Analysis: UNP ABNB MKC

Bob Lang and Chris Versace discuss the markets, and the portfolio's exit of Union Pacific (UNP) .

Chris explains how he's watching Airbnb (ABNB) amid reports that it plans to exit its domestic business in China.

Bob breaks down the charts of McCormick (MKC) and the technical landscape of (ABNB) .

KATHERINE ROSS: Good morning. It's Tuesday, May 24th. I'm Katherine Ross, and I'm joined by Chris
Versace and Bob Lang. Bob, let's start with you this morning. What do the technicals tell you about the
market action that we could see today?


BOB LANG: Well, we're still well below the 20-day moving average, which is an area that I pretty much
have marked as an area where we could see markets start rising again, we can create a little higher high
and a higher low in the charts. But we're well below that 20-day moving average now. We're below the
50-day moving average.


And every single bounce seems to be sold. Today, if this selloff holds, this is the sixth time in the past
seven weeks where a big, huge daily rally was given back the following day. So that is bear market
behavior to the extreme. And I think we had an oversold reading last week, with oscillators pretty much
washed out. And we had a nice rally back on Friday, and that continued on yesterday.
But the buyers pretty much threw in the towel after the day yesterday. And of course, we had some bad
news coming out from Snapchat after the close yesterday. So the market is certainly not out of any
danger zone right now. And if we continue to make lower highs, lower lows, if we take out last week's low
on the S&P 500, which came in at about 3810, there's going to be some more pain to be felt. And I think
that needs to be paid attention to.


Volatility is on the rise. We're about 30% on the VIX. And we have been hovering about that level for
about two and a half weeks now. That's kind of unprecedented. But people are really uncertain and
unsure about the economy and about how far Fed policy is going to go. But we do definitely need to be
cautious.


KATHERINE ROSS: And Chris, what's going to be your focus today?


CHRIS VERSACE: Well, we've already got the flash PMI numbers for May. And unfortunately, they
pointed to a continued slowdown compared to the last several months for the speed of the economy. But
more worrisome was the input inflation cost data that we saw in that report, which, simply put, it points to
elevated levels of inflation sticking around through May, most likely June.
It tells us that there's going to be no change in what the Fed is poised to do. So for us, again, we're going
to continue, like we said yesterday, to tread cautiously, continue to identify companies that have more
defensive characteristics, inelastic business models, preferably dividend payers as we continue to pivot
the portfolio increasingly into a more protected strategy.


KATHERINE ROSS: Yesterday, Bob, you exited UNP. When we had talked previously, your focus was
Walmart. So what led to that exit?


BOB LANG: Well, this stock had a good run earlier this year. And frankly, we had taken a couple of bites
off of UNP and taken some of that off the table. But it just seems right now that, with the deterioration in
some of the economic indicators that we've seen lately-- we had a little bit of a breakdown in the chart, as
well, too, below some key moving averages-- it seemed to be prudent as the right step to let go of UNP
right now.


Of course, you know we'll always keep an eye on it. It's a good, high-quality name. But at this point in
time, right now, I think it was much more obvious that we needed to take this one off the table, raise a
little bit more cash, and wait it out.


KATHERINE ROSS: And Chris, how did the fundamental story look?


CHRIS VERSACE: So year to date, rail traffic has been down. No surprise, given everything that's been
thrown at us over the last few months. But as we go through this earnings season, we're seeing retail
inventories at extremely bloated levels. Not only multi-year highs, but even higher than we tend to see
going into the holiday shopping season. So that was a bit of a concern for us.
At the same time, it appears that the supply chain issues that are due to the China COVID lockdown
could persist a little longer than expected. And if we trace back what we saw both in the US and in the
eurozone when those regions started to emerge from the pandemic, it wasn't exactly smooth sailing for
supply chains. There were continued hiccups, port congestion issues. And when we put all of that
together, we think that the near term for Union Pacific is probably going to be even more to the downside
in terms of rail traffic. So we thought it was best bet to get off the track with this name and go elsewhere.


KATHERINE ROSS: Bob, you used some of those funds raised through UNP to add to McCormick. What
led to that move?


BOB LANG: Yeah, I really like McCormick here. It had a big, sharp move down on Thursday on some
fairly elevated volume-- that wasn't a huge volume, but it was notable-- right down to the 200-day moving
average. It flirted with that on Friday, and it ran up to above that yesterday. And actually, on a down day
today, the stock is outperforming well. So it's good relative strength here for McCormick versus the rest of
the market.
I thought this move down to the 200-day moving average was constructive, a good spot to add a little bit
more of the shares. And we did. And we're continuing to build out that position. I like the stock long-term.
We do have some resistance coming up at about the $95 to $96 area, where it could encounter a little bit
of selling. But still, I think that this stock is in a good spot here, good quality name. And we'll be looking to
add some more if it pulls back a little bit more.


KATHERINE ROSS: And Chris, Airbnb is reportedly closing its domestic business in China. What does
that mean for the overall business?


CHRIS VERSACE: Well, I would file that under the term NBD, as in no big deal, reason being that their
direct revenue out of that region has been less than 1% of overall revenue for the last couple of years. So
I think we'll look back on it as a rounding error. What I do like, however, is that they're going to
increasingly focus on solutions for Chinese travelers outside of China, into Europe and other territories.
China is creating some of the fastest-growing number of millionaires around the planet with high
disposable income. So I think that's actually a very smart move for Airbnb.


KATHERINE ROSS: Bob, the chart, how does it look? I mean, the stock just keeps carving out new all-
time lows.


BOB LANG: Yeah, it's difficult to stomach the moves down in Airbnb. But you know, listen, we're in a bear
market here. And I'm not going to use any excuses here. This is a stock that we think is going to do
extremely well, especially during reopening. And we've seen those numbers start to do well. But in a bear
market, nothing is going to go untouched here. And even for a short period of time, Airbnb is going to get
sold, along with the rest of the big names.
But I think, over a long period of time, this is a stock, this is a company that's going to do extremely well in
the travel business. And we still like it down here. But we did buy it, unfortunately, a little bit higher than
we are right now. We're going to sit tight right now with the shares that we have and wait for the stock to
recover. But it is a punch to the gut here, no question about it. But we'll be patient.


KATHERINE ROSS: Chris, what's the collective rationale about the one rankings being large caps?


CHRIS VERSACE: I don't know that there's necessarily per se a rationale behind it. I think when we take
a look at a lot of the large cap names we have, whether it's Apple, Amazon, Google, McCormick even,
they are core franchise players in their respective industries. So it's really trying to zero on what we would
argue is best of breed, rather than simply saying it's, oh, a large-cap stock.


KATHERINE ROSS: All right, guys, thank you for joining us today. And members, thank you for tuning in.
Please continue to send your member questions into katherine.ross@thestreet.com. And we'll see you
tomorrow.

Action Alerts PLUS is long ABNB and MKC.