VIDEO: These Portfolio Names Are Ripe for the Picking

In today’s Daily Rundown video, Chris Versace explains why the market is trading up after the April CPI and Retail Sales reports and why the Retail Sales data supports our views on Amazon AMZN, PepsiCo PEP, and Costco COST. 

He also recaps today’s portfolio moves, discusses which holdings are ripe for the picking for newer members, and which position may need a price target increase.

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Wednesday, May 15. And stocks are moving higher following what I would say was a combination of good news is good news, bad news is good news as well. I'm, of course, referring to the back-to-back April CPI and Retail Sales report.

What did they show? Well, they showed inflation is once again back on track, improving, declining compared to what we've seen in recent months, breaking out of that range that the core CPI has been trapped in. Good news.

But on the same time, the April retail sales clearly missed expectations. That's the bad news. But good news, sort of, because it points to a slower than expected growing economy. And of course, this is getting the market a little more excited about the prospects of Fed rate cuts. That combination, of course, makes it even more so.

When we take a look at the CME Fedwatch tool, no surprise, we did see the market's expectations for a September rate cut jump to about a probability of around 53%. Compared to a month ago, it was around 45%. So the market is kind of perceiving this as good news that the Fed could very well be on path to cut rates.

But I would say, remember, the core CPI at 3.6% is still quite a distance from the Fed's 2% target. And while we don't expect the Fed to wait to get to 2% before it starts to dial back monetary policy from being restrictive, we are going to see more-- sorry, we're going to need more progress.

What I suspect is that as some of the inflation readings like the core CPI fall below 3%, that's more likely when the Fed is going to start cutting rates. But remember, we also want to see a number of inflation metrics pointing towards continued progress. I don't think the Fed is going to hang its hat on anyone risking being head faked.

That's why I suspect that when we get a barrage of Fed speakers this afternoon, including the more hawkish Minneapolis Fed President Neel Kashkari, that he's going to say, you know, nice progress in the April CPI report. But we're going to need to see more good data to get comfortable, particularly after the data had been range bound for so many months. So I think it's going to take more data. That's my view. But we'll continue to manage the portfolio in response to the evolving data set.

So with that, let's quickly talk about the April retail sales report, which again, kind of came in weaker than expected. On a month-over-month basis, it was the-- let me get the numbers here just to make sure I'm right. It was retail sales, ex auto, ex gas fell 0.1%, missing the forecast of plus 0.2%. And that was down considerably compared to March's 0.7% figure.

Now, as I pointed out into our alerts this morning, we know that there is some timing issue giving the Easter holiday. It fell in early April last year. It fell on March 31 this year. So that is going to make the data a little wonky. But when we take a look at the trailing 3-month data through April and compare it, it does tell us that, yes, consumers are kind of dialing back their spending a little bit, being more selective, being more choosy, all the things that we've heard from a barrage of retail-facing companies so far this current earnings season.

So let's put-- let's dig into the meat of the report. When we look at it, clearly a positive for our shares of PepsiCo. I say this because grocery sales accelerated during April. We've been hearing quite a bit about consumers re-embracing grocery. This certainly confirms that. That sets us up very well for PepsiCo.

And by the way, you may not have noticed, but since the beginning of March, our shares of PepsiCo have been up around 11%, almost 12%. That's a very stealthy move in a name like PepsiCo. It does have them on path, as I like to say, towards our price target at 185. And I will share this. If we see another positive print for grocery sales in the May Retail Sales report, we and most likely Wall Street will need to revise PepsiCo price targets higher. So stay tuned for that.

Amazon, look, when we look at Amazon, we always like to dig into the retail sales report for what it says about digital shopping. And once again, the non-retail sales store line item was one of the more positive and stronger numbers in the overall report, which tells us that consumers continue to lean into digital shopping as a nice way to stretch those spending dollars.

And of course, whenever we look at a retail sales report, we have to line it up against Costco's recent sales report. And going April to April, there's little question that Costco continues to take consumer wallet share. Again, kind feeding into the narrative that consumers are being more selective, looking to stretch their dollars. And of course, Costco is simply a wonderful, wonderful way to do that.

Losers inside the April Retail Sales report, really two categories, not much of a surprise, furniture. Look, people are going to buy new furniture when they move into homes or they're doing some repair remodeling. Based on what we saw from Home Depot yesterday, but also what we're seeing in the larger housing markets, no surprise that furniture continues to be weak.

And then department stores, I don't really know what to say to that other than the fact that I'm not surprised, given the comments we've heard about consumers. And again, the penchant for being more selective, trading down. One other thing that I'll point out is that in response to the retail sales report, our shares of Amazon and Coty are trading off.

Given my comment just now about Amazon, it really shouldn't be happening. They're going to continue to take consumer wallet share. And for Coty, there is no line item inside the retail sales report that specifically targets fragrance and other products that Coty brings to market. I was asked about Coty in a recent office hours. And my stance remains the same even after the April Retail Sales report.

The company continues to gain share in their key product offerings. We're continuing to see further progress on CEO Sue Nabi's transformation of the company. And remember, we're exiting the weakest time of the year for Coty. The second half of the year is much, much stronger. That's really where we want to-- that's why, excuse me, we want to continue to own the shares into that seasonal strength.

The portfolio, however, has pretty much a full position. But for newer members or folks that are underweight Coty, given where they are, once again, hovering close to our cost basis. It's a good place to pick them up. And I would add that to the list of things that we've already picked up in recent days.

So that includes today's trade, where we added more shares of Microsoft, Labcorp, and Trade Desk. I also said in our alert that if we didn't have quite the size of position-- of the positions that we have with Universal Display and Axon, we would be picking up shares here as well. So again, for newer members, or members who are underweight them, in addition to perhaps picking up some Microsoft, Trade Desk, and Labcorp shares, you should really take a hard look at the shares of Coty, Universal Display, and Axon at current levels.

That's our video for today. Thank you so much for watching. Remember to check your emails, check your alerts. We want you to make sure you get our latest and greatest thoughts, but also any moves, just like the ones we made today with the portfolio. So you can match our moves as well. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long AMZN, PEP and COST.