VIDEO: Apple’s New Release Can Kickstart the Real Upgrade Cycle

In today’s Daily Rundown video, Chris Versace touches on the multiple moves that the Portfolio made on Wednesday following the better-than-feared November Consumer Price Index report. 

Chris also explains why Intel’s INTC rating downgrade by S&P is a positive catalyst for other chip stocks, including two names in the Portfolio. Plus, following a favorable review in The Wall Street Journal, Chris goes over why Apple’s AAPL iOS 18.2 may be the real start of the iPhone upgrade cycle. 

We end today’s video previewing what we’ll be interested in hearing from Bank of America BAC during Wednesday's afternoon investor conference presentation.

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here, Wednesday, December 11. And I'm happy to say that we're seeing a little more green in the stock market than we have over the last few days. That is, of course, given the positive reaction to today's November CPI report that came in largely as expected.

Now, I know that the year over year core CPI numbers still came in at 3.3%, the third consecutive month at that level, which of course, tells us that inflation is sticky. But the market, on the other hand, is embracing it. Why? Because it is better than feared. In other words, we're seeing a sigh of relief.

Now, why could it have been worse? Well, remember the wage data that we saw from ADP last week, the employment report and other data. Well, that was kind of leading the market, and us, candidly, into the notion that we could see the core CPI, even headline CPI for November come in a little warmer than expected. That's what we were concerned about.

That is why we came into this week really sitting on the sidelines, recognizing that even though some positions had kind of come under some pressure, let's say, that we were waiting to get this report. Why? Well, because if the numbers did come in warmer than expected, hotter than expected, we wouldn't be seeing the reaction that we are seeing today, and we wanted to get past that.

So with the data coming in and the market kind of accepting it, let's call it, we did step in and pick up shares of several portfolio holdings-- Applied Materials, Builders FirstSource, Lockheed Martin, United Rentals, and Universal Display. As I just mentioned, these have been under some pressure of late. We've been talking about them.

Obviously, for United Rentals, Builders FirstSource, the notion that the Fed is more inclined to deliver a rate cut as the market thinks-- and yes, we did see the CME FedWatch tool pop after the November CPI data-- those companies, in particular, are well positioned as rates come down. With Applied Materials, obviously, we're seeing more awards out of the CHIPS Act that keeps us long term bullish with that.

Lockheed Martin shares have come down. We know geopolitical tensions are still there. And the company continues to announce big wins. And then finally with Universal Display, shares are oversold, and we said that we would be carefully picking our spots.

And now, with the November CPI report behind us, positive data ahead, including some potentially good announcements coming at CES 2025. We wanted to wade further into our positions with Universal Display. The good news is that the immediate reaction, well, most of those are trending higher today. But candidly, with the market kind of getting a little more excited about a potential rate cut, we are seeing a nice rebound as well in several of our technology holdings-- Google, Meta, Marvell, and yes, ServiceNow.

Now, I want to shift gears and just share a few thoughts. We'll start continuing with chips, because what we saw yesterday was S&P downgraded the shares of Intel to a BBB rating. Now, that's weighing on the shares. And candidly, for some folks, I know Intel has been kind of a conundrum. A lot of folks have been waiting to see if there was a turn to see if the management team's efforts to rebound the business were going to take hold. And as we've seen, it just continues to be a mess.

I think that this S&P downgrade is probably for folks, some folks at least, the straw that is going to break the camel's back. And I wouldn't be surprised if we see some institutions kind of finally throw in the towel, exit the name, and allocate that bundle of chip dollars, let's call it, to other semiconductor companies. I continue to think that we're well positioned in that regard.

Of course, we have NVIDIA, but Marvell, really coming off of last week and some of the developments that have been announced, very, very good regarding their AI chip partners. Obviously, Amazon had some news last week, and we will see more of that in the coming months. But remember too, we are seeing greater confirmation, including the comments we shared with you from Oracle, that network infrastructure investment is going to have to happen as AI adoption accelerates. So we continue to feel very good with our shares of Marvell.

And candidly too, I think other chip hunters looking for value. I wouldn't be surprised if they start circling on Qualcomm. I'll give you one reason why in one second, but I do think that we are, as it relates to Qualcomm, going to have to get past the upcoming Arm-Qualcomm trial. You know my thoughts on this.

I do think that the trial will start and we'll ultimately get some new licensing deal in place that everybody's happy with. Neither one wants to have this really kind of play out. And I think that's the path of least resistance, so we'll see.

So what was that other potential catalyst for Qualcomm shares? Well, let's talk about Apple for a second. We know that Qualcomm, for the near term, next several quarters, is still going to be a big supplier to Apple and the iPhone. And yes, Apple has released its latest software update, and it's getting a lot of positive reviews, as we suspected, being beta users of 18.2.

The Wall Street Journal is saying that this is the AI Apple promised us. It has ChatGPT integration that makes Siri a far better voice or digital assistant. It has visual intelligence, image factory, and a bunch of other features.

And I suspect that yes, we're going to see other positive reviews, but remember, from our perspective, this is more likely to be the start, the real start of the iPhone upgrade cycle. And as Apple continues to release more features for Apple Intelligence in future software upgrades, I think we're going to see the iPhone upgrade cycle accelerate.

Now, let's talk about Apple shares for a second. They are bumping up against our price target of $250. And to be clear, that price target is a little bit ahead of the Wall Street consensus, but here's the thing. As we get data confirming that that upgrade cycle is revving up, it will give us a reason to revisit, and most likely take our Apple price target higher. That confirmation of the upgrade cycle unfolding, revving up, as I just said, that will be a positive catalyst for Qualcomm shares, and yes, for Universal Display shares as well.

Now, later today, we do have Bank of America's presentation at the Goldman Sachs US Financial Services Conference. What will we be listening for? The usual stuff. Comments about loan activity, investment banking, both M&A and IPO backlogs and potential deal flow, but we'll also be listening for any comments Bank of America might make about its 2025 net interest margin forecasts.

So what's setting the stage for that? Well, interestingly enough, Goldman Sachs came out this morning in favor of President Trump picking Andrew Ferguson, who's a Republican member of the FTC, to serve as the agency's chair. Now, we've heard a lot about the FTC over the last several quarters. Why? Predominantly because the chair position was held by Lina Khan, and as we know, she's not really been the most friendly person either to M&A transactions, or even technology companies.

Now, Goldman sees the naming of Ferguson as a positive development, kind of taking things in a different direction, fostering greater M&A activity. And we're inclined to agree. But we'll be listening to see if anyone from Bank of America kind of echoes that view during its presentation this afternoon. As we think about it, if Ferguson green lights a more favorable M&A environment, we are very well positioned with the portfolio's holdings in Morgan Stanley and Bank of America shares, but let's see what Bank of America has to say.

We recently bumped up our price target earlier this week, and I suspect that we're going to hear some confirming reasons that help support that decision. But we will be listening, like I said, primarily to comments about investment banking and the outlook for that. That is a very profitable, highly leverageable business, not just for Bank of America, but also Morgan Stanley.

So with that, folks, please be sure to check your emails, your alerts. We want to make sure you get our latest thoughts as things develop and if we make any moves with the portfolio. And by the way, don't forget, we will be holding office hours today. I will see you in the forum between 4:00 PM and 5:00 PM Eastern.

Bring your questions. We'll bring our answers. We'll have a good time. Looking forward to it.

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