Even a short week can pack some punch, as investors learned over the past four days. And much of the punch came from a furry, clawed fist.
The bears struck first Tuesday with a strong-armed 2% drop on heavy volume to start the week. The bulls tried to recover midweek, but faced a slew of selling. Friday tumbled nearly 1% across the board on all the indexes.
But we've seen this before. What started off as a promising month following a strong January is turning out to be the same story that played out in 2022: Prices rise on hope, but end in a distributive fashion.
All is not lost, though, as the good news is the strength in the economy. Thursday's revised GDP had plenty of interest, but it was the overarching influence by the Fed speakers that turned stock buyers away.
Earnings season remains with us and is moving into another phase. We are moving into the March portion next week, and following another large week of earnings the number of issues reporting will drop precipitously through the end of next month.
The overriding influence on the market this week was the stark realization that inflation has retreated at a much slower pace than previously thought, leading the market to consider the Fed may need to step up its efforts to return it to 2%. We saw this early in the week with inflation commentary in the flash February PMI data published by S&P Global. Tucked inside the second revision for fourth-quarter 2022 GDP that came in at 2.7% vs. the initial reading of 2.9%, the quarter's personal consumption expenditures (PCE) price index was revised up to 3.7% from 3.2%. The core-PCE Price Index was also revised higher to 4.3% from 3.9% in the initial estimate and 4.7% in the third quarter of 2022.
The January personal income & spending report was another blow to the market given what it said not only about the consumer but the much hotter than expected headline and core PCE price indexes showed that far less progress has been made on inflation than previously thought. This was the latest in a growing string of inflation data pointing to that, and it points to the Fed having to do more to get inflation back under control. Ahead of this data, the CME FedWatch Tool showed a 76% likelihood for a 25-basis point rate hike by the Fed at its March meeting with two more to follow at subsequent meetings. This January PCE data is likely to shift the probabilities around with the potential for a 50-basis point rate hike at the March meeting rising from 24% early this morning. Exiting the week that probability stood closer to 30% and that too will stoke concerns over rising consumer credit levels, especially as the January data showed consumers spending at a quicker pace than income growth.
From Fed speakers this past week:
- St. Louis Federal Reserve President James Bullard said a more aggressive interest rate hike would give the Fed a better chance to bring down inflation.
- San Francisco Federal Reserve Bank President Mary Daly said on Wednesday she expects the U.S. central bank will need to raise rates at least four times this year, and likely more, to stop high inflation from getting worse.
- Fed Gov. Philip Jefferson spoke on the topic of "Managing Disinflation" at the 2023 U.S. Monetary Policy Forum on Friday. In an interview with Steve Liesman of CNBC, Jefferson said high inflation may only be coming down very slowly, that it made sense to be more aggressive in their fight against inflation.
Speaking at a G20 event, Janet Yellen said the outlook for the global economy has improved since the group last gathered in the fall of 2022. Those comments follow the International Monetary Fund sharing it saw a "turning point" in the global economy when it lifted its global GDP forecast by 0.2% to 2.9% for 2023. The largest catalyst for the IMF's revision was China as the IMF sees Chinese GDP rebounding to 5.3% this year, up from 3.0% in 2022, with the Euro Area falling to 0.7% this year from 3.5% in 2022.
We'd point out that the 2023 forecast is still down from 3.4% in 2022 with the U.S. falling to 1.4% this year from 2.7% last year. This has us rather interested in the next few updates for the Atlanta Fed GDPNow model as of Friday puts GDP for the current quarter at 2.7%. Compared against the IMF's 2023 figure for the U.S., that suggests either a sharp ramp down in the economy or the IMF may have to further revisions to make. What we saw in the Flash February PMI data from S&P Global (SPGI) this week, including contracting new orders as well as net export orders, and continued inflation pressures added to the market's concern a more aggressive Fed could tip the economy into a recession. As we discuss in greater detail in "The Coming Week" section of this week's Roundup, next week brings the final February PMI data from S&P Global as well as the corresponding data from the Institute for Supply Management. That and other data to be had in the coming weeks will better inform us as to when we may see the economy and earnings expectations bottom out.
The AAP Portfolio
With the market shedding some strong January gains this week, the AAP portfolio had some outperformers this week, including AXON, CBOE, YOU, VMC and LMT. With two trading days left in February, quarter to date notable performers for the portfolio include AXON, LMT, YOU, URI, COTY, F AAPL .
