Why You Should Avoid Buying Eastman Kodak Stock Right Now

… cryptocurrency bubble in 2018, the company’s management announced it would be conducting an initial coin offering (ICO) of its KODAKOne coin, …

In 1988, camera giant Eastman Kodak(NYSE:KODK) made its debut in the pharmaceutical sector by acquiring Sterling Drug for $5.1 billion. The company argued that the chemicals used in its photography busines could have potential uses as active pharmaceutical ingredients (API). The venture was moderately successful, and by 1994, Kodak had sold the entirety of its Sterling Drug segment piece by piece for a combined total of $6.5 billion, netting a $1.4 billion profit.

Twenty-six years later, Kodak is back at it again with the announcement of a $765 million government loan for the company to make generic APIs to treat COVID-19 patients. However, this time, the deal has been plagued by allegations of misconduct, leading the Trump administration to halt the loan payment until further notice. If investors are buying shares of Kodak thinking the deal will continue, they may be out of luck. Here’s why.

Portrait of a sad dog by a digital camera.

Image source: Getty Images.

Striking allegations

Days after news of the loan became public in late July, Kodak’s stock soared more than 1,000%, from about $2 per share to nearly $30. However, it turned out that before the information was released, company insiders had awarded themselves millions of shares in stock options, the value of which swelled to over $50 million within just two days. This sketchy behavior has led to multiple allegations of insider trading.

On Sept. 16, management stated that an investigation conducted by Kodak’s internal review committee found no wrongdoing, and the stock soared 36.6% by market close. But investors tempted to buy shares on this news should be very aware of a potential conflict of interest — after all, the company hired the team of detectives that reached this conclusion. Indeed, the Securities and Exchange Commission’s external investigation into the circumstances surrounding Kodak executives’ trades is still ongoing.

There are ample reasons for so much scrutiny. For example, when the stock reached its peak of $60 on July 29, a Kodak board member named George Karfunkel donated $116 million worth of stock to a charity foundation he presided over. Now that the stock is only worth $8.51 per share, the IRS’s tax code would allow Karfunkel to deduct the full market value of the stock holdings at the time, or $116 million, as a tax write-off.

History repeats itself

Every day, coverage of the COVID-19 pandemic is probably the first thing people see when they read or watch the news, and Kodak is no stranger to trying to capitalize on publicity. During the peak of the cryptocurrency bubble in 2018, the company’s management announced it would be conducting an initial coin offering (ICO) of its KODAKOne coin, which was supposed to help photographers store their images and manage intellectual property rights.

The project never took off. By November 2018, Kodak owed over $100,000 in unpaid expenses for the developers it hired. As of September 2020, there is still no news of the coin’s ICO. Within a year, Kodak stock rose from $3 per share to $12 on the news of KODAKOne in development, only to fall back down to sub-$3 levels.

Takeaways for investors

The widespread use of smartphone cameras, coupled with travel restrictions caused by COVID-19, have dealt a severe blow to Kodak’s growth potential. During the second quarter of 2020, the company’s revenue declined by 31% year over year to $213 million. Kodak is also not profitable, posting a quarterly net loss of $5 million.

Even though the company only has a market cap of $632 million, it is not clear how Kodak can turn its business around. Until it does, the company may be bleeding from its net cash balance of $65 million. Furthermore, even if Kodak is somehow cleared of all insider-trading allegations and receives the $765 million loan, it is still a loan — one that will need to be repaid. In such a scenario, if Kodak finds it cannot turn a profit after hefty investments in manufacturing equipment, it will be in serious trouble. Therefore, investors looking at pharmaceutical stocks should consider other options with far fewer risks than Kodak.

Bitcoin Is Shaky But Medium-Term Bull Case Intact: On-Chain Analyst

Bitcoin is one of the most known virtual currencies which has gained worldwide publicity. The users or traders of this currency always note that the rate …

Bitcoin is one of the most known virtual currencies which has gained worldwide publicity. The users or traders of this currency always note that the rate is going up with every passing day. This also has attracted the attention of analysts, and they are also quite bullish about the future rate of this currency. One such view has been in trend in the past some days where it is said by an expert that the price of this currency will remain intact in medium-term also which is indeed good news for the virtual currency lovers.

The Bitcoin price is seeing some downside in recent weeks, but analysts are hoping that it will turn around in the near term. Willy Woo, On-chain analyst, says that the mid-term outlook of Bitcoin is bullish even as the price has remained below $10000 for three days consecutively.

