KATHERINE ROSS: It has been a rocky start to the year, with 2022 living up to the internet memes comparing it to round two of 2020. I am, of course, Katherine Ross, and I am joined today by Bob Lang and Chris Versace. All right, y'all, let's kick this off by talking about the markets.
So as I said in the intro, we've seen a rough start to January but buyers have come back so far. Despite the way that we've kicked off this year and we've also got earnings season in full swing. So we've hit on a couple of companies already, Chris, but talk to me about this earnings season, are companies living up to your expectations?
CHRIS VERSACE: The benchmark that we have to really hold companies up to is what the consensus expectations are. And when we do that surprisingly, by and large, the number of companies that have thus far reported have been beating expectations and continuing to offer some positive comments about the current quarter and 2022. Certainly, we've seen a number of those companies in the portfolio with just Google, AMD this morning.
Are we getting other companies that are feeling the pinch of Omicron, whether it's on labor shortages or something else that's forcing them to reduce the hours of their locations? We saw that with Starbucks, that's probably weighing on our Chipotle shares this morning. So yeah, we are seeing all of that as well as inflationary pressures and the like. But by and large, Katherine, earnings overall I would say are being reported in a manner that is candidly better than expected. And I think that is taking some of the edge off the market as people have been adjusting to what the Fed may, may not do in 2022.
KATHERINE ROSS: Over on RealMoney, our colleague Helene Meisler did point out that the 30-day moving average of the advance/decline line looks oversold but that we could see overbought conditions later this week. Bob, does this data-- is this data matching up what you're seeing?
BOB LANG: Yeah. And 30 days, of course, Helene is right, 30 days is about a month and a half worth of
action, six weeks' worth of action. Six weeks is usually a good measure to look at oversold, overbought ratings. I generally look a little bit shorter, 20 days but by and large, over the past month or so since the beginning of January the markets have really gotten oversold to an extent probably further than we were if you can believe it or not than March 2020 when the pandemic was really getting underway.
So we hit some deep oversold levels. And oftentimes when you do, we do get a big snap-back as we had on Friday and continued all the way into yesterday. So we've only had really 2 and a half days, and not even 2 and a half, probably 2 and a quarter days worth of rally off the lows from last Thursday and Friday. But when you stretch the rubber band back as far as you can go, you can't go any further back, you let it go and it snaps. Well, that's what happened with the markets here this week.
So can we see some more upside? Sure, but I'd probably be more inclined to believe that the market's going to back and fill a little bit more, which means it's going to retreat a little bit and fill in some of those gaps that we've seen the last couple of days. And once we get that passed, if we can make a higher low in the chart and then start moving back up again. From a technical basis, we'll be back in bull mode, and we'll see where we go with-- during earnings season.
KATHERINE ROSS: Bob, I want to stick with you for a second because I wanted to discuss cash positions, both members' cash positions, and Action Alerts PLUS's. First up, I want to discuss Erik K's cash position. He got a nice windfall, he wants to know how quickly or how cautiously he should be deploying cash?
BOB LANG: I'm always pretty cautious in deploying cash. And the way Chris and I manage things in the
portfolio, we do it from a very measured and methodical way. And we look and see, we're very strategic in terms of ideas but we also take our time and we often keep rather high levels of cash by most people would think that the levels of cash we have are really high. But we do that for a reason because it gives us some defensive posture. It also allows us to have some money available, some cash available when we're ready to buy something that adds something to the portfolio.
So I think the cautious approach is always warranted. When you see opportunities as we've had in the last week, week and a half, where markets are getting torn apart and stocks are dropping further than they probably should drop, that's where you want to step in, at least dip your toe in, if not both feet, and then jump in and add some names. But take the cautious approach.
KATHERINE ROSS: OK, well, I'm glad that you brought up Action Alerts PLUS's cash position, Chris-- or Bob, because I wanted to bring you in, Chris. Scott W. did notice that you guys have that nice cushion built up. What's the plan though, do you want to deploy more of that cash, or are you really just going to keep it on the sidelines?
CHRIS VERSACE: So if you look over the last several weeks, we've been nibbling away, we've also been doing some prudent, as we like to say, register ringing just like we did the other day with UPS. And the overall goal is as market conditions stabilize, to do some incremental nibbling on existing positions but also look to bring a couple pieces of new meat, fresh blood, call it what you will, into the portfolio. Because remember, we're continuing to position the portfolio not for the next week, not the next month, but really the next 12 to 18 months. And if anything, what we've seen in January and so far in February with the market still down year-to-date, there are some opportunities to both nibble and to bring some newer names into the portfolio just like we recently did with AMN Healthcare Services.
KATHERINE ROSS: Alfredo D. had a question for you, Bob. Now when looking at moving averages to understand major support levels, what interval do you suggest using?
BOB LANG: So for long-term charts, I'm looking at the 50 and the 200-day moving average. Now, why are those important? 50 days is about three months roughly of activity, a little under three months. 200-day moving average is about a year. And these are important moving averages because big institutions follow these moving averages.
And when prices are above these moving averages, it sort of gives them a green light or a go-ahead to go ahead and to buy stocks above those levels. Conversely, when we see stocks trading below those levels, it's a red light. And we're often seeing stocks come under distribution, which means institutional selling when they break price levels below those big moving averages.
We had a couple of them more recently in the portfolio that did drop below those moving averages. I alerted Chris, I said, hey, look, Chris, you know what, these are some stocks that are under distribution here. And we got together and cut them and good thing because some of those stocks went down further.
