2 Commodity Stocks Set to Soar 🚀
Earnings reports are in, and these two commodity stocks are gearing up to soar!
Crypto Made ✨ Simple ✨: What’s an ERC-20 Token?
This week, I want to get into a more technical (but not too technical!) view of cryptocurrency.
Believe it or not, not all crypto is created equal. There are actually a bunch of different standards for creating each token.
This week, we’ll focus on the ERC-20 standard, which is the primary token standard for Ethereum.
This is extremely relevant when it comes to sending your coins from one address to another, so I want to explain it before we go any further into lessons on using decentralized finance (DeFi) apps.
A few weeks ago, I went over some of the things that you should know about Ethereum — one of which was the availability of smart contracts.
Understanding Smart Contracts 🤨
Basically, smart contracts allow decentralized finance to be possible on the Ethereum network.
When you use DeFi to trade, earn interest, borrow against your crypto, or a vast number of other things, bits of autonomous code called “smart contracts” make those transactions happen.
Back in the early days of Ethereum, the fact that anyone could make a token was a huge deal. However, there was no system set in place to make sure that these tokens were made in a uniform way.
So, there was no way to assure that apps within the Ethereum universe would be interoperable. If Ethereum was going to survive, something had to be done to make sure the process of using Ethereum-native tokens was fluid.
On November 9, 2015, one of the lead developers on Ethereum, Fabian Vogelstellar, proposed a system for creating interchangeable tokens on Ethereum.
All token creators would have to specify the following information for new Ethereum-compatible tokens:
So, Why Are They Called ERC-20 Tokens?
The formal name for suggesting token improvements on Ethereum is called “Ethereum request for comment” (ERC). This was the twentieth-ever “request for comment” on Ethereum.
Thus, the standard was known as ERC-20. Once the Ethereum developers had this system in place, it became much less of a hassle to create infrastructure for decentralized apps.
When I gave the Ethereum overview, I compared it to Android. However, the ERC-20 standard has improved on the “apps” that we use on our phones.
It allows data to freely flow from one app to the next, creating an ecosystem rather than isolated apps.
At the beginning of the ERC-20 overview, I mentioned that this plays a crucial role in sending cryptocurrencies from address to address. The reason for this is because not all coins are ERC-20, and not all addresses can hold ERC-20 tokens.
For example, if you send bitcoin to your Metamask wallet, it wouldn’t be able to accept it, and you’d lose your coins. Why? Because Bitcoin isn’t an ERC-20 token.
Only cryptos that run on the Ethereum blockchain are ERC-20 tokens.
Now, to solve this issue, there’s a process called “wrapping” that can convert bitcoin into an ERC-20 token. You may have seen “Wrapped bitcoin” with the ticker symbol WBTC on Coinbase — that’s the ERC-20 version of Bitcoin.
If you send WBTC to your Metamask wallet, the transaction will go through correctly.
That’s all for now!
Next week, I’ll mention a few of the other token standards out there — and how to tell them apart. I’ve heard too many stories about people losing tokens by sending them to incompatible accounts, so I want to make sure I get this across as easily as possible.
As always, if you have any questions, don’t hesitate to leave them down below. And thanks for reading!
Performance Update
Earnings Overview for GH, LTHM, and MP
Tale of 2 Job Reports
As earnings season winds down, we’ll soon be back to the regular programming of stock/macro updates on Wednesday and crypto updates on Friday.
This week, I’ll highlight a few of our disruptors and give my take on their Q3 earnings reports.
I also want to talk about the highly unusual employment report that we got last Friday. But first, let’s do a quick portfolio update!
For a quick summary, watch the video below. 👇
Performance Update
Performance:
Disruptors Index: -7.6%
S&P 500: -2.33%
Nasdaq: -4.85%
Russell 2000: -2.00%
ARKK: -10.03%
Top 3 Performers:
PTC Inc. (Nasdaq: PTC) +7.07%
Ethereum (ETH) +2.78%
MP Materials Corp. (NYSE: MP) +2.45%
Bottom 3 Performers:
Proto Labs Inc. (NYSE: PRLB) -37.1%
The Trade Desk Inc. (Nasdaq: TTD) -18.6%
Lemonade Inc. (NYSE: LMND) -17.52%
It was a rough week for just about every tech and or growth stock out there, as the Nasdaq fell 4.85% and ARKK, our proxy index for growth stocks, plummeted 10.03%.
