⚡ Failing Grids Spark Opportunity

Happy Sunday to everyone on The Street.

$100 billion annually. That’s how much the retail industry is bleeding due to theft, as reported by the National Retail Federation. Like, what? How is that even possible? That’s more than the entire GDP of Saint Kitts & Nevis.

The CEO of Nordstrom, which recently suffered a $300,000 loss in merchandise during a "flash rob" incident in a Los Angeles store in August, commented on the alarming rise in theft, describing it as reaching unprecedented levels.

These criminal activities are significantly impacting local economies by deterring shoppers from visiting stores, diminishing sales tax revenues, and, in some cases, forcing shops to shut their doors.

• Nike is shutting down its popular outlet in Portland, Oregon — its backyard — due to "deteriorating public safety conditions and rapid escalation in retail theft.”

• American Eagle Outfitters sued mall operator Westfield, saying it let its San Francisco mall “deteriorate into disarray," leaving its workers exposed to violence and robberies.

• When it opens in May, the Walmart on Atlanta’s Martin Luther King Jr. Drive will include for the first time a police department substation to reduce the risk of theft and violence in the store.

• Theft at Home Depot stores has been “growing double-digit year over year,” the retailer’s VP of asset protection, Scott Glenn, recently told ABC News.

Retailers are grappling with a wide spectrum of looting incidents, spanning from minor thefts to organized heists reminiscent of Mafia operations. $100 billion a year. I had to check that figure twice. How did we get here? Sheesh. For now, on to the show.

PRESENTED BY MAGNIFI

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_{Fees and expense ratios vary by holdings. Not all investors will have investments with high fees. Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. Example shown here for communication purposes only.}

Review

U.S. stocks fell on Friday as the United Auto Workers union strike against America’s Big Three car makers – General Motors, Ford, and Stellantis – and rising bond yields put pressure on equities. The strike marks the union’s first-ever walkout across all three Detroit automakers.

With slightly hotter than expected August inflation, Wall Street eagerly awaits the Fed’s policy update and new round of projections due on Wednesday this week. Market expectations are pointing to unchanged interest rates at this meeting.

In June, FOMC members forecasted an additional 25-basis-point hike before the end of the year. Investors will look to see if those projections change on Wednesday.

In economic data, an early look at September figures saw the University of Michigan Consumer Sentiment index slip for a second month in a row following a near two-year high in July.

Attitudes around current economic conditions worsened compared to the previous month as rising food and fuel costs weighed on purchasing power. Even so, sentiment is still well above the all-time low reached in June last year.

In company news, shares of workout chain Planet Fitness dropped nearly 16% after its board of directors removed CEO Chris Rondeau. Rondeau will continue to serve on the company's board and fellow member Craig Benson will step up as the interim CEO.

In the market, the major indices gave back all or most of their weekly gains on Friday. In total for the week, the Dow Jones Industrial Average added just 0.1%, while the S&P 500 declined 0.2%. The Nasdaq Composite was down 0.4%.

Preview

It’s Fed week and investors are curious to hear the central bank’s Chairman Jerome Powell address the latest round of inflation data, which came in a little hotter than expected.

Aside from the interest rate decision, the Fed will also release updated economic projections on Wednesday, which could sway markets.

Otherwise, investors will have a slew of housing market data to digest this week, starting with the housing market index for September. This gauge for current single-family home sales, compiled by the National Association of Home Builders and Wells Fargo (WFC), dropped in August.

On Tuesday, building permits and housing starts for August will be released.

On Thursday, the real estate reports will continue with existing home sales for August. In July, this metric dropped 2.2% month-over-month. Data on jobless claims will come in as well.

On Friday, FOMC member and Fed Governor Lisa D. Cook will give a keynote address at the National Bureau of Economic Research Economics of Artificial Intelligence Conference.

Earnings Spotlight

In other earnings, Stitch Fix (SFIX) will hand in its earnings report tomorrow, possibly addressing the closure of its UK business.

