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Everything You Need To Know About The Markets Today

Everything You Need To Know About The Markets Today

Markets in Asia struggled today to get any traction following yesterday’s lackluster markets in the US and the weakening data coming out of Europe. The European equity markets are mostly in the green (albeit only slightly) with the exception of the FTSE 100 which is slightly down as of mid-day trading.

The beleaguered Hong Kong stock exchange got a shot in the arm today as the initial public offering of AB InBev’s Asia Pacific business – Budweiser Brewing Company APAC Ltd (1876.HK) – raised $5 billion, the second largest IPO of the year behind Uber’s (UBER) $8.1 billion in May. The company had initially looked to raise closer to $10 billion two months ago but was forced to put the IPO on hold after investors balked at the price. That seems to be a growing trend these days.

Major events for the day will be… READ MORE HERE

WEEKLY ISSUE: Taking a Last Sip from Our Venti Latte as We Head into the Summer

WEEKLY ISSUE: Taking a Last Sip from Our Venti Latte as We Head into the Summer

KEY POINTS FROM THIS ALERT:

  • We are issuing a Sell on Starbucks (SBUX) shares and removing them from the Tematica Investing Select List.
  • We are trimming our position in USA Technologies (USAT) shares, selling half the position on the Tematica Investing Select List and keeping the other half in play to capture any potential additional upside.
  • Heading into this week’s Costco (COST) earnings call, our price target is $210.
  • Heading into Apples 2018 WWDC event next week, our price target on Apple (AAPL) shares remains $200.
  • While we watch for a potential Las Vegas strike, our longer-term price target for MGM remains $39.
  • We continue to have a Buy rating and an $85 target for Paccar (PCAR) shares
  • With data points confirming a pick-up in business investment, we continue to have a Buy rating and a $235 price target for Rockwell Collins (ROK) shares.

 

Coming into this shortened week for the stock market following the Memorial Day holiday, we’ve seemingly traded one concern for another. I’m talking about the shift in investor focus that has moved from the pending June 12 meeting between the US and North Korea to renewed concerns over Italy and what it could mean for the eurozone and the euro as well as the overall stock market and the dollar. In last week’s Weekly Wrap, I thought Tematica’s Chief Macro Strategist, Lenore Hawkins, did a bang-up job summing up the situation but as we entered this week it pivoted once again, pointing to the likelihood of new elections that could pave the way for anti-euro forces.

This fresh round of uncertainty led the market lower this week, pulling the CNN Money Fear & Greed Index back into Fear territory from Neutral last week. Not surprising, but as investors assess the situation odds are US stocks, as well as the dollar and US Treasuries, will be viewed as ports of safety. That realization likely means the short-term turbulence will give way to higher stock prices, especially for US focused ones. Multinational ones will likely see a renewed currency headwind given the rebound in the dollar as well as the new fall in the euro.

I’ll continue to keep close tabs on these developments and what they mean for not only our thematic lens, but also for the Tematica Investing Select List. Expect to hear more about this on our Cocktail Investing podcast as well.

 

Cutting Starbucks shares from the Tematica Investing Select List

Given our thematic bent, we tend to be investors with a long-term view and that means it takes quite a bit for me to remove a company from the Tematica Investing Select List. Today, we are doing that with Starbucks (SBUX) and for several reasons. As I just mentioned above, this multinational company will likely see currency headwinds return that will weigh on its income statement.

At the same time, the company has been underperforming of late in same-store sales comparisons, which have slipped to the low single digits from mid-single digits in 2013-2016. The decline has occurred as Starbucks has reaped the benefits of its improved food offering over the last several quarters, and its new beverage offerings of late have underwhelmed. In the March quarter, if it weren’t for price increases, its same-store sales would have been negative.

While I still go to Starbucks as does the rest of team Tematica, the reality is that we are not spending incremental dollars compared to last year outside of a price increase for our latte or cappuccino. Said a different way, Starbucks needs to reinvigorate its product line up to win incremental consumer wallet share. In the past, the company had new beverages and then the addition of an expanded food and snack offering to deliver favorable same-store comparisons. Now with a full array of beverages, food and snacks, the question facing Starbucks is what’s next?

It’s this question as well as the simple fact that the closure of its stores yesterday to deliver racial tolerance training to its employees will weigh not only on same-store sales comps for the current quarter but hit profits as well. Keep in mind too that we are heading into the seasonally slower part of the year for the company.

Taking stock of Starbucks stock, my view is let’s take the modest profit and dividends we’ve collected over the last 24 months and move on.

  • We are issuing a Sell on Starbucks (SBUX) shares and removing them from the Tematica Investing Select List.

 

Trimming back our position in USA Technologies

Since adding shares of USA Technologies (USAT) back to the Tematica Investing Select List in early April, they have risen more than 50%, making them one of the best performers thus far in 2018. While the prospects for mobile payments remains vibrant and we are starting to see some consolidation in the space, I’m reminded of the old Wall Street adage – bulls make money, bears make money and pigs get slaughtered.

