SARA SILVERSTEIN: Good afternoon, and welcome to the May Members Call. I'm so excited about our discussion today. We have Helene Meisler joining later to look at a few charts. But before we get there, we've heard your questions, and we want to spend a little more time explaining the inner workings of the portfolio.
Chris, you've repeatedly told members that the buck stops with you when it comes to the portfolio. But we've had a lot of members asking about if you own any positions in the portfolio yourself.
CHRIS VERSACE: So the short answer, Sara, is no, I do not. There's a couple of factors behind that. First and foremost, as I'm sure you'll talk about, it's a street policy that we simply can't own any stocks through the portfolio.
But also, too, if we look larger at other hedge funds, mutual funds, more often than not, they simply cannot do it as a matter of compliance because of the inherent conflict between putting companies or stocks into a portfolio and owning them on their own right. So for those reasons, my hands are tied. Would I if I could? Absolutely, I would.
SARA SILVERSTEIN: Absolutely. And like you said, if it was a fund that people could invest in and that they were paying fees on, then your money would be a part of that pool and you wouldn't be able to have skin in the game.
CHRIS VERSACE: Not just some money, but a significant portion of money.
SARA SILVERSTEIN: Absolutely. But outside, you would never be able to hold those stocks, just like you can here.
CHRIS VERSACE: Correct.
SARA SILVERSTEIN: And to that point, some members are asking, where do the prices come from in the portfolio if it's not an active portfolio, if it's a model portfolio? Can you explain that?
CHRIS VERSACE: So I think you're referring to when we make a trade and we make an addition or a sale to the portfolio. So at the bottom of each trade, we always have a little tagline that feeds back to the portfolio page where folks can see the trade at which-- sorry, the price at which the trade went off. More often than not, that reflects a price that is about five to 10 minutes after the alert goes out to members. That's been the way we've been doing it since we started, and we always like showing members the price where the trade occurred because it helps keeps-- excuse me-- helps keep us accountable.
We're not saying we got in at high levels. We're not saying we get in at low levels. You actually see the price point that the trade is at.
SARA SILVERSTEIN: And you've been very straightforward with members that you're frustrated with some of the club's more challenging positions. ChargePoint has come up. We know AAP has a long-term horizon. But when looking year to date at the losses, how do when to make the decision to hold something versus calling it quits?
CHRIS VERSACE: So it's a great question because yes, ChargePoint has been a very frustrating position, not only for me, but I know for members as well because we, as you know, get a lot of questions, and we've spend a lot of time going over it on the-- oh, sorry-- trying to go over it on the Daily Rundown and Alerts with members. But what we have to see is a change in the thesis. And what do I mean by that?
Are we seeing any slowdown in the adoption of EVs? No, we're not. Are we seeing any pushback in the rise of commercial EVs? No, we're not. Are we seeing any cancelation in infrastructure spending relating to EVs? No, we're not. If anything, we're seeing quite the opposite with month-over-month data for EV sales. Even this morning, the latest car registrations out of Europe were up significantly year over year.
And then we're also seeing other companies ranging from Walmart, Costco, Starbucks, a rash of hotels, McDonald's, BJ's, and others talk about adding EV charging stations to their parking lots. When we see that preponderance of data, we understand the shares are down 30%, 35%, something like that. And again, painful for everyone, myself included, but we try to focus in on that longer-term view. And as long as we continue to see the data supporting that, we're willing to be patient because the upside to be had as we move into the accelerated buildout is far greater than the downside.
SARA SILVERSTEIN: And to dig into this a little bit more, when we're exiting positions, of course, we want to be exiting them and collecting profits. But sometimes we have to exit positions and decide that it's time to get out as the thesises change, like Airbnb and Skyworks. How do you take those lessons there and guide how you're running the portfolio now?
CHRIS VERSACE: So what we try to do is really triangulate a lot of different data, a lot of different valuation techniques. And I think when we look back with BlackBerry, we look back at Skyworks, the landscape was changing rather quickly. So what we sometimes need to do is check the emotion, right? But the last thing we want to do is believe that something is going to work out.
More often than not, emotion is a dangerous element to introduce into the portfolio because it forces you to hang on to things even though the data is saying something else, which is why members have heard me say we were going to stick by the data. Even the example that I just gave in ChargePoint, an overwhelming amount of data that talks about the brighter prospects for the EV charging market. That's probably the biggest lesson to be learned.
