J.D. DURKIN: Good morning, members, one and all. The one and only Chris Versace joins me now for a look at the week ahead. As you know already if you caught up with Friday's Alerts last week, we saw earnings from both Applied Materials as well as Deere. Chris, give us your biggest takeaways from each of those two names.
CHRIS VERSACE: You know, if I had to narrow it down to one thing, I can actually answer that for both companies, J.D. . Yes, did we see strong top-line growth, or do we see prospects for that continuing? Yes, and yes. But the real call-out was the margin leverage that we saw that really delivered outsized performance to their respective bottom lines. And I think we're going to continue to see that, key drivers being favorable pricing, better fixed cost absorption, as well as, compared to year-over-year, far better supply chains.
So when we look at that, the outlook for these companies continue to be positive. We continue to see stronger earnings growth in the second half of the year compared to the first half and compared on a year-over-year basis. So for those reasons, we actually upgraded our rating on Applied Materials to a 1 as we lifted our price target, and we continue to keep our price target at $500 for Deere.
J.D. DURKIN: Now let's talk about Coty. On Friday, you added to our position in that name. How did earnings from competitor Estee Lauder influence that particular decision, I wonder, Chris?
CHRIS VERSACE: So whenever we look at competing companies, we need to understand how the businesses are similar and how they're different. And when Estee Lauder reported, it had some specific issues-- not only in skin care, but also in travel retail, most notably in Asia. But outside of that, its business was pretty strong.
So when we take a look at Coty, and we understand that its exposure to China is around 4% of sales across the entire company, and its exposure to travel retail is low to mid-single digits, it tells us that when they report later this week, we should have a very, very, very good earnings report because of the strength in Europe, because of the strength in prestige fragrance, and because of the strength in their European business. Meanwhile, these issues that Estee Lauder has, they shouldn't really be demonstrative ones for Coty. So for that reason, we opted to use the pullback in Coty shares to pick them up ahead of this week's earnings report.
J.D. DURKIN: All right, fair enough. Time now for our favorite question of the week. Chris, if you had the opportunity to have a do-over button, what do you wish you might be able to take a second look at, if you could, from last week?
CHRIS VERSACE: So J.D. , I want to take something out of the little book here that we have and use my pass play. And I say that because when I look back across last week, did we pick up some shares of Qualcomm and McDonald's, Coty, as you just mentioned, and make some other upgrades in and around the portfolio? We did, and I'm very comfortable with those actions, as well as how the portfolio is positioned as we start to leave August behind in a few weeks and move into September and then October. So I don't really see any need for a do-over, but I'll reserve that for next week.
J.D. DURKIN: Chris, Nvidia's all but guaranteed to steal the show when that name reports earnings later on this week. How could that particular report, do you think, shaped the overall market's view of chips into earnings from the clubs holding Marvell on Thursday?
CHRIS VERSACE: So NVIDIA is one of those Magnificent Seven stocks that has really propelled not only the NASDAQ, but the overall stock market higher. A lot of that has been driven by the expectations-- dare I say it, J.D. , the hopium-- of AI and Nvidia's position in there. Now, over the last week or two weeks, we've heard positive things about cloud and data center spending from the likes of Microsoft, Google, Amazon, and even last week, Cisco said that their order book was up 30% sequentially-- all good news.
But I think that when Nvidia reports, it's going to have to deliver an absolutely stellar quarter, as well as better-than-expected guidance. Arguably, this is one of those stocks that is priced to perfection, as we like to say. And if there's any sort of bump in the road, either in the quarter or the guidance, we could see Nvidia shares trade back.
I do expect the management team to be very upbeat about the long-term prospects of AI. I also want to understand if they're seeing the turn in the data center business that's been communicated by some others that have already reported. All of that will set us up for Marvell's earnings later this week.
J.D. DURKIN: So to that point from Marvell, anything else in particular that you're watching from that name that you think, Chris, might be pretty important for members to follow along with as well?
CHRIS VERSACE: Yeah, it bears stating that a lot of folks tend to focus in on the data center business over at Marvell. And it is their largest business and one of their better-growing, higher-margin ones, no question. But we also want to take a hard look at the network business, the automotive business, the IoT efforts that they have as well.
