KATHERINE ROSS: Welcome to the July Monthly Members Call. It's been a summer filled with ups and downs as we continue to weather this bear market, so let's get to it. Chris, with earnings season just around the corner, how do you plan to approach the portfolios' positions?
CHRIS VERSACE: Well, when look back at the June quarter, there's been so much that has happened, everything from sliding GDP expectations, continued dollar strength, inflationary pressures, rising interest rates, all of that and more is going to come to bear down on these earnings reports that we're going to start to hear in the next few weeks. And we've had our concerns about that. As members know, we've pivoted the portfolio towards more defensive inelastic dividend payers.
Our concern is that in aggregate, the earnings expectations-- and really the guidance-- is going to feel the weight of all of those factors. We wrote a piece now just two weeks ago or so detailing how earnings expectations for the second half of the year actually rose compared to February by the time we hit the end of June, which was a little surprising, I think, to us and to a lot of people out there. And those expectations have to come down. It likely means that we're going to have another volatile period.
But the thing we'll be really watching for is how stocks react to the earnings reports. No matter how good no matter how bad they are, as we saw with McCormick and Company, they reported-- they missed expectations, they dialed back the expectations for the back half of the year as well. But the stock really didn't move that much. It's been hard-hit year-to-date, and we've got a number of companies like that in the market, in the portfolio. And as we understand how they're reacting, it's going to tell us whether or not we've got a lot more downside from a fundamental perspective or if we might be actually seeing most of the bad news priced into stock. So it's going to be a really interesting and eventful and important June quarter earnings season.
KATHERINE ROSS: Bob, on Tuesday, you said that members need to get used to bear market behavior. How should members do that?
BOB LANG: Well, there's definitely some things you could do in a bear market to protect yourself and defend yourself, your positions. One of the thing that we have done for the past several months since we took over the Action Alerts Plus portfolio is have a lot of cash available. I think a lot of cash available not only insulates you from down moves and increases in volatility, but it also allows you to have some dry powder-- or when opportunities come up, when the markets sink or-- and positions get downwards in a way, that we want to be able to pick up some new added capital risk.
So these sort of things also will certainly help insulate against some violent moves down in the markets. Also, we have instituted some protection-- meaning playing some defense with the PSQ and the SH. These vehicles actually provide a lot of insurance against markets going down along with the built-up cash in the portfolio. But also, being able to acknowledge when you're wrong and take a position off the table when we're wrong, when we're not doing well with the position. Look, I mean, back in just a couple of months ago, I identified several different times on the rundown that the market had very few positions that were above their 50-day moving average. So I think actually back on June 17, the number was about 2%.
So about 10 stocks, 10, 15 stocks, above their 50-day moving average, so-- which means about 480 to 490 names were actually in a bear market. So it makes you-- it's really a humbling experience when you're trying to pick names. Chris and I are stock pickers at heart. It's what we do. But when you're picking names that aren't working well for you, and the rest of the market is not doing well either. So I think being defensive here and keeping some protection and keeping a lot of cash available-- I'm going to say it a third time-- that's the right approach.
KATHERINE ROSS: All right, it is now time to get to our Stock-by-Stock segment. I want to start with some of our newest positions. The first one would be PepsiCo. Chris, you built out this position fairly quickly. Is it a safe spot to weather the bear storm?
CHRIS VERSACE: Oh, absolutely, PepsiCo is. It's a great business. It's a consumable business-- both beverages and snacks-- and it really allows people to trade down a little bit and capture that incremental spending, and particularly in an inflationary environment. When we trace back how it performed not only in during the pandemic but really during the Great Recession, simply stellar results. And we the company is a prudent steward of capital. Earlier this year, they announced their 50th consecutive dividend increase, so it is exactly where we want to be as we have continued signs that the economy is indeed slowing.
KATHERINE ROSS: And Bob, what's the chart tell you?
BOB LANG: So I pan out on the weekly chart for Pepsi, and really, it's really strong. I mean, this is a stock that has really been a standout performer here since the bottom came in and around 2021 and then actually even lower than that in 2020. So I like this chart, it's been making a series of higher highs and higher lows. It's not too far from the all-time high. It's really knocking on the door. It's less than 5% away from the all-time highs which came in the early part of March and then earlier than that back in January.
So no, I do like this stock. It's been strong the last several days and good volume trends. MACD on the weekly chart is about ready to cross over for another buy signal. So that buy signal could take it right up through a new all-time high. So I do like Pepsi.
KATHERINE ROSS: Let's go to Verizon. Chris, how do you plan to build out that position?
CHRIS VERSACE: Well, Verizon is a very defensive name. If you think about what they do, they are arguably one of the lifelines for our increasingly connected society. So our plan here is to nibble prudently, hoping to improve the overall cost basis. There is some concern as to some pricing issues that have gone into effect. Our perspective is those should improve margins and help bolster EPS in the back half of the year as well as the comparisons as we start off 2023.
So at the right spot, maybe a little lower than where we are now, we would actually be looking to round out and build out that position.
KATHERINE ROSS: Speaking of bright spots, Bob, Verizon is bouncing up after that mid-June dip that we saw. Can it make a move higher?
BOB LANG: Yeah, it's bouncing again, much like Pepsi. I'm taking a look at Verizon on a weekly chart here, and the stock is pushing up against the 200-week moving average, which has-- it's found resistance the past several weeks. And I think this last push up here is going to get it right through that 200-week moving average. Let's call it roughly about 51 and a half to 52 bucks. Get through that level, and we're going to make a run back up towards the mid-50s where it had some resistance up there, about 55 bucks. But I do-- the stock is a really consistent name, really good money flows here. The chart is actually, again, on the daily chart, it's a little bit noisier, but the weekly chart with money flows and relative strength is looking real good.
KATHERINE ROSS: Apple's our next stock. It's still 2-rating, Chris. Can you explain the approach here?