Therefore, we will do the prudent thing given the sharp rise in our USAT shares in roughly a handful of weeks – we will trim the position back, selling half the position on the Tematica Investing Select List and keep the other half in play to capture the additional upside. As we do this, we are placing our $12 price target under review with an upward bias. That said, we would need to see upside near $16 to warrant placing fresh capital into the shares.

  • We are trimming our position in USA Technologies (USAT) shares, selling half the position on the Tematica Investing Select List and keeping the other half in play to capture the additional upside.

 

Prepping for Costco earnings later this week

After the market close on Thursday (May 31), Costco Wholesale (COST) will report its latest quarterly earnings. Consensus Wall Street expectations are for EPS of $1.68 on revenue of $31.59 billion.

Over the last several months, the company’s same-store sales show it gaining consumer wallet share as it continued to open additional warehouse locations, which sets the stage for favorable membership fee income comparisons year over year. Exiting April, Costco operated 749 warehouse locations around the globe, the bulk of which are in the U.S. and that compares to 729 warehouses exiting April 2017. The number of Costco locations should climb by another 17 by the end of August and paves the way for continued EPS growth in the coming quarters.

  • Heading into this week’s earnings call, our price target is $210 for Costco (COST) shares

 

Updates, updates, updates, updates

Apple (AAPL)                                                                       
Connected Society

Next Monday Apple will hold its 2018 World-Wide Developer Conference (WWDC), which historically has been a showcase for the company’s various software platforms. This year it’s expected to feature iOS 12, the next evolution in its smartphone and tablet software. Recently it was hinted that Apple will unleash the full power of Near Field Communication capabilities found in those chipsets, which have been inside the iPhone since the iPhone 6 model.

In my view, this is likely to be but one of the improvements shared at the event. Those hoping for a hardware announcement are likely to be disappointed, but we never know if we’ll get “one more thing.”

  • Heading into next week’s 2018 WWDC event, our price target on Apple (AAPL) shares remains $200.

 

MGM Resorts International (MGM)
Guilty Pleasure

Quarter to date, shares of gaming-and-resort company MGM have come under pressure but our position in them is down only modestly. I’m putting MGM shares on watch this week following a vote by Las Vegas casino workers to strike when their contract expires at the end of May. I see that vote as a negotiating tactic with dozens of casino and resort operators, akin to what we’ve been seeing emanating from Washington these last few months.

I’ll continue to watch for a potential resolution and what it could mean for margins and EPS expectations. We’ve been patient with MGM shares, but if a strike ensues I’m apt to exit the position and fish in more fruitful waters for this investment theme of ours.

  • While we watch for a potential Las Vegas strike, our longer-term price target remains $39.

 

Paccar (PCAR)
Economic Acceleration/Deceleration

Over the last month, shares of this heavy-duty and medium-duty truck manufacturer have traded sideways. According to the most recent data point from the Cass Freight Index, shipment rose just over 10% year over year in April. That sets the stage for a favorable April reading for the American Trucking Associations’s For-Hire Truck Tonnage Index that rose 6.3% year over year after increasing 7.7% in February on the same basis.

At the same time, we continue to hear from a growing array of companies that they are facing rising costs due in part to surging trucking rates. Coca-Cola (KO) recently reported a 20% year-over-year increase in freight expense. Procter & Gamble (PG), Hasbro, Inc. (HAS), Danone SA, and Nestle SA also reported higher transportation costs and Unilever (UL) expects high-single-digit to high-teens increases in U.S. freight costs in the coming quarters. All of this confirms the current truck shortage that is fueling robust year-over-year growth in new orders for medium and heavy-duty trucks. Next week, we should get the May data and I expect the favorable year over year comparisons to continue.

As production rises to meet demand, we see a positive impact on Paccar’s business on both the top and bottom lines. Our $85 price target equates to just under 15x current estimated 2018 EPS, which has crept up by a few pennies over the last several weeks to $5.69 per share vs. $4.26 in 2017.

  • We continue to have a Buy rating and an $85 target for Paccar (PCAR) shares

 

Rockwell Automation (ROK)
Tooling & Re-Tooling

Our thesis on Rockwell Automation has focused on the expected pick-up in business investment and capital spending following tax reform last year. As the March quarter earnings season winds down, data collected by Credit Suisse reveals spending on factories, equipment and other capital goods by companies in the S&P 500 is expected to have risen to $166 billion during the quarter, up 24% year over year. That’s the fastest pick-up in capital spending since 2011 and marks a March-quarter record since Credit Suisse started collecting the data in 1995.