The other thing I would say is we've gotten a lot better at paying attention to the technicals, as well. And I think we're going to have some interesting conversation with Helene later in the conversation.
SARA SILVERSTEIN: And what about a name that made its way back to the portfolio after an exit in 2022? What changed with Applied Materials?
CHRIS VERSACE: This is a great question because when we put Applied Materials out of the portfolio into the bullpen, we said specifically we're doing this because we know that the Chips Act is going to happen at some point in 2023. So we were in standby mode, looking for a firmer outlook. But between doing that in the fall and the first quarter of the year, what did we hear?
We heard the PC inventory build up. There were concerns about other angles. Inventory builds up in smartphones. Memory was getting weaker. So we were concerned about the outlook for semiconductor capital spending in the first half of the year, so we stayed on the sidelines.
But what did we hear recently? Yes, we are starting to see the flow of funds for the Chips Act. And most importantly, Samsung and Taiwan Semiconductor said, no, we're not going to cut our semiconductor capital equipment spending because we need to maintain our leadership position. That allowed us to wade in because the downside risk is far less.
And I'm happy to say that the shares are up 10% or so since we did that. In fact, I actually wish we had bought more Applied Materials when we did.
SARA SILVERSTEIN: And some members have noted that some of the three-rated stocks have performed better than the one-rated stock. Can you talk through how you're looking at the ratings again and why that might be the case?
CHRIS VERSACE: Well, let's understand what some of these three-rated stocks are, right? People are referring without question to Apple. At one point to Google, which we have since upgraded to a two rating-- which was rather timely, I might add-- as well as Microsoft.
And remember, the fundamental reasons for having those as three-rated stocks was the uncertainty in the first half of the year. So take Microsoft, for example. Most of its end markets, particularly on the PC side, have been weak. The outlook continues to be weak. But what has propped that stock up significantly year to date-- I hate to finger one thing, but that would be AI. And AI has been a very, very powerful driver for Microsoft shares, more recently Google shares, but also Nvidia and a handful of others. And it's really been that push for big tech that has allowed those four or five names to really outperform.
Is it important to recognize? It absolutely is. I think the question, though, is, is AI and the AI chatter leading a number of stocks to get out over their skis? I think the answer to that is yes, as well.
SARA SILVERSTEIN: And in a recent Daily Rundown, you cautioned against strictly measuring the portfolio performance against the S&P 500. I think it's been frustrating for a lot of people how the S&P has performed compared to the portfolio. You talk about looking at a blend of barometers given the blend of stocks in the portfolio. Can you talk a little bit more about that? And is the S&P a good benchmark for us, or no?
CHRIS VERSACE: So I think if we hadn't moved into some small and mid-cap names, we had stayed really in the area of the S&P 500, then I think it would be a fair barometer. But we haven't, right? We've purposely gone to look for opportunities in other areas that AAP hasn't done in the past because of some of the pronounced tailwinds that we see, and we want to take advantage of that.
We also want to explain and teach members how to invest in small and mid-cap stocks, how to build positions over time. So for these reasons, we made a conscious decision to move outside of what the, quote, "S&P 500 landscape" is, blending in some small mid-cap stocks, which is why I mentioned the Russell 2000. So I do think that, on a blended basis, that's probably a better way to capture what the portfolio has become, yes.
SARA SILVERSTEIN: And without perfect timing, is there a reason that we don't want to just be 100% in the S&P 500 all the time? Because that's the alternative, right, with a benchmark like that?
CHRIS VERSACE: Well, I mean, that would point to someone buying an S&P 500 index, which people can certainly do that but we also say that we don't buy the market because we're looking for individual opportunities that outperform over the medium to longer term. And we can certainly point to a number of different positions in the portfolio that have done that, and that's obviously what we want to do going forward.
SARA SILVERSTEIN: And you've talked and communicated with a lot of members of the AAP team. What's the best piece of advice that you've taken from one of those conversations to bring into the portfolio?
CHRIS VERSACE: Oh, wow. So I'll give you a couple. In fact, on this very last AAP member call, Helene Miller did a great chart on Marvell, and it backed up what I was thinking, so I was able to springboard onto that. But more recently, Helene and I were talking about the shares of Universal Display that were in the bullpen. And she flagged a strong resistance level around 150, 155, so we held off on that.