During the week, we remained on the sidelines as the market continued to digest the growing reality the Fed will be boosting the Fed Funds rate past prior expectations to overcome sticky inflation. Higher borrowing costs for companies and consumers as well as the rebound in the dollar and continued inflation pressures are headwinds for both the economy and for earnings. While we may be closer to the end of the bear market than before, for now we are still in a bear market with key technical resistance levels between 4,100-4,200 for the S&P 500.
With potential downside in that market barometer to 3,800, we will likely have opportunities to pick up shares of AMN Healthcare, the First Trust Nasdaq Cybersecurity ETF , Chipotle, Clear Secure, Vulcan Materials, and the Energy Select Sector SPDR Fund. We will also continue to watch technical support levels for Alphabet and others as well as potential entry points for Marvell, Kellogg and a few other Bullpen residents.
So far we have avoided wading back into shares of retailers given concerns about the consumer and comments from Walmart underscored increasingly questionable consumer balance sheets. Paired with recent inventory comments from VF Corp., Capri Holdings, and Under Armour, and forthcoming price increases from Unilever, Procter & Gamble, and Nestle, we continue to see a challenged consumer ahead. We continue to think retailers will stare down margin pressure as they look to move inventory, but a more restrained consumer, or as Walmart put it a more choice-aware consumer will prolong that process. For now, we'll continue to stay on the sidelines with retailers, and stick with the differentiated business model offered by Costco.
Key Global Economic Readings
Chart of the Week: Chips Charge Toward Correction
After a roaring January -- when it seemed every semiconductor stock was moving higher -- we finally see some signs the VanEck Semiconductor ETF (SMH) ETF (VanEck Semiconductors) looks ready for a modest correction. With strong earnings from names like AMD and NVDA recently, there is certainly something to be bullish about. However, the market is telling us a different story here. Let's take a view of the daily and weekly charts to see if there is some connection on the different timeframes.
This chart shows the price pulling down to support, the 50-day moving average. That doesn't seem to be a problem, right? Yes, but volume trends are getting bearish, the down days since the start of February have been concentrated with heavy selling or institutional distribution. The indicators are still bearish, though we do see on-balance volume at the bottom in bullish mode. We extended the green box at the top pane to show a level of support, a range where price may stop falling.
The Weekly Show
The weekly chart is actually looking more bullish than the daily. Notice the wide megaphone pattern of higher lows and lower highs. The ETF is up near the higher end of the range and is trying to break out of the megaphone. The Moving Average Convergence Divergence (MACD) oscillator is strong and on a buy signal the oscillator at the bottom has higher lows on the chart. A move above the $245 area on this weekly chart would be quite bullish and likely bring the daily chart into alignment with a long term bullish trend.
The Coming Week We have a number of things happening next week, including the final trading days for February and the start of the final month of the March quarter. We will also get several key pieces of economic data that will speak to the speed of the economy in February and what it is likely to look like in March. That same data will also offer another look at inflation as well as job creation, setting us up for the eventual February Employment Report and the February Consumer and Producer Price Indexes. The data we are talking about is the February Manufacturing and Non-Manufacturing PMIs from the Institute for Supply Management (ISM) and the analogous final February reports from S&P Global (SPGI).
As we think about those reports and what they will say about the economy, we will also be contemplating the strong relationship between those ISM data sets and revenue for the S&P 500 basket of companies. That in turn will also lead to revisit 2023 earnings expectations for the S&P 500.
As we shared on the February Members Only Call, we have seen those expectations come down from the $250 per share level seen late in second quarter 2022 to the current $223.77 level, but that figure will be updated as the remaining 18% of the S&P 500 basket reports their quarterly results.
As Chris Versace and Todd Campbell discussed on this week's AAP Podcast, some folks are already starting to question the 11% earnings growth for 2024 that puts S&P 500 EPS at $249.30 as depicted in the above chart. With almost seven quarters to go, odds are we will see a number of adjustments to those 2024 expectations, but we continue to see far more scrutiny ahead for second-quarter 2023 EPS expectations. As we can see in the chart below, the current thinking is that EPS rebounds after falling the last two quarters, increasing by almost 7% quarter over quarter to $55.04. The economic data to be had in the coming weeks and company conference commentary in March will likely lead to some re-thinking on those figures. Chris and Todd also shared that with the market now thinking the Fed will continue to boost rates through its June policy meeting instead of being done at its March meeting, we may not see the expected rebound until the second-half 2023.
