Analysis: VZ URI GLD DE COST CHPT CBOE AMN SH PSQ XLE VMC UPS PEP MSFT MKC MA LMT GOOGL F ELV CIBR YOU CMG AXON AAPL AWK AMZN

The stock market closed out a good November, which saw meaningful gains put in for all the major averages. We saw the same for most of the AAP portfolio.

Helping boost the close of the month were comments by Fed Chair Jerome Powell on Wednesday. The Fed revealed it would likely slow the pace of rate hikes. But short covering in the market -- given fears Powell was going to issue far more hawkish comments than he did -- was also a strong force at play. While "news" the Fed is exploring letting up on rate hikes is positive, Powell reiterated the Fed remains committed to raising rates until "real signs of progress emerge on inflation."

With that in mind, Powell did not offer insight as to where the Fed would end its rate hikes but reiterated that we should expect to see the Fed Funds rate remain high until inflation is stamped out. Given labor market tightness and wage pressures, it's likely going to take more than simply raising rates to get there. We were reminded of that with Friday's hotter-than-forecasted November Employment Report that surprised to the upside with both the number of jobs created as well as wage inflation. To that, we can add New York Fed President John Williams' reaction to the October PCE Price Index, which came in at 6.0%. Williams said that it will likely take a "couple of years" to get inflation down to the Fed's 2% target, adding "My hope is that we will be at our 2% inflation goal by 2025."

In our view, the Fed and its officials are speaking in as plain language as they are likely to when it comes to the playbook they intend to follow until its job is done.

Months ago, Powell warned there is likely to be some pain on that path, and the data put forth in both the S&P Global and ISM Manufacturing PMI data for November in the U.S and abroad as well as the November Challenger Job Cuts Report point suggests we are on the cusp of that starting to unfold. We're referring to the close relationship between revenue for the S&P 500 group of companies and the PMI data collected and published by ISM.

With that data moving into contraction territory for the manufacturing economy, the odds of further downside revisions to revenue and earnings expectations ahead are rising. Should we see the S&P Global and ISM Services PMI data for November also come in below a reading of 50, signaling a contraction, when it is reported early next week, those odds will increase further. The same can be said with S&P Global's Flash December PMI data that will be out before the Christmas holiday. Given the slide in new order data contained in the November data we've received thus far, we are hard-pressed to see a dramatic rebound ahead in the December data. Adding to those concerns, the challenging landscape in Big Tech continues and argues for downside revisions as well.

We discussed these pressures and the likely market reaction to be had as consensus 2023 earnings expectations for the S&P 500 move lower as we exit December and enter the new year. As those revisions come in , we're likely to see the market multiple shrink from its current levels, keeping the current bear market alive. While the glass-half-empty view would call for the market to move lower, the glass-half-full view is it will give us an opportunity to build up existing portfolio positions in companies with well-defined tailwinds for the coming quarters. It will also give us a chance to pick up other companies poised to prosper in the coming quarters at better prices.

The AAP Portfolio

The portfolio saw outsized gains in nearly half of its holdings during the month with more recent additions, including Clear Secure, Lockheed Martin, Axon Enterprises, United Rentals, and Vulcan Materials performing exceptionally well. Other notables include the shares of Deere and UPS, with the bulk of the move in UPS coming after our recent addition to the portfolio's position.

We had a busier than usual week in terms of portfolio activity as we added to a number of holdings, including Costco, Amazon, UPS, Vulcan Materials, and ChargePoint shares as well as those for the Energy Select Sector SPDR Fund. We used cash on hand as well as proceeds from prudent trimmings in Deere and United Rentals shares to fund those buys.

While we exited the week with lower cash levels, our war chest remains pretty full as a percentage of the portfolio's assets, which along with our inverse ETF positions, should offer some downside protection given the growing likelihood GDP and earnings expectations for the coming quarters to be revised lower, while the Fed continues its fight against inflation. From a technical perspective, we remain in a bear market and that means we will continue to proceed prudently and cautiously. In the next few weeks, we expect to be prudently in deploying cash and refresh the Bullpen as we get ready to turn the page on 2022 and before too long enter 2023.

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)

Chart of the Week: Russell Needs to Play Catchup

It's bad enough to be the small kid on the block, but when you're asked to lead everyone to the promised land, you need big shoulders.

The Russell 2000 is often seen as the index that leads all the others, and that was certainly true over the summer, when markets followed the lead of this big index toward the 200-day moving average. For a more detailed look at the chart, click here here.