But even in a recent AAP podcast, I was talking with Sarge, digging deep on the defense sector, really mining his thoughts for that, and then, of course, chatting with Bob Lang on a number of different positions, trying to zero in on where the downside risk might be. So these are all great conversations. And the wonderful thing is I can pull from all those resources, as well as the fundamental and thematic work that I do on my own, so that members really get a best-of-breed thought at any given time.
SARA SILVERSTEIN: And now, we do have world-renowned market technician Helene Meisler here with us to share her exclusive analysis looking at some of the charts that you ask the most about. And those will all come to your inbox as soon as we are done, along with all of her charts and her full analysis.
But first, Helene, you have been along for this call, and also we've shared a lot of the members' questions with you ahead of time. What's your take so far on the portfolio positioning and how everyone's feeling?
HELENE MEISLER: OK, so the very first thing I noticed as I read through all the questions was how disappointed everybody is in this pick, in that pic, in the market, and they've lost money, they've not made money. And that's been a constant theme in the market pretty much since February. Since the peak in February. The majority of stocks have been in a downtrend, and there's a handful of stocks propping up the S&P. Just take a look at the Russell.
And so I think what's happened is, is these questions reflect investor sentiment in that I should be doing better. Why are these stocks not moving? And quite frankly, that's just how the market has been in these last two months. I personally think we're nearing a bit of an end to that. I think that we have been correcting since February. I think there are a lot of down-and-out names, as we all know, in the portfolio.
And I think, at some point, it becomes a decent risk/reward to take a look at these stocks. And so many are down and out that I think that this is more of an opportunity coming up than we had, even in February.
SARA SILVERSTEIN: And when we're looking at-- oh, in one of your latest Real Money columns, you noticed some unusual events that's starting to play out in the markets. Can you talk a little bit about these phenomenon and what they tell you about what's next.
HELENE MEISLER: Well, it's just I found it very interesting that we had, last week, five straight days where the Dow was red and the transports were red. We get that a lot. You'll get a Thursday, a Friday, a Monday, Tuesday, Wednesday, but you rarely get Monday through Friday.
And I thought it was just really interesting because the last time we had all five days negative like that was just before COVID, late February of '20, and in late July of 2011, which was the last time we had a debt crisis that really came to the brink. So I just thought the two dates were quite interesting.
I'm not big on doing these analogies because I always find when you start matching up this price action to that price action, everything seems to end up in a 1929 crash. But I thought it was just a good observation that we've had a lot of selling in the market lately despite the fact that the S&P hasn't gone anywhere in six weeks.
SARA SILVERSTEIN: And I mean, to look at that-- I mean, it's not going to cause another pandemic, but the debt crisis, there is a little bit of parallel there. Do you see anything coming out of that? I know you don't want to draw the parallels.
HELENE MEISLER: You know, of course. Can we get some kind of panic? I would love to see some kind of panic, quite frankly, because I think that would shake things up. Because generally speaking, when you get that kind of a panic, you get more opportunity.
I've been waiting for that kind of shake-up for two, maybe three weeks now, and quite frankly, I've not really gotten it. I've gotten a day here or a day there. I would like to see three or four days in a row, but I've not gotten it. I've been wrong.
SARA SILVERSTEIN: And Chris, where is your thinking on this? And how is the portfolio set up for what Helene is talking about?
CHRIS VERSACE: So the market's been a little rangebound. I think Helene has been talking about that. And what we've tried to do is pick our spots and raise cash for better times ahead.
We sold out of UPS. I think the timing on that was actually quite good. We did the same using some strength to eventually work our way out of the shares of AMN, building our cash back up in the process. Do we have some positions in the portfolio that we want to add even more to? We do, again, at the right price point. But there are also some others on the periphery-- some in the bullpen, and others that we're starting to work on putting in the bullpen-- that we think have brighter prospects emerging in the second half of the year and into 2024. So we would love to see some of what Helene is talking about.
SARA SILVERSTEIN: Great. And let's get into some of the names of the portfolio, starting with the club's new holding, Trinity Capital. Chris, can you kick us off by explaining why you added Trinity capital to the portfolio in April?
CHRIS VERSACE: So Trinity Capital was one that we did a podcast with the management team on, really introducing the notion of what a BDC, or Business Development Company, is to members. And we sat on the sidelines. And we were working it up, and we had a couple Alerts.
