MicroSectors June Newsletter

Tesla (TSLA) In response to a decline in sales, as well as the impending reduction in the Federal Tax Credit given for purchasing an electric vehicle, Tesla has reduced the base price for both the Model S and Model X by around 2% to 3%. By lowering the price, Tesla hopes to increase demand, with the ultimate goal of restoring profitability to this industry giant. Furthermore, the construction of “Gigafactory 3” in Shanghai has been progressing ahead of schedule, with vehicle production set to begin within the next six months.

Pioneer Natural Resources (PXD) In an attempt to cut $100 million in costs, as well as raise dividends for shareholders, Pioneer Natural Resources recently announced plans to lay off approximately one quarter of their workforce. This number includes 300 individuals who were the recipients of a buyout in April of this year, as well as an additional 230 people to be laid off in the future. However, these layoffs should not be interpreted as harbingers of a potential decline in oil revenues, but rather are indicative of an industry-wide trend of prioritizing immediate stability and profitability over future growth. Although Pioneer’s CAGR projections have been reduced from 20% in November 2018 to the mid-teens in their most recent reports, it is now evident as a result of this reduction in overheads costs that Pioneer can generate excess cash flows, ensuring profitability if prices remain near current levels.

Facebook (FB) Facebook has announced plans to launch their own Cryptocurrency, which has tentatively been named ‘GlobalCoin’, and is set to launch in a number of countries around the world by April 2020. The plans are to integrate this product into their pre-existing Messenger and WhatsApp services, enabling mobile on-the-go payments between devices using this new currency. One way in which this product aims to differentiate itself is that there are reported plans for Facebook to negotiate deals with online retailers for consumers who pay using GlobalCoin.

BB&T (BBT) BB&T has continued preparations for their upcoming merger with SunTrust Banks (NYSE: STI), a move which will result in the creation of one of the largest banks in the United States. This merger has been justified as being a consequence of the shifting technological landscape of the banking world. Additionally, it has been recently announced that the merger will result in the creation of an entirely new brand, as opposed to retaining elements of either SunTrust or BB&T in the name of the newly minted company.

Alphabet (GOOGL) Google recently reported that, due to high levels of traffic among consumers in the Northeastern United States on Sunday, June 2nd, there was an outage of many of their largest products, such as Snapchat, Gmail, and YouTube, for up to four hours on Sunday afternoon. The root cause of these outages were found to be issues with Google’s cloud service, which is an integral component to the apps that were affected. In other news, the United States Department of Justice has opened preliminary investigative procedures into Google, examining their advertising algorithm as it relates to user search history. This has been prompted, allegedly, by complaints from other members of the industry.

Chevron (CVX) Chevron recently began requesting relief from U.S. sanctions that limit the amount of business that oil companies can do in the conflict-ridden nation of Venezuela. These sanction have been utilized by the United States to deprive the regime of Nicolas Maduro of funding, in an attempt to wrest control from his government, which has been recognized as illegitimate by the United States in the aftermath of a 2018 election with evident flaws. Oil production in Venezuela, the nation with the largest oil reserves in the world, has dropped to less than 1,000,000 barrels per day, down from an average of almost 2,000,000 barrels per day in 2017. The decision of whether or not to extend the waivers currently received by Chevron in relation to the ongoing sanctions ultimately reflects a much larger conflict of interest for the United States: does the country value domestic business interests over international diplomatic statements?

Big Oil Performance Analysis

Source: Bloomberg

Big Bank Performance Analysis

Source: Bloomberg

FANG+ Performance Analysis

Source: Bloomberg

Chart of the Month

Source: Bloomberg

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