RCAT a "Buy" in a falling US Market ?
Weak economic reports and an impending tariffs roll out does not bode well for the US market.
On the first trading day of Q2 2025, it shows.
Economic Reports.
There were 2 economic reports out on 01 Apr 2025 and the data looks weak.
(1) ISM Manufacturing.
The March 2025 ISM Manufacturing PMI® of 49% marks a return to contraction after 2 months of marginal expansion, reflecting renewed pressures on US factory activity. (see above)
Key insights from the data:
(a) Demand Weakness.
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New orders (45.2%) contracted further, hitting their lowest level since 2023, while backlogs (44.5%) shrank at a faster pace.
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Exports also slipped into contraction, compounding domestic demand challenges.
(b) Production & Employment Pressures
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Output (48.3%) reversed January-February gains, with 8 of 18 industries reporting reduced production.
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Employment (44.7%) showed accelerating job cuts as manufacturers "attrit down" workforces amid order/demand uncertainty.
(c) Tariff-Driven Inflation Surge
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Prices paid (69.4%) jumped to their highest since mid-20225, driven by tariff-related cost surges.
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Suppliers delayed deliveries to renegotiate contracts, while manufacturers front-loaded inventory (53.4%) to hedge against trade policy risks.
(d) Sector Divergence
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3 of 6 major industries expanded (Petroleum, Electronics, Transportation), but 46% of manufacturing GDP contracted.
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Material handling bucked the trend with strong activity, suggesting supply chain reconfiguration.
Overall, data signals stagflation risks, with input costs rising alongside weakening output and employment.
Tariff uncertainty appears central to both (1) inventory distortions and (2) demand hesitancy.
(2) Jobs Openings & Labour Turnover surveys - JOLTs.
The jobs opening & labour turnover surveys (JOLTs) for February 2025 (released yesterday) showed continued labour market cooling.
Job openings falling to 7.57 million from an upwards revised January’s 7.76 million. It was also slightly below forecasts of 7.69 million.
Key takeaways:
(a) Job openings.
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Fell by approx. 190,000 jobs MoM and were down -10% YoY. (see above)
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This reflected reduced hiring appetites amid economic uncertainty.
(b) Quits.
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Held steady at 3.2 million (2.0% rate), down 273,000 annually, signaling persistent worker caution in switching roles. (see above)
(c) Layoffs.
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Remained subdued at 1.8 million (1.1% rate), indicating employers are avoiding aggressive workforce reductions despite softer demand.
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This implies more upside risks heading into Q2 2025.
Navy Federal Credit Union, Corporate economist, Robert Frick best summed up:
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US jobs market remains the economy's bulwark.
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Although it is eroding slowly, it's not showing cracks that foreshadow recession.
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However, how it holds up to assaults from Trump’s impending tariffs' effects on consumers and businesses is the crucial question.
With a mixed and weak set of readings, it was hardly a surprise that US market continued to oscillate like a pendulum between gains and losses on first trading day of Q2 2025.
The only consolation was market managed to close marginally higher on Tue, 01 Apr 2025. after a topsy-turvy day on Wall Street dominated by investor angst ahead of the impending tariff announcements from the Trump administration.
By closing time,
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DJIA: -0.03% (-11.8 to 41,989.96).
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S&P 500: +0.38% (+21.22 to 5,633.07).
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Nasdaq: +0.87% (+150.60 to 17,449.89).
US Market Futures Index (Wednesday).
US market is poised to open lower on Wed, 02 Apr 2025 morning - ahead of Trump’s tariffs announcements.
Personally, it is hoped that the announcement will be filled with sufficient details so that everyone (investors, analysts, financial gurus) will be able to make head or tail of the impact and move on.
Certainty brings predictability to the forefront and dispels any myths or what-ifs. It is only when an announcement is short on facts and people try their best to snake around it, that creates confusion.
Return of Red Cat (RCAT) ?
While the tariffs will need time to sort itself out and market will react accordingly, I have turned my attention to US stock $Red Cat Holdings Inc.(RCAT)$.
Why ?
Recently, RCAT has reported that :
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It has been selected as the sole provider for the US Army’s Short Range Reconnaissance Program,
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It has successful acquire FlightWave Aerospace Systems.
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It has a strategic partnership with $Palantir Technologies Inc.(PLTR)$ to enhance its Black Widow drones with advanced navigation & manufacturing capabilities.
What is Red Cat ?
It is a drone technology company integrating robotic hardware and software for military, government, and commercial operations.
It is new generation of defense stock leveraging and focusing on drones’ technology; that like it or not will be integral in 21st century modern warfare.
RCAT Stock Price Movement.
On 06 Jan 2025, RCAT peaked at $14.19 per share.
Thereafter, it began its great descend. (see above)
Catalysts for the fall included:
(1) Earnings Misses:
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RCAT reported earnings misses, with Q2 2025 EPS of -$0.18, far below expectations of -$0.08. This reflected operational inefficiencies and declining revenue.
(2) Operational Challenges:
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The company encountered setbacks in its drone delivery systems and broader aerospace technology operations, leading to reduced investor confidence.
(3) Leadership Instability:
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Departure of Chief Technology officer, George Matus, created uncertainty around the company's technological progress and innovation pipeline.
(4) Insider Selling:
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Significant insider share sales by executives have further fueled market concerns about the company’s future prospects.
Recovery Steps.
To address these challenges, RCAT is focusing on:
(1) Cost Management:
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Efforts to stabilize its financials include managing operating expenses and improving liquidity, as indicated by a current ratio of 1.4313.
(2) Debt Restructuring:
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RCAT has been actively managing its debt through repayments and new issuances, aiming to balance short-term obligations with long-term growth investments.
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In February 2025, it has also secured $20 million with The Lind Partners to finance its debt. (see below)
(3) Technological Investments:
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Despite leadership changes, Red Cat continues to invest in its proprietary drone technology to regain competitive footing in the aerospace sector.
Analyst Upgrades and Downgrades
Several research analysts have commented on RCAT shares.
(1) Northland Securities.
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Began coverage on Red Cat in a research report on 11 Mar 2025.
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They issued an "Outperform" rating and a $13.00 price target on the stock.
(2) Northland Capital Market.
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Raised shares of Red Cat to a "Strong-buy" rating in a research report on 10 Mar 2025.
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With a price target of $15.30 a share, that has a +239% upside (based on 01 Apr 2025 stock price of $6.39.
Investors’ who are willing to take a chance on RCAT, should remains cautious due to ongoing volatility & financial uncertainties. And buy into it when it’s on the rise and not on the way down!
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Do you think US economy & inflation will get progressively worse heading into Summer 2025 ?
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Do you think it is time to load up on some RCAT stocks while it’s still a bargain ?
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