SARA SILVERSTEIN: Hello. Welcome to the January Action Alert PLUS Members Call. Let's jump right in with Chris Versace and Bob Lang. We spent the majority of our December call looking back at last year. So let's begin 2023 by looking forward. You named Clear Secure and Vulcan Materials as your top picks for 2023. Chris, now that we're about 10 days into January, any change to that call?
CHRIS VERSACE: No, I don't think there's been any dramatic change to that thesis. When we take a look at what's driving Vulcan Materials, it's going to be the continued uptick in non-residential construction, something we continue to see accelerating through the balance of 2023 into 2024. as part of the Biden infrastructure law spending.
So continue to be bulls up on Vulcan Materials. The same thing with Clear Secure. Towards the end of the year, they had number of announcements expanding their footprint, expanding their service offering into to include soon the launch of TSA pre-check. So I would say that everything is smooth sailing ahead for Clear Secure as well.
SARA SILVERSTEIN: Bob, any other names standing out to you right now?
BOB LANG: Yeah, a sleepy, old name called Verizon, which is a stock that we started accumulating in the summertime of 2022 and we've been slowly adding a little bit more. We actually added a little bit towards the end of last year to the portfolio. This is the stock that if we admittedly got in a little bit early, but it was fine because it kind of holds with our thesis of holding stocks and finding names that will work out for us over the next 18-24 months. And at one point in time Verizon, had hit a dividend yield of a close to 7%.
And Chris had mentioned it a couple of different times, that the last time the dividend yield was that high for Verizon, it was about 2008, 2009, and the stock took off from there as interest rates started to fall across the board for treasuries. So this is a name that I think big institutions are going to start coming to. Its got good, stable, reliable cash flows.
If the economy moves into a slowdown in the next 12-18 months, big institutions are going to be looking for names like Verizon to park their money and find a nice, solid, safe dividend. So I think Verizon is really one that to look out for. It's actually had a good start to 2023 already.
SARA SILVERSTEIN: Chris, it's always fun to talk about the best bets in the portfolio, but are there any names in the portfolio right now that you're reconsidering, that are giving you a second thought?
CHRIS VERSACE: Yeah, so it's an interesting question, because we're constantly testing the names, right? What did we get right? What's playing out for our investment thesis? What might we be missing? Did we miss something?
And when I look at the portfolio today, there's a couple of names that are, let's be candid, they're in the red. A name like McCormick, for example. But when we look there, we're starting to see signs that our thesis that the price action that they took in 2022 should turn into margin drivers. We saw those very comments out of Conagra reported last week.
The other one that stands out is the Cybersecurity Play, which is an ETF. And there, there are some concerns about corporate spending, especially if a recession takes over in terms of what people are thinking about for the economy, companies have to cut back, concern over overall spending. But we've also seen survey data and other things that reassure the notion that cyber attacks are continuing and companies need to continue to shore up their crown jewels. So even though these names are in the red for now, I think we need to let these theses, the combined theses play out a little longer.
SARA SILVERSTEIN: And Chris, you've been warning about the S&P earnings expectations might be lowered as we start to hear from companies. How would that hit the portfolio?
CHRIS VERSACE: Well, first off, they actually have come down about 55% compared to where they were in September. Around that time, 2023 earnings expectations were like plus 8.4%, 8.5%. As of Friday, those have been adjusted now down to about plus 4.7% year over year. However, we continue to think that there's more room for downward revisions.
I say that because of the swath of PMI data that we got, not only in November or December, that showed contractions, but also the continued contraction in new orders that says, we're going to start the first half of the year off probably on a very weak note. And you alluded that companies are going to start reporting. We've got a rash of banks coming up later this week and then a wider swath next week and then the following week. And when we look at the economic backdrop, we look at the higher interest rate environment, we don't think companies are going to be heroes here.
They're likely to take a more cautious approach. That seems to suggest that we are going to see downward revisions relative to the consensus. How are we positioned for the portfolio?
We've obviously been thinking about this for some time. We have ample cash in the portfolio. We've got our inverse ETFs and I think that's going to allow us to ride this re-adjustment wave better than most. At the same time, as the market comes down and this rethink occurs, we're going to have enough firepower to potentially step in, depending on what we see, as the picture clears.