Here's a closer look at the economic data coming at us next week:
Monday, February 27
• Durable Orders - January (8:30 AM ET)
• Pending Home Sales - January (10:00 AM ET)
Tuesday, February 28
• Advance Retail, Wholesale Inventories - January (8:30 AM ET)
• Chicago PMI - February (8:30 AM ET)
• FHFA Housing Price Index - December (9:00 AM ET)
• Consumer Confidence - February (10:00 AM ET)
Wednesday, March 1
• Weekly MBA Mortgage Applications (7:00 AM ET)
• S&P Global Manufacturing PMI - February (9:45 AM ET)
• ISM Manufacturing Index - February (10:00 AM ET)
• Construction Spending - January (10:00 AM ET)
• Weekly EIA Crude Oil Inventories (10:30 AM ET)
Thursday, March 2
• Weekly Initial & Continuing Jobless Claims (8:30 AM ET)
• Productivity & Unit Labor Cost - 4Q 2022 (8:30 AM ET)
• Weekly EIA Natural Gas Inventories (10:30 AM ET)
Friday, March 3
• S&P Global Services PMI - February (9:45 AM ET)
• ISM Non-Manufacturing Index - February (10:00 AM ET)
Monday, February 27
• Eurozone: Business and Consumer Survey - February
• Eurozone: Consumer Inflation Expectation - February
Tuesday, February 28
• Japan: Industrial Production, Retail Sales, Housing Starts - January
• Germany: Import Prices - January
Wednesday, March 1
• Japan: Manufacturing PMI - February
• China: Manufacturing & Non-Manufacturing PMI, Caixin Manufacturing PMI - February
• Germany: Retail Sales - January
• Eurozone: S&P Global Manufacturing PMI - February
• UK: Manufacturing PMI - February
Thursday, March 2
• Japan: Household Confidence - February
• Eurozone: Consumer Price Index - February
Friday, March 3
• Japan: Services PMI - February
• China: Caixin Services PMI - February
• Eurozone: S&P Global Services PMI - February
• Eurozone: Producer Price Index - January
• UK: Services PMI - February
And as hard as it might be to believe, there are another 1,000 or so companies reporting their quarterly results next week. In that sea of companies, Blink Charging (BLNK), Target (TGT), HP (HPQ), Inter Parfums (IPAR), Broadcom (AVGO), and Salesforce (CRM) will be some of the reports we are paying close attention given our ChargePoint (CHPT), Costco (COST), Microsoft (MSFT), and Apple (AAPL) positions. With Salesforce, we'll be listening closely to what it has to say about dollar headwinds, especially given the dollar's recent rebound.
As we wade through those reports, collecting data points and updating our thoughts as needed, we will have a busy week as well with portfolio company earnings. Axon (AXON), ChargePoint (CHPT), Clear Secure (YOU), and Costco (COST) as well as Bullpen resident Marvell (MRVL) will be coming at us.
Here's a closer look at the earnings reports coming at us next week:
Monday, February 27
• Open: Freshpet (FRPT), fuboTV (FUBO), Lending Tree (TREE)
• Close: Darling Ingredients (DAR), Groupon (GRPN), Lordstown Motors (RIDE), Trex (TREX), Zoom Video (ZM)
Tuesday, February 28
• Open: ADT (ADT), AutoZone (AZO), Gogo (GOGO), JM Smucker (SJM), Target (TGT)
• Close: Axon (AXON), AMC Entertainment (AMC), Blink Charging (BLNK), Cutera (CUTR), HP (HPQ), Inter Parfums (IPAR), Rivian Automotive (RIVN), Urban Outfitters (URBN)
Wednesday, March 1
• Open: Abercrombie & Fitch (ANF), Clear Secure (YOU), Dine Brands (DIN), Dollar Tree (DLTR), Dycom (DY), Kohls (KSS), Lowe's (LOW), Wendy's (WEN)
• Close: Funko (FNKO), Okta (OKTA), Salesforce (CRM), Snowflake (SNOW), Splunk (SPLK).
Thursday, March 2
• Open: Anheuser-Busch Inbev (BUD), Big Lots (BIG), Hormel Foods (NRL), Kroger (KR), Macy's (M), Utz Brands (UTZ)
• Close: Broadcom (AVGO), ChargePoint (CHPT), Costco (COST), Dell (DELL), Marvell (MRVL), VMware (VMW), Zscaler (ZS)
Friday, March 3
• Open: Hibbett (HIBB)
AMN Healthcare Services, Inc. (AMN) ; $92.06; 1,275 shares; 3.39%; Sector: Health Care Services
WEEKLY UPDATE: It was a challenging week for AMN Healthcare, as the stock continued its downtrend from the prior week. With lower highs and lower lows the stock is making a run towards last spring's lows at $85. At that point we should see buyers stepping up to the plate to support the stock, it's been an area of interest for institutional buying in the past. Last week the company reported pretty strong earnings and moderate guidance, but this week saw a few investment banks downgrade or lower their price target on AMN. We believe the story is still very strong for AMN, especially in a very tight labor market. Demand is strong for nurses. Nursing shortages around the country are what help AMN generate the bulk of its revenues, and following the last job report that doesn't seem to be changing anytime soon.
