🎢 How to Play this Crazy Market

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THE STREET SAYS

Housekeeping: Team -- we are excited to announce that we've spiffed up our website a bit. On our home page, we've added a new section called "The Street Says". Guess who this is for? You! Yep, this newsletter reaches much brighter minds than ours and we're curious to hear what you think about all the stuff we hear nonstop on Bloomberg Radio and CNBC. Do you think the Fed is going to raise rates five times this year? Should you bet against the Inverse Cramer ETF Twitter account? Are NFTs scams? We want to know. With that said, let's start with an extra juicy question this week. One that will certainly be all the scuttle-butt come Thursday:

Vote: When the Consumer Price Index is released on Thursday, do you think the annual increase will be higher than December's reading of 7%? Yes or No: Click here to share your thoughts.

REVIEW

US stocks were mixed on Friday as jobs data left investors largely convinced the Fed will stick to its plans to combat rising inflation by hiking rates. Investors pivoted away from equities as bond yields spiked. Still, a series of strong earnings reports helped boost the tech sector one day removed from Meta Platforms’ bombshell. The social media giant disclosed that Facebook has stopped growing its user base—leading to an over 26% drop in Meta’s share price during Thursday trading. In economic data, January saw a 467,000 gain in non-farm payrolls, easily outpacing the expected gain of 150,000. Some economists even predicted a decrease because the Omicron variant hit during the time period surveyed. The labor force participation rate also increased to 62.2%, up from 61.9% in December. Economists say this indicates more Americans are getting off the sidelines and either working or looking for a job. In company-specific news, drug maker Bristol-Myers saw shares trade higher after reporting better-than-expected earnings per share. BJ’s Wholesale saw its stock rise as analysts say consumers are shifting towards more affordable retailers. On the downside, shares of Clorox fell after missing on earnings and citing challenges overcoming costs. For the week as a whole, the Dow Jones Industrial Average was up 1.1%, the S&P 500 rose 1.6%, and the Nasdaq Composite climbed 2.4%.

PREVIEW

In the week ahead, all eyes will be on inflation, as important data points are set to be released on Thursday. If inflation is still running high, a hawkish Federal Reserve's concerns and subsequent plans to raise rates will be justified. A more aggressive stance from the central bank, which has created a rising rate environment, is what caused so much turbulence in January. Wall Street is wondering if more volatility is on the way this week. In the geopolitical arena, investors will be keeping a close eye on developments between Ukraine and Russia. The Beijing Olympics kicked off as well and while the events might not trigger any market-moving events, they'll be on the radar nonetheless.

On Monday, the Federal Reserve reports December’s consumer credit figure, which totals all loans Americans took on to purchase goods or services including credit card debt. 

Tuesday, be on the lookout for the January NFIB Small Business Optimism Index. December’s international trade data tracking imports and exports is also set for release, along with real household debt for Q4 2021.

Wednesday, watch for the revised number concerning December’s wholesale inventories. 

On Thursday, investors will be paying close attention to inflation indicators when the January CPI and January Core CPI are released. December’s Consumer Price Index, which is determined by tracking the costs of dozens of items, rose 7% from the previous year. That’s the fastest pace for inflation since June 1982. Traders will also be following initial jobless claims, which came in lower than anticipated for the week ended January 29 at 238,000. The federal budget deficit is set for release on Thursday as well.

Rounding out the week on Friday, the University of Michigan’s preliminary Consumer Sentiment Index is due for February. This number estimates future spending and saving rates. January’s index fell 4.8% from December, marking its lowest level since 2011. 

A fair number of household names will be reporting earnings this week. On Monday, toymaker Hasbro (HAS) will report its quarterly results. Its most recent earnings beat analyst expectations, while company management said supply-chain issues held back sales. Tuesday, drugmaker Pfizer (PFE) hands in its report card, with analysts looking for guidance as to how quickly its COVID-19 pill can sell. The Walt Disney Company (DIS) will post quarterly earnings on Wednesday. Analysts say the growth of its streaming platform, Disney+, and the recovery of company theme parks are especially important moving forward. Coca-Cola (KO) reports its most recent earnings on Thursday. The iconic US brand has been unable to generate much growth over the last five years, and shares have increased by just 1.4% over that time. On Friday, Dominion Energy (D) will post quarterly earnings. The Richmond-based power and energy company last reported earnings in early November, beating analyst expectations for earnings but missing on revenue.

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Buying Opportunities Abound Amid Stock Market Selloff

Volatility Presents Opportunities 

With interest rates poised to rise this year and stocks commanding lofty valuations, investors are getting nervous. These jitters are what's been behind the roughly 5.6% decline in the S&P 500 so far in 2022 and the bloodletting in the tech-heavy Nasdaq. Even the Russell 2000 small-cap index is in the doldrums. 

The selloff may seem strange to investors who have enjoyed a more than ten-year bull run, with little in the way of volatility in recent years. After all, the S&P hasn’t been down this much since March 2020 at the start of the pandemic. Nonetheless, veteran investors see corrections as a normal part of life. Ones that present buying opportunities and this time is no different.

Energy, Dividend Stocks May Benefit 

With the Fed expected to start raising interest rates in March and Wall Street factoring in five quarter-point increases this year, companies that can thrive in a rising rate and inflationary environment should perform better than those that can’t. 