That year over year increase is roughly in line with the year over year increase in March 2018 U.S. manufacturing technology orders according to data published in the U.S. Manufacturing Technology Orders report from The Association For Manufacturing Technology (AMT). For March quarter in full, AMT’s data points to a 25% year over year improvement, which is in line with Credit Suisse’s capital spending assessment.

Based on these prospects, as well as statistics for the average age of private fixed assets that reveal the average age of U.S. factory stock is near 60 years old, it appears AMT’s 2018 forecast that calls for a 12% increase in US orders of manufacturing equipment compared to 2017 is looking somewhat conservative.

I’ve also noticed that over the last several weeks 2018 EPS expectations for Rockwell have inched up to $7.87 per share from $7.79, while 2019 expectations have moved higher to $8.81 per share from $8.73. I see those upward movements as increasing our confidence in our $235 price target for ROK shares.

  • With data points confirming a pick-up in business investment, we continue to have a Buy rating and a $235 price target for Rockwell Collins (ROK) shares.

 

WEEKLY ISSUE: Robust Earnings and March Retail Sales Bode Well for Select List

WEEKLY ISSUE: Robust Earnings and March Retail Sales Bode Well for Select List

 

Once again, the stock market has shrugged off moves in the geopolitical landscape and mixed economic data to start the week off higher. Not surprising as the highly anticipated 1Q 2018 earnings season has gotten underway and based on what we saw the last two days so far so good. For the record, we had 44 companies that reported better than expected top and bottom line results, a number of them high profile companies such Bank of America (BAC), Netflix (NFLX), Goldman Sachs (GS), Johnson & Johnson (JNJ), and CSX (CSX).

Like I said, so far so good, and while we’re getting some additional nice EPS beats this morning, we’re still very early on in the 1Q 2018 earnings season. Make no mistake, it’s encouraging, but we have a long way to go until we can size up 1Q 2018 earnings performance vs. the high bar of expectation that calls for roughly 18% EPS growth year over year for the S&P 500.

That’s why I’ll continue to parse the data — earnings and otherwise — as it comes through. Last week and this week, we’ll get more of that for March, and that means we can get a view on how those data streams performed in full for 1Q 2018. Case in point, on Monday we received the March Retail Sales Report, which on its face came in at 0.6%, better than expected, and excluding autos and food services the metric also 0.6% vs. February. That translated into a 4.7% increase for retail ex-auto and food services year over year for the month. Stepping back, the data found in Table 2of the report showed that line item rose 4.3% year over year for all of 1Q 2018.

With that information, we can size up which categories contained in the report gained wallet share and identify those that lost it. The two big winners for 1Q 2018 were gasoline stations, up 9.7%, which was no surprise given the rise in gas prices over the last three months, and Nonstore retailers, which also rose 9.7%. We see that data as very favorable for our Amazon (AMZN) shares and boding well for Costco Wholesale (COST) given its growing e-commerce business. Contrasting that figure against the -0.6% for department store sales in 1Q 2108 confirms the ongoing shift in how and where consumers are shopping. Not good news in our view for the likes of JC Penney (JCP) and other mall anchor tenants.

The hardest hit category during 1Q 2018 was Sporting Goods, hobby, book & music stores, which fell 4% year over year. Remember, we’re seeing these categories impacted as well by the shift to digital commerce, streaming services such as newly public Spotify (SPOT) and programs like Amazon’s Kindle Unlimited that looks to be the Netflix (NFLX) of books, audiobooks, and magazines. In my view, the other shoe to drop for this Retail Sales Report category is the Toys R Us bankruptcy that is poised to do to the toy industry what the Sports Authority bankruptcy and subsequent liquidation sales did to Under Armour (UAA), Nike (NKE) and Adidas among others. We’ll get a better picture on that when toy company Mattel (MAT) reports its quarterly results later this week.

I’d also call out that Clothing & Clothing Accessories store retail sales for 1Q 2018 rose just 3.0%, signaling slower growth than overall retail sales – a sign that consumers are spending their disposable dollars on other things or elsewhere. Over the last year, we’ve more than touched on the transformation that is underway with digital shopping, and we continue to see Amazon as extremely well positioned. Likely augmenting that Amazon has moved its Amazon Prime Wardrobe service, its “try before you buy offering,” from beta to launch.

Of course, it requires Prime membership and we see this service as helping drive incremental Prime subscriptions, especially as Amazon continues to improve its apparel offering, both private label and branded. Another headwind to clothing retailers looks to be had in Walmart’s (WMT) upcoming website overhaul that is being reported to have a “fashion destination” that will leverage its partnership with Lord & Taylor. With branded apparel companies looking to reach consumers, some with their own Direct 2 Consumer businesses and others by leveraging third party logistic infrastructure, we’ll keep tabs on Walmart’s progress and what it means for brick & mortar clothing sales. If you’re thinking this should keep our Buy rating on shares of United Parcel Service (UPS), you’re absolutely right.

