September 2019


Tesla Motors Inc (NASDAQ:TSLA) is gradually learning how to get more vehicles on the roads by accelerating its production rate at the Tesla Factory at Fremont, CA. However, its expansion of service centers is not up to pace with the increasing numbers of deliveries, causing frustration for new owners.

Earlier this week, Automotive News published a report which stated that delays in service appointments are expected to increase for the Model S and Model X owners. The publication quoted a Model X owner who previously had a Model S, saying that his local service center could not give an appointment before 10 days. He further added that it is “a long time for a $130,000 car.” He said that the company immediately fixed every issue when he had the Model S.

“Now that the company has grown, service has become a problem,” said Ethan Shapiro from Florida. Previously, he had to wait about a week to get the SUV’s fault door latch fixed.

Chris Terry, another Tesla owner from Denver, reported in August that he had to wait for five weeks before the service station could repair the windshield of his Model S. Although Tesla agreed to fix the issue for free, Mr. Terry’s problem has not been solved.

Tesla currently has 61 service centers in the US with 10 locations “coming soon.” In 3QFY16 Shareholder Letter, Tesla said that they opened 17 new locations in the period while delivering 24,821 cars worldwide. Thus, it is clear that the company is unable to keep up its service with deliveries growth.

The problem may accelerate as it plans to bring another 25,000 vehicles on the road in this quarter and over 600,000 cars in 2017 and 2018. Interestingly, Tesla said that it saw a 92% reduction in reliability issues in 2016 compared to 2015.

Despite such poor servicing of vehicles, Blue Book’s Karl Brauer believes that there has not been a big effect on the Tesla brand as early owners are not completely dependent on their Model S sedans and Model X SUVs. Dunne Automotive President, Michael Dunne, believes that the owners are well aware of such issues before buying a Tesla car as they know “they are part of this experience of the first breakthrough electric vehicles.”

The Country Caller discusses whether or not the stock represents an attractive investment opportunity following recent declinesWhy Phillips 66 Lost Its Momentum?Is Phillips 66 A Lucrative Investment?

While most energy companies struggled to keep their ship afloat, Phillips 66 (NYSE:PSX) managed to post strong financials last year. As a result, the stock surged 12.59% on the back of lower crude prices, as this meant lower feedstock costs and better refining margins.

Since 2016 started, Phillips 66 has lost some momentum in shares. During the first two months, the stock declined 3.19%. The Country Caller explores the reason for this decline and explains whether or not it is the right time to invest in it.

Why Phillips 66 Lost Its Momentum?

One of the key reasons for the company’s poor performance was the shrinking refining margins as a consequence of increased crude prices. Even in 4QFY15, Phillips 66 saw a steep decline in refining margins as oil price declined from $21.44 a barrel in 3QFY15 to $12.72.

As long as oil price keeps on increasing, refining margins would shrink and hence profits would get hurt. In addition, gasoline inventory has also been in surplus in the US. With gasoline supply exceeding demand, prices would are likely to remain suppressed. The Energy Information Administration (EIA) stated that gasoline price would decline from $2.43 per gallon last year to $1.89 this year.

In 2015, gasoline demand was also high, which contributed to the company’s positive performance. Moreover, fuel-efficient cars and environment-friendly vehicles led gasoline demand to decline though, adding to the company’s worries as the stock posted poor performance compared to last year.

Is Phillips 66 A Lucrative Investment?

One reason to invest in Phillips 66 is its diversified business portfolio. As lower refining margins continue to impact profitability, its investment in other segments continues to reap profits.

For example, olefin products such as 1-octane, 1-butene, 1-hexene, etc have positive future demand. The company can take advantage of high demand of these products owing to its integrated business model. An important point to note here is that the company is making strategic investments in segments which present positive long-run upside potential for the organization.

Another example includes its petrochemicals project in the US, at the Gulf Coast. The project is nearing completion, and is expected to come online by mid-2017. This project would enhance Phillips 66’s polyethylene and ethylene capacity by almost 40%.

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In addition, the company has a healthy liquidity position. At the end of 2015, it had operating cash flow worth $5.7 billion, along with $4.8 billion in cash. Its debt is less than $9 billion, which means it has the capability to honor its debt easily with its strong cash position. Any improvement in refining margins would mean further upside potential for company. Phillip 66 stock has gained 7.16% year-to-date (YTD), suggesting that it represents a lucrative investment opportunity right now.

The Country Caller explains why the rally in Freeport shares would end soon

Freeport-McMoRan Inc. (NYSE:FCX) stock has shown impressive performance, as it has surged over 86% year-to-date. The positive momentum in shares is attributed mainly to recovering oil and improving copper prices. The company has also taken certain appreciable measures to respond to difficult operational conditions.