CHRIS VERSACE: Sure. So really on the heels of what we heard from Micron Technologies with their outlook that really pointed to near-term weakness in the smartphone market as well as some chatter about Taiwan Semiconductor seeing some order cancellations, remember, one of their largest businesses is also the smartphone market. We opted to not only trim back Apple, but recognize that in the very near term, we're likely to see the risk of greater downside weakness in the smartphone market, and therefore, Apple's core business.
So we trimmed back the position, locked in some profits, and now we can reload, potentially, at a lower price point. And that's what we're going to look to do. Because longer-term-- not necessarily this quarter, but in the back half of the year and going forward-- we do continue to see bright spots for Apple as 5G reignites itself in terms of smartphone shipments. They continue to grow their higher-margin services business, and perhaps at some point, we will see a new product-- the again-- one of the worst-kept secrets that's out there-- their AR/VR headset. That can generate some new excitement in the shares.
Of course, we'll have to understand what is the device, what's the price point, what's the what's the customer reception? But there are some longer-term positives with Apple to be had as well as the fact that they're going to be buying back the stock and more likely than not at some point, boosting their dividend.
KATHERINE ROSS: So Bob, in general, the stock has been trying to make moves higher. It is one of a handful of stocks today that is higher so far. How would you approach this name?
BOB LANG: So looking back on the weekly chart over here, I go back to the early part of 2021 and then the latter half of 2020. And we see that this is an area where the stock is at right now, about $137 to $142 where the stock struggled to get higher. Of course, the stock backed off in January, February of 2021, came down, corrected quite a bit and really went a nice run into the end of the year to all-time highs, actually towards the end of December of last year. So I'm watching this area very carefully. If it has a breakdown over here, there are some lower targets ahead.
As Chris said, we did trim some of the position off. It is struggling right now with the 100-week moving average. Let's call it at about $141 or so. So I want to see how the stock does around here. It's encountered some selling over the past month or so on some elevated volumes. So that has me a little bit concerned, but for the most part, price action has been pretty good. And we do have earnings coming out in a few more weeks. And we'll see how the stock does after that.
KATHERINE ROSS: Amazon is our next stock. And Chris, this one-- it's kind of tough, because right now, really, the only catalyst that we've seen so far is the stock split, which we've talked about a number of times. What else are you looking for in this name?
CHRIS VERSACE: Well, when we downgraded the shares, we did so over some concerns about spending for e-commerce. And we've seen that continue to flow through. There's also the near-term challenge that Prime Day for 2021 was in the second quarter, and for this year, it's going to be in the third quarter. So we we're going to have some really wacky comparisons when Amazon reports its June quarter results.
I think as we get past that and if we see a re-ignition, sorry, re-ignition in e-commerce spending, which I do think we've started to see the signs of given inflationary pressures, particularly gas, I think this is a name that we can start to wade back into and take advantage of the seasonally strong back half of the year. That's really where Amazon tends to shine.
KATHERINE ROSS: Bob, does Amazon's chart look like a head and shoulders pattern? And if that is the case, what should members do?
BOB LANG: I think the head and shoulders pattern came in earlier this year. Mid-February, we had the left shoulder. The head came in at about the latter part of March, and then the right shoulder and then a breakdown at the middle part of April when the rest of the market kind of fell apart here. But right now, we see Amazon is creating a nice basing pattern. Let's see, about six different occasions, the stock has come down to about $102 to $104 level and bounced nicely off of there, six different occasions.
So listen, I mean, I like-- I'm a pattern-follower. Look, and this stock comes down to that area and it continues to test it, that's a buy area. So I would tell subscribers, if we do get lucky enough to get down to about $103, $104 area, scoop up some shares right there. That's what the rest of the big institutions are doing. If we get a move above this 50-day moving average, which is challenging today and yesterday, about $14 was called, $115 we'll get above there, we can make a move up towards that $125 level, which was rejected back in early part of June. But I do like-- I do like Amazon here, at least for the fact that it's created a nice bottom.
KATHERINE ROSS: Let's go to Alphabet next. And Chris, you kind of alluded to this with your Amazon answer, but what kind of impact would an economic slowdown have on Google?
CHRIS VERSACE: So at the margin, we could see some spend-- some advertising spend get dialed back. But we have to remember this ongoing shift that advertisers want to be where the eyeballs are. And that's less and less radio, less and less print, increasingly either streaming-- which obviously Alphabet has with YouTube-- or online, or mobile. So it checks all the boxes. So if we do get into a period of time where advertisers are making more selective choices, we continue to see Google emerging in a much, much better place.
KATHERINE ROSS: Bob, I know how you felt about the Amazon stock split, but I do have to ask, with Google's stock split on the table, would you buy that stock ahead?
BOB LANG: I think there's going to be some enthusiasm and excitement here for the Google splits coming up in a few more weeks, and I'll tell you why. We have this similar pattern that we have in Amazon here where when Amazon split their stock, the stock was on its way down. This stock-- actually Alphabet-- has come down and retested their lows about four or five times-- not as many as Amazon. Let's call it around the 2,000, 2,075 level. You know, so I do like the fact that the buyers pick up the stock when it comes back down. It's building a nice base here and if we can get above this 50-day moving average, much like Amazon, it's going to make a run.
But I do think that prior to the split happening-- not the announcement, but the split happening-- I think there's going to be some enthusiasm and some excitement with some buyers coming into the stock in a big way, and might drive the stock up towards $2,300 $2,400 bucks.
KATHERINE ROSS: Continuing with tech, let's go to Microsoft. Chris, why do you continue to hold on to so many tech names?
CHRIS VERSACE: Well, we're looking for various exposures here. So we've done, I think, a pretty good job. Granted, a little late in some cases of whittling down the exposure to areas that are showing continued strength, and really, what are those two key areas? Data center and cloud. And clearly, with Microsoft, with-- you know I'm going to butcher this, Katherine, but I got to try anyway. It's Azure business, it's extremely well-positioned. To pick up with that, we also see the continued growth in subscriptions or its Microsoft 365 business.