But when the banking crisis unfolded-- we saw Silicon Valley Bank go away, Signature Bank, and some other issues crop up-- we realized that, in the past, when a business or a couple of businesses go out, there's a hole that needs to be filled. And when we look at Trinity's business doing what it does with venture lending, we said, OK, this is a company that is likely to be a beneficiary similar to the way that we thought Bank of America would be a beneficiary in terms of deposits. And lo and behold, that's what's been happening.
We also wanted to increase the portfolio's exposure to dividend income, which is a great, great thing should we see a more pronounced slowdown. And again, through our work. it looks like Trinity will probably pay out close to $2 in dividends. So you think about that on top of a stock price that's anywhere between $11 and 1/2 and $12 and 1/2. That's a great dividend yield.
SARA SILVERSTEIN: And Helene, what is the Trinity chart telling you?
HELENE MEISLER: So I looked at it, and it has been holding at a series of higher lows all year, quite frankly, but it's also had a lot of lower highs since March. I think it's a decent risk/reward down in that 11-ish area because, quite frankly, if it starts to really crumble under there, you know you're wrong, so you're not risking very much. You get out if you're wrong. You're not risking very much to make 15%.
I'm looking at Bank of America Helene you said that chart is reminding you of 1987. And I know we talk about not comparing things because everybody ends up in the same place. What do you mean by that, 1987?
HELENE MEISLER: OK, so in 1987-- and this is a good comparison, not a bad one, OK?
SARA SILVERSTEIN: I know, that's not where we go.
HELENE MEISLER: In 1987, the stock market as a whole had a big run in the summer, made a high, corrected in September, came back up, and made a lower high late September, early October. So if you think of that November high in Bank of America, the correction in December, the lower high in February of that sequence, and then we came down, and pretty much you collapsed in March here. And in October of '87, we collapsed. Everybody thinks the crash started, it was one day, but it really wasn't. It started the week before.
And so you can see we've had a big crash in Bank of America, and you held, and then you came down a little bit more, and you stumbled, and we made that big low in late March-- mid, late March. And in 1987, we had a low in that late October time frame. We rallied. We came back down in December, and we made another low.
Some charts made lower lows, some made higher lows. But my point is, is that's the sequence that plays out. You had a crash, you had a rebound, and then you come back for a retest. What subsequently happened in 1988 was a lot of fits and starts.
Everyone, I think, has to get rid of that whole V bottom notion because that's not really how markets tend to work in a big way. And so I think what's happening here in Bank of America-- not all banks, but in Bank of America and many other banks-- is, is that you've either had a higher low, or even if you've got a lower low, you've had some kind of a retest. And now I think it's going to be fits and starts as it tries to work itself higher. So in other words, you've already had the crash, and now you're in the repair phase where things start to improve.
SARA SILVERSTEIN: Great. And Chris, from a fundamental perspective, you added to this position last week. Why Bank of America of all the banks in this area?
CHRIS VERSACE: Yeah, so you have to remember that we were taking a look at the pullback across the banking sector as those bank failures-- again, Silicon Valley Bank, Signature Bank-- unfolded. And we saw Bank of America fell from $37 down to the $27, $28 level. And that's really where we started to get interested. Why? Because we knew that with those bank failures, deposits would have to go somewhere.
But to answer your question directly, Sara, why Bank of America, not Citi, not JPMorgan, we actually preferred the blend of business at Bank of America, not so reliant on investment banking. We all know what the IPO market has been doing-- nothing. So we wanted to remove that drag, if you will, on any prospect that we were bringing into the portfolio, hence Bank of America, plus 3% dividend yield.
SARA SILVERSTEIN: Clear Secure, we had a lot of questions last week after its post-earnings sell-off, and some people have asked if they've missed an alert or two. Why did we pick up shares at around $23.75, Chris?
CHRIS VERSACE: So what's the gist behind clear secure? Continuing to expand its footprint. More airports means more lanes, mean driving membership. Members, you've heard me compare this to the Costco business model expanding its warehouse. It's exactly the same.
So we said, OK, they are in 52 airports, still targeting top 75. That will unfold over 2023, 2024. When the stock pulls back to that level, we want to be in there and buying. They also declared a special dividend of $0.20, so we also wanted to pick up some incremental shares that give us greater exposure to that, as well.
SARA SILVERSTEIN: And one of our members is asking, based on the news that TSA is testing facial ignition at 16 airports, is this a concern for Clear?