1-Wk. Price Change: -0.5%; 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
Axon Enterprise Inc. (AXON) ; $193.55; 380 shares; 2.12%; Sector: Aerospace & Defense
1-Wk. Price Change: 2.3% Yield: 0.00%
WEEKLY UPDATE: We are looking forward to hearing from Axon next week. The last two quarters the company reported spectacular earnings, robust growth and strong forward guidance. We expect to hear the same on Feb. 28 after the close. Last week saw a downgrade in the shares of Axon, but that is likely an opportunity if the stock falls back. The chart has been strong of late as the 20 moving average has been its guide. Wherever that moving average is, Axon price is not far away. The stock is building a nice tight base between $185-$205, we believe earnings are the catalyst to move the stock higher over time.
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 $220; Rating: One
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.
Cboe Global Markets Inc. (CBOE) ; $129.59; 950 shares; 3.54%; Sector: Financials
WEEKLY UPDATE: CBOE is flying high, hitting the $130s on Wednesday for the first time since December. Back then, it was a catalyst to sell shares off, but this time around there is a different feel for it. Last week's filing by CBOE for a mixed shelf registration (sold some stock and bonds to raise cash) was not harmful to the stock price as one would imagine. In fact, the stock managed to make new relative highs following the announcement, a surprising situation. That tells us there is plenty of demand for shares of CBOE. As the chart tells us, there is plenty of turnover and the technical indicators are flashing bullish signs. We continue to like the new product innovations CBOE has planned for the coming year, where profit margin expansion will trickle down to the bottom line.
1-Wk. Price Change: 0% 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. Cboe operates four U.S. options exchanges - the Cboe Options, C2 Options, EDGX Options and BZX Options Exchanges - which together account for approximately 31% of all U.S. options trading volume. 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) ; $10.45; 10,930 shares; 3.28%; Sector: Electrical Components & Equipment
1-Wk. Price Change: -14.5% Yield: 0.00%
WEEKLY UPDATE: After a pretty strong week ChargePoint has pulled back a bit on lower turnover. That would mean the selling is not intense nor driven by the big institutional holders. However, we must say the price drop over past few sessions is concerning, but only to the extent ChargePoint is back in its old trading range from $9-$13. That's not a problem, as we wait for more positive news on the EV front. The company will report earnings next Thursday, March 2 after the close, the street is looking for strong quarter-over-quarter growth of 166 million.
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) ; $488.61; 262 shares; 3.68%; Sector: Consumer Staples
WEEKLY UPDATE: Costco continues to battle the $500 level. The stock took a hit this week after poor results from big retailers WMT and HD (modest competitors). But mostly the stock was hit due to aggressive selling in the retail group in general. We continue to believe Costco will be a huge winner in the battle for the consumer spending dollar. Next week's earnings come on March 2 when the company will talk about their holiday selling season and what may be in store for 2023. We continue to like the shares below $500, and would suggest being an aggressive buy at that level or lower.
1-Wk. Price Change: -3.7% 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 $575. 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
Verizon Communications (VZ) ; $38.74; 3,030 shares; 3.38%; Sector: Communication Services
WEEKLY UPDATE: It's all about yield for Verizon, which continues to sport a robust dividend yield. As bonds sell off their yields rise and become a more attractive alternative. Even with the very strong and reliable cash flows for Verizon, a 5% one-year T-bill seems very nice. Not that Verizon's yield is anything to dismiss, above 6.6% is very desirable. Yet, when stocks sell off they take everyone down with them, even the stable ones like Verizon will have setbacks.
1-Wk. Price Change: -3.7% Yield: 6.5%
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 around 75% of Verizon's revenue stream but around 90% of its operating income. From a revenue and operating profit contribution perspective, the Business segment accounts for around 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. Verizon's next quarterly dividend of $0.6525 per share will be paid on Feb.1 to shareholders of record on Jan. 10.
