J.D. DURKIN: Good morning, subscribers. Chris Versace and I are now back once again with some answers to your biggest, most burning questions of the week. Chris, thank you for being here, as always. We begin today with a name that you and I haven't necessarily talked about in at least a little bit of time. You exited ChargePoint back in October at around 460. We do have a few members who did not follow you into the trade looking for a bit of advice, now that it's trading around $2. What do you think?
CHRIS VERSACE: You know, J.D. , I was just reading before we hopped on that there's some question over whether or not the White House is going to persist with EV tax credits in 2024. That's another potential headwind for EV adoption. And the slower the rate of EV adoption, well, let's be honest, the less we're going to need as many EV charging stations, at least in the near term. I just see a number of headwinds here building.
So I would just say, look, members, if you've got a large position, use strength to work your way out of it. If you have a small position, it might be easier simply to, as we like to say, rip the Band-Aid, move along.
J.D. DURKIN: All right, let's take this from a bit of an educational angle now, Chris. What do you look for when deciding it may be best to take a loss in a large position?
CHRIS VERSACE: Well, I guess the big thing that we have to watch out for with any position, whether it's performing or underperforming, relative to the market, J.D. , is making sure that the thesis continues to track. Do the data points continue to support it or not? And when it comes to deciding when to take that loss, it can be a very agonizing decision. But remember, the last thing we want to be is emotional, especially overly emotional, with the position.
There's simply no way that we can sit here and mentally will it higher. So, it takes a lot of what they say is cold-blooded decision making, having a tough conversation with yourself and other AAP members on the team. And if the underlying thesis is falling apart, if the data no longer supports the thesis, or, and this is a big one, and it relates to ChargePoint, things unfold that really have us calling into question management credibility, then we've simply got to move on.
J.D. DURKIN: Chris, we've been talking about a so-called Fed pivot for quite a while. And a member has a question about that, and how it may relate overall to the AAP timeline. And we have a member who's looking at the Fed potential for a 2024 rate cut, wondering how the central bank plays into the portfolio's investing timeline. What do you think?
CHRIS VERSACE: Well, especially over the last 12 to 18 months, we've had to be very cognizant of what the Fed says they're going to, do and how they've actually been jawboning the market from time to time. Back in the summertime, when we had an event at the New York Stock Exchange, I had said that my thinking is that when the Fed starts to cut rates, that's when we'll really see a well-rounded move higher in the market, not just the Magnificent Seven, like we had seen to that point.
And I continue to think that. We've shared with members in our alerts that we continue to closely watch the economic data for that sustained move lower in inflation pressures, and the economy remaining on what some are calling a Goldilocks glide path. We're going to get a lot of data coming up. But there seems to be indications for the data that builds into it that we are going to continue to see that. What I would just say to members, please be just a little careful. There's a lot of enthusiasm out late yesterday and today for what Fed Governor Waller said about, yes, I can see a Fed pivot.
But he also said that he needs to see continued progress in the inflation data in the next three, four, five months. My only concern is that the market might be pulling forward its expectation for a rate cut perhaps a little early. We've seen some pronounced moves of late in the CME FedWatch tool for a March rate cut. I continue to think it's likely to be just a little bit later than that. But again, falling interest rates in the first half of 2024 and into the second half of 2024 is a positive for the portfolio. And J.D. , that's one of the reasons why we've been rearming the bullpen.
J.D. DURKIN: Chris, I'd like to ask you a quick follow-up on this, if I may. Tis not only the season for turkey and tinsel, tis also the season for 2023 guidance and outlooks. And companies like UBS, Morgan Stanley, Goldman, when they put out their projections for next year, that earns a lot of headlines. And when you have a UBS or a Morgan Stanley say, well, we expect the Fed to cut rates earlier in the year, Goldman saying no, no, we expect it closer to Q4, how closely do you take into account, in terms of the portfolio, what some of these big names like a UBS or Goldman have to say?
CHRIS VERSACE: One of the things I like to really understand, J.D. , is the market narrative, right? What's driving the performance that we're seeing, good or bad, in stocks? So we, of course, want to take in what some of these big bulge bracket banks have to say. But ultimately, we have to recognize that, while some have better track records than others, ultimately, these are opinions, right?
And we're not here to make headlines for members. No, we're here to make smart, informed investment decisions, which is why, even though we will listen to what they have to say, we will always come back to the data matching that up with what the Fed has stated, and pretty much doing what we do for each investment that we have in the portfolio, paying attention to the unfolding landscape and the data that drives its particular industry, sector, or theme.
J.D. DURKIN: Cool, I appreciate that context. Thanks, Chris. All right, let's talk about Capitol Hill. They are back to work. They're not back to work every week. But they are right now, a busy agenda into the end of the year. Could developments in Washington, Chris, impact the stocks and the industries that you focus on for 2024?
CHRIS VERSACE: Yeah, of course. I mean, when you look at the government-- sorry, when you look at the US economy, there's really three big pieces we have to pay attention to, right? What is business doing? What is the consumer doing? And yes, what is the government doing? We've seen a lot of stimulus get poured into the market over the last couple of years. And we're currently benefiting from that with several portfolio positions, most notably United Reynolds and Vulcan Materials, as part of the infrastructure building.
Applied materials, obviously, we'll see some benefit from the CHIPS re-shoring activity. But to your point, as we go into the end of the year and contemplate how the debt ceiling can was kicked down the road, we are going to want to pay attention quite closely to what unfolds down in Washington. In terms of sectors, probably the two biggest ones that we always pay attention to, defense spending and health care.
J.D. DURKIN: All right, we're going to conclude today's show with a question from a new member. Shout-out to our new members, by the way. Thank you for submitting questions. Chris, can you better explain the bullpen, for people that are maybe just getting involved with the portfolio and really just kind of getting up to speed a bit?
CHRIS VERSACE: So, the portfolio is a curated list of stocks that we're investing in, right? We have various ratings for them, 1's, 2's, 3's, 4's. But this is where we're recommending members put their capital to work. Conversely, the bullpen is kind of a proving ground, if you will, stocks that are catching our eye. We're curious. We're interested. They seem to have favorable fundamentals. Maybe their valuation isn't quite compelling yet.
For example, we just added Labcorp to the portfolios bullpen earlier this week. Why did we do that? Well, think of what it does. It's lab testing and diagnostics, clearly going to benefit from the aging population, which is exploding, and will continue to do so, driving demand for incremental testing. But when we sat back and did the valuation work, the upside that we can see in the shares is almost the same as the potential downside risk. Call it neutral. That's going to have us wait to around the $200 level for Labcorp, to perhaps graduate it to the active portfolio from the bullpen. So, again, kind of a proving ground, keeping our eye almost, as they say, J.D. , like the bullpen for pitchers in baseball.
J.D. DURKIN: That's absolutely right. Awesome insight as always. Chris Versace, thanks for taking the time.
CHRIS VERSACE: Thank you.
J.D. DURKIN: Folks, that is a wrap for today. As always, please continue sending us any and all questions to email@example.com. We will do our very best to bring you answers each and every Wednesday. Thank you as always for taking the time to watch. And we will see you again soon.