So for us, this is not a tech name that we're inclined to jettison, particularly since it also keeps with the pivot that we talked about earlier for companies that really not only favor dividends but continue to increase their dividends. Microsoft also checks that box.
KATHERINE ROSS: Now Bob, the stock is hovering above its 52-week low, and it's below its 200-day moving average. What levels are you watching?
BOB LANG: Well, I'll tell you. This stock is another one much like Amazon and Alphabet that's built a nice little base here for the past couple of months. And that's what you like to see. You only see stock building a base where the stock has stopped going down, where the sellers get done with it and buyers start picking it up. And even if it floats around in a range for two to three months, that's fine. This stock is about ready to break out above that above that range, though. Its 50-day moving average right here at about $265. If it can get above that area and make a higher-- another higher high and a higher low in the chart, we're going to make a run towards that $275 area and eventually up towards that 200-day moving average, which comes in at about $297 to $298.
I like this stock to make another move. That would be a nice 10% move from here. So subscribers, you need some more Microsoft, this is the time to get in there.
KATHERINE ROSS: Let's go to a sector that I know a lot of members are eager to hear about, and that's semiconductors. I want to start with Applied Materials. With the semiconductor sector facing so much pressure, are you looking to keep names like AMat in the portfolio, Chris?
CHRIS VERSACE: So again, when we take a 12- to 18-month time horizon, and we continue to hear about chip capacity shortages, Applied is a natural place where we want to be. I think there's some concern in the near term about how much incremental capacity might be needed. Perhaps we see some orders on the books get dialed back a little bit. But again, when we take the comments about cloud, take the comments about data center, AR, VR, the continued maturation of 5G, there is going to be more and more chip demand that's necessary. Even as we continue to see the industry-- the auto industry-- shift from gas to electric, the amount of chip content simply explodes.
So there's a number of different reasons to be positive on Applied Materials in the long term. I think one of the hurdles we have to get through as it relates to the US in particular is what's happening with the Chips Bill that seems to be floundering in Congress. And candidly, I can't understand why that is, whether it's from a geopolitical perspective to shore up our own supply chains, or if the risk of another global pandemic-- God forbid it should happen-- we want to have the domestic supply chains in place.
So I would hope that Congress would kind of get their act together and pass the Chips Bill if that happens, that's a very, very big catalyst for Applied shares in particular.
KATHERINE ROSS: And Bob, when you're focusing on the technicals with Applied, the stock has trended lower. What's your next move?
BOB LANG: Tough-- really tough chart over here. So we're going to hold on to Applied Materials right now, but it has been making a series of lower highs, lower lows. And again, it's not the only-- it's not the only stock in that group that has been doing poorly. Lam Research is another one, KLA-Tencor, KLIC, Kulicke and Soffa, and ASM Lithography, all four names are also competitors for Applied Materials. They're having their troubles as well too. So I do like Applied Materials here for the longer term. The stock is pretty well extended from this 20-day moving average, which is not too common to be that far away. Let's call it around 10%, almost 7% away from its 20-day moving average.
So I expect a little bit of a bounceback here towards that 20-day, make a run up to that 50-day moving average eventually up to about $108. And we can reassess, take a look at it. But I do think eventually that 200-day moving average is going to get challenged when things get better for this group. But certainly it's been a tough chart. We've had a hard time with it.
KATHERINE ROSS: Let's go to AMD next. Chris, members are wondering what they should be doing with this stock.
CHRIS VERSACE: Yeah, it's a great question, and it's one of the things that we're actually chatting about ourselves. You know, given the pullback, it's gotten hit particularly hard of late. The question is, should it still be a one-rating? Should it be downgraded to a two? And at what point should we say look, we've only got a little more than half a position size. Should we be buying? So these are all the questions that we're answering ourselves. We-- having said all of that-- do we like the data center business? Yes. Is there some issues with the low-end PC business? Yes, there are.
But the one thing that we have to try and assess even more so is can the company deliver on the synergies that it has with Xilinx? And I think increasingly, the answer is yes. I think they're going to be forced to. I think we'll be making some decisions about what to do with this name fairly soon.
KATHERINE ROSS: And Bob, looking at the chart, what support levels are you watching for?
BOB LANG: Well, as a rule of thumb in technical analysis, when support breaks it becomes resistance. So there's some resistance at the recent support level in April. Comes in at around 84 bucks. We're about 74 right now. So I could see some resistance coming in our support, our support levels are concerned. Got to go back a couple more years maybe to 2020 to see some support around the $70 or $69 to $70 level a little bit lower than where we're at right now. But I'd be really looking forward to seeing the stock make a move upwards, maybe about 8% to 10% to get above that $80 again, towards the $84-$85 level and see if we can make a run towards the 50-day moving average. A little bit higher, now about $90 and then eventually up to that 200-day moving average by the end of the year, but it comes in at about $114.
KATHERINE ROSS: Let's go to Nvidia. I mean, it's pretty much the same question here, Chris, how should members approach Nvidia?
CHRIS VERSACE: Yeah, I'm not going to skirt the issue. It's exactly the same setup and my response it's almost exactly the same. Internally, we are debating, do we keep a one rating? Do we downgrade it to a two? Where are we going to look to buy more? Again, there will be some strength in the data center business. Low-end PCs continue to be hard. The graphics business continues to look favorable, and Nvidia is gaining share in auto. So those are positives. But right now, the market is-- again, back to what we talked about several months ago-- bad news is bad news, good news simply not good enough.
And it might be simply smart here to just sit on the sidelines, downgrade to to a two, the bad news get put into the shares. And then revisit and start to rebuild.
KATHERINE ROSS: And Bob, this name also trends lower on the chart. What approach are you taking?
