Daily Rundown: August 14

J.D. DURKIN: All right, folks. Good morning members, one and all. Chris Versace and I are back, as we are every Monday morning, to take a look at the week ahead. But let's first kick off with a review of last week's latest moves.

Chris, good morning. Thank you for being here, my friend.

CHRIS VERSACE: Oh, Happy Monday to you, J.D..

J.D. DURKIN: All right, buddy. So you used recent wins and names like Ford and CBOE to upgrade both McDonald's and Qualcomm as well from the bullpen. Give us a quick breakdown of your thinking there, of the timing, and really what's motivating your move starting with Mickey D's?

CHRIS VERSACE: Well, look, as you pointed out, over the last few weeks, we've added both companies to the bullpen. We really want to grow the exposure to these names given what we're seeing unfold. What I mean by that is, look, we're looking ahead at the economy in the back half of the year. We know that gas prices are moving higher. We also know we have the return of student debt payments soon. And we also know that credit card debt for consumers is over $1 trillion at let's just call it "elevated interest rates". So our thinking is that consumers are going to have to trade down as they continue to eat out.

For that, we really like McDonald's. Remember, much like Chipotle, that company is benefiting from not only price increases over the last several quarters, but they're starting to see better input costs as well. So I think we'll see some nice margin expansion there.

Over at Qualcomm, we've been talking with members about the seasonally stronger second half of the year for smartphone volumes. Coming out of the June quarter earnings season, we've gotten comments not only from Micron, but Qorvo, Skyworks, and even July revenue numbers out of Taiwan Semiconductor in Foxconn that all point to this unfolding. It leads us to think that Qualcomm's guidance is a little conservative for the back half of the year. And while we started positions in both, J.D., we are looking to use recent weakness or pullbacks from here to build our positions in both of these newer names in the portfolio. And with Qualcomm this morning below 115, this could be one that we move sooner on than later.

J.D. DURKIN: Chris, if you had the opportunity to use a redo button, what would you do differently from the last week, if anything?

CHRIS VERSACE: One of the names that are on our shopping list is Trinity Capital. And what we've said is closer to $14, we really would like to pick up additional shares in that business development company. And last week, they hit around $14.15. And we could have pulled the trigger. We waited. We'd like to get a better price, but it very well could be that we might have missed at least one shot at it. I'm hoping that we'll get another one.

Again, we really do like that company. As it continues to benefit from increasing credit across the banking landscape, I do think that they're going to continue to win market share as well. And that bolsters them for continuing to increase their dividend payouts over time.

J.D. DURKIN: Chris, before we go to further into this conversation, you upgraded Apple to a two. And I believe you did so just earlier this morning. What was behind that move?

CHRIS VERSACE: Well, really some of what I said earlier about warming up to the Qualcomm shares and then calling them up to the bullpen-- that's from the bullpen, sorry-- that's really what led us to get a little more bullish on the shares of Apple, especially given the comments that premium phones continue to have stronger demand, as well as growing number of comments that the lingering weakness in the smartphone market is more tied to the Android ecosystem. So all that supports incremental demand for Apple. And what have we seen since Apple reported its June quarter results?

The shares are down around 10%, flirting with oversold territory. We haven't seen that since around January. And that was a great time to pick up the shares. That led us to upgrade Apple from a three-rating to a two-rating.

J.D. DURKIN: What will you be looking for in this week's retail sales numbers I wonder, Chris, especially given Ralph Lauren's comment on recent promotional spending. Could be top of mind for a lot of members?

CHRIS VERSACE: Yeah, that comment from Ralph Lauren was really a standout for us last week because you have to remember, like, the vast majority of retailers over the last year, they've struggled with excess inventory, they tried to get that back in line, made some progress. And now another sign of increasing promotional activity. That really has us staying on the sidelines with the vast majority of retailers.

We continue to like Amazon. We continue to like Costco just given the nature of their retail businesses, as well as the fact that they're very differentiated from just traditional brick and mortar retailers. But in terms of retail sales, look, we know that Amazon had a great month in July with Prime Day 2023. So we will look for an outsized number on digital shopping. All indications are that restaurant sales continue to be strong. So that'll be good most likely for Chipotle, as well as our newer position in McDonald's.

But by in large, J.D., I do think there's going to be some other categories that take it on the chin. Department stores in particular. It could be a very mixed bag-- good for the portfolio, but I think there might be some room for disappointment for the overall market with tomorrow's July retail sales report.

J.D. DURKIN: All right, finally, Chris, while I still have you, this is something you touched upon in the weekly roundup at the end of last week. I know you've been very focused on seasonality. And I wonder what your thinking is with regards to really the last few weeks or last few months of summer vacation and what you think the impact is of that type of spending specifically on trading?

CHRIS VERSACE: Yeah, I mean it's important to bear in mind because really between now and right before Labor Day, we traditionally see trading volumes really thin out, get small. And that can really result in some disproportionate moves in certain stocks. So it's another time to be cautious. For us, where we're looking to pick up shares of certain positions that we have on our shopping list-- you know, McDonald's, Qualcomm, Trinity Capital I mentioned, Universal Display, Applied Materials, if they come back-- this could bring us some opportunities. It also has us closely watching some other bullpen names like a Morgan Stanley.

We've been saying that we would be kind of a little more bullish on Morgan Stanley shares closer to 85. They've come in from the low 90s and the upper 80s. It looks like they might be approaching that point. So this seasonal time of the year could give us some nice times to pick up incremental shares as we get ready for the September to December push.

J.D. DURKIN: Isn't it amazing we're already talking about the September to December push. Somehow, impossibly, here we are. The great Chris Versace-- Chris, thank you, as always.

CHRIS VERSACE: Thank you, J.D..

J.D. DURKIN: All right, buddy. Folks, that's going to do it today. That man, Chris, will be back tomorrow for more on retail sales and what he is watching from the avalanche of retail earnings this week. Thank you, as always, for taking the time to watch. We'll see you again soon.