Live Quarterly Meeting Transcript: Chris Versace Shares 3 Picks From the Portfolio

TheStreet Pro recently hosted our Live Quarterly Meeting around the theme of a "Summer Investing Road Trip."

It was a chance for our subscribers to hear firsthand markets insight from some our leading contributors at a critical point in the calendar. Below is a transcript of commentary from TheStreet Pro Portfolio Manager Chris Versace, who discussed his outlook for a trio of holdings.

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We've already had some comments on the US markets and stuff from Helene and from Peter. And obviously the comments on the international markets were great as well. I've got a couple of stock picks that I do want to share, but I'm just going to make some quick comments about it, because I do know that we want to get to this Q&A.

Again, I think there's a lot of interest and spirited conversation to be had. What I will say is this, with the Pro Portfolio, we've been a little concerned that the market had been overheated. You can take a look at some of the technical indicators over the last few weeks. And also that the S&P's valuation has been stretched. We've written quite a bit about how it was bumping up against 23 times forward earnings.

And that for us, the real path forward is going to hinge upon earnings growth, especially for the second half of the year. And what we've been really isolating are companies that are poised to grow their earnings faster than the S&P 500, either in the second half of the year compared to the first half, or compared to the year-ago period. But of course, while we don't necessarily buy the market, we do have to pay attention to the market.

So we've been really kind of focused in on becoming increasingly cautious. You've heard Helene's comments about that. Our thinking is largely there with her. We do disagree slightly with Peter Tchir on his comments about the Fed. I say that only because-- I know, Peter, I think you said you see three rate cuts. [CLAP] They should be doing it now. There was some data that we saw in the core PPI on a year-over-year basis, especially when you smooth it out using a three-month moving average, that actually shows the core PPI has been ticking up.

So our view is, the Fed will probably cut once or twice this year. We're not convinced about three. But we are concerned with the market's perception that it is three. I think since we got the CPI data, we've seen small-caps explode. That happens to have happened alongside with the market's view that, Oh, we could see not one, not two, but most likely three rate cuts. And if you look at the CME Fedwatch tool, that's pretty much what it's showing today.

I don't think that the core June PCE data is going to be all that surprising, but we will get a lot more data next week about the state of the manufacturing and services economy in the US from ISM. We'll also get the final S&P data soon. We'll also get an update on the employment market, which I know people have been very critical of. My perspective on that is, more people are working with more real wages. That's actually a positive of sorts. And it can help keep the consumer going.

But by and large, the big thing for us as we move through the summer, because this is a tour of the summer, it's the earnings season. And earnings, it started off very well with the banks. No surprise to us. We were looking for a pickup in investment banking activity and that's exactly what we got. We were looking for improvement in wealth management, asset management. That's also what we got. And that led us to raise our price targets for Morgan Stanley and Bank of America in the portfolio.

But now we're starting to move into a time of the earning season that it's fast and furious. And that means we're getting a lot more companies reporting. Last night we had NXP Semiconductor stock got hit because it took its guidance down, largely because of the automotive market. But there were some positive signals in there for data center, for communications infrastructure, and for mobile. But as we move through today, you could look at results from UPS. You could look at those from Logitech.

And what we're doing now is really sitting back and kind of rebuilding and updating our investment mosaic as a lot of these fresh data points come. And as we talked about, companies give guidance now for the second half of the year. Again, the hurdle rate for us is going to be what the S&P 500 does. That's around 10.5% to 11%. Depending on what we see this week and next week, as we get more earnings, that hurdle rate could move higher, it could move lower. But that's the level that we will use to evaluate new contenders for the Pro Portfolio.

So, in terms of, Do I think the market can power higher here? Jeez, I really think from a fundamental perspective that we will need to see the second-half earnings be demonstratively higher than what the market is calling for. And as of right now, it's hard to say that we're going to get that. I don't think we'll really know for probably another two, maybe even three weeks. But we will, of course, have to be mindful of the technicals that Helene has laid out and others have laid out at the Pro Portfolio.

So that's kind of my market backdrop. I do think that there will be pockets of strength and there will be pockets of weakness. And we have to be mindful of areas where the market is just simply over and extended on what it thinks certain sectors or even certain stocks might do specifically, some will say the Mag 7, the Significant 6, whatever you want to call it. But I would say simply some of the most heavily weighted stocks in the S&P 500 and the NASDAQ. So we'll be watching those earnings, especially closely.

So, Jason, that's kind of my quick overview. I know we're a little tight on time. But I do want to share those three picks if you can pull up those slides.

JASON MESHNICK: Perfect, yeah, I was hoping you would get to those, because I think that's really valuable.

Qualcomm

CHRIS VERSACE: Yeah, sure, sure. So, this first one here is Qualcomm. We've been a big believer in Qualcomm. Historically, most people know this company because it is the chip arms merchant for the smartphone industry. And it still is. And it still has that very strong relationship with just about all the players out there, including Apple, Samsung, and the others. And we do think that it will benefit from the AI on-device upgrade cycle that we're going to see in the smartphone market unfolding.