BOB LANG: Yeah, so much like AMD, there's prior support. When it gets broken becomes resistant, so there's that little resistance at about $163, about 8% above where the stock is currently right now. So I think that we can make a run back up, their 50-day moving average, it's not too far above there. It comes in at about $169 to $172. So I do think the stock is extremely oversold right now, and you buyers are kind of staying away from the name at this point in time. But if we can get a base built again for the stock-- it looked like we were starting to build a base up until last week and then it fell through, it fell through the floor at that $163, $164 level-- but if we can get a little bit of a base-building with Nvidia here, we should be OK.
KATHERINE ROSS: Let's take a look at the exposure that you guys have in the electric vehicle space. Starting with ChargePoint, it is rated as a one, but you guys haven't taken advantage of this pullback. Should this rating be adjusted, Chris?
CHRIS VERSACE: No, I don't think so. When we look at the catalysts ahead, the infrastructure spending is going to continue to happen. And that really separates it, I think, from some of the other areas where we're either have two ratings or are contemplating downgrading to a 2 because we see that catalyst coming. And I think that this will be a theme that we have for a couple of other names as we go through the rest of the portfolio discussion.
We have built the position out at slightly higher stock price levels that's over 4%. For us, that that's pretty much kind of a full position. The last thing we would want to do is jump over that 4% just to say we're buying here at lower levels and have to turn around and trim the positions. I think what you'll see us here to members is at the current level, if you haven't caught up with us on the position side, this is a great place to do it.
KATHERINE ROSS: And Bob, this name has faced a lot of pressure of late. What are you watching in the chart?
BOB LANG: Well, I agree with Chris's assessment. This would be a good spot to add here. So the stock has been kind of basing now in a range-- let's call it 12 to 18, or a 16 and 1/2, a little below the 200-day moving average. So 12 to 16 and 1/2 is a nice little range over here as opposed to where it was back in April. It was just nosediving from about the $21 level and right through-- right through support to about the 9 and 1/2 to $10 area.
So we've bounced back nicely. We're trading in a nice range between $12 and $16, $12 on the low end, which is kind of nearly where we're at right now, to $16 up on the high end. And if we can base out here for, say, another month or so, it's just a little bit below where we last purchased the stock. I think that eventually ChargePoint makes a run up towards that 200-day moving average, call it $17 now. And eventually, we really think the stock stock's going to make it into the $20s.
KATHERINE ROSS: Let's go to Ford. Bob, I'm going to go to you on this one, because Chris did explain the fundamental thoughts here yesterday on our "Daily Rundown." So Bob, can you break down the chart of Ford for us?
BOB LANG: Boy, it's been a terrible move all year long. It's had a really, really, really poor year of 2022. If there's one name that we feel badly about here, this has got to be the one. So Ford has come down to about the $10 area. It's become truly a value stock for an industrial name, a carmaker that's done great things over the past several years. It's really showing its mettle as an industrial name and it's following what's happening with the consumer, and consumer is sort of slowing down right now. But as far as the chart's concerned, there's some resistance here at this 50-day moving average, comes in at about 12 bucks. We're looking at that $12 level recently to hold and it fell right through it like a hot knife through butter.
But you know what? We'll see if this $10 area holds. It's been strong and firm in the last couple of days. More recently, at the middle of June, it spiked off of that $10 level and made a run up towards 12 and 1/2. So we know that the stock can pick up some buyers around this $10 or $11 level. So we'll be watching it closely.
KATHERINE ROSS: All right, Chris. I'm eating my words here I'm actually going to go to you because of what Bob just said. If it is a name to-- and I don't want to misquote you, Bob, but if it is a name to not feel great about here, does that mean that you're going to look at it perhaps on a chopping block, Chris?
CHRIS VERSACE: So I think what we communicated when we wrote our note to members yesterday really detailing the June sales, is there's a little bit of a near-term long-term kind of quandary with Ford. In the near-term, if the signs say that we're continuing to go into a recession, we are likely to see car buying come to a screeching halt, no pun intended. The issue with that is in order to really see the synergies that they're doing as they transform their business drop to the bottom line, you need to see some degree of volume.
So the concern here is that we may not see those synergies unfold, but we do know that longer-term, there's some data that was published just very recently. And we shared it in our note yesterday, that the average age of either a car or light duty truck is north of 12 years old today. And we're going to see a natural replacement cycle unfold, especially so if we do see a dramatic slowdown in the near term, call it the next quarter, two, three quarters, depending on what the recessionary outlook looks like.
So there's reasons to say, look, in 12, 18, 24 months, we can see Ford's shares higher. I think what we need to ascertain here is as we get into the June quarter earnings season, if stocks are really getting punished for missing anywhere from modestly to big, it's going to tell us that there is a lot more downside to going Ford shares. So to cut to the quick on your answer, Katherine, we'll have a much better sense if we're going to downgrade Ford to a three rating from the current two, probably by the middle of next week
KATHERINE ROSS: OK, let's go to the one stock that really gives you guys health care exposure here, that's AMN. It is rated a one, Chris, with a 3.9% weighting in the portfolio. Will you assess-- reassess the weighting? Or sorry, the rating, not weighting.
CHRIS VERSACE: Yeah, so it's really two different things. So the weighting-- kind of like my comments a few minutes ago-- that's really going to tie the portfolio's hands. However, there is significant upside to be had to our price target. So that's one of the reasons why we keep that one rating in place. And I would just share with you that earlier this morning, we got the May JOLTS report. And I got to tell you, simply phenomenal, because the rate of growth and the number of job openings in health care was significantly higher for May on a year-over-year basis compared to what we saw for job hires, again, in the health care space. So a lot of reasons to be bullish on that name.
KATHERINE ROSS: And Bob, this stock is below its 200-day moving average. Buy, sell, or hold?