CHRIS VERSACE: No, I don't think so. If anything, there's a number of different services out there just like Clear, too, is expanding its own offering whether its TSA pre-check that'll be ramping in the middle of the year, and hopefully at more airports in the back half of the year, and again, into 2024, driving incremental membership growth, incremental revenue growth.
SARA SILVERSTEIN: And Helene, you're saying that you see resistance around $27 for YOU, so-- for Clear Secure. It's we were saying YOU out loud. What do you think of Chris's move?
HELENE MEISLER: You know, I actually think it's OK. I like it because he's buying it at the lower end of the range. Again, I am the kind of person who likes a stock when it's down and out because my risk/reward, my parameters, are so clear that if you pay $23.75 and you know, my God, if the stock starts tanking under $23, you're wrong and you can get out. What are you losing? You're not losing that much relative to what you can gain on the upside.
So I'm with Chris on this. And I think when we looked at this stock in February, I took a look at it and I thought I said $25 or $26 was the area. So I was wrong in that it came down to $23, but I just think that you're in the neighborhood that there's a lot of support and it's not a bad idea. And the reason I think $27 is going to be difficult, though, just to show you is that April spike high is going to be difficult. I find spikes tend to leave people stranded. So people say, oh, my God, please just let me get back there so I can get out even.
And I also got that downtrend line, and then that uptrend line. So that $27, $28 area, I think, is going to be a little difficult.
SARA SILVERSTEIN: Chris, Axon you added, too. Can you reflect on that a little bit?
CHRIS VERSACE: So the company reported last week. As we suspected , they issued some conservative guidance. I also think that, because they didn't necessarily deliver an upside guidance like they did the last time, a lot of the, quote, "hot money" moved out of the shares.
So that was fine for us because remember, we upgraded the stock around 1.85 and originally to a 1, and that's where we started building the position back up. So we were happy to step back in and do this. And for members that have been on the sidelines, we had said around the $200 level would be a great place to pick up shares. It's back at that level. So if you're underweight Axon, I would say you want to be adding here.
Remember, too, that when we lifted our price target, we also lifted the bottom end of our range from $200 to $210. So in our opinion, it's a great pickup at the current level.
SARA SILVERSTEIN: Great, and we're going to skip the next member question because you just answered it. If you missed out on getting into Axon, he says that we're back in the range that it is time to add to it. So let's go to Helene's chart. What did you find when comparing last Wednesday's low around 188 with similar selling in February?
HELENE MEISLER: OK, I'm going to take the other side of Chris's trade here. You broke a pretty good uptrend line that's going back a year. Let me just give you-- for those people not technically inclined, an uptrend line I'd like you to think of as earnings. Earnings are growing at a certain rate. The stock price is growing at a certain rate.
It may still be growing, instead of at 30%, at 20%. But it's not growing at 30%, and so it should be discounted. And that's what happens when you break an uptrend line. You're no longer growing at the rate you were growing, so it's a warning that things are slowing. That's number one.
So first of all, you broke the uptrend line. That's not very good. If you take a look at that spike low in February, it came down to the December low and stopped, and then started heading up again. This time, the previous two months' low were broken when it broke those lows down over there at $210. So I have more of an issue with this stock in that I don't think it's going to turn around and head up the way it did in February.
SARA SILVERSTEIN: Great, and we can-- that's how all this information comes together. And so Chris can address that in one of his upcoming notes, if he wants, or right now.
CHRIS VERSACE: Sure, no, no. I mean, I think Helene's comment there is it's not going to turn up very quickly. I think when we look at the continued spending on safety, spending both local, state, and Federal, as well as Axon, the business mix, shifting into higher margin cloud, this is going to be a longer-term play, no question about it. But I think that the reset that we've seen allows for more patient investors to get in, much like ourselves, not necessarily as I alluded to earlier, the hot money.
SARA SILVERSTEIN: Helene, you spoke about United Rentals during a recent Daily Rundown, and now we see your support for the stock trading in the mid 330s. What does the chart tell you about URIs path forward?
HELENE MEISLER: It's the same concept. You've got a stock, a former hot stock, down and out, sitting at a lot of support. Everybody's worried about these kinds of names. They're worried about stocks that are not technology oriented. And I see a chart that fill the gap from November. I see a chart that has a lot of support.