So it's one of those things that you have to blend in the fundamentals with the technicals, but when those moving averages really serve as some important guideposts. So 50 and 200-day moving average. On the shorter end though, Katherine, I'd say the 20-day moving average is pretty good for a short-term momentum standpoint. But 50 and 200 are the ones that I use the most.
KATHERINE ROSS: OK, and this question from Gary B. actually ties in what you were kind of hitting on, Bob. So Gary B. specifically wanted to know what the rule of thumb was when approaching a stock that's falling. Do you cut bait when it drops below 15%, 20%, or 25%?
BOB LANG: Well, what I like to tell investors and subscribers is to establish your own rules and what makes you feel comfortable from a loss standpoint. I mentioned once before, Bill O'Neil, who was one of I think considered one of the greatest investors of all time, right alongside Warren Buffett. Bill O'Neil once said that he'll cut bait in a stock if it loses 8%, 8% and he's done. And listen, the man's made hundreds of millions of dollars investing in stocks over years. He's got a track record that's second to none. So that's one of those a little bit more conservative but you know what, it's worked for him over the years.
For some people, it's 10%, 15%, 20%. For me, I have a little bit more higher tolerance of pain, I'll let a stock go a little bit further, maybe 15%, maybe 20% before I'm willing to cut bait. And one of these things that Chris and I talk about when a stock has faltered and it's reached that potential danger line level, you have to make a decision to cut bait at 20%, risking that it goes down 50%?
Remember something, if a stock loses 50% on an investment, it's going to take 100% on that next play just to get back to even, right? So if you lose 50%, 100% on that next gain, you tell me, how easy is it or how hard is it to gain 100% on a particular investment? It's not easy, right? So why not cut bait, cut your losses a little bit early and then let it go and then start it up again.
KATHERINE ROSS: All right, let's narrow our view a bit and go stock by stock. I do want to warn you, members, I'm changing up the rules, and I've gone through the portfolio and sidelined a few names which will get special attention after earnings. So if we don't talk about a stock that you want to hear about, you know my email address. It's firstname.lastname@example.org, please email in your questions and we'll get to them in a later video.
But our first stock, shocker here, has been very delicious for members this year, and that would be Apple. Now, Katy Huberty noted after earnings that Apple had one of the cleanest quarters in recent memory. In her note, she was focused on the value of Apple's ecosystem. Is that a focus for you as well, Chris?
CHRIS VERSACE: Well, I guess I need to understand what she means by the word ecosystem. When we look at ecosystem it can mean all the way down the supply chain when we try to ascertain what's going on, looking at companies from Qualcomm, Skyworks, and the like. If she means the ecosystem of products then I have to agree with her. Yes, that is very impressive.
And I think we're going to continue to see Apple widen out that ecosystem or that product offering, if you will, continuing to do what it's done in the past, introduce incremental features, and keeping its prices relatively stable. For the most part looking to win incremental volume, taking share from Android and other operating systems. So I think it's going to be great.
But the key I think, and I didn't hear you say it, Katherine was that supply chains are getting better. That means that the incremental costs the company have seen in the last two quarters are going by the wayside, allowing the real volume leverage that they will be gaining to drop to the bottom line. So there's a number of reasons to be excited about Apple and that doesn't even count the widening out of 5G across its portfolio and perhaps some new products at some point.
KATHERINE ROSS: And Bob, if members wanted to continue building their position in this name, what does the chart say, is it time to buy, maybe trim if you've got an overweight position or hold?
BOB LANG: I would say buy on any kind of a dip down towards 50-day moving average, which comes in at about 169 right now. We're currently ticking at 174, it might stall a little bit over here. We're at about 50% retracement level from the recent highs of about 182 down to recent lows about 100 and-- call it 160, 159. So we're right there at a 50% retracement which is kind of logical and normal that we see a pullback from those highs.
So if we get a pullback anywhere between from here, which is 174, down to 166, on a technical basis it's good to go, would be a good buy. But we did suggest buying it. It was at a good spot at the 200-day moving average last week in front of earnings and certainly that the stock moved up really nicely this week.
KATHERINE ROSS: Going into Abbott, Sheldon K. wants to know why the portfolio continues to hold this name and not-- it doesn't use capital from an exit to deploy cash into another name, Chris?
CHRIS VERSACE: So Sheldon, that's a great question. You notice that we did trim the position back. We're not necessarily in the habit of as some people would say, ripping the Band-Aid. Particularly with Abbott, we know that the current quarter is going to remain strong on a year-over-year basis, given testing demands associated with the Omicron variant.
So I wouldn't be surprised if we continue to work our way out of the position. I just think that we don't necessarily want to just call it what it is, shock members by exiting a full position given the size that it was in the portfolio. We'll be prudent here and continue to work our way out of it. And yes, we will redeploy that returned capital into something else, be it further nibbles on other positions or in something new.
KATHERINE ROSS: OK, going to Airbnb, Jim G. noted that it's been-- pretty much gone down in a straight line, Bob. So what does technical analysis say about that investment?
BOB LANG: Well, again, you know what, if you look at the daily chart, it doesn't look quite as attractive. But if we pull back on the time frame to about a weekly chart, it's not all that bad. In fact, it's got some support at this 135, 137 level. Of course, we did buy the stock, a bit higher, but it's worth a hold over here. Again, the stock has only been-- company's only been public for about 13, almost 14 months now.
