Equities closed out the week higher, adding to the quarter-to-date climb, and boosting most of our holdings. That's the good news. The bad news? Many stocks are still down on a year-to-date basis.

Given the significantly oversold market coming into this week, the market bounced, as we had believed it would. Sure, we enjoyed snapping a three-week losing streak, but we have to recognize we remain in a bear market with several headwinds ahead of us. Despite the action taken by the European Central Bank that was more of a beginning to its hiking cycle than an ending, as well as Fed Chair Powell reiterating his Jackson Hole comments about the determination and likely duration of the Fed's path, stocks rallied. Those efforts to tame inflation will continue to drive higher borrowing costs and pose a problem to the economy and corporate earnings. Making matters worse will be the strengthening dollar, price pressures, supply chain woes, and spending cuts by consumers.

Also, as we expected, we started to see more companies reduce expectations for the balance of 2022, and more than likely we will see more of that in the next few weeks. We also heard of more cost cutting efforts in corporate America and more layoffs, signs that companies are furthering their belt tightening. Looking to next week, we have another round of investor conferences including but not limited to:

  • Barclays Global Financial Services Conference
  • Morgan Stanley 20th Annual Global Healthcare Conference
  • Goldman Sachs Communcopia & Technology Conference
  • Piper Sandler Technology and Consumer Growth Frontiers Conference
  • Baird 2022 Global Healthcare Conference

During those events, some of which will include presentations by several AAP holdings, we will be listening closely to companies as they describe their businesses and expected headwinds.

Should we need further action to prevent further losses, we'll make those moves. But heading into next week, the only position we are closely watching is Morgan Stanley, as the shares move closer to that $91-$92 resistance level we've mentioned in the past and more recently on the September Members-Only AAP Member Call.

The AAP Portfolio

The positive week for the stock market reverberated through the AAP Portfolio with every position, save for our inverse ETFs. The strongest performers were ChargePoint, up nearly 20% on the week, followed by Nucor, United Rentals, Applied Materials, and Vulcan Materials. All of those are beneficiaries of stimulative efforts out of Washington, and over the coming years we expect those impact of that spending to ramp as should the revenue streams for those businesses.

During the compressed week, we made no changes or additions to the portfolio, nor did we make any rating changes across the existing lineup. Companies we are looking to add to include Verizon, American Water Works and Energy Select Sector SPDR Fund. We are closely watching MS shares as they approach the $91-$92 resistance level with an eye to slimming down the portfolio's position.

Early in the week we held our latest portfolio manager conversation, and soon thereafter we shared several thoughts on the market, the portfolio and its cash position during our September Members-Only Call. Later in the week we shared a conversation with mineral exploration company Alpha Copper's CEO, who offered a confirming but differentiated view behind the portfolio's positions in Ford Motor, ChargePoint, Vulcan Materials, Nucor, and United Rentals.

As we navigate the coming weeks that include another round of investor conferences, crucial economic data, and interest rate hikes, we will continue to manage the portfolio in a prudent fashion, looking for opportunity but also looking to minimize losses.

Key Global Economic Readings

(Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)


We continued to see movement in the Atlanta Fed's GDPNow model for the current quarter, which stood at 1.3% as we closed out the week, down from 2.6% on Sept. 1. We cautioned members at the start of September that we were only about to get data for the second month of the quarter, and as we've seen the picture of slowing growth has weighed on the Atlanta Fed model.

While the S&P Global U.S. Service PMI for August and the ISM Non-Manufacturing Index painted conflicting signals for that part of the economy, the weekly mortgage applications index continued to fade amid higher interest rates. That led home furnishing company RH to revise its guidance for the current quarter with revenue down 15%-18% year-over-year to $825-$855 million vs. the $899 million consensus. RH sees "continued softening in its business trends during the remainder of fiscal 2022 as a result of ongoing weakness in the housing market over the next several quarters and possibly longer due to the Federal Reserve's anticipated interest rate increases."

In short, the economic multiplier that is the housing market is poised to soften further, weighing on a variety of economic sectors in the process.

Markets were lifted in part on Wednesday by the Fed's latest Beige Book that found economic activity across the country was little changed since early July, and even though prices remained highly elevated nine Fed Districts reported some degree of moderation. That said, the report also found "expected price pressures to persist at least through the end of the year." The market may have viewed that as progress, but even so next week's August Consumer Price Index and Producer Price Index data are likely to show inflation remains a ways away from the Fed's 2% target.

Following comments by Fed Chair Powell this week and several other Fed heads, as of Friday afternoon the CME FedWatch Tool sees a 90% chance of a three-quarter percentage point rate hike exiting the Fed's September monetary policy meeting, an 80% chance for another 50-basis point increase at its November meeting, and a 70% chance for a quarter percentage point rate hike at its December meeting. We will see how those expectations square with data landing in the coming months, but if that is the path that unfolds it means a target rate between three and a quarter percentage point to 4 percentage points vs. the quarter-percentage point it stood at this time last year. That means financing costs, credit card costs, auto loans, mortgages and the like will be considerably more expensive in the coming months. While that will reduce demand, clearly a part of the Fed's plan, it runs the risk of tipping us into a recession, an event that as we've discussed before usually is self-fulfilling.

Looking outside the U.S., the S&P Global Services PMI for the Eurozone was revised lower to 49.8 in August vs. the preliminary reading of 50.2. New orders fell the most since February 2021 due to weak demand and jobs growth waned further pointing to the likelihood for another reading below 50 for September.

According to data tallied by Nomura, around 12% of China's total GDP is being impacted by Covid, up from 5.3% roughly a week ago, leading the firm to trim its 2022 GDP forecast for the country to 2.7% from 2.8% at the end of August. We expect this to fan the flames of not only slower demand but point to lingering supply chain issues. Adding to those concerns, China's Import and Export activity in August slowed month over and month and came up short of consensus expectations.

And Russian President Vladimir Putin threatened to cut off energy supplies if price caps are imposed on Russia's oil and gas exports. For context, Russia is the world's second largest oil exporter behind Saudi Arabia, the world's top natural gas and wheat exporter. Europe usually imports about 40% of its gas and 30% of its oil from Russia. We will continue to see how this develops, but governments in the U.K. and Eurozone are already looking for ways to alleviate high energy prices for its residents. Here at home, we'd remind members that later this month the use of the Strategic Petroleum Reserve will end and given the climb in natural gas prices consumers continue are likely to see higher energy bills through what is expected to be a seasonally warmer than usual September. At the margin it would see that what we are gaining back at the gas pump is being shelled out to utilities, leaving it essentially a net-zero.

Chart of the Week: The Dow Jones Industrial Average

The Dow Industrials, surprisingly, has been the best performing index among the "big 4" in 2022. While still down, it is down the least and that is surprising with the heavy concentration of names that have been whacked so far this year. Take Boeing, 3M, and Cisco, for example. Those names are big negatives on the year. There are others of course, like Salesforce, but it's fascinating to see this index finally outperforming the broader indexes. The Dow chart (a proxy for the industrials) shows a nice uptrend line of higher lows, but with lower highs from the April top there is some resistance ahead. (To see the chart below bigger, click here.)

That could be around $337-$340, so perhaps a bit of upside before hitting its head on the ceiling. The Relative Strength Index is turning up and the Chande oscillator (bottom) is very impressive, this move through the zero-line is telling. The Moving Average Convergence Divergence (MACD) oscillator
is trying to turn higher on this daily chart, and it should provide a buy signal cushion within a few days. Lastly, the stop and reverse, or SAR, (dots) are now bullish, so look for some more upside here if that support hangs in there. The volume-weighted average price (light blue short line) is the only thing holding back the Dow here.

