Daily Rundown: March 6

J.D. DURKIN: Good Monday morning, members. Chris Versace and I are back to get ready for the big week ahead. But as always, let's first begin with a rewind to some of last week's biggest moves. Chris, let's start with a bit on McCormick. After a series of trims last week, you ultimately downgraded the stock to a 4 signaling a full exit as ahead.

Talk to me. What ultimately led to that kind of decision? And what kind of timeline are you looking for with regards to selling out of the name altogether?

CHRIS VERSACE: Yeah, so we kind of telegraphed this move as you alluded to. And we were using McCormick shares really as a source of funds. And to be honest with you, I was really hoping to do this at a higher price point. We had kind of signaled 77, 78, 79. But it just doesn't seem like the shares are going to get there.

At the same time, we saw a number of other portfolio positions with arguably much better reward to risk trade offs kind of come in. And we felt rather than wait, let's be opportunistic. That was really the genesis for it. And as we've kind of whittle the McCormick position down right around 1%, let's be honest. 1% position over the long term is not going to move the portfolio very much.

We're inclined to get out. We just figured, let's do this. Let's get ahead of it. Let's downgrade it to a 4. Be done with it. In terms of how long we're likely to hold onto the remaining shares, I don't think we're going to be exiting the full balance of the position this week. It's going to be a very volatile week.

I'm sure we'll talk about it in a minute. But we could wind up using the funds slowly but surely over the next week, two weeks, maybe three weeks. But I would say closer than not.

J.D. DURKIN: Volatile, this week. In the markets? Never. All right, after much anticipation you also upgraded Marvell up from the bullpen. Obvious MCU jokes aside here, my friends, why was the timing finally right there?

CHRIS VERSACE: Well, consider what I just said about why we opted, right, to shift from McCormick to some other names, right? We we're looking for favorable reward to risk trade offs in these names. And, look, we realize that it's very, very challenging to bottom tick any trade, let alone in every position.

So we sat back and we said we know that we're going to continue to see data creation, data consumption just continue to grow. It's going to tax the digital infrastructure that we have, drive incremental demand for data centers. And we're pretty much driving continued growth over the long term for all of Marvel's end markets.

So we kind of sat back and said, look, we could see downside of a couple of dollars. But we can see upside to around $52. Geez, this is a great point to start a small position using weakness to kind of backfill in. So that was the plan that we communicated with members. And that's exactly the strategy that we're going to follow with this new position.

J.D. DURKIN: Chris, we love talking ChargePoints. So let's do it some more. That company left many members concerned after a bit of a disappointing earnings. Can you explain why you still believe in the EV theme overall? And why ChargePoint is the stock to watch rather than any other competitor?

CHRIS VERSACE: Sure. So first of all, let me just say, look, I too was very disappointed by ChargePoint's, not only their December quarter results, but really the guidance for the current quarter. And as I pointed out in the note to you, members, this was the second time that we've seen this.

So clearly we are going to be a little more careful with this position than we have been in the past. Having said that, when we look out at the EV charging space and even the EV space in and of itself, there were more about more than, I think, 800,000 EV sold last year. Others prospects for about a million to be sold this year and continuing marching towards that ultimate swelling target in 2030.

However, when we take a look at some of the datas out there, whether it's JD Power's, Bane, what have you, there's roughly 54,000 or so chargers out there, EV chargers, let me be clear. Clearly, we're seeing the rate of EV growth dwarf the rollout of EV charging stations. That's the opportunity that we're trying to tap into here with ChargePoint.

And in terms of why ChargePoint? Well, when we first added the position to the portfolio, we noted that they had the best balance sheet out of any of the EV players out there. That tells us that they've got the runway that will enable them to get to the point where we see this inflection point in EV charging sales particularly as Biden infrastructure law spending ramps throughout this year and increasingly so in 2024.

J.D. DURKIN: It's just great context to an answer like that because you work in a lot of different angles. And I think that's great perspective for our members. Of course Chris, before we take a look ahead, I like asking you this question. Is there anything from last week that you wish you could change or perhaps do a bit differently?

