4 Stocks We Love on Wednesday…

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The Nasdaq has dropped 10% over the last three sessions and is now in “correction” territory.

And, if that did not give you pause, well, AstraZeneca paused its coronavirus vaccine trial due to safety concerns. The pharma giant said that it paused the trial because of a strange illness in a patient. Pausing a trial is not out of the normal. Any time a group of researchers feels like they need to look into something further, they will pause a trial to investigate. It all just depends on what they find after investigating. That prospect was enough for people to start dumping shares. AZN was down 2% in after-hours trading. Bear in mind, any bad vaccine news will push the markets lower, so this is a story to watch…

In other news, GM announced a $2 billion investment in Nikola, the electric truck maker. The deal is this: GM gets an 11% stake in the company and a seat on the board in exchange for building Nikola’s new truck model, the Nikola Badger. Nikola jumped 41% on the news and since March the stock is up 335%.

The deal is maybe a little better in incentives on the GM side, but Nikola receives a stamp of approval from the industry and also gets to see its trucks coming off the assembly line. Similar to Fisker, Nikola now does not have to 100% vertically integrate (like Tesla) and build a factory for its Badger Truck…Nikola’s Founder Trevor Milton has always been skeptical about building a factory due to the production costs and the manufacturing learning curve. And this deal with GM is establishing a pattern for other EV carmakers: promote your design, use a SPAC to go public, and then find a manufacturing partner. Fisker and Nikola have shown this can work and remain cost-efficient….And GM might be undervalued at its current price, even with yesterday’s jump, the company’s sales will certainly resume and the stock has ample cash flow to outlast a downturn. At the end of the first quarter of 2020, GM has $41 billion in available liquidity, which includes revolving credit lines. Plus, GM’s margins are some of the best in the auto industry, it has an ROIC of 7%, which is second only to Toyota’s (14%).

Shifting gears, Aurora Cannabis reports earnings today. Yes, we know you might be permanently scarred by cannabis stocks…But the company’s business transformation is something to keep an eye on. I still think that multi-state operators like Trulieve (although heavily concentrated in Florida) and Curaleaf are maybe more pruned for success…But ACB is this big, ugly monster that I can’t stop watching…It continues to push back financial targets and just cannot seem to be consistent about forecasts. Plus, the company wrote down more than C$1.6 billion in goodwill — sweet. Yet, operating margins are notable and if the company can ever get revenues together, it could be a cannabis company that is profitable with some interesting assets. For the time being, it’s a hot mess…

Speaking of hot…The absence of hot yoga did not stop Lululemon from selling the hell out of leggings online. The company’s online sales stretched (see what I did there) 157% and 61% of sales happened online, up from 25% pre-pandemic.

Across the pond, Brexit negotiations are pushing the pound lower as talks with the E.U. take an interesting turn.

Below you can find some of the most notable stocks to watch today.

BorgWarner Inc. (BWA) – Last Close:  $41.61
Shareholders approved the acquisition of Delphi Technologies PLC (DLPH). Its a deal that we like, especially with the recent EV news. BWA, in an all-stock transaction, gets a company with electric drivetrain and fuel-cell technology that is going to get more industry attention. The market has been rather lukewarm on the deal, but we think its a win long-term for BWA.
Schneider Electric SE (SBGSY)- Last Close:  $24.42

After the GM and Nikola deal, you are going to want to ride the green wave. SBGSY is a name to know in power management and the stock is up more than 40% since May 15th.

Canaan Inc. (CAN) – Last Close: $2.03
The company’s shares fell out the window as the need for Bitcoin mining equipment fell, but the company’s sequential results are improving…So is the need for BTC, even though we would like to see it do better than the Nasdaq. Still, CAN is a call option on the price of BTC.
Epizyme Inc. (EPZM) – Last Close: $12.67
 
The stock is down recently but we are still bullish on the prospects of Tazverik, its cancer treatment drug. Epigenetic therapies will take time to catch on and EPZM is the most advanced company in this space, so this is really a buy and hold. Sales were tepid on Tazverik in Q1 2020, but there is a lot of opportunity for growth but this company is all about the platform’s potential.

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