VIDEO: Why We're Increasing Price Targets on These Positions

In today’s Daily Rundown video, Chris Versace explains the Portfolio’s price target increases on a handful of positions and the prudent Portfolio action that led us to lock in big gains on two others. 

"We did it because we're continuing to see a growing number of positive data points," he said. "It tells us that the cycle for these names is going to extend into 2025, potentially even 2026."

He also discusses Adobe’s ADBE holiday shopping forecast and why Salt Typhoon may lead us to revisit our price target for First Trust Nasdaq Cybersecurity ETF CIBR. He also provides a look ahead of Meta’s META "Connect" event, as well as earnings from Micron MU and Jefferies JEF.

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here September 25. And if you looked at the market today, then you know we're kind of having a mixed mood in the market, especially when you look at the broad market indicators. I think what's going on here is after the S&P 500 hitting fresh highs yet again, investors are starting to digest the pronounced move that we've seen in the market.

More likely than not, they're doing exactly what we're doing. They're looking for areas in the market that have not exploded higher over the last several weeks, really since that early August bottom. They're looking for undervalued areas in the market. Again, it's something we're doing. But the difference, unlike a lot of folks out there, is we're going to continue to lean in to not only some of our thematic strategies, but also the fact that we will always be looking for companies poised to deliver superior earnings growth compared to the S&P 500. That is our initial benchmark.

So we'll continue to be hunting. And as we get more ideas for the bullpen or potentially in the coming weeks, if we see a pullback in the market, something more actionable, we'll be sharing those thoughts with you. And I would say, of course, always be checking your emails, your Alerts, because we want to make sure you're getting our latest thinking. But more on that, if you have been checking your emails and your alerts today, then you know that we've had a bit of a busy day so far.

And I'm of course referring to the price target increases for Builders FirstSource, for United Rentals, and Waste Management. We also boosted the panic points for Builders FirstSource and for United Rentals. We kept our $300 price target intact for Vulcan Materials. And in the note, we explained why we were doing that.

But the nutshell takeaway here is we did it because we're continuing to see a growing number of positive data points for housing construction activity. August single family housing starts the best since April. Lennar Deliveries growing roughly 21% or so in the second half of the year compared to the first half. And then last night, KB Home gave their forecast. And when we parsed it, it sees its deliveries up mid-teens levels in the second half of the year compared to the first half. And as we look out longer term, the combination of an improving housing market, as the Fed cuts rates, mortgage rates come down, spurring activity in the housing market.

When we layer that on top of the elevated spending levels we'll see on non-residential construction because of infrastructure and related stimulus projects, it tells us that the cycle for these names is going to extend into 2025, potentially even 2026, because remember, the Fed currently expects to target around 100-basis points in rate cuts in 2025. That tells us that mortgage rates will continue to tick lower, that project hurdle rates will tick lower, spurring incremental activity.

So we are playing, to be clear, the long game with these positions. Again, Builders FirstSource, United Rentals, Vulcan Materials, to some extent, Waste Management. And if you wanted to, you can throw Eaton into that, just given the longer life cycle in terms of building out the data center infrastructure and the looming electrical pain point that we'll create. So that's our thinking on those positions.

We also however, if you saw our Alerts, we did some prudent portfolio management by trimming back the shares of Trade Desk and Universal Display. Now, why did we do this? Well, if you saw the note, then you know that there was a significant order of magnitude to their outperform performance since bottoming in early August compared to the S&P 500. I'm talking they were up each more than 30% compared to depending on the day, 7% or 10% to the S&P 500. So a factor of roughly three or more, depending on the math.

So what did we do? We did some prudent trimming, especially with Universal Display. They were clocking in around almost 4.4% of the portfolio's position size. So, prudent action taken.

Now, does that change our outlook on them? If you read the note, then you know the answer to that is no. We continue to see Universal Display benefiting from the expanding use of organic light emitting diode displays across a growing number of applications. And with Trade Desk, we continue to see it benefiting from the shift towards digital advertising, but the accelerating adoption of digital business models that include advertising at the likes of Netflix, Amazon, and others.

