VIDEO: Connecting the Dots From This Week’s Earnings

In today’s Daily Video, Chris Versace breaks down the “Goldilocks” July Flash PMI report and why it’s another positive step for eventual Fed rate cuts.

He then reviews earnings this week from Taylor Morrison Homes TMHC, PulteGroup PHM, and luxury goods company LVMUY, explaining why they are supportive for two portfolio positions.

He also touches on Qualcomm QCOM, reminding subscribers where we may look to upgrade the stock's rating.

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Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here, Wednesday, July 24. And as you've probably noticed, between yesterday and today, the pace of things has picked up considerably. Thank you, June quarter earnings season.

Just today, we've already boosted our price targets for Lockheed Martin and Alphabet, and we've also rung the register on an extremely profitable trade on the shares of United Rentals ahead of their quarterly results that will be reported after tonight's closing. Again, just a simply significant gain on that slice, but there are reasons for us to remain bullish. Hence, still keeping a sizable position in the portfolio even after that trade. And again, very busy, a lot of earnings reports. And we will have more for the portfolio after today's close, including ServiceNow, Waste Management, and as I just mentioned, United Rentals.

So please be sure to check your Alerts, your emails. We want to make sure you're getting our latest thoughts. But before we get to those reports after the close and most likely our comments tomorrow morning, there were a couple of things that I wanted to share with you. First and foremost, the July Flash PMI report.

We've been talking about this, as it's the first real indication of the manufacturing and services economy in the month of July. A lot of the data that we got recently was for June, closing out the second quarter. But this report, the Flash July PMI, again, gives us the first read on how the economy is starting off the current quarter. So the good news is that it shows the economy continues to hum.

The manufacturing part slipped back into contraction territory, but that was more than offset by strength in the services. But below those arguably headline figures, what we saw underneath was, I have to say, kind of a Goldilocks scenario. Well, why Goldilocks? Because if we think about employment continuing to grow but not at a blistering pace, if we see the data that says that, yes, wages are continuing to be an issue for some of the people in the survey, but overall, input, output, prices, they continue to show further progress on inflation, we would say that just like a Goldilocks type of scenario, those data points are showing things are turning out to be just right, not only just for the economy, but also for the Fed looking to embark upon cutting rates.

And again, remember, we're still going to get the June PCE price index later this week. But what we saw in the Flash July PMI report is very constructive and says that when we get the July CPI/PPI, we should see further improvements. So I think that's extremely good. It's also going to help a number of our positions, some of the more interest rate sensitive ones. We've talked with you about them-- United Rentals, Vulcan Materials, Builders FirstSource.

And with Builders FirstSource, let's stick with some comments that we've collected over the last day or two for some other home builders. So first, Taylor Madison Homes, Ticker Symbol TMCH, if I believe that's right, they reported their June quarter results. And, you know, a good quarter and all that. But here's what stood out to us.

The number of homes that they expect to close in the current quarter is around 3,200, up considerably from the 2,635 that they closed in the year ago quarter. So that tells us that their construction activity is picking up and they will be closing more homes. And then let's take a look at what Pulte had to say, which is a far larger homebuilder compared to Taylor, but still worth paying attention to nonetheless. So if we take a look at Pulte, they actually saw a 5% increase, right, in their closings year-over-year. Nice number. But first half closings for 2024 came in at 15,195.

The outlook for the total year is around 31,000. So if we do some simple, I like to say, sandbox math, that says that they expect to see their closings in the second half of the year rise about 5% compared to the first half of the year. Now, both comments are extremely supportive for our decision to start a position and add to it in Builders FirstSource. Remember, these home builders, they are not only building more, but they're being very mindful of their margins, looking for ways to improve their own profitability, especially if they have to start using more incentives.

I think that bodes extremely well for builders value-added business. I also want to touch quickly on LVMH, luxury goods companies, one of the ones that we watch for Coty. And they reported and the shares are off. Again, overall, their revenue declined. But remember that LVMH participates in a number of different businesses that Coty simply does not, so it can be a little misleading.

When we look at LVMH, we want to focus in on their business for perfume and cosmetics. And that business, just like it was in the first quarter of the year, was up year-over-year in the second quarter. Its Sephora business, which has been taking some share from Ulta, was also up year-over-year. But that's another positive indicator, especially for the US market when it comes to fragrance and cosmetic sales.

So all-in-all, the comments that we got from LVMH and the ones I shared earlier this week with you where Interparfums boosted its June quarter revenue, all of that is extremely supportive for our position in Coty. But let me just be clear here. The shares have traded off. They've been beaten up. And, you know, our thesis really hinges on a strong and improving second half of the year in terms of EPS generation.

So if we had not gotten the supporting data points from Interparfums or LVMH, we would be rethinking the portfolio's position in Coty. But those types of data points, they're simply not the kind that we're seeing. So we will continue to, as I like to say, listen to the data. And that means that for now, we're going to continue to own Coty shares. I do think when they report their earnings in August, it's going to be an upbeat outlook.

Because we are going into their seasonally strongest time of the year, we should start seeing benefits from the debt reduction program. So there are reasons to be positive. I understand folks are a little frustrated with this position, but again, we will continue to heed the data. It has served us extremely well in the past, not just for Coty, but other positions. We're going to continue to stick with that.

And kind of with that in mind, before we close out, I do want to talk about Qualcomm shares, which have been beaten up. I'm sure you've seen it. And as we suggested earlier this week, if the market started to sell off, we could potentially see Qualcomm test their 100 day moving average. And today, they are doing that.

If we see a successful test of that 100 day moving average, it could be a reason for us to revisit our current 2 rating on the shares. I say that because not only would there be that successful test, but let's think about the comments that we've been getting over the last couple of weeks from companies that have already reported, whether it's Micron or even simply the stellar results that we saw from Taiwan Semiconductor that pointed to and supported the AI on device upgrade cycle that we've been talking about for Qualcomm. Yes, for smartphones, but also for PCs as well, which, as I discussed during yesterday's Street Pro Quarterly Presentation, is an entirely new market for the company. And we are in the early innings not only for their business of AI on PC, but also for AI on smartphone.

So as we go through today and enter in tomorrow, we're going to have a lot to talk about. As I mentioned, ServiceNow, United Rentals, Waste Management, potentially Qualcomm. So please be sure to check your Alerts, check your emails. We want to make sure you're getting our latest thoughts. And if we make any moves with the portfolio, we want you right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long QCOM.