- The Street Sheet
- Posts
- 🦊 The $1B Man
🦊 The $1B Man
Plus, don’t discount this discount retailer...
Happy Sunday to everyone on The Street.
How about Tucker Carlson, huh? What a wild series of events. Whether you love the guy or think he’s the devil, I think we can all agree it was crazy to watch one employee’s impact on the share price of a massive publicly-traded company.
Some reports said Fox Corp’s stock plunged by $1b after the news broke. Another opinion piece said $560 million was wiped out over the course of the day. Either way you slice it, that’s a hefty sum. Is that what Tucker is worth? Who knows. I know he was getting paid 5x what Don Lemon was taking home at CNN. Moreover, I can only assume his next contract will be massive. Betting odds have him landing a permanent late-night talk show slot. A Spotify video podcast is in the mix, as is something with YouTube's competitor, Rumble.
It got me thinking about other talent-driven businesses. One company I’m super curious about after their main personality steps away is Barstool Sports. Dave Portnoy is the face of that company. They’re run by an incredible CEO and I think they’ve done an amazing job promoting other faces, but Dave is the guy. What happens when he’s gone? What’s the impact on shares of Penn Entertainment, which owns Barstool?
TBD — but these talent businesses are tough. How do you grow your personalities to a point where they don’t become the brand, and then leave? It’s a balancing act even the big guys like Fox have yet to master. For now, it looks like it's time for everyone to lawyer up. As for Tucker and Lemon, they've both hired the same attorney.
— Brooks
Review
US stocks finished higher Friday to close out the biggest monthly gain for the Dow since January.
In earnings news, Amazon saw its shares surge after announcing $0.31 earnings per share on revenue of $127.4 billion, both of which surpassed consensus estimates. However, the move higher was short lived and quickly reversed course after executives raised concerns about weakness in cloud growth from Amazon Web Services, which reported its first deceleration in sales.
Meanwhile, Intel reported its largest quarterly loss in company history with a 133% reduction in earnings, losing $0.04 per share. The figure was actually better than the $0.15 per share loss analysts expected, and revenue was also slightly higher than predicted at $11.7 billion. Nevertheless, the company forecasted another $0.04 per share loss for the second quarter.
On the economic front, Core PCE, the Federal Reserve’s inflation index of choice, rose 0.3% month-over-month in March, matching the previous month’s reading. However, year-over-year Core PCE declined to 4.2%, its lowest level since May 2021 and well below the previous month’s 5.1%.
In company-specific news, Jenny Craig alerted employees that mass layoffs could potentially be in store as it begins winding down physical operations and seeks a buyer. The nutrition company is unsure exactly who will be impacted, but indicated all workers could be affected and suggested they pursue other employment options.
In total for the week, the Dow Jones Industrial Average finished 0.86% higher, while the S&P 500 added 0.87%. The Nasdaq Composite was up 1.28%.
Preview
Tomorrow, the ISM manufacturing index will be released. This factory activity metric fell to 46.3 month-over-month in March, the fifth straight month of declines, suggesting rising interest rates and recessionary concerns are weighing on businesses.
Tuesday, the JOLTs job openings report for March will be released. In February, job openings in the US fell by 632,000 to 9.9 million, signaling a cooling labor market. Additionally, investors will get an update on factory orders. In February, new orders fell by 0.7% month-over-month.
Wednesday, all eyes will fall on the Federal Reserve, as it is expected to announce another interest rate decision. Many Fed members are still concerned inflation is too high and requires additional interest rate hikes.
On Thursday, an update to the balance of trade will be released. In February, the US trade deficit increased to $70.5 billion, the highest total in four months.
On Friday, investors will learn how many jobs the US created in April. In March, the economy saw 236,000 new jobs, the lowest total since December 2020. Additionally, investors will find out if hourly earnings for US workers increased or decreased this month. In March, payrolls increased by 4.2% on a yearly basis.
