Tesla stock has not been for the faint of heart over the past few years, resembling something more of a rollercoaster than a stock. Volatility has increased dramatically over the past couple of weeks as the focus turns to Tesla’s ability to produce 5,000 Model 3’s per week, its new all-electric sedan. The hope for the bulls is that Tesla hits its target and turns profitable in the second half of 2018.

The famed inventor and CEO of Tesla, Elon Musk, who also happens to be Tesla’s largest shareholder and already the owner of 22.4 percent of Tesla’s shares, recently acquired even more stock.  It puts the short-sellers of the stock in an interesting position, stay short or cover and run.

Big Purchases

The CEO purchased an additional 72,500 shares on June 13, around $345. The timing of the purchase is surely worth noting given the company is expected to release the important Model 3 production update during the first few days of July. There has been a great deal of speculation on whether the company reaches its target.

(WhaleWisdom)

However, the recent share purchases are not his first in 2018, in fact, he also bought shares of the stock at the beginning of May, when shares were trading around $300, buying 33,000 shares. The big question is if his trades will earn him a profit and if his betting on himself pays off.

Short-Sellers Burned

Short-sellers have been torched in recent weeks with the stock up by nearly 32 percent since the start of April. The period between the middle of March until the Middle of April saw a big spike in the number of traders betting shares of the stock would fall.

The Big Gamble

The additional purchase of shares by Musk also must be making the short-sellers feel a bit shaky, especially given the timing of the purchases, and his willingness to pay a relatively high price for the stock when compared to where shares have traded over the past year. It is Musk betting the value of shares will continue to rise, and that would imply the outlook of the company may be about to get better.

Perhaps, in the grand scheme of things, Musk buying an additional 100,000 shares of stock over the past two months doesn’t amount to much. One must remember he already beneficially owns 37.85 million shares, and 100,000 shares are only a small portion of his total holdings.

Where Tesla’s stock goes over the next several months will be largely dependent on just how successful the company is at executing on its plan to reach 5,000 model 3’s per week. Should that happen, then perhaps Musk’s future purchases could be view as a “tell” worth watching for in the future. However, if Tesla should fail, Musk’s gamble may have been nothing more than a bluff, trying to break the nerves of the shorts.

By Mark W. Gaffney
For WhaleWisdom.com

John C. Goff, a Texas Billionaire investor and chairman of Fort Worth-based Crescent Real Estate, filed a 13D on June 13 disclosing an 18.3% position in Houston-based Contango Oil and Gas ( MCF $5.91).

Since reporting the purchase of $4.67 million of MCF between June 6 and June 12, Goff has continued to accumulate the shares. Via Form 4 filings on June 18, Goff disclosed the purchase of an additional 108,500 MCF shares on June 14 & 15.

Contango Oil and Gas shares have reacted positively to the disclosures. After closing at $4.70 on June 13 prior to the 13D, MCF rose to $5.87 on the June 19 close.

Contango, with a market cap of $147 million, produces crude oil and natural gas in shallow waters of the Gulf of Mexico and onshore properties in Texas and Wyoming. The company was a high flyer in years past, trading over $90 in 2008 before the crash in oil prices. Since the death of the company’s founder Kenneth R. Peak in 2013, Contango has struggled, and as oil prices touched multi-decade lows, investors appeared to price MCF as if it was on the road to bankruptcy.

MCF share price (light blue) 2001 to present. Dark blue 13F shares held. Source: WhaleWisdom.com

On the surface, a sudden turn in Contango’s operational profitability looks unlikely. The mean estimate of the 7 analysts covering MCF is for a loss of $0.57 per shares this year and a loss of $0.32 per share next year. However, there are catalysts that could propel MCF stock higher.

It’s likely that a key factor in Goff’s interest in MCF relates to the company’s ownership of property in the Permian Basin, one of the hottest areas for oil and gas development in the U.S.

The Permian is a 75,000-acre expanse of land in west Texas and southeastern New Mexico — about the size of Nebraska — that sits on a massive oil and gas deposit. Through hydraulic fracking and horizontal drilling, this shale play has led the U.S. resurgence in oil production. Thanks in large part to Permian production, the U.S. will soon become the world’s top oil producer, overtaking Saudi Arabia and Russia. In fact, if the Permian were in OPEC, its production would rank it #4 behind Saudi Arabia, Iraq and Iran.

The major oil companies have moved into the Permian in a big way. Exxon Mobil, Royal Dutch Shell and Chevron head the list of companies that have bought thousands of acres in the Permian in recent years, investing billions of dollars in properties that produce a steady stream of oil, gas — and profits. The big players, seeking to increase operational efficiencies, have been buying up smaller producers.

On March 28, 2018 Concho Resources (NYSE:CXO) announced it was buying RSP Permian Inc. (NYSE:RSPP) for $8 billion dollars. The deal valued RSP’s Permian properties at about $76,000 per acre.  The purchase could mean it is “game on in the Permian,” investment bank Jefferies Group LLC told the Wall Street Journal, as other producers in the region could move to snatch up smaller competitors.