And we still like the prospects here. Again, the weekly chart shows us something good. The daily chart is a bit more noisy. Growth names took it on the chin in January, and Airbnb is one of those. So we think that the stock's got some-- going to pull up and get some momentum here. It's in a unique position, and we'll wait and see what happens with earnings in about a couple of weeks.
KATHERINE ROSS: Well, speaking of earnings, there's a company, Advanced Micro Devices, which
reported last night, and this morning it is price target hike central for AMD, with analysts from Raymond James to KeyBanc boosting their price targets. With such a strong start to the year, will this make you think about the AMD position? It's roughly weighted around 2.5% right now, Chris.
CHRIS VERSACE: So I see, Katherine, that you guys are on the ball, that you guys caught the portfolio rating change that we issued this morning going from a 2 to a 1. As we too boosted our price target from about 165 to a new level of 175. Look, everything was right with the quarter, I think that's why there's a lot of enthusiasm around the name continuing to take market share in data center, continuing to benefit from new products in computing and graphics.
The next step, though is going to be, candidly, the Xilinx transaction when that closes quote-- later this quarter. And then we're going to have to understand what are the cross-selling opportunities, what are the other efficiencies that AMD can bring into it as it rationalizes cost? What does that mean for EPS, and of course, what does that mean for price targets? My suspicion is that it will all be good news and that we'll wind up taking our price target higher. We just need to see the nuts and bolts to get there.
KATHERINE ROSS: Well, and I got an interesting question, Chris, because Stephen S. emailed in asking if it's better to own AMD or Skyworks?
CHRIS VERSACE: Oh, you're getting-- you hit me in the heart, Katherine. What I would say it's real simple, split the baby, right? That's what Solomon said, instead of buying a full position, one or the other, I think you're smarter to have some of each. Why? Mainly because their end markets are very, very different. Again, graphics, data center, high-performance computing for AMD. Skyworks on the other hand, firmly entrenched in the smartphone world, expanding into IoT and automotive. Again you take those two, you've got just about everything you need.
KATHERINE ROSS: Let's move into another tech heavyweight for the Action Alerts PLUS portfolio and that one is Amazon. Fernando F. said that he's got a position in Amazon similar to the one in the portfolio but with higher costs. He'd like to know which stop loss do you recommend in this position due to the way that the stock has been moving, Bob?
BOB LANG: Well, again I think stop losses are really-- are important to use. But if you're a long-term investor, I think-- I hope this doesn't sound bad, but I think stop losses are kind of irrelevant if your long-term horizon is say five years, 10 years, or even longer, so. But as far as a name like Amazon, it's a pretty volatile name. It's going to move up and down a lot.
And if you put that stop a little bit too tight maybe 2%, 3% down, which is quite a large move in dollar terms but in percentage moves, 300 points or 200 points whatever, 6%, 7%, is not too much. You may miss out on some incredible upside when the stock-- if and when the stock turns back up. So I think stop losses are good. They're to be respected but like I said, if you're a long-term investor, I think you use dips to buy and to keep accumulating your position and to build that out. But as of right now, I still think Amazon is a buy-and-hold right here.
KATHERINE ROSS: OK, but when you say stop loss is, to quote you, irrelevant in long-term positions, what if you're per se say overweight? When-- is there a time where they could be relevant?
BOB LANG: Well, yeah, if you're overweight in a name you should be trimming that regardless of whether you're at a stop or at a loss at all or not. I think I encourage everybody to review their portfolios and look and see if you have too many positions or you have too much in any one position or two. We recently got a couple of emails from some subscribers with that same exact issue.
And you have to review those portfolios and start moving money around, regardless of whether it hits a lower price level or price target at all. So again, I think stop losses are important, they're really good to keep you disciplined. It allows you to let the market take you out of a stock. But in this particular case, I still-- Amazon's a core position for us. We like it, we've been in it for a while. If you've been in the stock and you've been kind of trying to build in your position, that's a good way to use that as well too. Use any drops to build in your position.
KATHERINE ROSS: Let's move into a name that you guys just added to the portfolio, AMN. I actually want to give Dan M. kudos on this one because I got an email from him on December 31st asking you guys when you're going to get into this name. Now, that you're in it, what kind of buying opportunity does the stock show, as in when can members hit that buy button, Chris?
CHRIS VERSACE: Well, we already hit that buy button by adding it to the Action portfolio. I think the question is when we'll be hitting it again to bring the position size up from as you can see on the card, about 1.2%. And I wouldn't be surprised again, we have to be careful what we say here but we have said that we will be looking to redeploy capital, right, into newer names as well as recently added ones and nibble further. So I suspect that AMN, given it's a relative-- excuse me-- relatively new position, will be one of those.
Particularly since we continue to get favorable data. The JOLTS report for December came out earlier this week and we looked at the number of hires in the health care and services space, up nicely year over year. If we look at the number of job openings, they were up compared to November and up significantly compared to December 2020. That's a very big positive for AMN, it says there's a lot of demand for their services. And when that happens, pricing and contracts tends to be favorable for them. So I again, don't want to telegraph anything but it's something that we're watching.
KATHERINE ROSS: Now, you might have already hit the buy button but some of our members might not have. So Chris, when is the next buying opportunity?
CHRIS VERSACE: Look, I would-- it's a 1 rated stock, Katherine. So for those folks who haven't-- and I hate to use this language, jumped on board, I would say that here or slightly lower than here is a great opportunity to do so. And when we make our next move, hopefully, you'll be there with us.
KATHERINE ROSS: OK, let's go to Chipotle Mexican Grill now. Brian K. is looking to buy Chipotle but that PE ratio is rather high. So what would the justification be to buy it at this price, Bob?
