Daily Rundown: March 22

JD DURKIN: Good morning, subscribers. One and all Chris Versace and I are now back with answers to some of your biggest questions of the week. Chris, nice to have you here. We have a ton of position-specific questions to get to. But I do want to kick things off first with a little bit of education, if we can. What do you consider, Chris, a good margin on EBITDA?

CHRIS VERSACE: Wow, that's a really interesting question because we have so many different industries that are out there. If we take a look at ones like software, for example, where you're able to monetize the IP consistently with each incremental sale, we want to see something kind of lofty, if you will, in that 50% to 60% range. But when we look at other companies, say retailers, that can have-- or even grocery stores, in particular, that can have very thin margins, we're looking something in the low single digits potentially, maybe slightly higher than that.

So it's very hard to give a catch all answer because it really varies industry to industry. Having said that, though, JD, what we do like to see is improving margins. Whether it's operating margins, gross margins, or yes, even EBITDA margins, that tells us that a company is being able to squeeze more profits out of its revenue. We, of course, like that because it tends to drop to the bottom line.

What we don't like to see, conversely, is shrinking margins. That can be a signal that either something is wrong in terms of pricing. It could be the competitive landscape is tightening. So those are some of the general ways that we tend to think about, not just EBITDA margins, but margins in general.

JD DURKIN: Over now to our newest position. Why is Bank of America rated, Chris, as a 2, when it's still trading around where AAP made the original purchase? And if members did not follow you into the trade, should they still buy the stock at this point, you think?

CHRIS VERSACE: So let's take them in reverse order. I would say yes, if you haven't picked up BAC shares yet, then you absolutely should around these levels. As far as why we opted to start the position with a 2 rating, in our note where we were really laying out the thesis, the valuation work, we pointed to upside to our price target. But we also said that given the environment last week and what we saw going into the weekend and likely some more ripple effects with the recent bank failures, we were concerned about downside at around the $26 to $27 range.

Now, in the last few days, we've got a little more clarity. We've seen some other actions that tend to say, hmm, it looks like the worst is indeed behind us, especially with the Treasury continuing to examine other ways to shore up the industry. This to me says that that downside, that 25, 26 that we alluded to, maybe even 27 in that note last week, the odds of that are probably coming down. That has us thinking that we're probably going to revisit our rating on Bank of America shares.

But we also have the Fed meeting later today. And I really don't want to step in front of that, potentially get whipsawed if Powell says something that we're not expecting that pressures the market. So I think in the next couple of days, members shouldn't be surprised if we start to rethink that rating and maybe one or two others in the portfolio as well.

JD DURKIN: Chris, it wouldn't be a rundown without at least some mention of, of course, ChargePoint. You and I love talking ChargePoint. Remind us why you're sticking with the name despite its recent pricing decline and performance, compared to some of its peers.

CHRIS VERSACE: It's a great question. And again, I feel like we've touched on this a number of times. But let's try and peel this onion one more time. And for us, the entire thesis here is the rising demand for charging stations, not just in the next few weeks or the next few months, but really over the next several years, as we see both public money and private money continue to fund the build-out of this national charging network.

And as a reminder, ChargePoint's business is not just here in the US, which is great, obviously, given what we're seeing with the various stimulus bills coming out of Washington, but also in Europe as well. But this is the thing, JD. I know I sound like a broken record to members. However, the data that we continue to get points to this rising adoption of EVs and the growing need for EV charging stations, not just for passenger vehicles but also for a variety of other vehicles, everything from buses to heavy and medium duty trucks.

So there's a lot of building demand for this. If we didn't see that, then I would probably be revisiting our position on ChargePoint. But so long as we continue to see these confirming data points, we're going to continue to stick with a long-term view.

JD DURKIN: Let's talk United Rentals while we can. Why have they been trading like a growth stock? Why has the company, I should say, been trading like a growth stock in recent weeks, URI?