Markets made a phenomenal run into August but was rejected soundly.

Interestingly, the Russell 2000 did not make a new low from the June low levels following that late summer drop (noted on the chart). That is meaningful, as now we see the Russell making another run at the 200-day moving average, but the level is lower than in August.

Money flow is slowing down but Relative Strength Index says the Russell is showing leadership once again, the oscillator at the bottom is overbought. We often see a rotation out of small caps in December and back into them in January, call it the "January effect," it relates to some form of rotation. We'll see how that plays out though, but for now, the Russell is carrying the load and bringing the other indices along for the ride.

The Coming Week

Next week brings several more key pieces of economic data ahead of the Fed's upcoming monetary policy meeting the week after. These include twin looks at the domestic services economy and how it fared in November. Should the data be similar to what we saw for the manufacturing economy during the month, and by that we mean it lands in contraction territory with readings below 50, we are likely to see GDP expectations be revised lower for the current quarter. Such readings would also add to the view that 2023 EPS expectations for the S&P 500 group of companies have more downside risk ahead.

The other two big pieces of data we'll be eyeing next week are the October Consumer Credit data and the November Producer Price Index (PPI). Consumer credit card data has been moving higher, with consumers increasingly tapping those lines as savings rates have fallen. Our concern for what higher borrowing costs and higher consumer debt levels means for the economic engine that is the consumer remains in place. With November PPI data, based on what we've observed in November PMI data thus far we should see a softer print compared to those for recent months. That said, after Friday's November Employment Report and the hotter-than-expected average hourly earnings data, the month-over-month improvement in the PPI may not be as pronounced as previously thought.

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

U.S.

Monday, December 5

  • S&P Global Services PMI - November (9:45 AM ET)
  • ISM Non-Manufacturing Index - November (10:00 AM ET)
  • Factory Orders - October (10:00 AM ET)

Wednesday, December 7

  • Weekly MBA Mortgage Applications (7:00 AM ET)
  • Productivity & Unit Labor Costs - 3Q 2022 (8:30 AM ET)
  • Weekly EIA Crude Oil Inventories (10:30 AM ET)
  • Consumer Credit - October (3 PM ET)

Thursday, December 8

  • Weekly Initial & Continuing Jobless Claims (8:30 AM ET)
  • Weekly EIA Natural Gas Inventories (10:30 AM ET)

Friday, December 9

  • Producer Price Index - November (8:30 AM ET)
  • University of Michigan Consumer Sentiment (Preliminary) - December (10:00 AM ET)

International

Monday, December 5

  • Eurozone: S&P Global Services PMI - November
  • Eurozone: Sentix Investor Confidence - December
  • Eurozone: Retail Sales - October

Tuesday, December 6

  • Japan: Household Spending - October
  • Germany: Factory Orders - October
  • Eurozone: HIS S&P Global Construction PMI - November

Wednesday, December 7

  • China: Imports/Exports - November
  • Japan: Leading Indicators - October
  • Eurozone: Employment Change Report, GDP - 3Q 2022

Thursday, December 8

  • Japan: GDP - 3Q 2022

Friday, December 9

  • China: CPI, PPI - November

The only portfolio company we have reporting next week is Costco, after the market close on Thursday, Dec. 8. We will continue to collect data points from the companies that reporting their latest quarterly results as well as those to be had from companies making the investor conference rounds next week. Those conferences include the Raymond James Technology Investors Conference 2022, the UBS Global Media, Telecoms, Communications, Technology Conference 2022, the Goldman Sachs Industrial Conference 2022, and the Morgan Stanley Global Consumer and Retail Conference 2022.

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

Monday, December 5

  • Open: Science Applications (SAIC)
  • Close: Sumo Logic (SUMO)

Tuesday, December 6

  • Open: AutoZone (AZO), Signet Jewelers (SIG)
  • Close: AeroVironment (AVAV), Dave & Busters (PLAY), Toll Brothers (TOL)

Wednesday, December 7

  • Open: Brown-Forman (BV.B), Campbell Soup (CPB), Thor Industries (THO)
  • Close: GameStop (GME)

Thursday, December 8

  • Open: Ciena (CIEN).
  • Close: Broadcom (AVGO), Chewy (CHWY), Costco (COST), lululemon athletica (LULU), RH (RH)

Friday, December 9

  • Open: Oracle (ORCL)

ONEs

AMN Healthcare Services, Inc. (AMN) ; $123.88; 1,060 shares; 3.71%; Sector: Health Care Services

WEEKLY UPDATE: The October JOLTS report showed 2.0 million job openings for health care and social assistance. While down modestly compared to September, the number of hires during October also fell month over month keeping the ratio of job openings to hires above 2.7, little changed from its August and September levels. Adding to that, the November Employment Report showed temp staffing volume rose 2.4% year over year after increasing 3.3% year over year in November. Those figures along with continued nursing shortage headlines point to AMN starting the current quarter off on solid footing.

