Saving Tech’s Biggest Dumpster Fire
Futures are rising early this morning on trade optimism, as the financial media like to say…
“Contracts on the three main U.S. equity benchmarks all pointed to a firm open after Treasury Secretary Steven Mnuchin confirmed Chinese Vice Premier Liu He is headed to Washington in coming weeks and China was said to have given waivers for tariff-free American soy purchases,” Bloomberg notes.
Has anything changed since Monday’s close? Nope. But that’s not holding back any buyers this morning.
Even some of the market’s worst stocks could catch a bid…
In fact, a major buyout might rescue one of tech’s biggest dumpster fires
It’s hard to imagine that Fitbit Inc. (NYSE:FIT) once traded for upwards of $50 per share shortly after its 2015 IPO. The maker of fitness trackers never quite found its groove and couldn’t maintain its status as a premier wearable device alongside the likes of the Apple Watch.
Shares have endured a steady decline since topping out five years ago. The stock just posted new all-time lows after cracking below $3 earlier this month.
But a new suitor might soon come along and put this sad stock out of its misery. The company is in talks with an investment bank about potentially exploring a sale, Reuters reports, mainly due to its inability to pivot from fitness trackers to the smartwatch market.
So far, the buyout story is just a rumor. But that hasn’t stopped rabid speculators from grabbing as many shares of FIT as they can carry. The stock jumped as much as 20% since the news broke late last week before pulling back Monday afternoon.
Checking in on our open trades, Chipotle Mexican Grill’s (NYSE:CMG) has shaken off recent weakness and is approaching all-time highs.
“Chipotle stock has nearly doubled this year,” Barron’s declares. “Now it’s doubling-down on steak.”
Yes, our favorite fast-food play just rolled out carne asada as its new steak offering, marking its first big menu addition since CEO Brian Niccol took the helm last year. You might recall that I was bulled-up on the Niccol hire last year. The former Taco Bell boss hasn’t disappointed shareholders yet, taking over just as the stock broke out above $350. Shares are now resting just below $850.
I mentioned last summer that price was already telling us that the food poisoning scandals didn’t matter anymore. The outrage and fear over foodborne illnesses at Chipotle had suddenly stopped affecting the stock during Q2 2018 when I noted that any minor stories related to foodborne illnesses probably wouldn’t get very far with the financial media. In fact, the hint of turnaround success started to gain traction as the stock began moving in the right direction once again. The rest is history.
But the Chipotle turnaround story isn’t the result of a new menu release. Barron’s notes that Chipotle has instead focused on “strengthening the brand, boosting digital effectiveness, and store-level operations. That has helped boost same-store sales substantially in recent quarters: They rose 10% in the second quarter, ahead of the Street’s consensus expectation.”
Your open gains are now approaching 20% on this trade. That sharp pullback we witnessed two weeks ago turned out to be nothing but a blip on the way to new highs.
Finally, the market’s handing you a chance to take triple-digit profits on a successful long-term play.
We’ve enjoyed PayPal Holdings’ (NASDAQ:PYPL) company in our longer-term portfolio since early 2017. This stock has been a gem, generously offering up two multi-month runs bookending last year’s frustrating sideways action. This play has since put gains in your pocket approaching 150%.
But all good things must come to an end.
PayPal stock hasn’t been able to keep pace with the averages recently. While the Nasdaq has recovered from its early August reset, PYPL remains stuck near its summer lows. While I believe there’s a lot of exciting developments to come in the payments space, I think it’s best for us to cash out here and move on to better opportunities.
Congrats on the gains!