BOB LANG: So regardless of the PE multiple, listen, Chipotle always sells at a premium multiple because it is a high-growth stock. It's been growing for years and years. So the market affords it a large multiple from time to time.
And when that growth slows down is when that multiple contracts and the stock is likely to come under some pressure. I think most of the pressure more recently has been caused-- Chris might know a little bit-- is going to know more about this than I am but some of the costs of coming into Chipotle with higher wages and increasing costs of production with inflation coming in with for their ingredients and so forth. That's probably going to have a negative effect on their earnings, that's just is my guess.
But this stock has fallen and reflected that possibly reflected that news to come in here. I would say that more recently it did-- on a technical basis, it did hit some strong technical support levels that go back about a year, a year and a half, and bounced nicely off of that level. We've bounced about 35%, 40% from the recent highs, which are about 1,775, and we're kind of stalling here just under 1,500. If we can kind of just float around here for a little bit while the momentum starts to turn, the indicators start to turn up, we might get some good upside on this name. But I still like Chipotle here and we'll see what happens in a couple of days.
KATHERINE ROSS: And Chris, from a fundamentals standpoint, does that match up to what you're seeing?
CHRIS VERSACE: It does. The one comment I would make is I can understand that folks like to whip out the PE calculator pretty quickly. It's a relatively easy, basic I would argue valuation metric. I think though on somebody like Chipotle or some others that we have, there are other ways to look at it, dividend yield doesn't apply. I think PEG or PE to growth matches given the outlook for increasing its store footprint, not just in 2022, 2023, 2024, they have shared some longer-term targets. So I think we can get a little comfortable with that.
Candidly too, I think we're going to see almost a repeat of what has unfolded with Starbucks, in that Starbucks as we know, and I'm sure we'll get to, Katherine disappointed but they talked about raising prices and better volumes as the Omicron continues to as I like to say and write, wane. I think we're going to have a much better second half of the year for Chipotle.
KATHERINE ROSS: We are sticking to our alphabetical order here, though there might be a couple out of order. But anyway, with that being said, I want to move into Costco, that also starts with a C. So Bo D. says that he's looking to build a position in Costco. He wants to know what kind of percentage his first buy should be, should it be four increments of 25%, and buy on the way down, Bob?
BOB LANG: I like layering into stocks when I first jump into a name. For the first time entering a position, I'll get into a small position, much like he said, about 25%, maybe a quarter of the position. And maybe take advantage of some dips and buying it a little bit lower and then if it starts to bounce then maybe buy it a little bit higher, kind of average in my position. So two, three, four, or five bites at the most here to start building your position in.
And again, taking advantage of the dips. Costco had a good-sized dip here from recent highs of 570, it went all the way down to about 470 almost $100, and offered some good opportunities to get on board and add to some of this name. And so we're back up about 50% from the lows there. Again 50% retracement from the highs to the low. We may pull back a little bit and that might offer another good opportunity to get on board and add some more shares.
KATHERINE ROSS: OK, and then looking at Cisco, Bob, I want to stick with you on this one. Prem asked, that Cisco well, they noted that it's been range-bound for a while between $50 to $60. What's ailing the stock and what could pull it out of the range?
BOB LANG: Well, it had a tremendous run at the end of last year, November-- after the earnings came out in November, they were-- the stock took a beating, went all the way down to close to $50, and really had a huge rally and made a 21-year high towards the end of December. It's pulled back sharply and it noted. And I'm looking for the stock to kind of settle down here right at the 200-day moving average. It's been flirting with this moving average for about five to eight days now and I'm looking for it to kind of settle down over here and start getting a little bit of momentum to get back up to the 50-day moving average, which comes in at around, let's call it about 59, just under $59.
Currently, the stock is at about 56, 55, or so. And there's only another 7%, 8%, stock can do that in a heartbeat. Again this pullback has kind of been driven by selling growth names and we saw rotation in January to value names, Cisco's not a value stock at all, but it certainly has a chance to make a run-up. I'd be-- I'd certainly look at this pullback to this 200-day moving average as a good opportunity to buy.
KATHERINE ROSS: Well, Scott W. wanted to know you, if you, Chris, agree with that?
CHRIS VERSACE: I would say that I've kept close tabs on the pullback in Cisco. And when I step back and I think of really two key things. One is the continued build-out in the digital infrastructure and yeah, some of that is going to be 5G but also too when we look at the plans that are being laid out by Charter, by Comcast, and the like and as the movement from multi-gigabit to 10-gigabit networks, I think there's going to be a lot of upgrading in the equipment going on. We continue to see favorable data center construction, filled obviously with routers and switches and other connectivity equipment. So I continue to like the long-term prospects for Cisco without a doubt.
KATHERINE ROSS: OK, and looking at Deere, do you-- would you look to buy more Deere? I know you recently had some action in the name. So Michael O. specifically wanted to know about Deere, but also value stocks as they rise?
CHRIS VERSACE: So your question if I can rephrase, Katherine, is are we backing up the tractor here? And I think that we, look, have a decent-sized position in Deere. Is it one that we could nibble on and round out? It is. I wouldn't be surprised if we do, do that.
And I say that because a lot of the factors that we look at, whether it's prices of used ag equipment that signal low inventories in the field, thereby necessitating the purchase of new equipment. The corn, wheat, and soybean prices are still at great levels, boosting farmer income. And so far, it looks as if we're going to see close to record planting levels for the spring season, which again, augers well for farmer income continuing the replacement cycle. And that's even before we talk about the productivity aspects associated with precision ag. So again, a number of reasons to be positive.
