Weekly Roundup

Many times the stock market is characterized as a roller coaster, and that description fits what we saw this week to a T. It started with up-and-down movement early in the week, then came the sharp selloff that started Thursday, and the rocket-like rally that finished the day, followed by Friday's selloff. All told, the S&P 500, Nasdaq Composite, and the Russell 2000 all closed the week lower, while the Dow Jones Industrial Average and the Cboe Volatility Index, better known as the VIX, both closed the week higher.

When looking at the drivers behind those movements, we have to take into account a few factors. These include the week's economic data, what's ahead for the Fed Funds rate, and what this all means for businesses, consumers, and the overall economy. The clear signals from the September Producer Price Index and the Consumer Price Index as well as September Import/Export prices all point to inflation being persistent despite efforts to date by the Federal Reserve. As we shared with members during the week both here and here, the follow-through on those figures will likely have the Fed go even bigger for longer than previously expected.

As we exit the week, the CME FedWatch Tool now sees the Fed Funds rate near 500 basis points exiting its February 2023 meeting vs. the current 300-325 basis points and the near-zero level in January of this year. That is a significant amount of monetary policy tightening for the economy to absorb and as the Fed has warned, there will be some pain involved. We've started to see that flow through the housing market as mortgage rates have jumped higher and with revolving Consumer Credit, which is mostly credit cards, hitting $1.15 trillion per the August data from the Fed, we are likely to see that in the coming retail sales and personal spending data as well. The headline figure for the September Retail Sales report was flat, but on an inflation-adjusted basis, it means consumers were buying less. With the Cleveland Fed's Inflation Nowcasting model increasing its CPI inflation forecast for the December quarter, and gas prices having moved higher over the last month, the growing likelihood is for a challenging holiday shopping season.

Another factor we need to account for when looking at this week is the growing list of companies that have negatively pre-announced downside expectations for the September-quarter and the balance of the year. While there have also been some positive surprises, including a few of the banks this week, as we pointed out on Friday's Daily Rundown, those companies are not impacted by higher input prices, ongoing supply-chain issues, slowing spending, currency headwinds, and related items compared to other sectors in the economy.

So why did the stock market rally to the extent it did on Thursday?

We have seen several impressive market rallies during the current bear market, and Thursday's move was another one likely triggered as the S&P 500 crossed the 3500 level. Given the substantial increase in the number of companies reporting next week, which will also broaden the industry commentary, Thursday's rally was likely exacerbated by a round of short-covering. While Friday attempted to build on Thursday's gain, the selloff likely reflected traders taking a more cautious position ahead of next week's earnings.

The AAP Portfolio

With the S&P 500 and the Nasdaq finishing lower week over week, adding to the overall down move over the last month, the AAP portfolio recorded a mixed week. The declines in those market barometers lifted our inverse ETF positions and PepsiCo's (PEP)  beat-and-raise quarter led it to be an outperformer as well. Other holdings that outperformed our benchmark, the S&P 500, include AMN Healthcare (AMN) , American Water Works (AWK) , Chipotle Mexican Grill (CMG) , Deere (DE) , Elevance (ELV) , and United Parcel Service  (UPS) .

During the week, we called up Clear Secure (YOU) from the Bullpen, establishing a $28 price target and a Two rating. We made no other trades during the week as we weaved through the barrage of September inflation data, including Friday's Retail Sales report and the start of the September quarter earnings season. With that season poised to kick into a higher gear next week and again the week after, we expect to be in a holding pattern with the portfolio. That doesn't mean we'll be sitting on our hands, rather we'll be focused on the portfolio companies that are reporting each week while also updating our investment mosaic given what we learn from the other earnings reports and conference call transcripts we'll be chewing through.

We do have our shopping list, which includes the likes of Amazon (AMZN) , American Water Works, Axon Enterprises (AXON) , Costco (COST) , Lockheed Martin (LMT) , Elevance, and Clear Secure as well as a few others. Given the number of headwinds hitting the market, the economy, and companies, we suspect the EPS reset for second-half 2022 is poised to continue while the market wraps its head around where the Fed Funds rate is likely to be when we enter 2023. As those realizations come to fruition, we will strategically put the portfolio's cash to work thoughtfully and prudently.

Key Global Economic Readings

Chart of the Week: Transports Are Trying to Move North

There is an old adage, that when the transports lead the industrials tend to follow. Will it happen again?

Thursday, October 13, saw a nice bounce in the rails, airlines, and autos with strong volume and improving technicals. Money flow has made a higher low, but what caught our eye was the sharp move up in the rate of change, which tells us price action is going against the rest of the market.

Now, before October 13, the market price action was considerably lower. We like the good relative strength here, and Moving Average Convergence Divergence (MACD) has crossed for an up move as well, though we notice SAR (dots on the chart) have not moved into the bullish camp as of yet.

Resistance in the IYT here is around 220 on this chart, so a move up from here would be a nearly 10% rise -- not bad. If the big market move has follow through, there is a strong chance for this to happen.

https://share.trendspider.com/chart/IYT/46698mg8hu

The Coming Week

Given the volume of economic data this week and the relatively light calendar that largely focuses on the U.S. housing market, barring anything unforeseen on the geopolitical stage, the prevailing focus next week will be on the September-quarter earnings season. As the week's data are digested, we plan on revisiting the Atlanta Fed's GDPNow forecast for the September quarter, which stood at 2.8% as of Friday, October 14.

Here's a closer look at the economic data coming at us next week:

U.S.