The Coming Week

Next week we return to the regular five-day trading week, and while it starts off slow it will be one that contains a number of integral data points, including the latest consumer and producer price indexes, retail sales, industrial production and import/export price data. To what degree progress is made on inflation data will influence expectations beyond the Fed's increasingly telegraphed a three-quarter percentage point rate hike at its upcoming September meeting. The August retail sales data will be compared against the growing array of retailers that are reporting macroeconomic headwinds, consumers pulling back spending and trading down where they can.

With the European Central Bank decision now behind us, we can look forward to another monetary policy decision from the Bank of England, which is widely expected to move interest rate higher given a variety of inflationary pressures but especially those for food and energy prices. And following news of additional lockdowns in China, we'll get a sense for the impact when China reports its August industrial production and August retail sales.

Here's a closer look at the economic data coming at us next week:


Tuesday, September 13

  • NFIB Small Business Index - August (6:00 AM ET)
  • OPEC Report - August (7:00 AM ET)
  • Consume Price Index - August (8:30 AM ET)
  • Treasury Budget - August (2 PM ET)

Wednesday, September 14

  • Weekly MBA Mortgage Applications (7:00 AM ET)
  • Producer Price Index - August (8:30 AM ET)
  • Weekly EIA Crude Oil Inventories (10:30 AM ET)

Thursday, September 15

  • Weekly Initial & Continuing Jobless Claims (8:30 AM ET)
  • Retail Sales - August (8:30 AM ET)
  • Empire State Manufacturing Index - August (8:30 AM ET)
  • Philly Fed Index - August (8:30 AM ET)
  • Import/Export Prices - August (8:30 AM ET)
  • Industrial Production & Manufacturing Capacity - August (8:30 AM ET)
  • Weekly EIA Natural Gas Inventories (10:30 AM ET)

Friday, September 16

  • University of Michigan Consumer Sentiment Index (Preliminary) - August (10:00 AM ET)


Monday, September 12

  • UK: Construction Output, Industrial Production, Manufacturing Production - July

Tuesday, September 13

  • Japan: Producer Price Index - August
  • UK: Average Earnings and Employment Change - July
  • Germany: Consumer Price Index - August
  • Germany: ZEW Economic Sentiment and Current Conditions - September

Wednesday, September 14

  • Japan: Core Machinery Orders - July
  • UK: Consumer Price Index, Producer Price Index - August
  • Eurozone: Industrial Production - July

Thursday, September 15

  • Japan: Import/Exports - August
  • Eurozone: Labor Cost Index - 2Q 2022
  • UK: Bank of England Monetary Policy meeting

Friday, September 16

  • China: Industrial Production, Retail Sales - August
  • UK: Retail Sales - August
  • Eurozone: Consumer Price Index - August

Next week is one of the sparsest ones we've had in some time for corporate earnings reports. To be blunt, there will only be two - Oracle and Adobe -- that have the likelihood of influencing equity markets. The focus for Oracle will be on dollar headwinds and slowing enterprise spend while the rate of cloud revenue at Adobe will be the item most examine. Next week also brings another rash of investor conference calls, and we will be on watch for revised expectations and any notable changes in wording used by management teams when describing their business and their industry as well as other headwinds we've identified.

Here's a closer look at the earnings reports coming at us next week:

Monday, September 12

  • Close: Oracle (ORCL)

Tuesday, September 13

  • Open: Core & Main (CNM)

Wednesday, September 14

  • Open: BRP Inc. (DOOO)

Thursday, September 15

  • Close: Adobe (ADBE)

Friday, September 16

  • Open: Manchester United (MANU)


AMN Healthcare Services, Inc. (AMN) ; $106.10; 1,135 shares; 3.42%; Sector: Health Care Services

WEEKLY UPDATE: The recently published July JOLTS jobs report continues to show the number of health care and social services job openings are far greater than the number of hires, keeping us bullish on AMN's contract business. We expect this as well as ongoing nursing shortage to set a favorable tone when AMN management appears at the Sidoti Fall Small Cap Virtual Conference 2022 on Sept. 21.

1-Wk. Price Change: 5%; Yield: 0.0

INVESTMENT THESIS: AMN Healthcare's business centers on talent solutions for the health care sector in the U.S. The company's revenue stream is tied to talents solutions, it reports in three business segments: Nurse and Allied Solutions, which generated 61% of revenue for the first nine months of 2021 and ~59% of its operating profit; Physician and Leadership Solutions - 24% and 13%, respectively; and Technology and Workforce Solutions - 15% and 28%, respectively. That business mix positions the company to be capitalize on the rising demand for healthcare professionals, particularly for nurses and doctors, which is expected to grow significantly as more of the U.S. population moves past the age of 65 in the coming years.

Target Price: Reiterate $132; Rating: One

RISKS: Economic downturns and the pace of economic recovery; the ability to win new contracts; the ability to recruit and retain quality healthcare professionals.

ACTIONS, ANALYSIS & MORE:, Initiation (1/27/22), Our Aging of the Population Investment Theme Explores Medical Staffing Issues, Investor Relations

Cboe Global Markets Inc. (CBOE) ; $123.97; 820 shares; 2.88%; Sector: Financials

WEEKLY UPDATE: It was a busy week for this portfolio holding as it announced the Sept. 12 launch of the Cboe One Canada Feed, a new real-time market data service that provides Canadian equities reference quote and trade information. We see this helping build the company's recurring revenue data business. Cboe's August trade data showed total volume across all four Cboe options exchanges was 307.5 million contracts, the highest month on record; total volume in S&P 500 Index options was 51.4 million contracts, the highest month on record; and the Average Daily Volume (ADV) of 2.2 million contracts was the second highest month on record. Those announcements should lead to a favorable presentation when Cboe presents at the Barclays Global Financial Services Conference on September 12. Also, next week, Cboe will pay its next quarterly dividend of $0.50 per share on Sept. 15 to shareholders of record on Aug. 31.

1-Wk. Price Change: 3.5% Yield: 1.5%

INVESTMENT THESIS: Cboe's business, which centers on market infrastructure, data solutions, and tradable products for equities, derivatives, and foreign exchange across North America, Asia Pacific, and Europe. Those operations include the largest options exchange and the third largest stock exchange operator in the U.S., one of the largest stock exchanges by value traded in Europe, and EuroCCP, a leading pan-European equities and derivatives clearinghouse among others. The two primary drivers of the company's earnings are its options and North American equities business, which combined drive around 75% of its revenue but more importantly roughly 85% of its operating income. Viewed from a different perspective, 28%-30% of Cboe's revenue stream is from recurring non-transaction revenue that includes proprietary market data as well as access and capacity fees. We like the sticky nature and predictability of that business. The core driver of the company's business hinges on continued growth in options trading volume and the company expanding its recurring non-transaction revenue.

Target Price: Reiterate $140; Rating: One.

RISKS: IT spending, competition, supply chain challenges

ACTIONS, ANALYSIS & MORE: Addition to AAP Portfolio; Initial Technical Review, Addition to Bullpen, Investor Overview.

ChargePoint Holdings Inc. (CHPT) ; $17.68; 9,000 shares; 4.52%; Sector: Electrical Components & Equipment

1-Wk. Price Change: 21.90% Yield: 0.00%

WEEKLY UPDATE: Credit Suisse initiated coverage on CHPT shares with an Outperform rating and a $22 price target, which matches our own price target for the shares. Similar to our thesis on the shares, Credit Suisse sees the company benefitting from the Inflation Reduction Act and the Biden Infrastructure Law. These bullish comments followed JPMorgan recently bumping up its price target on CHPT shares to $20 from $18. Next week ChargePoint will appear at the Goldman Sachs Communacopia Technology Conference 2022 and the JP Morgan 13th Annual U.S. All Stars Conference 2022.