KATHERINE ROSS: Members, I just want you to know before I move into Microsoft, that I try to sparingly make you suffer with puns. So I actually was not going to go that route, but Chris did. Chris--
CHRIS VERSACE: Wow. Throwing me under the tractor, Katherine.
KATHERINE ROSS: There we go again. OK, I'm moving us back into tech land with Microsoft here. After earnings last week and which we spoke about, and this week a report came out that the FTC will be reviewing the Microsoft Activision deal. Now, obviously, the FTC has been very tough on big tech's M&A activity, we did also see them sue Nvidia over ARM. Is this a concern or is the long-term outlook for Azure enough to overshadow any issues that the Activision deal could face, Chris?
CHRIS VERSACE: So whenever we see these large deals, whether it's AMD and Xilinx, whether it's Microsoft and Activision, we do not bake any assumptions in from the completion of that transaction until it is consummated. We've been around long enough, we've seen high-profile deals that fall by the wayside. So would we happily revisit our expectations for Microsoft when Activision Blizzard closes? Yes, we would love to.
But to your point, about the FTC review and the toughness on it in terms of big tech mergers, it's a valuable point. And I think, as a result, I think some of the expectations that called for that transaction to be a slam dunk have kind of fallen a little bit. I would say look, is it better than 50-50? Yes. But again, we're going to sit on the sidelines and wait.
In terms of the core business, look, we're going to continue to see growth in Azure as only-- as cloud adoption continues. They've got a great opportunity to drive rising attach rates with Office. So again, Microsoft pulled back huge, we upgraded it to a 1, continue to like it here. And yes, the prospects are enough to justify that rating.
KATHERINE ROSS: OK, I do want to get to Ford Motors. We do have earnings on Thursday, and I will give you a little bit of a sneak peek members, I'll be sitting down with the CFO on Friday morning to discuss earnings. But pulling it back to member focus, Rich H. wants to know if the goal is to still stay with Ford, understanding that there might be a pullback, how could a covered call decision be made? He did give an example, if you want it, Bob, but I'm just going to throw it to you.
BOB LANG: So Rich talks about an options play and this is a way to protect your position if you own the stock and collect some income along the way. And so what a covered call is basically a plain vanilla type strategy where you own the stock, let's say you own 400 shares of Ford and you sell four calls against. One call is-- controls 100 shares of stock, so four times 100 would be 400 shares. And you basically would cover your stock with the short call. And being short the call you would collect the premium from a buyer. Options are a zero-sum game. There's a buyer and a seller on each side.
And by selling those calls you collect that premium. And your hope is that the stock won't blast through that short call and you would get your stock called away from you. So I like the strategy. It's sound. It's good and it's very easy and plain vanilla. It's not tricky at all to do.
But at this point in time, I wouldn't necessarily be writing calls on Ford. The time to have written calls on Ford was about 2 and a half, three weeks ago when the stock was peaking. You want to be able to write calls when the stock is real strong and it's extended like it was at about $24, $25. You can sell calls against it up there and then if the stock falls back, you can certainly buy those calls back or just let them expire.
The stock's fallen back quite sharply here, over 10% in the past three, three and a half weeks, not an ideal time to be selling calls right now. But maybe wait for the stock to start popping back up. Maybe we'll get some good news on this earnings call and get back up to that $24, $25 level and that's where I would pull the trigger and sell some calls.
KATHERINE ROSS: Turning back to the fundamentals here, with Ford there is that $20 billion restructuring being done which we heard about earlier this week. It's really focused this company on EVs. With that capital that's required for new factories, wouldn't raising interest rates limit that type of investment and prolong the supply improvements that are needed to combat inflation, Chris?
CHRIS VERSACE: That's a logical thought, Katherine. But you have to remember there was this little investment they had in this little company called Rivian. I think that's going to help arm the balance sheet if you will, and allow them to fund a lot of their transformation.
That was a great strategic investment on their part but again, they are going to monetize that. They shared that several weeks ago and candidly, it came a little sooner than expected. But if it's one thing that I think we can say about this Ford, they have been clearly telegraphing the transformation that they are undergoing almost step by step, by step, with investments in batteries, investments in charging stations, the investment in Rivian. And now with what you just mentioned, Katherine. So I think this is all part of the plan. And I think we're seeing it unfold before us.
KATHERINE ROSS: All right, then we've got Alphabet, which was another company of the Action Alerts
PLUS portfolio that reported earnings last night. Massive beat. And Sundar Pichai pointed out to strong growth in the ad business, with a 20 to 1 stock split looming, it'll actually take place in July. Chris, do you think that this will make Google become more attractive?
CHRIS VERSACE: Well, it can in two respects, Katherine. First, it's going to crack the share price down to something that a lot of people would consider more affordable. We can debate that but obviously, they're trying to open the shares to a wider array of people. But what's far more interesting to me is I wouldn't be surprised if they're doing this to target inclusion inside the Dow. The minute that happens, any index or corresponding exchange-traded product that is cued off the Dow means they need to buy the shares.
To me, that's a far smarter move and to drive more diversified ownership in the shares. So all the way around it was a great quarter. And I think that is another positive to be had longer-term for the company.
KATHERINE ROSS: OK, I'm going to stick with you and I want to dig into YouTube because it has been a huge success driver for Alphabet. I mean, Pichai pointed out in the earnings call, that creators making at least $10,000 in revenue was up 40% year-over-year. How important are content creators to the future of Google?