Earnings Spotlight
Tuesday will mark the start of another busy earnings week, with major companies like Pfizer (PFE), Starbucks (SBUX), and Uber (UBER) set to report earnings. Ford (F) will also give what is expected to be a positive update to investors. The F-150 maker just became America’s best selling car brand, led by strong EV sales, which surged 41% in the first quarter.
On Wednesday, investors will get updates from CVS (CVS), Kraft Heinz (KHC), and Yum! Brands (YUM). The last might speak on its recently-announced plans to use AI to forecast how much food is needed at KFC and Taco Bell locations.
Thursday will be another busy earnings day, with reports coming in from Apple, Moderna (MRNA), Block (SQ), Booking Holdings (BKNG), and Lyft (LYFT). Apple, the world’s biggest company by market cap, will likely update investors on its plans to expand in India, along with its new and much-hyped savings account.
On Friday, Marcus & Millichap (MMI) and AMC (AMC) will round out the week by offering insight into the commercial real estate and entertainment industries, respectively.
Invest in These Vacation Rentals In A Few Clicks☝
With Wander.com, you can unlock access to vacation rental investing without the hassle and headache of doing it yourself.
Wander REIT is the first and only institutional-grade vacation rental investment product. That means investors get all the tax-advantaged benefits of a REIT in a new asset category: vacation home rentals. Instead of the traditional apartment or office-building REITs, Wander REIT invests in the best of the best of vacation rentals.
Enjoy targeted 8% dividends and a 14% targeted total return with appreciation from hand-picked, stunning vacation homes – starting with a $2,500 minimum – without having to buy a property, change light bulbs or deal with guests. And for a limited time, new REIT investors may get an opportunity to invest in Wander’s next round of funding.
TJX Stock on Sale
Discount Retailer Doing Alright, Alright, Alright
Apparel and accessories aren’t the only cheap things at TJX Companies (TJX). Right now, its stock is also having a firesale. The retailer — which owns TJ Maxx, Marshalls, HomeGoods, and Sierra Trading Post — is trading at a discount compared to its historical average. Wall Street bulls think the stock can rise 12% or higher.
TJX’s focus on value and rotating merchandise gives bargain hunters reasons to keep coming back. This makes it attractive to some investors in the current environment.
It also doesn’t hurt that it sources merchandising from thousands of brand name vendors. TJX has made its name securing inventory at prices none of its rivals have been able to replicate, Sarah Kanwal, director and equity analyst at Crestwood Advisors, told Barron’s. “TJX has one of the best models in retail,” she says.
Consumer Spending Slowdown a Non-Issue?
Nonetheless, investors are spooked. So far this year, shares of TJX are down 1%. Concerns include the decline in consumer spending and slowing economy. Additionally, in its most recent quarter, the retailer provided softer-than-expected guidance and reported a deterioration in its gross margins due to shrinkage or retail theft.
These factors have pressured the stock, but bulls are unwavering in their support. They argue shrinkage is broad-based and not specific to TJX. The discount store is also better positioned to grow foot traffic and increase sales even if the economy worsens.
Last quarter, despite the disappointing forecast, TJX posted earnings up 14% year-over-year and stronger-than-anticipated comparable sales. For this fiscal year, analysts think TJX top-and-bottom line could continue to grow with EPS up 13% to $3.52 and revenue increasing 6.4% to $53.14 billion.
“Consumers are becoming choiceful. They’re turning to lower-price discretionary items, where TJX really excels,” Craig Sarembock, principal at Bartlett Wealth Management, told Barron’s in a recent report.
Dividend Rising
The department store’s advantages don’t end at customer service. It’s giving great service to its shareholders, too. TJX raised its dividend by 13% and announced a new $2 billion stock buyback plan. Its dividend increase is nearly triple S&P 500 dividend growth of 5%. Analysts see these moves as strong signals future business will be good.