1-Wk. Price Change: 1.1%; Yield: 0.0%

INVESTMENT THESIS: AMN Healthcare's business centers on talent solutions for the healthcare 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 around 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 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 $138 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) ; $128.57; 950 shares; 3.45%; Sector: Financials

WEEKLY UPDATE: We remained concerned over the direction of the overall market and recognize it will likely remain volatile in the coming weeks. This should continue to drive demand for Cboe's products and trading solutions. In the coming days, Cboe should report its monthly trading volume metrics, which should confirm the growing use of those solutions. During the week, Morgan Stanley named CBOE shares its top pick in the brokerage space and the shares were also added to the firm's Financials Finest list "as elevated market volatility should support the outlook for trading volumes."

1-Wk. Price Change: 2.2% Yield: 1.5%

INVESTMENT THESIS: Cboe's business 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 $145; 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) ; $11.64; 9,860 shares; 3.25%; Sector: Electrical Components & Equipment

1-Wk. Price Change: -2.9% Yield: 0.00%

WEEKLY UPDATE: Early in the week, we used the latest retrenchment in CHPT shares to add to the portfolio's exposure. Late in the week, ChargePoint reported October quarter results with revenue that rose 93% year over year. However continued supply chain issues led to revenue for the quarter coming in lite vs. consensus expectations. We explained in our note to members in which we trimmed back our price target to $20 from $21, we see this playing out the way Deere (DE) shares did earlier this year. The combination of strong demand, the benefits of pricing actions taken earlier this year, and improving volumes should drive improved operating leverage in the coming quarters. In response to the October earnings report, CHPT have traded off and we expect other price target trimming to occur. As the shares settle out they will offer members who have a long-term view like we do a great place to scoop them up. We continue to rate CHPT shares a One.

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 U.S. Department of Energy, the U.S. 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. NEVI aims 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 $20; 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) ; $494.53; 262 shares; 3.66%; Sector: Consumer Staples

WEEKLY UPDATE: On the heels of Costco's November comp sales, we used the pressure on the shares to once again add to our COST position. While some may have been underwhelmed by the month's figures, context is once again key given the strong metrics posted in November 2021. Moreover, traffic reports for Costco were far more bullish than those for other retailers over the holiday shopping weekend. We continue to see consumers leaning into COST shares given inflation as well as layoff worries. We will look to the November retail sales as well as the Mastercard SpendingPulse report for November, both of which should offer thesis confirming context. The company will report its quarterly results on Dec. 8 after the market close.

1-Wk. Price Change: -7.3% Yield: 0.7%

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 incredibly loyal customer base with low churn and continued share gains in both bricks-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 in 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, and 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) ; $445.61; 280 shares; 3.53%; Sector: Farm Machinery & Equipment

WEEKLY UPDATE: Coming off the strong October quarter results posted by Deere and the bullish outlook it shared, as expected we saw a litany of price targets moving higher. While we boosted our own to $470 ahead of the Thanksgiving holiday, this week brought big increases from Evercore to $513 from $463, DA Davidson to $520 from $445, and Citigroup to $505 from $425.

1-Wk. Price Change: 0.9% Yield: 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 $470; 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) ; $167.26; 312 shares; 1.47%; Sector: Commodities

WEEKLY UPDATE: Gold is in the midst of a nice breakout as the GLD made a run to the 20 day moving average. That gap up was the highest level since June and paves the way for a run up to the high $170s. We've been patiently waiting on gold to make a surge, the recent pullback to $162 was an excellent launch pad to where we find the ETF today. Currently the Relative Strength Index is overbought, not necessarily a reason to sell though, we will continue to hold gold as long as we see weakness in the dollar and other currencies. Certainly, the strength in inflation and the Fed's potential for "lesser"  rate hikes has put a bid back into precious metals. We rate GLD a 1 and still believe this to be a good hedge against a weaker economy and currency.

1-Wk. Price Change: 2.5% 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.