Contango has significant operations in the Permian Basin. In July of 2016 the company struck a deal to purchase an interest that net it 5,000 acres in the Delaware Basin, a particularly desirable part of the Permian, for $25 million. The deal price implied a $5,000 per acre valuation, a bargain compared to recent Permian transactions.

In February of 2018, Seaport Global listed Contango as a candidate to be acquired by larger Permian players, along with Resolute Energy Corp., Energen, Jagged Peak, Abraxas Petroleum Corp. and Halcon Resources Corp.

It’s telling that John Goff has also built a large position Resolute Energy (NYSE:REN). His initial 13D on that company was filed back on June 22, 2015 when the stock was around $4. It now trades around 32 — Goff and his affiliates are sitting on substantial gains in REN.

REN share price (light blue) 2001 to present. Dark blue 13F fund holdings. Source: WhaleWisdom.com

In a 13D/A filing on May 17, 2018 Goff announced his group bought an additional 298,000 shares of REN in the 1st quarter of 2018, increasing his beneficial stake to 8.73%. In addition, it was announced that Wilkie Colyer, a Principal of Goff Capital, Inc. was appointed to the board of Resolute Energy.

In a separate news release, Resolute announced that “the expanded Resolute Board will promptly conduct an in-depth review, assisted by its financial advisers, Goldman Sachs & Co. LLC and Petrie Partners, LLC, of Resolute’s business plan, competitive positioning and any potential strategic alternatives that will enhance the Company’s goal of creating stockholder value.”

Meanwhile, in the Contango 13D, Goff states that his group:

“will seek to engage in discussions with one or more stockholders or lenders of the Issuer, one or more officers of the Issuer and/or one or more members of the board of directors of the Issuer and/or one or more representatives of the Issuer regarding the Issuer, including but not limited to its operations, assets, business strategy, corporate governance, and/or financial condition.”

Both MCF and REN operate in the Delaware Basin – a highly prolific area of oil and gas production that is undergoing consolidation. One wonders if billionaire investor John Goff believes a combination of the two companies would make his stakes in them much more valuable.

Goldman Sachs Group (GS) was one of the hottest stocks in the first quarter among Hedge Funds. However, shares of the investment bank haven’t fared well overall in 2018 with the stock down by over 5 percent on the year, and almost 18 percent off its highs.

The stock’s poor performance in the second quarter may mean that the investors that were piling into the stock in the first-quarter are running for the exits. Although Goldman’s business has seen a boost due to tax-reform, the big growth rate seen in 2018 is expected to decline materially in 2019, while a flattening yield curve may impact growth further.

Piling In

Hedge funds where aggressively adding to their positions in Goldman in the first-quarter. The total number of aggregate 13F shares held by hedge funds increased by over 7 percent to 23.5 million shares. In fact, Goldman’s stock was rated as the second hottest stock in the first-quarter on the Whale Wisdom heat map, just behind Worldpay, Inc. (WP).

(Whale Wisdom)

In total 38 hedge funds started new positions in the stock, while 48 added to their holdings. Meanwhile, 45 funds reduced shares, while 22 exited. However, as aggressive as the hedge funds were adding the stock to their portfolio, large institutions were reducing their stakes. The number of total aggregate 13F shares held among all institutions dropped by about 1.6 percent to 278.8 million shares.

Missing the Rally

Goldman’s stock has missed the entire broader stock market rally in the second quarter, with shares falling by nearly 8 percent, with the S&P 500 rising by over 5 percent. Shares of Goldman, like many of the banks have struggled since reporting results in the middle of April, with one of the biggest headwinds facing the group currently being the flattening yield curve.

Slowing Growth

Another potential headwind facing Goldman, like many of the banks is decelerating growth. Earnings are forecast to grow by nearly 15.9 percent in 2018 and fall to only 6 percent in 2019. Meanwhile, revenue growth is seen slowing from 9.5 percent in 2018, to just 2 percent in 2019.

Even worse, those growth rates are considerably lower than Morgan Stanley (MS) which is forecast to grow earnings by 31.5 percent, and revenue by nearly 13.9 percent in 2018.

Not Cheap

Even with the pullback, the stock is still at a lofty level on a price to tangible book value, at 1.3. In fact, the current valuation places Goldman at the upper end of its historical range over the past five years.

The rush into Goldman’s stock may have simply been a case of buy the rumor and sell the news, while the stock faces an even greater decline should hedge funds be moving out of the stock.

By Mark W. Gaffney
For WhaleWisdom.com

A 13D Filing by a cannabis industry insider is the latest indication of institutional investing interest in the emerging cannabis sector.

On June 11, Jason Adler, Founder and Managing Partner of Gotham Green Partners, a cannabis focused private equity fund, disclosed the purchase of 200,000 shares of The Cronos Group (Nasdaq: CRON) on April 4 at $5.27 on the open market. As of June 11, CRON was trading at $6.96. Adler is a director of Cronos Group, and with the recent purchase he beneficially controls 9.4% of the company’s shares, including warrants and options.

