JD DURKIN: Good morning, subscribers. And just like that, somehow, impossibly, yes, it's true, it is already Thursday, or Friday Eve, as I like to call it, which means Chris Versace is here with me to help answer some of your most pressing questions for the week. Chris, good morning.
CHRIS VERSACE: Good morning, JD.
JD DURKIN: Nice to have you here, as always. But for you at home, if you are looking for the latest news on fourth-quarter GDP, URI, Mastercard, and McCormick, please check out your Alerts, where Chris has all of that and so much more broken down for you, because he's a total pro. That's what he does.
All right. Let's get right into it with a general question here, Chris, about how the portfolio itself is managed. When it comes to the number of stocks that the club ultimately owns, do you have a target total number? As of today, AAP owns 29 stocks. What goes into that decision?
CHRIS VERSACE: Well, we try to balance it based on some simple math. We want some meaningful exposure. We also want room to build up newer positions and potentially let some of our winners work for us and run. So simple math says if we have 100%, we divide by 4% on average. That's the position size we'd like to max out at usually. That's about 25 positions.
So when you look at the portfolio, do we have some that are approaching that? Yes, we do. But do we have some newer names-- Clear Secure, for example-- do we have a smaller position size, Lockheed Martin and others? Those are the ones that we're looking to build up. And over time, it does mean that as other companies move past 4% or the investment thesis has to change, we'll be harvesting those to make room for newer names, some of which are in the bullpen.
JD DURKIN: Absolutely. So we've spent numerous rundowns here discussing the state of the overall economy and how the portfolio has prepared for a potential recession. We haven't really talked about utilities in quite a while. One member wants to know, Chris, if utilities should be performing better if the economy is actually headed for a recession. What do you make of a question like this?
CHRIS VERSACE: So we have to take a look at historically when utilities have outperformed. And yes, during past recessions, they have. So it is something that members might want to take a look at. We certainly will. But we also have to remember, though, the big move that we've seen in the Fed funds rate, and therefore, interest rates. So the notion that the TINA trade, or There Is No Alternative, is no longer valid, this could weigh on expectations for utility stocks, particularly those that their dividend yields might be below new savings rates.
JD DURKIN: I do want to move on to some individual names here if we can. Can you see any risk to Ford, and more derivatively, ChargePoint? We talk about ChargePoint quite a bit from the increase in auto financing costs. What should we make here?
CHRIS VERSACE: So if we were just looking at traditional autos like we would any other time in the past, I would say, boy, that would be a potential headwind along with rising consumer debt and some other factors that have us concerned about consumer spending. But coming into 2023, we have the EV tax credit.
And I think that is going to help offset some of those pressures as individuals continue to lean into EVs, but also too, as companies lean into not only EVs, but also electric trucks of various sizes from the kind that UPS use to larger ones manufactured by companies like PACCAR and Navistar. So I think all in all, the tailwind remains.
And I think that is going to help push the EV transition at Ford. And, of course, the more EVs we have on the road, the greater the EV charging pain point. That's good for our shares for ChargePoint. And we had great confirmation of that last night from Tesla. They're looking to do something like 1.8 million vehicles this year, up from around 1.33 million, 1.34 million delivered in 2022.
JD DURKIN: Yeah, pretty strong fourth-quarter results, all things considered. To the point about that EV tax credit, it's about $7,500, if I'm not mistaken-- not to put you on the point, though, necessarily, but I think that's about correct, right? I mean, that's really been something that's been heavily debated in the hallways of the Capitol for quite some time, at long last finally getting it done.
CHRIS VERSACE: So I know you focus very, very closely on the second Sin City that I call Washington, DC and what happens in and around there, DC. And I would say that yes, you are correct.
JD DURKIN: There we go. When it comes to ChargePoint specifically, Chris, how important are its charging stations themselves? And your overall thoughts around the name? Some members have expressed a bit of concern that ChargePoint has less fast charging stations, fewer of them, than some of its competitors.
CHRIS VERSACE: So what I would say to that is that's roughly true, but that's also kind of backward-looking. So we have to look at the deployments ahead as well as the dollars for fast charging versus other speeds and modalities of charging that are going to be, let's say, hastened along as a result of the Biden infrastructure law. So I'm not too concerned about ChargePoint's position. If anything, I think they'll catch up as they continue to build out their footprint.