Tuesday, auto parts seller Autozone (AZO) will announce its latest quarterly earnings. The prior quarter was better than expected, with earnings per share growing nearly 18% year-over-year.

On Wednesday, General Mills (GIS) will give investors an update on its massive consumer goods portfolio. In preparation for Spooky Season, the 95-year-old snack conglomerate announced a new friend for its popular Franken Berry, Boo Berry, and Count Chocula brands: Carmella Creeper, a zombie DJ with her own TikTok account.

On Thursday, Olive Garden-owner Darden Restaurants (DRI) will release its latest report card. The restaurant conglomerate may provide additional details on its recent Ruth Chris’s Steak House acquisition.

By the way, fun fact from a recent article in The Economist, titled, “Where do Americans mingle?” According to the outlet:

A Pick-And-Shovel Play For Air Travel

Take Flight With AAR

Airline stocks are a natural way to get exposure to the recovering travel industry, but they’re not the only option. There are pick-and-shovel plays that might be worth considering. Take a supplier like AAR Corp. (AIR), for example.

Reselling refurbished aircraft engines and airframe parts, the company is well-known among aviation circles. Considering its growth prospects, AAR could soon be gaining more followers. Between 2023 and 2035, the company's forecast sees a sales growth of 10% on average, while earnings are expected to increase by 16%. There’s good reason to believe AAR can take flight.

Travel Demand Growing

Demand for post-pandemic travel has been high. It has given the airline industry the boost it needs to recover. In April, worldwide domestic air traffic surpassed pre-pandemic levels. International air travel is also on the uptick. For AAR, having more planes in the air is good for business.

AAR's most well-known division specializes in selling “used serviceable material” or previously-used aircraft parts to airlines. This wing is expected to perform even better with the increase in air travel. As new airplanes take off, the retired ones increase the company's inventory.

AAR enjoys several benefits from retired airplanes. As older models are decommissioned, some parts remain highly profitable in the refurbished market. For example, the CFM56 engine is one of the best-selling engines of all time. The refurbished model is also in high demand, and AAR should have a solid stock available for resale.

Undervalued at Current Levels?

The company has room for growth, but its stock hasn't reflected that yet. Right now, AAR shares are trading at 16.7 times the earnings expected in the next 12 months. This rate is lower than the S&P 500's multiple of 19.2 times.

According to some analysts, AAR's stock should be valued at a multiple of 20 times the next 12 months' earnings. Robert Spingarn from Melius Research, for instance, sets a price target of $73 for the stock - that's quite an increase from its current price of $57.81. Spingarn is not the only one optimistic toward AAR. All of the four analysts covering the company have given it a "buy" rating.

AAR is in a growth phase and could stand to benefit from the ongoing recovery in the travel industry. For investors, this pick-and-shovel play might be worth more due diligence.

A Solar Stock That’s Worth a Second Look

Beaten Down Stock Poised for Upside?

The solar industry is having a moment in the sun, which should be good news for Enphase Energy (ENPH). The solar power company hit a rough patch this year: shares started 2023 on a six-year winning streak, only to fall 54% later on.

The selloff was prompted by a weak sales forecast for the third quarter. Bulls are calling foul — they say it's overdone. Enphase seems to agree. Company insiders with a reputation to sell shares, have been snapping them up recently.

Solar Market Is Booming

Bulls point to the rapid growth in the solar panel market as one reason to be optimistic. Solar power is expected to account for over half of new electricity capacity this year. That’s the first time ever.

Enphase — known for producing inverters — is a crucial supplier in the solar industry. The company has a network of installers and distributors located across the country and around the world. Earnings are projected to grow 10% in 2023 to $5.07 per share. Estimates for 2024 and 2025 are even better, calling for over 30% earnings growth each year.

Enphase has also been profitable, something not all of its rivals can claim. The company will not need to borrow at a high rate to fund its growth.