INVESTMENT THESIS: ChargePoint Holdings designs, develops and markets networked electric vehicle (EV) charging system infrastructure and cloud-based services which enable consumers the ability to locate, reserve and authenticate Networked Charging Systems, and to transact EV charging sessions on those systems. As part of ChargePoint's Networked Charging Systems, subscriptions, and other offerings, it provides an open platform that integrates with system hardware from ChargePoint and other manufacturers. According to the US Department of Energy, the US reached a milestone this past year with its 100,000th EV charger installed in 2021. Industry analysts at Guidehouse Insights forecast that a total of 120 million chargers will be needed globally by 2030, providing a meaningful opportunity for ChargePoint to expand its charging footprint. To that end, the U.S. Departments of Transportation and Energy announced nearly $5 billion over the next five years that will be made available under the new National Electric Vehicle Infrastructure (NEVI) Formula Program established by President Biden's Bipartisan Infrastructure Law. The aim of NEVI is to build out a national electric vehicle charging network of high voltage chargers along designated Alternative Fuel Corridors, particularly along the Interstate Highway System.

Target Price: Reiterate $22; Rating: One

RISKS: EV adoption of passenger and fleet applications, changing technology, subscription renewals.

ACTIONS, ANALYSIS & MORE: We're Calling Up a Name From the Bullpen, The Needle Could Begin to Move on This Bullpen Name, Investor Relations.

Costco Wholesale (COST) ; $536.58; 240 shares; 3.65%; Sector: Consumer Staples

WEEKLY UPDATE: Next week brings the August retail sales report and we will be sizing up Costco's August Sales report against those learnings. We expect that comparison will once again show Costco winning consumer wallet share. As we wait for the August retail sales report, we will be waiting for the August Mastercard Spending Pulse report as well as Visa's Spending Momentum Index for August.

1-Wk. Price Change: 3.4% Yield: 0.6%

INVESTMENT THESIS: We like Costco's long-term prospects, driven by a club-based operating model that focuses on volumes, not margins, and therefore offers its customers a value proposition of everyday low prices. The strength of this model has created an incredible loyal customer base with low churn and continued share gains in both brick and mortar and e-commerce. And this is a global concept, evidenced by the strength of sales both in the U.S. and abroad, which includes an emerging China opportunity. We see the company's membership model as a key differentiator vs. other retailers and its plans to open additional warehouse locations in the coming quarters should drive retail volumes and the higher margin membership fee income as well. We also appreciate management's approach to capital returns and their willingness to return cash when it is in excess on the balance sheet. Earlier this year, Costco announced a 13.9% increase for its quarterly dividend to $0.90 per share.

Target Price: Reiterate $620. Rating: One

RISKS: Inability to pass through higher costs, fuel prices, weaker consumer, membership churn.

ACTIONS, ANALYSIS & MORE: FY4Q21 Earnings Analysis (9/23/21), FY2Q21 Earnings Analysis (3/4/21), Upgrading Costco to a One (2/25/21), $10 Per Share Special Dividend (11/16/20), Recent Buy Alert (2/28/20), Initiation (1/27/20), Investor Relations

Deere & Co. (DE) ; $372.25; 310 shares; 3.27%; Sector: Farm Machinery & Equipment

WEEKLY UPDATE: Investor's Business Daily showed Deere's Relative Strength rating rose to 83 from 75, passing the 80 threshold for top-performing stocks. Late in the week, ag and construction wheel and tire company Titan International said that major its customers are sold out for 2022 and 2023 is lining up to "be great" as well. Lending support to that view, the USDA recently increased its 2022 farm income forecast given the strong commodity backdrop, something we pointed out during our Members-Only call this week. As we've told members, higher farm income translates into higher large ag equipment sales, and this latest boost bodes well for a strong finish to 2022 and a solid 2023.

1-Wk. Price Change: 2.8% Yield: 1.1%

INVESTMENT THESIS: The global agriculture equipment market size is expected to reach $166.5 billion in 2027, growing at 6% CAGR over the 2020-2027 period. The favorable outlook for equipment purchases in the coming quarters reflects rising farmer income that historically drives new equipment purchases. At the same time, Deere continues to lean into the sustainability movement with its precision ag offering. That technology is helping farmers drive crop yields higher while also realizing cost savings, which makes the new technology a productivity upgrade compared to older equipment.

Price Target: Reiterate $425; Rating: One.

RISKS: Geopolitical uncertainty, economic conditions, raw material and other input prices, prices for key agricultural commodities.

ACTIONS, ANALYSIS & MORE: Initiation (10/25/21), Investor Relations

SPDR Gold Shares ETF (GLD) ; $159.81; 312 shares; 1.41%; Sector: Commodities


1-Wk. Price Change: 0.3% Yield: 0%

INVESTMENT THESIS: The GLD ETF is a proxy for gold. This "trust" buys and sells gold futures each day in an attempt to mimic the daily moves in the underlying asset, in this case gold. We see gold as an ideal hedge against a weaker dollar, strong inflation (which tends to weaken the dollar) alternative and in uncertain times (worry over war and battles). For the past 15 years gold has been a strong asset class held by fund managers, countries and banks. The metal is not correlated with markets and will move based on the demand/supply dynamic in the marketplace. Other precious metals such as silver and platinum are good proxies for the criteria stated earlier, however gold is far more liquid and offers better upside opportunities.

Target Price: Reiterate $200; Rating: One

RISKS: Weak inflation data, interest rate risk, dollar strength relative to other currencies, geographic risk.

Alphabet (GOOGL) ; $110.65; 1,100 shares; 3.45%; Sector: Communication Services

WEEKLY UPDATE: Speaking at the Code Conference, CEO Sundar Pichai is looking to make Google "20% more productive," and hinted that along with product-line innovation, job cuts could be in order, depending on the macroeconomic landscape. As Google sees it, macroeconomic performance is correlated to ad spend and consumer spend, a thought process we concur with. Later in the week, reports indicated the company was restricting travel to "business critical" trips as it looks to manage its costs amid what it sees as an uncertain macro-economy. Given what is likely to be a heated mid-term election in the U.S., AdImpact sees $9.7 billion being spent on political ads during the 2022 election cycle, up from $9 billion during the 2020 election and $4 billion during the 2019 election. Given Alphabet's reach with Search and YouTube, this spending could be lead to an upside surprise in the December quarter. On October 6th, Google will hold an event that is expected to showcase its new Pixel 7 smartphone as well as a new version of its Pixel Watch.

1-Wk. Price Change: 2.6%; Yield: 0.00%

INVESTMENT THESIS: We believe that while search and digital ad dominance are what will carry shares in the near- to- midterm, longer-term it is the company's artificial intelligence "moat" that will provide for new avenues of growth. AI is what has made the company's search, video and targeted ad capabilities best-in-class and is the driving force behind the company's success in voice (Google Home) and autonomous driving (Waymo). Furthermore, we believe it is this AI expertise that will also make the company more prevalent in other industries, including healthcare via subsidiary Verily, as AI and machine learning continue to disrupt operations across industries. We believe Alphabet's willingness to invest in new areas, knowing most will fail, is a recipe for long-term success as while most "X Moonshot Factory" projects may fail, every once in a while, you end up with a Waymo, perhaps the division's, most successful graduate to date. Lastly, compounding out positive view of the company's future opportunities, we believe that Alphabet's free cash flow generation and solid balance sheet set it apart and are what will allow the company to continue taking chances on far-out ground-breaking and potentially world changing projects.