TJX doesn’t just provide budget-conscious shoppers with variable and affordable inventory. Its occasional selection of genuinely high-end brands also allows it to attract more high-income customers than Ross Stores (ROST) and Burlington Stores (BURL), its two main rivals. This provides cover if demand for discretionary items by cash-strapped Americans continues to decline.
Finally, TJX has a track record of performing in bad times. TJX’s EPS grew to 51 cents in fiscal 2009 from 41 cents in fiscal 2007, despite the ongoing recession. A mere three years later, EPS close to doubled to 97 cents. As for this year, management already indicated business is doing well in the face of high inflation.
If everything pans out for TJX, much like its top-shelf brands, it may not remain on the clearance rack for long.
Are you bullish or bearish on TJX over the next 6 months? |
AI Ushers in New Demand for Cybersecurity Stocks
Microsoft Doesn’t Own the AI Market
ChatGPT and Bard might be bogarting the headlines. But when it comes to AI, it's not only Microsoft (MSFT) and Google (GOOGL) standing to benefit. AI may also be a catalyst for cybersecurity stocks, as deep fakes and clones become more commonplace.
It makes sense. For years, cybersecurity companies have used artificial intelligence to protect consumers and companies from cyberattacks. That job is getting tougher as AI and chatbots explode in popularity, requiring better security to protect against threats becoming both more sophisticated and harder to spot.
This is helping cybersecurity stocks, which took a hit last year as interest rates rose. But now, we're seeing stocks like CrowdStrike (CRWD) up 14%, while Palo Alto Networks (PANW) is 31% higher year-to-date. Meanwhile, the First Trust NASDAQ Cybersecurity ETF (CIBR) is up 3% so far in 2023. And some see even more gains, thanks to AI.
“Cybersecurity players are going to be an absolute staple in the build-out of artificial intelligence,” Sylvia Jablonski, CEO of Defiance ETFs told CNBC.
Cybersecurity Spending Should Hold Up
Wall Street and investors are bracing for cuts in IT budgets as the economy slows and interest rates rise. But one area in which they don't expect to see a hit is cybersecurity.
AI-focused threats are forcing companies to harden their computer systems and continue to spend on cybersecurity, even as IT budgets are getting tighter. The risk of not doing so may prove too costly, providing a cushion for cybersecurity stocks.
The upside is not just the good run they've had of late, argues Shaul Eyal, an analyst at TD Cowen. He points out many cybersecurity stocks have consistent growth and solid cash flow. Plus, they don’t look pricey from an enterprise value to revenue valuation perspective.
“The basket of cloud and cybersecurity stocks offers something for everyone,” Eyal says. “If you’re a value investor, there’s a value play. If you’re a growth investor, there’s plenty of that within the universe.”
Palo Alto, Cloudflare Poised to Pop
Tighter IT budgets may advantage some cybersecurity stocks over others. Analysts point to Palo Alto Networks as one player that should get more IT dollars. Palo Alto has a deep customer base and the capabilities to help companies fight the new threat landscape. As more businesses move to the cloud, demand for Palo Alto services should continue to increase.
Then there is Cloudflare (NET), which RBC Capital Markets analyst Matt Hedberg maintains is among the best positioned cybersecurity stocks. The analyst pointed to OpenAI’s decision to run a portion of its network through Cloudflare as evidence of its prowess. It could also prompt other AI providers to do the same. It doesn’t hurt that Cloudflare is churning out technology to fight more intelligent — and malicious — AI chatbots. “You cannot stop spending on cyber,” said TD Cowen’s Eyal. “It’s a game of cat and mouse.”
And, okay, we made it practically a whole piece without saying it, but, here goes: Microsoft is a name we've got to drop. Not only has the tech giant invested many billions in ChatGPT creator OpenAI. It also has an already-strong suite of cybersecurity products. And, with the surging demand in the space, it would be surprising if Bing were the only Microsoft product to get an AI-assisted facelift.
