Investors might want to bet on Amazon (AMZN), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its
BP plc BP has reported fourth-quarter 2023 adjusted earnings of $1.07 per American Depositary Share on a replacement-cost basis, excluding non-operating items. The bottom line missed the Zacks Consensus Estimate of $1.09 and decli
Gold prices ended 2023 on a solid note. However, the commodity is currently facing headwinds from a strengthening U.S. dollar. The recent slew of U.S. economic data and remarks from the Federal Reserve officials have quelled expec
Looking for a stock that has been consistently beating earnings estimates and might be well positioned to keep the streak alive in its next quarterly report? Ameren (AEE), which belongs to the Zacks Utility - Electric Power indust
Chipotle Mexican Grill stock (NYSE: CMG), a fast-casual restaurant chain that focuses on fresh and organic ingredients in burritos, salads, and more, is scheduled to report its fiscal fourth-quarter results on Tuesday, February 6. We expect CMG’s stock to see little to no
Corning (NYSE: GLW) recently reported its Q4 results, with revenues falling above and earnings meeting the street estimates. The company reported core revenue of 3.3 billion, down 10% y-o-y but above the $3.2 billion consensus estimate. Its adjusted earnings of $0.39 per share we
McDonald’s stock (NYSE: MCD), a restaurant chain consisting of more than 40,000 mostly franchised stores, is scheduled to report its fiscal fourth-quarter results on Monday, February 5. We expect MCD stock to likely see little to no movement with revenues and earnings mat
Microsoft’s stock (NASDAQ: MSFT) has gained nearly 70% since the start of 2023 as compared to the ~30% rise in the S&P500 index over the same period. At its current price of just above $400 per share, it is trading 4% below its fair value of $419 – Trefis’ e
Indian states will aim to raise an aggregate of 267.10 billion rupees ($3.22 billion) on Tuesday through a sale of bonds maturing in two years to 30 years.
Shares of ailing fintech firm PayPal (
NASDAQ:PYPL
) failed to impress (or "shock the world") when it revealed its artificial intelligence (AI) plans as part of its recent announcement. Undoubtedly, PayPal is very much in the AI race after the not-so-surprising announcements that were quick to be shot down by analysts and investors alike. The firm is still a legit underdog in the so-called AI race, even if its recent AI-driven features failed to generate hype right off the bat.
Though PayPal may not be standing nearly as tall as its peers in the mega-cap tech scene, some of whom have far more ambitious AI plans, I still believe it's a mistake to count PayPal out of the game as it looks to get its share price back on the right track.
Indeed, nothing seems to be working for PayPal these days. The stock likely lost a ton of confidence when it shed more than 80% of its value since its mid-2021 peak at just north of $300 per share. After such a catastrophic implosion, investors don't seem to be buying into the firm's turnaround potential.
PayPal Is Shocking Nobody Right Now, but It May at Some Point
Whether we're talking PayPal's PYUSD stablecoin offering in the
crypto universe, the
recent layoff of 9% of its staff, or the latest
AI plans, it seems like the firm is really trying to put its hand in many pies to win back some of the investors it had lost over the last two and a half years. For now, it doesn't seem like they're coming back. However, if PayPal can continue innovating on the front of AI, perhaps it can shock the world at a later date.
In any case, the recent AI announcements seem to have set a pretty low bar. And whenever you've got a low bar, it makes it easier to overdeliver. In many ways, PayPal stock seems like dead money, but at these depressed multiples (shares go for
18.6 times trailing price-to-earnings right now), I believe the stakes haven't been this low in quite a while. As such, I'm inclined to be bullish on the stock.
PayPal's AI Announcement: Nothing to See Here, Folks?
There's no shortage of analysts who weren't shocked in the slightest following the company's presentation centered on AI tech. Mizuho analyst Dan Dolev is one of the analysts who was unenthused by the event, going as far as to say the firm's intent of "doubling down on Branded Checkout may prove a long-term regret."
With the negative initial reaction in the stock to PayPal's six AI-powered initiatives, it certainly seems like the tough crowd has gotten a heck of a lot tougher, even with the much lower price of admission on shares.
