TERM RELIEF

Matterhorn will likely be filled next year, resulting again in pipeline constraints, market participants said.

Permian gas production is set to swell to 24.5 bcf/d for 2024, from 22.7 bcf/d in 2023, according to the EIA. It is projected to reach 25.8 bcf/d in 2025.

“Matterhorn only gives you so long, maybe 12 to 18 months, and then you need another pipe,” Jim Simpson, CEO of advisory firm East Daley, said in an interview.

The Blackcomb gas pipeline, which reached final investment decision in July, will move another 2.5 bcf/d of natural gas from the Permian to south Texas. It will start up in the second half of 2026.

The period between Matterhorn filling and Blackcomb starting operations may depress Waha gas prices as producers face more bottlenecks, said Jay Stevens, director of market analytics at Aegis Hedging.

(Reporting by Georgina McCartney in Midland, Texas; Editing by Rod Nickel)