CHRIS VERSACE: Well, when we take a look at URI, it's really one of the key beneficiaries of the Biden infrastructure law, the Chips Act, as well as the Inflation Reduction Act, with all the nonresidential building that is going to be happening. And we recently added to the shares because they did kind of pull back rather hard last week, which I attribute more so to questions surrounding the recent bank failures. What might that do to loan activity in the short term?

However, as we pointed out in a note yesterday to members, coming out of CONEXPO 2023, the big construction trade show, all the commentary was rather positive, reinforcing our stance on URI shares. So I'm glad that we picked up shares of URI last week, as well as Vulcan Materials, which can also benefit from all of what I just said.

JD DURKIN: Let's talk Clear Secure. Do you think that name has finally bottomed? And is there a catalyst, do you think, behind any of the recent selling we've seen?

CHRIS VERSACE: So it's been a challenging market over the last week, two weeks, given everything that's unfolded, no question about it. And a lot of names have gotten hit. Remember, too, that small cap stocks in particular were hit very hard. We saw that with the sharp pullback in the Russell. However, when we look at Clear Secure-- and again, we will always stick to the data. The TSA Travel data continues to be up strong, year over year. Commentary out of United Airlines, one of Clear Secure's partners, recently said that it sees the current travel demand strength continuing, not just in the current quarter but into the second quarter as well.

That's positive. So with that footing, the catalyst I think that we need to see from Clear Secure is more of what they've been doing over the last year. And what I mean by that is announcing new partners, particularly for airports. Remember, they're in the top 50. They continue to target the top 75 in the US. That likely means we've got several new announcements in the coming months as well. And I think that will be one of the catalysts that kind of spurs the shares back into action.

JD DURKIN: All right, let's conclude here with a look at AMN Healthcare Services. We have one member, Chris, wondering why you are keeping the stock at a 1 or a buy now rating. Talk to us about the thinking behind that.

CHRIS VERSACE: So AMN, kind of like ChargePoint, I know it's one of those lightning rod stocks. So I want to take some time to really break it down. And one of the things that we always try to say to members is you-- we, need not be emotional when it comes to these names. We don't want to be emotionally tied to it because we make bad decisions.

And when you look back, we have been talking quite a bit about AMN and the long term thesis. However, we did sell shares back in November, I think around 126, which was a great trade for the portfolio, no question about it. But since then, even though we haven't seen any change in the JOLTS data, we haven't seen any reversal in the number of headlines regarding either nursing shortages or even doctor shortages or patients, consumers having a long road to get into an appointment because of the health staffing shortage, and then shares have fallen around 32%.

Now, to us, that's a mismatch in what's going on. And what have we done? We've carefully picked up AMN shares around the 103, 104 level, the 95, 96 level and more recently between 84 and 88, trying to take advantage of that pull down in the share price, again, which is diametrically opposed to what the fundamental data continues to tell us. So from our perspective, we will remain listening to the data. And so far, it continues to support the thesis. I guess the fair question would be, Chris, what would it take for you to reverse course on AMN and contemplate perhaps throwing in the towel?

This is something we think about all the time. And first and foremost, it's going to be some dramatic shift in that monthly JOLTS data. The second, of course, would be a reversal in all the headlines that we're seeing regarding the nursing shortage out there. Candidly, just given what we've seen in the last few weeks, do I see that on the horizon? I do not. But we will always keep an open mind, always reexamine the data as new, fresh data becomes available. And we'll do the prudent thing for the portfolio.

JD DURKIN: All right, the one and only Chris Versace, thank you very much. Nice to have you.

CHRIS VERSACE: Thank you, JD.

JD DURKIN: Members, to those of you watching at home, please continue, as always, to send us your questions. You could do so by sending those questions on over to aapclub@thestreet.com. and as one final programming note for all of you watching at home, keep your eye on your alerts this afternoon for Chris Versace's full breakdown of today's FOMC decision. Happy Fed day, one and all. Have a great day. We'll see you next time.