All in all, the net guidance should be very positive for the company. We do expect them also too lean into AI. And candidly, with the shares having pulled back around the $57 level, compared to the comments that we heard over the last few weeks, we are a little more bullish on the name. If the shares pull back a little bit more-- call it to the mid-to-low 50s-- that could be a reason for us to revisit our current 3 rating on Marvell shares.
J.D. DURKIN: Chris, are there any other reports to watch as earnings season finally winds down?
CHRIS VERSACE: Yeah, I mean, similar to last week, J.D. , we're going to have another barrage of retailers. And I think that when the week is said and done, we'll be able to take those comments about consumer spending-- early indications on back-to-school spending, for example, potential guidance for the last quarter of the year, which has the all-important holiday shopping season-- and we'll have a much, much better sense as to what the consumer is likely to do.
And remember, the consumer is roughly-- directly, indirectly-- 2/3 of the economic engine here in the US. So we're going to want to understand in aggregate-- not what any one particular retailer has to say, but again, in aggregate-- what the likely prospects are for the consumer and consumer spending.
J.D. DURKIN: And, of course, it is Jackson Hole Week. Happy Jackson Hole Week, one and all who celebrate it. The Kansas City Fed's yearly economic symposium will kick off on Thursday in Wyoming. In your latest poll this week, Chris, those who participated think the central bank is likely to raise rates again this year. Could any headlines, any chatter from Chairman Powell out of Jackson Hole confirm that particular line of thinking, do you think?
CHRIS VERSACE: You know, I really doubt that Powell is going to be telegraphing to that degree. He usually leads that-- excuse me, leaves that for the post-policy press conferences where he's reviewing and talking about what could be. But look, a couple of things to consider.
One, as we highlighted in the July PPI, the intermediate services has been up for three months in a row. The distance from the core CPI, even the core PPI data to the Fed's 2% target is still quite a distance. My suspicion is that even though we have a bunch more data to go before the September meeting, Powell is likely to dodge anything and say, look, we've seen some progress. The economy continues to be a little stronger than expected, as we discussed. It could potentially lengthen the inflation fight. But we're going to remain data-dependent. I think those who are looking for a decisive answer about monetary policy are likely to be very disappointed coming out of Jackson Hole.
J.D. DURKIN: Chris, talk to me a bit about the points of those polls. We just had one up there on the screen. How can members who are maybe seeing that poll for the first time get involved if they want their voice to be heard for the next one?
CHRIS VERSACE: So you know, what we like to do here at AEP is have a club-like atmosphere. And sometimes it's a little hard, just in the digital world. So what we decided to do is utilize a polling system.
Because we do know that AEP members are diligent, they try to be informed, and we want to tap into that collective wisdom, if you will. So we started doing Poll of the Week. It's something that we're going to do, just like it says, every week. And we'll try and be topical and really, again, tap into member insights and understanding perspective, that sort of thing.
The poll is conducted through Twitter, which makes it pretty easy to do. Each week, we'll have an alert out describing what the poll of the week is. And we also touch on it again in the round-up, giving members a couple of different times to contemplate voting in Poll of the Week.
J.D. DURKIN: Before we finish up here, Chris, is there anything else you want members to keep an eye on for the very busy week ahead, I wonder?
CHRIS VERSACE: Yeah, there's actually two. The first one is going to be the flash August PMI. That's going to be the latest look at the speed of the economy, both manufacturing and services, but it'll also give us another data point on inflation when we take a look at both input and output costs. So both of those will be key to watch ahead of Jackson Hole, but the other thing is we're starting to hear that the UAW could authorize a strike vote later this week. That could be something that not only slows down the economy, but as members know, we've been closely watching the negotiations because of what the potential ripple effect is when it comes to wage inflation. So I would say that's the second of the two items that we have to watch.
J.D. DURKIN: Yeah, that's some great context there on UAW. We will watch out for those stories and so much more. Thank you, as always, Chris. Appreciate you taking the time.
CHRIS VERSACE: Thank you, J.D. .
J.D. DURKIN: Members, that man, Chris Versace, will be back tomorrow for more on this week's trading. Have a great day, and we'll see you again soon.