The Cyberattack Halting Billions in Business
|
Listen to this post
|
A cyberattack grinds car dealers to a halt… Here are the quarterly earnings reports to watch… But don’t trade them without seeing this brilliant strategy… When NVDA’s share price does this, history says buy with both hands… We could be in another dot-com bubble… Or something even bigger…
“I can’t take it anymore…”
I rarely hear words like these from my soon-to-be wife – the determined, strong, sometimes stubborn overachiever she is.
If there’s a problem, 99% of the time she simply finds a fix without breaking a sweat. (Your editor aspires to even half of her cool-headedness under pressure.)
But in a rare twist, last week she had a problem she couldn’t fix. All she could do was disappoint the countless people who looked to her for a solution… gesturing helplessly to her tied hands.
See, my future wife’s job is to help auto dealerships across the country use a critically important piece of dealership software. She does the worrying about all the high-tech hullabaloo so the dealers can sell cars. But over the last week, that became impossible.
If you’ve followed the tech headlines lately, you might have an inkling of what happened here.
On Wednesday, a hacking group believed to be from Eastern Europe brought down the CDK Global system that powers over 15,000 auto dealerships in the U.S. To restore the system, the group demanded tens of millions of dollars.
It’s hard to really express what a big deal this was to the industry. CDK Global is the lynchpin for everything, from auto sales to maintenance services and repairs, to parts, to vehicle inventory, and more for a large part of the U.S. auto market. It ground to a halt when the system went down, at peak car-buying season, just ahead of the second-quarter close.
From what my aforementioned source tells me, the system is set to be back online in a matter of days. But the incident highlights a huge problem that has near-term, tradable consequences.
❖ Quite simply, this was the result of tech over-concentration…
When one company serves 15,000 distinct businesses, and is the sole provider for that service, the system it operates is extremely vulnerable to cyberattack… And therefore, so is that company’s share price to fidgety investors.
The parent company of CDK Global, Brookfield Business Partners LP (BBU), is down nearly 11% in the span of a week – wiping out hundreds of millions in value. Other major affected stocks are AutoNation (AN), Group 1 Automotive (GPI), and Sonic Automotive (SAH).
AN, GPI, and SAH are all set to report earnings in the next month. And we can see investors pricing in the past week’s events in real time.
Here’s a quick rundown of each stock’s Business Quality Score (BQS), a snapshot of their recent earnings from TradeSmith Finance, and the estimated date of their next earnings report:
1. AutoNation (AN) | BQS of 68 | Earnings Expected on July 19, 2024
2. Group 1 Automotive (GPI) | BQS of 53 | Earnings Expected on July 24, 2024
3. Sonic Automotive (SAH) | BQS of 90 | Earnings Expected on July 25, 2024
We can see some interesting trends in these charts. AutoNation and Group 1 have been net-positive for each of the last four quarters, while Sonic Automotive has been patchy.
However, we can also see that AN and GPI’s profit margins have shrunk the past four quarters, while Sonic’s expanded last quarter.
These stats should give you a good idea of how to trade these companies on earnings. Of the three, Sonic seems the most likely for a positive surprise even given the circumstances. It doesn’t hurt that its Business Quality Score is far higher – near perfect, in fact, at 90 on a scale of 100.
Zooming out, though, what happened here is a great example of concentration in software and services, and how dangerous that can be.
Think about the mega-techs like Microsoft, Google, and Apple. These companies provide major services that people rely on – like email, maps, communications, and business services.
It’s a much bigger task to try to take down a service of that caliber. But if it happens, the effects would be highly disruptive.
Owning some high-quality cybersecurity stocks is a great way to hedge against an event like this. Investors would flock to them if such a thing were to happen.
Some of the biggest stocks in this space are CrowdStrike (CRWD) with a BQS of 69, Cisco (CSCO) with a BQS of 74, and Palo Alto Networks (PANW) with a BQS of 95. All of these are worth a look for a cybersecurity portfolio.
❖ Any of these stocks could make for great trades in the coming earnings season…
Just remember, if you’re going to trade these stocks, consider Jonathan Rose’s method.
We recently shared an informative video from Jonathan about his unique earnings approach. He showed off how he’s able to make money on earnings even without having to be right about the stock’s near-term direction.
All he needs is the data to show him a big post-earnings move is coming… and he positions himself to take advantage of that move.
Jonathan’s something of a firebrand when it comes to free trading education, and this series is no different. If you haven’t already, go here and check out his latest video on trading earnings reports.
❖ Moving on to another dramatic trading opportunity…
Nvidia (NVDA) has fallen four days in a row. For most publicly traded companies, that’s a garden-variety cooldown. But we’re not talking about most companies…
NVDA’s big parabolic upswing dazzled investors in 2023, then again with an encore performance in 2024. It’s the shining sun of the AI trade – essentially the gauge by which the trend itself marks its success.
It also just so happens to be one of the biggest companies in the world – at one point recently, THE biggest – and making up 6.3% of the S&P 500.
My point is, for a stock so key to what some see as the most disruptive technical change in the 21st century – I’ll maintain it’s still too early to call – three straight days of losses are rare.
Take a look at this chart of Nvidia (NVDA) shares along with their 3-day Rate of Change indicator.
The ROC measures a stock’s percentage change over a certain period. By using a 3-day ROC, we can see all the times the stock has been negative for at least three days, and how negative it was during those times.
Right now, NVDA’s 3-day ROC is bouncing back from -10.2. That’s the lowest level since the April selloff… and before then, back in December 2022.
So, this signal is rare. We don’t see NVDA sell off this deep in such a short span of time. And what do we see after? Big, long, broadly uninterrupted moves up.
The recent gains in NVDA were extreme, there’s no denying that. It showed something of a parabola upward, which almost always tends to reverse back a bit.
But at least for now, the bottom appears in for NVDA stock. If you’ve been looking for a chance to get in, this is it.
❖ The next Nvidia might be out there, too, though…
Every single investor would surely love to find “the next Nvidia” and jump in early enough to grab those life-changing gains.
But how many of them can?
Louis Navellier was one of the few to spot NVDA as a diamond in the rough 20 years ago… when computer chips seemed “boring.”
Much like he spotted the previous wave of tech superstars such as Lam Research, before it rose up to 4,350%… Micron Technology, 2,050%… and Qualcomm, 6,235% during the dot-com boom.
And just this year, you could’ve booked six times your money if you’d followed Louis into The REAL AI Boom.
It’s a new application of AI that’s only just beginning… and is expected to give rise to an entirely new class of company that will take existing AI to a new level — causing the decline or outright collapse of older companies.
Along the way, Louis predicts “it will cause the dot-com mania to repeat… with a strange new twist most people will never see coming.”
Click here to watch the replay of Louis’ recent free briefing. After getting you up to speed on The Real AI Boom, Louis will share two free recommendations to get you started.
To your health and wealth,
Michael Salvatore
Editor, TradeSmith