The bottom line is the March Retail Sales report served to confirm our bullish view on both Connected Society companies Amazon and UPS as well as Cash-Strapped Consumer play Costco.

  • Our price target on Amazon remains $1,750
  • Given its strong monthly same-store sales data and ongoing wallet share gains as it opens additional warehouse locations, we are boosting our Costco Wholesale (COST) price target to $210 from $200
  • Our long-term price target on United Parcel Service (UPS) shares remains $130

 

 

Robust Earnings from Lam Research Bode Well for Applied Materials

Last night Applied Materials (AMAT) competitor Lam Research reported stellar 1Q 2018 earnings and issued an outlook that topped Wall Street expectations. For the quarter, shipments of its semiconductor capital equipment rose 19% year over year, which led revenue to climb more than 30% year over year for the quarter. Higher volumes and better pricing led to margin expansion and fueled a $0.43 per share earnings beat with EPS of $4.79. All in all, a very solid quarter for Lam, but also one that tell us demand for chip equipment remains strong. Those conditions led Lam to guide current quarter revenue to $2.95-$3.25 billion vs. the consensus view of $2.94 billion.

From growing memory demand, 5G chips sets, 3D sensing, smarter automobiles and homes, and augmented reality to virtual reality and the Internet of Things, we continue to see a number of emerging technologies that are part of our Disruptive Technologies investing theme driving incremental chip demand in the coming years that will fuel demand for semi-cap equipment. We see this as a very favorable tailwind for our Applied Materials shares. Also, let’s not forget Applied’s recently upsized dividend and buyback programs, which, in my view limits potential downside in the shares.

  • Our price target on shares of Applied Materials (AMAT) remains $70.

 

The Habit Restaurant – Loving the Burgers and Shakes, but Not the Shares Just Yet

People need to eat. That’s a pretty recognizable fact. Some may eat more than others, some may eat less; some may eat meat, others may not. But at the end of the day, we need food to survive, but in some cases for comfort at the end of a long day.

As investors, we recognize this and that means considering where and what consumers eat, and also identifying companies that are poised to benefit from other opportunities as well. One such opportunity is geographic expansion, and with restaurants, it often means expanding across the United States.

Typically, expansion is driven by new store openings, which in turn drive sales. Tracing back its expansion over the last several years, Chipotle Mexican Grill (CMG) had to build up to 2,363 locations. Even with that number of locations, per Chipotle’s recently filed 10-K, the company still expects to “open between 130 and 150 new restaurants in 2018.” At that pace, it would take quite a while before Chipotle had as many locations as McDonald’s (MCD) (more than 14,000) or Starbucks (SBUX) (just under 14,000) in the U.S. exiting last year.

A little over a year ago, Restaurant Brands (QSR), the company behind Tim Hortons and Burger King, acquired Popeye’s in part for food-related synergies but also the opportunity to grow Popeye’s through geographic expansion. In 2016, Popeye’s had some 2,600 locations compared to more than 7,500 Burger Kings in the U.S. For those wondering, that’s greater than the 2,251 locations Jack in the Box (JACK) had in 2017.

This brings us to  The Habit Restaurants (HABT), a Guilty Pleasure company if there ever was one.

With just 209 Habit Burger Grill fast-casual locations in 11 states spread between the two coasts, Habit has ample room to expand its concept serving flame char-grilled burgers and sandwiches, fries, salads and shakes. And if you’re wondering how good Habit is, don’t just listen to me (one of those 209 locations is just a few miles away from him), the company was named “best tasting burger in America” in July 2014.

In 2017, the company recorded revenue of $331.7 million from which it generated EPS of $0.16. For this year, consensus expectations have it serving up revenue near $393 million, up around 18% year over year, but EPS of $0.05 — a sharp drop from 2017.

What I’m seeing is Habit hitting an inflection point as it engages a national advertising agency, opens 30 new locations this year (7-10 in first-quarter 2018) and contends with higher wage costs (up 6%-7% vs. 2017), as well as test markets breakfast. Making matters challenging, the overall restaurant industry has been dealt a tough hand during the first two months of 2018 as winter weather and cold temperatures led to reduced traffic and same-store sales industry-wide, according to research firm TDn2K.

While a recent survey of March restaurant sales published by Baird showed a pick-up, the question I am pondering is to what degree will restaurant sales rebound on a sustained basis as the winter weather fades? I’m asking this question full well knowing the level of credit-card and other debt held by consumers as the Fed looks to hike interest rates several times this year.

Do I like the long-term potential of Habit?

Yes, and I would recommend their burgers, fries, and shakes – without question. That said, the company is not without its challenges, especially as McDonald’s begins to roll out its fresh beef offering nationwide. I had one of those a few days ago and in my view, it’s a clear step up from what Mickie D’s had been serving. You may be getting the idea that I like burgers, and I can easily confirm that as well as my fondness for chocolate shakes.