The most recent data point came from Taiwan Semiconductor last week. Man, oh, man, its mobile business was up significantly. That's typically what we tend to see as we move into the summer months for the smartphone industry because the OEMs are building these devices to put on shelves for the back half of the year, really from September on. And remember, of course, we will be getting the new iPhone 16 set of models sometime around September.

So that's typically what people think about when it comes to Qualcomm. But what's different this time around is that because Qualcomm has really been investing and focusing in on its Snapdragon chip set, it has announced a relationship with Microsoft, including Copilot PCs, bringing it a new growth market. Which for most of us is not the PC market. But for them it's the upgrade cycle with AI on PC. And I'm happy to share that this morning, some folks out outside of the Pro Portfolio, I think it was Baird or some other Wall Street firm, came out and they boosted their price target on Qualcomm, pretty much replicating the call that we've been making on Qualcomm for some time now.

I have said with folks that if you do look at the technical setup for Qualcomm, it's got some really nice support around the 185, 186 level. I'd look for Helene to confirm that. But that, given our 250-price target, that would be an area, if we reached that in the coming weeks, as Helene has kind of laid out, boy, if it successfully tests that level, we would look to upgrade that stock from a 2 rating to a 1. Next one.

Marvell

Marvell. Now, I know what folks are saying. But, Chris, this is another chip company. How can you have two chip companies? Because they're very different, right? Qualcomm goes into devices. Marvell is really more of an infrastructure play. So, if you heard Peter, you heard Maleeha, they said nice things about the long-term outlook for the data center market. I am right there with them.

Marvell competes in that, and they have key relationships with Microsoft, with Amazon, and Meta, as they are fabbing proprietary data center/AI chips for them. So that's going to be a very strong market into the back half of the year. We're also seeing Wall Street talk about what the type of spending Microsoft is going to be doing on data center. The growing view is that because of not only just the extended data center ramp, cloud adoption, and the turbo that AI could bring, that Microsoft is targeting-- or will target, I should say-- doubling its cloud business by fiscal year 2026.

So, in about 2.5 years, that means about $200 billion a year, up from about $100 billion. That's going to have some big investments in that. And I suspect that we're going to see some copycat movements from the likes of Google, Amazon, and of course, Meta. So, all very positive for that. But the reason I also get excited about Marvell is because it also has infrastructure chips in communications infrastructure, enterprise, and carrier infrastructure. And if we think about the ramp in AI on devices, PCs, and smartphones, it's going to replicate another data explosion.

You know, we had a big data explosion with the internet. We had a big data explosion with the mobile internet appification, streaming, and all these things that we take for granted again these days. But that is going to see another wave of just explosive content creation, content consumption. My thinking that is going to strain existing networks, forcing an upgrade cycle and incremental capital spending that will be extremely beneficial for Marvell and its position in those two end markets.

So, by the end of the year into 2025, we see all three, four businesses really firing on all cylinders. And our price target for Marvell is $95. And then with that, just the last pick, great. This is Trade Desk. I have long believed, largely because the data has spoken to me and told me so, that we are seeing an accelerating shift from what we'll call analog advertising-- print, TV, radio-- to digital advertising. No surprise there. We do see two things, though, that are really going to drive incremental revenue at Trade Desk and its programmatic advertising model.

The Trade Desk

The first is the explosion in connected TV, particularly with the adoption of advertising-based models. You can see them whether you use Prime Video, Netflix, or others out there. Or even the all-advertising models such as Tubi and a few others. I think one is Amazon I think it's FreeVee or Free View, something like that. So that's one aspect to it. And with Trade Desk in particular, they've announced a new relationship with Netflix. And if you paid attention to the Netflix's earnings call, it's cutting its most basic plan and you're either going to have to move to a higher tier or you're going to have to "settle and suffer," as some might say, through an advertising plan.

So we just see Netflix leaning even further into digital advertising to drive its revenue. That will be a natural driver for Trade Desk. But the other driver for it is far more topical. It is the big switch that we saw, as I like to say, with Biden out Harris in. And my thinking here is that, yes, even before this, we were going to see a big upsurge in digital advertising, just because it was going to be a contentious election year. I think that is going to be even more so. And I would argue, and I'd be interested on Peter's view on this, that the Harris campaign is really going to have to build a recognizable, relatable image and platform for what's likely to be candidate Harris.

And that's going to require even more spending in media. And I think the Trade Desk is going to benefit from that. Our price target on Trade Desk is 110. Two other Wall Street houses came out today, bumping their price targets from 98 and 100 to match us at 110. We really like that name. And I wouldn't be surprised if there's upside to that price target as we move closer towards the 2024 presidential election.