SARA SILVERSTEIN: Let's move on to our stock by stock review. We're going to take this opportunity today to focus on the stocks we get asked most about from our members, which means we could spend the entire hour talking about ChargePoint, but today we're just going to start there. Chris, for members currently taking a loss on the name, what's the main reason that we're so bullish?
CHRIS VERSACE: Well, I think there's a couple of things. We continue to see year over year, month over month growth in EV shipments. That simply means more EVs on the road and they need to recharge. So it's a natural argument for EV charging companies.
At the same time, we've got the added oomph that's going to start hitting this year from the Biden infrastructure law. And I think kind of when we step back and we pointed this out in a note to members, for some reason, all the EV charging companies, not just ChargePoint, they have been linked to Tesla and that stock has been under pressure really since the middle of September. I think the opportunity that we're going to start to see unfold as we move into 2023 and other companies, whether it's Ford, like we have in the portfolio, Volkswagen, its array of brands, Honda, General Motors, as they continue to see their mix shift towards EVs, I think EV charging companies, and ChargePoint in particular because it's got the best balance sheet among the bunch, they're going to have a serious rethink. And I think we're right where we want to be ahead of that curve.
SARA SILVERSTEIN: And let's talk about timing, Bob. There were a lot of questions about why we were adding to the position when we did. It looks like it was a good idea. Can you talk us through a little bit through that decision, why we add when we do?
BOB LANG: Yeah, so we look for times in a volatile name like ChargePoint to hit some levels that show us some oversold ratings. And more recently, the stock came down to about the 8 and 1/2, $9 level, and it was good enough to go ahead and step in there and buy some shares. We did this a couple of weeks ago, towards the end of the year in 2022. And we do like the stock over the long term. Again, it's a volatile name. We're going to see its stock move up and down a lot.
I hearken back to the middle to late part of 2022 when the markets were just getting slammed day after day, yet ChargePoint was going up every single day against that market backdrop. So good relative strength at some points in time for this particular stock. The longer term chart looks very favorable, if you look at the weekly or the monthly chart of ChargePoint.
And again, that's something that we want to step back and look at. Longer term charts to pay attention to, rather than the noisier daily charts for ChargePoint. So I think any time under $8, $9, $10 where we're at right now, great time to add ChargePoint.
SARA SILVERSTEIN: And Chris, we have the buy now rating on ChargePoint. Can you talk about that, now that we have our new ratings? Is that optimistic, given the current economic environment for ChargePoint or why is that at the appropriate rating?
CHRIS VERSACE: So if we were looking at some other names and we were saying, oh, there's really some concern about the drivers behind the business, the data was showing weakness ahead, would we reconsider the rating? Absolutely, we would. But when we look, again, at ChargePoint, all the metrics that point to this pain point for EV charging demand continue to push in the right direction. And again too, some other names we have in the portfolio, the reasons we have them is the positive catalyst that is infrastructure spending.
Obviously, Vulcan Materials and United Rentals, which URI has simply been a champ over the last few months. The same prospects are poised to unfold for ChargePoint. And then we look at where the stock is relative to our price target and what's expected between the next 12 months, 18 months, 24 months. That's the rationale behind the buy now. The risk-to-reward profile here is compelling. It was even more compelling when we added it at 8.28, right at the end of the year, but it's still compelling, as Bob just pointed out.
SARA SILVERSTEIN: And moving over to Ford, and the EV that everybody always is talking about is Tesla. We can't stop talking about Elon Musk. One of our members wants to know, why do we like Ford as compared to something like a Tesla?
CHRIS VERSACE: Sure. So the big argument that we have for Ford is the unlocking of the value as that transformation approaches, right? I think we've talked about this in the past, that Ford has a very arguably low valuation. Tesla, because it's first mover advantage, has a very high valuation.
But as the competitive landscape changes, stiffening for Tesla, and as Ford gets the benefit of its cost reduction efforts, grows its earnings, get some multiple expansion, we're going to see that multiple do just that, expand. So it's really this coming together. We'd rather be in position with Ford and catch that multiple expansion. The other thing, arguably, even though Tesla shares have come down, I made a joke of this the other day when I was on with JD Durkin in the market open show that The Street has.
I don't want to wake up and wonder what company Elon Musk is focusing on today. Is it Twitter? Is it SpaceX?
Is it the Boring Company? Is it Tesla? I'd rather go with a management team that is uber focused on the transformation that it has ahead of it.
SARA SILVERSTEIN: And some people have hoped or feared preannouncement coming from Apple. Chris, how are you thinking about big tech ahead of earnings?