The trend for the short term for BTC looks weak as the price slipped from $11462 to about $10000 in a matter of five days. The 12.6% drop was a huge one, and many investors were not anticipating this much volatility in BTC considering its performance in the last few months. Gold has also lost momentum in recent weeks as the US dollar sees some recovery in the market.

Bitcoin price Bitcoin price

How can Bitcoin sustain momentum?

In the opinion of Willy Woo, On-chain local indicators are showing a bullish trend for BTC. This includes Holding activity, network activity and NVT ratio. The NVT signal, for example, identifies the peak value of the market by evaluating the price of BTC against daily transactional value. In the same manner, network activity is also indicating a positive outlook in the medium term for Bitcoin.

As the price of BTC has dropped from $12000, several data points indicate a bullish trend in the midterm. One interesting thing about the market activity is that the network activity has remained pretty stable even as the price of BTC fell nearly 20% from the year high levels.

Willy Woo said that the price of BTC might not have bottomed, but he is bullish about the next few weeks. He says that when you are playing the big swings, this is not a bad time to buy back BTC and go long for the medium term.

Many traders are closely observing the $9650 as this is the gap between CME Bitcoin futures market and other exchanges. This gap forms when CME closes during the weekend, and it has been steady since July. Once this gap is filled, it can lead to further bullish trends in the market, according to many traders.

Willy Woo also has a similar opinion on this gap, and he says that longs can get filled with solid liquidity at such gaps. He added that the big players in the derivatives exchange have the capacity to fill such gaps with strong liquidity and give a further boost to BTC shortly.

However, some traders are concerned with the high NVT ratio of the BTC. When this ratio remained Higher than 70 earlier, it had made a local top. This time around, the NVT is still close to 81.5, and this is a matter of concern for some traders.

Su Zhu, CEO of Three Arrows Capital, says that the probability of BTC moving to $100K is more likely than BTC declining to $5000. The amount of liquidity at $8800 levels on Bitfinex is giving a huge boost to the positive sentiment. Considering such indicators, many people are expecting levels close to $8800 as this can offer huge support for the next bullish trend.

Earlier in March, the price of BTC had declined 50%, and this is unlikely to happen shortly as the BTC has defended $10000 for a long time now. It has added many new investors in the recent past, and most of them are likely to add to their positions if they see any further downside. This can give it good momentum in short to medium term in the market.

Apart from this, even the Fibonacci levels are indicating good support for the BTC in the near term. While the immediate support comes in the range of $9665 levels, the near term support is somewhere around the $8100 mark. On the other hand, if both these levels are broken due to market conditions, the long term support is close to $7000 and most analysts expect that this will be the near term bottom for BTC if it comes to this level in this downtrend.

However, things may not go so bad if the CME gap is filled in the vicinity of $10000. In that situation, most traders expect some near term resistance near the $10400 levels for the BTC. If the price of BTC manages to hold this level for at least a few weeks, there is a good chance that it may even cross the previous high of $12500 in the upcoming months. Once this level is reached, the big bull rally will begin, and not many people are clear about what levels it can reach in the future.

The recent pandemic has triggered huge losses for various economies around the world. Given this situation, the dollar value is likely to get affected due to a stream of stimulus packages announced by the government. After the November presidential elections, the US may announce a host of big stimulus packages to boost the economy. All these conditions are providing a boost to the cryptocurrencies indirectly as they are weakening the currency value by offering stimulus.

However, governments have little choice in this situation. In this situation, most people look forward to investing in BTC and other cryptocurrencies that are not controlled by governments. This will be the future of international currency, and Bitcoin has a good chance of becoming the leader in the race. Once the previous high of $12500 is taken out, a new bull rally is likely to get triggered that can further boost the demand for BTC in the market.

Intercontinental Exchange Stock Is Quite Expensive

Its stock is in sync with the S&P 500 index, as the company has profited from higher trading volumes in the securities market due to the Covid-19 crisis.

After a 50% rise since the March 23 lows of this year, at the current price of around $100 per share we believe Intercontinental Exchange’s stock (NYSE: ICE) looks fully valued based on its historic P/E multiples. Intercontinental Exchange, one of the largest exchange operators and clearing houses in the world, has seen its stock rally from $67 to $101 off the recent bottom compared to the S&P which also moved around 50%. Its stock is in sync with the S&P 500 index, as the company has profited from higher trading volumes in the securities market due to the Covid-19 crisis. Notably, its revenues grew by 7% y-o-y in the second quarter, mainly driven by 33% growth in total transaction and clearing revenues. Further, its stock is still 10% above the levels seen in late 2019.

