JD DURKIN: Good morning, subscribers, one and all. Chris Versace and I are now back to answer some of your biggest questions of the week? Chris, good morning. Thank you for being here, and thank you for being willing to answer said questions from members. Nice to have you.
CHRIS VERSACE: Always happy to answer member questions, JD. Happy Wednesday to you. Happy hump day to members.
JD DURKIN: To one and all, let's begin with a note on the latest holding to report earnings. Chris, how are you feeling this morning about the report out from Elevance? What should we know?
CHRIS VERSACE: Well, let's talk about two things. The first is the report in and of itself. Great revenue growth, great earnings growth year-over-year. I think the company is going to continue to signal it's expanding its Medicaid-Medicare footprint, i.e. continuing to grow that revenue stream.
They've also had nice cost containments. We saw that on the year-over-year improvement on their margins. So, all in all, I like their report. It appears that, as we're chatting, however, the shares are trading off. I think that's a little concerning to me because I think the market's misreading the opportunity here.
Remember, as we have concerns over the pace of the economy, if it holds up better than expected, well, that means that things are going to continue to go Elevance's way. However, if the economy slows, I think investors will be looking for a safer-haven name, like Elevance. So we're going to take our time, digest the comments that we pick up from the company's earnings conference call, most likely revisit our price target, and keep our one rating intact.
JD DURKIN: All right. Let's get some thoughts on portfolio management. Chris, when making decisions, how do balance the potential for short versus long-term gains? And, of course, how do you balance the considerations vice versa?
CHRIS VERSACE: Right. So we tend to have a rolling 12-to-18-month time horizon on average. With some positions, it's a little longer-- case in point, a ChargePoint, or even a Marvell. What we tend to use-- the near term call it the next couple of weeks, next couple of months, where we look to build out our positions.
Remember, we tend to start small. Our preference is to increase the size of a particular stock's exposure in the portfolio below the cost basis. So we continue to improve that for members, giving us better upside prospects. But there are times when stocks do move rather quickly in the short term, and we've used that to book some profits, particularly if the exposure to the portfolio tends to get what we call outsized.
And by that, I mean north of 3 and 1/2%, somewhere in that 3 and 1/2% to 4% range. We've done that with PepsiCo a few different times, and I suspect that we'll do it with some others that might be above 3 and 1/2% and have had, of late, a particular strong run.
JD DURKIN: Chris, we've gotten a few questions on price targets over the past few weeks, and you've recently trimmed AAP's position in Microsoft when that stock passed its 2.65 target. Using that as an example, Chris, can you better explain how to use price targets and what actually happens when a target is reached?
CHRIS VERSACE: Right. Yeah. I'm very happy that you're asking this question because this has been a big one that we've been getting in a variety of emails. So when we think about Microsoft and its 2.65 target, that really reflects the overall nature and prospects for the business.
That's everything from the cloud business to the PC facing business. However, what have we seen lately? We've seen this with NVIDIA. We've seen this with other stocks relating to AI, that a lot of these positions tend to get significantly ahead of themselves.
Now, with Microsoft, there is the potential for it to pick up some marketshare against Google in search as it overhauls Bing, leveraging AI, and we're waiting to see some proof points on that. I think in a recent roundup, we shared that, at least for the data from March, Google continues to hold its own, with around 92%, 93% search share on a global basis.
So Microsoft hasn't made those inroads yet, but we're waiting to see the data that says that, mm, maybe they are. That would give us an opportunity to rethink the price target with Microsoft in a positive way. So, from time to time, we have to continue to reevaluate not only the prospects for the price target as they are today, but are there catalysts ahead that would allow us to increase the price targets or potentially decrease the price targets.
And I think a great example of this was had with Axon. We had our price target around 185 for a period of time. The shares were hovering a little bit above that, a little bit below that. But once we got earnings from competitor-- excuse me-- Motorola Solutions, we saw exactly what we were looking for, raised the price target, added to the position.
Now, will that happen with Microsoft? I can't say yet. It's a little too soon. But we are continuing to watch it, and it could be a source of funds given that it is currently above our price target.
JD DURKIN: Now, Chris, onto an economic headwind we have not checked in on-- at least in a while. As you look ahead to the month of July, how concerned are you-- [CHUCKLES] oh, boy-- about the debt ceiling debate? I love talking the little intersection of the Street with Capitol Hill.
What's on your radar here?
CHRIS VERSACE: Yeah. So this is something that we've been watching. It's been in the background a little bit, and it came to the forefront earlier this week. I think we're going to start to see a lot more headlines on this, and it's going to be, I suspect, yet another game of chicken, likely down to the last wire.
