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Market Moves Yesterday
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Hey Scoopers,
Happy Thursday! Are you ready for an action-packed newsletter?
👉 Berkshire buys Ulta and dumps Snowflake
👉 Nike attracts investors
👉 Mars acquires Kellanova
So, let’s go 🚀
Market Wrap 📉
Equity indices edged higher following the release of encouraging inflation data in the U.S.
Consumer prices for July rose 2.9% year over year, down from 3% in June and the lowest reading since March 2021. Prices ticked higher by 0.2% compared to the last month, which aligns with estimates.
Core inflation, which excludes volatile food and energy prices advanced 0.2% on the month, again in line with forecasts.
Investors were looking at the CPI reading to get a full picture of the economy's state after lighter-than-expected wholesale inflation figures boosted stocks on Tuesday.
Market analysts expect the Fed to lower interest rates starting in September, which should be a tailwind for companies across sectors.
Trending Stocks 🔥
Cisco Systems - Shares of the networking giant are up 6.8% in pre-market following its fiscal Q4 earnings and revenue beat and cuts to its global workforce.
Mercury Systems - The aerospace and defense technology stock jumped over 17% after reporting revenue of $248.6 million and earnings of $0.23 per share, compared to estimates of $231 million and a loss of $0.06 per share, respectively.
Charles Schwab - The financial giant rose close to 5% after it stated that core net new assets grew by $29 billion in July, 2x the pace year over year. It also grew new brokerage accounts by 8% to 327,000.
Berkshire Hathaway Gains a Stake in Ulta Beauty
Warren Buffett’s Berkshire Hathaway acquired stakes in Ulta Beauty, a cosmetics store chain, and Heico, an aircraft parts maker. According to SEC filings, Berkshire owns 690,000 shares of Ulta Beauty worth $266.3 million and 1.04 million Heico shares worth $185.4 million.
Ulta Beauty stock is up 16% in pre-market and has returned over 900% since its IPO in 2007. It now seems that the cosmetics retailer has perhaps won Buffett’s stamp of approval.
Ulta Beauty operates 1,250 brick-and-mortar stores and sells various products across price points.
Its top-line growth in the recent quarter slowed to 3.5%, as earnings per share fell to $6.47 from $6.8 last year, and operating margins narrowed from 16.8% to 14.7% in the last 12 months. Due to its falling profit margins, ULTA stock is down 40% from all-time highs.
In Q2 of 2023, Berkshire sold stocks worth $77.2 billion, which includes 390 million shares of Apple, reducing its stake in the iPhone maker by 50%.
Notably, Berkshire liquidated its $1 billion stake in Snowflake, driving shares of the SaaS company lower by 2.4% in pre-market today.
These liquidations allowed Berkshire to end Q2 with $277 billion in cash, up from $189 billion at the end of March.
Pershing Square Capital Acquires Stake in Nike
Nike stock is up 3.6% in pre-market after Pershing Square Capital disclosed a new stake in the world’s largest sportswear company.
Bill Ackman runs Pershing Square, and an SEC filing showed that the company holds 3 million shares in Nike worth $229 million.
The retail giant has been grappling with falling sales and eroding margins in recent months,
In fiscal Q4 of 2024 (ended in May), Nike’s sales were down 2% year over year and expects the top line to be down mid-single digits in fiscal 2025 due to weakness in China, an uncertain macro environment, and softer sales of key product lines.
Nike’s struggles showcase how even established brands find it difficult to dominate the apparel and footwear industries due to fierce competition, lower entry barriers, and ever-changing consumer tastes.
Down 55% from all-time highs, Nike stock trades at a cheap valuation and offers shareholders a dividend yield of 1.9%.
Mars Acquires Kellanova
Mars will acquire Kellanova for $35.9 billion in an all-cash transaction, integrating some of the country's largest candy and stock brands.
Mars will acquire Kellanova for $83.50 per share, sending the latter's shares higher by 7.6%. Kellanova separated from its parent company, Kellogg, in 2023 and ended the year with over $13 billion in sales.
Consumers are pulling back on spending amid years of high inflation, resulting in sluggish sales. Notably, grocers have leaned into private-label options to entice value-conscious consumers.
The buyout will create a bigger global snacking business as the combined entity aims to target growth in China and Africa.
However, regulators will have to approve the acquisition, as Mars would account for almost 50% of all snack and cereal bar sales once the deal is completed.
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Chart of The Day
The above chart shows us the cost for an investor to buy $1 of profit.
For example, to earn $1 profit in Snowflake, you need to invest $208, while the number for Google is much lower, at $23.
Also known as the price-to-earnings multiple, it shows us how expensive a stock is compared to its peers and the broader markets.
Ideally, if the stock’s P/E is high, it should grow faster than a low P/E stock and vice versa.
Meme of the Day
DISCLAIMER: None of this is financial advice. The newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.