TikTok Deal approved! Here is everything meaningful about it. Gold investors expect even higher returns – Why?

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The Top MarketBites Investment Stories for September 21st, 2020
TOP STORY 1: Oracle makes a strategic move
What? – President Trump agreed to TikTok deal with Oracle and Walmart. Oracle will take a 12.5% stake in TikTok USA and become the company’s cloud service provider. Walmart rumored to take a 7.5% stake with CEO Doug McMillon receiving one of five board seats.
 – What does the Government get:
  • American oversight of TikTok’s data on American users
  • 25,000 American jobs created
  • $5 billion education fund that will help provide online educational videos to kids
  • Psychological win in the U.S. – China Trade War
 – What does Oracle get:
  • Oracle is the world’s second-largest software maker after Microsoft, yet its cloud infrastructure market share is so tiny that Gartner Research lumps it into the “Other” category. The software giant has been sleeping at the wheel while Amazon AWS and Microsoft Azure gobbled up massive market share. By becoming TikTok’s cloud infrastructure provider, Oracle can now prove to the world that they can compete against Amazon and Microsoft.
Or at least company chairman Larry Ellison can say that with bigger confidence now more than ever!
  • The deal hasn’t even closed yet, but Ellison is already on record saying that “TikTok picked Oracle’s new Generation 2 Cloud because its much faster, more reliable, and more secure than any other cloud vendor”
– What does TikTok get:
  • TikTok hopes to collect $12 billion from Oracle and Walmart at a $60 billion valuation.
  • TikTok owner ByteDance can continue to operate in the United States where it has over 80 million active users.
  • ByteDance can IPO TikTok’s American operation sometime next year.
 – What does Walmart get:
  • In a previous newsletter, we talked about Walmart’s new subscription service Walmart+ and how a partnership with TikTok can give a huge jolt to that service.

TOP STORY 2: Investors expect more from gold stocks

What? – Gold has been on a record-setting tear (up 28.4% year-to-date) as the pandemic threatens to derail global economic growth, sending investors on a flight to safe havens. Precious-metal miners have surged as much as 80% in the past year, but a group of prominent investors expects a LOT MORE.

Why? – “Despite strong performance, mining shares are still episodically inexpensive,” the group said. The coalition that includes billionaires John Paulson and Naguib Sawiris expects a lot more from executives that manage gold-mining companies. Among many issues, they cite sky-high executive compensation, poor capital allocation, lack of strategic vision, and lack of executive ownership.

The Takeaway: With gold prices at an all-time high, gold-mining companies have enjoyed a record inflow of cash in a short period of time. Remember that even with gold prices at an all-time high, some gold-mining stocks offer a much better investment. Look for an experienced management team, high return on invested capital, high free-cash-flow yield, and executive compensation that is in-line with shareholder interests. Recently, Warren Buffett’s Berkshire Hathaway bought a $0.5 billion stake in gold-miner, Barrick Gold. Learn more about why?


DEAL CORNER:

– UBS Chairman Axel Weber is reviving a decade-long push for a mega-merger to create a European banking behemoth that can compete with U.S. rivals. Possible acquisition targets include Deutsche Bank, BNP Paribas, and Credit Suisse.

– Social Capital is seeking another $2 billion for three new SPACs (blank-check companies). Going public through a SPAC instead of a regular IPO is the new craze.

Unity Software jumped 31% in its trading debut on September 18th.


WHAT ELSE IS HAPPENING:
– Supreme Court Justice Ruth Bader Ginsburg passed away. Read about her legacy here
– Pepsi boss Donald Kendall, who started the “Cola Wars”, has died – (read here)
– What to expect from Tesla on “Battery Day” tomorrow – (read here)

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