- The Street Sheet
- Posts
- 😎 Spring Break Stocks to Watch
😎 Spring Break Stocks to Watch
Plus, stepped-up SNAP benefits are ending. Some grocery stocks could be in trouble.
Happy Sunday to everyone on The Street.
Today's opening essay is brief because we have a really interesting lineup of stories below. This includes an underrated sector that might receive too much trash talk, a list of stocks to watch during spring break season, and why some grocery chains could see margin compression with the expiration of stepped-up SNAP benefits.
Before we dive in, however, I want to quickly call out another briefing I'm working on: The Last Cast Letter. It's a monthly send, delivered on the last day of every month. If you're interested in private and direct real estate investing, this newsletter is for you.
It's a long read, which is why it's monthly, but it's a way for me to highlight what I'm thinking about in the real estate space and connect with people who are interested in investing alongside me.
Obviously with where rates are sitting the real estate market is going through a bit of an identity crisis at the moment. But there are still interesting opportunities worth looking at, and being prepared for, as long as you think through the specifics and make sure your underwriting is conservative.
At some point, I'll be raising money to pull the trigger on properties that make sense. In the meantime, I'll be outlining my thought process in these monthly sends.
If you're interested in investing, here's how you can stay up to date. The link below is a one-click sign-up, which means you'll be automatically subscribed if you click it.
Also, if the link above doesn't work on your phone or computer, you can subscribe here.
Review
US stocks finished lower on Friday after inflation numbers jumped higher than expected. The Fed’s preferred inflation index, core PCE, rose 0.6% month-over-month and 4.7% year-over-year. Both figures were above analyst projections of 0.4% and 4.3%, respectively, and convincingly underscored the Fed’s need to continue its painful fight against rising consumer prices.
On the earnings front, Sweetgreen shares stumbled after reporting fourth-quarter revenue that fell short of Wall Street’s projections. The salad chain pointed to higher menu prices and the corresponding decline in volume as primary contributors, while adding weaker-than-expected guidance for the upcoming quarter.
Meanwhile, the payments company Block Inc, formerly known as Square, missed earnings estimates, but beat on revenue. The fintech darling posted $1.66 billion in gross profit for 2022, $848 million of which was generated by its Cash App business.
In other company-specific news, Ford is suspending production of its electric F-150 pickup truck. The announcement comes on the back of a battery issue that resulted in one of its vehicles catching fire.
Meanwhile, Ericsson announced it would lay off roughly 8% of its workforce as part of a cost-cutting plan that would take effect in the first half of 2023. The Swedish telecom company said the decision would impact 8,500 workers worldwide as part of its goal to reduce expenses by about $860 million.
Apple is set to release its first-generation VR headset in June, after significant product delays. The first model should cost around $3,000 but top analysts expect more versions to be available by 2025.
Warner Bros Discovery fell short of analyst expectations for revenue thanks to a soft advertising market. But, the HBO Max and Discovery+ owner said that its streaming subscriber base grew by 1.1 million during the quarter.
Lastly, Beyond Meat’s sales shrank 20% in the 4th quarter which was better than Wall Street was expecting. The alternative meat company is prioritizing becoming cash flow positive over growing revenue as sales are expected to keep falling in 2023.
In total for the week, the Dow Jones Industrial Average fell 3.0%, while the S&P 500 declined 2.7%. The Nasdaq Composite lost 3.3%.
Preview
January durable goods orders are released tomorrow. The data point measures orders of goods meant to last over 3 years. In December, this metric soared 5.6 percent from November which was the sharpest gain since July 2020.
Tuesday, investors will get reports for the current trade balance, retail and wholesale inventories, and year-over-year changes in home prices. In particular, the US trade deficit widened in December to $90.3 billion.
On Wednesday, the purchasing managers index will be released. This measure of factory activity fell to 47.4 in January, which was the lowest since the height of the COVID pandemic in May 2020. Investors will also get an update on the 30-year mortgage rate, which sat at 6.62% for the week ended February 17th.
On Thursday, the number of Americans filing for unemployment benefits will be announced. Claims have been coming in low on a weekly basis, signaling a very tight labor market.
On Friday, there will be a flurry of reports released including non-manufacturing PMI, employment, new orders, and business activity. Additionally, information on vehicle sales will also be published. In January, new vehicle sales rose by 4.2% to just under 16 million units which marked the 5th straight month of increasing sales.
Earnings Spotlight
The week will start off strong with earnings announcements from two of the top productivity companies, Zoom (Z) and Workday (WDAY). Zoom hasn’t been immune to layoffs in the tech sector. Earlier this month the company let go of 15% of its workforce so investors will be curious to hear what’s in store for the rest of the year.