Target Price: Reiterate $48; 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
Vulcan Materials Company (VMC) ; $183.64; 575 shares; 3.04%; Sector: Building Materials
WEEKLY UPDATE: Vulcan Materials had a nice pop last week following the earnings of competitor Marietta Materials (MLM). But Vulcan reported the next day and disappointed on their current numbers and guidance, hence the stock made a run back down towards the recent trading range. Fear not, the company appears to be on its way, and with the continued funding of the infrastructure law of 2021 there is plenty of money to spend on this name and others. We should note a price target cut this week by Morgan Stanley to $191 from $198. The stock is holding right at its 50 moving average, we'll see if this holds firm in the coming days.
1-Wk. Price Change: -1.1% 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 $220; Rating: One
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
American Water Works (AWK) ; $141.56; 760 shares; 3.09%; Sector: Utilities
WEEKLY UPDATE: After reporting their quarter last week we saw American Water come back down to test the lower end of a channel. That broke to the downside this week, but on much lower turnover. We also saw a break of the 100-day and 200-day moving average on Wednesday. That may trigger a bit more selling but the recent 10% correction from the highs may be enough. RSI and MACD are both oversold here while the stock remains inside the bollinger bands. We are looking for price to hold here, move higher and regain the trading range box between $150 and $162.
1-Wk. Price Change: -5.4%; Yield: 1.9%
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.
Chipotle Mexican Grill (CMG) ; $1,476.73; 70 shares; 2.97%; Sector: Restaurants
1-Wk. Price Change: -8.7% Yield: 0.00%
WEEKLY UPDATE: It's been sell the news for Chipotle Grill since reporting their numbers at the start of February. A series of lower highs, lower lows for the stock has Chipotle looking to test lower support areas. The 50 moving average is very near at $1532, with the 200 moving average a bit lower at $1489. We think that should serve as an area where buyers will step up and pick up shares. Fundamentals are strong but could be challenged as Chipotle starts to lap high comp sales and earnings from 2022. Those sales included price increases, and on the call this past month the company alluded to the difficulties in a tough inflationary environment.
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) ; $30.53; 2,550 shares; 2.24%; Sector: Technology
WEEKLY UPDATE: Clear Secure is coming back into our buy zone. We are liking this $26-$27 area for more shares, and will wait patiently for those levels to be tested. The company will report earnings next week on March 1. Last quarter's report was stellar, they also announced a special dividend distribution. There has been little news for the company except in January when Clear announced more new airport affilations. Thursday this week Needham upgraded shares to a buy with a $40 price target, stating the very large addressable market and the strong recovery in travel is a huge positive for Clear. Their partnership with Amex has been a big driver of growth since 2021, and already memberships are higher in 2023 as passenger growth has risen 30% year-to-date.
1-Wk. Price Change: 4.1%; 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 $34; 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.
Coty Inc. (COTY) ; $11.15; 5,500 shares; 1.76%; Sector: Consumer Discretionary
WEEKLY UPDATE: Coty has been a very strong performer in 2023, rising some 45% in just under two months. That is impressive, but we find the price action of late even more compelling. With markets turning south and likely starting a corrective phase, Coty continues to find support above the $10 area. As we noted on last week's chart analysis, Coty remains one of the top retail names in the space. MACD is still on a buy signal, the on balance volume has been soaring. This is a very positive technical development for Coty, which after a modest pullback could see a run to $15 before too long.
1-Wk. Price Change: 0.9%; Yield: 0%
INVESTMENT THESIS: Founded in Paris in 1904, Coty is one of the world's largest beauty companies with a portfolio of iconic brands across fragrance, color cosmetics, and skin and body care. Coty serves consumers around the world, selling luxury and mass market products in more than 130 countries and territories. The company derives almost 45% of its revenue from the Americas, 44% from Europe, Middle East and Africa, and the balance from Asia Pacific. By revenue category, Prestige drives 62% of Coty's revenue but more than 80% of its operating income with the balance derived from its Consumer Beauty segment. Management intends to further grow the Prestige business, expanding its prestige fragrance brands, through the ongoing expansion into prestige cosmetics, and the building of a comprehensive skincare portfolio leveraging existing brands. Management is also targeting margin improvement at its Consumer Beauty brands as well as expanding its presence in China across both of its reporting segments. China's beauty and personal care market is expected to grow at a quicker pace of 5.4% per annum through 2027, putting it at $70 billion-$75 billion by 2027.
Target Price: $12; Rating: Two
RISKS: Industry competition and consolidation, product efficacy and safety, currency, brand licensing.