Intercontinental Exchange’s stock has bested the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. This seems to make it fully valued as, in reality, trading volumes in the securities market are likely to normalize over the next few months.

Some of the rise of the last 3 years is justified by the roughly 15% growth seen in Intercontinental Exchange’srevenues (revenue minus transaction-based expenses) from 2016 to 2019, which translated into a 35% growth in Net Income. The Net income figure was higher in 2017 due to the one-time effect of the U.S Tax Act.

While the company has had stable revenue and earnings growth over recent years, its P/E multiple has seen some increase. We believe the stock is unlikely to see an upside after the recent rally and the potential weakness from a recession-driven by the Covid outbreak. Our dashboard Why Intercontinental Exchange Stock moved 88% between 2016 and now has the underlying numbers.

Intercontinental Exchange’s P/E multiple has changed from just above 22x in 2016 to about 27x in 2019. While the company’s P/E is around 29x now, there is a downside risk when the current P/E is compared to levels seen in the past years – P/E of close to 27x at the end of 2019 and around 22x as recently as late 2016.

So what’s the likely trigger and timing for the downside?

Intercontinental Exchange (ICE) owns exchanges for financial and commodity markets. It generates more than 62% of its revenues from Transaction and Clearing Fees which are charged on a per-transaction basis for trading in derivatives, cash equities, fixed income, equity options, etc. The Covid-19 crisis and economic uncertainty have resulted in high market volatility, leading to a significant jump in trading volumes. This, in turn, means that the exchange would generate more revenue in terms of transaction and clearing fees. However, as the economic condition improves in the coming months, market volatility is likely to decline, normalizing the trading volumes. This implies that the Intercontinental Exchange’s revenue growth rate is likely to decrease in Q3 on a sequential basis.

Additionally, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which helped to set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view, with investors now mainly focusing their attention on 2021 results. Though market sentiment can be fickle, and evidence of a sustained uptick in new cases could spook investors once again.

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OTC Markets Group adds Blue Sky Data Product for secondary securities to its premium data offering

… stay in compliance with State Securities rules for more than 16,000 OTC Equity Securities and 80,000 OTC Corporate Fixed Income Securities.

OTC Markets Group Inc (OTCQX:OTCM) has introduced a premium Blue Sky Data Product to help broker dealers stay in compliance with State Securities rules for more than 16,000 OTC Equity Securities and 80,000 OTC Corporate Fixed Income Securities.

These securities are traded on the OTC market rather than on an exchange, and the regulations that govern them, known as blue sky laws, vary state-by-state for investors and broker-dealers.

That’s where OTC Markets’ Blue Sky Data Product comes in. The group has compiled a data feed that provides its subscribers the tools they need to evaluate blue sky compliance for more than 96,000 securities from some 50,000 issuers.

READ: OTC Markets Group beefs up online investor resources with bank holding company data

The product differentiates itself on both the unparalleled depth of coverage and timeliness of accurate data, the group said. By integrating these data feeds into their daily operations, broker-dealers can streamline compliance with state securities laws for secondary trading.

“Our blue sky data product will help broker-dealers and investment advisors automate a key compliance function for the growing OTC equities and debt markets,” EVP of Market Data and Strategy Matthew Fuchs said in a statement. “Blue sky data can radically decrease the time and effort spent on state securities law compliance while opening up the world of OTC securities to Advisors, [separately managed] accounts and investors.”

Automating the blue sky whitelisting process lets brokers do more business in securities that meet those laws and enables brokerage firms to block bad trades before they are entered, the group said. OTC Markets’ data reduces regulatory risks, lowers compliance costs and enables advisors, brokers and research analysts to recommend and cover OTC equities and fixed income.

The data itself is powered and delivered daily by OTC Markets’ data sets and cloud-based architecture. Compliance professionals can also access historical data for each security through the group’s Canari web application.

To get a more granular view, users can also utilize Canari to access state-by-state compliance data. Additional dashboards provide a blue sky compliance map, summary level data by jurisdiction and time period selection.

The New York-headquartered OTC Markets Group operates the OTCQX Best Market, the OTCQB Venture Market, and the Pink Open Market for more than 11,000 US and global securities.

Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com

Follow him on Twitter @andrew_kessel

Opinion: Zombie companies are proliferating — here’s how to keep them out of your stock portfolio

Stick to mainly mega- and large-cap stocks and seek out ‘runners’ and ‘fighters’. AFP via Getty Images.

There are investments lurking in portfolios today that, if left unaddressed, may wreak havoc on longer-term investment returns. Zombie companies — those with excessive debt levels and failing business models — are presenting new and unforeseen challenges for investors.

