Daily Rundown: February 8

CHRIS VERSACE: Good morning, members. In today's Rundown, I'm going to share with you some data points and other nuggets from companies outside the portfolio that I've been watching, and what they mean for our holdings. Let's start first with engineering and construction company Jacobs Solution.

As I noted in Alert to you yesterday, Jacobs shared wonderful results, really confirming our thoughts about infrastructure spending. In particular, what they said to me that stood out was that they see four years of locked in infrastructure spending. What's driving this of course, is the infrastructure law, the Chips Act, and the Inflation Reduction Act. Simply put, it's another positive data point for our shares of both United Rentals and Vulcan Materials.

And it not only speaks to the high degree of visibility over the coming years, but also the improving operating leverage that we're going to see at both companies. To that, we can add the positive comments from President Biden in the State of the Union last night when he was talking about infrastructure spending. All of this sets the stage for a positive earnings report from Vulcan Materials next week.

Now, we recently added to the VMC position in the portfolio near $180. And in our view, that's a great place to pick up the shares. Now, let's move over to a club holding that we're watching. And that's the shares of the First Trust-- sorry-- NASDAQ Cybersecurity ETF. Boy, members, that sure is a mouthful. Let's just call it "cyber" for short.

We saw strong earnings from two constituents, both Fortinet and Tenable. And those are key holdings for the cyber ETF. Fortinet is the second largest position. Tenable is another Top 10 holding. So, what did we hear?

Well, Fortinet delivered solid results and they raised their 2023 outlook above Wall Street's expectations. Solid guidance and deferred revenue continued to climb. This was something that I highlighted in a recent rundown with Katherine Ross earlier this week. In response, what are we seeing?

A number of cybersecurity stocks are moving higher. All-in-all, what we heard really affirms our view that even as companies examine where they can cut costs, they will continue to spend to protect their crown jewels. Now, in terms of cyber shares, they are in the red on a year-to-date basis. And as we're continuing to get positive confirmation for our thesis, which I just mentioned, we're likely to circle back on these shares, looking to add to the portfolios position.

Now, let's take a beat and check in on the consumer. Last night, VF Corp gave us some rather disparaging news on the consumer as it reported only modest progress on destocking its inventory. Exiting the quarter, its inventory was up about 100% year-over-year. This morning, we also had a missed quarter, as well as downside guidance from Capri holdings, citing a challenging environment, and, yes, channel inventory issues.

Now, we've been cautious on retailers. And in my view, these reports say that we've been on the right path. We also saw consumer credit ballooning further in December. That tells us that retailers are going to continue to have a difficult time, particularly full price retailers.

Adding to that, VF Corp also cut its quarterly dividend by 40% going forward. And dividend cuts are not to be taken lightly. They tend to signal other issues that are either with a company's business or its cash flow prospects. And finally, sticking with the consumer, we, of course, have to talk about those disappointing earnings from Chipotle.

Setting the stage for that report that we got last night, we have to remember the shares were up 26% over the last month. So expectations were high. And yes, it had to deliver a stellar quarter. But, as we just discussed, the consumer has been frugal. Something we have been seeing as well in recent monthly retail sales report.

So, Chipotle, yes, they missed the top and bottom line that were expected. And we're seeing that in the stock price this morning. However, there are three reasons that we continue to stay bullish on the longer term with Chipotle shares. First, margin's really, really nice improvement on a year-over-year basis confirms the operating leverage that we've been looking for.

As food prices start to come down, nice deflation happening. And the one, two benefit of that paired with the pricing action that the company took in 2022. We also saw a nice rebound in their comp sales during January. Fourth quarter was around 5.6%. Nicely higher so far in January. And the company guided the first quarter around high single digits.

So, a nice improvement there. But more importantly, too, as we shared with members in recent weeks, one of the key points in restaurant stock is the story of increasing the footprint. And the company is going to do that. Actually, accelerating the number of new locations in 2023 compared to 2022.

Now, we talked all about these three points in our Note to Members earlier this morning. Please check it out. We went into far greater detail than I just did now. However, that combination of three things is leading to some price target increases this morning.

Nice to see. But from our perspective, we're going to continue to hold our price target at $1,850 for Chipotle shares. We'll see where they settle out after today. And if they approach the $1,625 level, that would be very interesting to us, and it should be interesting to members as well. We do have room to add to the position. And that might be an area where we look to do that.

That's our Rundown for today. Thanks for joining us.