Adler’s purchase comes on top of other significant fund purchases of CRON in the first quarter of 2018, including:

• 13 million shares acquired by Chescap Manager LLC
• 1 million shares by ETF Management Group
• 1 million shares by JW Asset Management

Cronos Group is a Canada-based marijuana producer seemingly well positioned to capitalize on the expected Canadian legalization of recreational marijuana later in the summer of 2018.

In addition to the large increase in 13F shares, the 1^st quarter of 2018 saw 59 funds create new positions in CRON. Many of these positions were small and likely reflect fund managers toeing the cannabis waters before making large commitments. Nonetheless, it appears that at least some institutional investors are beginning to take marijuana stocks seriously.

Cannabis is legal for recreational or medical use in 38 states in the U.S. However, it remains illegal at the federal level, leaving nascent U.S.-based public marijuana companies to trade on OTC exchanges, where financial requirements and regulatory scrutiny are reduced. Most institutional investors will not buy OTC stocks. Up until recently, the largest, most established cannabis stocks have traded on the Toronto Exchange. Commercial cultivation and sale of medical marijuana has been legal nationwide in Canada since 2013 and recreational legalization appears imminent.

However, over the last year, two Canadian marijuana producers have listed shares on major U.S. exchanges: Cronos Group (Nasdaq) and Canopy Growth Corp (NYSE: CGC).

Canopy Growth began trading on the NYSE May 24. In October of last year, Constellation Brands, parent of Corona Beer, bought 9.9% of CGC. It was the first foray by a large alcoholic beverage company into the cannabis sector. Many industry observers believe it won’t be the last. 13F filings for the 2nd quarter published on August 15 will disclose institutional holdings of the newly listed CGC shares.

Leading Cannabis cultivation stocks by market cap.

* In agreement to be purchased by Aurora Cannabis

North American legal marijuana revenue increased 33% to $9.7 billion in 2017. By 2021, this figure is estimated to reach $25 billion — a 28% compound annual growth rate, according to cannabis research firm ArcView.  This growth trend has captured the attention of many investors looking for fresh opportunities as the equity bull market ages.

However, the speculative interest in legal cannabis has driven up the valuations of the few pure play marijuana stocks available. Aurora Cannabis’ proposed purchase of MedReleaf (TSE: LEAF) for roughly CA $3.2 billion (US $2.5 billion) will further reduce the public marijuana investment options.  Institutional money looking for exposure to the rapidly growing sector must either pursue private ventures or invest in one of the richly valued public cannabis stocks.

Though Cronos Group had FY 2017 sales of $4.1 million, up 636% year over year, net income was negligible. Share offerings over the last couple of years have caused fully diluted shares outstanding to balloon from 44 million in 2015 to 177 million today. CRON’s TTM price to sales ratio is a stratospheric 167.

The elevated valuations have caught the interest of short sellers. Short interest in CRON has been rising steadily and as of 5-31-18 stood at 12.49 million shares, or about 5X average daily volume.

Shares of Box Inc (BOX) jumped to the top of many investors list when famed investor Chamath Palihapitiya, the CEO of Social Capital and known for his investment calls, named the company as his best idea at the Sohn Conference back in April.

Shares of the cloud base storage company are up by roughly 22.3 percent in 2018, and nearly 39 percent over the past year. However, most of the big gains came after the Sohn conference, jumping by 25 percent. Before the big reveal at the conference, shares had been down about 2.25 percent.

Buying Up Shares

It turns out Chamath Palihapitiya wasn’t the only investor that thought it was a great stock pick because institutions were adding shares of the stock to their portfolios during the first quarter as well. Box was added to the WhaleWisdom 100 Index in the middle of May, due to the strong appetite for the stock among institutions.

During the first quarter, the number of aggregate 13F shares rose by over 8 percent to 107.4 million from 99.3 million at the end of the fourth quarter. 40 institutions started new positions, while 80 added to existing ones. Meanwhile, only 61 reduced their stakes, while 37 closed their holdings completely. Interestingly, the number of shares held by hedge funds, declined by nearly 11 percent, with the total aggregate 13F shares falling to 22.4 million shares, from 25.71 million shares the prior quarter.

A Bet on the Future

To be bullish on the stock is betting on the future of the company. Bulls can see a path of Box becoming a major player in artificial intelligence. However, for Box to be successful, it also likely means taking on Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL), and Microsoft Corp. (MSFT), and a bunch of other companies competing in the cloud and data center.

Waiting a Bit Longer

For now, the bulls will have to wait, because, for fiscal 2018, the company is expected to take a loss of $0.17 per share, on revenue of $606.43 million. However, those losses are expected to turn to gains in fiscal 2020, with earnings climbing to $0.06, and then $0.28 per share in 2021.

Revenue growth is not expected to be as robust, forecast to grow by 21.3 percent in 2020 to $735.5 million, and then slowing to only 13.5 percent in 2021 to $834.2 million.

It is a huge bet that Box can become a major player in the race for dominance in AI and the data center.

Unfortunately, we will have to wait a bit longer to find out for sure.