Of the six new AI features, which include an enhanced checkout, Smart Receipts, Fastlane (one-click), CashPass, Advanced Offers, and Upgraded Venmo Business, none really stood out to me as a massive game-changer. Indeed, any one of PayPal's rivals could leverage AI in a way to do many of the same things in the future. At this juncture, it seems like the crowd is inclined to believe that anything PayPal can do, mega-cap tech (think the Magnificent Seven members) can do better, especially when it comes to AI.
Which of the Big Six AI Innovations Is Most Intriguing?
While Branded Checkout may prove to be somewhat regretful, as Mr. Dolev pointed out, I think the upgraded Venmo Business profiles feature holds the most potential of all six recently announced AI initiatives. Indeed, Venmo is a robust platform with many loyal users to whom PayPal can showcase new tech.
Any new innovation that can make the lives of users (especially business users) easier will increase brand loyalty. I firmly believe that adding value (through AI or not) will allow the company to more easily increase its pricing over time.
Over the long run, such convenience updates could add up and help bolster the Venmo (and PayPal) ecosystem in a way that makes it harder to jump ship over to a competing payment service provider.
Understandably, it will take some time before investors warm up to the recent AI initiatives, perhaps when the AI bets start resulting in actual
cash flows — something that may happen a lot sooner than the skeptics and bears expect.
Is PYPL Stock a Buy, According to Analysts?
On TipRanks, PYPL stock comes in as a Moderate Buy. Out of 30 analyst ratings, there are 14 Buys and 16 Hold recommendations. The
average PYPL stock price target is $71.60, implying upside potential of 16.35%. Analyst price targets range from a low of $57.00 per share to a high of $101.00 per share.
The Takeaway
I don't think it's fair for investors to punish PayPal for its recent AI-heavy event. While it may not have showcased the most ground-breaking features on the planet, I do believe PayPal is on the right track. And over time, the firm certainly has the ability to enrich its offering further as it welcomes AI with open arms.
Disclosure
Thus far in 2024, U.S. equities have picked up where they left off in 2023, with mega-cap tech stocks and the Nasdaq 100 ETF (QQQ) dominating. Year-to-date, the index is up a healthy 6.42%, carried by breathtaking gains in the top
40 states and Washington, D.C. now permit either medical or recreational marijuana use. Simultaneously, the cannabis market has grown exponentially and is expected to continue doing so for years. However, because of still-high interest rates, market saturation, and ongoing earnings disappointments, I remain bearish on one of the industry’s darlings: Village Farms (
NASDAQ:VFF
), which looks burnt up.
The global cannabis market is expected to increase from $27.7 billion in 2022 to $82.3 billion through 2027. In the U.S. alone, retail cannabis sales are projected to reach $56.9 billion by 2028, a 32.51% increase over 2024’s projected retail cannabis sales of $38.4 billion. Given those factors, on the surface, it may seem like Village Farms' unfortunate performance over the past few years is a buy-low opportunity.
That’s especially true when considering how long the company's been in business. For over 30 years, Village Farms has made a name for itself as one of the leading suppliers of fresh produce for retailers in the U.S. and Canada.
In 2017, Village Farms branched into cannabis, looking to take advantage of high-growth opportunities. Its wholly-owned subsidiary, Pure Sunfarms, is one of the world’s largest marijuana growers. The company has a global footprint, too, announcing in late January 2024 the build-out of its first indoor production facility in Drachten, Netherlands, with production tentatively slated for Q4 2024.
However, like the industry itself, Village Farms faces numerous headwinds that, in the near and medium term, are likely to continue blunting its share price.
3 Pot Stock Headwinds
The Canada-based company, founded in 1989, exploded onto the pot stock scene. Shares gained ~1,200% from 2016 to March 21, 2019, when it reached its then-all-time-high closing price of $17.45. After plummeting in April 2020 to around 85% from their highs, shares recovered, ultimately reaching VFF’s all-time-high closing price of $19.37 on February 10, 2021. Unfortunately, it’s all been downhill since. Currently, the stock is trading at around $0.84.