CHRIS VERSACE: Very, for two reasons. One, and we wrote this to members recently, that they have closed down their proprietary content efforts, which means that they are going to rely increasingly on content creators, so that's the first part. But remember how they make their money, and this is also true for the core search business, it's on advertising. The more interesting content that they can get onto YouTube, the more people will engage and for longer, which means more ads.
And this is even on top of-- and I wrote about this, this morning, the continued shift from TV, print, and radio towards digital platforms. I think it's a smart move on their part. It's a very differentiated move on their part as well, without having to subsidize program production costs.
KATHERINE ROSS: Looking at Linde, a stock that we haven't talked about in a minute. Bob, would you suggest taking profit in this stock to raise cash?
BOB LANG: Yeah, we did actually recently pull the trigger and sell some Linde when it got a little bit oversized but it's pulled back a little bit. I wouldn't necessarily sell it right here unless you got a good-sized profit in the name. It's just coming off of a recent low, crossing above the 100-day moving average here, it's got a little bit of momentum to the upside. I wouldn't quite sell it yet but certainly trimming is fine. But I would still hold onto the name right here.
KATHERINE ROSS: OK, and looking at Marvell, John J. wanted you guys to review Marvell and what the future might bring? Chris, I'm going to start with you on this one.
CHRIS VERSACE: Well, again, over the 12 to 18-month time frame all the end markets point to continued growth. And I think just as we triangulated the AMD December quarter results, I think we'd do the same thing here for Marvell. Again, take a look at what Taiwan Semiconductor, Intel, AMD said, NXP Semiconductors, all of it looks extremely positive. I think Marvell is going to have another good quarter, probably a beat and raise just like we've seen with AMD, and most likely will see-- don't mean to get ahead of you, Katherine-- with Nvidia as well.
KATHERINE ROSS: You just keep throwing them out alphabetical order. Bob, the stock is down 13% in the past month, do you agree with what Chris said?
BOB LANG: Yeah, it had a good run late in the year and stalled up on some lower volume, which is kind of a little bit of a warning sign. We did take a little bit off the table when it got oversized here as well. And it's pulled back sharply and has given a good opportunity to enter the name over here.
So it bounced nicely off the 200-day moving average late last week. And it's struggling right here with 100-day moving average, goes a little bit of sideways for the next couple of days, somewhere between $70 to $74, good entry point here. And again, I agree with Chris, I think they're going to post some good numbers when they report next month.
KATHERINE ROSS: OK, and I'm using Morgan Stanley next as kind of a use for this question because Ryan G. says besides Morgan Stanley, why doesn't the portfolio have more financial services or banking sector exposure, Chris?
CHRIS VERSACE: Look, it's a great question. We have to find the right one that we want to buy. We're not going to rush into anything and just add something to have exposure. We try to be as methodical as we can.
And look, Morgan Stanley's business right now is where you want to be. We continue to like the fee-based nature of the asset management business, they're going to continue to grow that business. So that's going to drive some incremental margin expansion. That's why we upgraded the shares to a 1.
Meanwhile, I think once we get through this rocky part of the market, January, and we'll see how February continues, I think we're going to start to see the IPO calendar heat back up. We'll see some M&A activity fueling the company's investment banking business. So we are looking for other financial areas of exposure, just like, for example, we looked for different health care exposure with AMN, even though we have Abbott and we have AbbVie. So we're on the lookout.
KATHERINE ROSS: All right, Bob, bowing down to our Fed watcher here, Steve W. is looking at the Fed leaning more hawkish over the next couple of years, does that make you more bullish on the financial sector and of course, Morgan Stanley?
BOB LANG: Well, yes and no on the bullishness for the banking sector. Let's remember something, just because interest rates are rising, does it increase-- help increase margins for banks? Sure it does, but if an increase in interest rates tends to slow down or choke off the economy, they're not getting-- they're not going to get any income coming from business because people if they've lost their jobs, they're not working, they can't apply for loans and so forth. It's a trickle-down effect.
So I think it's a double-edged sword for the banks with higher interest rates. If the economy is strong and growing and can fight off higher rates down the road on the long end or the short end, then this company is going to do extremely well. Right now, currently on the chart, the stock is trading in a box and on the high end at about 104 to 105, the low end about 94, 95. So when it comes down to these levels to the mid-90s, these are great opportunities to pick up the stock. So I'd be looking for that opportunity down the road.
KATHERINE ROSS: OK, let's look at Nucor now. Exequiel B. asks whether Nucor has found support on the chart, and why it's a 2-rated stock, is there an upside, Bob?
BOB LANG: I like the stock here. It did pull back quite sharply and really came in with some really good performance following earnings. The stock is up about-- gosh, is up almost 15% in the past six, seven trading days. And it's making a run back up to that 120, 122 level. We talked about it recently when it came down to about $100 and we said, if it comes in and touches that 200-day moving average as it did, it's got a good chance to bounce. And sure enough, it did. We talked about that on the call here a couple of weeks ago.
But I like it here, it is a little bit extended on the short-term right now. On the longer-term or intermediate-term, it's not, and it certainly has some room to get back to the old all-time highs in the 125, 130 range. It's going to take a little bit of a while but I think if it stops here, pulls back a little bit, just kind of goes sideways, we like to see that little sideways action with lower volume, this would be a good opportunity to get on board and buy some more Nucor.
KATHERINE ROSS: And meanwhile, Chris, Mark from Canada was interested in buying Nucor but I'm going to get ahead of you, I know it's up 19% in the past five days but in January-- over the past month I should say, it's been down nearly 10%. So when is a good time to buy?