And again, your risk/reward is not bad because if the stock, all of a sudden from here, turned south and goes under 320, my God, you didn't risk that much to make something on the upside because you know you're wrong if it takes a new leg down here. So I think it's OK. I think the problem is, is almost every single chart we look at, you've got resistance overhead every step of the way. And people who didn't get out earlier are going to be there as sellers.
SARA SILVERSTEIN: And Chris, is there a fundamental catalyst that you're looking at on the horizon that could help get United Rentals up?
HELENE MEISLER: Yeah. So the biggest thing that we're trying to figure out and pay attention to is infrastructure spending, particularly as it relates to highways, bridges, and all of that. So the best catalyst that we can look for in the near term is going to be the monthly construction spending reports. And the last several have shown that pickup, particularly for non-residential construction, which is going to be the sweet spot, tied to the infrastructure bill. And obviously, as we move into the summer months and we have even greater construction, that should drive rental rates at United Rentals.
And candidly, Sara, too-- the commentary that we got around this from other companies-- Caterpillar, Terex, and others-- have been extremely favorable on that domestic non-residential construction. And when Deere reports later this week, I know we focus on the bread and butter business that is ag, but they do have a construction equipment business. I suspect they, too, will have some positive comments.
SARA SILVERSTEIN: OK, and let's get into another one where we might not all see eye to eye. Let's talk about the Energy Select SPDR XLE fund. Chris, where are you right now on your thesis behind this?
CHRIS VERSACE: So whenever we talk about oil and energy in particular, there's going to be the supply/demand dynamics. And we're seeing expectations for oil consumption move higher. I think it was the IEA or another organization that leaned into their forecast, bumping it slightly higher. They see the rebound in China. I'm not I'm a little more skeptical on that, just given some of the economic-- excuse me-- economic data that we've seen of late on the supply side, too. We seem to be a little expansive in that.
To me, the next question is going to be what does OPEC do at their upcoming meeting. Do they decide that they want to stabilize prices again and make another cut? So for us, we're factoring all of this into our decision on what's next for XLE.
Previously, we've said below 80 we would be interested in buying, but this renewed skepticism has us staying on the sidelines in the near term. If we get the sense, though, that the recession doesn't appear or it might be more mild than some are fearing, that might make the current share price actually an opportunity for us. So we're in standby mode right now.
SARA SILVERSTEIN: And Helene, tell us what you see in this chart. What's the risk/reward situation?
HELENE MEISLER: So I think-- by the way, it broke the line since I did this chart. But I have been saying in my own newsletter that somewhere in the 75, 77 area, I actually think it's not a bad place to pick some up. And that's because the sentiment on oil has gone from last June, everybody was so giddy on oil-- and you can see that big high in the XLE-- to now people are saying, no, I think you should sell Exxon, or I wouldn't buy, or I'd hold off. And I think that sentiment has gotten negative enough on energy that somewhere down in that 75, 77 area, it's probably OK to give it a try.
SARA SILVERSTEIN: And let's jump right in to PepsiCo. What do you think about the PepsiCo chart?
HELENE MEISLER: Not so good. It's had a hell of a run. It's been terrific. I liked Staples back in February, so I'm quite pleased with the run. But I think it's gone too far, too fast. I think we are more apt to see it back there at that line at 185 in the next several weeks than we are to see it at 205.
So I'm in favor of taking some profits. If you're looking to buy, I'd be waiting till you got back into that mid 185 area, at least.
SARA SILVERSTEIN: And can you talk me through-- for those of us that don't have technical analysis running through our blood, what are these two lines? What do they represent?
HELENE MEISLER: OK, so the lower line is just an uptrend line. You've seen that on many of these charts. It's just the rate that the stock price has been growing over the last year. That's an uptrend line.
The flat line up at the top represents the resistance that we broke out of. And so I then take a measurement where I go from those lows in February to those highs in December, and I measure that, and I come up with something in the low 200s. And so please don't ask me why that works because I have yet to hear a good explanation. But I've been doing this for 40 years, and oddly enough it works.
Anyway, so I think when you got to the upper 190s, you were so close to the target price that it just-- to me, it takes something off the table. If it corrects back down to 185--
SARA SILVERSTEIN: So you're creating a range? Are you creating a range from that high in December to the low in February, and then building on top of that? Is that-- OK.
HELENE MEISLER: Right, so you broke out. So in other words, if you take a look at it, you say to yourself, from December until you broke out in April, the sellers came in at 185 every single time. But something changed in April to make the sellers step away. Either the sellers stepped away, or they had already sold everything that they had. That's the definition of a breakout.