BOB LANG: It's definitely a buy. And I like the action in the stock. More recently it's been basing here in the above 105 to 110 bucks, and I think we're ready-- we're ready to see this thing launch back to the old highs of $127.
KATHERINE ROSS: American Waterworks is your pick for the utility sector. The stock has gotten beaten up in June, but has since seemed to recover slightly, Bob. What's next?
BOB LANG: Yeah, so AWK is one of those volatile names here. So subscribers, just be aware that the stock is going to move a lot. Intraday, it's got a high beta versus the rest of the market. But the stock's really made a nice comeback off of the recent lows, came off about $128 to $130. It's trading upwards of $150, $151 right now. It's below the 200-day moving average right now, but I think it's going to make a run up here-- get through this $154, $155 resistance level. Good relative strength here, good money flow, strong volume trends, I think we can make a move up there and through that 200-day moving average would be significant and starting to make a run back up to the old highs. Let's call it $187.
KATHERINE ROSS: Chris, with this name being a little bit more volatile, how do you plan to build out the position? And can you just remind us of your long-term plan with this name?
CHRIS VERSACE: Sure. So let's take the second one first. We added this as part of this, again, pivot with the portfolio, more defensive names, given our concerns about the speed of the economy. Remember, the way it unfolded, mid-May the Atlanta Fed GDP now was plus 2.5%. As of earlier this week it was negative 2.1%. So again, this was part of our attempt to kind of get ahead of what we saw unfolding. Why do we like American Waterworks? Because it's not only a utility, it's a water utility. And that makes it, in our view, a fantastic business model if and only if because there's essentially no competition for people where they live. They have pretty much one supplier for water.
The company continues to be a fairly acquisitive-- that's good. On the organic growth basis, they continue to petition local area water utilities for-- sorry, water-- utility oversights for rate increases and they continue to win them. So we see that continuing to grow quarter over quarter, month over month, year over year, driving higher revenue, higher earnings, and allowing them to continue to grow their dividend.
So that's our strategy with the name. In terms of-- it is a little volatile. And I think what we did with this was exactly what you want to do. We started a position, we tested and retested the thesis. The chart looked really good to Bob. So what did we do? As the shares kind of pulled back, we scaled in, reduced our cost basis, and now the position-- even as it's recovered-- we're nicely profitable in the position, and we think that there's more to go. So if we see that repeat, we will continue to use that strategy.
KATHERINE ROSS: Your cybersecurity exposure is pretty much summed up with cyber. Now, it is a tough market environment. The portfolio is down so far on cyber. Can-- putting aside the long term thesis here, Chris, can cyber weather this bear market?
CHRIS VERSACE: I think that if people recognize what's happening irrespective of the stock market-- and you look at the increasing frequency of attacks-- and by that, I can tell you in the first quarter of this year alone, roughly 80% of the number of cyber attacks were recorded from 2021. So 80% of 2021 in one quarter, and we continue to see that growing.
And I think the realization that people have to have is that attackers, do they pay attention to financial pundits? No. Do they know what GDP is? Probably not. No matter what the environment, they are continuing to attack because companies are willing to pay-- particularly for ransomware but also other areas and forms of attacks. So this is nothing but a growth industry, and I don't think we're going to see any slowdown. In fact, I would argue that if we do go to recession, you're likely to see the frequency of cyber attacks only increase further. That keeps us extremely bullish near-term medium, and even longer-term on the shares of cyber.
KATHERINE ROSS: Let's go to your restaurant pick next. Now that's Chipotle. Why is Chipotle rated a one, Chris, and do you still believe it in this market environment?
CHRIS VERSACE: Still believe in it. All the data that we see continues to point to people eating out, increasingly trading down. That's exactly why we own Chipotle over some casual dining restaurants. There is also that Healthier For You flip fanfare and flavor fare that they carry. They continue to sample with new menu items. So that last part should help pivot ticket-- average ticket prices higher. Meanwhile, we've seen a couple of different prices increases instituted by the company that really sets them up for the back half of the year.
And remember, too, longer term-- if we do see the bout of inflation peak and then start to deteriorate-- those price increases are rather sticky. I don't think I've ever seen Chipotle say, you know what? Our costs are falling down. We're going to give you a break. No. So what that means over the medium to longer term is, we actually see additional catalysts for margin improvement and EPS growth. So there's a number of reasons to be bullish on this name, longer-term.
KATHERINE ROSS: And Bob, when you're looking at the chart, what's making you bullish on this name?
BOB LANG: Well, yesterday, the stock had a stunning day. Really was up strong and good volume and blasted right through the 50-day moving average, and it's holding above there today. And I'd like to see a nice follow-through day. It's down a little bit on the session, but still, I think, down on lower volume, which is what you like to see. The big institutions are not selling the stock here. Volume trends have been actually improving. Relative strength has really been good versus the rest of the market too. Money flow has been good.
So I think all in favor of Chipotle here to make a run towards that 200-day moving average. It's quite a bit of ways from here, currently, call it about $1,568 right now for the 200-day moving average. So that would be quite a move here, about 15% move on the stock. So I think that this has certainly got a chance to get there. I like, again, I like the volume here, a good relative strength. And right as we're coming into earnings season-- the stock is going to be reporting in a few weeks-- just needs a catalyst to get it moving.
KATHERINE ROSS: Keeping with the food trend, let's go to McCormick. Now Stifel lowered its price target to $87 and has it rated as a hold. Chris, I asked you about the earnings, but what's the approach long-term?
CHRIS VERSACE: So when we look at what the company does, it continues to innovate on the portfolio, continues to get price increases through. They've done two already, one in December, one in April, and they're going to Institute another one in August. And again, all of that sets the company up as we head into their seasonally stronger part of the year for better second-half comparisons.
But again, over the longer term, this company is a great natural acquirer of businesses that allows them to extend their footprint in the grocery store but at the same time-- consider what I said a few moments ago about Chipotle-- and as this inflationary environment recedes, these price increases for McCormick, they're going to have three, if you think of it this way, setting themselves up for a much stronger 2023-2024 should the inflationary environment really fall down.