By most valuation metrics, HABT shares are cheap, but as we all know, cheap stocks are usually cheap for a reason. As such, we want to see how the company performed during the first quarter, the quarter in which the greatest number of new locations were to be opened. Typically, new locations drive up costs, and given the uptick in wage costs, this combination could weigh on the company’s bottom line.

All of this has us sitting on the sidelines with Habit Restaurants shares, which means adding them to Tematica Investing Contender List as part of our Guilty Pleasure investing theme.

WEEKLY ISSUE: The Impact of Tariffs and Continued Rundown of Select Positions

WEEKLY ISSUE: The Impact of Tariffs and Continued Rundown of Select Positions

 

Our Latest Thoughts on Trump Tariffs

The stock market roller coaster of the last few weeks is clearly continuing. This week we have President Trump’s potential steel and aluminum tariffs take center stage, shifting the attention away from Fed Chief Jerome Powell last week. When I shared with you my view the market would trade data point to data point until the end of the Fed’s Mar. 20-21 monetary policy meeting, I certainly didn’t expect let alone anticipate these tariffs and their escalating conversation to be a part of it. In a post earlier this week, I shared my view that Trump is once again utilizing the negotiating strategy he laid out in his book, Art of the Deal. In another one today, I gamed out what is likely to happen should Trump go forward with the tariffs.

Last night’s resignation of Trump economic advisor Gary Cohn has certainly fanned the flames of uncertainty over the tariffs, with more people thinking that Trump is “serious.” In an effort to counterbalance that resignation, this morning Commerce Secretary Wilbur Ross shared that Trump “has indicated a degree of flexibility on tariffs for Canada and Mexico.” That Cohn-related walk-back by Secretary Ross, combined with comments made yesterday by Treasury Secretary Steven Mnuchin that indicated that “once a new NAFTA deal is reached, the trading partners wouldn’t be subject to the tariffs” confirms my view that Trump remains on the Art of the Deal negotiation path.

In my post earlier this morning about the tariffs, I shared that we will likely see choppy waters as this issue comes to a resolution and leads up to the Fed’s next monetary policy meeting conclusion on March 21. Expect volatility to remain in place and the coming economic data will either amplify or quell its magnitude. Barring any breaking news, I’ll be on The Intelligence Report with Trish Regan on FOX Business to discuss all of this at 2 PM ET today.

While many fret over the market swings, my perspective is that the domestic economy remains on firm footing and barring a trade war volatility will allow us to pick up thematically well-positioned companies at better prices. A great example of this was had earlier this week with the February heavy truck orders that served to confirm my thesis behind Paccar (PCAR) shares.

When Costco Wholesale (COST) reports its quarterly results after the market close, we should see similar confirmation in the form of not only wallet share gains via its top line results, but also in rising membership fees as more consumers look to stretch the disposable income they do have, a key component of our Cash-Strapped Consumers investment theme.

To set the stage for Costco’s report tonight, consensus expectations for the quarter sit at EPS of $1.46 on revenue of $32.7 billion, up from $1.17 and $29.8 billion in the year-ago quarter. As a reminder, one of the key differentiators for Costco is the high margin membership fees that are poised to grow as the company continues to open new warehouses. This means, at least for me, that roadmap, will be one of the areas of focus on the company’s post-earnings conference call. I’ll also be listening to see the impact of tax reform on the company’s outlook for 2018.

  • Our price target on Paccar (PCAR) shares remains $85.
  • Our price target on Costco Wholesale (COST) shares remains $200.

 

 

Getting back to the Tematica Investing Select List

In last week’s issue, I began sharing some much-needed updates across the Select List, and I’m back at it again this week with a few more. Over the next few weeks, I’ll look to round out the list before we break at the end of March and get ready to gear up for 1Q 2108 earnings season.

Yes… I know… before too long it will once again be time for that zaniness.

All the more important to share these updates with you so we set the table for the earnings meal to be had.

 

Amazon (AMZN),  Connected Society

Simply put, Amazon shares have been a champ so far in 2018 rising more than 30%, which brings the return on the Select List to more than 100% since being added back in 2016. I’ve said these shares are ones to own, not trade given the accelerating shift to digital commerce, and growing adoption of the high margin, secret sauce that is Amazon Web Services as more businesses turn to the cloud. As filled with creative destruction as those two businesses are, it looks like Amazon is poised to offer further disruption in the healthcare and financial services business given conversations with JPMorgan (JPM), Berkshire Hathaway (BRK.A), Capital One (COF) and others.

I’ve raised our price target several times on AMZN shares, and it increasingly looks like that will have to happen again and then some depending on how soon these new layers of disruption materialize.

  • Our price target on Amazon (AMZN) shares remains $1,750.