And so now, what you're doing is-- you're saying to yourself, OK, I've had a really good run. I should come back and retest that breakout to see if the buyers that were there last time are still there.
SARA SILVERSTEIN: And this might be a stupid question, so forgive me, but to help me understand, what's the difference between a breakout that means full upside potential versus one where you're going to have to retest it?
HELENE MEISLER: Well, most breakouts come back and retest. Many.
SARA SILVERSTEIN: OK, well, that's a good answer, then. Maybe it is--
HELENE MEISLER: That's pretty common. And especially in the kind of market that we have, you shouldn't just get runaway moves up. You should get a retest.
Also, again, take a look. The stock has gone-- I don't even the percentage. It's gone from, what, 167 to 200. I mean, that's quite a move. Nothing goes up in a straight line. Everything should have a breather and a correction.
If you take a look, you had a nice correction from August to October. You had a correction from December to February. I mean, there's no reason the stock shouldn't correct.
SARA SILVERSTEIN: Absolutely. I'm just trying to think more like you every single day. So I'm just trying to understand--
HELENE MEISLER: Oh God, don't do that, Sara.
SARA SILVERSTEIN: --the thought process behind it.
HELENE MEISLER: Bad habit, bad habits.
SARA SILVERSTEIN: Chris, yesterday's alert, you noted that April retail sales were a net positive for PepsiCo, as well as Chipotle, Costco. So many analysts are continuing to call for a consumer slowdown. Can you talk a little bit about your thesis in these names?
CHRIS VERSACE: So when we looked at the numbers yesterday, as well as in the Mastercard SpendingPulse over the last few months, we've seen consumers are still spending, obviously, on food, also on dining out and travel. That's all good for several positions in the portfolio. But in particular with the April retail sales report, when we sifted through, people are not buying clothes. We saw that clearly with target this morning. TJX, as well.
They're not buying furniture. They're not remodeling their home as much. We heard that from Home Depot. So they're continuing to spend in the areas that, fortunately, we are well positioned for.
We also have to remember, too, that all of these companies-- PepsiCo and Chipotle in particular-- they've passed along a lot of price increases in 2022. As we suspected, those are becoming margin levers. So the prospect for further margin improvement is very good. That should drive incremental earnings. So from our perspective, the April retail sales report was rather confirming.
SARA SILVERSTEIN: And Chris, is that why you have Pepsi ranked as a three?
CHRIS VERSACE: So we have Pepsi ranked as a three for two reasons. The first is that when we look at the overall position size, it is one of the largest positions in the portfolio. In other words, we have a fully built-out position. And in fact, we've actually done some trimming back over the last several months as it's made these higher highs that Helene has been referring to.
And then the other is just the upside to our price target. It's 205 from like 195-ish. Not a lot of upside. Hard to get excited about it. If we saw it pull back to 180, 185, something like that, probably inclined to downgraded to a two, but we'll have to see if we get there.
SARA SILVERSTEIN: And in February, when we talked to Helene, she said that Marvell had-- when it was in the bullpen, if it went back down to its support levels, that it would be a good time to buy. That's something that you took into consideration and actually executed on. And now I would love to get I'd love to hear you talk a little bit about that, but also talk about why it's still on your shopping list to add to, and how it compares to Applied Materials.
CHRIS VERSACE: So let me take that last one first, right? So they're very different. Applied Materials makes equipment that makes chips. Marvell is a fabulous semiconductor company that designs chips that get sold into a variety of end markets, data center communications, auto, and a few others. So they're apples and oranges even though they both fall under the tech banner.
So we continue to like the overall outlook for communications infrastructure spending. Remember, the thesis here is that, whether it's because of the continued rollout in 5G, AI that we've been talking about earlier, and I suspect we may talk a little more about before we're done; streaming, whether it's video, audio; and a whole host of other things, we continue to see rising demand for content and consumption. That's going to continue to tax networks.
So over the longer term, we continue to like Marvell in its position in those respective end markets. But that's also why we're taking our time building the position out slowly. Our preference is always to do this to improve the portfolio's cost basis. And for members who may or may not be familiar with that term, when you take a look at the position, prices that we've been nibbling away out and average them out across the total number of shares, that's how we got the cost basis. Again, our preference is to buy below the cost basis when we can.