Tuesday, investors will get multiple earnings reports including announcements from Rivian (RIVN), Virgin Galactic (SPCE), and Target (TGT). In particular, Target recently committed $100 million to ramp up its next-day delivery capabilities to compete with other top retailers.
On Wednesday, Dollar Tree (DLTR) will report its earnings and expand on the negative insight that competitor Dollar General (DG) reported the other week. Additionally, Salesforce (CRM) and Wendy’s (WEN) will also offer their latest financial information.
On Thursday, investors should tune in to Costco’s (COST) earnings announcement to see how inflation is impacting its customers. Costco’s CFO recently hinted that the wholesaler might increase the price of its membership at some point in 2023. Best Buy (BBY)and Zscaler (ZS) will also give earnings reports.
Option Pro's Next Top Pick Drops Monday
Jeff Bishop is a literal stock-picking genius. He has been making great trades for over 20 years, and this is your opportunity to get access to his #1 trade idea every single week, along with his complete game plan for how he wants to attack this stock with his exact entry/exit targets and even the exact option contract & price he is looking to buy it at. Best of all – everything is in your inbox before the market opens each week! 📬
It is the most transparent, reliable tool you will find for becoming a sharper, better-educated trader.
And the picks? They are awesome! He recently alerted option trades that went up over 320% on NFLX, 400% on CELH, and a whopping 700% on AMZN – all in just a few days!
Find out why 22,368 traders like you have made the move to join Bullseye Trades 🎯
👉 Just enter your email here, and you can instantly unlock access to everything Bullseye has to offer.
Pro tip: Be sure to enter your mobile number to get fast-breaking trade ideas during the week! 📱
Don't Trash These Three Stocks Just Yet
One Man's Trash Is Another Man's Treasure
In the world of waste management, garbage to some is treasure to others. That's certainly true for the three major players in the industry: Waste Management (WM), Republic Services (RSG), and Waste Connections (WCN). While other defensive stocks have seen gains, these companies have taken a hit, despite their stability, pricing power, and low valuations.
As analyst Michael Hoffman of Stifel notes, "the group sold off, fundamentals remain good, [and] the outlook is for healthy margin expansion in 2023." Hoffman rates Waste Connections and Republic Services as "buys."
Think Green...
The reason for this optimism is simple: hauling trash is a steady business, regardless of economic ups and downs. Contracts with commercial, industrial, and residential customers are often multiyear deals with exclusive rights to trash removal, giving companies strong pricing power.
Last year, as inflation soared, these companies were able to offset rising costs with high single-digit rate increases. Though price increases may be lower in 2023, the resulting profit margin expansion should still be significant. Furthermore, all three companies are investing in recycling and emissions capture, which could lead to future growth.
A Dirty But Necessary Business
Despite all these factors, these stocks have significantly underperformed the S&P 500 so far in 2023. This has resulted in their trading at multiples well-below historic norms. Waste Management and Republic Services are trading at around 25x this year’s estimated earnings, while Waste Connections is trading at a premium of 32x earnings.
Hauling trash may be a dirty business, but it's not going away anytime soon. Investors looking for a combination of stability and growth just might want to check the waste basket.
Are you bullish or bearish on waste management stocks over the next 12 months? |
Spring Break Stocks to Watch
Travel Demand Is Surging – Here’s Who Benefits
High inflation and worries about a recession aren’t stopping people from traveling, which benefits airline, hotel, and other travel-related stocks. That should continue as we head into the spring break season. Many families are gearing up to get some R&R this spring, which means hotels will be full and flights packed. It also means more business for the likes of Delta Airlines (DAL), Hilton (HLT), Expedia (EXPE), and Airbnb (ABNB), among others.
“Global travel has really rallied this year; it’s outpacing the broader market,” said Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs, in a recent CNBC interview. “The consumer is still spending, and they’re spending more in services and experiences than they are in goods.”
It's a sentiment airline and hotel companies have been sharing since the start of the year. Delta’s CEO Ed Bastian told investors during a fourth-quarter earnings conference call in late January that demand remains strong and the industry will see “tens of billions of dollars of incremental demand in the next few years coming out of the pandemic.” Meanwhile earlier this month Hilton CEO Chris Nassetta said current demand trends are “really strong.”
Pricing Power = Profits
Hotel stocks are not only benefiting from surging demand but also pricing power. Rates are increasing after coming off the lulls seen during the pandemic. It's bearing out on the earning results of the major hotel stocks. Hilton (HLT), Hyatt (H), Wyndham (WH), and Marriott (MAR) all topped Wall Street’s forecasts for their most recent quarterly earnings.
At Hyatt, fourth-quarter revenue per available room, or RevPAR, jumped 34.8% year-over-year, higher than pre-pandemic levels. Wyndham’s RevPAR in the fourth quarter was up 15% compared to last year. And, at Marriott, it was up 5% compared to 2019. Marriott pointed to a 13% increase in the average daily rate as a driver of growth.
