Highs and Lowe's

= February 24, 2022 Good morning traders! Welcome back to The Daily Setup. Markets were down again yesterday, with the Dow and Nasdaq on the verge of entering correction territory. Here’s what’s on the docket today: - Tenneco is going private - Lowe’s crushes earnings - Volkswagen is prepping for a Porsche IPO Let’s see what today brings. Nick How’d the markets look? Market Outlook DOW 33,131.76 -1.38% S&P 500 4,225.50 -1.84% NASDAQ 13,307.49 -2.57% BITCOIN $37,526 -1.80% Tenneco, Twitter, and Lowe's BIGGEST MOVER TEN’s Perfect Day [TEN $19.35 (]([▲]([93.89%) Tenneco Inc | Google Finance]() We may not have a baseball season, but that didn’t stop Tenneco (TEN) from [smacking a double]( on Wednesday after agreeing to be taken private by Apollo Funds (APO). The auto parts manufacturer was up more than 93% on the day, leading to one of two possible conclusions: either Apollo is drunk and flinging around the [fun coupons](=) like [MC Hammer]() back in the day, or management is just plain awful at running the company. Considering that prior to the announcement, TEN was trading at a whopping 2x estimated 2022 earnings, the latter seems more likely. - The deal comes on the heels of [another takeout]() in the auto parts space, with Meritor ([MTOR](=)) being bought by Cummins ([CMI]() on Tuesday. Missed opportunity on the ticker symbol there Cummins. - TEN makes parts for both internal combustion vehicles like spark plugs and brakes, as well as parts used in EVs like brakes and suspension systems. - The takeout will be all cash at $20 per TEN share, so if I’m an Apollo shareholder I can’t help but wonder if offering a 20% or 50% premium would’ve done the trick. The MTOR and TEN deals tell us that auto parts are the hot new M&A sector, and considering the sticker prices of vehicles right now, it makes sense to try and keep vehicles on the road as long as possible. Other names in the space that could be potential acquisition candidates include Allison Transmission ([ALSN](=)) and American Axle ([AXL]()). Buckets of Bonds for Bluecheck Birds The world’s leading digital insane asylum Twitter ([TWTR](=)) is issuing [$1B worth of bonds]() to finance the always super strategic "general corporate purposes"… which will more than likely fund the [previously announced buyback plan](=). The senior notes will mature in 2030 and be sold via private placement. Moody’s has rated the issue Ba2, which is junk status and a fitting corollary on social media itself. - The $4B buyback plan was laid out earlier this month, with $2B for immediate purchase and $2B to be completed over an unspecified period. - If Twitter does immediately start buying shares, they’ll be getting them on sale since the blue bird has fallen by more than 23% YTD. - Maybe [DWAC]() (the Trump SPAC that [launched the TRUTH app](=) this week) will buy up the bonds because some of us just want to watch the world burn. Call me old fashioned, but capital raises used to go towards things like funding strategic projects and capital expenses. Selling junk bonds to finance a buyback seems extremely shortsighted, but I suppose that’s to be expected from a company that made its bones on short outbursts that are seldom well thought out. Highs and Lowe’s Walking into Lowe’s like... Lowe’s popped off over 5% during trading before closing up just [0.23%]( following the release of way sunnier earnings and guidance than it had any right to have. The company’s sales grew over [5%]() last quarter, with EPS rolling in at [$1.78 vs. $1.71](=) expected and revenue hitting $21.34 billion vs. $20.90 billion expected. Additionally, Lowe’s raised its 2022 revenue forecast to almost $100B. - Lowe’s credits much of this stellar performance to the low supply of new homes, which are driving millennials to settle for smaller renovations, like a redone bathroom or kitchen. - The fading of the pandemic helped, too. As people return to work they’re trading ill-advised DIY projects for remodeling jobs done by pros-- [who spend a lot more at Lowe’s.]