Monday, October 17

• Empire State Manufacturing Index - October (8:30 AM ET)

Tuesday, October 18

• Industrial Production & Capacity Utilization - September (9:15 AM ET)
• NAHB Housing Market Index - October (10:00 AM ET)

Wednesday, October 19

• Weekly MBA Mortgage Applications (7:00 AM ET)
• Housing Starts & Building Permits - September (8:30 AM ET)
• Weekly EIA Crude Oil Inventories (10:30 AM ET)

Thursday, October 20

• Weekly Initial & Continuing Jobless Claims (8:30 AM ET)
• Philadelphia Fed Index - October (8:30 AM ET)
• Existing Home Sales - September (10:00 AM ET)
• Weekly EIA Natural Gas Inventories (10:30 AM ET)

International

Monday, October 17

• Japan: Industrial Production & Capacity Utilization - August

Tuesday, October 18

• China: 3Q 2022 GDP
• China: Industrial Production, Retail Sales - September
• Eurozone: ZEW Economic Sentiment - October

Wednesday, October 19

• UK: Consumer Price Index, Producer Price Index - September
• Eurozone: Construction output - August
• Eurozone: Consumer Price Index - September

Thursday, October 20

• Germany: Producer Price Index - September

Friday, October 21

• Japan: National Consumer Price Index - September
• UK: Retail Sales - September
• UK: Bank of England Consumer Credit - September
• Eurozone: Consumer Confidence - October

Next week the September-quarter earnings deluge begins as the number of companies reporting their quarterly results balloons to roughly 325, up from just over 50 this past week. Included among these will be portfolio holdings Lockheed Martin (LMT) , Elevance (ELV) , and Verizon (VZ) .

As we digest those reports and determine what's ahead of those positions, we will also update our outlook as we assess what the mix between upside surprises and downside guidance means for the overall market. We'll also be contemplating what we learn from companies that are suppliers, customers, or competitors to those we hold in the portfolio. And from a general perspective, we'll also be listening for comments on inflationary pressures, supply-chain improvement, plans to take further pricing action, and any belt-tightening measures.

Here's a closer look at the earnings reports coming at us next week:

Monday, October 17

• Open: Bank of America (BAC), BNY Mellon (BK), Charles Schwab (SCHW)
• Close: Equity Lifestyle Properties (ELS)

Tuesday, October 18

• Open: Albertsons (ACI), Goldman Sachs (GS), Hasbro (HAS), Johnson & Johnson (JNJ), Lockheed Martin (LMT), State Street (STT)
• Close: First Horizon (FHN), Interactive Brokers (IBKR), JB Hunt (JBHT), Netflix (NFLX), United Airlines (UAL)

Wednesday, October 19

• Open: Abbott Labs (ABT), ASML (ASML), Elevance Health (ELV), Procter & Gamble (PG)
• Close: Alcoa (AA), IBM (IBM), Lam Research (LRCX), Las Vegas Sands (LVS), PPG Industries (PPG), Tesla (TSLA)

Thursday, October 20

• Open: Alaska Air (ALK), American Airlines (AAL), AT&T (T), Dow (DOW), Ericsson (ERIC), MSC Industrial (MSM), Nokia (NOK), Union Pacific (UNP)
• Close: Boston Beer (SAM), CSX (CSX), Snap (SNAP), Tenet Healthcare (THC), Whirlpool (WHR)

Friday, October 21

• Open: American Express (AXP), HCA (HCA), Verizon (VZ).

ONEs

AMN Healthcare Services, Inc. (AMN) ; $111.19; 1,135 shares; 3.8%; Sector: Health Care Services

WEEKLY UPDATE: We continue to favor this company as a play on the enduring nursing shortage, something we do not see abating in the coming quarters. The company shared it will report its quarterly results on November 3.

1-Wk. Price Change: -0.1%; Yield: 0.0

INVESTMENT THESIS: AMN Healthcare's business centers on talent solutions for the healthcare sector in the U.S. The company's revenue stream is tied to talents solutions it reports in three business segments: Nurse and Allied Solutions, which generated 61% of revenue for the first nine months of 2021 and ~59% of its operating profit; Physician and Leadership Solutions - 24% and 13%, respectively; and Technology and Workforce Solutions - 15% and 28%, respectively. That business mix positions the company to be capitalized on the rising demand for healthcare professionals, particularly for nurses and doctors, which is expected to grow significantly as more of the U.S. population moves past the age of 65 in the coming years.

Target Price: Reiterate $132; Rating: One

RISKS: Economic downturns and the pace of economic recovery; the ability to win new contracts; the ability to recruit and retain quality healthcare professionals.

ACTIONS, ANALYSIS & MORE: Initiation (1/27/22), Our Aging of the Population Investment Theme Explores Medical Staffing Issues, Investor Relations

Cboe Global Markets Inc. (CBOE) ; $116.36; 950 shares; 3.3%; Sector: Financials

WEEKLY UPDATE: Following last week's reveal that total U.S. options volume hit a record in September, Cboe shares received several price target increases this week that are closer to our own $140 target. Deutsche Bank upped its target to $137 from $130 and Citi reinstated coverage of the shares with a $130 target. We continue to see the continued market volatility like we saw this week translate into favorable options volumes.

1-Wk. Price Change: -2.2% Yield: 1.7%

INVESTMENT THESIS: Cboe's business centers on market infrastructure, data solutions, and tradable products for equities, derivatives, and foreign exchange across North America, Asia Pacific, and Europe. Those operations include the largest options exchange and the third largest stock exchange operator in the U.S., one of the largest stock exchanges by value traded in Europe, and EuroCCP, a leading pan-European equities and derivatives clearinghouse among others. The two primary drivers of the company's earnings are its options and North American equities business, which combined drive around 75% of its revenue but more importantly roughly 85% of its operating income. Viewed from a different perspective, 28%-30% of Cboe's revenue stream is from recurring non-transaction revenue that includes proprietary market data as well as access and capacity fees. We like the sticky nature and predictability of that business. The core driver of the company's business hinges on continued growth in options trading volume and the company expanding its recurring non-transaction revenue.

Target Price: Reiterate $140; Rating: One.

RISKS: IT spending, competition, supply chain challenges

ACTIONS, ANALYSIS & MORE: Addition to AAP Portfolio; Initial Technical Review, Addition to Bullpen, Investor Overview.

