🤑 Goldman’s "Greenablers"

Happy Sunday to everyone on The Street.

Did anyone else just feel a chill run down their spine? If you didn't, consider yourself lucky, because there are some major players on Wall Street that are scared stiff about the next 6-18 months. A “hurricane” is coming, they say. It's time to "batten down the hatches," the oracle of Amazon whispered. It sounds like pirate costumes and sailor uniforms are in this year based on these stormy weather comparisons.

Speaking of costumes, Americans are expected to spend $3.6 billion on their Halloween outfits this year. That's the most since 2017. Total spending is projected to hit $10.6 billion, an increase of 5%, or $500 million since 2021. Some of that probably has to do with the fact candy is 13% more expensive.

If you haven't gotten around to decorating for tomorrow night, well then maybe it's best you just focus on finding New Years' decorations. Home Depot (HD) announced in July -- yes, July -- that its 12-foot skeleton was sold out. Recently, someone in Austin, Texas wanted this giant bag of bones so badly, they attempted to steal one with their car from a front yard. We don't recommend doing that, but we do recommend having a wonderful Halloween, everyone. Here are the poll results from last week:

• Are you bullish or bearish on Deckers? 60% said BULLISH, 40% said bearish.

• Are you bullish or bearish on Zoom over the next 12 months? 56% said BULLISH, 44% said bearish

Review

Despite some signs of weakness in the tech sector, US stocks rose Friday. Investors appeared to latch on to economic data showing that consumer spending is holding steady amid slowing inflation.

Amazon had a downbeat day after its latest report showed weaker-than-expected quarterly revenue and a reduced fourth-quarter sales forecast. Apple also reported iPhone sales haven’t met their expectations, however, the company did beat Wall Street estimates on the top and bottom lines.

Looking at economic data, investors reacted positively to the September PCE, which is the Federal Reserve’s preferred measure of inflation. The pricing index rose 0.5% month-over-month and 5.1% on an annual basis, which remains high, but largely within expectations.

That’s especially important ahead of this week’s interest rate decision from the central bank. The market has been eagerly looking for any sign that the Fed could slow its rate-hike campaign.

Last month’s consumer spending report was also a source of optimism, as the figure rose 0.6%, which exceeded estimates.

The housing market continues to soften as mortgage rates rise, and last month’s pending home sales fell 10% from August, which was above what economists predicted.

In company-specific news, the New York Stock Exchange suspended the trading of Twitter shares after Elon Musk completed his purchase of the social media platform. The company will be taken private and several top-level executives have been laid off.

Elsewhere, oil giants Exxon and Chevron beat analyst expectations. For Exxon, the most recent quarter’s profit broke a record. Pinterest also exceeded estimates on both the top and bottom lines, bucking the downward digital ad trend that is impacting its competitors Meta and Snap. T-Mobile reported its strongest subscriber growth since its 2020 merger with Sprint as well.

For the week as a whole, the Dow Jones Industrial Average rose 5.72%. The S&P 500 rose 3.95%, and the Nasdaq Composite rose 2.24%.

Preview

Happy Halloween! There are no major economic announcements due on Monday outside of the October Chicago PMI.

Tuesday, the October S&P Manufacturing PMI – or Purchasing Managers’ Index – will be released. This is a key measure of economic trends in manufacturing that will provide the market with an update into the state of US manufacturing. In September, the strengthening U.S. dollar caused export demand to decline at its fastest pace since May 2020. We will also get insight into October’s auto sales and the total number of job openings in September.

On Wednesday, investors will be closely watching the Federal Open Market Committee (FOMC) announce its interest rate decision. Their meeting will then be followed by a press conference with Fed Chair Jerome Powell. This presser will provide further insight into the central bank’s plans for future hikes amid its ongoing fight to curb inflation. The Fed has already raised rates by 300 BPS, or 3%, this year.

On Thursday, the market will learn how many people are on the job hunt with initial and continuing jobless claims due. The number of people filing for unemployment benefits ticked up last week but remains historically low. September’s trade balance will also shed insight as to how the U.S. stacks up in the global trade network.

On Friday, watch for a flurry of workforce-related reports for October, including nonfarm payrolls, the unemployment rate, average hourly earnings, and the labor force participation report (ages 25-54).

The busy third quarter earnings season continues this week.

On Monday, watch for insurance giant Aflac (AFL).

Airbnb (ABNB) and Uber (UBER) are scheduled to report on Tuesday. Keep an eye out for announcements from coil and gas giant Saudi Aramco and competitor BP (BP), as well as Pfizer (PFE), Electronic Arts (EA), and Avis (CAR).

