Daily Rundown: April 5

JD DURKIN: Good morning, subscribers, one and all. Chris Versace and I are back now to answer some of your biggest questions of the week. But before we get there, we are hot off of yesterday's live call. Chris, let me open the floor and start there for our conversation.

Any favorite moments of yours to share for anyone who may have missed the live call?

CHRIS VERSACE: Well, you know, JD, it's always fun to spend an extra amount of time with members once a month kind of sharing the big thoughts as it were and touching on some of the big questions that they have regarding the portfolio moves we've made. So it's always good fun. But if I had to single out one particular thing, I would have to say it would be the conversation we had about understanding risk versus reward as we think about each position, about how we think about adding new positions, and potentially where we're going to either mine profits or work our way out of a position in order to move into a new one.

JD DURKIN: And if you did miss the call, those of you at home, a full replay is available if you head on over to the Video tab from the AAP home page. You do not want to miss it. Thank you for that response there, Chris.

We have had a few members asking why AAP chooses some stocks over others if they're in the same sector. So let's begin the conversation there with one of your favorites. Why Chipotle instead of another fast casual chain? I assume it has to do more with the fact more than you just like Chipotle, which I know you do.

CHRIS VERSACE: Well, I do like my burritos. Anybody who watches me on Twitter certainly saw that. So there are a couple of reasons why we like Chipotle in general. It is, yes, in the fast casual space. And we do continue to see consumers that are dining out, trading down away from casual dining or more formal sit down dining into fast casual.

But the key here for any of these businesses is continued geographic expansion. And we do have that ongoing with Chipotle. But Chipotle also leans into better for you ingredients. It's not, quote, "fast food" that there's a lot of concern about.

But the other thing, too, is how they continue to goose the menu with these limited time menu options. And again, that's kind of what I taste-tested last week on Twitter, the Chicken al Pastor. And I encouraged AAP members to give it a whirl because it was very delicious. So those combination of factors, as well as the fact that I think they're going to continue to benefit from 2022 price increases turning into margin levers, something I discussed on yesterday's AAP March Monthly Call, I think that's going to also be another beneficiary for the company and for our shares.

JD DURKIN: And why go with Mastercard instead of Visa or another comparable credit card?

CHRIS VERSACE: So that's a great question. You know, they are number one, number two in the payment processing space. Candidly, could you go wrong owning one or the other? Probably not. But as for why we prefer Mastercard, a couple of things.

Particularly over the next few years, they're poised to have faster top line growth and bottom line growth that should drive greater multiple expansion. They also have a greater exposure outside of the US for their overall revenue stream. And again, with China reopening particularly on the services side of the economy, that should be an added bonus for Mastercard shares.

And then finally, when we look at their margin differences, we see incremental room for Mastercard to expand its margins, focus on cost cutting as those revenues grow, getting a lot of more incremental leverage compared to Visa. So those are some of the reasons why we like Mastercard over Visa.

JD DURKIN: All right, well, objects in the rearview mirror are larger than they appear for the next question. How about Ford versus General Motors, Chris?

CHRIS VERSACE: Wow, this is a great question. And it's very relevant because I think in the last 24 hours we've gotten some, what I would say, misleading headlines about GM overtaking Ford in the EV space during the month of March. Remember, that Ford has idled some of the production particularly for their Lightning products as they deal with recent battery issues. They've started production back up. And I think that's going to course correct.

But to us, it's the larger footprint. It's the greater focus on EVs. GM had been focused a little more on Autonomous driving, which again, is something that we'll likely see happen, but not for several years. So for those reasons, again, we'd rather stick with Ford. But again, both companies are going to benefit from the rising tide of the overall EV market. Both will see their businesses transition over. And both should see multiple expansion.

As that happens, our preference just happens to be with Ford.

JD DURKIN: All right, so let's conclude here on a subject that you also hit on in yesterday's live show for members. Can you explain the timing behind the AMN downgrade. What should people know here, Chris?

CHRIS VERSACE: So I think it's important to kind of step back and understand that there's always a lot of different data points that we want to focus in on for any one particular company, right? There's no one silver bullet, as we like to say. We like to triangulate, whether it's the data that supports our investment thesis, supports our price targets, and informs us on risk to reward in a position that influences its rating. So those are table stakes for what I'm about to say.

So with AMN shares, when we've been monitoring one particular set of data, that would be the monthly JOLTS report, we look back in November, December, even January all pointed to extreme tightness when it came to health care and social services. And that tightness refers to the number of job openings divided by the number of job hires. However, yesterday we got the February data and we saw a noticeable change.

And whenever we see a meaningful change in the data, we have to sit back and take stock of what it is trying to tell us, right? Our goal here is always to listen to the data, not superimpose what we want on the data. When we do that, we tend to make a lot of mistakes. And I am speaking from personal experience on that, but I've also seen others make that same mistake as well.

So whenever there's a noticeable change in the data, it's time to reflect and reassess. And as I pointed out in the note with that particular market that is the key end market for AMN, with it not being quite as tight, odds are there's going to be some downward pressure on contract rates. That led us to really revisit the coming couple of quarters for AMN. Now, do we continue to see a nursing shortage?

We do. But odds are that the number of contracts that they have, and again, those rates, which help drive revenue, are probably going to be softer than expected. That led us to make our move changing not only our rating to a 3 from a 1, but also cutting our price target from 138 to 100. And again, I commented when we did this that we would probably see other people follow suit. And indeed, we're seeing that today.

JD DURKIN: All right, the great Chris Versace. Thank you as always, Chris.

CHRIS VERSACE: Thank you, JD.

JD DURKIN: Members please continue sending us all of your questions aapclub@thestreet.com. Have a great day, and we'll see you next time.