ChargePoint Holdings Inc. (CHPT) ; $12.59; 8,040 shares; 3.1%; Sector: Electrical Components & Equipment

1-Wk. Price Change: -12.8% Yield: 0.00%

WEEKLY UPDATE: Acumen Research and Consulting published a report calling for the electric vehicle (EV) charging infrastructure market to hit $182.9 billion by 2030 up from $17.2 billion in 2021. Continued adoption of EVs along with the Biden Infrastructure Law spending will be a key driver of that growth in the U.S. For context, Acumen's figures imply ChargePoint had less than 1% market share in 2021, suggesting blue sky opportunities to grow its share as the EV charging market is built out. Let's remember too, the company has an all-cash balance sheet that should more than carry it as those infrastructure spending dollars go from the planning stage to construction and deployment. We acknowledge CHPT shares can be volatile in a choppy market but with substantial upside to our price target, members who are underweight the shares should be using the recent pullback to build out their position size.

INVESTMENT THESIS: ChargePoint Holdings designs, develops, and markets networked electric vehicle (EV) charging system infrastructure and cloud-based services which enable consumers the ability to locate, reserve, and authenticate Networked Charging Systems, and to transact EV charging sessions on those systems. As part of ChargePoint's Networked Charging Systems, subscriptions, and other offerings, it provides an open platform that integrates with system hardware from ChargePoint and other manufacturers. According to the U.S. Department of Energy, the U.S. reached a milestone this past year with its 100,000th EV charger installed in 2021. Industry analysts at Guidehouse Insights forecast that a total of 120 million chargers will be needed globally by 2030, providing a meaningful opportunity for ChargePoint to expand its charging footprint. To that end, the U.S. Departments of Transportation and Energy announced nearly $5 billion over the next five years that will be made available under the new National Electric Vehicle Infrastructure (NEVI) Formula Program established by President Biden's Bipartisan Infrastructure Law. NEVI aims to build out a national electric vehicle charging network of high voltage chargers along designated Alternative Fuel Corridors, particularly along the Interstate Highway System.

Target Price: Reiterate $21; Rating: One

RISKS: EV adoption of passenger and fleet applications, changing technology, subscription renewals.

ACTIONS, ANALYSIS & MORE: We're Calling Up a Name From the Bullpen, The Needle Could Begin to Move on This Bullpen Name, Investor Relations.

Costco Wholesale (COST) ; $454.65; 245 shares; 3.4%; Sector: Consumer Staples

WEEKLY UPDATE: Once again sizing up Costco's adjusted monthly comp sales figure that excludes food and currency revealed it continued to win consumer wallet share in September. We continue to see the company benefiting from consumers pivoting where they shop as they stare down the impact of inflation, particularly when it comes to food prices. At the same time, the company continues to expand its warehouse footprint, a leading indicator for the high-margin membership fee revenue stream. Costco declared its next quarterly dividend of $0.90 per share will be paid on Nov. 10 to shareholders of record on Oct. 28. We continue to favor COST shares heading into the holiday season and they are on our shopping list.

1-Wk. Price Change: -2.9% Yield: 0.8%

INVESTMENT THESIS: We like Costco's long-term prospects, driven by a club-based operating model that focuses on volumes, not margins, and therefore offers its customers a value proposition of everyday low prices. The strength of this model has created an incredibly loyal customer base with low churn and continued share gains in both bricks-and-mortar and e-commerce. And this is a global concept, evidenced by the strength of sales both in the U.S. and abroad, which includes an emerging China opportunity. We see the company's membership model as a key differentiator vs. other retailers and its plans to open additional warehouse locations in the coming quarters should drive retail volumes and the higher-margin membership fee income as well. We also appreciate management's approach to capital returns and their willingness to return cash when it is in excess on the balance sheet. Earlier this year, Costco announced a 13.9% increase in its quarterly dividend to $0.90 per share.

Target Price: Reiterate $620. Rating: One

RISKS: Inability to pass through higher costs, fuel prices, weaker consumer, and membership churn.

ACTIONS, ANALYSIS & MORE: FY4Q21 Earnings Analysis (9/23/21), FY2Q21 Earnings Analysis (3/4/21), Upgrading Costco to a One (2/25/21), $10 Per Share Special Dividend (11/16/20), Recent Buy Alert (2/28/20), Initiation (1/27/20), Investor Relations

Deere & Co. (DE) ; $357.14; 310 shares; 3.4%; Sector: Farm Machinery & Equipment

WEEKLY UPDATE: The October World Agricultural Supply and Demand Estimates Report (WASDE) report was published this week, lowering the 2022-2023 production forecast for wheat such that it is only marginally higher vs. last year. Projected ending stocks are lowered 34 million bushels to 576 million, which would be the lowest since 2007/08, leading wheat prices to move higher. The supply outlook for corn was also reduced while expected stocks for soybeans remain unchanged and cash prices for both moved higher this week. This latest report and subsequent pricing action reaffirm our view that farmers will once again be flush, and historically that has translated into solid replacement demand. The rebound in fertilizer prices is another reason we see a favorable upgrade cycle, one that leans toward precision ag equipment. In the coming weeks, we'll be looking out for earnings from competitors AGCO (AGCO) and CNH Industrial (CNHI) and what both have to say about input prices and supply chain disruptions.

1-Wk. Price Change: 0.3% Yield: 1.2%

INVESTMENT THESIS: The global agriculture equipment market size is expected to reach $166.5 billion in 2027, growing at 6% CAGR over the 2020-2027 period. The favorable outlook for equipment purchases in the coming quarters reflects rising farmer income that historically drives new equipment purchases. At the same time, Deere continues to lean into the sustainability movement with its precision ag offering. That technology is helping farmers drive crop yields higher while also realizing cost savings, which makes the new technology a productivity upgrade compared to older equipment.

Price Target: Reiterate $425; Rating: One.

RISKS: Geopolitical uncertainty, economic conditions, raw material, and other input prices, prices for key agricultural commodities.

ACTIONS, ANALYSIS & MORE: Initiation (10/25/21), Investor Relations

SPDR Gold Shares ETF (GLD) ; $152.98; 312 shares; 1.5%; Sector: Commodities

WEEKLY UPDATE: Gold was under pressure this week but only fell back into the recent trading range. Last week's rally up to the 50-day moving average was on strong turnover, and while Thursday also was a high-volume session we should note the $152 area has been very strong support. The dollar remains the key mover here against all other currencies and precious metals, but certainly, we like having this defensive play just in case something happens with the rest of the world.

