After you receive this Alert, we will be buying 150 shares of Burlington Stores Inc (BURL) at roughly $176.87. Following the trade, BURL (350 shares) will represent 2.24% of the portfolio.
The markets were pushing higher all afternoon, recouping most of the losses from yesterday's late afternoon selloff. As investors know by now, Fed Chairmen Jerome Powell announced a 25-basis point cut to interest rates.
We got the cut, but now here come the tariffs.
Over a series of tweets this afternoon President Trump said:
"Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to... ...buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States - this never happened, and many Americans continue to die! Trade talks are continuing, and... ...during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%... We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!"
Stocks quickly reversed and heavy selling followed in technology, semiconductors, the cyclicals, and retail - the three areas all with large exposure to this tranche of tariffs which focuses on electronics and other consumer goods. It's why you are seeing sharp declines in Kohl's (KSS) , Caterpillar (CAT) , and Nvidia (NVDA) right now.
But we've been keeping a double-digit cash percentage to take advantage of moments like this, and we are ready to do some buying. After all, you can't keep cash on the sidelines in hopes of a pullback and then fail to pull the trigger and buy something when the pullback arrives. Our buying preference are stocks that are primarily domestic and some of the steady-eddy consumer packaged good stocks.
We think Burlington Stores, which we initiated Monday here and its off-price model should be able to navigate this new tariff environment, especially compared to that of a price-sensitive Five Below (FIVE) , which we exited a little more than a week ago at about $125 in our Alert here. The way BURL and FIVE are trading this afternoon says it all and the tariff news is supportive of our retail switch.
But don't take it from us. Take it from CEO Thomas Kingsbury from Burlington's first quarter earnings call in May. "We believe over time, tariffs may cause disruption in the supply chain, which is typically a positive for off-price retailers," Kingsbury said. "In addition, if prices do go up across retail, this could possibly make value an even more important driver of consumers into the off-price channel." Plus, Kingsbury said only a small percentage of Burlington's total orders were subject to the then current tariffs. The tariffs thus far have not had a material financial impact.
Over the long run, Burlington's off-price model should provide a degree of insulation to this tranche of tariffs. Therefore, we view BURL as a buying opportunity on this tariff announcement, and we'll continue to scale into this name as the market gets hit on incremental tariff news because it would not be a surprise to see this selloff spread across multiple days.