I think we're going to wind up seeing earnings expectations move higher if that happens, and that and given the pullback in the name versus the prospect for that margin improvement and further dividend hikes, I would argue we are just going to be right here. I'm trying to think of a good analogy, but just eating up McCormick shares until we hit that full position size.
KATHERINE ROSS: I'm just shaking my head at that one. All right, let's go to our next wholesale retailer.
CHRIS VERSACE: As it should be. That was horrible.
KATHERINE ROSS: We're going to Costco next. Chris, let's have another ratings question here. With such a large weighting in Costco, are you planning to keep it at a one?
CHRIS VERSACE: So again, you really have to split the two things. From a weighting perspective, were we inclined to do anything in terms of additional share prices? Boy, it would have to be super-compelling, but probably not. But when we look at our price target and the upside to be had, it's absolutely worth keeping it as a one, not only for existing members as a signal to them, say, hey, true-up the position size. This is a great company, continuing to extend the warehouse footprint, a clear beneficiary as consumers look to stretch those spending dollars.
But what happens for new members as come in and they want to go, hey, where should I be buying? That's another reason for us to keep Costco shares a one.
KATHERINE ROSS: And Bob, it's been a while since I asked you about the chart here. How does it look?
BOB LANG: So fanning out to the weekly chart, stock is stuck between the 100-week and the 50-week moving average right now, so which 100-week moving average comes in at about four, let's call it $420. The 50-day moving average about $501. We're closer, of course, to the 50-day moving average with the stock being about $489 right now. I like the fact that the stock has made some higher lows and higher highs on the chart over here on the weekly. Again, we're about midway between that low, which came in about the early part of May, and the high, which came at the late part of March. So that-- about $610 up there, and about $410 on the bottom, so we're about midway between those-- that high and the low. Which kind of means that this is a little bit of balance, about $489 to $505 level.
But I like this chart. I do think that it's constructive here, and when the bull market resumes, they're going to go to the best names. And obviously, Costco is right there.
KATHERINE ROSS: Our next stock is UPS. Bob, I'm going to you on this one. Can UPS make a move higher, or is it going to sink closer to its 52-week low?
CHRIS VERSACE: So UPS is kind of basing here. I'm looking at the weekly chart here. More recently, a competitor-- FedEx-- came out with some pretty decent earnings and gave a little bit of a pop to UPS. They have earnings coming out later on this month I like the stock here. It was battling recently with the 100-week moving average and seems to have won that battle and is starting to move upwards towards the 50-week moving average. Let's call it about $183 to $187 currently right now.
I like this-- chart, especially for the fact that it keeps making higher highs and higher lows and the volume trends are starting to turn positive as well. So I like UPS here over the next several months.
KATHERINE ROSS: Let's go to Mastercard and take a look at financial sector in general. Chris, what approach is AAP taking to Mastercard?
CHRIS VERSACE: Well, it's a two-rated stock. We've got ample room to build the position size out. And I think if we get confirmation that consumer spending continues to hold up and not for any particular sector, but just in aggregate, I think we're inclined to nibble a little further on this name. You know, how are we going to do that? Obviously, there's going to be the retail sales numbers, the personal income and spending data that we'll be watching, but also, Mastercard's own SpendingPulse survey as well as the Visa analogous report from Visa as well.
So those will be our shining stars, if you will, to tell us, hey, we should be taking advantage of Mastercard here because the reality is that while its consumer spending might come down in a recession, people will still need to spend on consumables and things that they need to live their lives, go to work, that sort of thing. And we might see a shift from debit to credit as consumers look to kind of extend a little bit, make ends meet. But again, whether it's a mobile payment, debit card swipe, credit card swipe, Mastercard makes money irrespective of it. And I think we could argue that makes it a little more of a defensive play here than not.
KATHERINE ROSS: And when you zoom out and you look at a stock such as a Morgan Stanley and the financials in general, Chris, what's your game plan?
CHRIS VERSACE: Well, Morgan Stanley, I think, we've communicated with members that there are really two businesses inside of this. One is the fixed fee an asset management, asset-gathering business. Which again, that's the driving business for us over the longer term. We like that business because of the fixed fee nature of it. That tends to give a lot more predictability from a valuation perspective. That's a lot more friendly, if you will, and augurs well for multiple expansion.
The headwind that it's really facing here is the investment banking business, which has dried up considerably. And I think that's really why we've seen a lot of pressure on the shares. We had it rated a one, and candidly, if it hadn't fallen so far, we probably would have downgraded it to a two. Where we are right now, though, is pretty much, there's no investment banking business on the horizon. When it does come back, Morgan Stanley's league table rankings are simply excellent, and it points to them probably rebounding faster than a number of other investment banks.
Back there, once we see those two businesses humming together, that's what's going to get us back to that price target that we have set around $110.
KATHERINE ROSS: And Bob, the stock is near its 52-week low. It's also below its 200-day moving average. What's your approach to the stock itself?
BOB LANG: So I fanned out here on the weekly chart, and take a look at Morgan Stanley in the weekly. It seems like it's building-- starting to build a base here. It's going to take a little while, maybe another month, month and a half, and can stay above the $71 to $73 level, maybe bounce around between that and about $80-$81. We could see the stock making a move probably later on in the summertime up towards that mid-$80s to low-$90s area. And we can-- if we get a higher high and a higher low in the chart, we've got something to work with for the bulls. But for right now, a nice long-basing period would be what was the doctor-- what the doctor ordered for Morgan Stanley here.
KATHERINE ROSS: Our next stock is Nucor. Chris, will recession fears hurt Nucor?