Village Farms’ struggles aren’t unique, as demonstrated by last year’s performance of the MJ PurePlay 100 Index, which tracks the shares of 100 pot stocks. In 2023, that index fell by ~15%, hitting its all-time low in October. It's also 91% off its all-time high.
A multitude of factors is likely to keep Village Farms underperforming for the foreseeable future and could threaten its three-decade run in the controlled environment agriculture space.
#1: Market Saturation
The medical and recreational cannabis industries' rate of growth has resulted in market saturation. Although sales have increased annually, competition's resulted in price reductions, with U.S. retail prices falling by up to 20% from 2021 to 2022. It's expected that fewer than one-quarter of companies in the sector will be profitable when year-end 2023 earnings are reported.
Oversupply is exacerbated by other factors that threaten profitability, including costly licensing and taxes, product losses due to fires stemming from lighting system failures, theft, and a rapidly-spreading plant pathogen that could cost producers billions in the years ahead.
Concurrently, the industry’s rapid expansion and poor performance are deterring investments, resulting in cannabis companies having to lower prices further or cut costs.
#2: Interest Rates
While the Federal Reserve's expected to cut interest rates in 2024, the cost of borrowing remains high. Cannabis companies burn through cash. Village Farms doesn’t report Q4-2023 or full-year 2023 earnings until March 14, but as of September 30, 2023, VFF saw its cash on hand fall by 63.05% year-over-year.
Meanwhile, sales were 2.2% lower than the same period a year prior, with $28.81 million in sales in Canadian markets but only $4.99 million in America. The company’s long-term debt stood at $39.81 million. The result — more borrowing and a continuation of negative EPS, which for Q4 2023 is
estimated to be -$0.02.
#3: Insurance Rates
According to HUB International, an insurance and wealth management firm, “Whether they are growers, retailers or distributors, cannabis companies operate in a complex marketplace with a highly sensitive product. Hazards in cannabis growing and processing facilities remain a concern for underwriters."
"High-pressure sodium grow lights present significant fire risks; fertilizers and extraction equipment can compromise worker safety …. Rates are rising for many lines of coverage, and carriers are making modifications, such as reducing indemnity time in business interruption insurance.”
To recap:
Market saturation has driven down prices, hurting bottom lines.
Interest rates remain elevated, making the cost of borrowing money higher for companies notorious for high cash burn rates.
Insurance rates are increasing, presenting higher expenses for cannabis producers already operating in the red.
In total, these headwinds are likely to have long-lasting impacts. Given current valuations, cash burn rates, and macroeconomic factors, stocks like VFF may not be the buy-low opportunity investors are hoping they are. This is further illustrated through technical sentiment.
Tepid Technical Sentiment
Despite headlines purporting 2024 as the year for pot stocks, similar headlines made financial news every year since decriminalization and recreational legalization accelerated. However, regardless of renewed enthusiasm, technical sentiment doesn’t align.
One-month technical sentiment is notably negative for VFF, ranging from neutral to bearish in overall consensus, technical analysis consensus, and moving average consensus.
On its three-year chart, VFF has been trading below its 200-week moving average (MA) — the dividing line for long-term bearishness — since November 2021. Further, the 200-week MA (sitting at $4.93) is extremely distant from VFF’s current share price. Given the company’s troublesome fundamentals and headwinds, there’s no reason to expect this to change in the short term.
Is VFF Stock a Buy, According to Analysts?
On TipRanks, VFF stock earns a Strong Buy consensus based on three Buys, zero holds, and zero sells. The one-year
average VFF stock price target is $1.38, with the low price target at $1.00 per share and the high at $1.75. This represents 58.6% upside potential. However, my contrarian take is that, when factoring in the challenges VFF faces, underperforming those marks in 2024 would not be surprising.
The Takeaway
The cannabis industry is expected to continue its rapid growth through the latter part of the decade. Because of progressively lower barriers to entry, the market has become saturated, retail prices have plummeted, and investments have eroded. Those factors, along with high interest rates, increasing insurance rates, and significant long-term debt, make VFF an unlikely candidate to reverse its decline.
