Category: Stock Market

At this point, it looks as if the 1.25 level is massive resistance, and of course the 61.8% Fibonacci retracement level sits right there as well.

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(Bloomberg Opinion) — American oil producers have cut much more output than you think. Their reaction to market forces has been bigger than official data suggest, and that means the U.S. is actually working alongside Saudi Arabia, Russia and other big oil producers, to help balance oil supply and demand — even if that wasn’t quite what President Donald Trump intended.Two sets of data from the U.S. Energy Information Administration show that crude production is now about 11.6 million barrels a day, down by between 1.2 million and 1.4 million barrels a day, or roughly 10%, from plateau levels reached over the just-ended winter, depending on whether you use the weekly or the monthly numbers.To put those U.S. figures into perspective, the members of the Organization of Petroleum Exporting Countries and their allies agreed last month that they would each cut their production by 22% from baselines that, for the most part, reflected October 2018 levels. Early evidence from tanker tracking data monitored by Bloomberg shows that some, like Saudi Arabia, have made very quick, big steps toward that target; others, like Iraq, are lagging behind. But all the big OPEC producers — including Iraq — have increased their prices and cut allocations of crude to key customers for June, suggesting that compliance levels will improve. By comparison, the official figures suggest the U.S. has made much smaller production cuts. But those U.S. figures are probably underestimating the size of the reduction forced on American oil companies — and underestimating it by a huge amount.The flow of oil going into the supply chain must balance the volume coming out. That’s just basic math.But if you add production, imports and crude taken out of storage tanks (the supply side of the equation) in the weekly EIA data, this doesn’t equal the amount processed by refiners, used, exported or put into storage tanks (the demand side). The EIA acknowledges this difference by publishing a crude adjustment factor and, in absolute terms, that number is getting very big indeed.In the data for the week to May 8, the adjustment factor was reported as -914,000 barrels a day. That’s the most negative it’s ever been. Put simply, the EIA’s numbers for last week were either over-estimating crude supply by 914,000 barrels a day, under-estimating demand by a similar amount, or some combination of the two.The amount of crude coming into, or being sent out of, the country is pretty well documented. So too is the amount going into and out of storage tanks and into refineries. So the most likely source of the discrepancy is the production numbers.If the adjustment factor does reflect an over-estimation of crude production, American oil companies could be pumping as little as 10.6 million barrels a day. That would be an output cut of almost 2.4 million barrels a day, or 18%, bringing them much closer to the reductions agreed to by OPEC and its allies.There is plenty more circumstantial evidence that the U.S. is producing less. There are now fewer rigs drilling for oil in the U.S. than there were even during the slump of 2016, when a collapse in oil prices brought about the end of the first shale boom. Consultancy Facts Global Energy published a note on May 1 arguing that company earnings reports signaled a potential 3 million barrel a day drop in U.S. production by the end of June. We would seem to be well on the way to that figure.Even though President Trump has sought to protect America’s oil industry and cajole others into cutting output to buoy up prices, the market seems to be making sure that the pain is being shared. But those deeper cuts, though involuntary, are helping to bring global supply and demand back into balance more quickly, and setting a firmer stage for the start of oil’s recovery.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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On April 29, Nio (NYSE:NIO) announced that it had secured $1 billion in funding to carry on building electric vehicles. Nio stock jumped 8% on the news. However, shares have been sideways ever since.Source: Sundry Photography / Shutterstock.com Is there something holding back investor enthusiasm for the funding arrangement? You better believe it. Here's the breakdown. 