Analysis: AMN AMAT CBOE MS HCA UNH CHPT CMG F CIBR FTNT AMD NVDA DLR QCOM AAPL GOOGL AMZN UPS MA AXP OLED MKC PEP WEN SBUX K AWK VZ KMB EL RACE COST NUE URI MLM VMC GD DE

We've been getting questions from members about our "ageing of the population" theme and the portfolio's position in AMN Healthcare (AMN) . What are they asking? Mainly, are we planning on introducing a greater use of thematics into the AAP portfolio?

That is a great question, and the short answer is "Yes," especially given the large body of thematic work Chris has done over the last 15 years or so developing various investment themes and corresponding strategies. These techniques have been used for individual stock selection and models to indexes that power exchange-traded funds. The quick explanation as to why he's done that is the shortcomings associated with the 11 S&P industry sectors as well as the bleeding over of company business models between them. Increasingly, those classifications are doing a less effective job at describing what is driving a company's business, while "technology" and "health care" are so wide, well you can drive a few trucks through them. In our view, identifying the driving force behind a company's business goes hand in hand with knowing what you own.

With a lot being thrown around these days as thematics, including a very dubious thematic model from Charles Schwab that allows investors to focus on caffeinated beverages, let's define what we mean when talking about thematics. A thematic is a multi-year structure shift that emerges from the evolving landscapes of economics, demographics, psychographics, and technology. Another layer to include is legislative and fiscal stimulus changes, which as we've seen of late with the passage of the CHIPS Act and before too long the Inflation Reduction Act can have multi-year drivers for EV adoption, creating demand pull for electric vehicle chargers. That adds to the bright outlook for EV chargers due to the ramp in the Biden Infrastructure Law as we've discussed several times with members.

These factors have been at work in a number of our thoughts as well as portfolio positions over the last few quarters since we became the portfolio managers for AAP. Between that change and the market's performance between February and June, the introduction of ETFs into the portfolio mix as well as inverse ETFs, we opted to hold off some on the thematic front.

The good news is the vast majority of AAP holdings can be sorted into several investment themes. The other good news is when it's done right thematic investing, confirmation points abound, because the themes are unfolding around us. This resonates with the point legendary investor Peter Lynch made in his book "One Up On Wall Street" -- by paying attention to the world around us, we can not only identify opportunities but monitor confirmation points as well.

As you well know, Bob is our "house" technician, and using his skills and experience to find the best opportunity within a bullish trending environment is a benefit to everyone. While long term trends are important, it is discovering the short- and medium-term trends dictated by technical indicators that will set us up for important buy points in these names. The blending of fundamental and technical skills set us apart from the rest.

You can look forward to continued analysis by Bob as he peels back the onion on these names to find proper entry and exit points.

Let's Do Some Thematic Assembling

With that in mind, let's sort both the active AAP Portfolio as well as the Bullpen into a basket of current investment themes.

Before we continue, a few words: Not all positions in the portfolio, like the inverse ETFs, will fit into a current investment theme. That's neither a good thing, bad thing or judgement of any kind. The use of thematics is meant to augment the fundamental and technical work we are already doing, not detract from it. Other examples include Applied Materials (AMAT) , Cboe Global Markets (CBOE) , and Morgan Stanley (MS) .

We recognize from time to time there will be handful of companies that have independent drivers and reasons to own them -- we're not going to get caught up trying to make a square peg (a company) fit a round hole (theme) when we it doesn't make sense. Stretching a theme too far to accommodate a company runs the risk of diluting the theme as well as opening the door to other that companies that may not fit.

Also too, notice we used the words "current theme." While each theme is multi-year in nature, we have to recognize depending on where we are in the economic cycle, certain themes may not be as timely. Also, we are evaluating new themes as well as existing ones all the time, and while the process is rather rigorous there could be a new theme or two in the coming months. One potential candidate is "American Re-shoring" which could include Applied Materials given the CHIPS Act. One promise to members that we can make is we won't formally unveil any new investment theme unless it has been fully baked.

Now let's get to that thematic sorting:

Aging of the Population: Capturing the demographic wave of the aging population and the changing demands it brings with it.

- AAP Portfolio: AMN Healthcare (AMN)

- AAP Bullpen: HCA Healthcare (HCA) , United Health Group (UNH)

Cleaner Living: Growing demand for products that claim to be natural, boost health, or have a positive impact on the environment.