Target Price: Reiterate $155; Rating: One

RISKS: Regulatory risk (data privacy), competition, macroeconomic slowdown impacting consumers and therefore ad buyer activity

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/27/21), Why GOOGL Has Shrugged Off Antitrust Headlines in Early Trading Tuesday (10/20/20), Initiation (11/27/13), Investor Relations

United Rentals (URI) ; $311.14; 330 shares; 2.91%; Sector: Industrials

WEEKLY UPDATE: A new report from Freedonia Focus sees U.S. engineering service revenues rising 4.5% per year in nominal terms through 2026 given expected gains in continued investment in manufacturer facilities, spending tied to the Infrastructure Investment and Jobs Act, and construction of new power generating units, as well as the modification and upgrade of existing plants. This keeps us bullish on URI shares and we continue to look for opportunities to grow the portfolio's position.

1-Wk. Price Change: 7.4% Yield: 0.0%

INVESTMENT THESIS: United Rentals is the largest equipment rental company in the world, operates throughout the United States and Canada, and has a limited presence in Europe, Australia, and New Zealand. It serves the industrial and other non-construction; commercial (or private non-residential) construction; and residential construction. Industrial and other non-construction rentals represented approximately 50% of rental revenue, primarily reflecting rentals to manufacturers, energy companies, chemical companies, paper mills, railroads, shipbuilders, utilities, retailers and infrastructure entities; Commercial construction rentals represented approximately 46% of rental revenue, primarily reflecting rentals related to the construction and remodeling of facilities for office space, lodging, healthcare, entertainment and other commercial purposes; and residential rentals ~4% of revenue. We see the company benefitting on three fronts - the seasonal uptick in construction spending; the release of funds and projects associated with the five-year Biden Infrastructure Bill; and the company's nip and tuck acquisition strategy that should further enhance its geographic footprint. In January, the company announced a fresh $1 billion buyback authorization following the completion of $4 billion in share repurchases over the 2012-2021 period.

Target Price: Reiterate $380; Rating: One

RISKS: Industry and economic risk, competition and competitive pressures, acquisition risk.

ACTIONS, ANALYSIS & MORE: Initiating a Position in This Equipment Rental Company, We're Adding This Equipment Rental Company to the Bullpen, Investor Relations.

Verizon Communications (VZ) ; $42.24; 2,000 shares; 2.40%; Sector: Communication Services

WEEKLY UPDATE: Early in the week, as we expected, Verizon announced its latest dividend increase to $0.6525 per share, 2% higher than its prior dividend of $0.64 per share. This new dividend will be paid on Nov. 1 to shareholders of record on Oct. 7. During the week, Verizon management presented at the BofA 2022 Media Communications & Entertainment Conference sharing discussing prospects for its fixed wireless access business and the ability to bundle its products to consumers. We see that offering and its savings keeping customers while helping win new ones as well. Closing out its presentation, the company teased two major announcements, one at the end of September and another in October. The pullback in the shares paired with the new forward dividend yield has us looking to add to the portfolio's position.

1-Wk. Price Change: 2.3% Yield: 6.1%

INVESTMENT THESIS: Verizon Communications is one of the largest communication companies in the U.S. Its Consumer business, includes wireless equipment and services as well as residential fixed connectivity solutions, including internet, video, and voice services, is ~75% of Verizon's revenue stream but ~90% of its operating income. Exiting the March 2022 quarter, the company had 115.2 million wireless customers split between 91.4 million pre-paid and 23.8 million postpaid, and 7.1 million broadband consumers, the vast majority of which are Fios Internet customers. From a revenue and operating profit contribution perspective, the Business segment accounts for ~25% and 10%, respectively. Through this segment Verizon offers wireless and wireline communications services and products, including data, video and conferencing services, corporate networking solutions, security and managed network services, local and long-distance voice services, and network access to deliver various Internet of Things (IoT) services and products.

Target Price: Reiterate $55; Rating: One

RISKS: Industry and economic risk, competition and competitive pressures, acquisition risk, labor relations, and the regulatory environment.

ACTIONS, ANALYSIS & MORE: Here's Why We're Attracted to This Telecom, Exiting 2 Positions, Initiating 1, and Adding to 3, Investor Relations


Advanced Micro Devices (AMD) ; $85.45; 1,160 shares; 6.5%; Sector: Info. Tech.

WEEKLY UPDATE: Shares of AMD received several positive mentions this week, including a new "Buy" rating and a $122 target from Stifel Nicolaus. The firm sees the company as the best positioned U.S. computer chip company and well positioned to benefit in data center, enterprise, and PC OEM markets with its rapid cadence of new product introductions, winning sockets along the way. Next week, on Sept. 15, AMD presents at the Goldman Sachs Communacopia & Technology Conference on Sept. 15. Given AMD's exposure to the gaming and PC market, we are inclined to stay on the sidelines in the very near-term despite our long-term price target.

1-Wk. Price Change: 2.8% Yield: 0.00%

INVESTMENT THESIS: AMD is a chip maker that specializes in the development of both CPUs (like Intel) and GPUs (like Nvidia). On the CPU side, the company continues to take share from Intel in the data center thanks to its 2nd generation EPYC processor line, which is seeing increased adoption in the super computing and high-performance computing space (especially following execution missteps from Intel that has resulted in delays for the companies 7nm chips), which you can read more about at the link here. On the GPU side, while Nvidia remains the unquestioned leader in terms of overall performance, AMD is the close on its tail and provides a strong balance between price and performance. AMD is also seeing strong momentum in the mobile space, recently announcing that its Ryzen platform has exceeded its moonshot 25x20 goal set in 2014 that aimed to improve the energy efficiency of its mobile processors 25 times by 2020. Simply put, we think AMD has more room to run as it gains market share, especially when you factor in the current strength of data center and the company's positioning as it relates to the next-gen video game console cycle given that both PlayStation and Xbox use AMD graphics cards.

Target Price: Reiterate $140; Rating: Two

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/27/21), CEO Interview (7/29/20), Readthroughs Are Still Positive for AMD (7/24/20), Initiation (7/7/20), Investor Relations

Amazon (AMZN) ; $133.27; 710 shares; 2.68%; Sector: Consumer Discretionary

WEEKLY UPDATE: According to consulting firm MWPVL, Amazon is either closing or abandoning plans to open 42 facilities across the country totaling almost 25 million square feet of usable space. Coming into 2022, Amazon operated 1,137 fulfillment centers across the U.S. with plans to open more than 300 more, and with that context we see it taking a more rational expansion plan given the economy as rather prudent. We continue to hear reports of more unionization efforts, and we will keep that effort on our radar. Late in the week, Amazon purchased Belgium-based Cloostermans, which designs and manufactures mechatronics products as part of its robotics effort. We wouldn't be surprised to see if that acquisition was in part to push back on any potential unionization efforts. Next week brings the August retail sales report and following the timing of Prime Day 2022 we wouldn't' be surprised to see a sequential downtick in non-store retail sales. That said, we will be far more focused on the year over year comparisons for that data set. We also look forward to Mastercard's August SpendingPulse report. We continue to like AMZN shares as we gear up for the holiday shopping season.

1-Wk. Price Change: 4.5%; Yield: 0.00%

INVESTMENT THESIS: We believe upside will result from Amazon's continued Commerce dominance, AWS' continued leadership in the public cloud space, and ongoing growth of the company's advertising revenue stream, which feeds off Amazon's eCommerce business. Additionally, we believe profitability will continue to improve as AWS and advertising account for a larger portion of total sales as both these segments sport higher margins than the eCommerce operation. And while we believe the increasing share of revenue from these higher margin businesses will be key to driving profitability longer-term, we believe margins on ecommerce stand to improve as the company's infrastructure is further built out and economies of scale further kick in. The embedded call option is that management is always looking to enter a new space and generate new revenue streams. We continue to see the company's Prime, logistics service and learnings from its Chime video conferencing platform as a game changer for the healthcare industry.

