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Netflix Subscriber Growth, GE’s Valuation, Incyte Rising, And Much More

Stocks were mixed today for the most part, and the market was not nearly as confident today as it had been yesterday. Is this going just be a repeat of last week? With a one or two day rally, followed by a week of retracements? The charts would seem to suggest that we have a bit further to rise, perhaps to around 2,750. That would be the next test, the big question do we breakout and continue to rise, or do we fail and fall.

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Gary Cohn Resigns

Then, of course, the other question, will the market react negatively to the news of Gary Cohn’s resignation? Not sure. Right now the futures are pointing to lower open, with the Dow futures down about 400, and the S&P 500 futures down about 39 points. The chart below of the S&P 500 futures shows that gap lower.

The dollar weakened initially on the news but is bouncing back some.

I think the Cohn resignation is likely a sign to the market the tariffs are likely to happen, and the market is fearful of the fallout. Perhaps Cohn was looking to get out, and he merely used this tariff fiasco as a way to make that happen.

Regarding the economic agenda, it will continue to be the Republican agenda, not the Gary Cohn agenda. So at the end of the day, his resignation is likely not a big deal over the longer-term.

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Biotech Stocks

Biotechs stocks continue to struggle and have yet to rise above $111.50 on the NASDAQ Biotech ETF (IBB). We need this group to rally, and soon. The risk-on part of the market is desperately missing.

It isn’t just in the big biotech’s either; the more evenly weighted iShares Biotech XBI is also exhibiting the same pattern as we noted yesterday.

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Incyte

Incyte has had terrible run since March of 2017, but the tide appears to be turning. The stock managed to finally find a bounce, but the big test comes around $93. Should it fail at $93, a move back towards the low $80 is likely. A rise above $93, likely sends the stock over $100.

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Consumer Stocks

Consumer Discretionary stocks are also nearing a make or break level, like the biotech stocks. You would never know how weak the set up is in the group based on Amazon and Netflix. In fact, except for Amazon and Netflix, the rest of the group is pretty terrible, and the discretionary XLY ETF would likely be down even more.

Just look at the top 25 holdings within the XLY ETF.

(Data from ycharts)

Netflix

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Speaking of Netflix, the stock got yet another upgrade today, this time from Pivotal. The price target was increased to $400 from $300. This is the part they I can never get, they are expecting international subscribers to hit 250 million by the year 2024! How do they come up with these things? That is six years from now. I don’t even know what Netflix will report next quarter, let alone 24 quarters from now.

You know it is kind of funny though because my model shows me the same thing! It shows Netflix hitting 250 million international subscribers in June of 2024! Wow. You think that is a coincidence? I don’t know, but if I told you I ran my model in excel with the basic trend line function on the graph, would that give you more or less confidence in the projection? Well, that is exactly how I did it.

The function actually works quiet well, when trying to predict shorter-term outlooks, but anything beyond that to me seems pretty suspect. I own Netflix, and I am more than happy to see it continue to rise, but I think looking out that far seems like a bit much.

GE

Another interesting call this week was that GE was going to rise 50 percent back to a range of $20 to $22. That would mean GE would trade at a higher valuation than Honeywell, and I can’t comprehend that. GE is expected to earn $1.05 in 2019, while Honeywell is expected to earn $8.66. At $22 GE would trade at 21 times one year forward earnings, while Honeywell now trades at 17. Hmm..

GE PE Ratio (Forward 1y) data by YCharts

Maybe I’m missing something here, but it feels like every time you think all the bad news is out of GE’s stock more bad news follows. Should GE trade at a higher multiple than United Technologies too?

I can’t seem to wrap my head around this one.

Well that is going to be it.

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Michael Kramer and the clients of Mott Capital owns shares of NFLX

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Tags: #sp500 #cohn #netflix #ge #incyte #biotech #consumer #stocks