WSO Platinum Banana: Buy of the Year

In this issue of the Peel:

• Existing home sales came in hotter than expected last month, a strong sign for the economy and the prospects of homebuyers.
• Digital assets and Alphabet had a ripe day, while CRISPR Therapeutics and Winnebago saw their share price close lower.
• Under the category marked "Buy of the Year," the 2023 Platinum Banana award goes to Carvana with a YTD return of ~1,069.83%!

Market Snapshot

Happy Thursday, apes.

Rudolph came a few days before the rest of the gang this year as his big, red nose was covering anything and everything in markets yesterday.

Now I understand why the other reindeer bullied him so much. Anyway, U.S. markets put on a fairly good showing yesterday right up until about 1-2 pm ET when international macro data tried to kill the vibes. Well, they didn’t just try. They very much succeeded because all four major U.S. indexes were down, with the small-cap Russell 2k leading the way, boasting a 2.31% loss.

Over at WSO Alpha, the apes managed to lose only 0.99% on the day. Alphabet (more below) was the only position to actually generate some alpha on the day, so they at least didn’t do 0-for-nothing. Moreover, they did manage to lose less than every U.S. index, so gotta give credit where credit is due.

Let’s get into it.

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Macro Monkey Says

Homes for the Homies

Shoutout to Santa Claus and all the other gift-givers out there because this holiday season, we’re getting our gifts a little bit early this year. While there may not be anything under the tree just yet, Santa and our economic overlords have teamed up to give us the greatest gift of all: Hope.

Over the past year and a half, at least, every 20-something with a brain and WSJ subscription has mentally prepared themselves to either 1) continue living with their parents or 2) accept homelessness at some point in the future. I’m not sure which one of those sounds worse, but yesterday, we finally found out all that hard mental preparation might just be able to be thrown by the wayside.

Housing data has been popping off this week amid an otherwise quiet part of the year as traders and MDs across Wall Street remember they have actual families to get home to that aren't the “family” at work that HR keeps trying to force to love each other.

And with that, for what feels like the eleven-thousandth day in a row, we’re diving into some housing data. With no further ado…

"Existing home sales came in hotter than expected last month, a strong sign for the economy ..."

Existing home sales came in hotter than expected last month, a strong sign for the economy and the prospects of homebuyers looking to get into a new place in the next damn decade.

Prior to the hell on Earth that was the emergence of C-19, existing homes made up ~90% of housing inventory from sea to shining sea. Nowadays, that’s closer to a range of 75-80% in any given period. With that in mind, last month’s existing home sales data came in at a 0.8% monthly gain against estimates for yet another drop, with consensus betting the reading would have been a 4.1% fall.

That 0.8% gain comes off of 13-year lows in home sales volume reached in October as well, and given this segment represents the vast majority of the entire housing market, it’s a damn good sign.

This marks the first monthly uptick since May. The drastic decline from 23-year highs in mortgage rates experienced over the past few weeks seems to be the primary driver, as lower mortgage rates trigger the marginal seller to finally sign the dotted lines and complete the sale.

And that’s largely what we’re seeing in U.S. housing, as we’ve discussed for quite a while now.

"... that’s largely what we’re seeing in U.S. housing ..."

Sellers don’t want to give up a sub-4% or even sub-3% mortgage to find themselves locked in at 6% or 7%, but with every decline, more and more would-be sellers will become just regular sellers, finally starting to thaw out the frozen nature of this market.

But while rates have been declining, home prices have continued to move higher. This means that, despite lower rates, affordability hasn’t changed all that much. Still, although they haven’t become much more affordable, the fact that home sales surprised to the upside speaks to the boundless demand for U.S. homes present right now.

Economists expect this trend to continue into 2024, with homes expected to continue to become more affordable, ideally triggering more marginal sellers to pull said trigger and complete the sale.

Keep in mind that housing is, in fact, a leading economic indicator. Much of the market dynamic is based on rate expectations, and if it isn’t obvious yet, it's clear that everyone expects rates to continue to decline. As long as rates are falling, expect to see more surprises to the upside with housing.

It’s almost like we actually achieved that soft landing or something…

What's Ripe

Digital Assets (BTC) ~$43.80k (↑ 4.35% ↑)

• The fun thing about digital assets is that not only do they make as little sense or less than equity markets, but there are absolutely no fundamental drivers to price them whatsoever.
• That said, the BTC bulls love to try to create them. Yesterday, this was in full swing as the eventual launch of a spot BTC ETF was hot in the news once again, thanks in large part to Michael Saylor (no surprise there).
• Prices, however, have continued their winning streak into the end of the year. What began as the classic Uptober had enough momentum to carry through the traditional No-Gains-November and even into Dead-December. Keep in mind that every day that this thing doesn’t go to zero, it will only get stronger.

Alphabet (GOOGL) $138.34 (↑ 1.24% ↑)

• For a company that tries to include the whole Alphabet, they sure have some biases for two letters in particular: AI.
• AI has largely saved Google, Big Tech, and the entire stock market over the last year or so. And it nearly brought the firm to all-time highs again yesterday.
• Alphabet announced a shakeup to its digital ad business unit. Analysts expect this means they are going to plug that cash-piling business with a ton of AI tools that it’ll become even better at sucking every possible dollar it can from your internet search data.
• While there wasn’t a ton of detail here, anything involving AI is bound to get the people going in 2023. We’ll see what actually materializes here (if anything) soon enough, but in the meantime, they’ll continue to have fun profiting off your data at their normal rate.