 

Starbucks (SBUX), Guilty Pleasure

Year to date, Starbucks shares are essentially unchanged compared to where they were trading as we exited 2017. And the same is true if we look at the shares over the last year – they are up modestly. What we are dealing with here is a company that is once again in transition as it looks to invigorate its domestic business while growing its presence in still underserved markets outside the US like China and Italy. One of the central strategies in both areas is to leverage its high-end Reserve Roastery concept, which keeps the company very much in tune with our Guilty Pleasure investing theme.

Historically speaking, Starbucks has been a company that has been able to successfully pivot its business when it has stumbled, and in our view, that merits some patience with the shares. Helping fuel that patience is the knowledge that Starbucks intends to return $15 billion to shareholders over the next three years in the form of dividends and buybacks.

  • Our price target on Starbucks (SBUX) shares remains $68

 

Disney (DIS), Content is King

Disney shares have traded off some 3% thus far in 2018, which is not unsurprising given we are in the seasonally weakest part of the year for the company. That said, the latest Marvel film, The Black Panther, is crushing it at the box office and ups the ante for the next Avengers film that will hit theaters in a few months. Disney continues to leverage these and other characters as it revamps its theme parks and hotels, which should drive attendance despite yet another round of price increases.

The big “wait and see” for Disney over the coming months will be its move into its own streaming services for both ESPN and eventually a Disney content-centric service. While I see this as Disney making the right moves to address the chord cutting headwind that is part of our Connected Society investing theme, to paraphrase the great film Bull Durham, just because Disney builds it doesn’t mean people will stream it. In a positive move, Disney installed James Pitaro as the new president of ESPN. Mr. Pitaro’s background as chairman of Disney Consumer Products and Interactive Media, as well as the head of Yahoo! Media, sends investors the signal that getting the streaming services in place will be a top priority going forward for ESPN.

The next catalyst to be had for Disney will be spring break and then the summer movie season. Between now and then, I expect Disney will continue to put its massive buyback program to work.

  • Our price target on Disney (DIS) shares remains $125

 

United Parcel Service, Connected Society

Our UPS shares were hard hit earlier in the year given renewed concerns that Amazon would expand its own logistics offering. At the time, my view was this was an overblown concern, and it still is. This week, we saw Stifel Nicolaus warm up to the shares, upping them to a Buy rating with a $121 price target given what it sees as a “strong underlying package and freight businesses.”

Each month in the Retail Sales report we see the share gains had at non-store retailers, and we know companies ranging from Costco and Walmart (WMT) to Nike (NKE) and many others are embracing the Direct to Consumer (D2C) business model. All of this bodes well for UPS shares over the coming year.

The one potential hiccup to watch will be negotiations with the Teamsters Union this summer. If that brings the shares near or below our Select List entry point, I’ll look to scale into this position ahead of the seasonally strong second half of the year.

  • Our price target on United Parcel Service (UPS) shares remains $130.

 

 

Housing and remodeling data rebounds, so we make another Rise-Fall of Middle Class move

Housing and remodeling data rebounds, so we make another Rise-Fall of Middle Class move

  • While the market waits for Yellen and Draghi to speak at the Kansas City Fed’s 40th Economic Policy Symposium in Jackson Hole, Wyoming later this week, we continue to low expectations for anything new being said at the event. Read More >>
  • A pick up in New Home Sales bodes well for the Tematica Select List position in Sherwin Williams (SHW). We continue to rate SHW shares a Buy, and our price target remains $350. Read More >>
  • We are issuing a Buy on shares of Whirlpool Corp. (WHR) as part of our Rise & Fall of the Middle Class investing theme with a $232 price target. Much like Sherwin Williams, Whirlpool stands to benefit from robust repair & remodel spending over the next few years. Read More >>
  • Updates Updates Updates on Amazon (AMZN), CalAmp (CAMP), Under Armor (UA) and Nike (NKE) shares. Read More >>
You can click below to download the full report.

 

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Getting this nursing stock off the bench and into the game

Getting this nursing stock off the bench and into the game

Continually throughout the past several weeks, we’ve shared our concern about the outlook for second half earnings for the S&P 500 group of companies relative to expectations — probably more than you’ve wanted to hear!

We continue to see those forecasts as overly robust, particularly with the stock market seemingly hitting new record highs every other day. Our view has been that there is more downside risk to be had as earnings expectations for the back half of 2016 get resized and reset.

Of course, as those expectations are reset, it can mean opportunity — opportunity for taking positions in companies we see as well-positioned from a thematic perspective, but at better prices than just a few weeks ago. We saw that last week with CalAmp Corp (CAMP), and we see it again this week with (AHS) AMN Healthcare Services.

 

In this week’s Tematica Investing:

  • We are taking advantage of a 23 percent drop in (AHS) AMN Healthcare Services shares to take them off the bench get them in the game — moving them from the Tematica Contender list to the Tematica Select List. Read More >>
  • With Back-to-School season more than in full swing, we dive into the intricacies of teen shopping habits and how they impact various positions across several of our themes, including Amazon (AMZN), Nike (NKE), Under Armour (UA) and what are probably the obvious themes and the not-so-obvious as well.  Read More >>

 

You can click below to download the full report.