Airlines are also benefiting from higher fares that are falling to the bottom line. So much so that the International Air Transport Association, the trade group for the industry, predicts the global airline market will return to probability in 2023. The group is expected to earn $4.7 billion this year, the first profits since 2019. Strong demand and higher fares are fueling the profits.
Shifting Away From Short-Term Rentals?
There is one area investors may have to worry about. Short-term vacation rentals, the domain of Airbnb and Expedia’s Vrbo aren’t seeing the growth they did during the pandemic. While Airbnb’s average daily rates were up 5% year-over-year in the fourth quarter, it's less than the 12% growth seen in the third quarter. A year ago, rates soared 20%. The short-term vacation rental company warned it expects average daily rates to face more downward pressure for the remainder of the year. Vrbo is also seeing pricing pressure.
The divergence between hotels and short-term vacation rental pricing is being driven by a shift in consumer preference. With the end of the pandemic goes the desire to stay away from crowds and isolate.
“Hotels have been making up ground and I think we’re getting to a much more normalized level,” Expedia CEO Peter Kern said on a recent earnings call. “In omicron, everybody was keenly focused on going away but going somewhere safe. Now people are going back to resorts, back to anywhere, back to big cities.”
Are you bullish or bearish on Airbnb over the next 12 months? |
Option Pro's Next Top Pick Drops Monday
Jeff Bishop is a literal stock-picking genius. He has been making great trades for over 20 years, and this is your opportunity to get access to his #1 trade idea every single week, along with his complete game plan for how he wants to attack this stock with his exact entry/exit targets and even the exact option contract & price he is looking to buy it at. Best of all – everything is in your inbox before the market opens each week! 📬
It is the most transparent, reliable tool you will find for becoming a sharper, better-educated trader.
And the picks? They are awesome! He recently alerted option trades that went up over 320% on NFLX, 400% on CELH, and a whopping 700% on AMZN – all in just a few days!
Find out why 22,368 traders like you have made the move to join Bullseye Trades 🎯
👉 Just enter your email here, and you can instantly unlock access to everything Bullseye has to offer.
Pro tip: Be sure to enter your mobile number to get fast-breaking trade ideas during the week! 📱
Stepped-Up SNAP Benefits Are Ending. Some Grocery Stocks Could Be in Trouble
Food for Thought
When the pandemic hit the United States in March 2020, the government poured about $98 billion extra into the Supplemental Nutrition Assistance Program, or SNAP, to help struggling households. This assistance accounted for 12.3% of total at-home US food and beverage sales in 2022, making it a significant driver of supermarket sales.
However, the stepped-up food stamps program is coming to an end in March, which could put downward pressure on supermarket stocks with high exposure to SNAP, including Grocery Outlet (GO), Walmart (WMT), Dollar General (DG), Family Dollar (FDO), Kroger (KR), and BJ's Wholesale Club (BJ).
With the elimination of the stepped-up benefits, SNAP-eligible households in 35 states and jurisdictions will lose a minimum of $95 a month in extra benefits, and SNAP monthly benefits could decline by about $3 billion overall, according to the Center on Budget and Policy Priorities.
SNAP, Crackle, Flop
This is particularly worrisome for supermarkets that receive a large portion of their sales from SNAP recipients, as food stamps represent over 10% of revenue for dollar stores and more than 20% of supermarket sales in low-income areas.
Goldman Sachs found that Grocery Outlet is the grocery stock most at risk, with food stamps representing about 15% of its total sales, while food stamps account for about 10% of Walmart, Dollar General, Family Dollar, Kroger, and BJ's sales. The Wall Street firm expects overall SNAP benefits to decline by 7% in 2023. Additionally, households are set to receive smaller tax refunds this year, which could further pressure sales.
No SNAP Judgements Here
Inflation may provide some relief for the impact of reduced SNAP benefits on grocery stocks. With inflation still high and food prices elevated, many wealthier households are looking to save and spending more money at discount stores.
At the same time, low-income consumers still have many jobs to choose from and are experiencing wage growth, which could help protect sales for discount supermarket chains. However, with less money to go around, grocery stores will have to compete on price, which could weigh on margins.
As the pandemic benefits come to an end, it is worth paying close attention to how it will play out at the nation's grocery stores.
Are you bullish or bearish on the grocery industry over the next 12 months? |
Last Week's Poll Results
Are you bullish or bearish on Hertz over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂
🟨🟨🟨🟨⬜️⬜️ 🐻
Are you bullish or bearish on Toast over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂
🟨🟨⬜️⬜️⬜️⬜️ 🐻
Are you bullish or bearish on Fastly over the next 24 months?
🟩🟩🟩🟩🟩🟩 🐂
🟨🟨⬜️⬜️⬜️⬜️ 🐻
Reply