So that's some of the reasons about Marvell. And candidly, we would love to pick it up below 40. Hopefully we will get that chance. The company reports next week.
SARA SILVERSTEIN: And Helene, what are you seeing in the chart for this?
HELENE MEISLER: Well, I like it. As you noted, I did say that I was going to like it down there on the pullback, and I did. I love that it's crossed that downtrend line.
Again, we've talked about that February high and how the majority of stocks are down since then. Marvell would be in that category. And you can see the downtrend that it's been in. Only this week it finally crossed the downtrend line.
So crossing the downtrend line is just like breaking an uptrend line. We've been declining at a certain rate for a certain period of time. And once we cross that downtrend line, we've changed the pattern. We're no longer declining at that rate. So that's a positive to me.
And again, there's resistance all the way up. I can't draw in a line and say to you, oh, look, here's a great breakout. But if you take a look at it, you can see that the next serious level of resistance is going to be the longer-term downtrend line, which currently comes in around 45.
SARA SILVERSTEIN: And before we got started today, I remember we ended the last month call where I was asking Chris about AI, and I was really hoping to start a fight between Helene and Chris about AI. And it seems that I am the only one on this side, and I have the weakest background to support it. So I would love to get into it a little bit because it was really interesting. How do we feel about AI and the possibility of making money on it in the market?
CHRIS VERSACE: So I think that there's two angles to look at it. There's the near term, and all that's happened year to date, and how its stock prices-- Nvidia, Marvell we alluded to earlier, Google more recently, and the like. And I just get a little concern when I hear all sorts of companies really starting to talk about it as part of their everyday use of language, press releases, that sort of thing.
And I have a short list with me here. AI and with PepsiCo, Wendy's, Ford, CVS, J&J, Visa, EA, and that's just some from the last couple of days. My concern this is a repeat of the dot com bubble where companies feel like, oh jeez, if I don't say something about AI, folks are going to think I'm being left behind. I need to say something, even if it's vaporware. I'm just talking about it. I may be investing it, I may not be investing in it, but I got to say something so I'm at least relevant, so I don't lose my position.
And if remember back in the dot com bubble, all sorts of companies were making announcements about what they were doing. And I think, ultimately, AI will be similar to the internet, right? In the very beginning of the dot com bubble, what we thought the internet was going to be is very different than we have today.
Will AI ultimately be-- excuse me. Will it ultimately be disruptive? Yes. Will it ultimately create jobs? Yes. Will it disrupt existing business models? Yes.
But I think, in the current moment, it's out a little bit over its skis. And the one thing just to keep in mind is what we saw in Washington yesterday regarding the regulatory conversation. This is something that I think is going to shape what happens from here on out.
But my concern-- and members, you've heard me use this word in the past-- that right now, as it relates to AI vis-a-vis some of these stock prices, there's an awful lot baked into the expectations. A little bit of hopium, if you will, that has me a little concerned.
SARA SILVERSTEIN: And Helene, can you weigh in on this a little bit? I know it probably won't be the argument against it as much as I thought.
HELENE MEISLER: It is not the argument against it. All I can think of as I'm listening to Chris is, Long Island Iced Tea Blockchain, or maybe it was Long Island Blockchain Iced Tea. There was a company I don't know how many years ago, within the last decade, Long Island iced tea. And somehow or another, when blockchain became the buzzword of the day, they changed their name to Long Island Iced Tea Blockchain or something like that. It was dumb.
It was like back in 1999, everybody added a dot com onto the end of their name, I guess, the company's name, just because they thought it would give them another 20-point run in their stock. Everything I've read about AI, I do think it's a game changer. I think the internet was a game changer. But right now, it feels too buzzwordy to me.
I'm also reminded, as I said to Sara and Chris, that it was a big deal when they laid cables for the internet across the oceans. And who made money off of that? Because I certainly can't remember.
So I think there's the buzzword time that you have when it comes to something new and different in terms of technology, and everybody wants in on it, right? And then you have the period of time where you actually have the people who can make money off of it. And I think we're in the buzzword phase right now.
SARA SILVERSTEIN: Absolutely. Thank you so much, Helene, for joining us. I think that's a perfect place to end, with me learning something new and changing my perspective. I we didn't get to everything, so members, please keep sending in your questions to firstname.lastname@example.org. Chris will answer as many as he can in the Alerts and in the forum. Thanks so much for watching.