🔎 What Insiders Are Buying

Happy Sunday to everyone on The Street. Last week we told you about the CHIPS for America Act and the case of Paul Pelosi's curiously timed NVIDIA stock purchase. The bill was advanced by the Senate this past Tuesday so we'll continue to monitor its progress in the House. As a refresher, Pelosi purchased up to $5 million worth of NVIDIA on June 17th when the stock was trading at $158.80. This past Friday, NVIDIA closed at $173.19.

One of the other stories we're watching is taking place in China. Roughly one million home buyers have stopped paying their mortgages, accusing developers of failing to deliver apartments they've already paid for.

Okay so who cares? Well, the value of mortgages that could be affected is estimated at roughly $300 billion. Moreover, the property market is responsible for one-fifth of China's economic activity and about 70% of Chinese household wealth. These are middle-class people that are watching their net worth erode, and they're not happy about it. Meanwhile, President Xi Jinping is just months away from the once-every-five-years Communist Party meeting where he is aiming to clinch a third term in office. More to come, plus poll results from last week:

• Which stock below do you think will perform the worst over the next 12 months? The majority of you (39%) said Booking.com, followed by Alphabet, and then Expedia.

• Are you bullish or bearish on Watsco? 71% of you said BULLISH.

• Are you bullish or bearish on dividend-yielding energy stocks like Exxon Mobil and Chevron over the next 12 months? 76% of you said BULLISH.

Review

US stocks fell Friday, ending a three-day rally that was largely driven by investor reactions to individual companies’ earnings reports.

Take Snap, for example, which plunged nearly 40% on the final day of the week after missing top and bottom line results. Snap's whiff weighed on the tech-heavy Nasdaq and broader S&P 500. Meta Platforms and Pinterest also sold off.

Still, the major indexes experienced an upswing for the week as earnings season continues. Over 20% of S&P 500 companies have reported earnings data and 70% have exceeded analyst expectations.

Zooming out, investors are studying how well individual firms are handling inflation while the Fed tightens its policy. Later this week a rate hike of at least 75 basis points is expected.

On the economic front, S&P Global released its flash July PMI for both the manufacturing and services sectors. Outside of COVID-19 lockdowns, output has slowed to its lowest level since 2009. The data showed what S&P Global referred to as a worrying deterioration of the US economy. Overseas, a new round of business surveys shows the eurozone economy contracted in July.

For the week as a whole, the Dow Jones Industrial Average rose 1.95%. The S&P 500 climbed 2.55% and the Nasdaq Composite gained 3.33%.

Preview

Tomorrow, the Chicago Federal Reserve will release June’s National Activity Index. In May the index declined month-over-month, with the reading suggesting economic activity shifted from a higher level to one that’s more average.

Tuesday, May’s S&P CoreLogic Case-Shiller Home Price Index is due. April’s results showed home prices increased 20.4% on an annual basis. The index hasn’t declined since November 2021. June’s new home sales are also set for release, as well as July’s consumer confidence index.

Wednesday, the FOMC will announce its policy decision concerning rate hikes. The central bank is expected to enact an increase of at least 75 basis points in response to rampant inflation. After, Wall Street will be paying close attention to what Fed Chair Jerome Powell says at his press conference. Also, keep an eye out for June’s durable goods orders, core capital equipment orders, advance report on trade in goods, and pending home sales index.

Thursday, jobless claims will be published by the Department of Labor. Last week, over 250,000 Americans filed for unemployment benefits, the highest number of applicants in eight months. Existing claims also edged upward. Analysts say this shows the red-hot job market is beginning to cool.

Friday, June’s Personal Consumption Expenditures Index is due. This is the Fed’s preferred measure of inflation. May’s index showed prices rising 6.3% year-over-year, remaining unchanged from April. Also set for release is June’s real consumer spending, this month’s Chicago PMI, and the University of Michigan’s consumer sentiment survey.

On the earnings front, it's another busy week ahead. Appliance manufacturer Whirlpool (WHR) is scheduled to report tomorrow. On Tuesday, tech giants Microsoft (MSFT) and Google parent Alphabet (GOOGL) will post earnings. Coca-Cola (KO), McDonald’s (MCD), and Chipotle (CMG) are all on the calendar as well. In the middle of the week, Facebook parent Meta Platforms (META) shares its most recent results. Aerospace company Boeing (BA) is also up on Wednesday. The packed week for tech earnings will feature Amazon (AMZN) and Apple (AAPL) on Thursday. Pharmaceutical giant Pfizer (PFE) will report as well. Finally, Oil giants Chevron (CVX) and ExxonMobil (XOM) will report results On Friday.

Procter & Gamble (PG) also reports on Friday. The company recently announced it will test its Tide products in outer space through a partnership with SpaceX.

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Estée Lauder Isn't As Ugly as it Seems

More Growth Might Be Left in this Cosmetic Stock

Estée Lauder (EL) investors aren’t feeling that pretty these days with the stock off 30% year-to-date. Inflation is soaring, concerns about a recession are growing, and China is not out of the woods yet from its draconian COVID-19 lockdowns. China specifically is giving investors a lot to worry about. Roughly a third of Estee Lauder’s sales come from China.

Despite all the negative headwinds, there is reason to be optimistic about the iconic cosmetic maker and its stock. Shares are performing worse than the S&P 500 and as a result, some think the stock is oversold. With all the bad news already baked in, bulls argue there’s only upside going forward.