On Wednesday, Zillow (ZG), CVS (CVS), KFC-owner Yum! Brands (YUM), eBay (EBAY), Etsy (ETSY), and American International Group (AIG) are on deck.

Thursday has reports coming in from Paypal (PYPL), Block Inc (SQ), and Coinbase (COIN). Kellogg’s (K), Starbucks (SBUX), and DoorDash (DASH) are also up.

On Friday, Hershey (HSY) stands at-the-ready to let us know if tomorrow's Halloween candy sales were more or less busy than last year’s. The company was among several candy makers who discussed efforts to keep prices low in the months and weeks leading up to the holiday.

Invest in Deep Tech

NanoVMs is a California-based company that is creating an operating system designed for today’s generation of cloud infrastructure.

The OS was built for cloud-based computing; utilizing a unikernel approach that takes up minimal resources and space, all while improving application speed and computer security. NanoVMs offers software solutions, subscription services, and technical support from industry experts. Here are a few reasons to consider investing:

• NanoVMs has received revenue from the US Airforce, including an Indefinite Delivery, Indefinite Quantity Contract (up to potentially $950M in value) for US Air Force Advanced Battle Management System (ABMS).

• Since founded in 2015, NanoVMs has raised over $2.4 million in funding, which includes $170k from the Department of Energy.

Learn more on how you can invest here.

Ride out a Recession With Paccar

Heavy Duty Trucks Still Hitting the Road

Riding out a potential recession with a trucking company may not make a whole lot of sense these days unless it's with Paccar (PCAR). The heavy-duty truck maker is among the industry leaders, manufacturing more than 1.5 million big rigs over the past decade. Its stock is up over 9% so far in 2022 compared to an 18% decline in the S&P 500.

Paccar should continue to outperform even in a recession, thanks to its growing parts business, the need for aging truck fleets to be upgraded, and pent-up demand due to supply chain issues. That’s not to say the road ahead won’t be bumpy, but Paccar is well-positioned to handle the terrain.

Higher Prices Fueling Growth

Take its sales prospects for starters. Wall Street expects Paccar to grow earnings per share by 46% in 2022 and for revenue to increase by 25%. Earnings are projected to be flat for 2023 and 2024 and then resume growth in 2025. Over the coming years, EPS is expected to be nearly 50% higher than the average of the previous few years.

Paccar’s truck brands, which fetch a premium in the market, are driving much of that growth thanks to record-high average selling prices. Alex Prudhomme, a senior analyst at data analytics firm M Science says Paccar’s trucks sell for around $114,000 each. This is an increase from 2021 when they were selling for roughly $104,000.

In the second quarter, over $600 million of Paccar’s sales were due to pricing gains, and more of that could be coming down the pike. “Our work suggests Paccar increased production rates at their North America assembly plants and is likely to see a benefit from pricing growth,” said Prudhomme in a recent Barron’s interview.

Honk For Dividends

Strong pricing isn’t the only way Paccar can ride out a recession. It also has a growing parts business that is generating a larger portion of sales. Having a blossoming parts business is helpful if the economy slows. Companies hold onto their trucks longer in that environment, opting to repair rather than fix their aging rigs.

Furthermore, Paccar is raising its dividend, increasing it by 9% alone in September. That comes on the heels of a 6% increase in 2021. Paccar also pays special dividends, most recently in January. Investors looking to ride out the recession may want to hop behind the wheel with Paccar.

Goldman's Greenablers: Under the Radar Clean Energy Picks

“Greenablers” Keep the Industry Humming

Solar, wind, and water stocks aren’t the only ways to play the transition to clean energy. That’s according to Goldman Sachs (GS), which recently outlined a handful of what they call “greenablers” that are worth considering.

They don’t carry a ton of clout with ESG investors yet, but they should. Without them, the green energy sector would crawl along at a sluggish pace. “These sectors are critical or — at a minimum — strongly needed for the vast majority of the Green Capex mosaic’s verticals,” Goldman Sachs wrote in a recent research report.

Four Critical Sectors

More specifically, Goldman focuses on four “critical” sectors that will help power the clean energy market.

These are semiconductors, cybersecurity, copper or aluminum, and electricity transmission. Within these sectors, the investment bank then attempted to highlight more "timely investments", or those that may yield results sooner. For example, sometimes new copper projects can take up to eight years after approvals. Goldman notes that the permitting stage alone in the electricity transmission space can last more than a decade.