1-Wk. Price Change: -3.1% Yield: 0%

INVESTMENT THESIS: The GLD ETF is a proxy for gold. This "trust" buys and sells gold futures each day in an attempt to mimic the daily moves in the underlying asset, in this case, gold. We see gold as an ideal hedge against a weaker dollar, strong inflation (which tends to weaken the dollar) alternative, and in uncertain times (worry over war and battles). For the past 15 years, gold has been a strong asset class held by fund managers, countries, and banks. The metal is not correlated with markets and will move based on the demand/supply dynamic in the marketplace. Other precious metals such as silver and platinum are good proxies for the criteria stated earlier, however, gold is far more liquid and offers better upside opportunities.

Target Price: Reiterate $200; Rating: One

RISKS: Weak inflation data, interest rate risk, dollar strength relative to other currencies, geographic risk.

United Rentals (URI) ; $277.00; 360 shares; 3.0%; Sector: Industrials

WEEKLY UPDATE: We continue to read about new roads and other infrastructure projects being announced across the U.S., but also ones tied to the CHIPs Act, all of which should drive demand for United's rental fleet of construction equipment. Given the company's cash on hand and balance sheet, we could see it use the weakening economy to pick up nip-and-tuck acquisitions that would further consolidate its position in the industry as well as expand its reach. United Rentals will report its quarterly results on October 27.

1-Wk. Price Change: -2.6% Yield: 0.0%

INVESTMENT THESIS: United Rentals is the largest equipment rental company in the world, operates throughout the United States and Canada, and has a limited presence in Europe, Australia, and New Zealand. It serves industrial and other non-construction; commercial (or private non-residential) construction; and residential construction. Industrial and other non-construction rentals represented approximately 50% of rental revenue, primarily reflecting rentals to manufacturers, energy companies, chemical companies, paper mills, railroads, shipbuilders, utilities, retailers, and infrastructure entities; Commercial construction rentals represented approximately 46% of rental revenue, primarily reflecting rentals related to the construction and remodeling of facilities for office space, lodging, healthcare, entertainment, and other commercial purposes; and residential rentals ~4% of revenue. We see the company benefitting on three fronts -- the seasonal uptick in construction spending; the release of funds and projects associated with the five-year Biden Infrastructure Bill; and the company's nip-and-tuck acquisition strategy that should further enhance its geographic footprint. In January, the company announced a fresh $1 billion buyback authorization following the completion of $4 billion in share repurchases over the 2012-2021 period.

Target Price: Reiterate $380; Rating: One

RISKS: Industry and economic risk, competition and competitive pressures, and acquisition risk.

ACTIONS, ANALYSIS & MORE: Initiating a Position in This Equipment Rental Company, We're Adding This Equipment Rental Company to the Bullpen, Investor Relations.

Verizon Communications (VZ) ; $36.38; 2,335 shares; 2.6%; Sector: Communication Services

WEEKLY UPDATE: The company announced the formation of Verizon Global Services and will have more details on this new initiative when it reports its quarterly earnings on October 21. While the company doesn't delineate between voice/data and data-only wireless subscriptions in either Wireless Consumer or Business segments, the 33% year-over-year rise in IoT revenue at Taiwan Semiconductor (TSM) tells us that market is accelerating, a positive for mobile carriers like Verizon. As we pointed out this week on the Daily Rundown, VZ shares bottomed out with a dividend yield of 7.65% during the Great Recession. Should the shares approach that level, we'd be inclined to scoop them up for the long term. Verizon's recently increased dividend of $0.6525 per share will be paid on Nov. 1 to shareholders of record on Oct. 7. The forward yield associated with that new dividend is 6.9%, and we are inclined to take advantage of that in the coming days.

1-Wk. Price Change: -1.3% Yield: 7.0%

INVESTMENT THESIS: Verizon Communications is one of the largest communication companies in the U.S. Its Consumer business, which includes wireless equipment and services as well as residential fixed connectivity solutions, including internet, video, and voice services, is ~75% of Verizon's revenue stream but ~90% of its operating income. Exiting the March 2022 quarter, the company had 115.2 million wireless customers split between 91.4 million pre-paid and 23.8 million postpaid, and 7.1 million broadband consumers, the vast majority of which are Fios Internet customers. From a revenue and operating profit contribution perspective, the Business segment accounts for ~25% and 10%, respectively. Through this segment, Verizon offers wireless and wireline communications services and products, including data, video, and conferencing services, corporate networking solutions, security and managed network services, local and long-distance voice services, and network access to deliver various Internet of Things (IoT) services and products.

Target Price: Reiterate $55; Rating: One

RISKS: Industry and economic risk, competition and competitive pressures, acquisition risk, labor relations, and the regulatory environment.

ACTIONS, ANALYSIS & MORE: Here's Why We're Attracted to This Telecom, Exiting 2 Positions, Initiating 1, and Adding to 3, Investor Relations

TWOs

Amazon (AMZN) ; $106.90; 710 shares; 2.3%; Sector: Consumer Discretionary

WEEKLY UPDATE: We began the week with the company's Prime Early Access Sale, an event aimed to capitalize on bloated retailer inventories as well as give the company an early jump on the 2022 holiday shopping season as consumers look to get an even earlier jump compared to recent years. According to reports, "tens of millions" of people shopped during the event ordering more than 100 million items, including 8 million toys in the U.S., from Amazon and its selling partners. Bank of America estimates Amazon pulled in $8 billion in gross merchandise value over the two-day event. The September reports for the Mastercard SpendingPulse and Census Bureau's monthly Retail Sales data both showed digital shopping rose low double-digits year over year. We expect the category to remain strong in the coming months as cost-conscious consumers re-embrace the deflationary power of digital shopping. AMZN shares are on our shopping list as we get closer to the holiday shopping season.