China Lockdowns Easing

China is a big part of any potential reversal in Estée Lauder’s share price. Business in that market took a big hit during the pandemic and continues to suffer from COVID-19-related shutdowns. Some Wall Street analysts expect Estée Lauder’s Asian-Pacific sales to decline 41% year-over-year in the fourth quarter. With reopenings, some are projecting a 51% sales spike in the fourth quarter of next year.

China isn’t only a recovery play, it’s also one of the makeup company’s biggest growth drivers. Currently, consumers in China spend around $20 per person on high-end cosmetics which is peanuts compared to the $250 per person spent in the US, Japan, and Korea. That presents a big opportunity as Chinese consumers begin to ramp up spending on pricier makeup.

Blemishes and Bumps Along the Way

To improve profit margins in China, Estée Lauder is embracing a direct-to-consumer business model, which will improve its profit margins. That part of its business is also still growing.

There are risks to the Estée Lauder story, particularly in the short term. For the quarter ending in June (the company reports in August) results are expected to show the continued impact of COVID-19 lockdowns. Guidance is also projected to be on the conservative side, which may put downward pressure on the stock.

Estée Lauder’s quarterly earnings could prove to be ugly but with China’s lockdowns lifting and the economy improving, this high-end cosmetic maker may be sitting pretty soon.

Insiders Still Like These Consumer Stocks

Insiders Flex for a Few Consumer Stocks

Consumer discretionary stocks haven’t been immune to the broader market sell-off as investors worry about inflation and the prospects of a recession. It doesn’t help that retailers are sitting on excess inventory and have no choice but to discount. Sure coffee, soda, and gambling aren’t high on the list of must-have items when budgets are tight, but that doesn’t mean all consumer stocks have to be written off.

While we can't all be Paul Pelosi, we can keep an eye on what company insiders are buying and selling. There are a few including, Keurig Dr. Pepper (KDP), Caesars Entertainment (CZR), DISH Network (DISH), V.F. Corp. (VFC), and O’Reilly Automotive (ORLY) that have seen quite a bit of activity. Executives inside these companies are snapping up shares, signaling they have confidence in the firms' prospects even if investors don’t.

Keurig Dr Pepper Getting the Love

Keurig Dr. Pepper is one stock that really stands out from this perspective. During the last three months, four company insiders purchased over 120,000 shares valued at $4.4 million. It doesn’t hurt that the beverage company had strong sales in its first quarter reported in late April. Shares of Keurig Dr. Pepper are also down less than 5% since the beginning of 2022. The S&P 500, meanwhile, is down 17%.

Caesars is also getting a lot of love from insiders, three of which purchased 24,600 shares this year, valued at $1.3 million. That is despite shares being down 54% in 2022 and one of the S&P 500’s worst performers in the second quarter. Meanwhile, two insiders at MGM International (MGM) purchased 38,000 shares this year at a value of $1.1 million.

Insiders in the Know?

Dish, V.F. Corp., and O’Reilly Automotive are a handful of other depressed consumer stocks that insiders still like. Two Dish insiders purchased 1.3 million shares even with the stock losing half its value in 2022 while two insiders of V.F. bought 16,000 shares despite a 39% sell-off in the stock. O’Reilly Automotive is also getting insider support, but unlike the others, its stock is only down 2% since the start of the year.

Consumer stocks have not been safe havens in the current environment but that doesn’t mean insiders are all running for the hills. For investors who like to bet on those in the know, the above stocks provide some food for thought.

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Apartment REITs Turn to Shine

Down But Definitely Not Out

Apartment real estate investment trusts have gotten clobbered along with the broader market this year, but for bargain-seeking investors, that sell-off could spell opportunity.

Rising interest rates make the cost of borrowing more expensive for real estate investment trusts but it’s not all bad news for apartment REITs. Higher mortgage rates keep more renters from becoming home buyers.

With rental prices up year-over-year and with demand picking up as mortgage rates rise, some Wall Street watchers think the selloff in apartment REITs is overdone. It doesn’t hurt that many have little in the way of debt and plenty of cash to service any increase in borrowing costs.

Get Regional Exposure REIT Exposure

When it comes to rentals, performance is local. One area can be booming while another is suffering. With apartment REITs investors can pick and choose the regional exposure they want.

For instance, if you want exposure to the sunbelt then Camden Property Trust (CPT) and Mid-America Apartment Communities (MAA) give you just what you're looking for. Fancy more coastal investments? Equity Residential (EQR) and AvalonBay Communities (AVB) offer the bicoastal concentration. If you want a bit of both, then Apartment Income REIT (AIRC) and UDR (UDR) may be right for you. For west coast exposure, investors should consider Essex Property Trust (ESS).

UDR, Equity Residential May Have Upside

Among these apartment REITs, analysts point to UDR and Equity Residential as the ones with the biggest upside potential. They were both battered in 2020 and 2021 but now fundamentals are improving. That makes their stocks particularly cheap in the current market.

Outside of being a value play, apartment REITs are attractive in a recession because housing isn’t something consumers can easily blow off. Even if people lose their job or their salary gets reduced they still need a roof over their heads. As a result, demand for rentals most likely won't fall off a cliff like other categories in a recession. Sure rents could decline but they tend to hold up better than other areas. With the prospects of a recession looming, apartment rentals may provide some cover from the storm.

This communication from The Street Sheet is for informational purposes only. It is not intended to serve as a recommendation to buy, sell, or hold any security and is not an offer or sale of a security. Information contained within should not be perceived as a research report and is not intended to serve as the basis for any investment decision. Any third-party views reflected herein do not reflect the opinion of The Street Sheet. All investments involve risk and the past performance of a security does not guarantee future results or returns. There is always the potential for financial loss when investing in securities or other financial products. Investors should consider their investment objectives and risks before investing.