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It’s 11am, do you know where your car is? If not the stock we’re adding this week probably does

It’s 11am, do you know where your car is? If not the stock we’re adding this week probably does

Last week, as the latest issue of Tematica Investing was being delivered to you, I was literally being wheeled into the operating room for knee surgery. It was nothing too major, just the repair of a small meniscus tear I suffered on the basketball court. Fortunately for you (and for the performance of the Tematica Select List) the issue was completed early that morning — well in advance of that surgery — as I was pretty loopy afterwards!

A week later, things are feeling pretty good, but I am looking forward to getting the stitches out so I can get back in the pool and get some relief from the extra humid conditions here in DC this week!

 

In this week’s Tematica Investing:

 

  • We’re placing shares of CalAmp Corp. (CAMP) on the Tematica Select List as part of our Connected Society investing theme with a Buy rating and a $21 price target. We would be comfortable adding the shares up to $17.50, at which point we see upside of 20% vs. the current 35% upside to be had at the last night’s closing share price. Read More >>
  • Updates on Alphabet (GOOGL), Amazon (AMZN), Physicians Realty Trust (DOC), Nike (NKE) and Under Armour (UA). Read More >>
  • We also dig into where we are with our position in The Walt Disney Co. (DIS) after their earnings announcement last night. Hint, we need to have the same patience as a the line at Space Mountain. Read More >>
  • Check your accounts! Dividend payments have been made over the last few days from Starbucks (SBUX) an PetMeds Express (PETS). Read More >>

You can click below to download the full report.
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Adding a splash of color to Rise & Fall of Middle Class

Adding a splash of color to Rise & Fall of Middle Class

Welcome to another weekly issue of the Weekly Tematica Investing. It’s been a wild week of market moves, earnings reports and economic data all at once.

In addition to my regular visits with the Charles Payne on his Making Money with Charles Payne show on Fox Business, I had an opportunity to sit down with the folks at Boom-Bust on RT (the new home of The Larry King Show) to dig deep into our thematic-driven approach and discuss why most investors are investing wrong. That of course is NOT the case with us!

You can click on the image below to watch the whole interview.

In this week’s Tematica Investing:

  • Closing the books on July, the Tematica Select List had a number of positions that handily outperformed the S&P 500, which rose 3.6% for the month. Read More >>
  • We are issuing a Buy rating paint and coatings company Sherwin Williams (SHW) with a $350 price target as we add a splash of color to our Rise & Fall of the Middle Class investing theme. This is a new position and we are holding off with a protective stop loss for now. Read More >>
  • Updates, Updates, Updates – Recapping earnings from Alphabet (GOOGL), Amazon (AMZN), PetMeds Express (PETS) and Under Armour (UA). Read More >>
  • Housekeeping! – Here’s what we’re watching when Physicians Realty Trust (DOC) and Walt Disney (DIS) report quarterly earnings. Read More >>

You can click below to download the full report.
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☀ During this summer heatwave, what better move to make than this?

☀ During this summer heatwave, what better move to make than this?

Dog in front of fanHere at Tematica Research, just outside of Washington, DC, we are “enjoying” a good old fashion summer heatwave. The hottest summer in four years, yesterday marked the 6th straight day of highs at or above 90 degrees.

Now for those in the Midwest and Southwest, you’re probably thinking, that’s nothing!

The magic we have here in DC to throw into the mix of steamy temperatures is the fact that the city is built on what was once swamp land, and with that comes humidity — lots of it! So temps in the 90’s can easily climb up into the 105 degree heat index range, and with that comes that little bead of sweat that starts on the back of your neck, rolls down between your shoulder blades, further down to your lower back and then . . . well, you know where that story is going.

All of this reminds us of what put athletic apparel manufacturer Under Armour (UA) on the map — moisture-wicking synthetic fabric. The company that started in the basement of CEO Kevin Plank’s grandmother in 1996, has grown into a nearly $4 billion company that specializes in making sure all that sweat we humans produce is evaporated away rather than ending up where the sun don’t shine.

The heatwave across much of the country allows for this cheeky opening narrative to this story. The real reason we’re talking about Under Armour now is, given the pull-back in shares after the company’s 2nd quarter earnings announcement, we’re using the opportunity to make a move and add them to the Tematica Select List.

In this week’s Tematica Investing:

  • We are adding Under Armour (UA) shares to the Tematica Select List as part of our Rise & Fall investing theme, with a $55 price target. There is no recommended protective stop loss at this time.
  • Given the robust movie slate for 2H 2016, we are keeping Content is King Regal Entertainment (RGC) shares on the Tematica Select List, despite a modest $0.01 per share earnings miss for the June quarter.
  • We have earnings from Amazon (AMZN) and Alphabet (GOOGL) later this week, and we preview what’s expected and what we’ll be looking for in those reports.
  • Starbucks is added to Goldman’s Conviction List, more confirmation for our position in the coffee giant.
  • AT&T (T) loses the Yahoo! (YHOO) bid to Verizon (VZ), and we are rather happy with that.