1-Wk. Price Change: -6.7%; Yield: 0.00%

INVESTMENT THESIS: We believe upside will result from Amazon's continued eCommerce dominance, AWS' continued leadership in the public cloud space, and ongoing growth of the company's advertising revenue stream, which feeds off Amazon's eCommerce business. Additionally, we believe profitability will continue to improve as AWS and advertising account for a larger portion of total sales as both these segments sport higher margins than the eCommerce operation. And while we believe the increasing share of revenue from these higher margin businesses will be key to driving profitability longer-term, we believe margins on e-commerce stand to improve as the company's infrastructure is further built out and economies of scale further kick in. The embedded call option is that management is always looking to enter a new space and generate new revenue streams. We continue to see the company's Prime, logistics service and learnings from its Chime video conferencing platform as a game changer for the healthcare industry.

Target Price: Reiterate $175; Rating: Two

RISKS: High valuation exposes the stock to volatile swings, eCommerce has exposure to slower consumer spending, and competition, management is not afraid to invest heavily, potential headwinds resulting from new eCommerce regulation in India, and management is not scared to invest aggressively for growth, which can at times cause volatile reactions as near-term concerns arise relating to the impact on margins.

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/29/21), 2020 Letter to Shareholders (4/15/21), Initiation (2/2/18), Investor Relations

American Water Works (AWK) ; $128.44; 705 shares; 2.7%; Sector: Utilities

WEEKLY UPDATE: Pennsylvania American Water, a subsidiary of American Water signed an agreement with the Butler Area Sewer Authority to purchase its wastewater system for $231.5 million. We see this as the latest example of American Water's nip-and-tuck acquisition strategy, one that has helped the company grow its recurring revenue base as well as its cash flow. We suspect the company will continue to be opportunistic. With AWK shares down, it is one of the Two-rated stocks members should be adding to at current levels. American Water will report its quarterly results on November 1.

1-Wk. Price Change: 0.8%; Yield: 2.0%

INVESTMENT THESIS: American Water is the largest and most geographically diverse, publicly traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. The company's primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service, and sale for resale customers. The company's utilities operate in approximately 1,700 communities in 14 states in the United States, with 3.4 million active customers in its water and wastewater networks. Services provided by the company's utilities are subject to regulation by multiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions (PUCs). Residential customers make up a substantial portion of the company's customer base in all of the states in which it operates. The company also serves (i) commercial customers, such as food and beverage providers, commercial property developers and proprietors, and energy suppliers, (ii) fire service customers, where the Company supplies water through its distribution systems to public fire hydrants for firefighting purposes and to private fire customers for use in fire suppression systems in office buildings and other facilities, (iii) industrial customers, such as large-scale manufacturers, mining and production operations, (iv) public authorities, such as government buildings and other public sector facilities. Because there is usually only one water utility available, the business has a rather wide moat, and the company has used its scale and balance sheet to acquire smaller, regional water utilities thereby further expanding its scale. pending rate increases underpin the company's 7%-9% annual EPS growth targets between now and 2026 as well as its stated objective to increase its annual dividend by 7%-10% over the next several years. American Water declared its latest quarterly dividend of $0.655 per share will be paid on Sept. 1 to shareholders of record as of Aug. 9.

Target Price: Reiterate $165; Rating: Two

RISKS: Regulatory oversight risks, environmental safety laws, and regulations, weather-related service disruptions.

ACTIONS, ANALYSIS & MORE: We're Initiating 1 Name While Adding to AnotherInitiating a Position in This Public Water Utility Company, Investor Relations presentation.

Apple (AAPL) ; $138.38; 750 shares; 3.1%; Sector: Technology

WEEKLY UPDATE: Early in the week research firm IDC shared its finding that Apple was the only PC vendor to see positive year-over-year growth in the September quarter as it shipped 10.06 million Macs, up 40% year over year. Per IDC, the overall PC market fell to 74.34 million units in the quarter, down 17.5% from 87.32 million last year. KeyBanc raised its iPhone revenue expectations for the current quarter. We would also note that with India's laughing 5G services on October 1, Apple has a fresh market opportunity with its newer iPhone models. Later in the week, Apple announced it would partner with Goldman Sachs to bring a high-yield savings account to Apple Card. In our view, this adds to the product's allure and makes it even stickier with consumers. Also, this week, Apple said it will bring several of its services to Microsoft's platforms including Apple Music to Xbox, iCloud Photo, and Apple TV to Windows. We see this as a positive for driving both Apple's services revenue and subscriber base higher, a positive for its overall margin profile. Apple will report its quarterly results on October 27.

1-Wk. Price Change: -1.2% Yield: 0.7%

INVESTMENT THESIS: While we acknowledge that near- to- midterm performance remains heavily influenced by iPhone sales, the dynamic is shifting as investors finally place greater emphasis on Services growth. We are bullish on the 5G upgrade cycle and believe longer-term upside will continue to come as Services revenue grows its share of overall sales. Services provide for a recurring revenue stream at higher margins, a factor that serves to reduce earnings volatility while allowing for a higher percentage of sales to fall to the bottom line; as a result, we believe that Services growth and the installed base, are much more important than how many devices the company can sell in a given 90-day period. In addition to improved profitability, we also believe the transparent nature of this revenue stream will demand an expanded price-to-earnings multiple as segment sales grow. Furthermore, we believe that Apple's desire to push deeper into the healthcare arena will help make its devices invaluable as more life-changing features are added and the company works to democratize health records. Lastly, also see upside resulting from increased adoption of wearables (think the Apple Watch) and potential new product announcements such as an AR/VR headset or an update on project Titan, the company's secretive autonomous driving program.

