VIDEO: Here's a Bullpen Name We Intend to Revisit

In today’s Daily Rundown video, with this being the latest Fed decision day, Chris Versace starts by recapping what the market expects the Fed to deliver and explains why we could see a sigh-of-relief rally later this afternoon. 

He then touches on some of our actions earlier today, including the addition of American Express AXP to the Bullpen and our price target boost for Mastercard MA shares. 

Chris also shares some Wall Street price target changes for ServiceNow NOW, Microsoft MSFT and Amazon AMZN before closing out with why we’re taking a fresh look at Bullpen resident Bright Horizons Family Solutions BFAM.

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Wednesday, December 18, better known as Fed Decision Day. Now, ahead of the Fed's monetary policy decision, Fed Chair Powell's press conference, and the updated set of economic projections, so far stocks are rebounding modestly. And that goes the same for the portfolio. It is kind of clawing back some of the recent move lower that we saw.

Now, we've wagged our chins, as we like to say, quite a bit about what the market expects the Fed to say and do later today. But for those that might have missed it, let's quickly recap. The market does expect another 25 basis point rate cut, bringing the total to 100 basis points since the Fed's September meeting. Most likely, Fed Chair Powell is going to reiterate his DealBook comments. And those were that the Fed can be more cautious finding the neutral level of monetary policy moving into 2025.

That likely means that, when we get the updated set of economic projections, the Fed will dial back the number of rate cuts it sees in 2025. If you remember in September, with that set of updated economic projections, the Fed was kind of telegraphing four 25 basis point rate cuts. Our thinking continues to be that, if the Fed simply matches the number of rate cuts that the market sees in 2025, we are likely to see a relief rally ensue.

Now, we also want to be mindful of some of the other updated figures that we'll get in the updated set of economic projections. We'll be eyeing GDP. I do think that the Fed is going to have to boost its GDP forecast, not only for 2024, but 2025. For 2024, I say this in part because yesterday we got the latest update for the Atlanta Fed's GDPNow rolling GDP forecast for the current quarter. And it was-- excuse me. It came in at 3.1%, down slightly from 3.3%. But a 3.1% figure going into the Fed's meeting, it's going to tell them that, yes, the economy is vibrant enough that they can slow-walk the pace to future rate cuts.

So I do expect us to see that. I wouldn't be surprised, also, if Fed Chair Powell kind of reminds us that, yes, inflation is being a little stickier. We did get several other pieces of inflation data since he appeared at the DealBook summit. So barring anything unexpected, like I said, we suspect that we're likely to see a market rally ensue. But again, the Fed has to at least match the market's expectation for rate cuts when it comes to 2025.

Adding to our thinking that we could see that sigh of relief rally is that, following the market's recent moves, it remains oversold when we look at the S&P short-term oscillator. Now, that's the expected outcome. But we will be breaking it all down as it unfolds starting at 2:00 PM, which means we'll have some alerts coming your way with the initial monetary policy statement and as we digest Fed Chair Powell's comments.

Now, while we wait for all that afternoon fun to unfold, earlier today we published a primer on subscription versus membership business models, explaining why membership models tend to be a little stickier in terms of customer retention. And soon after that, we added American Express shares to the bullpen in a note that explained our concern about the current valuation for AXP shares and levels at which we would be interested in starting a position for the portfolio. We also outlined some of the other potential catalysts that could spur us into action with American Express shares.

Now, let's talk about some other items that are unfolding as we wait for this afternoon's developments. Last night, Mastercard announced a 15% dividend increase. And as you saw in an alert, that led us to boost our price target to 570 from 540 In that same alert, though, we also explained why we opted not to take our price target any higher. And the down and dirty on that, folks, is that we are simply not interested in paying up, with expanded valuation multiples, for what's likely to be a slower pace of profit growth that's papered over, if you will, by share buyback activity.

We have no problem paying up for a company that is expanding its operating profit at a faster pace. That's a wonderful driver of bottom-line performance. But when they use, let's say, below the operating line, you know, shenanigans, lower tax rates, or a share buyback program to inflate EPS growth compared to profit growth, that's a little bit different. So we're always kind of mindful of that when we see companies continue to announce these big share repurchase programs. I wouldn't be surprised if some of the lazier folks out there simply say, "oh, earnings is going higher," not really understanding the real drivers at play. But we will continue to ferret those out and base our decisions on that.

A couple other housekeeping items-- today, Stifel raised its price target on ServiceNow to 1,175 from 990. We've been recently upping our price target for ServiceNow as well. Stifel also upped its price target on Microsoft to 515 from 475. That was complemented by UBS, which boosted its Microsoft's price target to 525 from 500. We continue to think long-term Microsoft is going to be in a good position. But remember, they are kind of adding incremental capacity for cloud. And as that capacity comes on stream, we should see that cloud revenue growth re-accelerate. That's kind of the catalyst that we're waiting for with Microsoft.

And then following our recent price increase for Amazon, JP Morgan lifted its price target to 280 from 250. I want to close today's video on one final note. We are reading that, apparently, AT&T will require employees to be on site five days a week starting in January. Now, we've been on the lookout for announcements like this. And as we digest this one from AT&T, we are going to circle back, revisit, if you will, the shares of Bright Horizons Family Solutions in the bullpen. Those shares are down about 20% from where we added them to the bullpen. So the valuation's a little more favorable. But remember, too, we really want to get an updated view on the number of companies that are increasing the number of days in office.

It doesn't have to be five days a week, but it could be going from two to three, three to four, or possibly even to five. As more folks are in the office more time, that will spur demand for childcare solutions. And of course, that is what Bright Horizons Family Solution does. So we'll be, like I said, circling back on that. And we will have much more this afternoon, as we make our way through the Fed news. So please, be sure to check your emails, your alerts. We want to make sure you're getting our latest thoughts, especially as we assess what the Fed has to say. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long MA, NOW, MSFT and AMZN.