Energy companies land on that list thanks to their exposure to commodities. As inflation increases so do the prices for commodities including oil and gas. Energy stocks are also benefiting from pandemic reopenings worldwide. Among the potential energy stocks that may benefit are Pioneer Natural Resources (PXD) and Valero Energy (VLO). 

Another area that tends to do well in a rising rate environment is dividend-paying stocks. We did a full deep dive on dividends a couple of weeks ago. Some of the dividend stocks on Wall Street's radar in 2022 include Abbott Laboratories (ABT), Johnson & Johnson (JNJ), and McDonald’s (MCD).

A Tech Stock Rebound? 

Even tech stocks, which have taken the brunt of the recent selloff, may rebound in 2022. Investors have been getting out of tech, biotech, and small-cap stocks over interest rates and valuation concerns. While Fed policy may not change anytime soon, to some, those sectors are looking oversold, which could prompt a rebound. We saw a mini version of this Tuesday and Wednesday after blockbuster earnings from Alphabet. All hell broke loose on Thursday, however, after Facebook user growth came to a screeching halt. 

Without a doubt 2022 is off to a volatile start, with stocks plunging over inflation and interest rate concerns. That volatility, while scary, is normal. Investors who have been there and done that know this and are gearing up to take advantage of bespoke buying opportunities. 

Wesco Poised to Benefit from Electrical Infrastructure Upgrades

Wesco For the Win?

Wesco (WCC), the electrical and communications products maker’s stock may be in the gutter, down 10% so far in 2022, but there are reasons for optimism. Cloud computing, electric vehicles, and green power are driving investment in electrical infrastructure, which is Wesco’s sweet spot. For 2021, the company is expected to have generated $18 billion in sales. That’s projected to hit $18.9 billion this year. 

With about 15% market share in the US electrical distribution market, Wesco has the opportunity to grow both organically and through acquisitions of smaller rivals. It doesn’t hurt that the selloff in Wesco’s stock has more to do with it being a small-cap company than fundamentals. After all, the Russell 2000 Index is off 10% this year. 

Decarbonizing Will Be a Big Play 

Among Wesco’s opportunities, the power market is a big one. With power generation, transmission, and demand poised to change dramatically in the coming years as utilities "go green," Wesco can capitalize. Decarbonizing the economy in the US by 2050 is projected to cost $4 trillion, which amounts to utilities spending about $140 billion per year for the coming years. That’s an increase from the $120 billion per year utilities were spending on green upgrades including solar and battery backups. 

The company is also boosting its profit margins, after acquiring Anixter International, an electronics distributor, in 2020. Through integration Wesco keeps identifying areas to slash costs and improve margins.

High Debt Poses Risk 

There are risks to the Wesco story. Acquiring Anixter raised its debt level to around $5.3 billion from $1.5 billion. While Wesco plans to pay off a portion of that debt in the next few quarters, high debt can be risky. Then there is inflation. While Wesco is a distributor and doesn’t make products, inflation is driving the costs up for every type of business and Wesco is not immune. 

Despite the potential red flags, Wesco appears to be firing on all cylinders right now. Demand is surging, profits are improving, and Wesco is expected to generate $2 billion in free cash flow during the next three years. All of which should bode well for the stock.

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Altucher also wants his readers to know Ethereum's co-creator is back with a new crypto. He explains why it could be the next crypto to pop. What about this obscure crypto bank that pays 17.7% in annual interest? All in the book.

This cryptocurrency guide has answers to questions you didn't even know you had: like how to write the code to create your own cryptocurrency. Learn how to hack-proof your crypto portfolio.

Plus, finally learn the true identity of Bitcoin's creator. Supplies are limited. Act now!

Diversify With These 3 Metaverse Stocks

Meta, Apple, Walmart Provide Metaverse Exposure 

The metaverse is still in its infancy but that hasn’t stopped some of the leaders from commanding lofty valuations. For good reason. Once the metaverse, a virtual reality where people live, work, and play, takes off, it's estimated to reach hundreds of billions of dollars in size.  

Roblox (RBLX), Unity Software (U), and Advanced Micro Devices (AMD) are getting a lot of attention as metaverse stocks, but there are other ways to play the market. Some stocks are the more obvious metaverse plays like Meta Platforms (FB) and Apple (AAPL). Others are not so obvious, such as Walmart (WMT). All three give investors entry into the burgeoning metaverse.

Meta Poised to Lead

Take Meta, the parent of Facebook and Instagram for starters. Meta is now synonymous with the metaverse, announcing last year it was spending $10 billion to build its market position. Meta plans to spend its money building an operating system, digital commerce and social media platforms, and hardware devices. With $58 billion in cash as of the fall and $26.5 billion in free cash flow, Meta shouldn’t have too much trouble funding its ventures. 

Then there’s Apple. CEO Tim Cook recently said the company sees opportunities in the metaverse and plans to make investments. Apple has already poured a lot of money into augmented reality which will play a big role in this virtual world.

Walmart Sees an Opportunity 

Walmart isn’t the first company that comes to mind when talking about the metaverse, but it too is expressing interest. Late last year Walmart filed trademarks for virtual currency, non-fungible tokens or NFTs, and to sell virtual products. The latter prompted speculation Walmart is getting into the metaverse. The company didn’t confirm or deny it, but the virtual world does present a big opportunity for the retailer to sell products and services. 

The metaverse is just beginning to take form. With billions of dollars pouring into this virtual world, investors are picking and choosing the winners. Meta, Apple, and even Walmart, have a real shot at being in that group as the market progresses. 

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.