We fell somewhere in the middle at -7.6%, partially due to some post-earnings selloffs in Proto Labs Inc. (NYSE: PRLB) and Airbnb Inc. (Nasdaq: ABNB).
For more info on ABNB 0.00%↑’s earnings report, check out what I wrote about it here (spoiler — I thought it was great)! I’ll also be covering PRLB 0.00%↑’s earnings next week.
But for now, I want to focus on what Guardant Health Inc. (Nasdaq: GH), Livent Corp. (NYSE: LTHM), and MP Materials Corp. (NYSE: MP) had to say about Q3.
Earnings Overview for GH, LTHM, and MP
Guardant Health Inc. (Nasdaq: GH)
Highlights:
28.7% growth in cancer test revenue year over year.
23.8% overall revenue growth year over year.
Operating costs were up 29.7% year over year.
Clinical volumes were up 42% year over year and 11% quarter over quarter.
There were 8,000 orders for Shield LDT after being on the market for just five months.
GH 0.00%↑ continues to grow at a solid pace as it works to disrupt the field of cancer diagnostics. This is one of the most competitive areas in medicine, but I find GH 0.00%↑’s technology to be extremely impressive and a huge force to be reckoned with.
I’ll do more of a deep dive on the company in a future article. But for now, I’ll just say that it has several different state-of-the-art blood tests that can detect various forms of cancer.
One thing to note about GH 0.00%↑ is it’s still in the very early stages of revenue generation. With early-stage life sciences stocks like GH 0.00%↑, it can take a while before your sales outpace your expenses.
After all, research and development (R&D) on new forms of cancer tests isn’t cheap! The reason I bring this up now is because GH 0.00%↑’s management recently announced that it’ll be around two years before it’s cash flow positive.
And I always want to give you a well-rounded picture of any stock that I make a big deal about.
I’ve said that positive cash flow is one of the top things I look at, but I believe GH 0.00%↑’s tech is worth investing in despite it being early.
The company also has $958 million in cash, which will provide years’ worth of funding for its business — this is crucial because, otherwise, it’d either have to take out debt or dilute the stock by selling more shares.
Overall, GH 0.00%↑ had a really good Q3, and the future looks very bright!
Livent Corporation (NYSE: LTHM)
Highlights:
123.6% sales growth year over year.
1,266.7% earnings per share growth year over year.
Operating margin grew from 6.37% to 45.47% year over year.
$199.3 million in free cash flow — which is almost as much as it has in cash (with no buybacks, as it’s putting it all into expansion).
It was another fantastic quarter for our lithium play, as it continues to show amazing growth and a solid plan for what it’ll do with the money.
If you’ve read my prior articles, you know by now that one of the most important things for me in a growth stock is smart reinvestment of cash flow. LTHM 0.00%↑ checks that box for sure.
In Q3, it finished the expansion of its North Carolina facility, adding an extra 5,000 metric tons worth of lithium hydroxide.
By the end of the year, the company expects to have its first 10,000 metric tons worth of lithium carbonate capacity completed in Argentina, with production starting early next year.
Those two developments alone are enough to get excited about LTHM 0.00%↑ in 2023, but there’s much more in the pipeline.
Overall, it’s putting $1 billion into growing its business in 2022, 2023, and 2024. And considering the overwhelming demand for lithium in the foreseeable future, that makes for years of massive growth ahead.
MP Materials Corp. (NYSE: MP)
Highlights:
Revenue was up 24.7% year over year.
There was a 51% increase in realized sales prices year over year.
Operating margin was up from 59.14% to 63.62% year over year.
A record $1.26 billion in cash with $685 million in debt.
Overall, MP 0.00%↑ had a great quarter. It continues to transition its business into a global leader in rare earth production.
And 2023 will arguably be its most important year yet, as it’s looking to progress from “stage 1” to “stage 2” in its three-step long-term plan.
Whereas stage 1 was mostly focused on getting its mining business up and running, stage 2 is more about refining.
Without getting too technical, the goal is to extract the most valuable parts of the Neodymium-Praseodymium (NdPr) ore that it mines.
Right now, it’s still dependent on refiners in China for that step. But stage 2 will bring more of the supply chain to the U.S. and make MP 0.00%↑ much more self-sufficient.