So we continue to those names. More on both in the note. Just a couple other quick things while I have you. Wall Street Journal is reporting that China-linked hackers have breached US internet providers in what's called the latest espionage campaign. They're dubbing it "Salt Typhoon".

Now, we know that cybersecurity has been a growing pain point. We share all these signals with you on most Saturdays ripped from the headlines confirmation. And I think every week there are multiple indications of companies or other institutions being breached. This is simply the latest. It's big, but it is the latest. Odds are this means we're going to have to put some pencil to paper, fingers to keyboard, or Excel out our price target for the cyber ETF. That's currently around 62, but we may have to raise it.

So, stay tuned as we work through that. I also wanted to share that we've started talking, as you know, about the holiday shopping season. We shared Deloitte's forecast, well, today. Adobe put out its holiday shopping season forecast. And remember, Adobe really only talks about digital shopping. That's really what they monitor and collect data on.

They see the digital shopping season up around 8.4% That essentially bookends Deloitte's digital shopping forecast. But what stood out in Adobe's comments was this, that they see consumers embracing earlier deals promoted by US retailers. Now that says that retailers are likely to get aggressive, trying to win consumers. From our perspective, that makes us a little skittish about them because oftentimes those aggressive tactics to win consumers tend to hit margins.

From our perspective, we do see the accelerated push for digital shopping and the reasons behind it, really confirming why we continue to own Costco and Amazon in the portfolio. Amazon, obviously, there are other reasons with AWS and AI. But for its retail-facing business and the same for Costco, we continue to see these things underscoring why we own them in the portfolio. As I was saying, remember, Costco will report its quarterly results tomorrow night.

And based on what we learned, we may have to revisit our price target. Before we go, just a couple other things. First, later today, Meta is going to be holding its Connect Event. We're going to see a number of different things on the AI front. The speculation is we might see some AI-enabled glasses making their debut. So we'll have our comments out once we've digested the event.

But we will also be looking for a couple other things. First, I want to see how the company responds to something that OpenAI's Sam Altman was talking about yesterday. And that's the need for the US to really get aggressive in building out its data center footprint. We know that there is an aggressive build out, but it sounds like Altman's comments are saying that because of AI, the US is going to have to be even more aggressive.

If that is the case, of course that would be very beneficial for our shares of NVIDIA and Marvell. But, we will see. The other thing that we'll be paying attention to is whether or not Facebook signals that their investment spending or their R&D spending could be bigger than expected in the second half of the year, potentially into 2025. The reason that we would want to pay attention to this is if that is indeed communicated, it would most likely mean that earnings expectations would have to come in.

And when we've seen that with Meta, it hasn't kind of hit their share price a little bit. Do we own Meta shares in the portfolio? You know we do. Would we like to own more Meta shares in the portfolio? We would, but at the right price.

And that's obviously why we're going to be watching the fallout not only of the Connect Event, but odds are if there is some incremental spending to be had by Meta and EPS to be cut, the bulk of that might happen after they report their September quarter earnings sometime in October. We don't have the date yet, so perhaps this could be more of an extended wait for us before picking up another slug of Meta shares. So, stay tuned on that.

We also have Micron earnings and Jeffrey earnings. After the close today, of course, we'll be paying attention to them and what those comments might mean for our shares of NVIDIA, Marvell, Apple, Qualcomm, Morgan Stanley and of course, Bank of America. And as I touch on Bank of America, when I look at the upside to our price target, it is above 20% So this could warrant us revisiting our current two rating. But let's see what Jefferies has to say about the investment banking landscape over the next several quarters, and we'll make our decision and go from there.

So that means I want to make sure that you continue to check your emails, your Alerts. As I was saying earlier, we want to make sure that you are getting our latest thoughts on the market, on the economy, on the portfolio. And if we make any actions, we want to make sure that you are right there with us. So once again, folks, thanks for watching. Check your emails.

At the time of publication, TheStreet Pro Portfolio was long CIBR and META.