VIDEO: Despite Favorable Print, Don’t Chase This Holding

In today’s Daily Rundown video, Chris Versace connects the dots between rising AI adoption in the enterprise space, detailing a BlackRock BLK and Microsoft MSFT announcement that supports the demand curve for several of our holdings. 

Versace also discusses Wednesday's favorable single-family housing print in the August Housing Starts report and explains why members should wait for a pullback in the shares of Builders FirstSource BLDR.

"As you know, we continue to have a very favorable long-term view on the shares of Bulders FirstSource as the Fed moves further down that rate-cutting cycle, but we do know that the market's hopium, as we like to say, -infused thought about the Fed going big has lifted a number of these more interest-rate-sensitive stocks in the short term," he said. 

Transcript

CHRIS VERSACE: Hey, folks, it is September 18. In other words, Happy Fed Day. I'm Chris Versace. Let's get to it.

We had some comments out earlier today talking about a variety of things. One of them was on the Microsoft BlackRock announcement for a $30 billion fund to help build out data center capacity and address the electrical pain point that is expected to happen as AI adoption occurs.

In that note, we were obviously very supportive of the effort, especially since it really confirms not only our bullish stance on a number of names in the portfolio-- Nvidia, Marvel, Eaton, United Rentals, Vulcan Materials, and Waste Management, but it also answers some of the questions over how some of these projects are going to get funded. And by projects, I'm talking about the multiyear forecast for data center construction. So we see this as a very, very positive development.

As we noted in the Alert, it's also happening as the Fed enters a rate cutting cycle. That should be good for hurdle rates, project costs. And we really think it's going to be a real boost to the demand curve for those portfolio positions that I just mentioned. As we start to see that program really unfold, we'll have to likely revisit some of our price targets on those particular positions.

But again, today, Fed Day. That brings us to the second Alert that we shared with you today. We wanted to walk you through what we'll be paying attention to when Fed Chair Powell and the Fed announced their latest policy move. We expect 25-basis points, but you know this.

But we wanted to walk you through the kind of analysis that we'll be doing when it comes to looking at the Fed's updated set of economic projections for September. We did share what those projections were in June. And again, sizing them up side-by-side, we'll be able to see how the Fed's thoughts about the economy, inflation, and of course, the path for rate cuts have shifted. So that's going to be extremely important. And we will be sharing Alerts with you later this afternoon, giving our analysis, our reaction to what we see, and of course, implications for the market and the portfolio.

But that's not the only thing that's kind of happened today. We also got the latest Housing Starts Report, in this case, for the month of August. And when we dug into it, what did we see? A nice pickup in single family housing construction, the strongest figure since April. Now, some folks are going to be quick to say, oh, look at the benefit of falling mortgage rates, which as we know, have started to fall and we expect to move further. Hence, our bullish thesis on the shares of Builders FirstSource. But let's remember, too, some of the comments that we got from Vulcan Materials and other construction-related companies about the really wet weather in June and July that really kind of impacted what is typically the seasonally strong time of year for construction, both residential and non-residential.

So I think the August number shows a little bit of that mortgages coming down, but really more of that wet weather being left behind. Of course, as you know, we continue to have a very favorable long-term view on the shares of Builders FirstSource as the Fed moves further down that rate cutting cycle. But we do know that the market's hopium, as we like to say, infused thought about the Fed going big, has lifted a number of these more interest rate sensitive stocks in the short-term.

Builders FirstSource is one of them. They are overbought. Again, we continue to see more upside ahead, odds are we may have to revise that price target higher. So what I want to say is don't go chasing some of these names today ahead of the Fed meeting. We continue to think, as I'm sure you've seen, and read, that the market's going to kind of have to digest and most likely be a little upset by what the Fed puts forth.

If we're right, some of these interest rate sensitive names are likely to pull back. That could be the time, once we see some cooling off and perhaps we get through Friday's triple witching, that could be the time to start nibbling on some of these names or for newer members starting a position. But rest assured that we will be sharing our thoughts on what to do, when to do it with you as we move through all of this. And then finally, one other just portfolio item. I did mention Nvidia shares earlier, but William Blair came out today with a fresh outperform rating.

As I sit back and think about some of these things, over the last few weeks, questions have been answered. Let me rephrase. What I'm talking about here is the adoption of AI. Yes, I know that apple's iPhone 16 Pro and the other models are still waiting for iOS 18.1. That should drop in October and that should start to show early features for Apple intelligence.

But when we think about the comments from Microsoft that we heard during its June Quarter Earnings Season Report or ServiceNow, during that June Quarter Earnings Report, or the Communacopia Conference comments that we shared with you last week, or even what we heard from Salesforce last night at Dreamforce, we're starting to see enterprise adoption. And when we try to connect the dots, as that adoption happens, as the PC market continues to rebound and we see the adoption of AI on device, PCs and smartphones, all of this thesis is really starting to come together, and that connects full circle with the announcement last night from BlackRock and Microsoft, and it keeps us very, very bullish on this, suggesting that we are still in the relative early innings of this entire build-out.

So our plan will be to have exposure to these areas. We like the positions that we have. From time-to-time we might have to evaluate and look for better positioned companies or ones that have better risk reward and superior earnings growth. But that's all part of being an active investor. And as we do that, we will obviously share our thoughts, comments and insights with you and any actions that we make. So I'd ask, please be sure to check your emails, your Alerts, especially this afternoon, because we will be sharing our thoughts, our analysis, and reaction to the Fed's policy statement and all that with you later today.

Thanks for watching. This is today's video. I look forward to speaking with you later this week.

At the time of publication, TheStreet Pro Portfolio was long MSFT and BLDR.