VIDEO: Why Micron's Earnings Will Be Important for Big Tech

In today’s Daily Rundown video, Chris Versace discusses the importance of Micron Technology's MU earnings report on Big Tech and several portfolio holdings. 

He also shares what to expect from bank stress test results and reviews today’s trade in the shares of Builders FirstSource BLDR. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Tuesday, June 25. Stocks are moving higher today, recovering some of the lost ground from yesterday with big tech leading the way.

And in our opening comments this morning, we shared our plan, I guess you could say, for market lightning rod stock in Nvidia and their shares. In our view quarterly results from Micron, DeMar, and I are going to be very important. We say this because they touch some of the key N markets that NVIDIA as well as Qualcomm and others inside the portfolio are exposed to. I'm, of course, talking about data center, PCs, and yes, smartphones.

So our thinking is that the comments coming out of Micron tomorrow night, both for their next quarter but, really, the back half of the year, could be the next catalyst for those and other shares that touch the big tech and AI world. So we'll be closely watching those.

But look, let's just understand that, when it comes to Nvidia, when it comes to Qualcomm, even Universal Display and some others in the portfolio, we've seen significant gains over the last quarter. Clearly head and shoulders above not just the S&P 500 but the NASDAQ as well. So are we surprised that some folks are taking profits?

No. No, we're not. You know, we talked about this earlier. And remember, several weeks back, we took some chips off the table from some of these names as well. But our view is more on the longer term, and we do think that Micron is going to come out and reiterate the strong case for spending as well as the upgrade cycles for PCs and smartphones.

So we're inclined to be patient with the shares of NVIDIA and Qualcomm. But with NVIDIA shares in particular, we called out where there is a gap in the shares. And yes, it is much lower than where we are today. But even if we hit those levels, NVIDIA shares will still be up significantly, not only from where they were earlier in the year but from where we added them to the portfolio as well.

So again, we're inclined to be patient and update our thinking as more data is had. But remember, we continue to see a lot more companies talking about how they are rolling out or deploying AI.

Our view is we're still in the very early innings of this transformative period in technology. So again, we're going to be patient. We're also waiting tomorrow for the results of the latest round of bank tests from the Federal Reserve.

Now, this is nothing to be alarmed about. The Fed has been doing these on an annual basis. And typically, they have some doomsday scenarios that they run the big banks through, making sure that they are healthy and well capitalized.

This time around, I wouldn't be surprised if, given the concerns that we're seeing about the commercial real estate market, that we might see that play a role. But again, not really expecting many surprises.

And I say this because the Fed, as we know, has become increasingly transparent. And after several years going through these tests, the big banks are pretty adept at figuring out where they need to be. Why we're watching them is because what happens afterward.

Typically, the Fed will make its announcements, and then we'll see a flurry of press releases from each of the big banks talking about how they have passed the Fed's latest stress test. And more often than not, it includes some type of announcement about either a dividend increase or a share buyback program increase. And in some cases, it could be both.

Now, a few weeks ago, we talked about Morgan Stanley's shares because they recently paid their fourth consecutive dividend at the same level. And as we know with Morgan Stanley, they are on a dividend increasing bent. So we could, sooner than later, be hearing more about a fresh dividend increase from Morgan Stanley, but we'll also be listening from Bank of America and others, sizing up any potential increases against those that are announced by other banks.

So when we get this, assuming that there is a dividend increase, will we be rethinking potentially our Morgan Stanley price target? We will. And if we need to make any adjustments, we shall.

But remember, the backdrop for Morgan Stanley as well as Bank of America, incrementally positive on the IPO market and the M&A market. So there could be some other reasons why we reconsider our currently above-consensus price targets for both of these.

And then finally, in terms of some portfolio action, I just wanted to recap the trade that we made today. We added to the portfolio's positions in Builders FirstSource, ticker symbol BLDR. We did that after adding to the position or starting a position, I should say, just a few weeks ago.

But we did it because the shares have been under pressure lately, pulling back into oversold territory. The latest catalyst to pull down on Builder shares was a price target adjustment by Wedbush. They're still keeping their outperform rating, but they dialed back their price target to 175 from 215. The why behind this is the reassessing their outlook for the housing market, both from new home sales as well as housing starts.

Now, as I said in the alert, I can't really tell you what they were thinking back when they first put that 215 price target on. But we know that our position, as we would see a nice improvement in the housing market over the coming quarters as the Fed returns monetary policy to more neutral levels from currently restrictive.

So yes, our timetable for BLDR shares in the portfolio is not one or two quarters, but it is more like four to five to six quarters out. So we will be patient with this position, and we will continue to monitor the economic data, which continues of late to improve-- to show some improvements when it comes to inflation. That has us incrementally positive on the Fed embarking on a rate-cutting cycle later this year.

We continue to see at least one. But if we get a string of favorable inflation data with the June, July, and August data, we could see expectations for maybe more than one start to climb. So we're going to continue to watch the data, but if that is, indeed, what we see, that should be an incremental positive for our shares of Builders FirstSource. So we'll continue to watch that.

But with that in mind, folks, I would say please continue to track your emails. Track your alerts. We want to make sure you're getting our latest thoughts but also any moves that we make with the portfolio. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long MU and BLDR.