Target Price: Reiterate $175; Rating: Two

RISKS: High valuation exposes the stock to volatile swings, eCommerce has exposure to slower consumer spending, competition, management is not afraid to invest heavily, potential headwinds resulting from new eCommerce regulation in India, management is not scared to invest aggressively for growth, which can at times cause volatile reactions as near-term concerns arise relating to the impact on margins.

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/29/21), 2020 Letter to Shareholders (4/15/21), Initiation (2/2/18), Investor Relations

American Water Works (AWK) ; $154.90; 600 shares; 2.64%; Sector: Utilities

WEEKLY UPDATE: JPMorgan raised its investment rating on AWK shares to "Neutral" from "Underweight" and boosted its price target from $162 to $165, matching our own target. Given the upside to that level, we are once again taking another look at the current investment rating on the shares, especially given the slowing economic landscape and the sharp realization that water is one of the most inelastic products. That said, we recognize we will soon be entering the seasonally slower time of the year for the company's revenue stream, and that keeps us paying close attention to fresh rate hike approvals.

1-Wk. Price Change: 4.6%; Yield: 1.6%

INVESTMENT THESIS: American Water is the largest and most geographically diverse, publicly traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. The company's primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers. The company's utilities operate in approximately 1,700 communities in 14 states in the United States, with 3.4 million active customers in its water and wastewater networks. Services provided by the Company's utilities are subject to regulation by multiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions (PUCs). Residential customers make up a substantial portion of the Company's customer base in all of the states in which it operates. The Company also serves (i) commercial customers, such as food and beverage providers, commercial property developers and proprietors, and energy suppliers, (ii) fire service customers, where the Company supplies water through its distribution systems to public fire hydrants for firefighting purposes and to private fire customers for use in fire suppression systems in office buildings and other facilities, (iii) industrial customers, such as large-scale manufacturers, mining and production operations, (iv) public authorities, such as government buildings and other public sector facilities. Because there is usually only one water utility available, the business has a rather wide moat, and the company has used its scale and balance sheet to acquire smaller, regional water utilities thereby further expanding its scale. pending rate increases under pin the company's 7%-9% annual EPS growth targets between now and 2026 as well as its stated objective to increase its annual dividend by 7%-10% over the next several years. American Water declared its latest quarterly dividend of $0.655 per share will be paid on Sept. 1 to shareholders of record as of Aug. 9.

Target Price: Reiterate $165; Rating: Two

RISKS: Regulatory oversight risks, environmental safety laws and regulation, weather related service disruptions.

ACTIONS, ANALYSIS & MORE: We're Initiating 1 Name While Adding to Another Initiating a Position in This Public Water Utility Company, Investor Relations presentation.

Apple (AAPL) ; $157.37; 750 shares; 3.35%; Sector: Technology

WEEKLY UPDATE: During the week, as expected, Apple introduced its next iPhone and Apple Watch iterations, and we characterized them largely as modest upgrades vs. last year's models. Apple wasn't shy about its carrier partners having favorable incentives to drive those upgrades. And that potential install base for upgrades is sizable -- earlier this year Apple CEO Tim Cook said the company had over 1.8 billion active devices worldwide across its iPhone, iPad, iPod touch, Mac, Apple TV, and Apple Watch products. The lion's share of that figure is skewed toward iPhone, with third party research firms pointing to as many as 1.2 billion iPhone users. With Apple shipping 191 million iPhones in 2019, 206.1 million in 2020, and 240 million last year, that leaves a hefty number of devices that are more than four years old to be upgraded. The release dates for these latest models stagger across mid-September to early October, which confirms earlier chatter and should help iPhone volumes in the current quarter. Speculation calls for another Apple event in October, one that will further bolster its lineup of iPads and Macs ahead of the holiday shopping season. In terms of the current quarter, Apple partner Taiwan Semiconductor announced its August revenue rose 58.7% year over year (up 16.8% vs. July), which confirms not only data center strength and Apple's own Apple Silicon but also that the seasonal ramp in smartphones once again began..

1-Wk. Price Change: 1% Yield: 0.6%

INVESTMENT THESIS: While we acknowledge that near- to- midterm performance remains heavily influenced by iPhone sales, the dynamic is shifting as investors finally being to place greater emphasis on Services growth. We are bullish on the 5G upgrade cycle and believe longer-term upside will continue to come as Services revenue grows its share of overall sales. Services provide for a recurring revenue stream at higher margins, a factor that serves to reduce earnings volatility while allowing for a higher percentage of sales to fall to the bottom line, as a result, we believe that Services growth and the installed base, are much more important than how many devices the company can sell in a given 90-day period. In addition to improved profitability, we also believe the transparent nature of this revenue stream will demand an expanded price-to-earnings multiple as segment sales grow. Furthermore, we believe that Apple's desire to push deeper into the healthcare arena will help make its devices invaluable as more life-changing features are added and the company works to democratize health records. Lastly, also see upside resulting from increased adoption of wearables (think the Apple Watch) and potential new product announcements such as an AR/VR headset or an update on project Titan, the company's secretive autonomous driving program.

Target Price: Reiterate $175; Rating: Two

RISKS: Slowdown in consumer spending, competition, lack of new product innovation, elongated replacement cycles, failure to execute on Services growth initiative

ACTIONS, ANALYSIS & MORE: FY3Q21 Earnings Analysis (7/27/21), Apple Product Launch Event Takeaways (4/20/21), Takeaways from WWDC (6/22/20), Initiation (1/4/10), Investor Relations

Applied Materials (AMAT) ; $96.51; 1,160 shares; 3.18%; Sector: Industrial Machinery

WEEKLY UPDATE: Applied Materials announced its board of directors approved its next quarterly cash dividend of $0.26 per share payable on Dec. 15 to shareholders of record as of Nov. 25. At the Citi 2022 Global Technology Conference Applied said it expects that over the long-term, semiconductors will continue to grow at a high-single-digit rate across all of the device types driving the need for additional manufacturing capacity. It called out the transition to EVs from combustion engines as mid-teens driver of chip demand given higher degree of chip content in those vehicles. Near-term the company's order book remains full over the coming three quarters with lead-times still stretched. Also, this week, more details were released on the $50 billion CHIPS Act, including that $39 billion will be used to build out domestic manufacturing. We see that as a positive for Applied's business and our shares, but we acknowledge that spending isn't likely to be a pronounced driver of revenue until the second half of 2023.

1-Wk. Price Change: 5.8% Yield: 1%

INVESTMENT THESIS: SEMI, the semiconductor capital equipment trade association, now sees global sales of semiconductor manufacturing equipment by original equipment manufacturers passing the $100 billion mark in 2022, after jumping 34% to $95.3 billion in 2021 and registering $71.1 billion in 2020. Other forecasts point to continued growth in the semiconductor capital equipment market due to the maturing of the 5G and IoT markets as well as the maturation of the other drivers for chip demand. We also like the company's policy of returning capital to shareholders and would note its growing track record of annual dividend increases. Applied's next $0.26 per share quarterly dividend will be paid on Sept. 15 to shareholders of record on Aug. 25.

Target Price: Reiterate $135; Rating: Two

RISKS: Semiconductor capital equipment spending. Geopolitical tensions and international trade disputes.