Reason for Concern

Still, there is some reason for concern. Enphase is reliant on the residential market in the US, where consumers have been hurting from high interest rates. Shifting to solar comes with a hefty price tag, and consumers are opting to put it on the back burner. Moreover, California, one of its biggest US markets, set new rules that make it less lucrative to go solar.

Nonetheless, the company believes the third quarter was the bottom, and there's nowhere left to go but up. In any case, as Enphase waits for US interest rates to improve, Europe has kept it busy. The transition to solar in Europe has been in full swing, with the war in Ukraine speeding things up. The company estimates the European solar market to be twice the size of the US market.

The bulls and Enphase agree that the sun isn’t setting on the solar stock just yet.

PRESENTED BY MAGNIFI

Will you make more money investing in AI or with AI?

If you’re like most investors, finding the next big AI investment may be on your mind. But what if the biggest thing you can do for your investing involves using AI to help you invest overall.

Meet Magnifi, the AI that CNBC calls “ChatGPT meets Robinhood.”

Magnifi is an AI assistant that helps you invest. So, whether you’re looking for help analyzing and optimizing your various existing investments, help getting started investing with a plan to pursue a financial goal, or just looking for “top performing AI investments this year” Magnifi can help you get there.

You can even connect all your current brokerage accounts including Robinhood, Fidelity, TD and hundreds of other popular brokerages, and Magnifi’s AI will give you a full view of your whole portfolio. Maybe Magnifi is the AI we’ve all been waiting for.

See what AI can do for your investing. For a limited time, you can get started for just $1.

_{Fees and expense ratios vary by holdings. Not all investors will have investments with high fees. Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. Example shown here for communication purposes only.}

Failing Grids Spark Opportunity

In Need Of An Overhaul

The electric grid is in need of an upgrade — a fact recognized by businesses and policymakers alike. Billions of dollars are expected to be invested in tools and workers for this overhaul. Investors are also taking note of this opportunity.

The devastating Maui fires shed light on the problems with the nation's power grid. The current systems can't handle the increased number of dangerous storms and droughts resulting from climate change. Utility companies are now willing to invest in technology to improve the grid, and prevent ramifications from wildfires or other calamities.

But when it comes to playing this market, investors have choices. Here’s a look at some of them.

Physical Labor Needed

Upgrading the electric grid requires workers, something there is a dearth of. Utility companies are seeking help from specialty construction companies to complete the work.

Many are private, but there are some public ways to play it, including Quanta Services (PWR), MasTec (MTZ), and Primoris Services (PRIM).

Some of the companies involved in the power grid’s overhaul provide very specific tasks. AECOM (ACM), for instance, helps utilities bring power lines underground.

Software Support

Supporting the grid itself is another way investors can gain exposure. That’s where Eaton (ETN) and NV5 (NVEE) come in. Eaton makes the software that manages and upgrades electric grids. This software also measures the grid’s efficiency and areas of risk. NV5 provides fire mitigation studies and investigation services.

The graphic chip maker, NVIDIA (NVDA) is also involved. The company is using AI to map out potential disasters.

Extreme weather isn’t going away anytime soon. Utility companies are refocusing attention full-on toward the need to upgrade the grid, and to do it soon. The companies that can support that push have the potential to win.

Last Week's Poll Results

Are you bullish or bearish on International Paper over the next 12 months?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish

Which option above are you most bullish on when it comes to sports gambling?

🟩🟩🟩🟩🟩🟩 DraftKings (DKNG)

🟨⬜️⬜️⬜️⬜️⬜️ Caesars Entertainment (CZR)

🟨🟨🟨⬜️⬜️⬜️ MGM Resorts International (MGM)

🟨⬜️⬜️⬜️⬜️⬜️ PENN Entertainment (PENN)

🟨⬜️⬜️⬜️⬜️⬜️ Roundhill Sports Betting & iGaming ETF (BETZ)

Are you bullish or bearish on Tractor Supply over the next 12 months?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish

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