Will the debt ceiling get raised? More likely than not. Will there be some concessions to do it? More likely than not. So the devil, once again, will be, as they say, in the details. But again, pretty confident it will happen, but it could get the market a little bumpy before we actually get that settlement.
JD DURKIN: You actually are-- rather, you recently added to the club's position in Clear Secure. Ah, yes. Any concern about the level of short interest in that particular name?
CHRIS VERSACE: No, I don't think so. We have to remember that short interest can happen from time to time. The real question is, why is that happening? With Clear Secure, I think the issue that we're seeing crop up is concerns about the larger economy, recession in particular.
But as we've shared with members, the data of late seems to suggest that the economy is not falling off a cliff. It continues to hold up better than expected. And when we look at recent comments from Delta Airlines, and even last night, and again this morning, from United Airlines, its partners, there is a strong summer travel season being predicted.
So that's telling us that congestion is there, a positive catalyst for incremental memberships for Clear Secure. But at the same time, Clear Secure also came out yesterday and added its 52nd airport, again telling us that there is more likely membership growth to be had-- the driver of revenues, the driver of earnings, and obviously, the driver of the stock price.
The context for here is the management team is saying it is targeting the top 75. So it's in the top 50, so we have about 24, 25 to go, prospects for international expansion as well, and, of course, further densification as people continue to travel. So I'm not really perturbed by the short interest.
If anything, it has the potential to give us a short squeeze somewhere in the coming weeks.
JD DURKIN: 5 points for use of the word perturbed because that's the mood I'm in today. Well done.
CHRIS VERSACE: SATs all the way.
JD DURKIN: All right, let's get a quick check-- Cannot forget our SAT training. Let's finish up here with a look at ChargePoint. How is the recent move lower, though it has gained a bit of steam since, playing into your thinking? CHPT, what should we know?
CHRIS VERSACE: So let's explain the ongoing pressure. So it's really, in my opinion, two, maybe three things. The first, of course, is the continued relationship from a trading perspective, i.e. high correlation to Tesla.
Last week or so, the company announced its fifth round of price cuts. This morning, last night, it announced the sixth round of price cuts. So folks are really concerned with what the profit margins are at Tesla. Perhaps they need to move inventory. We'll find out when they report the quarter later this week.
But we've shared with members that, unfortunately, at least in the recent past and currently, not only ChargePoint, but shares of other EV-charging companies remain very, very highly correlated to the shares of Tesla. So that's one of the pressures on the shares.
The second one is, obviously, the bank failures are having some ripple effects. We haven't really seen any demonstrative signs that it's really impacting the EV business. But we'll continue to watch that.
And then the third, of course, is ChargePoint is a relatively small-cap company, and small-cap companies have been particularly hard hit, both in general with the market, but again, as a result of those bank failures. So I think our tact here is going to continue to be patient. I do think that we continue to see favorable polling data.
Some folks are spinning it one way. I'll actually explain it the other way. I'm referring to a poll that says, oh, 50% of folks are not inclined to buy an EV for their next car. I take that looking the opposite side, saying that 50% are likely to buy an EV as their next car. And remember, that's a large percentage, especially compared to the 5 and 1/2%, 6% of all cars that were EV sold in the US in 2022.
We're also seeing the EV tax credits start to come into play. And I think that there's going to be a lot more positive momentum as we go through earnings season and other automakers describe the impact of EVs on their overall business. So I'm inclined to stay patient with ChargePoint.
As I mentioned earlier, some of our positions, we have a 12-to-18-month time horizon. Others have a longer time horizon. ChargePoint-- excuse me-- certainly fits into that bucket. But I will also say that yesterday I taped this week's AAP podcast with the company, and I think that members are going to like what they hear about EV charging and ChargePoint.
JD DURKIN: I like your note on 50/50. That's because you're the ultimate glass-half-full type of guy, and I mean that sincerely. How I know you personally and professionally. And I appreciate that outlook.
CHRIS VERSACE: Well, I appreciate that, JD. But, as you know, we can't just simply take the headline at face value. We need to understand the data and the context. That's why I wanted to point that out.
JD DURKIN: Context and perspective-- that's what I always look forward to hearing from you, especially after big data releases, when everyone runs one way, and they can always rely on Chris Versace to say, hey, folks, there's a little more than meets the surface. The great Chris Versace, thank you, as always.
CHRIS VERSACE: Thank you, JD.
JD DURKIN: Members, please keep sending us all of your questions. You could do so by sending those questions to us at firstname.lastname@example.org. Have a great day. We'll see you next time.