75% of What?Three companies are investing in Nio: Hefei City Construction and Investment Holding, CMG-SDIC Capital, and Anhui Provincial Emerging Industry Investment. They are collectively investing 7 billion yuan, or approximately $1 billion, into the company.InvestorPlace – Stock Market News, Stock Advice & Trading TipsThe trickier part of the arrangement is that the investment is going into a newly established company, Nio China.As part of the investment, Nio will transfer its Chinese assets (valued at approximately 17.77 billion yuan or $2.5 billion) into the new company as well as 4.26 billion yuan ($600 million) cash in exchange for 75.9% of the business. The three investors will hold the remaining 24.1% of Nio China. The deal is expected to close by the end of June.The $2.5 billion asset contribution is valued at 85% of Nio's average market value of the 30 trading days preceding April 21. What About Debt?Simple enough. But those numbers don't include debt.Nio had $1.16 billion in short- and long-term debt at the end of December. It also had current and long-term operating lease liabilities of $317 million, bringing total debt to $1.48 billion. Add in the $200 million in short-term convertible notes it raised in February and another $235 million in April and you get to a total debt of $1.92 billion.Based on a market capitalization of $3.62 billion and $574.8 million ($139.8 million on the balance sheet plus $435 million in cash for new debt), Nio has an enterprise value of approximately $5 billion.Nowhere in the company's press release about the $1 billion investment in Nio China does it say anything about the debt.Kudos to The Motley Fool's John Rosevear for pointing this out recently:"That all seems well and good, but NIO has yet to clarify why it's using this structure for the deal, what will happen to its assets outside of China, and what will happen to the roughly $1 billion in debt that it had as of the end of 2019 — all very important questions from an American investor's perspective."Are we to assume that Nio's non-Chinese assets are worth approximately $543 million ($3.62 billion market cap times 15%) because the investment agreement valued Nio's asset transferred to Nio China at 85% of market value? What Does This Mean for NIO Stock?What are Nio shareholders getting for their 75.9% stake in Nio China? That's a good question.Based on 85% of the assets being transferred to Nio China and an enterprise value for the entire company of $5 billion, my back-of-the-napkin calculation would be $3.23 billion for its stake in Nio China (75.9% of $4.25 billion, which is 85% of $5 billion). Add in the estimated enterprise value of $750 million for 100% of the non-Chinese part of its business, and you get $4 billion.Add in the $1 billion investment and you're back to a $5 billion enterprise value.As far as I can tell, the deal was structured this way so that if Nio can make a go of it outside China, its existing investors will benefit from that success, while the new investors are merely hoping to make its business in China a success.Did the company pay too high a price for that billion dollars in funding?On April 29, in addition to announcing its $1 billion investment, it also notified investors that it would have to delay filing its 20-F to incorporate the details from this investment. Nio is expected to file its 20-F soon. We'll know more then.Nio needed the money. Both parties gave up something to get something. Often, those are the best kind of transactions.Will Ashworth has written about investments full-time since 2008. Publications where he's appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities. More From InvestorPlace * Top Stock Picker Reveals His Next 1,000% Winner * America's Richest ZIP Code Holds Shocking Secret * 1 Under-the-Radar 5G Stock to Buy Now * The 1 Stock All Retirees Must Own The post Nio Stock's Newest Backers Are Betting On Chinese Success appeared first on InvestorPlace.

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Boeing (NYSE:BA) has been making headlines for all the wrong reasons over the years, first with the 737 Max jetliner fatalities and subsequent mishandling of the issue, and most recently, the begging for a government bailout. The company added one more, declaring that a major U.S. airliner could go out of business this year. And many investors believe this to be American Airlines (NASDAQ:AAL), casting a dark cloud on AAL stock.Source: GagliardiPhotography / Shutterstock.com To be clear, Boeing CEO Dave Calhoun never mentioned who he was thinking about specifically during an interview with CNBC. But to those reading between the lines, American Airlines looks to have received the dubious honor. As you know, the broader travel industry has been a mess, impacting every corner of the sector. Even as most states have forged a path toward reopening, travelers largely remain rooted at home.Of course, in any fallout, the weakest components are the first to suffer. In this case, several analysts have pointed the spotlight at AAL stock. Let's be real – airliners weren't exactly the most robust investment class prior to the novel coronavirus pandemic. But now, the crisis has exposed every vulnerability.InvestorPlace – Stock Market News, Stock Advice & Trading TipsFundamentally, American Airlines is burning cash at an unsustainable rate. In my opinion, you can easily use hyperbolic terms here. In its most recent first-quarter earnings report, AAL suffered a net income loss of $2.24 billion. Its balance sheet is now in the red, suffering a loss of $2.64 billion. * 20 Stocks to Buy If You're Still Betting on America to Thrive Again, rivals such as United Airlines (NASDAQ:UAL) and Delta Air Lines (NYSE:DAL) don't necessarily inspire the most confidence. But neither organization has a negative balance sheet. Thus, it's likely that AAL stock would be the odd man out. The Loss of AAL Stock Would Only Be a Pyrrhic VictoryIn a cynical sense, should American Airlines implode, it would ordinarily represent an opportunity for the other, relatively well-heeled airliners. Back in the early 1990s, for instance, the nostalgic airline brand Pan Am found itself in federal bankruptcy court. After a fierce battle, which included United, American and defunct companies Trans World Airlines and Northwest Airlines, the court granted Delta rights to Pan Am's transatlantic service.Essentially, Pan Am's assets were incredibly valuable to almost every major airliner because they could pick up pieces of the once iconic firm for pennies on the dollar. But what makes this present crisis unique is that few will be eager to adopt such a speculative growth strategy.In other words, it doesn't really matter whether AAL stock fades into the darkness. What we really should be concerned about is how many of the airliners will still be flying.I'm almost tempted to say that the airliner industry represents one of the greatest shorting opportunities ever. That's because a sharp disconnect still exists between the industry's market value and what's really over the horizon.According to Boeing chief exec Calhoun, "Traffic levels will not be back to 100%. They won't even be back to 25% [by September]… Maybe by the end of the year we approach 50%. So there will definitely be adjustments that will be have to be made on the part of the airlines."If that's the case, AAL stock is not the only stock we should be worried about. Before the coronavirus disrupted everything, industry experts forecasted that global air traffic volumes, though positive, would decline relative to the highs of 2017.Part of the reason is sluggish economic growth which has now turned into a disaster. Deflationary Environment to Hurt All PlayersIf that wasn't enough to get you airsick, consider that the consumer is probably not ready to fly. I'm not just talking about the obvious health implications. Rather, the financial situation for millions of Americans simply do not justify travel and vacationing.As you've heard, the latest jobless claims number neared three million initial filings. Since the crisis began, the total number of people filing for unemployment benefits have totaled over 36 million. It's an absolutely stupid figure that even hardened analysts cannot comprehend.Not surprisingly, 40% of Americans who have been fortunate enough to receive their coronavirus stimulus checks have chosen to save their funds. Personally, it's the wisest decision you could make. But on a collective level, this is exactly what the government didn't want.After all, our economy is mostly driven by consumption. What happens when people don't consume?It's a similar line of inquiry against AAL stock. Yes, American Airlines might fail. But how long can everyone else last if nobody wants to fly?A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities. More From InvestorPlace * Top Stock Picker Reveals His Next 1,000% Winner * America's Richest ZIP Code Holds Shocking Secret * 1 Under-the-Radar 5G Stock to Buy Now * The 1 Stock All Retirees Must Own The post American Airlines Could Crash, But Is It the Only One? appeared first on InvestorPlace.

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Theoretically, because JPMorgan Chase (NYSE:JPM) is the most powerful among the big four bank stocks – the others being Citigroup (NYSE:C), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) – it should provide a measure of confidence through this unprecedented storm. After all, the entire banking sector learned harsh lessons from the 2008 financial crash. Once society normalizes from the novel coronavirus pandemic, JPM stock should be back, rocking and rolling.Source: Bjorn Bakstad / Shutterstock.com However, shares have traded pensively relative to the strong bounce back seen in other investment sectors. Unprecedented government action designed to address the pandemic's devastating effects have failed to inspire much momentum in JPM stock. Some might point to the disconnect between benchmark indices and the fundamentals becoming a little bit more connected.For instance, Federal Reserve Chair Jerome Powell