- AAP Portfolio: ChargePoint (CHPT) , Chipotle Mexican Grill (CMG) , Ford Motor (F) .

- AAP Bullpen: N/A

Cyber Security & Data Privacy: Securing individuals and organizations against cyber threats and privacy violations:

- AAP Portfolio: First Trust Nasdaq Cybersecurity ETF (CIBR)

- AAP Bullpen: Fortinet (FTNT) .

Digital Infrastructure & Connectivity: Companies behind the buildout and upgrading of networks, data storage facilities, and equipment as well as the chips that connect them.

- AAP Portfolio: AMD (AMD) , Nvidia (NVDA)

- AAP Bullpen: Digital Realty Trust (DLR) , Qualcomm (QCOM)

Digital Lifestyle: The digitization of how consumers interact, share, shop, transact, game, pay and consume content.

- AAP Portfolio: Apple (AAPL) , Alphabet (GOOGL) , Amazon (AMZN)  and UPS (UPS)  as a derivative play.

- AAP Bullpen:

Digital Payments & FinTech: Companies leveraging technology to disrupt and improve the financial services and payments industries:

- AAP Portfolio: Mastercard (MA)

- AAP Bullpen: American Express (AXP)

Digital Privacy & Identity: Companies providing the tools and services that verify authorized users and safeguard personal data privacy:

- AAP Portfolio: N/A

- AAP Bullpen: N/A

Disruptive Innovators: The business models, practices, and technologies that are changing aspects of our lives.

- AAP Portfolio: N/A

- AAP Bullpen: Universal Display (OLED)

Guilty Pleasures: The products and services people will consume no matter the economic environment.

- AAP Portfolio: McCormick & Co. (MKC) , PepsiCo (PEP)

- AAP Bullpen: Kellogg (K) , Starbucks (SBUX) , Wendy's (WEN)

Inelastic Goods: Products and services that will be consumed no matter what the economic environment.

- AAP Portfolio: American Water Works (AWK) , Verizon (VZ)

- AAP Bullpen - Kimberly Clark (KMB)

Luxury Buying Boom: Tapping into aspirational buying and affluent buyers amid rising global wealth:

- AAP Portfolio: N/A

- AAP Bullpen: Estée Lauder (EL) , Ferrari (RACE)

Middle Class Squeeze: Companies poised to benefit as consumers stretch the disposable spending dollars they do have:

- AAP Portfolio: Costco Wholesale (COST)

- AAP Bullpen: N/A

Rebuilding America: Turning the focused spending on rebuilding U.S. infrastructure into revenue and profits:

- AAP Portfolio: Nucor (NUE) , United Rentals (URI)

- AAP Bullpen: Martin Marietta Materials (MLM) , Vulcan Materials (VMC) .

Safety & Security: As individuals, companies, and countries, we must be increasingly on guard and behaviors need to shift away from reactionary defense towards always prepared and secure.

- AAP Portfolio: N/A

- AAP Bullpen: General Dynamics (GD)

Sustainable Future of Food: Companies addressing the challenge of providing healthy, affordable, and nutritious food to a growing global population amid dwindling natural resources:

- AAP Portfolio: Deere & Co. (DE)

- AAP Bullpen: N/A

With the above table stakes, in the coming days we'll be introducing some thematic language into our comments, trading alerts and of course the Daily Rundown.

Likely Questions

Q: Will the introduction of thematic lead to any wholesale changes in the portfolio? 

A: No, each position had its own investment thesis, with many of them overlapping with the themes mentioned above. We intend to let each thesis play out or take action as the fundamentals and technical dictate.

Q: Will the portfolio still use fundamentals and technical analysis?

A: Absolutely. The combination has served us well not only identifying strong performers for the portfolio, but they have also led us to exit a number of positions before the moved even lower, preserving even more portfolio and member capital.

Q: Can a company be in more than one theme?

A: From time to time this can happen, but we tend to classify a company based on its largest thematic exposure. Similar to our comment above about square peg, round hole, stretching the argument to justify a company just cheapens the use of thematics.

The AAP is long all stocks in the portfolio including GLD SH PSQ XLE UPS PEP NUE MA F CIBR AWK AMZN VZ URI NVDA MS MSFT MKC GOOGL DE COST CMG CHPT CBOE AMAT AAPL AMN.