In its Q3 call, the company reported that stage 2 construction reached its peak during the quarter.
And next year will be a huge transition year. Based on its impressive execution to date, I see no reason why 2023 will be anything but exciting!
That’s it for this week’s earnings coverage! Next week, we’ll go over some more earnings reports for PRLB 0.00%↑, UUUU 0.00%↑, and PTC 0.00%↑.
The bear market we’re seeing can’t last forever! And when the markets shift, you want to be in stocks that have potential to bring big gains.
For access to stocks with potential to soar once the market turns from bear to bull, click here to find a tier that’s right for you!
A Tale of 2 Job 💼 Reports
We also got the October unemployment report last Friday, which is yet another example of why you should never trust the headline data.
On the surface, it looked good, with a total of 261,000 jobs added during the month — versus the estimated 200,000. Overall, I think it’s hard to argue that the labor market is anything but strong at the moment.
But this report contained two early signs of fatigue.
The first was that unemployment ticked back up to 3.7%. Now, that’s not a huge jump from 3.5%, so why is it a sign of fatigue?
If you remember back to the August jobs report, which I wrote about here, the unemployment rate did the exact same thing: It jumped from 3.5% to 3.7%.
However, this was because of hundreds of thousands of people re-entering the job market. That caused the labor force to jump higher, and since not all of them immediately got jobs, it brought the unemployment rate up with it.
With the September jobs report, we saw that the market had no problem absorbing them, as the rate fell back down to 3.5%.
This time was different. In fact, the labor force actually went down by 22,000 people in October:
This time, it was the usual reason that unemployment goes up: People got fired.
Overall, the unemployment level rose by 306,000 to a total of almost 6.06 million. That might sound like a lot, but it’s actually not bad — and neither is 3.7% unemployment.
However, we have to remember that the labor market is a lagging indicator. By the time it looks bad, the economy is already in trouble.
And when leading indicators are steadily moving down (as they have been for months), coincident and lagging indicators are more vulnerable.
The 2nd Sign of Fatigue 😴
The second sign of fatigue has to do with a different measure of employment. In each monthly report, you’ll actually see two different reports: the household survey and the establishment survey.
Whenever you see data on “employment,” it’s the household survey. And whenever you see “payrolls,” it’s the establishment survey.
In a nutshell, the household survey counts the number of individual jobs that people have, whereas the establishment survey counts the total number of jobs within the economy.
Sounds like the same thing, right? As if they’d make it easy! Here are three very important distinctions:
If someone takes a second job, it’ll show up as an increase in the establishment survey but not household.
Household data also counts jobs in the agriculture industry (which is why the establishment survey measures it as “nonfarm” payrolls).
Household data includes people who are self-employed, but establishment data doesn’t.
The difference between the household and establishment data has been one of the biggest macro stories of 2022. And in October, it got even worse.
Remember when I said payrolls increased 261,000? Well, according to the household survey, October saw a decrease of 328,000 employees:
That marks the third time in seven months where the “payrolls” were up, but the number of people with jobs actually went down.
The weirdest part is that usually there’s no meaningful difference between the two measurements. However, as you can see here, the difference has now added up to 2.3 million jobs since March:
So, why is this happening? Most people are quick to say that it’s because more people have multiple jobs.
Remember, the household data only counts the number of employed people, while the establishment data counts the number of jobs.
So, if someone has two jobs, they’ll be counted once in household and twice in establishment.
However, the number of multiple jobholders actually went down 250,000 in October and is only up 126,000 since March. That hardly accounts for the total difference of 2.3 million!
Another reason is either the difference in the self-employed or those working an agricultural job. If either one of those areas loses workers, it’d make payrolls exceed employment.
However, these two areas are only down 150,000 jobs since March.
The only other major difference I could find for October is that full-time workers decreased by 433,000, while there was an increase of 164,000 part-time workers.
Since March, full-time employees have dropped by 490,000, while part-time employees have increased by 492,000. That’s still nowhere near the 2.3 million discrepancy!
So, it’s tough to say why exactly we’re seeing such a difference between the two reports.
Either way, despite the fact the household data has been “bad,” it’s really not enough to say that we have an unhealthy labor market. But like I said, there are some signals of fatigue, and I believe it’s worth keeping a close eye on.
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Thanks for that explanation of households & establishment labor figures.