United Rentals (URI) ; $356.57; 360 shares; 3.48%; Sector: Industrials

WEEKLY UPDATE: Early in the week, we took advantage of the strong move of late in URI shares to do some prudent profit taking. As we get more details on United's announced acquisition of Ahern Rentals and infrastructure spending picks up, we expect to revisit our current $380 price target with an upward bias. During the week, the October Construction Spending Report showed overall construction spend fell 0.3% vs. September. However, public construction rose 10% year over year and total non-residential construction, led by double-digit year over year gains in highway and street, public safety, sewage, and waste disposal, rose 9.8% vs. October 2021. That points to continued demand for rental construction equipment as infrastructure spending begins to flow.

1-Wk. Price Change: -0.7% 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 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, and 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)  ; $38.18; 2,560 shares; 2.76%; Sector: Communication Services

WEEKLY UPDATE: During the week Verizon announced its latest quarterly dividend of $0.6525 per share will be paid on Feb.1 to shareholders of record on Jan. 10. Next week, Verizon Chairman and CEO Hans Vestberg will speak at the UBS Global TMT Conference on Monday, Dec. 5. As we digest his comments, we'll be listening for any updates pertaining to the current quarter. We continue to like the dividend yield associated with VZ shares, and as our concerns about the market play out in the coming weeks, we are likely to see others come around to our line of thinking on the shares.

1-Wk. Price Change: -2.2% Yield: 6.7%

INVESTMENT THESIS: Verizon Communications is one of the largest communication companies in the U.S. Its Consumer business, which 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 $45; 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

TWOs

Amazon (AMZN) ; $94.13; 835 shares; 2.2%; Sector: Consumer Discretionary

WEEKLY UPDATE: Following the stronger than expected digital sales data published by Adobe for the Thanksgiving to Cyber Monday period this year, we started the week off by adding to the portfolio's AMZN shares. Midweek, Amazon shared the extended Thanksgiving holiday shopping weekend was its biggest ever with customers purchasing hundreds of millions of products over the five days. Those different data sets confirm our view that consumers will lean into digital shopping this holiday season as they look to maximize their shopping dollars amid ongoing inflation woes as well as concerns over layoffs and the larger economy. Appearing at the New York Times DealBook summit, Amazon CEO Andy Jassy shared "It's very clear that consumers are spending, but they are being very careful on trying to stretch their dollars. People care a lot about getting a bargain right now." Also, this week, Marvell warned of weakening data center demand, a possible indication of slowing demand for data center and cloud services. We will be on watch for other points of confirmation during next week's series of investor conferences.

1-Wk. Price Change: 0.8%; Yield: 0.00%

INVESTMENT THESIS: We believe upside will result from Amazon's continued eCommerce 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, and competition, management is not afraid to invest heavily, potential headwinds resulting from new eCommerce regulation in India, and 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) ; $153.74; 705 shares; 3.06%; Sector: Utilities

WEEKLY UPDATE: We had another quiet week for shares of this water utility. Despite the lack of new developments, the shares were a solid performer for the first two months of the current quarter, rising more than 16%. While we are heading into one of the seasonally slowest times of the year for the company's water business, amid renewed macro-economic worries the company's predictable business and rising dividend bent are likely to win over investors. Given the quarter to date strength in the shares vs. our $165 price target, for now we will keep our Two rating intact.

1-Wk. Price Change: 0.5%; Yield: 1.7%

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.

Target Price: Reiterate $165; Rating: Two

RISKS: Regulatory oversight risks, environmental safety laws, and regulations, 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) ; $147.81; 750 shares; 3.13%; Sector: Technology

WEEKLY UPDATE: The push-pull of coronavirus related curbs in China and outbreaks in response to those curbs led to a sharp drop in China's manufacturing data. That prompted UBS to join a growing list of firms trimming their iPhone production forecasts for the current quarter. While indications are demand for those products remains strong, the risk is Apple's iPhone revenue falls short expectations. Offsetting that, reports this week suggest Apple plans to introduce its mixed reality headset as early as next year, with a dedicated operating system now being referred to as "xrOS" and an app store for third-party software. The new software name is a nod to the headset's mixed-reality capabilities. "XR" stands for extended reality, a term that encompasses both augmented and virtual reality. Clearly the Apple rumor mill will be making noise on this in the coming weeks, but one issue we need clarity on will be the products price points given they could influence early adopter vs. larger mainstream adoption.