CHRIS VERSACE: So it's a great question, right? Tech can be a very powerful mover, as we saw in 2022. However, it really was not. It was quite the opposite. When we overhauled the rating system, we really changed around what 1, 2 and 3 is, and we purposely moved big tech, that's Alphabet, that's going to be Microsoft, and that's Apple, into a three category.
So we're waiting really to see a lot more clarity on what the demand picture looks like. Even today, I was reading how IDC, a third party research firm, doesn't see the PC market starting to rebound until 2024. So until we have some a better picture on all of this outlook, whether it's going to be on advertising spend, in the case of Alphabet, whether there's some slowdown in data center, that could be that's a big question for Microsoft, and smartphone demand.
And luckily, we have Taiwan Semiconductor reporting tomorrow morning. We'll get some insight into not only data center but smartphones as well. As that picture solidifies, we'll think about revisiting those ratings, but not until then.
SARA SILVERSTEIN: Bob, Amazon has taken hit after hit in 2022. Looking OK the beginning of this year. What's your outlook for 2023?
BOB LANG: So I think the outlook for Amazon is outstanding. And more recently, we bought some more shares of the stock and added it to the portfolio, and we intend to probably buy some more in the near future here. The stock has had an excellent start to 2023. It's made higher highs and higher lows here. In fact, what's interesting, it's going to be like four consecutive days up if we hold today's gains and today's move is puts it above the 50-day moving average.
First time it's been above there since it broke down below there in September. So the big breakdown area though, however, is from the 200-day moving average, which came in around the middle of August or broke down at about $140-$145 a share. So from here, Sara, that would be about a 50% move roughly, a huge move in percentage terms for a mega-cap name like Amazon. But again, it was just their 6 and 1/2, 7 months ago.
So I certainly think there's a possibility, at least to get to a portion of that loss back for Amazon. I do like the fact that volume trends are starting to turn up here. The indicators that I follow have started to turn bullish.
I just hope that we don't run out of steam here. The price action on the chart is very constructive and I think, certainly in the near term, I know they have earnings coming up in about three weeks. Certainly in the near term, I think the stock can make a run up to 105-110, which would be a nice move from where we're at right now.
SARA SILVERSTEIN: Heading over to cyber, the cybersecurity ETF, Bob, would you consider adding to one of those individual stocks on weakness? Let's look at Palo Alto.
BOB LANG: Yeah, so the individual stocks in cyber, I know that is one of the bigger names in the ETF is Crowdstrike. I know Palo Alto is in there as well too. One thing that Chris and I talked about, this is an area of technology where if you're going to try and pick the winners in a group like this, it's a relatively new area, cybersecurity. I'm talking relatively new with in the past 8-10 years.
If you're going to try and pick a winner, good luck. I think the cyber ETF offers you an opportunity to buy the whole group. And if one is the winner out of eight or nine of the names, then you're going to benefit.
But trying to pick that winner that's going to do well, listen, I would happen to agree with the reader here, that there are some names that are going to be winners and some are going to be losers. And in fact, Palo Alto networks is separating from the rest of the pack as one of the better names. But it is contained in that ETF and along with some of these other names like CyberArk and even Cisco and BlackBerry. Some of these other names are real good to have and they're smaller percentages of the ETF, but still, I think having that diversification with that ETF is important in this group.
SARA SILVERSTEIN: And Chris, yesterday we trimmed United Rentals and took the proceeds to add to the position and Lockheed Martin. Why the switch?
CHRIS VERSACE: Well, we always are evaluating the portfolio. You ask that question at the top. I think this is a great example. When we look back, United Rentals, as I alluded to it, had been a champ, really, in the back part of the year.
And we saw it, it was a 45% move, a seven-fold move over the S&P 500. So we're in the business of running the portfolio in a prudent fashion. That means harvesting profits from time to time and redeploying it into other names or into new names for the portfolio. In this case, we saw that Lockheed Martin had kind of pulled back. There's been some questions over the future of the defense spending programs, given what's happened with the speakership in Washington.
But the risk-reward, from our opinion, given the multi multi-year backlog that Lockheed has, as well as non US government commercial and other commercial wins, has been a real positive. So we wanted to step in and just use that pullback to our advantage. And candidly, if we do go into a recession, I do think that this area of defense spending is going to attract a lot of attention because it has, arguably, the best paying customer in the world, better known as the US government.