The $17 billion company has made several asset divestitures and lowered its cost base in order to achieve the improved investor confidence it enjoys now. Still, The Country Caller believes that the ongoing rally in shares would end after the company would report its 1QFY16 results next week, as the performance is expected to turn out as unsatisfactory.

In fiscal year 2015, Freeport incurred about $6.35 billion worth of capital expenditure. It said that it aims to reduce this figure to $3.4 billion this year, and to $2.3 billion next year, in an investor presentation. The company is apparently making effort to overcome negative future cash flows.

However, the company would not be able to reap benefits soon after making these cuts, as it would need time to see the results; given that it has been suffering under a huge debt burden, it would be desperate to get relief. By March 2015, the company had lowered its dividend by 80%, and in December, it announced a complete halt in order to save about $240 million annually.

This is how difficult operational conditions have gotten for the company. Freeport has also made asset divestments which investors anticipate would provide much-needed liquidity. However, these asset divestitures are like a double-edged sword, as even though they would provide some cash, once commodity prices recover, the company would be poised to any increased revenue and profitability opportunities.

Additionally, these divestments mean that the company’s future output would be lower, leading to bleak future performance. Asset sales would also not be immediately beneficial for the company, which investors are likely to see in its 1Q earnings, and hence shares would be more likely to decline.

For instance, Freeport announced disposal of its stake in Morenci mine, which is expected to provide it around $1 billion, but might not reflect in first quarter results, as the deal is expected to close later this year. Also, Freeport is expected to benefit by around $263 million by selling its stake in Lundin Mining, but the deal is still not closed and wouldn’t have any impact on its upcoming earnings.

Moreover, the company expected oil prices to be around $37 barrel for the past quarter, while West Texas Intermediate (WTI) benchmark for crude oil averaged around $33 per barrel. This means that its performance from the oil segment would not be satisfactory either.

All in all, Freeport has taken some good steps to restore its financial health, but these steps would take time to reflect on its sheets. Hence, we expect the positive rally in shares would soon be over after the company would miss its earnings estimates next week.

Alibaba has launched a campaign against counterfeit products to ensure online shopping accuracy

At the inaugural of Rights Holders Collaboration Summit, Alibaba Group Holding Ltd (NYSE:BABA) announced to launch intellectual property (IP) joint force system to strengthen collaboration and partnership with multiple brands globally. The Chinese e-commerce giant revealed its aggressive plans in the conference to stamp out fake goods in an aim to urge international brands to support the company in its anti-piracy drive.

Earlier today, the online retailer announced a new online system which would help remove fakes and keep track of the goods in order to facilitate strong coalition and cooperation with global brands. The IP Joint Force System is expected to build a great working relationship as Alibaba continues to battle against the IP infringement and counterfeits. The online shopping powerhouse has witnessed an embarassing hit in the face of counterfeit products. Earlier this year, Alibaba was ruled out of the International AntiCounterfeiting Coalition of Washington.

Under the new system, individual portals would be assigned to each participating brand to enhance transparency and improve customer relationship with the brands. Alibaba, being the third party marketplace, would keep track of authenticity of each of the brands by seeking information from the rights holders about suspected products. In case of infringement, the company will then initiate Good Faith Takedown process to remove the product listing. This campaign is reinforcement in Alibaba’s strategy to improve online shopping accuracy.

Option traders are confident that neither the SEC Probe nor the Softbank sale will have any impact on Alibaba stock

Alibaba Group Holdings (NYSE:BABA) stock has recently been bearish amid investor concerns on the recent SEC probe into its accounting practices. While this has created some negative sentiments in the investors, option traders feel that there is nothing to worry as they have strategies to defend their positions. Option traders feel that Alibaba would remain a strong scrip despite the SEC investigations or the recent Softbank sale of its stock.

One of the confident investors of the Chinese e-commerce giant has sold some 21,000 put options that expire in August. The strike price of these options is $60. The transaction implies that if the stock price goes below $60, the investor will have to buy 2.1 million shares of the company. Meanwhile, another bullish investor has taken a different approach; this investor has brought 7,500 call options for July with a strike price of $82.50. This bet would only pay off the investor if the stock price is above the strike price.

In the past one year, Alibaba stock has traded between $57.2-91.6. The company is expected to report quarterly results in August and is expected to report a quarterly revenue of $29 billion with an EPS of $4.16. However, a few analysts feel that Alibaba Group has immense pressure from competitors within the US. Alibaba rival, Inc. (NASDAQ:AMZN) touched its all time high this Monday and is expected to touch a $1000 soon, according to analysts. That, accompanied with a slow chine economy poses some serious challenges.

However, it is worth noticing that despite major challenges, these investors have betted on the company. Street Houses such as Deutsche Bank and Robert W. Baird are also bullish on the stock and expect it to set a new 52-week high. The indicative TP is $99.17, which offers almost 27% upside from the current levels. Let’s see if Alibaba stock can perform up to the expectations of Street Analysts.