VIDEO: More Thoughts on the Newest Name to the Portfolio

In today’s Daily Rundown, Chris Versace recaps the positive data found in quarterly earnings from JPMorgan JPM and Wells Fargo WFC and how it sets the stage for next week’s results from Bank of America BAC and Morgan Stanley MS. 

He then moves on to explain three reasons why we opted to start a new position in Elastic N.V. ESTC today. 

Rounding out today’s video, Chris shares new Wall Street moves on four portfolio holdings. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Friday, October 11, end of the week, and stocks are moving higher today, giving not only some additional lift to the portfolio but setting up both the market and the portfolio for a positive start to the final quarter of the year. Helping spur that along, of course, with a better than expected results out of JP Morgan and some incrementally constructive comments out of Wells Fargo, both of which, as we shared an alert with you, support our bullish stance on both Bank of America and Morgan Stanley shares in the portfolio.

Now, both of those companies report next week with Bank of America on Tuesday and Morgan Stanley the following day. Our take is that the improving investment banking landscape should be very supportive, not only for their September quarter results, but for their outlook as well. We also think that the continued move over time by the Fed with additional rate cuts is going to bode well for their asset management and their wealth management businesses.

But as it relates to Bank of America, because it does have the commercial banking business in there, we are going to be interested in what it says about that activity, particularly on the loan activity side, whether that's mortgages or just overall lending activity. If it is seeing a pickup in that given what we've seen with interest rates over the last few months and what their expectation is, of course, for further rate cuts as it relates to Bank of America.

Also, we will be curious about their incremental footprint expansion plans over the coming quarters. The management team has been talking lately about expanding its reach of branches. Kind of an interesting comment given all that they've done on the digital side, especially in the app. But to us, it says that Bank of America is continuing to focus on grabbing incremental market share where and when it can. And we do like that, especially given the positive benefits for its other businesses as it does so.

Having said all that, as you know, several weeks ago we upgraded the shares of Bank of America to a one rating, and that wound up matching the rating that we had even before that with Morgan Stanley. Both of them are moving nicely higher today. If we see further gains when they both report next week, it's going to be somewhere between, do we have to change our rating, or is it going to come down to, do we see incremental upside in their respective price targets? So those would be some of the things that we're looking at as we get ready for those reports and as we go through them.

Now, following our addition of SH shares to the portfolio yesterday, today we started a new position in the shares of Elastic NV, ticker symbol ESTC. We did so with a one rating and a 105 price target. What are we doing here? Well, a few things. One, we're taking advantage of the accelerating enterprise adoption in AI. This is the same driver that led us to boost our price target yesterday for ServiceNow. So that's the first thing.

Second, there is a favorable mix shift underway inside of Elastic with its subscription and Elastic cloud business. As these continue to grow, we should continue to see favorable gross margin expansion. We'd like that. That's a theme that we tend to follow with a number of different companies, Axon in particular, and we think that we're going to see more of that here with Elastic as Enterprise AI adoption accelerates in the coming quarters.

And then finally, this is the big one and the third reason that we kind of made the move when we did with Elastic shares, simply we see a real opportunity created by the post-earnings slump in the shares. Several weeks ago, Elastic shares fell more than 20%, I think it was closer to 24, following a minor adjustment to its revenue outlook. And by minor I mean that they took down their fiscal year revenue by about 2%, 2.5%, yet we saw a 24% free fall in the stock. So it's that combination that kind of led us to make the move with Elastic.

We've got a lot more in the follow up alert that we recently published today that gives into the reasons why, talks about the earnings growth prospects at the business, breaks down the offering that Elastic has, and a bunch of other thoughts. So I would say this. Consider it your weekend homework alongside tomorrow's alert that will bring another batch of ripped-from-the-headlines confirmation signals for the portfolio.

Now, before we get out of here, let me share just a few other quick things with you that are unfolding today. Trade Desk getting some love from Macquarie. I think I got that right. They lifted their price target to $130 from $115.

Goldman also boosted its price target on shares of NVIDIA to $150 from $135. And Scotiabank started coverage on both Amazon and Google with outperform ratings. And finally, Pivotal Research also started Amazon at a buy today with a $260 target.

And that, my friends, will do it for this week. If you didn't watch our quarterly members call yet that we had on Wednesday, be sure to do so. Or at least if you can't watch it, do yourself a favor. Read the transcript.

We'll have a link to it in today's weekly roundup for you. And with that, my friends, enjoy the weekend. We will see you back here on Monday.

At the time of publication, TheStreet Pro Portfolio was long BAC, MS and ESTC.