SARA SILVERSTEIN: Chris, what's your take on the recent downturn in Elevance and other health care names? Especially, haven't we seen some Wall Street analysts have more positivity around them now?
CHRIS VERSACE: Sure. So there's a couple of things at play here. First and foremost, a lot of that decline has been over concerns over the speed of the economy. But what have we seen? Last week with the ADP employment report for December, and even again last week with the December employment report, job growth has been stronger than expected.
At the same time, we're getting some very favorable data over the open enrollment for healthcare.gov. Last I saw there were about 1.8 million new people into the program. That's a positive for all the players, including Elevance, and the enrollment period ends on January 15.
So a few days after that, we should have a much better sense as to the benefits tied to that enrollment program. But all in all, still very positive. And Bob and I talked about the recent pullback in Elevance and that's why members saw us actually add to that position today.
SARA SILVERSTEIN: And Bob, can you speak a little bit to the decision to add Elevance today and what were you seeing?
BOB LANG: Yeah Elevance, the former Anthem, a big HMO provider of insurance, big time on the West Coast. So there's a huge population out there. So this stock has come down off of its recent highs.
We had an excellent timing when we first stepped into Elevance added a 1% position and it took us up to about a 1.3% position at the peak more recently. So it was up about 30%. But it's pulled back a little bit and gave us an opportunity to add some shares.
We do have a competitor, UnitedHealth, coming out with their earnings later on in the week. And we think that they're going to give us a little bit of clarity. Hopefully the smoke clears from that company as well too. That stock's been under a lot of pressure over the past couple of weeks.
I think there's some worry about some legislation that possibly is going to pass that is detrimental to the HMOs. I think that it's far fetched. This is one of the biggest lobby groups in Washington and I don't think that they're going to do anything that is going to spoil the party for the HMO companies. So Chris and I look back at this name and said that this is a great opportunity to pick up a quality company on the cheap here. So we had a pullback to a support level and said that this is the time to add some shares and we did that today.
SARA SILVERSTEIN: Chris, how does the recent decline in natural gas impact your thoughts on XLE, our energy ETF?
CHRIS VERSACE: So natural gas can be kind of volatile based on weather. So we try not to get oh so bogged down in that thinking. Rather, we try to think about the longer term demands and the drivers there.
So I would say that I've probably been a little more concerned about oil prices, just given some concerns over the speed of the global economy. But we also have to consider that China is reopening. In our comments where we added Coty to the bullpen this morning, we walked members through what we expect. We don't see the full oomph of that reopening right away.
We think it's going to emerge in some time. But we think, as we move through the first half of the year, and certainly in the back half of 2023, China, which is the largest importer of oil, is going to have a lot more influence on demand, oil prices, and therefore, the shares of XLE. But we also can't rule out what OPEC Plus might do.
Remember, they're really trying to keep oil prices really at a floor of around $80 a barrel. We could see more production cuts. That would also be a positive for XLE shares.
SARA SILVERSTEIN: And we're seeing volatility still, even though the beginning of the year has been pretty good. Bob, can you update us on our club positions and our short positions, PSQ and SH? Are you thinking about an exit strategy for 2023?
BOB LANG: Well, it depends. We'll have to see where things are at later on in the year. One of the reasons why Chris and I put these positions on it was to blunt the volatility in the markets right now. And we do see the VIX is in the low 20% range, but we do have a lot of volatility coming around with markets.
Implied volatility is not as elevated as you would think. But realized volatility, which is the actual volatility that we have in the markets, has actually been rising and is up near 20, 21%. So when you have that matching there of realized and implied volatility here, you have some big moves that can be expected in both directions.
We've had that already so far in 2023. As you recall, last week, we had some wide moves, even though the implied volatility was down 20, 21%. It was only expected about a 1% move. So getting back to the PSQ and the SH, Sara.
I think as long as this bear market is still in place, and we do think that this is still a bear market, we're in a bear market rally right now, as long as the bear market is in place, it makes sense. It's prudent to go ahead and use protection. And the best protection we can do against the portfolio like we have right now is to have those SPQ and the SH in place for a little while.
Does that mean when the bear market is over somebody's going to ring a bell and tell us that? Of course not. Nobody ever rings a bell at the top, nor at the bottom. But we'll wean ourselves off of that when we see the smoke starting to clear and we have a little bit more clarity on where the direction of the economy and the markets are going.