Target Price: Reiterate $175; Rating: Two

RISKS: Slowdown in consumer spending, competition, lack of new product innovation, elongated replacement cycles, failure to execute on Services growth initiative

ACTIONS, ANALYSIS & MORE:FY3Q21 Earnings Analysis (7/27/21), Apple Product Launch Event Takeaways (4/20/21), Takeaways from WWDC (6/22/20), Initiation (1/4/10), Investor Relations

Axon Enterprise Inc. (AXON) ; $119.45; 275 shares; 1.0%; Sector: Aerospace & Defense

1-Wk. Price Change: -3.5% Yield: 0.00%

WEEKLY UPDATE: The U.S. Department of Veterans Affairs Police intends to deploy Axon Fleet 3 in-car cameras with Axon's AI-powered automated license plate reader technology and Axon Body 3 cameras to VA police officers across all Veterans Integrated Services Networks. Also in this $60 million contract, the VA will leverage Axon's real-time situational awareness software, Axon Respond, and Axon's digital evidence management system, Axon Evidence. This win is another example of both Axon's comprehensive product offering and its ability to win business at the federal level. We recently initiated a position in AXON shares and we plan to build it out either on a pullback in the share price or on program wins that lead 2023 expectations to be revised higher from current levels.

INVESTMENT THESIS: Axon Enterprise Inc develops, manufactures, and sells conducted energy devices and cloud-based digital evidence management software designed for use by law enforcement, corrections, military forces, private security personnel, and private individuals for personal defense. The company operates in two segments: Taser and software & sensors. Taser develops and sells CEDs used for protecting users and virtual reality training. Software and sensors manufacture fully integrated hardware and cloud-based software solutions such as body cameras, automated license plate reading, and digital evidence management systems. Axon delivers its products worldwide and gets most of its revenue from the United States. President Biden's fiscal year 2023 budget requests a fully paid-for new investment of approximately $35 billion to support law enforcement and crime prevention -- in addition to the President's $2 billion discretionary request for these same programs. According to Mordor Intelligence, the wearable, and body-worn cameras market on its own was valued at $1.62 billion in 2020 and is expected to reach $424.63 billion by 2026.

Target Price: Reiterate $145; Rating: Two

RISKS: Manufacturing and Supply Chain, Competitive Factors, Government Regulation, Technology Change.

ACTIONS, ANALYSIS & MORE: Strong Demand Bodes Well for This Conducted Energy Devices Firm, Initiating a New Position in a Public Safety Technology Name, Investor Relations.

Chipotle Mexican Grill (CMG) ; $1,508.41; 70 shares; 3.2%; Sector: Restaurants

1-Wk. Price Change: 2.0% Yield: 0.00%

WEEKLY UPDATE: We continued to see price target changes this week for CMG shares with Morgan Stanley boosting theirs to $1,847 from $1,807, almost matching our target. During the week, Mastercard's September SpendingPulse survey found restaurant spending rose 10.9% year over year while the September Retail Sales report indicated a stronger 11.4% for food services & drinking places. With the September data in hand, the Census Bureau found food services & drinking places retail sales for the September 2022 quarter rose 11.2% vs. last year, giving us a benchmark by which to measure Chipotle's September quarter comp sales figure when it reports its quarterly results on October 25.

INVESTMENT THESIS: Our investment thesis on CMG shares centers on its offering consumers better-for-you fare while also expanding its geographic density, embracing digital ordering, and bringing to market limited-time menu offerings that should spur traffic and boost average revenue per ticket. With the upside to our price target shrinking, we are once again reviewing the incremental upside and revisiting protein input costs.

Target Price: Reiterate $1,850; Rating: Two

RISKS: Input costs, particularly for the protein complex, labor costs, consumer spending, food safety, industry dynamics, and competition.

ACTIONS, ANALYSIS & MORE: Initiating a New Position in Chipotle, We're Adding Chipotle to the (Bullpen) Menu

Clear Secure Inc. (YOU) ; $23.96; 1,050 shares; 0.8%; Sector: Technology

WEEKLY UPDATE: This week we started a small position in YOU shares, calling them up from the Bullpen and establishing a $28 target. Catalysts we will be watching to add more YOU shares to the portfolio include the announcement of additional airports and airlines offering the company's Clear Plus solution as well as those for opportunities outside that core market. As a reminder, those other areas include payments, location access, ticketing, age validation, and health profiles. As we make this trade, it's important to note that YOU shares can be volatile and that means we will be affording them something of a wider berth as we start this position. Given the potential for the market to remain volatile, we would be inclined to wade deeper into the position should the stock pull back even further. Late in the week, Clear partner Delta Air Lines (DAL) called for a strong holiday travel season, and next week Clear's other two partners -- United Airlines (UAL) and American Express (AXP) -- also issue their latest quarterly results and guidance.

1-Wk. Price Change: -0.5%; Yield: 0%

INVESTMENT THESIS: Clear Secure is involved in the creation of a frictionless travel experience while enhancing security. Its secure identity platform uses biometrics to automate the identity verification process through lanes in airports which helps to make the travel experience safe and easy.

Target Price: Reiterate $28; Rating: Two

RISKS: membership growth, partnership retention, and growth, competitive dynamics, new product offerings.

ACTIONS, ANALYSIS & MORE: We're Initiating a Position in This Identity Platform Company,We're Securing This Company a Spot in the Bullpen, Investor Relations.

First Trust Nasdaq Cybersecurity ETF (CIBR) ; $36.88; 2,590 shares; 2.9%; Sector: Cybersecurity

WEEKLY UPDATE: The outlook for cybersecurity spending remains bright. Cybersecurity Ventures expects global cybercrime costs to grow by 15% per year over the next five years, reaching $10.5 trillion annually by 2025, up from $3 trillion in 2015. According to Foundry's 2022 Security Priorities Study, an overwhelming majority (90%) of security leaders believe their organization is falling short in addressing cybersecurity risk. Those surveyed experienced these pitfalls from different issues, such as convincing the severity of risk to all or parts of their organization (27%), and believing their organization isn't investing enough resources to address risks (26%). This points to cybersecurity spending forecasts likely to be once again conservative relative to actual spending as companies shore up their defenses to protect their assets and crown jewels. With CIBR shares well below our position's cost basis, we are on the prowl for more shares. However, may hold off until we are further into the September-quarter earnings season given market concerns over corporate IT budgets in a slowing economy.