Read:Schwab’s Liz Ann Sonders: Stock market today is ‘a small handful of winners and a heck of a lot of pain’

Minimizing zombie risk

In the first half of 2020, the number of zombies more than doubled. In certain sectors, this trend has become even more pronounced: The tally of energy and consumer discretionary businesses that fell into the zombie abyss tripled over that same time period. Smart investors have already seen that across the entire corporate landscape, technological changes and shifting consumer preferences have rendered many business models obsolete.

Fortunately, there are ways to minimize the risk of ill-fated zombie businesses to one’s portfolio.

First, with this pandemic-induced environment in mind, it’s worth putting into perspective the impact of zombies by simplifying the equity universe into three types of companies: runners, fighters and zombies.

Runners, in short, are growing companies in growing markets. The most visible examples are the mega-cap technology firms. But runners exist in other markets, too. They can grow in a Covid-19-infected economy and can do so profitably. Even as some runners risk growing too large and attracting attention from regulators, they’re making life worse for the zombies, with every percentage point of gained market share coming at the expense of these companies.

Fighters are those companies battling for, and winning, market share in flat or low-growth markets. Fighters may have growth-like characteristics or may trade at low valuations. They’re not limited by geographic or size distinctions. Technology and a landscape permanently altered by Covid-19 are presenting new opportunities for these companies to reinvent themselves through innovative customer experiences, for example. Large retail brands featuring a direct-to-consumer relationship and omni-channel capacity are illustrative of fighters finding new life in a challenged space.

Which brings us to the zombies. Losing share, losing pricing power and being kept alive by debt servicing, zombies ultimately cannot cover their cost of capital. Fundamentally, zombies lack a path to profitability.

The pandemic has accelerated the zombie’s demise, and certain industries have become more infested with them. The energy sector, particularly exploration and production firms, are plagued by low prices, weak demand and leveraged balance sheets. Banking, already squeezed by a diminishing branch footprint, has been negatively impacted by the flattening yield curve, a record-low rate environment and stagnating loan growth. The communications industry is also a breeding ground for zombies, as shifts in consumer preferences for content, including more customized streaming options, have made legacy structures obsolete.

One obvious question arises about zombie companies: How long can they survive? It depends, but a zombie’s negative impact to your portfolio can last for years — and the issue is exacerbated by today’s monetary environment. Even as their fundamentals decay, zombies continue to shuffle forward, underperforming the market and introducing unhealthy competition to the real economy. The wave of monetary stimulus since the 2008-09 financial crisis has made access to capital historically easy, providing fresh food (cheap debt) to the business model with no future.

Next steps

So, in this uncertain world, how should investors manage the risk posed by these fundamentally doomed companies? As policy decisions drive market performance and prop up failing businesses, investors must carefully assess the characteristics of their holdings to discern the living from the living dead.

First, go big. We believe an overweight to mega- and large-cap firms (Russell Top 200 Index, Russell 1000 Index) will shift equity holdings to a significantly safer neighborhood than the more zombie-populated small-cap universe (Russell 2000 Index) can provide. Certainly, there are plenty of large-cap zombies as well, but the likelihood of being exposed to a failing company is higher in small-caps.

Next, seek runners and fighters. Finding long-term winners in the current environment is a difficult undertaking, but rigorous analysis can help uncover fundamentally good business. For example, maintaining an equity bias toward growth characteristics could help limit zombie exposure. Even within the much-maligned value equity universe, looking for stocks that can grow profitably — by gaining market share or by building brands — often distinguish the runners and the fighters from their doomed peers.

Finally, play offense in fixed income. Yes, fixed income proved to investors in 2020 that credit can, and will, break out of its lower-volatility slumber quickly in response to new information. That said, we’ve seen a remarkable normalization in the level of volatility in fixed income markets, and we see opportunity in investment-grade and preferred securities as an effective means of driving additional risk-adjusted yield. Within high-yield fixed income, zombie risk is best addressed with an active approach that limits potential drawdown risk from zombie surprises.

Within the credit universe, to identify those industries with the highest incidence of zombie companies, we review several criteria including debt interest coverage. When examining this metric within the high-yield market, the consumer-discretionary and energy sectors show the highest prevalence of zombies, while in the investment grade credit space, energy and industrials show the most extensive occurrence of zombies.

By taking steps to minimize the negative impact of zombie companies, investors will be better positioned to navigate financial markets as this exceptional time unfolds.

Todd Jablonski is chief investment officer of Principal Global Asset Allocation at Principal Global Investors.