SARA SILVERSTEIN: And what will it take for us to get clarity on the direction the markets are going? When will we know? And I the market and the economy are two totally separate things.
Chris, maybe you want to speak to this a little bit. I'm sure both of you have been thinking a lot about the 2023 outlook. Chris, let's start with you. What are you thinking in terms of what you're looking for economics and for the market?
CHRIS VERSACE: Yeah, so let me bundle a couple of things here. I agree with what Bob said on the inverse ETFs. I would also say same goes for the cash. We know we have a high level of cash, purposely so, given what we saw unfolding in the back half of the year and it's something that we think about every day.
If we go back a couple member calls, the question was, Chris, what keeps you up at night? And it's the same answer. It's missing the turn in the market. So we're constantly scouring the data, scouring sentiment, all of these things to make sure that we know where the market is headed.
So we've positioned the portfolio correctly, but we again, continue to retest this and rethink this on a daily, weekly basis. So to answer your question specifically, Sara, at a minimum, I want to see the monthly PMI data kind of balance out. In other words, stop declining. See the backlogs of work stabilize. To me, that's one of the first things that we have to see and then we can start to build from there.
SARA SILVERSTEIN: And Bob, from a technical standpoint, what are you looking for to really indicate-- and I agree with Chris, that's all that matters, not missing when things turn around. So what are you looking for, from a technical standpoint?
BOB LANG: Well I'm going to give you an answer from a technical view and from a Fed view, since that's what I pay attention to. I'm a big nerd when it comes to examining the Federal Reserve and what they're doing. So as far as from a technical point of view, I want to see the S&P 500 in the markets get above that 200-day moving average and sustain themselves up there.
And then I want to see that 50-day moving average crossing above that 200-day moving average. We call that the "golden cross". So when that happens, and then we also see some of the other shorter term moving averages starting to accelerate to the upside, it tells you that you've got some support underneath the price and we can continue to move and gallop forward. Remember, price action is all about driving momentum.
And if we get some momentum in the stock markets and moving forward, that tells you that a lot of big money is starting to pile in to the stock market. But as far as it relates to the Fed, listen, I've got to see the Fed turning away from being so hawkish and then possibly settling down and being maybe a little bit more neutral or maybe even slightly dovish. I can't see the markets doing too much to the upside with the Fed acting as the grim reaper behind everybody, all the bulls out there, and saying, look, here I am. Don't get too far out of my reach, otherwise I'm going to come for you.
But I think the Fed right now is really the most important thing to pay attention to. I think that oftentimes, over the past six months or so, most of the market has not believed what the Fed is saying or what they're doing. They're doing the right thing and trying to control inflation and get it back down to their 2% objective and by whatever means possible. And certainly, when that happens, we're going to see brighter days ahead. Let's remember something. Bull markets lasts a long time.
We've seen bull markets last 10, 12, 15 years at most. Bear markets don't last very long, maybe 18 months at the most. We're probably already a year into this bear market, so probably not too much time left in this bear market. But we have to understand something. Even if you're late to get back in to the bull market, there's plenty of room and plenty of time for you to make money to the upside.
SARA SILVERSTEIN: And I know I kind of snuck that in there. I used our short exposure to ask the questions I wanted to the answers to about when the market would turn around. So we got to go back to the portfolio. Chris, Clear Secure has been a big focus for you guys lately. Can you break down why you're so optimistic, given it's not profitable yet?
CHRIS VERSACE: So when we look at Clear Secure, it has a very differentiated business model. It's actually a subscriber-based business model. So we can track its progress towards becoming profitable, far better than a lot of other companies out there that don't have that type of business. And again, we kind of talked about this at the top of the broadcast here.
But if we look back since we've added the shares, what have they done? The company has added more airports, right? It's rolled out new services. It's also moving past the airport, airline market as well.
And the other thing too, and I can understand the question over it's not profitable yet, but at the same time, the company declared a special dividend, which it paid out at the end of the year. So I think the management is focused on its overall return possibilities to shareholders. The great thing about this though is, once the company approaches profitability, it's going to start to attract a lot more attention from investors.
Also too, if we see another special dividend, that will check another box as well. But as we look at the world continuing to reopen, in particular with China now joining the fray, we continue to see a lot of demand for its core services and we think the growing concern over identity, we're seeing a lot more data privacy rules and regulations not only being passed but being discussed, we think that's going to play right into Clear Secure's offering.