gave a stark warning about the current malaise. To paraphrase his sentiments, Powell believes that additional government support is necessary to overcome this crisis. Still, he's under no illusions – this will blow a huge hole in our already massive deficit. But the cost will be worth it, in part because the alternative may be even more disastrous.InvestorPlace – Stock Market News, Stock Advice & Trading TipsNot surprisingly, this shift toward a darker tone has capped upside for JPM stock and other big banks. But according to CNBC, senior administrative officials indicated that the White House would likely support a second round of stimulus checks. * 20 Stocks to Buy If You're Still Betting on America to Thrive Officially, the Trump administration is keeping tight-lipped about this proposal. Nevertheless, I don't think they have much of a choice. With the President being in a pivotal election year, he must do everything in his power to not only stabilize the economy but to spark tangible momentum.But will it work? JPM Stock Caught in a Fiscal ExperimentOn the surface, stimulus 2.0 may be just the catalyst JPM stock needs. Yes, the underlying company has bolstered its balance sheet, as has everyone else. Combined with the industry ridding itself of toxic assets, the big banks should be better prepared to handle this crisis.Unfortunately, I'm skeptical. While I'm not worried about the financial sector sinking itself due to their decision to overleverage themselves, I am worried that the rest of the country will finish the job. As you know, the banks can't exist for existence' sake. In order to recover the economy, you must first have economic stability.That was the well-meaning thesis driving the first coronavirus relief bill. Instead of bailing out just the big institutions, it was time Uncle Sam stepped up and extended a lifeline to the American people. In hindsight, it was probably better for the government to directly support payrolls, incentivizing corporations to keep their employees, similar to what Germany did to handle the Great Recession.What we're discovering – perhaps to no one's surprise – is that American households have consistently socked away their stimulus checks (if they were lucky enough to receive them). That's great for personal stability. Also, it's just common sense considering that we don't know what lies ahead.But from a broader perspective, it's absolutely terrible. As you know, consumption drives the U.S. economy. So, what happens when people stop consuming? For the most part, you get a deflationary environment. And that's exactly what we're seeing.Several commodities (gold being a notable exception) are deflated. Retailers have filed for bankruptcy. Outside of essential purchases and tasks, many consumers are choosing to stay home.In this situation, JPM stock doesn't have many growth opportunities because very few exist. Selective InflationWhile the hoarding of cash naturally imposes deflationary pressures, there is one sector that is experiencing mass inflation: groceries.According to recent data, grocery costs have jumped the most in this country in 46 years. Although some factors, such as the meat shortage, have exacerbated the supply chain, let's face it – most of this cost spike is due to demand. With spiking levels of hunger across America, people are simply scared out of their minds.Whatever funds they have, consumers will use toward food and other essentials. Should we have another round of stimulus, you can be almost sure that the funds will go toward two areas: groceries and savings accounts. Thus, whatever bump JPM stock would receive from the headlines, it wouldn't align with the fundamentals.Ultimately, even if JPMorgan is the most resilient of the bunch, I believe the skeptical position is the smart one. Unless the bank wants to enter the agriculture business, there are very few credible growth channels, even with extra stimulus.A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities. More From InvestorPlace * Top Stock Picker Reveals His Next 1,000% Winner * America's Richest ZIP Code Holds Shocking Secret * 1 Under-the-Radar 5G Stock to Buy Now * The 1 Stock All Retirees Must Own The post Why JPMorgan Chase Isna€™t Safe From the Onslaught appeared first on InvestorPlace.

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Canadian Prime Minister Justin Trudeau said on Saturday he would look at possible ways to help airlines further, but laid out no new measures after the country’s biggest airline announced mass layoffs due to the coronavirus pandemic. Air Canada said on Friday it would cut its workforce by up to 60% as the airline tries to save cash amid the COVID-19 pandemic and adjust to a lower level of traffic. “This pandemic has hit extremely hard on travel industries and on the airlines particularly,” Trudeau said in a briefing in Ottawa.