After narrowing down the sectors and selecting stocks that should be considered on a shorter time horizon, Goldman rated the following “greenablers” as a buy.

They include Freeport-McMoRan (FCX), Constellium Electricity (CSTM), Sempra Energy (SRE), Public Service Enterprise Group (PEG), Advanced Micro Devices (AMD), TSMC (TSM), ASML (ASML), Datadog (DDOG) and Sangfor (SHE: 300454).

Every stock has a cash return on capital invested higher than 5%. This is an important metric that can act as a smell test for some investors.

Goldman’s List of Favorites

Goldman likes Freeport-McMoRan as its copper play. The pitch is simple really: copper is used in a variety of green products and Freeport-McMoRan is one of the leading copper miners. Aluminum is also in demand which is why Constellium Electricity is on Goldman’s list. It’s one of the world’s largest aluminum producers and has a big presence in the EV market already.

Sempra Energy and Public Service Enterprise Group are Goldman’s picks for exposure to US energy infrastructure. Meanwhile, on the semiconductor front, Goldman likes AMD, TSMC, and AMSL. All three make chips that require less power for performance. Finally, when it comes to electrical grid protection, Goldman thinks DataDog and Sangfor are up to the task. The companies make software to monitor systems and protect them from hackers.

Solar, wind, and water are usually what come to mind when investing in clean energy. However, it’s a complex ecosystem of companies beyond these big three that will help power the transition. Goldman’s picks are in, and some may offer a more attractive timeline to interested investors.

Invest in Deep Tech

NanoVMs is a California-based company that is creating an operating system designed for today’s generation of cloud infrastructure.

The OS was built for cloud-based computing; utilizing a unikernel approach that takes up minimal resources and space, all while improving application speed and computer security. NanoVMs offers software solutions, subscription services, and technical support from industry experts. Here are a few reasons to consider investing:

• NanoVMs has received revenue from the US Airforce, including an Indefinite Delivery, Indefinite Quantity Contract (up to potentially $950M in value) for US Air Force Advanced Battle Management System (ABMS).

• Since founded in 2015, NanoVMs has raised over $2.4 million in funding, which includes $170k from the Department of Energy.

Learn more on how you can invest here.

Drink Up With Beverage Stocks

Booze May Buck the Trend

When times are good, people drink. When times are bad, people drink. For better or worse, there’s one industry that tends to remain relatively strong during economic ups and downs: booze. That presents a potential opportunity for investors looking to protect their portfolios from a downturn, which Bloomberg recently said has a 100% chance of happening.

Anheuser Busch InBev (BUD), Brown Forman (BF.B), Diageo (DEO), Constellation Brands (STZ), and Molson Coors Beverage (TAP) are all names worth considering as we “batten down the hatches.”

“Alcohol has the tendency to survive the times,” said Mark Neuman, Chief Investment Officer and founder of Constrained Capita in a recent interview. “In a market where things go down, they should go down less.”

Consumers’ Tastes Shift

Alcohol’s resilience in the face of economic declines has been proven, according to a recent analysis by Goldman Sachs. The Wall Street firm found recessions don’t reduce the volume of alcohol consumed per capita. Competing research from Bernstein found if unemployment is unusually high, which it isn’t, consumption fell only 1%.

Whether sales hold up or decline slightly, some of the spirit companies are going to fare better than others depending on the products they sell. Cocktails in a can and Mexican beer have been all the rage recently while hard seltzer, a pandemic go-to drink, has lost its luster. Investors playing in this market have to keep these trends in mind given consumers' tastes can and do shift.

A Couple Options

To that end, take a look at Constellation Brands’ which owns both Corona and Modelo Especial. The latter was the number three brand in 2021 and will likely take the number two spot from Coors Light this year.

Constellation Brands CEO William Newlands spoke about this growth on the company's latest earnings call. “We continue to see further opportunities to maintain the growth momentum of Modelo Especial, particularly given the resilience of premiumization trends and our relentless focus on striving to close the brand’s distribution and awareness gaps,” he said.

Wall Street also holds Constellation Brands in high regard. Pointing to the growing Hispanic population in the US and consumers downshifting from spirits to beer, Bernstein analyst Nadine Sarwat said, “Fundamentally, it has a very, very strong portfolio just from a brand perspective.”

Money managers' other favorites include MGP Ingredients (MGP), which sells whiskey and distilled spirits, and Duckhorn Portfolio (NAPA), a luxury wine company we wrote about this summer. Recession fears are looming, prompting investors to find places to ride out the stormy weather. Might as well prep for the hurricane with a drink in your hand.

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