ACTIONS, ANALYSIS & MORE: We're Making Our Portfolio a Little More Beautiful Today, We're Adding a Name to the Bullpen, Investor Relations.
First Trust Nasdaq Cybersecurity ETF (CIBR) ; $41.15; 2,900 shares; 3.43%; Sector: Cybersecurity
WEEKLY UPDATE: Buoyed by a strong report from Palo Alto Networks, the CIBR ETF remains above support, the 20-day moving average coming in just below the current price level. There have been instances where CIBR was ready to break down below 40 but the buyers are at that level to support the stock. A little more sideways between $41-$43 and we will know the direction, which looks to be the upside. Even a test of the 200-day moving average at $40.87 would be a good chance to add some shares.
1-Wk. Price Change: -1.8% 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. 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
Deere & Co. (DE) ; $417.42; 310 shares; 3.72%; Sector: Farm Machinery & Equipment
WEEKLY UPDATE: The celebration continued this week for Deere, which reported strong earnings and guidance last Friday. Analysts upgraded the stock and gave higher price targets. Most price objectives are well above current levels, which is what we like to see. Following last Friday's surge, the stock is cooling off some on lower volume, again what you like to see after a huge rise up. Last week Deere broke a downtrend line of lower highs and pushed up on strong volume. The technical indicators are strong and not overbought, so perhaps a modest consolidation is in order before the next move, which is likely higher. This small pullback is taken to the trendline, a bounce is imminent. On Wednesday, Deere announced they were raising their quarterly dividend.
1-Wk. Price Change: -3.7% 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 $500; Rating: Two.
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
Elevance Health Inc. (ELV) ; $478.03; 115 shares; 1.58%; Sector: Health care
WEEKLY UPDATE: The chop continues for the price action in Elevance. The stock remains a favorite of ours, but certainly the price action has been challenging. However, we have a series of lower highs and higher lows, the apex coming soon as these trendlines collide. Technicals are mixed, with the MACD trending neutral, relative strength flat and stochastics taking a breather. Without much on the news front for HMO companies, we'll be watching this name carefully for the next buying opportunity.
1-Wk. Price Change: -3.4%; Yield: 1.2%
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.
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.
SPDR Gold Shares ETF (GLD) ; $168.37; 312 shares; 1.51%; Sector: Commodities
WEEKLY UPDATE: Gold remains in a downtrend as a sharp rise in the dollar and keeps the gold buyers at bay. However, we still are above good support for the metal, the $1,800 level. We'll see how much buying comes in if that level is tested, which could be rather soon. The $165 area on the GLD is great support and where two moving averages collide (100 day, 200 day moving averages). We like gold as a diversifier as it spreads out the risk to the entire portfolio of different asset classes.
1-Wk. Price Change: -1.7% 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: Two
RISKS: Weak inflation data, interest rate risk, dollar strength relative to other currencies, geographic risk.
Lockheed Martin Corp. (LMT) ; $480.40; 155 shares; 2.14%; Sector: Aerospace & Defense
WEEKLY UPDATE: The defense group is starting to get some interest lately with the stories in the media about more support for Ukraine in their efforts against Russia. Certainly, other names in the group are seeing good interest as well, a rising tide lifts all boats. The recent fall in January to the 200-day moving average was an ideal spot to add shares, we talked about it then and added shares. Early this week Lockheed was awarded some big government contracts for the Navy, while the delivered to Indonesia the first super Hercules airlifters.
1-Wk. Price Change: 1% Yield: 2.5%
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 said 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 around $8.0 billion. Entering 2023, Lockheed should have around $10 billion in share repurchase to be used over the ensuing 11 quarters.
Target Price: $520; 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) ; $353.12; 275 shares; 2.79%; Sector: Info. Tech
WEEKLY UPDATE: Mastercard came under pressure this week after failing to hold the 50-day moving average last week. We are looking for the stock to bottom soon, and that may be the time to start adding more shares. The company reported strong earnings last month but it appears much of the good news was priced in already. Retail sales results this week were not strong enough to buoy the stock, but we are confident Mastercard can find a bottom, create a higher low and make another run at 400 dollars a share. The range continues between $300-$400 for now.
1-Wk. Price Change: -2.2% Yield: 0.6%
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.
ProShares Short QQQ ETF (PSQ) ; $13.46; 4,070 shares; 1.58%
WEEKLY UPDATE: Stocks were under pressure this week most notably due to rising interest rates. That is bad for technology stocks; the Nasdaq gave it up following Monday's holiday and is still on the defensive. Yet, the index is still up 10% for 2023, a remarkable feat following a devastating year. We remain adamant about keeping protection on during this bear market, and may look to add more if the market advances again.