CHRIS VERSACE: Well, so let me tie that in with the question as to why is it a 2-rated stock? I think the real catalyst that we're waiting on for pronounced demand growth is going to be when the infrastructure spending finally rolls through. So for that reason, I think it's fine to nibble here but I think you just heard Bob, it's a little extended. I would say look for some weakness and probably then step in and round out the position. It could be the opportunity too that we're looking for to revisit the current 2 rating.
KATHERINE ROSS: OK, Chris, let's get to Nvidia which you already teased. Demetrius H. says that they started a position in Nvidia when things started to decline and now they're overweight in said position. And I'm quite a ways from getting back to even. Do they keep nibbling, eventually selling off more expensive shares on the rebound, hold, or sell?
CHRIS VERSACE: That is a tough question. Largely because I don't know what overweight is for Demetrius. I would say any time you're overweight something you can add to it, the problem is you increase the degree to which you're overweight relative to the overall portfolio.
I think unfortunately, the smart thing to do is going to be to just simply sit by the wayside and let the story unfold. You'll notice that we've got about a 3.7% position, it's not the biggest, but it is kind of in the upper half. It would take a lot for us to nibble on the shares further. So I think unfortunately, Demetrius, the best plan is simply going to be patience.
KATHERINE ROSS: OK, and now we can get to Starbucks. I'm going to stick with you for the first question here, Chris. So I want to tie in something that stood out to me and also a question from Mark C. with the second union formed, Mark C. was wondering if unions could catch on in the country? And on top of that, KeyBanc analysts still do like this company long-term but did note in a morning note this morning, sorry lots of mornings, the near-term upside is limited due to inflation, elevated valuation, do you agree with that?
CHRIS VERSACE: So yes, I think union development is something to keep an eye on. We've seen some movement on that, a handful of stores and more trying to unionize. So we are going to want to see how that plays out.
As far as the near-term, I have to take back what I said earlier, Katherine, guys are great but we downgraded Starbucks this morning to a 2 because as I said in the note, it's a show-me stock. And what I mean by that is the company missed on their earnings this morning, they guided EPS lower than expected for the current quarter but are calling for a quote-- 'pronounced rebound' in the June quarter and a stronger back half of the year. Look, we recognize what the company brings, we recognize their leverage in terms of digital distribution. The question to us is whether or not they're going to be able to realize the margin improvements they're talking about in the second quarter of the year and then in the back half of the year.
I think part of that is going to hinge on something that they teased, which is future price increases. Typically those tend to drop more or less to the bottom line, may not be as much this time around, given some of the inflationary pressures but we could see EPS move lower in the near-term only to have to revise those expectations higher in the coming months. So I think it's one to keep as a 2 for now, again show-me story, one to watch.
KATHERINE ROSS: And here I thought I was the sassy one of the group. All right, Bob, you were worried about the technicals of Blackberry earlier this week. What do you make of the technicals of Starbucks, especially as Chris said, that it's a show-me stock for you guys? And I do have to say that that echoes the sentiment of a lot of Wall Street analysts this morning.
BOB LANG: Well, you would think that with a report like this that the stock would be getting drilled today and it's not. It's not down very much at all. Obviously, the markets are up but it seems-- I'm looking at the chart and it seems on the daily it's trying to carve out a bottom for the past five, seven days around 94 to 96 level. And if that holds here, listen, I mean, I'm willing to say that they've thrown everything at this stock and it's still holding in place. So I really wholeheartedly agree with Chris there.
And the fact that we downgraded it to a 2, which means buy it on a pullback, the stock has pulled back sharply over the past six and a half weeks, I'm very, very, very interested in this name and adding some more of it right here because you would think that with this news that came out today, even though global growth was strong, 13%, but as the metrics that Chris said, this was as bad a quarter as they could have had during the holidays. If this is as bad as it gets for the stock, I want to be in-- this is where I want to be. Because this is where big institutions are saying, look I mean the sellers are gone, time for me to back up the truck and start buying the name. So I want to be on there with the big institutional players. Not seeing a whole ton of selling today, which is really quite interesting. And again, this tells me that probably it probably has a good bottom right here at 94, 95.
KATHERINE ROSS: And I just want to quickly note that our graphics team still does have it as a 1, but it is actually a 2-rated stock as Chris noted. I just want to clarify that. So Chris, moving into one of your conviction buys from last year, Skyworks. But Peter K. noted that there's concern about the amount of business that they do with Apple. Now, could Apple take a bite out of Skyworks?
BOB LANG: Ouch.
CHRIS VERSACE: So when this-- so much for no bad puns, Katherine. So when the news kind of came out several weeks ago, we had a pretty in-depth note walking through this. So to rehash that kind of quickly, one, Apple's movements into RF semiconductors is not something that's going to happen overnight. It's going to be a multi-year endeavor. Again, we saw this with Qualcomm, as Apple tried to move into the baseband business, again taking multi-years. So it's not something that's going to hit 2022, 2023 expectations, more likely 2024, 2025. So again, the runway with Apple and Skyworks isn't going anywhere in the near term.
If anything, the shares have pulled back more on the name but also remember too that they are continuing to see the overall smartphone market grow, Apple as much as we like them, are maybe somewhere between 12%, 15% of volumes depending on the quarter. That means the other 85% plus of the market is continuing to grow. And yes, Skyworks is tight with those customers as well. And again, that's just smartphones. There is the incremental upside to be had from automotive and IoT which could very well counterbalance the shortfall that might eventually show up one day from Apple so for me, it's all systems go on Skyworks.