ACTIONS, ANALYSIS & MORE: Trimming 2 Names; Initiating a New Position, Investor Relations.

Chipotle Mexican Grill (CMG) ; $1,723.32; 70 shares; 3.42%; Sector: Restaurants

1-Wk. Price Change: 6.6% Yield: 0.00%

WEEKLY UPDATE: It was a pretty quiet week for CMG shares, but next week brings the August retail sales report and we'll be eyeing the results for food services & drinking places. With clear signs consumers are trading down, we continue to see Chipotle's quick service model benefitting as diners eschew casual dining options and their higher price points.

INVESTMENT THESIS: Our investment thesis on CMG shares centers on its offering consumers better-for-you fare while also expanding its geographic density, embracing digital ordering, and bringing to market limited-time menu offerings that should spur traffic and boost average revenue per ticket. With upside to our price target shrinking, we are once again reviewing the incremental upside and revisiting protein input costs.

Target Price: Reiterate $1,850; Rating: Two

RISKS: Input costs, particularly for the protein complex, labor costs, consumer spending, food safety, industry dynamics and competition.

ACTIONS, ANALYSIS & MORE: Initiating a New Position in Chipotle, We're Adding Chipotle to the (Bullpen) Menu

First Trust Nasdaq Cybersecurity ETF (CIBR) ; $43.71; 2,590 shares; 3.21%; Sector: Cybersecurity

WEEKLY UPDATE: Over the last few weeks, we've seen a number of positions in the First Trust Nasdaq Cybersecurity ETF positions report better-than-expected quarterly results and lift their forward guidance. That trend continued yet again this week when July quarter results at Zscaler (ZS) topped consensus expectations and the company issued upside guidance for its October quarter with EPS of $0.26 vs. the $0.22 consensus with revenue in the range of $339-$341 million vs. the $326 million consensus. During the July quarter, the company's calculated billings grew 57% year over year to $520.4 million while its deferred revenue grew 62% year over year to $1.02 billion. During our September Members-Only Call, we predicted that even as business spending slows, companies will continue to invest in cybersecurity to protect their crown jewels. Per Zscaler, "Despite the uncertain macroeconomic landscape which continues to evolve, we continue to see favorable demand for our Zero Trust Exchange platform because it makes businesses more secure,."

1-Wk. Price Change: 6.5% Yield: 0%

INVESTMENT THESIS: The First Trust Nasdaq Cybersecurity ETF is an exchange-traded fund. The Fund seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Nasdaq CTA Cybersecurity Index. The Nasdaq CTA Cybersecurity Index is designed to track the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. It includes companies primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices in order to provide protection of the integrity of data and network operations. To be included in the index, a security must be listed on an index-eligible global stock exchange and classified as a cybersecurity company as determined by the Consumer Technology Association (CTA). Each security must have a worldwide market capitalization of $250 million, have a minimum three-month average daily dollar trading volume of $1 million, and have a minimum free float of 20%.

Target Price: Reiterate $62; Rating: Two

RISKS: Cybersecurity spending, technology and product development, timing of product sales cycle, new products, and services in response to rapid technological changes and market developments as well as evolving security threats.

ACTIONS, ANALYSIS & MORE: We're Swapping One Cybersecurity Stock for Another, ETF Product Summary

Ford Motor (F) ; $15.42; 7,850 shares; 3.43%; Sector: Industrials

WEEKLY UPDATE: Comparing Ford's August sales against U.S. retail deliveries of new cars and light trucks points to continued share gains for Ford. By the numbers, U.S. retail deliveries of new cars and light trucks in August rose 6% year over year and 3% compared to July to 1.02 million units, while Ford's retail sales rose 29.7% during the month to 158.09K units, led by the four-fold surge in its EV segment. After a three-year hiatus, next week brings the NAIAS Detroit Auto Show in Detroit and Ford is expected to unveil a new s650 Mustang as well as a new Lincoln L100 concept car. We expect the show will also showcase a number of EV vehicles, a longer-term positive for our shares of ChargePoint (CHPT). We will continue to watch for other states that follow in California's footsteps of instilling new regulations that require all new cars, pickups, and SUVs to be electric or hydrogen-powered by 2035. At last report, there are 17 potential states mulling this over including Washington, Massachusetts, New York, Oregon, Vermont, Virginia, Minnesota, and Colorado. Should additional states institute similar requirements, we'd look to revisit our price target on F shares.

1-Wk. Price Change: 1.7% Yield: 1.9%

INVESTMENT THESIS: Our bullish thesis on Ford is mainly predicated on the turnaround led by CEO Jim Farley and his new leadership team. Whether it be through restructuring underperforming parts of the business and getting out of low profitable vehicles or addressing a roughly $2 billion headwind related to warranty costs, we believe Farley and his management are executing in building a new Ford that grows profitably and generates sustainable free cash flow. We also think Ford's electric vehicle business is underappreciated. Not only do they have the Mustang Mach-E, but Ford is also developing all-new electric versions of the popular F-150 and the E-Transit cargo van. Plus, Ford has a strategic partnership and minority investment with Rivian who is best known for its customer delivery vehicles for Amazon. Ford recently hiked its quarterly dividend to $0.15 per share from $0.10, and the first installment of this new dividend will be paid on Sept. 1 to shareholders as of Aug. 11.

Target Price: Reiterate $17; Rating: Two

RISKS: Turnaround execution, the transition from ICE (internal combustion engines) to EV vehicles, competition, economic cycle,

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/28/21), Ford Continues to Shine After Capital Markets Day (5/27/21), Our Take on Ford as It Continues Its Climb Higher (1/21/21), Looking for Opportunities After a Ford Downgrade (11/25/20), Initiation (11/24/2020), Investor Relations

Mastercard (MA) ; $335.85; 275 shares; 2.62%; Sector: Info. Tech

WEEKLY UPDATE: While we wait for the August Retail Sales report as well as Mastercard's own August SpendingPulse Survey, a new report from Coherent Insights sees the global digital payments market reaching $22.3 trillion by 2030 vs. $7.36 trillion in 2021. That supports our view that Mastercard will continue to benefit from the structural shift to credit, debit and mobile payments from cash and check. On September 14, Mastercard will participate in the Goldman Sachs Communacopia + Technology Conference. The following day, the company will appear at the Autonomous Future of Commerce Symposium.

1-Wk. Price Change: 4.1% Yield: 0.7%

INVESTMENT THESIS: Mastercard is a card network company that benefits from the secular shift away from cash transactions and towards card based and electronic payments. On Covid-19 dynamics, we view MA as a "reopening" play and an economic recovery play within technology because its cross-border volumes fell sharply during the pandemic but will rebound as mobility increases and travel restrictions ease. Mastercard has more international exposure relative to Visa, making its growth outlook more susceptible to new travel restrictions. However, we view MA as the better long-term play as we are betting on that inevitable recovery. Mastercard's next $0.49 per share quarterly dividend will be paid on Aug. 9 to shareholders of record on July 8.

Target Price: Reiterate $425 Rating: Two

RISKS: The recovery in cross-border transactions, regulation in payments market, competition from other fintechs, pricing pressures.

Microsoft Corp (MSFT) ; $264.46; 500 shares; 3.75%; Sector: Technology

WEEKLY UPDATE: Next week the company presents at the Goldman Sachs Communcopia & Technology Conference. During that presentation we'll be listening for an updated view on dollar headwinds, expectations for the PC market and any softening in spending as it pertains to Microsoft's cloud business. We will be triangulating those comments against others speaking at that conference as well as others next week.

