In today’s Daily Rundown video, Chris Versace reviews today’s portfolio moves, including the decision to start a position in ServiceNow (NOW) shares.
Chris also touches on the announced acquisition of Stericycle (SRCL) by Waste Management (WM) , and three positions he’s watching closely.
Transcript
CHRIS VERSACE: Hey, folks. Chris Versace here it is Tuesday, June 4. And the market is kind of being the victim of a malaise, if you will. We're kind of in between some economic data points. Yesterday, we got the May PMI reports that, as we discussed, had a conflicting viewpoint. ISM showing the manufacturing economy contracting, but employment up and inflation not backing down. Then we saw the one from S&P global, which also showed employment up, inflation not backing down, but it painted a much more positive picture of manufacturing activity. And I think what the market here today is trying to figure out, OK, what is the true speed of the economy given these conflicting signals?
Yes, we did see the Atlanta Fed GDP now model downgrade yet again. Its rolling forecast for GDP for the current quarter to around 1.8%. Still pretty healthy growth and in my opinion, not enough for the Fed to pivot and decide the economy is really rolling over a cliff and we've got to do something with rate cuts because inflation, as we've talked about over the last few weeks and with yesterday's data, it's not looking like it's going to fall dramatically anytime soon.
So I think the Fed is going to continue to reiterate higher for longer. But remember, later this week, we will get the May Non-manufacturing PMI report or, if your S&P global, the May services PMI. So we'll get another look at the other side of the economy that's really been pretty much helping keep the economy growing over the last several quarters. So to me, that reports-- that report, excuse me, and what it says about inflation is going to be far more important. But, you know, between now and then, we do have a number of investor conferences. We're going to get some more retail earnings.
So for us, it's back to the grindstone, kind of recapping these presentations, these conference calls, updating our investment mosaic not only for the current quarter, but really increasingly for the second half of the year. So that's what we'll be doing. But I also wanted to just quickly catch up, folks, on some things that we did with the portfolio. We actually made four moves with the portfolio today. We took advantage of the just gargantuan gains that we've seen of late in the shares of Costco, NVIDIA and Qualcomm, and we trimmed those positions back. What really prudent portfolio management here, all of them were meaningfully above the 4% threshold. So what we did was just lock in a slice of those big gains. We reset all of them to around 4% of the portfolio's assets.
Why? Well, when we look at each of them, there are reasons to remain bullish and we want to continue to keep skin in the game there. But the positive is that after making those trades, we've seen some of our cash come back in and that's going to allow us to do things with our shopping list when the opportunity is right. We also took some of that cash and we started a new position in ServiceNow, ticker symbol NOW, with a 2 rating in an 840 price target.
And when we take a look at the decision behind that, there were several factors. One, of course, we always like to find favorable risk to reward entries for new positions, but the shares have been hard hit. We walked through that in our alert, but we think it was overdone, principally because when we look at the stocks, the stock, excuse me, on a valuation perspective and we look at what's happening to its business through the impact of AI and what that is doing on pricing and what it could mean for revenue and EPS in the coming quarters, it was a good point for us to start a position in this stock. It also brings another aspect of AI into the portfolio. You know, with Nvidia, Marvell, Qualcomm, we have chip exposure, with Amazon, Microsoft and Alphabet, we're capturing the transformation that's happening in the cloud and on data center.
But with ServiceNow we're kind of getting the service application layer inside the enterprise. So when we hear about how companies are spending on AI, ServiceNow is poised to be a beneficiary. And, again, when you look through our longer note that walks through our rationalization for why now for ServiceNow, you'll see some of the data points in there that really hammer home the spending that's going to happen on these types of enterprise-level systems. Hence our being positive on the shares of now. If we do see the shares kind of come in a little bit along with the market, we are inclined to build up the position using a time-tested strategy of picking up more shares and bringing our cost-basis down.
Before we get out of here, I also want to quickly talk about waste management, given the acquisition that was announced of Stericycle yesterday. I think it is a good, good move for waste management. They are extremely disciplined operators. They know how to drive pricing and I think we're going to see that happen in the quarters after the closing of the Stericycle acquisition. You know, again, you look at the margin differential that we kind of pointed out, I think that the promised synergies we're going to learn about as they integrate Stericycle are likely to be low, but it'll take time. You know, from our perspective, waste management shares have traded off. We added to them last week. We're going to let them settle out here, let the news kind of get baked in. And depending on where they are, we're likely to take another bite at waste management shares using some of that cash that we just pulled back into the portfolio today.
One last thing, we are watching a number of other shares in the portfolio, United Rentals, Vulcan Materials, they've been under some pressure lately. We signaled that we would look to revisit our current 2 rating on United Rentals if they pulled back a little further, after yesterday's comments about the April construction spending report. So we are watching that closely. We're also watching the shares of Cody very closely. They're once again under pressure.
But I would point out that we've seen a string of positive data points, and I think that is going to set the stage for a positive presentation for management tomorrow at Deutsche Bank's Global Consumer Conference. We'll have more comments after that, as well as others from management presentations both in the portfolio, out of the portfolio as they relate to the portfolio over the next couple of days because it is a very big week for investor conferences. Thanks for watching, folks. And as you can see, just by our actions today, please continue to check your emails, check your alerts. We want to make sure you're getting our latest thoughts and any moves that we make with the portfolio.
Thanks for watching.
At the time of publication, TheStreet Pro Portfolio was long NOW and WM.