KATHERINE ROSS: For the record, I didn't say no bad puns, I just said less bad puns. Let's move into our final position to review and that's UPS. Now, Chris, you did trim UPS to be about 3% of the portfolio after that stellar report that we got earlier this week. What led the decision to trim versus hold on?
CHRIS VERSACE: Two things I think. Whenever we see pronounced moves like that, and it's not just the recent move, I think when we trace it back, it's even more pronounced. And candidly, this is something we did very early on with UPS as well, where it outperformed. Again don't hold me to this, but I want to say September into October or late September into early November, it moved 24%, 25% back then. We saw again another monster move. And it was really just prudent portfolio sizing, taking advantage of that sharp move higher. Again, looking to raise some cash so we can nibble on other existing positions and perhaps add a few new ones as well in the coming weeks and months.
KATHERINE ROSS: OK, putting the AAP stocks to one side, congrats you made it. Guys, I want to take a look at what could impact February trading. With that being said, this month, I'm watching the continued volatility, the global headlines around US, Russia, China, inflation, what catalysts concern you, Chris?
CHRIS VERSACE: Well, you rattled off quite a bit, Katherine, so let's break those down shall we? Clearly, geopolitical, it's one of those ones that hopefully fingers crossed, it doesn't come to fruition. But we just need to be mindful of that and what the implications could be. Sanctions on Russia, we would need to understand what they are, as well as what any retaliatory measures might be. We're going to continue to hope that France and other countries are able to mediate this and get us to a peaceful resolution.
But outside of that, I think honestly, Katherine, it's going to be the economic data that we get in the march toward the Fed's next monetary policy meeting. If we were chatting two weeks ago, even a week ago, we would have said, oh, my jeez, expectations are for anywhere from five to seven rate hikes. And I think we suggested a little bit of caution on that given the Fed is going to remain data-dependent, also noting the lag in monetary policy. Let's not get too far ahead of ourselves.
And then lo and behold, in the last 24 hours, St Louis Fed President James Bullard came out and said, look, we could see three and then take a pause. And he kind of shot down the notion of a 50 bps rate hike. But make no mistake, it's going to be kind of a tenuous road up until that meeting, meaning the data, whatever we get, is going to influence how the market trades until the Fed offers us a little more clarity after that meeting. I think that's going to be one of the big drivers.
KATHERINE ROSS: And Bob, members have emailed in looking for opportunities outside of individual stocks to protect themselves from ongoing volatility. In fact, I've even had one member give you guys kudos for the SH position because they continue to buy SH. What tools should members deploy?
BOB LANG: Yeah, so the SH is a tool that we've used before. We bought the-- it's the inverse S&P 500. We bought that in December and banked a nice winner on that when the markets went down in January. But these sort of tools are great hedges against volatility. We talked earlier about selling calls against stocks that a subscriber had questions about. That's also another great way to play a little bit of defense. Have some extra cash in your portfolio. We always keep some extra cash available to pounce on some opportunities when they come across.
But what we're trying to do here is reduce the overall portfolio volatility. And where does the volatility come from? It comes from uncertainty. When Chris reeled off a whole bunch of uncertainties there, geopolitical and economic, and Fed-related, a lot of uncertainties out there. There's not much out there with giving us some straight answers.
So we're left out there to wonder where policy is going to go, how those geopolitics are going to play out? We're used to this sort of uncertainty. And when these things happen volatility rises and people reach for protection. So I think it's best to have this protection on before a crisis comes in and we're too late in having to figure out what to do with the stocks that have fallen short.
KATHERINE ROSS: OK, I had a follow-up for you, Chris.
CHRIS VERSACE: Sure.
KATHERINE ROSS: If I were to back you into a corner, and I apologize we're having a little bit of technical difficulty, we'll have Bob back up. But if I were to back you into a corner right now, Chris, and I were to say I want three names current, Action Alerts PLUS positions that you would look to cut or trim down significantly. What kind of positions would you give me?
CHRIS VERSACE: Which companies?
KATHERINE ROSS: Which companies?
CHRIS VERSACE: I think I would circle back to my man Sheldon, and say ABT. I think what else here, maybe NortonLifeLock a little bit, and then the other one would probably be maybe oh jeez, Katherine, this is tough. Perhaps, perhaps a little bit of-- perhaps continue-- well, let's put it this way if we don't see a rebound in rail traffic, right, if it takes longer and longer, and shares of UNP continue to chug higher, we would probably lighten up on that further.
KATHERINE ROSS: OK, and I also had another interesting question that was emailed in. And I apologize to the member because I didn't write it down on my notebook but I had a member ask what your-- how do you decide after earnings what stocks to buy and sell, what indicators do you look for? Is it more fundamental, is it more technical, is it a marriage of both?
CHRIS VERSACE: Yes. Sorry, Katherine. Just being cheeky, you know I have to do that. It's always going to be a combination of the two relative to the upside that we see in the stock, right? It's-- from that perspective, it's always very simple, if there's a huge disconnect between the underlying fundamental story and the technicals vis-a-vis the share price, and we see that value to be had, of course, we're going to step in and nibble or perhaps buy depending on the size of the position. That's-- not to be flip but that that's kind of the time-tested decision process that we have to make.
KATHERINE ROSS: OK, all right that's a wrap for our February call. Thank you so much for tuning in, members. We greatly appreciate you all. As I said earlier, please continue to email in your questions to email@example.com. And we'll see you next month.