SARA SILVERSTEIN: And Bob, what's your message to investors who might be nervous to buy Clear?
BOB LANG: Actually, interesting, this was my pick for the best stock in the portfolio in 2023. So I'm very excited about Clear Secure. This is a company that's got some great growth ahead of it. The chart actually looks real good and very constructive.
In fact, right around this level here, $25, $26, I can say this is a good spot to add some more shares, and Chris and I are going to be talking about doing just that right in the next coming days. So I do think that this name is a sleeper. I think there's a lot of people who aren't really paying much attention to it right now. But I think as we move forward and we see that the bigger footprint that this company is going to make in the economy and in the areas that it's in at airports, and concerts, at stadiums, that sort of thing, anywhere else, we're going to see some big money start coming after Clear Secure.
SARA SILVERSTEIN: And before, I was just going to ask you for your top name for new members to buy this month. What's the emergency name to buy? Let's start with Bob, in case it's Clear Secure.
BOB LANG: Yeah, it's that name right there, it's Clear Secure. I think Chris laid out the thesis very, very well right there. And again, more recently, the stock has pushed up to near 7 month highs. Last spring and summer it was around the mid 30s.
We got a big push up there in the stock, we had gotten in there in the low 20s. We've got a big push up there and it pulled back a little bit. It's giving you an opportunity to get in here at a name. And again, this is not a company that is in making money right now.
That doesn't bother us, because again, we're looking longer term, 18-24 months, even further out. And for a name like Clear Secure, we think four or five years out, this stock is going to be a dominator out there in the marketplace. So I mean, take advantage of this pullback right here. Some big money is going to be coming after this name down the road and this is a great opportunity in the mid 20s.
SARA SILVERSTEIN: And Chris, what about you? For new members, what is the emergency top buy for this month?
CHRIS VERSACE: Just one?
SARA SILVERSTEIN: As many as you want. How many do you have?
CHRIS VERSACE: OK, well the reason I'm asking is because--
I could easily say Vulcan Materials. Because I said that last month and the data has only gotten stronger for it. But on the other hand, I would just remind folks that earlier this week we did add to Lockheed Martin.
We added Elevance today. I think the three of those are great stocks to pick up today. And at the risk of ruffling some feathers out there, again, as we discussed a few minutes ago, ChargePoint at these levels, you have to revisit it if you don't own it already.
SARA SILVERSTEIN: OK, let's look forward. Let's talk about the bullpen a little bit. Let's start with this morning's additions to the bullpen. Why add Coty, Chris?
CHRIS VERSACE: Well, look, we know that China is starting to reopen and we wanted to lay out the investment case, even though we think that the full benefits of China's reopening have yet to be felt. We think it's going to take a little bit of time. As we noted, they continue to deal with this end wave of COVID cases. When we balance that with the move that we've seen in a number of China reopening stocks, there's some room for disappointment.
But we want to be ready so that when the data shows that, OK, they are past the end wave, if the stocks have come down a little bit, we want to be able to pounce, that's the story with Coty. But the other interesting thing about its business, and just make sure we're all on the same page, it's beauty and personal care products, the perception is that, that segment of the economy will fall in a recession. But when we look back, that has actually held up far better, surprisingly, making it, some would say, recession resistant, others call it recession proof.
So we think that would be a good place to go as well in the coming months. We just want to pick it up at the right price so that we have more upside, more reward than potential risk. And right now, following the move, really since early November, it's at best even arguably skews a little more towards the risk side.
SARA SILVERSTEIN: And Bob, looking at the bullpen, what names stand out to you that might get an upgrade to the portfolio sometime soon?
BOB LANG: I'm going to give you two. My first one would be Wendy's. Wendy's is a name that we've added in the portfolio early in 2022. This is a stock, obviously, a fast food place. It competes with Jack in the Box, McDonald's and Burger King, and some of these other names that are out there.
But I think Wendy's is one that's kind of unique. It's been a standout here. They have a really strong franchise. Stocks have made a nice move. I mean, it's up about 11% since we identified it and put it in the bullpen.
The other name is much more of a fun name that I've liked and admired for a long time and I think this is the name that admittedly so, Chris is a little bit hesitant right now to put it in the portfolio because of the potential for getting into a recession, but I like Ferrari. This is a different name. This is a high voltage name. This is a name that the stock has been very, very strong since bottoming in June, in the 170 area.