1-Wk. Price Change: 3.3% Yield: 1.1%

INVESTMENT THESIS: We believe the cloud to be a secular growth trend and that upside to shares will result from Microsoft's hybrid cloud leadership as the company grab's market in this expanding industry. While companies may look to build out multi-cloud environments, Microsoft's Azure offering will be a prime choice thanks to the company's decision to provide the same "stack" used in the public cloud, to companies for their on-premise data centers. Additionally, we would note that hybrid environments are currently the preference for most companies because it allows them to maintain critical data in house while taking advantage of the agility and scalability provided by public clouds. Outside of the cloud opportunity, we maintain a positive view on the company's growing gaming business, which we believe is becoming an increasingly prominent factor in the Microsoft growth story as gaming becomes more mainstream, management works to convert its gaming revenue from one-time license purchase to a recurring subscription model and as technologies like augmented/virtual reality evolve. Finally, as it relates to LinkedIn and other subscription-based services such as O365 and various Dynamics products, we continue to value them highly for their recurring revenue streams, which we remind members, provides for greater transparency of future earnings.

Target Price: Reiterate $310; Rating: Two.

RISKS: Slowdown in IT spending, competition, cannibalization of on premises business by the cloud

ACTIONS, ANALYSIS & MORE:FY4Q21 Earnings Analysis (7/27/21), Ignite 2021, Microsoft Acquires ZeniMax (9/22/20), CEO Satya Nadella on CNBC (3/25/20), CEO Satya Nadella speaks at the World Economic Forum (1/23/20)

McCormick & Co. Inc. (MKC) ; $79.89; 1,415 shares; 3.21%; Sector: Food; Consumer Non-Durables

WEEKLY UPDATE: McCormick & Co. issued downside guidance for its August quarter with EPS of $0.65 vs. the $0.83 consensus with revenue near $1.60 billion vs. the $1.63 billion consensus. When McCormick reports its quarterly results on October 6, we'll have a clearer picture as to how much of the August shortfall was due to the divestiture and how much to the other factors. We'll also be quite interested in the progress on the company's previously announced pricing initiatives that were instilled during August. Increases like those tend to be weaved in with the full benefit being had in the ensuing months. Insight into that effort and how sticky those increases are will help us determine any potential downside risk to McCormick's new 2022 EPS target of $2.63-2.68 vs. the $3.03 consensus that is based on 2022 revenue of $6.32-$6.44 billion vs. the $6.55 billion consensus. Parsing the revised guidance, it implies second half revenue will still rise 6%-10% with the bulk of that coming in the company's November quarter. Historically, that has been the company's strongest quarter given sell-in for holiday related demand and this year it should see benefits from those August price increases. The question we are wrestling with is whether the shares can rally back to their highs earlier this year, which would lead to the portfolio recovering its losses against the position's $97 cost basis. The answer will likely be Oct. 6 and hinge on what the company has to say about its pricing efforts vs. input cost inflation. Should we see MKC shares break below $75, we are inclined to revisit the position in the shares.

1-Wk. Price Change: -3.8% Yield: 1.8%

INVESTMENT THESIS: McCormick is a global leader in flavor that manufacture spices, seasoning mixes, condiments, and other flavorful products to the entire food industry-retailers, food manufacturers and foodservice businesses. Roughly 65% and 75% of the company's sales and operating income are derived from its consumer business with the balance from its "Flavor Solutions" one. With consumers feeling the pinch of higher food prices, they are likely to repeat the historical pattern of shifting toward increasing food consumption at home, a driver of demand for McCormick's products. We are also entering the seasonally strong time of year for this dividend payer, which has increased its dividend each year over the past 37 years.

Target Price: Reiterate $110 Rating: Two

RISKS: Local economic and market conditions, input cost inflation, exchange rate fluctuations, and restrictions on investments, royalties, and dividends.

Morgan Stanley (MS) ; $89.46; 1,000 shares; 2.54%; Sector: Financials

WEEKLY UPDATE: Odeon Capital analyst Dick Bove downgraded Goldman Sachs and Morgan Stanley to Sell from Hold and Citigroup to Hold from Buy as he sees dark times coming for investment banks. That call echoes our own sentiment given the dry IPO calendar and modest level of M&A activity. As we said on this week's Members-Only Call, if MS shares were to rebound to the $91-$92 level we would consider dialing back the portfolio's exposure to them.

1-Wk. Price Change: 3.5%; Yield: 3.1%

INVESTMENT THESIS: The company's mission is to create three world-class businesses of scale: Institutional Securities, Wealth Management, and Investment Management. The bank has supercharged Morgan Stanley's push into the latter two businesses was recently enhanced by the acquisitions of E-Trade (for Wealth Management) and Eaton Vance (Investment Management). Both deals have increased the bank's exposure to fee-based and recurring revenue streams, making Morgan Stanley less dependent on volatile business lines and interest rates. Estimates suggest Wealth Management and Investment Management fees as a percentage of Morgan Stanley's overall revenues should increase to around 60% in the fourth quarter of 2022, up from about 46% in the first quarter of 2021. We see this transition as a multiple enhancing event. We also appreciate the bank's ability to return excess capital to shareholders.

Target Price: Reiterate $100; Rating: Two

RISKS: Capital Markets activity, Integration risk on recent acquisitions, increased regulation of banking industry, low interest rates

ACTIONS, ANALYSIS & MORE: 2Q21 Earnings Report (7/15/21), Initiation (7/12/21), Investor Relations

Nucor (NUE) ; $143.56; 325 shares; 1.32%; Sector: Materials


1-Wk. Price Change: 9.8% Yield: 1.3%

INVESTMENT THESIS: Nucor is the largest steel producer in the United States, primarily serving commercial, municipal construction, and industrial markets. The company operates in three major segments: steel mills, steel products, and raw materials. Nucor is also the largest metals recycler in North America. We believe the steel industry is going through a multi-year cycle of higher prices, leading to higher margins and bigger profits for Nucor. The sharp, V-shaped recovery in industry activity has been one driver of profit growth for Nucor, as the surge in demand for steel coming out of the pandemic was met with tight capacity. We also believe Nucor will be a major beneficiary of a comprehensive infrastructure package. Lastly, Nucor has a history of rewarding its shareholders with robust capital returns during upcycles. The company recently announced a 23% increase in its quarterly dividend to $0.50 per share, up from the prior $0.405, and the approval of a $4 billion share repurchase program, which replaces Nucor's prior $3 billion program under which the company bought back $2.33 billion between May-December of this year.

Target Price: Reiterate $175 Rating: Two

RISKS: Steel prices, decline in industrial activity, no comprehensive infrastructure package.

ACTIONS, ANALYSIS & MORE: Nucor Preannounces Stronger-Than-Expected Third-Quarter Earnings (9/16/21), FY2Q21 Earnings Analysis (7/22/21), Initiation (6/7/21), Investor Relations

PepsiCo Inc. (PEP) ; $173.22650 shares; 3.19%; Sector: Consumer Defensive

WEEKLY UPDATE: A quiet week for this global beverage and snack company but better than expected July quarter results at Kroger confirm consumers are increasingly headed back to the grocery store. Kroger reported its identical sales for the quarter excluding fuel rose 5.8% year over year. We'll look for further confirmation in next week's August Retail Sales report. PepsiCo will report its results for the current quarter on Oct. 12. With the shares back where we last added them, members that missed on that opportunity have another bite at the PEP apple.

1-Wk. Price Change: 1.5%; Yield: 2.5%

INVESTMENT THESIS: PepsiCo is one of the largest food and beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The combination of the consumable nature of those products along with PepsiCo's ability to realize price increases has led to consistent revenue, EPS, and dividend growth during both the Great Recession and the Covid pandemic. This company's most recent dividend increase marks its 50th consecutive one and that 7% bump moves the annualized dividend to $4.60 per share up from the prior $4.30.