( - But this trend isn’t gracing all the big home improvement retailers-- Lowe’s is built different. Home Depot’s stock took its [biggest hit in two years](=) on Tuesday after releasing a similar earnings report with similar sales guidance for 2022. Lowe’s alone has figured out the [special sauce]( for profit, something HD is still struggling with. The future’s looking real good for Lowe’s. Aside from great guidance and the fall of lifetime rival Home Depot, the home retailer announced a plan to open product storage centers on both U.S. coasts to stockpile items in the event that a supply chain snag cuts Lowe’s off from its producers. This kind of forward thinking is what got the company to where it is now, and will likely prove helpful in the future. It’s a buy for me. A safer way to lose all your money Token Talk SFOX to all the good little boys who’ll go broke on NDFs Digital asset brokerage and capitalist hellspawn SFOX is working on a [way]() to enable big banks and traders to allow investors to trade on a digital asset’s value without actually having to hold the digital asset. It’s called an NDF-- or a [non-deliverable forward contract](-- and if it sounds like a Bitcoin future, it’s close. Digital asset futures and ETFs pose similar risks and benefits and [compete for the same investors](=), who want to make bad decisions but from a slight distance. - The banks comfortable holding and trading digital assets probably won’t be all that excited about an NDF. But in countries whose governments don’t allow direct digital asset trading, or more cautious financial institutions with the same restriction, NDFs will probably be an easy sell. - And what’s totally rad about NDFs is that, unlike an ETF, you don’t have to have the capital to purchase all of your share. Buyers can leverage exposure to NDFs, which sounds really fun and exciting and not at all [incredibly risky.]() - SFOX apparently foresees up to $100M in daily trading volume. The draw of NDFs is similar to that of futures or ETFs-- slightly less risk and it circumvents the legal difficulties that surround owning and transferring digital assets (let’s not even talk about laundering). But these are still risky investments which are inextricably tied to digital assets, and make no mistake-- there’s no way to invest without exposing yourself to the risk of digital asset’s volatility. Anyone who implies otherwise is lying to you. Porsche to fall off the ‘wagen Deals and Rumors ^What VW and Porsche are doing to each other, but with a sh*ttier car Fasten your seatbelts and avoid the Autobahn, because Volkswagen AG is preparing an IPO for its [~$96B]( darling, Porsche. If it happens, the long-awaited IPO will likely come in the second half of this year and help Volkswagen gain some distance in the EV race. Since the announcement dropped on Tuesday, Volkswagen stock has risen over [3%]() while Porsche’s is up over [11%](). - The Porsche and Piech families will still retain a minority blocking stake in the company, and already have a [53% stake]( of Volkswagen. If that’s confusing (it is), you should know that these two companies have been in a [toxic relationship](=) since the 1930s and vying to acquire the other ever since. It’s messy. - Some of the motivation for this IPO comes from VW’s need to break into a more agile decentralized collective, whose sections don’t need to send every decision up VW’s notoriously slow and difficult executive pipeline. If Porsche IPOs, the company will probably become more adaptable since it could bypass VW’s board. This IPO is good news for both parties because VW leadership has a stalling problem. In general, boards that deliberate for long periods of time have a good chance of missing the boat, but particularly with the EU’s transition to EVs, urgent action is required and that’s something VW’s board is unlikely to pull off. If the deal is sealed, both companies should benefit from streamlined corporate structures. Link Roundup Other News Other News Link Roundup - Farley not sending vans down by the river – Ford to keep EV and ICE units together ([link]()) - No need for a mortgage if there are no homes to buy – Mortgage applications on the decline ([link](=)) - DOJ says eat my shorts man – Elon Musk excited that the DOJ does the SEC’s job and investigates short sellers ([link]() - Nyet to Nord – U.S. to sanction the company building the Russian Nord Stream 2 pipeline ([link]()) - Our expectations were low, and we’re still disappointed – TJX reports weak results on reduced in person traffic ([link]() Meme of the day The Daily Setup sending out our silly little emails every morning, [via @jxeker]() Questions or concerns about our products? 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