VIDEO: Let's Review Our Strategy for Costco, Trade Desk and Qualcomm

In today’s Daily Rundown video, Chris Versace sets the stage for quarterly results from The Trade Desk TTD and Costco’s COST April revenue report. 

He also discusses the U.S. Commerce Department revoking export licenses to Huawei and our plan for Qualcomm QCOM shares. 

Transcript

CHRIS VERSACE: Hey folks, Chris Versace here, Wednesday May 8. And stocks have opened, started trading for the day, moving lower. As we talked about in our opening comments with you, we kind of chalk this up to a combination of renewed geopolitical tensions in the Middle East, but also the yield on the 10-year Treasury ticking back higher, reversing its recent course.

To that, our thinking is that the market's really digesting the comments we got yesterday from Minneapolis Fed President Neel Kashkari, which, of course, pushed back on the expectation, or at least the market's expectation, I should say, for a September rate cut. No surprise. We kind of walked through our thoughts on that not only in yesterday's video but in our opening comments this morning. So I would suggest that you take a look at those.

We do have another array of Fed speakers today. And I think that we're probably going to hear something more along the same. Again, we kind of walked through that in our opening comments today. So I would suggest that you really take a good read of our opening comments. And before we get started with the meat of today's video, I just want to say to folks, hey, thank you so much for coming out yesterday for our office hours in the forum between 4 PM and 5 PM Eastern.

A lot of great questions. I have a little follow-up to do. And I will be doing that both in the forum and here. But I would share that our next set of office hours will be Thursday between 12 PM and 1 PM Eastern. Please drop by, ask your questions. I think it's super informative and fun. And I look forward to seeing you there.

So with that, today, again, Wednesday, May 8, what do we have throughout the day? As I said, some Fed speakers will be paying attention to that. But by and large, it's going to be a relatively quiet day for us. I say that because from a portfolio perspective, it's only after today's market closed that we're going to get quarterly results from the Trade Desk and Costco's April Retail Sales Report.

And of course, we're going to want to pour over that. You know we like Costco. It's our second largest holding in the portfolio. We think it's extremely well-positioned given not only persistent inflation, but also increasing data points that say that lower income consumers are strapped and they're looking for ways to expand their spending dollars.

Costco, of course, fits right into that. But there are some larger reasons why we like Costco. First and foremost, the expanding warehouse footprint that drives that high margin member revenue that continues to drive increasing earnings. And then the second of course, is we continue to wait for the next membership price hike, which, as we know, is more of an issue of when, not if. Management has been talking about it on recent conference calls.

Again, we're kind of waiting for that. It would be a reason for us to revisit our $800 price target. But if we see Costco kind of repeat the strong performance it had in its March Sales Report in April, that would also give us another reason to revisit that $800 price target. But I will say this, expectations are probably running high.

If you haven't noticed of the last several days, Costco shares have really moved higher. Of course, we're happy with that because we're, again, large owners of the shares. But the shares are overbought. So we just need to be treading a little careful heading into this report. And we'll be breaking it all down, sharing our thoughts with you once we have that in our hands.

Again, also after today's market close, we have the Trade Desk. Look, we know that the shift to digital advertising is only accelerating. And that's going to actually pick up even more in the coming months as the 2024 presidential election campaign season really kicks into gear. Would we like to own more shares of Trade Desk heading into that? Yes, we would.

We do expect a positive report out of Trade Desk tonight. But we know that the market has been kind of hitting stocks where good is good, but maybe not good enough when it comes to not only quarterly results, but guidance. Again, have good expectations for what Trade Desk is going to deliver. But if the market kind of weighs on the shares a little bit, that could give us that opportunity to pick up more Trade Desk shares ahead of what we see unfolding in the coming months.

Now, let's talk about some breaking news today. And it's one of those that's going to weigh likely on our shares of Qualcomm. What I'm referring to is the US Department of Commerce informed Intel that it was revoking certain licenses for exports of consumer-related items to a customer in China effective immediately. And on the heels of that, Intel came out and said that it sees its revenue for the current quarter below the midpoint of its prior guidance.

So it's going to take some hit. Not tremendous. Again, it's now saying its revenue will be just below the midpoint of its prior guidance. Now, who is this Chinese customer in question? Huawei.

And of course, other reports point to the Biden administration revoking a similar license for our largest holding in the portfolio, Qualcomm. Now, here's the deal, folks. Huawei's smartphone market share on a global basis is about 3.5% year-to-date. And it's been largely driven by the Huawei MATE 5G product. But we have to remember that starting last year, Huawei began using a 5G chip that was designed by its own HiSilicon unit, meaning that it was not using as many Qualcomm chips as it had in the past.

So will it have some impact on Qualcomm? Odds are it will. Will it be demonstrative? No. I say that because about 80% to 84% of the smartphone market is from the players that we tend to hear the most about. You know, that's going to be Apple. That's going to be Samsung, Oppo, and other Chinese handset vendors, as well as others around the world. So again, we're likely to see a bit of an overreaction given the headline risk that we're seeing on this.

But again, we have to remember the larger picture here, right? We are on the cusp of the AI on device upgrade cycle coming. And Qualcomm is going to participate in that not only in smartphones, but PCs as well. We also have some positive catalysts on the horizon coming off of what we heard from Foxconn and its April revenue. We are waiting for Taiwan Semiconductors April revenue. That should show good things for the smartphone market, as well as high performance computing.

In a couple of weeks, we'll have Apple's WWDC event where it will take the wraps off its AI efforts, which I suspect will kind of stoke expectations for the AI on device upgrade cycle. And in the coming weeks, we've also got a rash of investor conferences. So we'll get a lot more data points to kind of triangulate around various things.

Now, could we see this headline risk that I'm talking about kind of present itself in an overreaction in Qualcomm shares? Certainly possible. If we see the shares pull back to the 168 level, you know given our 210 price target and what we see ahead, that could give us a reason to revisit our current 2 rating on Qualcomm shares.

So we're going to want to see how the day's events play out, what the data in the next couple of days brings. But we'll be watching Qualcomm shares very closely. And again, if we see the opportunity to upgrade those shares, we'll be sharing our thoughts with you. So, as I always like to end our videos with, please be sure to check your Alerts, your emails. We want to make sure you get all our latest thoughts. Whether it's going to be on Qualcomm, Trade Desk, or even Costco, we want you to be informed. And if we make any moves with the portfolio, we want you to be right there with us.

That's today's video. Thanks for watching.

At the time of publictaion, TheStreet Portfolio was long TTD, COST and QCOM.