JD DURKIN: I do want to ask you about the Volta component about all this, because you touched on it a bit when the news came out. But remind us what you think about Shell's acquisition of Volta and what it may mean, actually, for ChargePoint.
CHRIS VERSACE: Yeah, it's a great question. So whenever we see M&A happening, there's a couple of reasons, usually, behind it, particularly when a company, not private equity, gets involved. Typically, companies are looking to shore up some gap or hole that they have. It could be a product. It could be a technology. It could be a geographic footprint.
But in the case of Shell and, I suspect, potentially other oil companies and gas companies, particularly those that have a strong footing in gas stations, they're sitting back and watching this EV revolution happen, recognizing that at some point, there will be a tipping point, if you will, for gas station demand. So how do they shore up their position in EV chargers?
Well, they could, of course, go greenfield and start building these out on their own, or they could use M&A to do that. I think that's exactly what's happened with Volta. Having said that, remember too, Volta had a very weak balance sheet. And I wouldn't be surprised, given the valuation, if that was a little bit of a sweetheart deal. But again, typically whenever we see this type of M&A happen, generally speaking, it becomes a game of musical chairs. So I wouldn't be surprised if we see another EV charging company get taken out at some point in 2023.
JD DURKIN: Chris, of course, we know that a deer and a bull are not the same animals, but I do wonder if you are bullish on Deere, meaning John Deere. What are your thoughts?
CHRIS VERSACE: So yes, we continue to remain positive on John Deere. Remember, the thesis here is rising farmer income fostering the upgrade cycle for old ag equipment. But at the same time, given the continued decrease in arable land, something I think you and Bruce Kamich talked about last Friday when you spoke with him, the arable land continues to shrink. So we need to be more productive. And I see that fostering the upgrade towards precision ag equipment as well.
The one thing we tend to watch month to month is going to be key ag commodity crop prices and production levels. And so far, it looks like for the coming season, production levels are going to be a little lighter than previously thought. That's a positive for those commodity prices, therefore a positive for farmer income.
JD DURKIN: Absolutely. Individual names may not be for every investor, so there might be some interest in ETFs. And for new members who haven't yet added any ETF, do you have any recommendation, Chris?
CHRIS VERSACE: Well, we like ETFs in some respects because they give us rather broad-based exposure. Most notably, we've done that in cybersecurity with the First Trust NASDAQ Cybersecurity ETF, symbol CIVR. And technology stocks have gotten beaten up, but doing some homework on this, as we move into earnings season, it's interesting to see that deferred revenue at cybersecurity companies have continued to increase throughout 2022. This is despite concerns about, again, spending, cutbacks, layoffs, that sort of thing.
And I think that cybersecurity is going to continue to be a shining point as we move through 2023. A lot of the survey work and stuff that we've read and even looked at pretty hardly seems to suggest that cybersecurity spending is going to rise 11% year over year. Typically, these numbers play out to be conservative. So that would be the very first one in terms of ETFs that I would take a look at. And we'll continue to examine others in the portfolio, again, for more broad-based exposure.
JD DURKIN: All right, Chris. Before I let you go here, my friend, I do want to finish with a stock that still remains pretty top of mind, I think, for a lot of members. Why does AMN Health Care seem to have double the P/E of its peers? What's going on there?
CHRIS VERSACE: Yeah. So typically when we look at sizing up different P/Es for different companies, there's a variety of factors that we have to take a look at. One is the pace of earnings growth, overall profitability, the balance sheet. And I think when we size up AMN against some of those competitors, these are some of the things that we find. The other thing we like is consistency of earnings.
One other thing I'll point out is that AMN is-- and we've talked about this in some recent notes-- AMN is moving down the path of growing its technology solutions as well. That diversifies it a little bit from other players in the space. And that business tends to get a higher multiple. So when you take a more blended approach, that helps explain some of the differential as well.
JD DURKIN: All right, folks. That is going to do it for this round of member questions. Thank you for your answers, Chris. Great to have you here, as always.
CHRIS VERSACE: Thank you, JD. Always happy to do it.
JD DURKIN: There you go. All right, folks. Subscribers, to you watching at home, please keep sending us all of your questions to firstname.lastname@example.org. And I will be back tomorrow to share a bit more perspective from AAP member Doug Kass. Thanks joining us, and we'll see you then.