Daily Rundown: May 15

JD DURKIN: And a very good Monday morning to all of you AAP team members. As always, Chris Versace and I are back to give you the game plan for the week. But as always, let's begin with a rewind of last week's biggest moves. Chris, thank you for being here.

CHRIS VERSACE: Always happy to start the week off with you, JD.

JD DURKIN: Let's do it, my friend. So on Thursday, you added to the club's position in Bank of America, for anyone who may have missed that particular alert. How did the banking crisis, particularly the renewed fears around Pac West, play into that decision specifically, Chris?

CHRIS VERSACE: So you have to remember why we initially entered the shares of Bank of America. It was as this recent string of bank failures was starting to unfold. Bank of America shares really came down from 37 to the $27, $28 level. And that's where we felt the risk reward with Bank of America shares was really starting to be compelling, so we started to build out the position.

Sure enough, we saw deposit outflows from these failed institutions moving to larger bulge bracket banks, with Bank of America clearly picking up some of those assets. And as the shares have come back to our cost basis level, we wanted to wade back in again, on the news that Pac West had some issues and that we're likely to see deposits outflow a little bit more into these larger banks, just like Bank of America.

So that's kind of the rationale behind it. And I suspect that as we continue to navigate through the near term landscape of banks, we'll probably have some opportunities to pick up more Bank of America shares.

JD DURKIN: Moving over to last week's most asked about names, give us some of your top-line takeaways on Clear Secure-- we love talking Clear Secure-- as well as Axon, and of course, if you have any updates on those names as the week gets started.

CHRIS VERSACE: Sure. So let's start with Clear Secure. All in all, a pretty good quarter, like the results. They continue to expand their footprint. I think we're going to see more of that. That's really the key in the near term, more airports, more lanes, the ability for more members, driving membership growth.

I've likened this to Costco as they expand their footprint. The same logic really applies to Clear Secure. We also got that special dividend, which again, kind of shows prudent cost containment. But management is also willing to give capital back to shareholders. So we do like that. And I'll have an update on the airport traffic situation as I head up to New York for our member call later this week.

Over at Axon, this was actually a great opportunity for members that had been on the sidelines with Axon shares. What I'm referring to is the bit of indigestion that the market had. And as I shared in the notes that we published, both soon after Axon's earnings, but also with the trade, we've picked up even more axon shares using that dip, the case here was really a flushing out of what we'll call momentum investors. They were a little concerned about the growth prospects.

But as we identified in our trade alert, again, where we picked up more shares of Axon last week, it looks like management's guidance is conservative, and the margin profile should continue to improve in the coming quarters, particularly as Axon Cloud continues to become a larger and larger part of the company's business. That's one of the big mix shifts we identified when we first entered Axon shares. And it's continuing to play out.

JD DURKIN: All right, we look forward to on-the-ground airport reporting in the days ahead. Time now for our favorite question, my friend. Is there anything you would have done differently last week with the benefit of a do over or a Monday Mulligan, if you will?

CHRIS VERSACE: Yeah, the only thing I think we would have done differently is probably alongside Bank of America shares, we would have picked up some shares of Trinity Capital. Remember, the thesis here is very similar to that of Bank of America, that the string of bank failures, these start-up companies are starting to look for other forms of funding. Trinity capital is clearly a well positioned company for that.

And again, the more we pick up Trinity Capital shares, the more we pick up a large and growing source of dividend income. Remember, the companies of BDC, and it has to pay out at least 90% of its earnings, in my math it looks like the company is likely to pay out a total of around $2 a share this year. That's something we would like to have in the portfolio.

JD DURKIN: All right, looking ahead this week, we're finally looking at the tail end of earnings season, finally. But are there any reports on your radar that you're worth following? There are a few big names in the days ahead, right?

CHRIS VERSACE: Yes. So there's a couple outside the portfolio and inside the portfolio. On the outside, Home Depot, Walmart, Target, TJX companies, and Cisco-- I kind of took care of those in my notes this morning for members. But just real quickly, those retailers were really give us a sense on where consumers are spending.

We'll also be looking to see if price increases are becoming margin levers. That's a thesis in a number of our other portfolio positions. With Cisco, I really do think that they're going to talk a lot about AI candidly. Who isn't talking about AI? But I think with Cisco, they're really going to talk about it in the sense of what it means for network capacity and continuing to build that out. That of course, will be a big positive for our shares of Marvell.

And then inside the portfolio, we have Applied Materials later in the week, and Deere, with Applied Materials really looking to see what they say about the Chips Act. If the shares come in a little bit from where they are currently, we are likely to be buyers. On Deere, we've had great reports from competitors Agco and CNH Industrial. Expect a good print from Deere as we wrap up the spring planting season.

JD DURKIN: I do want to ask you about debt ceiling talks. Yes, of course, we're still talking about them because there is no solution, surprise, surprise. Between the White House and Speaker McCarthy, those talks are set to resume Tuesday. For whatever it's worth, a bit of developing news. Speaker McCarthy moments ago here saying that both sides remain, quote, "far apart." What will you be looking for, Chris?

CHRIS VERSACE: So it is kind of funny. I think when we talked last week, I said we should expect the usual game of chicken up until the last minute, trying to negotiate, grr, that sort of thing. There were comments coming out over the weekend that President Biden was hopeful, that progress was made, according to others out of Washington. And now, of course, this.

I think it really shows, JD, that it is going to come down almost to the 11th hour. And once again, details will matter. Members know that we're watching this carefully with regard to Lockheed Martin and Elevance health.

JD DURKIN: Not just the 11th hour, probably 11:59 on the clock would be my guess. I don't know. Call me skeptical. But we'll see. I guess it gets done. It's just a matter of when.

All right, anything else you're watching when it comes to the economy on your radar, Chris, you want members to keep top of mind this week as well?

CHRIS VERSACE: So just two things. One, we've got the April retail sales report out. That of course, is going to frame all those retailer earnings. And then the other is just the parade of fed officials that we have this week. We have a note coming out to members that goes almost day by day, breaking out who will be speaking and where.

But the overall comment that I would make is, we will continue to be watching for what they have to say coming off of the April inflation data last week. It really seems that they're likely to hold rates where they are. There is some squabbling potentially about another rate hike. Candidly right now, I see that as kind of low probability.

I think we need to understand a little bit more about the credit tightening that is unfolding. Remember, the Sleuth's report didn't really capture all of it. So I think we need more data on that. But we will be watching what the fed heads have to say.

JD DURKIN: All right, Chris Versace, thank you as always.

CHRIS VERSACE: Thank you, JD.

JD DURKIN: And as we wrap up, a quick reminder to all of you watching at home that our next members' call will be live on Wednesday at 12:00 Eastern. Renowned market technician, Helene Meisler will be joining Chris and Sarah Silverstein. And you are not going to want to miss what they have to say. Thanks for watching. Have a great week.