1-Wk. Price Change: 3.2%; 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; Rating Two
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) ; $15.57; 3,310 shares; 1.48%
WEEKLY UPDATE: The SPX 500 fell hard this week but managed to catch support at the 50-day moving average. The SH and the aforementioned PSQ are good holdings to have in a bear market, where we are often reminded that higher volatility means big ranges up and down. We will hold this as insurance as long as we need to play defense.
1-Wk. Price Change: 2.7%; 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: N/A; Rating Two
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.
United Parcel Service (UPS) ; $180.15; 640 shares; 3.32%; Sector: Industrials
WEEKLY UPDATE: Much of the news this week in the transport sector was concerning the rails, and the derailment in Ohio of an NSC train that has has shaken up that community. How does this effect UPS? As rail traffic halts during the investigation phase, more delivery opportunities may come UPS' way in the short term. It may not be much but it might be significant. The chart is weak here after a strong earnings report, the stock seems to be moving with the rest of the market (lower). We saw the 200-day moving average break to the downside this week but the 100-day moving average might be good support, the indicators have rolled over and are on sell signals. There is very strong price support at the $172 level.
1-Wk. Price Change: -1.7% Yield: 3.5%
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 $200; 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
Energy Select Sector SPDR Fund (XLE) ; $84.66; 965 shares; 2.35%; Sector: Energy
WEEKLY UPDATE: Energy names have fallen sharply for the past week, crude oil has declined while demand prospects are dimming. There is no fundamental reason for oil to go down here, so we look at the technicals and see a recent breakdown from the 100-day moving average on heavy volume. That tells us institutional selling has occurred, but the 200 moving average is just below, and recall the last test of the 200 moving average in September 2022 the ETF went on an epic run higher. We will look to see if there is opportunity at that marker if the ETF falls enough.
1-Wk. Price Change: 0.2%; Yield: 3.3%
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.
Amazon (AMZN) ; $93.50; 835 shares; 2.25%; Sector: Consumer Discretionary
WEEKLY UPDATE: Amazon's chart is a quandary. Following the last earnings report the stock bolted higher and above the 200-day moving average for the first time in six months. However, there was no follow-through, something we always look for after a large move. The follow up move would have been a higher high, higher low but that did not happen. Hence, we have fallen on heavy volume (professional selling) and even a small rally attempt gets thrown back immediately. We could see support just below current levels at $93.78, but more important support comes in just under $90, there is an open gap. This week, Amazon closed its deal to buy One Medical, while Marvell chose AWS cloud services for electronic design automation. The move by Amazon into healthcare should be a strong positive to their bottom line over time. Often seen as a disruptor, the company may once again flip another industry on its head by changing the way business is done.
1-Wk. Price Change: -3.8%; 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 $145; Rating: Three
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
Apple (AAPL) ; $146.71; 750 shares; 3.16%; Sector: Technology
WEEKLY UPDATE: There is always something new and exciting with Apple to talk about. This past week the company said they are progressing towards glucose tracking on the watch, something that could be a nice addition for watch wearers. Apple also added Bing to their devices. Also, some excitement continues about Apple's involvement in AR/DR devices. A trusted analyst predicts the headset will be released with a mass shipment in third quarter of 2023, with an introduction in Spring. As for the chart, the stock is testing the 200-day moving average support this week, if Apple cannot regain that moving average next week a new downtrend will have been established. The indicators show a modest oversold condition but there is room to go lower, perhaps to $140, which is where the 50-day moving average lies. A pullback of that sort would shake many out but might offer an attractive entry point to buy.
1-Wk. Price Change: -3.8% 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: Three
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
Ford Motor (F) ; $11.88; 7,850 shares; 2.68; Sector: Industrials
WEEKLY UPDATE: All eyes have been on Tesla and their plans for charging stations and new EV's, but Ford is making some inroads of their own, locking up partnerships with battery makers in Turkey and other locations. This has been a theme the past couple of years as Ford is trying to become a major player in the EV market. So far their presence and offerings are strong but as we learned in the earnings call last month it's the execution and delivery that is a setback. We believe over time that CEO Farley will address and fix these issues, sooner rather than later. In Florida, the legislature is trying to pass a bill prohibiting carmarkers from selling direct to consumers, something Tesla does extremely well. If this passes, it would be a positive for Ford and other large dealerships. Tesla's Elon Musk talked a bit about their new CyberTruck, which will compete directly with Ford's F150. That model is due to delivery some time in 2023.