1-Wk. Price Change: -5.8% Yield: 0%

INVESTMENT THESIS: The First Trust Nasdaq Cybersecurity ETF is an exchange-traded fund. The fund seeks investment results that correspond generally to the price and yield (before the fund's fees and expenses) of an equity index called the Nasdaq CTA Cybersecurity Index. The Nasdaq CTA Cybersecurity Index is designed to track the performance of companies engaged in the cybersecurity segment of the technology and industrial sectors. It includes companies primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices to protect the integrity of data and network operations. To be included in the index, a security must be listed on an index-eligible global stock exchange and classified as a cybersecurity company as determined by the Consumer Technology Association (CTA). Each security must have a worldwide market capitalization of $250 million, have a minimum three-month average daily dollar trading volume of $1 million, and have a minimum free float of 20%.

Target Price: Reiterate $62; Rating: Two

RISKS: Cybersecurity spending, technology, and product development, timing of product sales cycle, new products, and services in response to rapid technological changes and market developments as well as evolving security threats.

ACTIONS, ANALYSIS & MORE: We're Swapping One Cybersecurity Stock for Another, ETF Product Summary

Elevance Health Inc. (ELV) ; $470.77; 90 shares; 1.3%; Sector: Health care

WEEKLY UPDATE: Elevance will report its September-quarter results on October 19. Consensus expectations call for EPS of $7.15 on revenue of $39.09 billion and we'd note the company has a track record of modestly beating consensus EPS expectations. Following the upside surprise reported by competitor UnitedHealth (UNH), it would appear that Elevance's track record should remain intact. With the shares below our initial buy-in price, we have ample room to move further into them, something we are inclined to do given the relatively defensive nature of its business.

1-Wk. Price Change: 0.8%; Yield: 1.1%

INVESTMENT THESIS: Elevance, formerly Anthem/Blue Cross Health, is a premier healthcare brand that appears to be in the sweet spot for HMO companies. Mostly domestic, this company has a wide reach and coverage across the U.S., serving more than 118 million people via medical, pharmacy, clinical, and care solutions. Founded in 1944, Elevance offers a terrific business model that works in boom or bust economic times. The opportunity to find a company with reliable and dependable revenue and cash flows is right here with Elevance. Revenue growth for this company has surged in recent years, with better than double-digit growth since 2018 as the company thrived during the pandemic. Earnings grew more than 30% in 2021.

Target Price: Initiation at $550; Rating: Two

RISKS: With any insurance business the risk is high for changes in regulation and government programs. Since the onset of Obamacare more than 10 years ago, companies like Elevance have changed their model to be more in line with a better cost/benefit analysis, reducing waste and squeezing out excesses (as was outlined and suggested in Obamacare). Separately, as the population increases and ages, there is more opportunity for Elevance to grow, but with those changes there is a risk. Lastly, competition is brisk with some very strong opponents who keep their costs low (Humana, Cigna, UNH, CVS/Healthnet).

ACTIONS, ANALYSIS & MORE: 2021 Annual Report, 2Q 2022 Earnings Report, Investor Relations.

Ford Motor (F) ; $11.67; 7,850 shares; 2.8%; Sector: Industrials

WEEKLY UPDATE: It was a rather quiet week for Ford shares, but concerns about the higher borrowing costs and auto sales in a slowing economy weighed on the shares as did a downgrade by UBS. We discussed that downgrade in one of our Daily Rundowns as well as why we continue to be both patient and bullish with the portfolio's position in F shares. We also have to recognize the current dividend yield above 5% pays us to wait as the company's transition continues. Ford will report its quarterly results on Oct. 26 and its October sales data on Nov. 2.

1-Wk. Price Change: -4.3% Yield: 3.9%

INVESTMENT THESIS: Our bullish thesis on Ford is mainly predicated on the turnaround led by CEO Jim Farley and his new leadership team. Whether it be through restructuring underperforming parts of the business and getting out of low profitable vehicles or addressing a roughly $2 billion headwind related to warranty costs, we believe Farley and his management are executing in building a new Ford that grows profitably and generates sustainable free cash flow. We also think Ford's electric vehicle business is underappreciated. Not only do they have the Mustang Mach-E, but Ford is also developing all-new electric versions of the popular F-150 and the E-Transit cargo van. Plus, Ford has a strategic partnership and minority investment with Rivian (RIVN), which is best known for its customer delivery vehicles for Amazon. Recently, the IEA said it sees "another all-time high for electric vehicle sales [in 2022], lifting them to 13% of total light-duty vehicle sales globally" vs. almost 9% of the car market in 2021. By 2030, IEA sees EVs accounting for 60% of new car sales.

Target Price: Reiterate $17; Rating: Two

RISKS: Turnaround execution, the transition from ICE (internal combustion engines) to EV vehicles, competition, economic cycle.

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/28/21), Ford Continues to Shine After Capital Markets Day (5/27/21), Our Take on Ford as It Continues Its Climb Higher (1/21/21), Looking for Opportunities After a Ford Downgrade (11/25/20), Initiation (11/24/2020), Investor Relations

Alphabet GOOGL; $96.56; 1,000 shares; 2.9%; Sector: Communication Services

WEEKLY UPDATE: Ahead of its October 25 earnings report date, the company announced it will let some customers pay for its cloud services with digital tokens such as Bitcoin (BTC-USD) and Ethereum (ETH-USD) via Coinbase starting in early 2023. Data from Oberlo as of this past August, find a whopping 92% of all search queries conducted across all search engine providers are done through Google. For context, its next closest competitor, Microsoft's Bing, had just a 3.3% share. In our view, this paired with YouTube puts Alphabet in a strong position to win incremental ad spending dollars as the U.S. mid-term election approaches and as advertising spend continues to shift to digital and mobile formats vs. radio, print, and TV.

