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WHILE YOU POUR THE JOE… ☕️
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Good morning; it’s terrible today. Actually, it’s been bad for a while now.

Still, not that bad for our audience, at least the ones who read this post on why Lockheed Martin stock would come out a winner, we saw that baby rally by 6.3% yesterday 🔥. So, you’re welcome.

Hedge funds are now running to take their profits off the table as the landscape gets cloudier and cloudier each day. The Fed promises interest rate cuts soon, and the economy seems to be stuck more and more each day.

On the other hand, you have a President who is sort of MIA 👀 after announcing that Kamala Harris (God save us) will be running for the presidency against Trump.

To top it off, you have the Venezuelan elections on July 28th 📆, which, believe it or not, might set off WWIII if the opposition is assassinated or the US is forced to intervene in Russia’s and China’s plans.

Speaking of interventions, let’s get on with today’s email 📧…

EVENT DRIVEN STRATEGY
Try Turning it Off and On Again

That’s the frustrating advice everyone gets when they head to an Apple store, even if your device is half broken and plugged into life support.

Well, a global version of that overwhelmed everyone in the past few days, as those relying on this one data manager and cybersecurity powerhouse saw many issues hit their respective businesses and customers.

What do a long line at the airport, a blacked-out New York Times Square billboard and a blue error message covering the Las Vegas Eye have in common?

They all rely on the same company, that is:

Crowdstrike Holdings (NASDAQ: CRWD)

Whoever was in charge of the latest software update rollout is looking into a different career prospect; it probably was an intern too.

A bug in the global software update caused a systemwide shutdown 🫢, and nobody really emerged untouched—well, except for those whose businesses don’t rely on the cloud, which aren’t many today.

The good thing is that the bug has been fixed ✅, and major customers like Microsoft have already rolled out the clean version.

However, shares of Crowdstrike stock are still down over 30% for the month and over 20% this week alone 📉, but that could change soon.

A Wrinkle in Time

Back in 1965, American Express stock plummeted due to a salad oil scandal. In short, the company had reported holding a bunch of oil barrels in its balance sheet, but it turns out they were conned; these barrels were full of salad oil.

The result? The stock crashed, and Warren Buffett bought it all day 💰️ at a discount. It was easy for him because of a few things:

• Amex still had thousands of loyal customers worldwide, and a brand moat that was untouched.

• The barrels didn’t really have anything to do with the core operations of the business, so who cares?

The same can be said about Crowdstrike today; that’s why you should:

Buy the Dip, Maybe?

We say maybe because this isn’t financial advice, but we are buying it; we’re buying a looot of it.

The reason is simple:

All the metrics we care about are growing 📈—so fast that not even a bug can slow them down. Compared to Amex’s incident, this bug has (had) nothing to do with Crowdstrike’s core operations, so we expect this momentum to continue.

In fact, here’s how much we can expect it to keep accelerating by:

Add to this momentum that Crowdstrike has over 29,000 high-profile clients, all based on subscription-based revenue.

This type of revenue makes it easier for Wall Street to predict and project a company’s financials and, therefore, value it.

Those at Canaccord Genuity Group have reiterated their buy rating on Crowdstrike (literally on Monday, July 22) and set a price target of $405 a share 🎯.

That’s over 53.4% upside 🔥 from Monday’s dip, by the way.

But more than that, here’s what we found in the chart and what the market is trying to do to this stock.

If you don’t know how to read this chart, you probably aren’t looking to work in a bank or a hedge fund sales and trading role.

It’s basically the “print” of the stock for a day or at which price level there was acceptance or rejection based on volume.

What that means for Crowdstrike stock is that a lot of volume took place at the $300- $305 level to adjust for the next move in the bug-driven selloff (see the long yellow bar), and prices will likely look to return to this level in the future.

For Monday, the print shows minimal trading at the $300-$305 level, which was quickly sold down to find a new fair value or a stopping level, as this range is now an ‘excess.’

That new level is $260 to $265. We expect the stock to trade near that level for the next 2-3 days and then make its way back to $285 or $290. We will have to see buying pressure there to justify a run back to the previous value level of $300-$305 🎯.

At that point, we’d have made a run of nearly 40 points on a stock, which is a nice payday for us and you if you choose to take this on, too.

One last check with the market, here’s how Crowdstrike stands out from the crowd (pun intended).

Compared to peers like Zscaler and Datadog or even Fortinet, Crowdstrike stands out in two metrics.

• Higher expected earnings per share growth (EG2 column)

• Price-to-book valuation multiples (P/B column)

Stocks typically trade at premiums for a very good reason, and the fact markets are still willing to buy this stock at a premium despite a recent incident tells us all we need to know 🔎.

STOCK OF THE WEEK
Turns Out, People Don’t Like Ads

Who would’ve guessed right? Listening to music - or podcasts - is enjoyed a lot more without the burden of advertisements cutting you off right as you’re finding your groove.

This is why we decided to look deeper into the one stock we believe will make headways into becoming a massive compounder 📈.

It’s already a household name, and the premise for our qualitative analysis lies in the shameful position you’re put in once ads hit and you’re in charge of the aux chord on a road trip.

Spotify Technology (NYSE: SPOT)

The stock was up over 14% yesterday after announcing its second-quarter 2024 earnings results, and there are a few drivers you should watch over if you are considering this stock for yourself.

If you are a Spotify Premium member already paying a membership fee, you might as well know what the company is doing with your money.

User growth totaled 14% over the year, but not all users are created equal. There are advertisement-based users and subscription-based users.

Notice on the financial aspect that subscription users made up most of Spotify’s revenue. That’s a good thing since this stream of cash flows can be easily predicted and projected moving forward.

Also note that revenue for premium users grew by 21% over the year 🔥, which should have made it easier for the finance department to manage this capital efficiently.

Operating income grew from a net loss of $247 million in 2023 to a net income of $266 million in 2024; now, that’s the power of subscription-based income; it makes keeping up with - and planning - expenses much easier.

The exciting part comes through Spotify’s free cash flow (operating cash flow minus capital expenditures), which grew from $9 million in 2023 to $490 million in 2024 🎯.

What this means is that management can do a lot more things with this free capital, such as:

• Reinvest back into the company, which today (at early profitability stages) will generate up to 5% return on invested capital (ROIC) 💰️ rates, not great but it’s a start.

• Repay debts, which isn’t really a priority right now considering that Spotify’s balance sheet is only 35.6% debt.

• Pay dividends, again not likely given that the company is still young.

• Buy back shares, which is the likeliest of the options here, and the way that investors can most aggressively compound their capital.

This could be why Benchmark analysts decided to boost their price targets for Spotify stock to $405 a share, which calls for up to 22.1% upside 🔥 from its current price.

NOW GO AND MAKE IT HAPPEN
Scuttlebutt Investing

So, you know how you can sometimes spot an investment just by hearing someone recommend a product or noticing a massive social trend in one direction?

That’s the case with Spotify. Today’s generation cares more about no ads than saving for their future, and we can exploit that. But if you want to spot more trends like these, then today’s book recommendation 📖 can help you.

To your success,

G. 🥃