Adverse Conditions

The US Federal Reserve has embarked upon a front-loaded and aggressive tightening cycle since March, in an attempt to bring down inflation. Despite summer optimism for a peak in prices and a potential slower pace of hikes, such hopes proved false and officials have recently reiterated their pledge to fight inflation.

Meanwhile, the US economy has contracted during the first two quarters of the year creating recession fears, although the Fed has largely dismissed them by pointing mainly to the strong labor market.

The tightening monetary environment, high inflation, elevated energy and commodity prices, economic contraction, continuing trade disruptions and other factors, are having a detrimental effect on the US stock markets.

Wall Street managed to start the third quarter with a notable rebound, on encouraging earnings and optimism for a pause by the Fed, but as this did not materialize, the last couple of months have been predominantly negative.

The technology sector and growth stocks are more vulnerable to the current high interest rates/elevated inflation environment. The NAS100 remains deeply in bear territory, currently down well beyond 20% of its November record highs.

Against this backdrop and as the last quarter of a tumultuous year gets underway, we take a look at some US stocks that will be in our radar in the fourth quarter. In this Part 1 of a two-part series, we focus on some major companies from the Electric Vehicle (EV) market, the social media world, the airline industry and other sectors. You can read Part 2 here.

Delta Airlines

Delta is one of the world's largest airliners that reaches more than 275 destinations across six continents, whose every day flights exceed 4,000. It is headquartered in Atlanta, Georgia, founded in 1925 and assumed its current name three years later. ^[1]

The airline industry collapsed during the Covid-19 pandemic and the ensuing lockdowns, but has been recovering recently. In its latest monthly release, the International Air Transport Association (IATA), reported that total global traffic rose 58.8% year-over-year in July and is now at 74.6% of pre-crisis levels. ^[2]

The Atlanta-based carrier is reaping the benefits of this bounce, with a 99% recovery in its Q2 Adjusted Operating Revenue from the pre-pandemic levels, while passenger capacity was 82% restored. ^[3]. Its bottom line also improved, as Adjusted Net Income of $921 million and Adjusted Operating Margin strengthened to 11.7%. The carrier forecasts better performance ahead, expecting Revenues to grow 1%-5% in Q3, compared to the same period in 2019 and Margin to rise to 11%-13%.

Competitors are making progress as well though, with United Airlines Holdings Inc for example, returning to profits in Q2, for the first time since the Covid-19 breakout. More to it, UA posted Total Operating Revenues of $12.112 billion – up 6% from Q2 2019. ^[4]

Delta Air Lines Inc is also updating its fleet, having recently placed 100 firm orders for the Boeing 737 MAX Jet and an option for thirty more planes, with delivery expected to begin in 2025. ^[5]

It is not all rosy though and challenges still lay ahead. The industry has struggled to cope with the increased traffic that caused flight delays and cancelations over the summer and energy prices remain elevated despite backing-off from their highs.

DAL.us had a solid third quarter, rebounding from June's plunge to nearly two year lows, in an overall losing year.

Tesla

The firm was founded in 2003 disrupting the auto industry and is the leader of the electric vehicle (EV) market, although its activities span to other sectors including the manufacturing of solar panels.

Tesla Motors Inc had a solid second quarter, but the challenging environment in which it operates was evident, as Covid-19 supply disruptions and commodity prices pose headwinds. Deliveries posted a decline for the first time in nearly a year, after record Q1 numbers, while production fell for the second straight quarter. ^[6]

However, the prolific CEO, Elon Musk, talked of "the potential for a record-breaking second half of the year". CFO Mr Kirkhorn added that they are still "pushing to reach 50% growth this year", but acknowledged that the target has become "more difficult". ^[7]

The EV king is facing increasing competition from electric startups and established automakers entering the EV arena. Chinese Xpeng (XPEV.us) launched its own Advanced Driver Assistance System (ADAS) ^[7], while the legacy Ford Motor Company, is pushing hard on the EV Front. It has already been delivering its F-150 Lighting truck, whereas Tesla's Cybetruck is not scheduled to hit the market this year.

Tesla (TSLA) is definitely not keeping still and according to recent a filling with the Texas authorities ^[9], is exploring setting up a lithium refinery plant, a key component for electric batteries. Its CEO had hinted at such a possibility back in April in a tweet saying that they "might actually have to get into the mining & refining directly at scale, unless costs improve".^[10]

Back in August, Tesla Motors Inc performed a three-for-one stock split, just two years after the five-for-one split of August 2022. ^[11]

TSLA.us had a profitable third quarter, despite a poor August, covering more than half of its first-half losses.

Amazon

Amazon (AMZN) is a US multinational technology giant, with its business interests spanning from e-commerce to the increasingly important cloud computing, to streaming services and more. It was founded in 1994 by Jeff Bezos, who stepped down last year as CEO succeeded by Andy Jassy.