Disclosure
Shares of retail behemoth Walmart (
NYSE:WMT
) have been trending higher in recent sessions, now closing in on all-time highs hit back in November 2023. For a stock that's finally breaking out of a more than three-year-long consolidation channel, the retail behemoth's continued ascent seems worth getting behind as the stage looks set for higher highs in 2024.
With no shortage of bulls — shares of WMT currently have a Strong Buy rating — in the Wall Street analyst community, it's hard not to be bullish on the old-school retail giant that's betting big on tech as it continues to adapt to the digital (and now artificial intelligence) age.
In this piece, we'll look at key factors that could help Walmart march higher in 2024 and beyond as the resilient and defensive company looks to new growth horizons. Though some investors may perceive Walmart as a boring, low-tech stock to own if you think an economic recession will be on the horizon, I view it as so much more.
As certain high-tech efforts begin to pay off, count me as unsurprised if the $454 billion behemoth can use its size to its advantage and perhaps win over a greater chunk of market share in the competitive retail scene.
The New Walmart Seems to Be Worth a More Premium Price Tag
Unless you're a member of the Magnificent Seven cohort, it's pretty hard to grow as the effects of corporate aging begin to weigh. Over the years, Walmart has shown that it's more than willing to invest in tech to keep its turf in the retail scene. Apart from its modernization efforts (bolstering e-commerce, delivery, and the Walmart+ service), Walmart seems ready to expand its footprint further.
The company recently announced its intention to open 150 new stores over the next five years. As the company bets on brick-and-mortar while continuing to fire on all cylinders on the e-commerce front, Walmart certainly seems like the discount omnichannel retailer to beat. And for that reason, WMT stock may be deserving of a richer multiple than it's currently commanding.
At writing, WMT stock trades at a respectable
28.1 times trailing price-to-earnings (P/E), which is on the lower end of the five-year historical average P/E of 32.0 times.
Of course, Walmart may not be the digital retailer with the e-commerce edge. That title goes to e-commerce kingpin Amazon.com (
NASDAQ:AMZN
). On the front of brick-and-mortar, one could make a pretty strong argument that rival Costco (
NASDAQ:COST
)
has the wind at its back.
Have you seen the crowds over at your local Costco lately? They certainly seem larger than over at the local Walmart as bargain-hungry consumers look to fill up their super-sized shopping carts.
In any case, Walmart may not be the master of brick-and-mortar or digital, but it seems to have a solid presence in both realms. And for that reason, I consider it one of the more intriguing omnichannel players in mega-cap retail right now.
To thrive in the future of retail, I believe you really need to be thriving online and offline. You don't need to be the top dog in either, but it pays dividends to have top-notch presences in both realms. In that regard, Walmart deserves an A-grade and perhaps a multiple that's more in line with some of the pricier retail heavyweights out there.
From "Great Value" to AI, There's Plenty to Look Forward To
Costco may have the Kirkland Signature private label, which is of great value to consumers. But Walmart has its own label, "Great Value," which has helped consumers save a ton of dough amid the past few years of inflationary pressures. Meanwhile, Walmart has been dabbling with conversational AI to help enrich the overall customer experience.
As the company looks to improve upon its label in the post-inflation economy, it's hard not to imagine many consumers sticking with the "Great Value" brand that may just be able to give Kirkland a run for its money. As the company bolsters its digital presence further, it may finally have something over its red-hot rival, Costco.
As Walmart continues investing in its robust private labels and AI technologies, the company stands to make it easier for consumers to save money on all their favorite necessities and discretionaries.
Is WMT Stock a Buy, According to Analysts?
On TipRanks, WMT stock comes in as a Strong Buy. Out of 29 analyst ratings, there are 25 Buys and four Hold recommendations. The
average WMT stock price target is $180.14, implying upside potential of 6.8%. Analyst price targets range from a low of $163.00 per share to a high of $210.00 per share.
The Bottom Line on Walmart Stock
Stash Walmart in the low-tech basket, if you will, but I think it's doing a lot of the same things that helped make its rivals (Costco and Amazon) great. If Walmart can continue improving on the tech front, I have no doubt that it can benefit from a great deal of valuation multiple expansion over the coming years.
Disclosure
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