VIDEO: Why This Report Is Helping Lift the Market and 2 Holdings

Chris Versace sits down to discuss the findings of ISM’s July Manufacturing PMI, explaining why it is helping drive the market and two Pro Portfolio holdings higher. We also discuss our thinking behind the Portfolio’s newest holding, and moves we’re making with the Bullpen today.

Chris also discusses a Bloomberg article over the weekend that zeros in on Apple’s (AAPL) new Apple Upgrade program that backs our thinking on why it could be a sleeper hit for Apple.

Transcript

Hey everyone, Chris Versace here. Monday, August 3rd, the start of a new month. I hope you had a very relaxing, restful weekend, because if you read our opening comments this morning, you saw that we have another busy week ahead of us, chock full of start-of-the-month economic data, another round of quarterly earnings results, and potentially some developments between the US and Iran.

It’s that last part, which we discussed briefly in our opening comments this morning, that is bringing oil prices down and helping give the market some lift. But there’s something else that happened around 10 a.m. worth flagging: the ISM Manufacturing PMI data for July, which is also giving the market some lift. Why? A couple of reasons. First, when we look at the subcomponents, the prices index actually fell compared to June — a pleasant surprise. Remember, the rebound in oil prices had a lot of people, myself included, thinking we were likely to see a tick higher in that ISM Manufacturing prices component. Instead, it came in at 71 — still over 50, so still expanding, just at a much slower pace than we’ve seen in recent months. That is very welcome news.

The other notable point in the July ISM Manufacturing PMI report was that employment ticked above the expansion line for the first time in some time, and new orders improved as well. As far as the manufacturing economy is concerned, it was a very, very good report. The pickup in manufacturing activity is going to be very good for our position in PACCAR. And to the extent that the combination of falling oil prices and a softer-than-expected manufacturing prices component starts fostering some thinking that the Fed doesn’t need to do as much — employment is expanding, after all, in the manufacturing economy — that could lead to softer expectations for more hawkish monetary policy going forward. That would be a nice positive for our new position in the shares of Builders FirstSource, which we added this morning.

So, a lot to dig through in that quick discussion, but let’s recap quickly: it appears that inflation pressures may not be as intense as we saw in the month of July. But remember, manufacturing is only 10–15% of overall GDP, so we’re going to want to double-check that thinking later this week when we get the ISM Services PMI for July and its findings on prices. Same comments apply for employment, but so far the July Manufacturing PMI report was pretty, pretty good for the economy and for some of our holdings.

I also want to talk a little bit about the addition of Builders FirstSource. You know we’ve been paying attention to, and keeping an eye on, those shares for some time. Our concern has been that the housing market is coming under a tremendous amount of pressure, especially of late, as rising oil prices and renewed inflation pressures have really exacerbated the affordability issue. We also saw single-family housing starts and other housing data soften in the first half of the year.

So why add Builders FirstSource now? Normally, with the portfolio, we like to take positions we can envision ourselves holding for 12 to 18 months, and it is possible — possible — that Builders FirstSource could land in that camp. However, as we started the position, we noted the relationship between oil prices and the inflationary pressures that have really weighed on housing stocks, and on Builders FirstSource shares in particular. When we think about the move higher in Builders FirstSource shares in July, we can trace that back to the fall in oil prices. And when we think about the fall in Builders FirstSource shares in July — shares that, as of last Friday, were retesting their May lows — that was the rebound in oil prices at work.

So for us, we’re taking more of a short-to-medium-term view on the shares of Builders FirstSource for now. But if we see mortgage rates improve, if we see mortgage applications rebound, if we see a little more enthusiasm in the housing market based on the data over the next couple of months, that could shift our view on the shares of Builders FirstSource from something more short-to-medium-term to medium-to-longer-term. So, once again, we will follow the data on that front.

I also wanted to talk about the bullpen. In part because, well, Builders FirstSource came out of the bullpen, and that led us to do some re-jiggering of the bullpen as well — if you haven’t read that alert, please do. Just a quick reminder: a stock going into the bullpen doesn’t necessarily mean it’s going to graduate to the portfolio. Yes, we eventually did that with the shares of Builders FirstSource, but consider the dynamics at play. Just because we bring something into the bullpen doesn’t mean it will eventually graduate — it may fall out. It really depends on the particular set of circumstances.

So what did we add to the bullpen? We removed the shares of American Water Works, D.R. Horton, Home Depot, and the XLU ETF. What did we add? We added the shares of Linde (ticker: LIN). Longtime portfolio followers know that at one point the portfolio had a position in that name. The pullback in Linde shares last week is one reason we’re looking at them again, along with the wins the company has racked up recently.

We also added the shares of Toast. Take a look at our comments in the bullpen alert, which walk through not only why we’re interested in the shares but also what’s different about the company’s business model — namely, that 80% of its revenue stream is tied to dining purchases. Should we see oil prices fall, inflationary pressures ease, and consumers get a little more upbeat about their dining spending, Toast would be a nice play there.

We also added the shares of the Robo Global Robotics and Automation Index ETF (ticker: ROBO). You can read about our rationale in the alert, where we also flag some things we’re thinking about on the healthcare front.

I do want to spend a little time before we wrap talking about Apple shares and an article that Mark Gurman, the Apple reporter over at Bloomberg, wrote over the weekend. Gurman writes a missive on Apple shares every Sunday, and it can vary quite a bit in terms of subject matter. What he zeroed in on this time really hammers home what we talked about late last week and in the July monthly roundup — if you haven’t read that roundup, I really suggest you do.

What Gurman focused on is the Apple Upgrade Program and how Apple can leverage it, in partnership with Klarna, to help consumers overcome the sticker shock — or potential sticker shock — of higher-priced Apple devices. Remember, we’ve already seen a bunch of price increases on just about everything but the iPhone, and the iPhone will most likely be unveiled in September. Odds are it will carry a higher price tag, not only for the Pro models — most likely the iPhone 18 lineup — but also for the expected foldable iPhone. Some estimates put that price around $2,000, a very, very high price tag for a first foldable product from Apple.

I’m curious about it. I typically tend to avoid first iterations of Apple products for a variety of reasons, but I am a bit curious about this one. I don’t think I’ll buy it, but I will probably put one through its paces at an Apple Store. But here’s the thing: for folks who really want it, the Apple Upgrade Program is a nice way to go about it. A lot of people would rather pay $40 or $50 a month than more than $2,000 up front. Now, I’m not going to say the Apple Upgrade Program is a panacea for all these price increases, but it is a possible solution, and one where we’ll want to track any and all data points around its uptake.

Based on that, and of course consumer reception to iOS 27 — which includes the overhaul of Apple Intelligence and Siri — we could see a trigger for the iPhone upgrade cycle that we and others have been talking about. That would lead us to revisit our Apple price target. But remember, too, we said that if we saw Apple shares fall back to around $288, we might revisit our rating there as well. Again, all things are subject to change based on incoming information, but that is the latest and greatest on Apple shares.

And with that, my friends, we have more coming your way today. Be sure to head over to the forum today, because at 4 p.m. we’ll have our first set of office hours for the month of August. I’ll see you there — bring your questions, and I’ll bring the answers. Thanks for watching.

More Pro Portfolio: (updated Aug. 3)

At the time of publication, TheStreet Pro Portolio was long AAPL, PCAR and BLDR.