The current year has posed some challenges for the firm, since Q2 was the second straight quarter of Losses, but Revenues rose. Moreover, its key Web (AWS) and Advertising business both posted double-digits growth. ^[12]

This year's "Prime Day" of July 12-13 was the biggest in its history, with more than 300 million items purchased, providing savings of over $1.7 billion for Prime members worldwide ^[13]. Amazon.com is so much more than an online shopping site though, pushing relentlessly on multiple fronts.

It is making strong moves in the streaming business, with a robust lineup of TV series, sports and other content. This includes the "The Rings of Power", which is based on "The Lord of the Rings" and premiered on September 1st to 25 million global viewers on the first day and critical acclaim. ^[14]

After its own food delivery service failed a few years back, Amazon (AMZN) has taken a different approach via its stake in UK's Deliveroo and its recent re-entry into the US market. The latter occurred in July, after an agreement under which it gets a 2% stake in Grubhub, owned by Dutch-based Just Eat Takeaway.com (TKWY.nl). ^[15]

Amazon.com strengthened its presence in the health care sector with a deal to buy US primary care provider One Medical ^[16], but news that it plans to end its in-house Amazon Care service ^[17] has created some questions around the strategy. It seems to us that this was the next logical step, given the One Medical acquisition, but remains to be seen whether that is the case or if its healthcare endeavor is taking a step back.

AMZN.us started the third quarter with a relief rally after the disappointing performance of the first-half, but has been facing renewed pressure recently.

Meta Platforms

Meta is a social media giant and the parent company of Facebook, Instagram and WhatsApp. Its CEO is Mark Zuckerberg who co-founded Facebook, which first launched in 2004 changing the entire social media landscape.

Meta has been having a very poor year so far and its last earnings report for the second quarter did not offer much reason for optimism. Total Revenues of $28.822 billion marked an improvement over the previous quarter, but were marginally lower than a year ago, while Net Income dwindled against both periods to $6.687 billion. ^[18]

Furthermore, the Reality Labs segment which is responsible for delivering the Metaverse – the firm's declared priority – continues to burn money, having lost $2.8 billion, only slightly less than it lost in Q1. Meta however, continues to push on the Metaverse vision and the decoupling from Facebook.

Back in August, the tech firm started rolling out Meta Accounts, allowing allows users to login to their Virtual Reality (VR) headsets without a Facebook account ^[19], while earlier in the summer, CEO Mark Zuckerberg had expressed his hope for getting "around a billion people in the metaverse" while speaking on CNBC. ^[20]

Meta Platforms does not expect things to get much better anytime soon, and is projecting lower Revenue in the range of $26-28.5 billion for the soon to be reported Q3, as a result of the "continuation of the weak advertising demand environment". The company also noted that it has reduced hiring and expense growth this year, in order to account for "challenging operating environment". ^[21]

The social media giant continues to face regulatory scrutiny, with the US Federal Trade Commission (FTC) having filed a lawsuit to block Meta's acquisition of Within – the creator of virtual reality fitness app Supernatural. ^[22]

META.us had collapsed in February and despite some consolidation over the summer, it has extended the decline in September to levels not seen since March 2020 and the height to the pandemic.

Uber Technologies

UBER is a US-based technology company and service provider founded more than ten years ago, changing the face of urban transportation. It offers ride hailing, food delivery and freight services, operating in around 70 countries and 10,000 cities globally. ^[23]

The transportation business had taken a big hit during the pandemic, as lockdowns kept people at home, but the food delivery service provided support during the same period. As the world has largely returned to normalcy the firm has been recovering, with the core Mobility segment surpassing Eats in Q1 as the top revenue generator and continued to remain ahead in the second quarter. ^[24]

Its Q2 results highlighted this recovery as total Revenues doubled compared to last year to around $8 billion, a 33% year-over-year rise. Gross Bookings hit a record of roughly $29 billion, Net Loss narrowed to $1.7 billion and Adjusted Profits (EBITDA) rose to $364 million.

Moreover, the company expects better days in the third quarter, projecting Gross Booking in the range of $29 - $30 billion and Adjusted EBITDA of $440 - $470 million.

The adverse impact of the pandemic may have pretty much gone away, but overall inflation and high fuel prices resulting from the war in Ukraine, along with fears of recession amidst tightening monetary environment, may pose fresh challenges for the company. However, its CEO Dara Khosrowshahi has dismissed fears of a negative impact.

Back in June at the Bloomberg Technology Summit, he said that although he is hoping for lower prices they are "not affecting our business", adding that Uber is benefiting from a spending shift back to services ^[25]. More recently in mid-September on CNBC, he largely reiterated these views, noting that he does not see any sign of weakness and if anything, "72% of drivers in the U.S. are saying that one of the considerations of their signing up to drive on Uber was actually inflation" ^[26].

UBER.us took a beating during the first two quarters of the year, but has staged a relief-rally and tries to return above the EMA200 after bottoming in June.