BLOK: Crypto Stocks Break Out Ahead Of Election (Rating Upgrade)

seekingalpha10-21

The "Trump trade" and "Harris trade" are driving crypto and blockchain price action, with Trump seen as more favorable for bitcoin.I am upgrading the Amplify Transformational Data Sharing ETF (BLOK) ...

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It’s clear, however, that the former President has embraced the bitcoin crowd more than the current vice president.  That claim is born out in price action. Since mid-September, Trump has gained ground in both the polls and in election betting markets. At the same time, crypto has been in rally mode, with significant gains also being had in blockchain stocks.  I am upgrading the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK) from a hold to a buy. I was cautious on the fund back in March, anticipating some consolidation after the bitcoin halving event. That largely played out with BLOK falling from the mid-$30s to, at times, under $30 in Q2 and Q3.  Now, with a series of higher highs and higher lows off the Tokyo crash nadir, the fund is at the best level since January 2022 while the valuation is not overly high. Trump With A Slight Betting-Market Advantage Kalshi According to the issuer, BLOK invests at least 80% of its net assets in the equity securities of companies actively involved in the development and utilization of blockchain technologies. Blockchain is a peer-to-peer shared, distributed ledger that can track tangible, intangible, and digital assets, and companies in all business sectors through the process of recording transactions and tracking assets in a business network. BLOK remains a small ETF with just $747 million in assets under management (about unchanged since Q1) while its annual expense ratio is high at 0.76% as of October 18, 2024. Share-price momentum is stellar with an A+ ETF grade from Seeking Alpha’s quantitative ETF grading system, but the dividend yield is very low at 0.84%. BLOK is also considered a risky ETF due to its concentration and high historical annualized standard deviation trends. Liquidity can be a weak spot too given average daily trading volume of just 140,000 shares and a median 30-day bid/ask spread of 13 basis points, per Amplify ETFs. So I encourage investors to use limit orders during the trading day. Looking closer at the portfolio, BLOK’s allocation has taken a positive turn in the sense that there are more profitable companies now compared to my previous analysis back in the first quarter of this year. In net, Morningstar reports that the price-to-earnings ratio is just shy of 20 while the price-to-sales ratio is not overly expensive at just 2.8.  With a long-term EPS growth rate of 9.8%, the resulting PEG ratio is significantly more attractive today compared to earlier this year. From a risk point of view, BLOK has ample diversification across the style box, though there is a growth bent. A high percentage of domestic SMID caps adds to cyclical risk too. BLOK: Portfolio Breakdown & Valuation Metrics Morningstar While there is nuance to the valuation and factor allocation breakdown, the sector mix is straightforward. BLOK is a fintech ETF – more than half of the ETF is invested in the Financials sector while one-third of BLOK is allocated to the Information Technology sector.  There are low holdings in other sectors. The top 10 holdings account for a significant portion of the total portfolio – 39%. BLOK: Holdings & Dividend Information Seeking Alpha Seasonally, there isn’t a long track record off of which to form a trend thesis in this respect, but there is some data to analyze. The October through February stretch has historically been strong, though December has been volatile and mixed in total returns.  Prospective investors should allocate no more than a small portion of their portfolios to this fund given very high month-by-month swings in price. BLOK: Broadly Bullish Seasonal Trends Through February Seeking Alpha The Technical Take With a decent valuation and generally favorable seasonals, BLOK’s technical chart looks strong. Notice in the graph below that shares are in a broad uptrend and broke out to a 52-week high last week. I see resistance at an uptrend line that comes into play near $49 – that's also a key downside gap from early 2022, so we can have some confluence there.  On the downside, a support line is currently near $32, so that would be a large amount of risk. It’s possible that a closer support zone may be the $36 to $37 range – the peak from right after my previous analysis in March and April.  With a rising long-term 200-day moving average, the bulls control the primary trend. I am also encouraged by a very strong RSI momentum reading at the top of the chart, helping to confirm the upside price thrust. Finally, there are simply very few shares traded from last week’s closing level up to about $50, so another 20% of upside could come quickly in my technical opinion. BLOK: Bullish Upside Breakout, $49 Price Target, Rising 200dma Stockcharts.com The Bottom Line I have a buy rating on BLOK. While crypto stocks are very risky and volatile, the fund’s valuation appears better today while the technical chart shows an uptrend ahead of the US election.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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