CHRIS VERSACE: Will they? I would argue that they already have. It makes me feel very comfortable about the move we made with the shares earlier in the year, really skinnying the position size down around the $175 level. And it's fallen sharply since then. Look, expectations are going to be dialed back because of the recession. But there is a catalyst on the horizon, and we are seeing more and more activity tied to it. I'm, of course, referring to the Biden Infrastructure Law. And whether it's the number of projects that have started to happen, the release of funds, or even the forward-looking architectural building index, it all points to a pickup in non-residential construction.
And what do you need there? You obviously need steel as a key-- as a key ingredient. So I do think that we're likely to see the shares 12 months from now, 18 months from now move higher. But candidly, until we really see the spigot open wide on infrastructure spending, there's no need for us to rush into this position at all.
KATHERINE ROSS: And Bob, do you agree with that based on the chart?
BOB LANG: Yes, actually, the weekly chart shows a huge, what's called a shooting star, which means that stock took off to the upside, encountered a ton of selling, no buying up there. And that's that came in back the early, middle part of April. Stock shot all the way up near $190, and came right back down that week, closed near the lows of the week, about $165. So just tells you that there was no buying available there. And then the sellers started to hit the stock. We actually hit the stock and sold it a little before then, in the $150s-- I believe in the $145s, $150s. It's come down quite a bit. It's got some support down here at about the $93, $92 level if the stock decides to come down a little bit more.
We might be even interested in buying it-- a little-- take a little bite of that down to that mid- to low-$90s area as well, too. But for right now, I think that the stock is just a hold.
KATHERINE ROSS: And let's go to United Rentals. Chris, does the action in URI of late impact your thesis?
CHRIS VERSACE: No, I think the comments that we made about Nucor kind of hold a little more effectively here, I think one of the differentiators-- differences is that all type of construction activity, whether it's residential, non-residential, no matter what you're doing, you're going to have to rent equipment. And I think that bodes well for these guys, particularly as infrastructure spending picks up. But again, the expectation here is recession concerns. So the shares are fighting a natural headwind.
And I think that as we go through the earnings season, through the next couple of months, and the company continues to deliver, I think people are going to get a little more bullish on the name as the infrastructure spending increases throughout the back half of this year, but really kicks into gear in 2023. I think we'll see a lot more people circling back to the name. That tells me that in 12, 18 months, the shares will be higher than where they are today.
KATHERINE ROSS: And Bob, what levels do members need to know in United Rentals?
BOB LANG: So the 200-week moving average comes in at about $212 right now, which is about $20, $23 lower than where it is right now. But I think right now-- currently $237, $238, this stock is sitting at nice support from back in the late part of 2020. So I think this is an excellent buying opportunity for subscribers if they want to get in and add some more United Rentals here. It's been fighting this Bollinger Band here for the past couple of weeks, but seems to be winning that battle. And I think, again, a little sideways-basing area between $235 $245 would be extremely positive for United Rentals and then ready to make a move on up towards these more recent highs.
$200-- I'm sorry, $300 and $302 is a targeted area where I'd be maybe looking to take a little bit more off the table, but certainly right here, $235, $245, good area to add some more shares.
KATHERINE ROSS: Let's take a look at Deere. Chris, is Deere a recession-proof stock if the data that you're watching so closely for shows cracks in the economy?
CHRIS VERSACE: So there are some cracks in the economy. You have to remember that Deere is kind of fueled by something a little different. That's really commodity prices. That's why we've seen the shares kind of come down of late because we've seen a retrenchment in corn, wheat, and soybean prices from record levels. And they're back to where they were almost before the Russia-Ukraine war happened. But the reality is that we-- and people who pay attention to this space know what I'm about to say-- is that every summer, we have to be extremely careful on the expectations for these key three farmer income-driving crops.
And I say that because we start off the spring and we plant, we go through all sorts of issues-- floods, dry heat, excessive heat in some parts of the growing regions, and that really influences what the harvest is going to look like. And that is really what determines the numbers that we want to pay even more close attention to when it comes to the prices for these key commodities. That is what drives farmer income. So just because they've been bouncing around here in the short term doesn't mean that they're going to not pull back and sorry, move higher.
And as we've shared with members in recent roundups, the expectations for the harvest size based on weather that we've already seen is starting to get dialed back for corn and soybeans. So I think the opportunity here for Deere is good for members. We have ample room to build out, and the comments that we get from suppliers like Titan Wheel confirm the fact that the order books are built out not just through the balance of 2022, but into 2023.
One thing I will share with members is as Deere's competitors CNH and AGCO report, one of the things we're going to be paying close attention to is, are they seeing order cancelations? And, what that might mean for their order books? So is Deere recession-proof? No, but people need to eat, and farmers need to continue to get more out of their crops. And there's a big upgrade cycle for precision ag. So I'm more inclined to stick with this over the longer term.
KATHERINE ROSS: And Bob, Chris did allude to the action that we've seen in the stock. It did hit-- Deere did hit another 52-week low this morning. What are your thoughts on the chart?
BOB LANG: So there's a little bit of support down below where it is right now, about 10% lower. Let's call it about 260 bucks. There's a support there from the late part of 2020. Even below there, we're talking $240 at the 200-week moving average. So there is some support down below if the stock continues selling off. But I do think that we are extreme grossly oversold levels here right now with Deere, and I suspect that buyers are going to see that this stock is extremely cheap.
Money flow has not been good right now, but again, I do think that this is a high-quality name that the big buyers are going to start stepping in here and picking up this name sooner or later. This is about as cheap as the stock's been in quite some time, and certainly, with the concerns of the economy slowing down here, it's shoot first, ask questions later when it comes to taking stocks and removing them out of your portfolio. But we're going to stick with Deere here. We think that this one's got a good opportunity to get right back up towards $300.
KATHERINE ROSS: All right, your oil play here is XLE. With the sell-off that we've seen both today and yesterday, how are you approaching XLE, Chris?