It's up about a good 20% since then. This is a stock that, of course, appeals to people who are very wealthy, but it also there's some great name ignition. There are Ferraris that are used in races around the country and around the world, especially in Europe. Huge brand in Europe as well too, much like Mercedes Benz, BMW.
But Ferrari is a name that I think that would appeal to us in the portfolio. It's different. It's not Ford. I we have Ford in the portfolio. It's not Tesla, but it's really something different that offers us an opportunity to make some money on this particular brand. Really like Ferrari a lot.
SARA SILVERSTEIN: And Chris, what about you, any other names in the bullpen that we might see in the portfolio or what are you watching?
CHRIS VERSACE: So one of the names that I was actually keeping close tabs on, and Bob and I have talked about this as recently a few days ago, is Universal Display. Coming out of the Consumer Electronics Show, there's a lot of noise about applications for organic light emitting diode technology, those are the displays that are emissive. Universal display has as a patent licensing business for that technology. They also make the chemicals. So in some respects, it is a very similar business model to Qualcomm, where they sell the key materials and they have an IP licensing business that is very, very profitable for them.
However, this morning, we learned that Apple is going to be start sourcing its own displays rather than dealing with Samsung or some of the other companies out there. So this is a new wrinkle to the story. Need to understand if it means Apple might have to take out a license for OLED technology, or if Apple will be using a different display technology as they, again, start to do something that they've done in other areas for chips, bring that capability of design in-house.
But that's one name, Universal Display, that it has come down quite a bit since we first added to the bullpen, I think almost a year ago. And it's one that by the second half of 2023, a lot of these new products that were announced at the Consumer Electronics Show will probably be hitting shelves. So it's one that we're going to continue to watch through the first half of the year.
SARA SILVERSTEIN: And let's move over to the chip sector. Chris, talk us through that and the alert that we sent out just yesterday. What are we thinking?
CHRIS VERSACE: Yeah, so the chip sector, we have to keep an open mind on that, because we recognize that just generally speaking, chips are increasingly part of the fabric of our digital lives, right? They power just about anything and everything, from the devices that are allowing to do this with members today, to the smartphones that we have. They're found in our refrigerators, they're found increasingly in our cars and elsewhere. So we always have to keep a very open mind on here, but we also have to pay attention to the different end markets.
So right now, there's a lot of concern about continued excess inventories in PCs, weak demand for smartphones. That was all amplified by Micron when they reported their quarterly results right before the Christmas holiday. They actually see the PC and smartphone markets remaining weak through the first half of the year. So for that reason, we're kind of taking a very cautious approach.
I think on the last members call someone asked, hey, what would it take for you to get interested in the chip stocks? And here too, the answer remains the same. We are going to want to see the industry inventory levels stabilize.
That's when we'll know that the bloodletting is over and we could start to see fresh demand kind pull through. But I think we're going to get a lot of mixed messages in the near term. I alluded a few minutes ago that IDC doesn't see the PC market rebounding now until 2024. So I think we're going to have to really go data point by data point to uncover when the bottom is in.
Then we can start to think about adding back some of the chip companies. I think Bob and I have talked about this. Are we interested perhaps in a Qualcomm as it expands into the automotive market?
Possibly. Do we like Marvell because it's more infrastructure related with its end markets, not really tied to consumer? We think so, but we're not there yet and getting ready to make a move with those names.
SARA SILVERSTEIN: And what about Qualcomm in particular, Chris? How do you feel about that? One of our member is asking.
CHRIS VERSACE: So Qualcomm is a great company. They have, again, that very differentiated business model where they not only sell chips but they have the IP licensing business, which is extremely profitable. I mean, it really does account for quite a bit of its overall operating profits, cash flow, and its ability to continue to increase its dividend. So we really like that.
The issue here in the very short term continues to be overly wed to the smartphone market. And we know that there's a ticking clock on when it's going to lose the Apple business. So we have to make sure that the timing for the automotive business coming up is good, the timing of its IoT or internet of things business is big enough to offset any downturn from that Apple iPhone business. So we still have to put some more pieces into the puzzle so we have a clearer picture of when to act. And when we do, we will.
SARA SILVERSTEIN: And Bob, what. about you? What are your feelings on Qualcomm right now?