What's Rotten

CRISPR Therapeutics (CRSP) $60.81 (↓ 9.01% ↓)

• Hmmm… this was unexpected. Just a few short days after getting their first FDA approval to actually release a product in the U.S., gene editing company CRISPR Therapeutics announced a big shakeup in the C-Suite.
• CRISPR's Chief Medical Officer, a position that is apparently a thing now, resigned on Wednesday. Safe to say the move was unexpected, but in their statement, both CRISPR and (former) CMO Phuong Khanh Morrow said that the decision was “not the result of any disagreement with the company.”
• Idk. Are you apes buying that? To no surprise, there wasn’t a whole lot of detail around the announcement, only leaving room for speculation. But, based on yesterday’s share price move (and common sense), something smells fishy.

Winnebago (WGO) $70.95 (↓ 5.58% ↓)

• While that trash *ss “Winnebago” song is now gonna be stuck in my head for the rest of the day, it’s clear nobody was able to “reserve you a table” for a good earnings report.
• Shares in the RV maker dropped in response to the firm’s latest quarterly earnings and, most of all, their guidance for the coming quarters. Sales came in 20% lower than the same period last year but still managed to beat estimates, while EPS of $1.06/sh missed the $1.20/sh estimate.
• But it only got worse when management opened their mouths. Essentially, they guided for a weaker-than-expected quarter to kickstart 2024 but tried to rally some optimism by saying they expect sales growth to return in the latter half of 2024.
• Everybody knows Mr. Market doesn’t have that kinda patience, so naturally, shares tanked for the day.

Thought Banana

Platinum Banana: Buy of the Year

Who wants to get rich? We know 50 Cent does, as this legend has been willing to Get Rich or Die Tryin’ since ‘03, but how about the rest of us?

To “die trying” might be a bit extreme, but I think it’s safe to say that most people… especially those who are subscribed to an investing newsletter… are open to the idea.

Well, to do so, there are a couple of ways to get there, including:

• Have rich parents
• Get a high-paying job
• Start some kind of a successful company
• Get incredibly lucky in the stock/investment market

While those are essentially listed in the order of easiness (we strongly recommend being born with rich parents), a whole lotta people, mostly those on X and TikTok, seem to think that option #4 is the way to go.

"... a whole lotta people, mostly those on X and TikTok, seem to think that option #4 is the way to go."

Do what you will, but our only advice stays the same as always: proceed with caution.

Anyway, if you were one of those lucky people in 2023 to hit it big on option #4 above, chances are you had this stock in your portfolio. That’s right, apes, for today’s highly esteemed, prestige-dripping Platinum Banana award, we’re recognizing the single most impressive long position you could’ve had in your portfolio.

This isn’t necessarily the stock with the single highest return, but the one that we (a.k.a. I) would be most impressed to see you held throughout 2023. So, this is factoring in conditions and outlook that dominated in late 2022 as well. But, with no further ado, the winner of the Platinum Banana award for “Buy of the Year” is none other than…

Carvana Co. ($CVNA), YTD return: 1,069.83%!

First and foremost, congrats to Carvana and all those who held shares in 2023. I’m sure you’re speechless right now, given the immense weight of winning a Platinum Banana award, but trust me, you deserve it.

For those who live under a rock, Carvana is an online used car retailer based out of Tempe, Arizona. Shares have more than 10x this year, and if you recall the outlook on this thing in December 2022, it was not pretty.

"Shares fell more than 97% in 2022 amid rate hikes, low demand for vehicles, and ..."

At the time, many were calling for bankruptcy. Shares fell more than 97% in 2022 amid rate hikes, low demand for vehicles, and a generally depressed economic outlook.

At that time, Carvana was actively setting money on fire as its main mode of business, or so it seemed. In their Q3’22 earnings report, the company had burned $508mn for the quarter and $1.45bn for the 9 months ended Sept. 30th, 2022. The company’s interest expense sat at $153mn while its EBITDA registered a loss of $200mn, implying a coverage ratio of -130%. Not exactly ideal for creditors and shareholders.

But a lot can happen in a year. In Q3’23, Carvana boasted earnings of $ 741 million despite a 21% decline in sequential revenue. Carvana’s interest expense remained at $153mn, but with an EBITDA of $148mn, this coverage ratio of 96.7% was a lot more enticing, though not beyond the 100% line as shareholders would like to see.

The firm’s cash pile increased by 25% while operating cash flows ballooned from a $585mn hole in Q3’22 to a massive $1.04bn in Q3’23. To put it plainly, good sh*t, Carvana.

Following the Zuckerbergian playbook of radical cost cuts in 2023 clearly worked out for them. Following the Keith Gill/roaring kitty method of buying the sh*ttiest stocks on the market worked out too for anyone dumb/bold enough to enter a position at the time. But hey, both Carvana and their shareholders are certainly set to break the spending limit of their Secret Santas this year.

Congrats again to Carvana and all the apes out there that got in the gains. If this was you, please shoot us an email… my portfolio desperately needs the help.

The Big Question: Which stock do you think will have a run-up as high as Carvana's 10x? Has the stock market entered a bull run, given the S&P's ~22% YTD gain? Are you risk-on or risk-off?

Banana Brain Teaser

Yesterday —

A student decided to become his own employer by using his car as a taxi for the summer. It costs the student $693.00 to insure his car for the 4 months of summer. He spends $452.00 per month on gas. If he lives at home and has no other expenses for the 4 months of summer and charges an average of $7.00 per fare, how many fares will he have to get to be able to pay his tuition of $3,280.00?

Answer

826

Today —

Josh is writing a book. He starts on page 1. When he finished, he used a total of 228 digits. How many pages does he have?

Shoot us your guesses at [email protected]

Wise Investor Says

“Most investors want to do today what they should have done yesterday” — Larry Summers

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team