1-Wk. Price Change: -0.2% 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 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

Axon Enterprise Inc. (AXON) ; $188.83; 230 shares; 1.23%; Sector: Aerospace & Defense

1-Wk. Price Change: 0.5% Yield: 0.00%

WEEKLY UPDATE: During the week, Axon presented at the Credit Suisse 26th Annual Technology Conference discussing the favorable outlook for police and public safety budgets in the U.S. and continued progress for its offerings in Europe. Management reaffirmed that new verticals for its products in the U.S., such as correctional facilities, secret services and other federal verticals remain incremental opportunities, especially for its body camera and software solutions. We see further upside ahead in AXON shares, especially as its software and recurring revenue streams continue to account for a greater portion of its overall revenue stream. That has us keeping exposure to them but given the sharp move in the last few weeks, the shares are entering "show me" territory, which means waiting for the next round of program wins.

INVESTMENT THESIS: Axon Enterprise Inc develops, manufactures, and sells conducted energy devices and cloud-based digital evidence management software designed for use by law enforcement, corrections, military forces, private security personnel, and private individuals for personal defense. The company operates in two segments: Taser and software & sensors. Taser develops and sells CEDs used for protecting users and virtual reality training. Software and sensors manufacture fully integrated hardware and cloud-based software solutions such as body cameras, automated license plate reading, and digital evidence management systems. Axon delivers its products worldwide and gets most of its revenue from the United States. President Biden's fiscal year 2023 budget requests a fully paid-for new investment of approximately $35 billion to support law enforcement and crime prevention -- in addition to the President's $2 billion discretionary request for these same programs. According to Mordor Intelligence, the wearable, and body-worn cameras market on its own was valued at $1.62 billion in 2020 and is expected to reach $424.63 billion by 2026.

Target Price: Reiterate $185; Rating: Two

RISKS: Manufacturing and Supply Chain, Competitive Factors, Government Regulation, Technology Change.

ACTIONS, ANALYSIS & MORE: Strong Demand Bodes Well for This Conducted Energy Devices Firm, Initiating a New Position in a Public Safety Technology Name, Investor Relations.

Chipotle Mexican Grill (CMG) ; $1,604.88; 70 shares; 3.18%; Sector: Restaurants

1-Wk. Price Change: 5.9% Yield: 0.00%

WEEKLY UPDATE: While there were no meaningful company specific developments this week, the continued decline in protein costs is a positive for Chipotle, especially following its string of price increases earlier this year. Research firm Under Barry noted this week the price for chicken breasts has fallen some 70% since the first week of June as suppliers boosted production over the last few quarters. As Chipotle works through its chicken contracts, we should begin to margins improve. As confirming signs emerge, we'll look to revisit our rating on CMG shares.

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 the 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

Clear Secure Inc. (YOU) ; $33.31; 1,350 shares; 1.27%; Sector: Technology

WEEKLY UPDATE: There we no company specific updates this week, checkpoint travel numbers published by the TSA continue to show robust airline travel quarter to date even after factoring in the Thanksgiving holiday. This bodes well for continued membership growth for Clear's core products, especially as it continues to expand its airline and airport partnerships. With the shares sitting on our price target, we will wait for the next round of program wins to make our next move with YOU shares.

1-Wk. Price Change: 3.5%; Yield: 0%

INVESTMENT THESIS: Clear Secure is involved in the creation of a frictionless travel experience while enhancing security. Its secure identity platform uses biometrics to automate the identity verification process through lanes in airports, which helps to make the travel experience safe and easy.

Target Price: Reiterate $32; Rating: Two

RISKS: membership growth, partnership retention, and growth, competitive dynamics, new product offerings.

ACTIONS, ANALYSIS & MORE: We're Initiating a Position in This Identity Platform Company, We're Securing This Company a Spot in the Bullpen, Investor Relations.

First Trust Nasdaq Cybersecurity ETF (CIBR) ; $41.22; 2,590 shares; 3.02%; Sector: Cybersecurity

WEEKLY UPDATE: Earnings reports from key CIBR constituents CrowdStrike and Zscaler showed demand remains strong for cybersecurity solutions. However, the macroeconomic landscape is extending sales cycles and deal conversions. That is translating into somewhat softer revenue expectations ahead even though they remain significantly higher year over year. To us, the comments from Zscaler that client conversations confirm cybersecurity remains their number one priority especially as cyber threats, including ransomware and data exfiltration continue to grow exponentially. In keeping with our Two rating, we are circling CIBR shares and will look to market weakness to add to the portfolio's position.

1-Wk. Price Change: 0.7% 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 industrial 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 to protect 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

Elevance Health Inc. (ELV) ; $523.60; 90 shares; 1.33%; Sector: Health care

WEEKLY UPDATE: None.