BOB LANG: Qualcomm is in a horrible downtrend right now. The chart looks horrendous. But eventually, the stock is going to bottom out here. And I think that I like to see a stock base for a long time.
There's a famed technician-- her name was Louise Yamada-- who once was quoted as saying, "the longer the base, the higher the space." And what that means is the longer the stock base is out and continues to have lows, test those lows and trades at a bit of a range, and then all of a sudden it starts to break out, it'll have a lot of space to move up to when it does finally break out.
Currently, right now, it's still in a downtrend. Again, if it goes sideways between here and $100, and $120 for the next couple of months out to March, April and we see the stock starting to break out again on some good volume, I'd be interested in taking a look at it. But right now, I think it's a pass.
SARA SILVERSTEIN: And Chris, what keeps you up at night? We want, I want everybody to be relaxed and enjoy their lives, but I kind of want you guys to be a little bit worried all the time about our investors. So what is it that you're really worried about this year as you look at the portfolio?
CHRIS VERSACE: So Jackie, that's a wonderful shift from chips to what keeps you up at night. I think you're channeling Andy Grove from Intel, "only the paranoid survive." And that's, unfortunately, the way we have to be in this volatile market. We're constantly, like I said before, thinking, rethinking, testing the data.
So the one concern that I have is that perhaps the economy is stronger than expected and we kind of have to game that through. Bob and I like to talk a lot of scenario analysis. If this, OK, what about this? And kind of weigh the probabilities. But, to me, that's probably the biggest concern.
Because it would totally append the prevailing narrative. And that, right now, is there's likely to be a recession ahead and there's some debate between what the Fed has said they're going to do, hold rates higher for longer. Most likely we're not going to see a rate cut till 2024.
If the economy is stronger, it probably means that the employment market remains tighter longer than expected. It probably means the Fed's fight inflation takes even longer. So that's something we have to think about and then weigh the probability for it.
SARA SILVERSTEIN: And Bob, what about you? What keeps you up at night?
BOB LANG: Well, what keeps me up at night is the volatility of the market right now and the uncertainty and the power that market volatility has to influence traders and investors to make the wrong decisions. What do I mean by that? I mean when people see supposedly a weaker CPI number like we had on November 10 and markets took off and went up 6% in one session, it was unprecedented. And it came right back down weeks later and burned a lot of those people who got in there.
So what keeps me up at night is that the people who are watching the markets aren't really paying attention to what's happening in front of them, rather just trying to guess and hope for something that's going to happen that may not happen. Look, I mean again, what happens to the markets these days is all liquidity driven and liquidity is being driven by what the Fed is doing and what they're saying. If they're saying something that's very different than what the market is interpreting, then I go back to what Marty Zweig once said, "don't fight the Fed."
So if we fight the Fed, we're going to lose. So what keeps me up at night is people are not in sync with what's happening really with the market and they're going to get burned. What Chris and I have tried to do is take a much more tactful way of following the markets and following the Fed.
We pay attention to what they're saying and what they're doing at the same time. And that allows us to give us the freedom of finding and stock picking among a lot of choices out there, but also keeping on that protection and keeping heavy cash right now. Someday that's going to change.
Someday we're going to have a lot less cash. We're going to have a lot more positions, we're going to have a lot more risk out there. But right now, it's not the right time to do that.
SARA SILVERSTEIN: Great. Bob and Chris, thank you so much for your time today. I really appreciate it. That is the bulk of what we needed to cover for the call.
I want to take a minute to Thank Bob and Chris for getting us through an incredibly difficult investing year. That said, I am very excited to announce some changes coming to AAP that should make 2023 better regardless of what the market does. Chris Versace is going to be stepping up as our Lead Portfolio Manager and we're going to be expanding our portfolio team.
This year, AAP subscribers will also get insights from hedge fund manager Doug Kass, Helene Meisler, who was the first ever market technician at Goldman Sachs, Carly Garner, Steve Guilfoyle, many of him as "Sarge", Bruce Kamich, and many other big brains behind Real Money and Real Money pro. And of course, Bob Lang will still be a vital member of our portfolio team, but you will also be able to find Bob on Real Money where he'll be expanding his coverage beyond technical analysis and unleashing his options expertise. We will send an email explaining all the changes.
And as always, please don't be shy about sending me your feedback as we expand our content and resources. We definitely want to hear from you. What serves you, what works for you and what doesn't. You can email us at firstname.lastname@example.org. Thanks so much for joining us.