CHRIS VERSACE: So, you know, let's get back to our question that you had, J.D., on McCormack. Right? So we were trimming it back. We were wading into a number of different positions, everything from Vulcan Materials, Excel E, El Advance, we also did some American Water Works, Chipotle, and one or two others. And, of course, we brought Marvell up into the portfolio as well. So quite a bit.

But if I had room to make one more trade last week, it probably would have been into the shares of Verizon. They've come all the way back down near where we last added them. And at the current level, they've got that really, really compelling dividend yield. So that might be something that we think about doing as we continue to unwind the rest of those McCormick shares.

J.D. DURKIN: Of course, we'll have the Jobs Report coming up later on this week, the first since the 517 day. I think that safe we can just call it that. We all know what we're referring to. Anything in particular that you will be watching, my friend?

CHRIS VERSACE: Well, as we go through the week, we're going to get a lot of touch points on the job creation during the month of February. We'll get ADPs numbers on Wednesday. And then, of course, we get the big employment report on Friday. And I, just like everybody else, there'll be a couple of things that we'll watching. The first, of course, is going to be the pace of jobs that were added during the month.

Clearly, they've been hotter than people were looking for in December and January. If we get another hot number that's more likely than not going to kick up expectations for GDP for the current quarter even further. That could lead the Fed to say, you know, we can do a little bit more at that March meeting, perhaps tipping expectations to 50 basis points from the current 25 basis point rate hike thinking.

But that was just one thing. Two other things to watch, the unemployment rate. It's been very, very low. If it ticks higher that might give some breathing room to what the Fed might have to do. But the third thing that we're going to really, really watch for is going to be wage inflation.

We know that's been a pain. We hear that employers continue to struggle to find qualified workers. Suggesting, yes, there is wage inflation pressure. Now we're going to see how much.

And once we have all three of those data points, we'll be able to triangulate a lot more on what the Fed is likely to do.

J.D. DURKIN: We know investors will be closely watching for those numbers, 8:30 AM on Friday. Before we wrap up here, any other data points that you mentioned? I know you mentioned ADP there on Wednesday. You did a great job breaking down the top three things to watch for the Jobs Report.

Anything else that you're following that you think our members might want to tune in for?

CHRIS VERSACE: Well, look, there's little question that the market, of late and in the near term, is going to continue to be driven by the Fed. That means that we simply have to pay attention to Fed Chair Powell tomorrow when he starts his two day semiannual testimony in front of lawmakers.

And, look, we, along with everybody else, are going to be listening to what does he say about the pace of the economy, how strong it is, can it continue to make its way through additional rate hikes? But we're also going to want to look for signs, again, is it 25, is it 50 coming up? But the other thing we're going to want to listen to, is what could the terminal rate for the Fed funds rate look like as we move through the balance of this year?

However, do I expect Powell to willingly give a lot of clues? I do not. And I say that because we do have the employment report coming up. And then next week, we've got the February PPI and the CPI. So a lot more data. And I suspect that Powell is going to want a little wiggle room with what the Fed ultimately does.

CHRIS VERSACE: Yeah, market expectations are from 5 and 1/4 to 5 and 1/2 right now for that peak Federal funds rate. Before we wrap up anything else you would like to share with members, even if it's just a friendly, hello?

CHRIS VERSACE: Well, hello, members. If you've got any suggestions for good books, good recipes, send them in. But in terms of the portfolio, the other thing that I'll be keeping my eyes on this week are COTY shares. Over the weekend, China came out, and they said that their 2023 GDP growth forecast will be around 5%.

That's a little bit less than what the market was looking for. And if we see our COTY shares come in, this could be a great opportunity to build up the portfolio's position.

J.D. DURKIN: Chris, thanks for joining us. As always, have a great week.

CHRIS VERSACE: You too, J.D. My man, go get them. All right, and members, just a friendly reminder that our next live members call is this Wednesday. So please tune in at 12:00 Eastern for a full breakdown of the rating system as well as just a few of the stocks that you've been asking the most about. Have a great day. We'll see you later.