1-Wk. Price Change: -7.8% Yield: 5.1%
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: Three
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) ; $89.13; 1,000 shares; 2.56%; Sector: Communication Services
WEEKLY UPDATE: It's been a challenging couple of weeks for Alphabet as they continue to fight in the courts and make tough decisions with a bloated workforce. As we have seen the last couple of quarters the massive growth engine from Google is slowing down sharply. The impact of a large staff when the economy may be slowing down means headcount needs to be reduced. Google is doing this slowly. On the regulation front, the Justice Dept is serious about investigating Google Maps and their forced move to have app developers bundle maps in the programs. Recall in 2020 Justice pursued a case calling for monopolization of search, and this year more investigation regarding online advertising. The chart has broken down and remains severely under pressure, but extremely oversold. We could see this condition correct itself if Google jumps back over $100, but that would be a 10% up move from current levels. Finding a bottom and then moving sideways would be the better option, volume trends are extremely bearish.
1-Wk. Price Change: -5.5%; Yield: 0.00%
Target Price: Reiterate $130; Rating: Three
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)
McCormick & Co. Inc. (MKC) ; $74.98; 1,560 shares; 3.36%; Sector: Food; Consumer Non-Durables
WEEKLY UPDATE: Shares of McCormick have slowly moved up to a strong resistance level at $75. There is still a long way to go but MKC is on the mend. MACD is on a buy signal but it's not strong, while the RS is starting to improve. Volume trends are improving, we would grade this a mild positive. This past week comments from the CEO said retailers are pushing back on price increases, saying the same things to the company as they did in 2022. Retailers know the consumer is getting squeezed, and with fewer players in the market (Walmart, Kroger) they seem to power to call the shots here. That puts MKC in a tough spot. We think any price increases will eventually pass through, but this is a warning shot from retail supermarkets that this action may be coming to an end.
1-Wk. Price Change: -1% Yield: 2.1%
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 $80; Rating: Three
RISKS: Local economic and market conditions, input cost inflation, exchange rate fluctuations, and restrictions on investments, royalties, and dividends.
Microsoft Corp (MSFT) ; $249.22; 420 shares; 3.01%; Sector: Technology
WEEKLY UPDATE: Microsoft has been on a wild ride of late. But unfortunately every strong move has been sold off with a bit higher volume. That is called distribution or institutional selling, where big funds who have held the stock for a period of time start cutting their position. The recent fall towards the 50-day moving average at $246 does not seem finished. This week, Microsoft slashed more jobs, this time in Germany as they work to trim expenses. It was chatter about the latest craze, chatGPT and AI that stoked interest in the stock this week, but it was not enough to fight the intense pressure from the selling crowd. Specifically, Microsoft believes its re-boot on Bing search will win share against Google and re-energize focus on items outside of their core business. Tuesday, the company stated their intent to launch an improved version of Teams (chat community).
1-Wk. Price Change: -3.4% 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 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.
Target Price: Reiterate $265; Rating: Three.
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) ; $175.96; 790 shares; 4%; Sector: Consumer Defensive
WEEKLY UPDATE: Pepsi is making a nice comeback after a recent pullback. The stock has re-captured key moving averages and continues to progress higher toward resistance around $181. The indicators are flashing buy signals now, but with the stock stuck at the 50 moving average, we could see a bit of sideways movement before a direction is chosen. In news this week, a new Lays brand platform called "No Lays, No Game," which includes iconic global football player Thierry Henry.
1-Wk. Price Change: -0.2%; Yield: 2.6%
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.
Target Price: Reiterate $190; Rating: Three
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 Rentals (URI) ; $450.43; 290 shares; 3.76%; Sector: Industrials
WEEKLY UPDATE: It's been quite a year for United Rentals, rising more than 22% so far. After a very strong move post earnings, we expected to see the stock starting to stall out, and that may now be occurring. Prices fell sharply this week but on lower turnover, that's what you want to see on a pullback. Indicators have started to roll over again, but this may just be a temporary situation, then a sideways move before moving higher. This may be a repeat of November, when after a strong surge the stock went sideways for six weeks before bolting higher. We continue to like the fundamentals of URI, and following that stellar earnings report this stock could see $500 by the end of the year.
1-Wk. Price Change: -2.3% Yield: 1.3%
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 around 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 $465; Rating: Three
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