You can click below to download the full report.

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SPECIAL BREXIT ISSUE: These are not the dips we’re looking for

SPECIAL BREXIT ISSUE: These are not the dips we’re looking for

david cameronUnless you’ve been hiding under a rock over the past few days, you’ve heard that the biggest macro risk for 2016 has come to pass, as voters in the United Kingdom voted to leave the European Union last Thursday. Voter turnout was 72%, with a solid margin of 52% to 48%. The next step in the process is for the UK to invoke Article 50 of the Lisbon Treaty, but Prime Minister David Cameron has announced he will step down in October and has already made it clear that he will understandably leave this to his successor.

All of this led to a sharp drop in the stock market on Friday, in very much a “shoot first and ask questions later” mindset. Yesterday, European equities continued their slide, with the pan-European Stoxx 600 index dropping around 4.1 precent and the British pound hitting a 31-year low. All three of the major domestic stock market indices were once again meaningfully in the red, and as of last night’s close, all three are firmly in the red, especially the Nasdaq Composite Index.

Now for some good news. Given the market move over the last few days, we’ve seen a strong rebound in the ProShares Short S&P500 ETF (SH) and continued improvement in our more defensive and higher dividend yielding positions — AT&T (T), Regal Entertainment Group (RGC), and Physicians Realty Trust (DOC). As you might expect, some of the more growthy names — Amazon (AMZN), Alphabet (GOOGL) and Starbucks (SBUX) gave up some ground as Wall Street and investor thinking shifts from “What just happened?” to “What does it mean?”

Now for one more piece of arguably good news.

Most investors would likely rather get their teeth cleaned than look at the market movement over the last few days; however in looking at 51 major global crisis over the past century — several of which were far worse than today’s — even though losses are typically quite steep up front, within a year’s time, on average, the Dow Jones Industrial Average has ended up 6.3 percent higher than before the crisis ignited. That’s according to research from Ned David Research.

Odds are the Brexit fallout will be a prolonged event. Given the nature of the exit process and the fact that no other country has ever voted to leave the EU, there is no clear cut path to follow. In events like these that give rise to much uncertainty, normally we see the market overshoot to the downside, which is were opportunities present themselves.

In context, this is no Lehman moment and the good news is all this uncertainty is likely to result in overreactions to the downside, which is exactly what we’ve been expecting in the face of such aggressive assumptions for earnings going into the second half of 2016.

But this current drop in the market is probably not the dip we want to buy. 

Post Brexit vote shock and awe, growth expectations for the global economy, as well as corporate revenues and profits will need to be rethought. We’ve been saying this for some time, given the vector and velocity of the global economy vs. earnings expectations for the S&P 500 in the second half of 2016.

We expected many to catch up to our view on this as we moved into June quarter earnings, but then the Brexit vote happened. We rather doubt many companies factored a Brexit leave vote in the guidance they shared with investors over the last few months.

Combined with the slowing economy, we would not be surprised to see at least some companies pre-announce earnings shortfalls over the next few weeks. Should this occur, it will likely lead the investment community to revisit earnings expectations for the second half of 2016. As this happens, we are likely to see some additional pressure in the market. At best, it is likely to move sideways.

Let’s remember, the economy and Brexit uncertainty aside, we also have what is shaping up to be a rather “interesting” presidential election. Our take is businesses will remain on the sidelines until they have a much clearer view on who is the White House and what the next president’s policies will be.

In other words, we are not expecting a sharp rebound in the domestic economy and odds are rather high the Fed will not boost interest rates until late in 2016 at the soonest.

This will give us time to revisit thematically well positioned companies at better stock prices over the coming weeks and months. When we look through our thematic lens, odds are all of this will be a hiccup 12 to 24 months down the road.

Will the Brexit slow the shift to digital commerce? Probably not.

Will the Brexit remedy the looming global water shortage, reverse the demographic shift in global age, or help reduce obesity rates? Nope, nope, nope.

You get the idea, but for those that aren’t 100 percent sure, despite the Brexit fueled uncertainty, odds are it will do little to dull the thematic drivers that power our 17 investment themes.

Candidly, while others are gun shy about what’s coming down the pike, we’d be lying if we said we weren’t excited at buying some of the companies at the Tematica Select List as well as new contenders when the risk-to-reward is better than favorable.

We’ll be back next week with the next issue of Tematica Investing on Wednesday, July 6, and the next edition of Tematica Pro on Thursday, July 7.

Enjoy the 4th with your family, friends, and loved ones!