Which stock will outperform over the next 24 months? |
Invest in These Vacation Rentals In A Few Clicks☝
With Wander.com, you can unlock access to vacation rental investing without the hassle and headache of doing it yourself.
Wander REIT is the first and only institutional-grade vacation rental investment product. That means investors get all the tax-advantaged benefits of a REIT in a new asset category: vacation home rentals. Instead of the traditional apartment or office-building REITs, Wander REIT invests in the best of the best of vacation rentals.
Enjoy targeted 8% dividends and a 14% targeted total return with appreciation from hand-picked, stunning vacation homes – starting with a $2,500 minimum – without having to buy a property, change light bulbs or deal with guests. And for a limited time, new REIT investors may get an opportunity to invest in Wander’s next round of funding.
The Inflation Reduction Act Has Something for Everyone
Not Just the US
The Inflation Reduction Act has already been a boon to US-based green stocks, including First Solar (FLSR). But opportunities may abound internationally as well. That’s particularly true of emerging markets playing in clean energy technologies like batteries.
“This is a win, win, win,” Paul Desoisa, co-portfolio manager of the Global Emerging Markets strategy at Martin Currie, told CNBC. “It’s a win for the US to help secure long-term energy security … It’s a win for US jobs, for these facilities will generate thousands of jobs, which may have otherwise been overseas. And it’s a win for EM companies.”
South Korea Over China?
Take South Korea for starters. Sure, the Inflation Reduction Act provides subsidiaries for all sorts of clean energy tech, such as solar and wind. But a big portion of tax credits are focused on batteries, which have long been China's domain. As it stands, roughly 70% of the global supply of battery cells used in electric vehicles comes from China.
Now, the Inflation Reduction Act places restrictions on sourcing battery parts from China, which means South Korea stands to benefit. LG Chem, Samsung SDI, and SK On, all of which trade on the Korean Stock Exchange, have battery operations that should see dollars flow their way. Martin Currie’s Desoisa thinks LG Chem in particular may see a big boost in profitability in the “region of billions of dollars per year” because of the legislation.
“In battery making, you don’t necessarily need local US companies to fill in the gap [because] there needs to be an understanding of the manufacturing process, chemistries, and scale of economies to build safe batteries,” Mubashira Bukhari Khwaja, investment director of abrdn’s global emerging markets equity team told CNBC. “And the EV makers are obviously US companies, so there’s Tesla and all, but the battery makers are Korean, which are filling the gap.”
Notably, these South Korean companies don’t have much in the way of competition for this newfound business. Chinese battery maker CATL is their main rival, and now its US business is significantly restricted.
China May Still Win
China may face new restrictions on its stateside business now. But there are some companies analysts who think the country may still benefit from the new law. After all, China is already the dominant player in batteries and other green technology.
Carlos Asilis of Glovista Investments thinks impacted Chinese stocks could actually rise by 15% or more over the next 12 to 18 months. Investors looking for a passive investment may want to check out the iShares MSCI China ETF (MCHI) to get some exposure. Meanwhile, Ford (F) announced in February it was gearing up to open a battery cell plant in Michigan — and tapping CATL for help.
The rising tides of the new legislation may not only rock boats in Asia. On the solar front, analysts point to Italy's utility Enel Group (ENLAY) as potential beneficiary of the Inflation Reduction Act.
The Act has a lot of green components that will benefit companies across the world. Investors seeking out-of-the-box ways to play it may want to look beyond the US borders.
Do you think the Inflation Reduction Act was a good or bad piece of legislation? |
Last Week's Poll Results
Are you bullish or bearish on Ferguson over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
⬜️⬜️⬜️⬜️⬜️⬜️ 🐻 Bearish
Are you concerned CRE loans tied to the office space is a looming bubble?
🟩🟩🟩🟩🟩🟩 👍Yes
⬜️⬜️⬜️⬜️⬜️⬜️ 👎No
Are you bullish or bearish on life insurance stocks over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish
Reply