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Royal Caribbean (NYSE:RCL) shares have shed 70% of their value since last year. With no-sail orders in place throughout the United States and Europe through July, cruise lines are finding ways to preserve their liquidity so that they are in good shape to potentially return this summer. Uncertainty looms over the resumption of business for RCL stock, but executives are hoping the company can restart operations before 2021.Source: Laszlo Halasi / Shutterstock.com With virtually no revenue since mid-March, RCL is burning between $250 million and $275 million a month while its operations are suspended. To mitigate costs, the company has cut more than 5,000 of its employees, a number which is expected to grow under a prolonged recession scenario.According to Zack's Investment Research, earnings estimate for the upcoming quarter is a loss of 58 cents, which is a 145% decrease from the year-ago quarter. Let's dive a little deeper as to why I believe that RCL stock will struggle for the foreseeable future.InvestorPlace – Stock Market News, Stock Advice & Trading Tips Stabilization PeriodInitially, analysts believed the ban on cruises was a temporary reaction to the coronavirus — one that would be lifted soon. With countries such as China, Taiwan, and South Korea controlling the virus within a couple of months, it seemed plausible Western countries would also come out of the pandemic within a few months. However, now it seems that the timeline is likely to lengthen moving forward. Unfortunately for RCL, the U.S. and European markets are the bulwarks of its revenues. * 7 Stocks to Buy That Have Nothing But Upside In Their Future Most Western countries have not recommended wearing masks in public. The fixation with social distancing and the medical, rather than the sociological, benefits of wearing masks is likely to continue in these countries, making it extremely difficult for cruise companies to return this summer.Furthermore, a typical cruise itinerary covers a variety of destinations, which further complicates matters. Most of those destinations are likely to implement mandatory quarantine for foreign arrivals. Therefore, it seems that cruise lines cannot return to normalcy until the virus is near eradication. That can only happen if a vaccine is widely available for the disease.Though details about the resumption of business are unclear, booking volumes for the next season are looking good. RCL's management states that "Although still early in the booking cycle, the booked position for 2021 is within historical ranges when compared to the same time last year." Additionally, 55% of customers have chosen to go with a cruise credit instead of a cash refund. Worrying Liquidity PositionBefore the pandemic, RCL was considered to be somewhat of a growth company. Revenues were increasing at a healthy rate each year, and gross margins averaged 42.6% over a five-year horizon. It was the best performing cruise company, with a higher average return on equity than its main competitors Norwegian Cruise Line Holdings (NYSE:NCLH) and Carnival Corporation (NYSE:CCL). With a substantial increase in net income each year, the company adequately plowed back a significant portion of its earnings to expand and upgrade its fleet.However, on the liquidity front, it is an entirely different story. Financial leverage has averaged 2.42 for the past five years, which is significantly higher than the industry average. In addition, the company has struggled with its short-term liquidity, as its current liabilities have outpaced current assets for the past five years. With everyone rechecking their books for any excess debt these days, the numbers don't instill confidence.RCL closed April with $2.3 billion in cash and cash equivalents and has added a $150 million senior secured credit facility in May. RCL and other cruise companies have been unsuccessful in getting any relief from the U.S. government, and have turned to countries such as Germany, who are offering debt holidays for a year. With roughly $2.45 billion in cash equivalents and the monthly cash burn at $250 million, the company can survive approximately ten months without revenue. RCL Stock ValuationCruise line companies have witnessed a massive decrease in their stock price since last year. RCL stock is down 70% from the previous year, while Norwegian Cruise Line and Carnival are down 79% and 72%, respectively. It currently has an earnings rating of 4, which is 10% lower than the industry average and 62% lower than the S&P 500 index average.According to Refinitiv, in the past 90 days, the consensus price target for RCL has decreased from $143 to $79.10, a loss of -44.7%. However, this price is roughly 107% higher than the current price at $38.Stock valuation using the P/E ratio suggests that the current price is in line with the earnings multiple. Therefore, the significantly high price estimates are surprising. Perhaps the feeling is that RCL will be able to fend off the crisis and return to safer waters in September. However, even if the company manages to mount a comeback in the summer, demand is not likely to return to the pre-pandemic levels until a vaccine is made widely available. Final WordCovid-19 has turned the tables on an otherwise profitable business in the Royal Caribbean Cruises. RCL has a couple of billion dollars to help keep it afloat until demand returns to the pre-pandemic levels. However, it seems that the company's primary target markets are in for the long haul with the pandemic.Executives are positive about returning to the seas this summer, but at the current rate, it seems unlikely. Nonetheless, with its current valuation and a proven track record of generating higher returns than the industry, it could be an excellent time to grab the stock at a bargain. However, with the uncertainty surrounding the crisis, I would probably play the waiting game until things become clearer.As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities. More From InvestorPlace * Top Stock Picker Reveals His Next 1,000% Winner * America's Richest ZIP Code Holds Shocking Secret * 1 Under-the-Radar 5G Stock to Buy Now * The 1 Stock All Retirees Must Own The post RCL Stock Is Swimming in Troubled Waters appeared first on InvestorPlace.

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