Target Price: Reiterate $190; Rating: Two

RISKS: Economic conditions, supply chain constraints, raw material costs.

ACTIONS, ANALYSIS & MORE: Adding to 2 Positions on Market Weakness, We're Initiating 1 Name While Adding to Another, This Stock Should Have 'Pep,' Even in a Recession, Investor Relations

United Parcel Service (UPS) ; $198.69; 565 shares; 3.19%; Sector: Industrials

WEEKLY UPDATE: BofA Global Research boosted its target on UPS shares to $204 from $198 while Citi initiated a pair trade overweighting UPS shares while underweighting FedEx (FDX) shares. Citi's rationale is UPS's ability to lower costs and execute better in a challenging macro environment. During the week, UPS announced it has begun its seasonal hiring drive as it gets ready for the surge in digital shopping tied to the year-end holiday season. This year, UPS is looking to hire more than 100,000 seasonal workers. The company will report its September quarter results on Oct. 25.

1-Wk. Price Change: 1.3% Yield: 2.6%

INVESTMENT THESIS: We are fans of CEO Carol Tomé. Throughout her time at Home Depot, Tomé built an impressive reputation as a turnaround artist, and we think her fresh perspective and intense focus on efficiencies will create a better UPS. However, near-term global supply chain issues paired with rising transportation costs could be a thorn in the company's side. We appreciate UPS's nearly 50 years of stability and growth in dividends, which management calls the "hallmark" of the company's financial strength. In February 2022, the company announced a 49% hike to its quarterly dividend putting it at $1.52 per share.

Target Price: Reiterate $230; Rating: Two

RISKS: Weakness in the broader economy, rising fuel prices, execution, cost management, pricing power.

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/27/21), Investor/Analyst Day Analysis (6/9/21), Initiation Post (9/25/20), Investor Relations

Vulcan Materials Company (VMC) ; $171.81; 305 shares; 1.49%; Sector: Building Materials

WEEKLY UPDATE: A new report from Freedonia Focus Reports sees U.S. engineering service revenues to rise 4.5% per year in nominal terms through 2026, given expected gains in continued investment in manufacturer facilities, spending tied to the Infrastructure Investment and Jobs Act, and construction of new power generating units, as well as the modification and upgrade of existing plants. This keeps us bullish on VMC shares, and against that backdrop the recent pullback has us revisiting the current investment rating.

1-Wk. Price Change: 4.2% Yield: .9%

INVESTMENT THESIS: Vulcan Materials Company operates primarily in the U.S. and is the nation's largest supplier of construction aggregates (primarily crushed stone, sand, and gravel), a major producer of asphalt mix and ready-mixed concrete, and a supplier of construction paving services. Its products are the indispensable materials building homes, offices, places of worship, schools, hospitals, and factories, as well as vital infrastructure including highways, bridges, roads, ports and harbors, water systems, campuses, dams, airports, and rail networks. Ramping spending associated with the Biden Infrastructure Law should drive demand for Vulcan's products over the coming years. Vulcan has historically complimented its organic growth prospects by acquiring business to expand its geographic reach and product scope. Since 2014, the company has acquired more than two-dozen companies, including the 2021 acquisition of U.S. Concrete. That combination has allowed the company to deliver steady top and bottom-line growth over the last decade, with only a modest decline when the pandemic hit in 2020.

Target Price: Reiterate $222; Rating: Two

RISKS: General economic and business conditions; dependence on the construction industry; timing of federal, state, and local funding for infrastructure; changes in the level of spending for private residential and private nonresidential construction.

ACTIONS, ANALYSIS & MORE: Initiation Post, Investor Relations

Energy Select Sector SPDR Fund (XLE) ; $80.60; 505 shares; 1.15%; Sector: Energy

WEEKLY UPDATE: The push-pull between demand and supply concerns for oil continued this week leading oil prices to trend lower amid renewed concerns for the slowing economy. However, we also saw fresh concerns on the supply side of the oil equation. Russian President Vladimir Putin threatened to halt oil and gas exports to Europe if price caps are imposed and a small cut to OPEC+ oil output plans announced this week also supported prices. The weekly U.S. Natural Gas Inventory report published by the Energy Information Administration rose but fell short of the five-year average build level for this time of year. That shortfall was attributed to the late summer heat and with those high temperatures continuing into September odds are inventory build levels will continue to be restrained. As we said on this week's September Members-Only Call, we continue to look for opportunities to add to our position in XLE shares.

1-Wk. Price Change: 0.8; Yield: 3.5%

INVESTMENT THESIS: Energy Select Sector SPDR Fund is an exchange-traded fund (ETF) that tracks the performance of the Energy Select Sector Index. The ETF holds large-cap U.S. energy stocks. It invests in companies that develop & produce crude oil & natural gas, provide drilling and other energy related services. The holdings are weighted by market capitalization.

Target Price: Reiterate $98; Rating: Two

RISKS: interest rates, weakness in the broad economy, energy prices. seek

ACTIONS, ANALYSIS & MORE: Adding to 2 Positions on Market Weakness, We're Initiating a Position in the Energy Sector, State Street Global Advisors SPDR Fact Sheet for XLE.

Market-Hedging Positions

ProShares Short QQQ ETF (PSQ) ; $13.05; 4,070 shares; 1.51%

WEEKLY UPDATE: We continue to receive reports of slowing enterprise spending that is forcing technology companies to revise expectations lower and increasingly focus on managing costs. During the enterprise automation software company UiPath cut its revenue expectations for its third quarter due to "foreign exchange and macroeconomic volatility." That follows similar comments on currency headwinds from Salesforce and Dell -- we continue to think those can't be the only three technology companies staring down that headwind.

1-Wk. Price Change: -3.8%; Yield: 0.00%

INVESTMENT THESIS: ProShares Short QQQ seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the Nasdaq-100 Index. The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization.

Target Price: N/A

RISKS: Because QQQ shares track the inverse of the Nasdaq 100 Index, QQQ shares will move lower when the Nasdaq 100 Index moves higher.

ACTIONS, ANALYSIS & MORE: Selling Shares in 1 Position, Closing Another, Adding to 1 and Initiating 1

ProShares Short S&P 500 ETF (SH) ; $15.28; 3,310 shares; 1.44%

WEEKLY UPDATE: With the Fed on path to tame inflation, a move that will see further interest rate hikes in the coming months, we remain concerned over the potential for the Fed to overreach and scuttle the domestic economy. As Fed Chair Powell said in his Jackson Hole remarks, "Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation." We are also seeing signs of slowing enterprise spending that are likely to lead to further downward revisions to GDP and earnings expectations. We will lean into the short wave of September investor conferences for more meaningful company updates, but our suspicion is we will continue to see companies trimming back expectations. That concerns will keep SH shares in play as we navigate that and the Fed's September monetary policy meeting.

1-Wk. Price Change: -3.5%; Yield: 0.00%

INVESTMENT THESIS: The ProShares Short S&P 500 ETF seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the S&P 500. We are using SH shares to blunt market volatility and hedge the portfolio's performance against its benchmark, the S&P 500. Given the tactical nature of this position, we do not expect to hold SH shares for the same length of time as we do the portfolio's long positions.

Target Price: NA

RISKS: Because SH shares track the inverse of the S&P 500, SH share will move lower when the S&P 500 moves higher.

ACTIONS, ANALYSIS & MORE: Selling Shares in 1 Position, Closing Another, Adding to 1 and Initiating 1, Trimming 2 Names While Initiating Coverage of a Third