CHRIS VERSACE: You know, it's funny. Bob and I were chatting about this before this program, and we were kind of battling back and forth a little bit recognizing that the oil prices have come down. There is some concern, obviously, this is recessionary-fueled, sorry. And if we those fears continue to play out and we do slip into a recession, there is a real demand question over oil. And in past recessions, we have seen oil prices fall significantly.
On the other side, it's very different this time around, given the Russian-Ukraine war. We continue to hear about shortages over in Europe with perhaps even worse unfolding come the wintertime. So that supply demand says, you know what? They may not fall quite as far as they have in the past. What we need to assess with the position is look. If oil prices come down in the near term, can we still make money in the position? Can it rebound in three, six, nine months? That's the litmus test that we have to deal with. And the reality is, if we are confirmed going into a recession, like Bob just said, people are going to shoot first, ask questions later.
So we'll be watching the data, and if it looks like we're tipping, for sure, into a recession, you know, Bob and I will have some serious conversations, and this could be one of the names that has to go.
KATHERINE ROSS: Let's take a look at CBOE now, Chris, and I'm sticking with you here. We mentioned recession. I don't-- I've lost count how many times during this one-hour segment. But with CBOE, what is the game plan if we do have a recession?
CHRIS VERSACE: Well, I think the first question is why did we add it, and is it is it doing what we thought it would do and performing? And I think the answer there is it is. Because we put CIBO in as a way to capture a defensive play for market volatility. And it's, as it writes more options, contracts, and the like, and it's continuing to perform.
I think that if a recession were to come about, we want to go back and study how CBOE has performed in that environment. But my inclination is that traders will be looking to make money where and however they can, probably using a variety of options, both long and short, to do that. So I wouldn't be surprised if we see options volume actually continue to grow in a more challenging environment.
KATHERINE ROSS: Speaking of trying to weather volatility, that leads me to PSQ, our next name. Bob, is PSQ still a good defensive play?
BOB LANG: Absolutely. I think that PSQ has provided us with a nice bit of protection against the technology names in the portfolio. And this is, of course, the inverse of the NASDAQ. NASDAQ is not just, of course, technology. It has got health care in there as well, energy, banks, and so forth. But predominantly moves-- what moves the NASDAQ is the technology. So I like having a countermover in this PSQ for the portfolio. It's done it's done its job. It's protected us and weathered the storm against higher volatility in the market. So I do like PSQ going forward, and we'll keep holding in and keeping it as protection for the time being.
KATHERINE ROSS: And we're going to end our stock-by-stock segment on SH. Bob, I know I've asked this question before, but I think it's worth bringing up again now that we're in a full-blown bear market. When do it's time to exit a position like SH?
BOB LANG: Boy, I wish I knew. I wish I could answer question for you. But when volume trends start to get better in the market again, SH is just an inverse of the S&P 500. You always like to have some protection on. And even if it's a small amount of protection, there's going to be a lot of volatility in the markets. And I'm looking back at 2022-- the first half of the year-- and then looking forward to the next half of the year, and, you know, volatility was about an average of about 26% in the first half of the year, which is one of the highest on record.
And going forward, we have volatility futures upwards even higher than that, about 27%, 28%, almost 30%. So we're expecting a lot of volatility over the next six months. So that being the case, it really makes sense to have some protection on in the portfolio just in case. We're going to have days like we had last Tuesday when the markets were up 40 points, up 1%, and closed down 2%. So a big 120-point move-- 3% move intraday. The SH, having that in our portfolio provided a nice protection against the losses on that particular day.
So I think going forward, we got to have some protection on. When that's going to be changing, who knows when? But frankly, when we could really point our fingers at the Fed and when they get off of their hawkishness for the rate hikes, when that changes, we'll probably be changing our position on the SH. But for now, protection is good.
KATHERINE ROSS: Now we only have a few minutes left, but I do want to dig in with you guys on what to expect for the rest of the month. Chris, we've mentioned a ton about the weightings in the portfolio, the ratings, and also price targets. So with the way that the market has impacted AAP and other portfolios, would you consider putting in stop losses at this time?
CHRIS VERSACE: That's something that's never been done before in the history of the portfolio. And I think that while we're not against it, I think we would have to understand when is the right time to put one in? And I say that because the last thing we would want to do is put a stop loss in whether it's 10%, 15%, what have you, have it triggered, and it doesn't give us enough time to really scale into a position using that weakness to reduce the cost basis as we build up the position size, which was exactly what we did with American Waterworks. And that has played out very nicely.
So it's not as simple as saying let's do it. I think the question is, A, should we do it, B, when would we do it, and to what extent would we do it? And I think those are some conversations that Bob and I, we kick them around. And I think when we have a clear sense of what is right for the members without doing any harm to the members, then we would be ready to enact that
KATHERINE ROSS: And Bob, when you look at July, we know that Chris is watching the data, but what is the one thing you're going to be looking at for the rest of the month?
BOB LANG: Volatility. We're looking at volatility. The VIX is still elevated here, 27 and 1/2%. And you'll have lots of news coming out later on this month, as Chris alluded to earlier, big earnings month coming out. And we could see some-- quite a few earnings warnings. We do have a jobs report coming out later on in the week and inflation ratings as well, too, and a Fed meeting later on in this month. So a lot of stuff going on, a lot of moving parts here, a lot of unknowns, which are going to be revealed but still with elevated volatility. We're going to see some big moves in the markets.
Remember something. Elevated volatility just means that the ranges are expanding, which means that we could have big ups, we could have big downs. They're going to happen. So I'm going to be watching volatility very, very closely. And if we get some-- hopefully, we get some good news on the inflation front this month. I'm hopeful-- not expecting it, but hopeful, certainly-- and then we can maybe get this market right back on track.
KATHERINE ROSS: All right, that is a wrap for our July monthly meeting. As always, please continue to send your questions to Katherine.Ross@thestreet.com and we'll see you guys later.