1-Wk. Price Change: 1.9%; Yield: .9%

INVESTMENT THESIS: Elevance, formerly Anthem/Blue Cross Health, is a premier health care brand that appears to be in the sweet spot for HMO companies. Mostly domestic, this company has a wide reach and coverage across the U.S., serving more than 118 million people via medical, pharmacy, clinical, and care solutions. Founded in 1944, Elevance offers a terrific business model that works in boom or bust economic times. The opportunity to find a company with reliable and dependable revenue and cash flows is right here with Elevance. Revenue growth for this company has surged in recent years, with better than double-digit growth since 2018 as the company thrived during the pandemic. During the September quarter, the company repurchased 1.2 million shares of its common stock for $579 million, at a weighted average price of $476.70. That brought the company's share repurchase efforts for the first nine months of 2022 to 3.7 million shares or $1.7 billion, leaving around $2.4 billion of Board-approved share repurchase authorization.

Target Price: Reiterate $550; Rating: Two

RISKS: With any insurance business the risk is high for changes in regulation and government programs. Since the onset of Obamacare more than 10 years ago, companies like Elevance have changed their model to be more in line with a better cost/benefit analysis, reducing waste and squeezing out excesses (as was outlined and suggested in Obamacare). Separately, as the population increases and ages, there is more opportunity for Elevance to grow, but with those changes, there is a risk. Lastly, competition is brisk with some very strong opponents who keep their costs low (Humana, Cigna, UNH, CVS/Healthnet).

ACTIONS, ANALYSIS & MORE: 2021 Annual Report, 2Q 2022 Earnings Report, Investor Relations.

Ford Motor (F) ; $13.86; 7,850 shares; 3.07%; Sector: Industrials

WEEKLY UPDATE: Ford reported its total November sales fell 7.8% year-over-year with trucks sales down 1.2%, SUV sales down 15.0% and EV sales up more than 100% vs. November 2022. The company also reported its 2023 model year orders are up 104% over 2022 model year orders, which points to better volumes ahead. The meaningful increase in EV sales confirms that aspect of Ford's transformation is tracking. However, with interest rates poised to move higher, increasing the cost for vehicle loans, we will remain in a holding pattern with F shares, waiting for confirmation the upcoming EV tax credit will ignite EV sales even further.

1-Wk. Price Change: -1.6% Yield: 3.2%

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, which is best known for its customer delivery vehicles for Amazon. Recently, the IEA said it sees "another all-time high for electric vehicle sales [in 2022], lifting them to 13% of total light-duty vehicle sales globally" vs. almost 9% of the car market in 2021. By 2030, IEA sees EVs accounting for 60% of new car sales.

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

Alphabet (GOOGL) ; $100.44; 1,000 shares; 2.84%; Sector: Communication Services

WEEKLY UPDATE: We continue to see Alphabet's Google and YouTube benefitting from advertisers fleeing Twitter, but we also recognize competition for weakening advertising dollars post midterm elections will increase. This helps explain why Google's YouTube is slated to bring shopping features to its YouTube Shorts video service. CEO Sundar Pichai previously said YouTube Shorts see more than 30 billion views every day from more than 1.5 billion viewers every month. With YouTube also testing new commission rates for people who sell products via links, this effort could be more than just an incremental positive to Alphabet's topline in the coming quarters. In the September 2022 quarter, YouTube accounted for 13.6% of Google's advertising revenue (11% of total company revenue).

1-Wk. Price Change: 3.1%; Yield: 0.00%

INVESTMENT THESIS: The continued fall in GOOGL shares has us caught our attention and we are revisiting levels at which we would be inclined to add shares to the portfolio. We've stayed on the sidelines with this name in recent weeks given revenue risks with shrinking adverting budgets and the fall off in political spending past the midterm elections. However, with advertisers seemingly shunning Twitter (TWTR) and reports FCC Commissioner Brendan Carr, the senior commissioner in the Republican minority on the commission, told the Council on Foreign Investment in the U.S. should ban TikTok, the fall in Alphabet's revenue may not be as feared.

Target Price: Reiterate $130; 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)

Lockheed Martin Corp. (LMT) ; $496.23; 85 shares; 1.19%; Sector: Aerospace & Defense

WEEKLY UPDATE: Lockheed was awarded a $430.93 million fixed-price incentive contract for full-rate production of High Mobility Artillery Rocket Systems and support services to satisfy an urgent need to support the Army and various foreign military sales partners. The related work has an estimated completion date of Dec. 31, 2025. Also this week the company's Rotary and Mission Systems was awarded a around $139.69 million modification to a previously awarded contract (HQ085121C0001) that brings the total value of the contract to $555.2 million up from $415.5 million to $555.2 million. With these wins in hand along with other recent ones in as many weeks, we are increasing our price target on LMT shares to $480 from $470. However, with the shares ahead of our price target, we would need to see the shares pullback below $440, or the company pull forward program expectations in 2023 to warrant adding to the portfolio's holdings.

1-Wk. Price Change: 2.6% Yield: 2.3%

INVESTMENT THESIS: Lockheed Martin is the largest defense contractor globally and has dominated the Western market for high-end fighter aircraft since the F-35 program was awarded in 2001. Lockheed's largest segment is aeronautics, which is dominated by the massive F-35 program. Lockheed's remaining segments are rotary and mission systems, which is mainly the Sikorsky helicopter business; missiles and fire control, which creates missiles and missile defense systems; and space systems, which produces satellites and receives equity income from the United Launch Alliance joint venture. Historically, the stability of defense spending has been a haven during periods of economic uncertainty, and we see that repeating once again even as geopolitical conflicts are likely to lead to incremental demand for Lockheed's products. The company has increased its dividend consistently over the last 19 years and is widely expected to boost it again in the coming days. In October 2022, Lockheed announced its board authorized the purchase of up to an additional $14.0 billion of LMT stock under its share repurchase program. Lockheed also shared that it anticipates executing a $4.0 billion accelerated share repurchase program in the fourth quarter of 2022 bringing its total 2022 share repurchases to ~ $8.0 billion. Entering 2023, Lockheed should have ~ $10 billion in share repurchase to be used over the ensuing 11 quarters.

Target Price: Increase to $480 from $470, Rating: Two

RISKS: Contracts and budget risk with the U.S. government and the Department of Defense, F-35 program funding and renewal, competition, subcontractor issues.

Mastercard (MA) ; $360.06; 275 shares; 2.8%; Sector: Info. Tech

WEEKLY UPDATE: Data exiting the holiday shopping weekend confirmed the expected strong showing for digital shopping, a positive for credit, debit and mobile payment usage. October Personal Spending data confirmed the findings of the Retail Sales report, and adding in Adobe's comments on overall 2023 holiday shopping thus far points to a solid start to the current quarter for Mastercard. We'll look for confirmation in the company's November Spending Pulse report as well as monthly retail sales data. Longer-term we continue to favor the shares as a play on the structural shift to non-cash or check payment formats. With interest rates poised to move higher, we suspect consumers will shift to debit card usage vs. credit cards. No matter as both clear on Mastercard's network.

1-Wk. Price Change: 2.5% Yield: 0.5%

INVESTMENT THESIS: Mastercard is a card network company that benefits from the secular shift away from cash transactions and toward 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.

Target Price: Reiterate $425 Rating: Two

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

McCormick & Co. Inc. (MKC) ; $86.38; 1,415 shares; 3.45%; Sector: Food; Consumer Non-Durables

WEEKLY UPDATE: During the week, we updated our technical take on MKC shares. Also, this week, McCormick once again boosting its dividend, this time by 5.4% to $0.39 per share per quarter. This marks the 37th consecutive annual increase in its dividend and this new dividend will be paid on Jan. 9 to shareholders as of Dec. 30. The next known catalyst will be the November Retail Sales report as well as the Mastercard November SpendingPulse report, both of which will give a firm read on November grocery and restaurant sales.

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

INVESTMENT THESIS: McCormick is a global leader in flavor that manufactures spices, seasoning mixes, condiments, and other flavorful products for the entire food industry-retailers, food manufacturers, and food service 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.

Microsoft Corp (MSFT) ; $255.02; 420 shares; 3.03%; Sector: Technology

WEEKLY UPDATE: Fresh warnings from Micron over weakening pricing for its memory product due to high inventory levels suggest the downturn in PC and related demand continues. Comments from CrowdStrike and others this week point to sales cycle being elongated while comments from Marvell suggest potential softening in data center and therefore cloud demand. On a positive note, the dollar's pullback continued this week which should offer some relief as Microsoft's products become more cost competitive in overseas markets. Next week, Microsoft will present at the UBS Global TMT Conference on Dec. 6, and the Barclays Global TMT Conference on Dec. 7. On the dividend front, Microsoft declared its next $0.68 per share per quarter dividend will be paid on March 9 to shareholders of record on Feb. 16.

1-Wk. Price Change: 3% Yield: 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 grabs market share 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-premises 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, provide for greater transparency of future earnings. Microsoft recently declared a 10% increase in its next quarterly dividend of $0.68 per share. This new dividend will be paid on Dec. 8 to shareholders of record on Nov. 17.

Target Price: Reiterate $275; 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)

PepsiCo Inc. (PEP) ; $185.69; 745 shares; 3.91%; Sector: Consumer Defensive

WEEKLY UPDATE: None, but we would remind members PepsiCo's next quarterly dividend of $1.15 per share will be paid on Jan. 6 to shareholders of record on Dec. 2.

1-Wk. Price Change: 0.9%; Yield: 2.4%

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. The 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)  $189.39; 640 shares; 3.43%; Sector: Industrials

WEEKLY UPDATE: Based on the stronger than expected digital shopping data from Adobe for the Thanksgiving to Cyber Monday period this year, we added to the portfolio's position in UPS early this week. Soon after Deutsche Bank upgraded UPS shares to a Buy from Hold and upped its price target to $220 from $197. Also this week, UPS paid its latest quarterly dividend of $1.52 on Dec. 1 to shareholders of record on Nov. 14.

1-Wk. Price Change: 3.8% Yield: 3.4%

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.

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), Investor Relations

Vulcan Materials Company (VMC) ; $184.49; 395 shares; 2.06%; Sector: Building Materials

WEEKLY UPDATE: We added to the portfolio's position in VMC shares this week. Later in the week, the October Construction Spending Report showed overall construction spend fell 0.3% vs. September. However, public construction rose 10% year over year and total non-residential construction, led by double-digit year over year gains in highway and street, public safety, sewage, and waste disposal, rose 9.8% vs. October 2021. That points to continued demand for the company's aggregates, which have been the recipient of price target increases in recent quarters. That pricing action paired with solid demand bodes well for revenue, margins, and EPS ahead. Vulcan's next quarterly dividend of $0.40 per share will be paid on Dec. 5 to shareholders of record on Nov. 14.

1-Wk. Price Change: 0.6% Yield: 0.9%

INVESTMENT THESIS: Vulcan Materials 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 used in 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 complemented its organic growth prospects by acquiring businesses 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) ; $90.85; 855 shares; 2.46%; Sector: Energy

WEEKLY UPDATE: Shifts in China's Covid strategy suggest potential upside for demand expectations while the pullback in the dollar makes oil cheaper outside the US. Heading into the weekend, the focus will be on the Dec. 4 meeting for OPEC+, which began a new round of supply cuts in November. Chatter suggests we could get word of another production cut following that meeting. A day later, the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations' plans to launch a price cap on Russian crude sales. We'll revisit the supply-demand dynamics next week, but Goldman Sachs continues to call for oil prices hitting $110 in 2023.

1-Wk. Price Change: -1.1%; Yield: 3.1%

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 and 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.

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) ; $13.46; 4,070 shares; 1.55%

WEEKLY UPDATE: During the week, we saw fresh concerns emerge for the tech sector despite the favorable move in the Nasdaq Composite. At the Wells Fargo TMT Summit, Micron said that "Pricing has trended well below what we thought it would be when we had our earnings call" on Sept. 29. The cause of this weaker pricing environment is "customers are entering calendar 2023 with high levels of inventory still. And so that's going to suppress their demand in calendar 2023 and we are incorporating that into our views." CrowdStrike said it is seeing a slowing sales conversion cycle emerge and Salesforce issued cautious comments on its earnings conference call with customers taking an increasingly harder look at spending. With the stock market poised to remain in a bear market at least for a while longer and with growing prospects for further earnings revisions to the downside for the S&P 500, we will continue to hold this position as we exit 2022 and enter 2023.

1-Wk. Price Change: -2.1%; 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 PSQ shares track the inverse of the Nasdaq 100 Index, PSQ 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) ; $15.13; 3,310 shares; 1.42%

WEEKLY UPDATE: With the stock market poised to remain in a bear market at least for a while longer and with growing prospects for further earnings revisions to the downside for the S&P 500, we will continue to hold this position as we exit 2022 and enter 2023.

1-Wk. Price Change: -1.1%; 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 shares 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

Action Alerts PLUS is long AXON, LMT, ELV, GLD, SH, PSQ, XLE, UPS, PEP, MA, F, CIBR, AWK, AMZN, VZ, URI, NVDA, MSFT, MKC, GOOGL, DE, COST, CMG, CHPT, CBOE, AAPL, AMN, VMC and YOU.