1-Wk. Price Change: -2.1%; Yield: 0.00%

INVESTMENT THESIS: We believe that while search and digital ad dominance are what will carry shares in the near- to midterm, longer term it is the company's artificial intelligence "moat" that will provide for new avenues of growth. AI is what has made the company's search, video, and targeted ad capabilities best-in-class and is the driving force behind the company's success in voice (Google Home) and autonomous driving (Waymo). Furthermore, we believe it is this AI expertise that will also make the company more prevalent in other industries, including healthcare via its subsidiary Verily, as AI and machine learning continue to disrupt operations across industries. We believe Alphabet's willingness to invest in new areas, knowing most will fail, is a recipe for long-term success as while most "X Moonshot Factory" projects may fail, every once in a while, you end up with a Waymo, perhaps the division's, most successful graduate to date. Lastly, compounding our positive view of the company's future opportunities, we believe that Alphabet's free cash flow generation and solid balance sheet set it apart and are what will allow the company to continue taking chances on far-out ground-breaking and potentially world-changing projects.

Target Price: Reiterate $155; Rating: One

RISKS: Regulatory risk (data privacy), competition, macroeconomic slowdown impacting consumers and therefore ad buyer activity.

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/27/21), Why GOOGL Has Shrugged Off Antitrust Headlines in Early Trading Tuesday (10/20/20)

Lockheed Martin Corp. (LMT) ; 389.41; 85 shares; 1.0%; Sector: Aerospace & Defense

WEEKLY UPDATE: Lockheed will report its September-quarter results on October 18, and the consensus forecast calls for EPS of $6.66 on revenue of $16.65 billion. For the December quarter, the consensus forecast is EPS of $7.40 on revenue of $18.22 billion. Given that this is a new position for the portfolio, should Lockheed shares pull back after the upcoming earnings report we would look to add to the position provided our investment thesis remains intact, something we see with a high probability. The company's new quarterly dividend of $3 per share will be paid on Dec. 30 to shareholders of record on Dec. 1.

1-Wk. Price Change: -3.6% Yield: 2.9%

INVESTMENT THESIS: Lockheed Martin is the largest defense contractor globally and has dominated the Western market for high-end fighter aircraft since the F-35 program was awarded in 2001. Lockheed's largest segment is aeronautics, which is dominated by the massive F-35 program. Lockheed's remaining segments are rotary and mission systems, which is mainly the Sikorsky helicopter business; missiles and fire control, which creates missiles and missile defense systems; and space systems, which produces satellites and receives equity income from the United Launch Alliance joint venture. Historically, the stability of defense spending has been a haven during periods of economic uncertainty, and we see that repeating once again even as geopolitical conflicts are likely to lead to incremental demand for Lockheed's products. The company has increased its dividend consistently over the last 19 years and is widely expected to boost it again in the coming days.

Target Price: Reiterate $450, Rating: Two

RISKS: Contracts and budget risk with the U.S. government and the Department of Defense, F-35 program funding and renewal, competition, subcontractor issues.

Mastercard (MA) ; $288.69; 275 shares; 2.4%; Sector: Info. Tech

WEEKLY UPDATE: Mastercard's September SpendingPulse report as well as the better-than-expected September Retail Sales data ex-auto point to consumer spending in the U.S. holding up despite the signs the economy is poised to slow further in the coming months. For the September quarter, total retail and food services sales rose 9.2% year over year. That paired with continued global share gains against cash and checks bodes rather well for the company's upcoming September-quarter earnings report on October 27. With MA shares below $300, we are adding them to our shopping list given the long-term prospects of credit, debit, and digital payments as well as the current technical setup. That said, we will likely look to readjust our price target lower once we have its quarterly results and updated longer-term outlook in hand.

1-Wk. Price Change: -2.1% Yield: 0.7%

INVESTMENT THESIS: Mastercard is a card network company that benefits from the secular shift away from cash transactions and toward card-based and electronic payments. On Covid-19 dynamics, we view MA as a "reopening" play and an economic recovery play within technology because its cross-border volumes fell sharply during the pandemic but will rebound as mobility increases and travel restrictions ease. Mastercard has more international exposure relative to Visa, making its growth outlook more susceptible to new travel restrictions. However, we view MA as the better long-term play as we are betting on that inevitable recovery. Mastercard's next quarterly dividend of $0.49 per share will be paid on Nov. 9 to shareholders of record on Oct. 7.

Target Price: Reiterate $425 Rating: Two

RISKS: The recovery in cross-border transactions, regulation in payments market, competition from other fintechs, pricing pressures.

McCormick & Co. Inc. (MKC) ; $73.54; 1,415 shares; 3.2%; Sector: Food; Consumer Non-Durables

WEEKLY UPDATE: We continue to favor the company's shares as we enter the seasonally strongest time of year for its products. Pricing actions taken earlier in the year started to recover cost inflation in the August quarter, paving the way for more in the current and coming quarters. As we've said to members, over time those increases should help drive margins higher especially when key inputs return to more normalized levels and supply-chain challenges abate. Data found in the Mastercard SpendingPulse report for September contained favorable grocery spending data even after adjusting for inflation. As we navigate the current earning season, we are inclined to take another bite of MKC shares.

1-Wk. Price Change: 0.1% Yield: 2.0%

INVESTMENT THESIS: McCormick is a global leader in flavor that manufactures spices, seasoning mixes, condiments, and other flavorful products for the entire food industry-retailers, food manufacturers, and food service businesses. Roughly 65% and 75% of the company's sales and operating income are derived from its consumer business with the balance from its "Flavor Solutions" one. With consumers feeling the pinch of higher food prices, they are likely to repeat the historical pattern of shifting toward increasing food consumption at home, a driver of demand for McCormick's products. We are also entering the seasonally strong time of year for this dividend payer, which has increased its dividend each year over the past 37 years.

Target Price: Reiterate $100; Rating: Two

RISKS: Local economic and market conditions, input cost inflation, exchange rate fluctuations, and restrictions on investments, royalties, and dividends.

Microsoft Corp (MSFT) ; $228.56; 420 shares; 2.9%; Sector: Technology

WEEKLY UPDATE: Early in the week research firm IDC shared its finding the overall PC market fell to 74.34 million units in the quarter, down 17.5% from 87.32 million last year. Adjusting for the 40% year-over-year growth reported in Apple's Mac line, the remaining PC market fell 20% year over year. This confirms the growing commentary over the last few weeks about the falloff in the PC market. With companies tightening their belts, especially after spurious buying of PCs and peripherals during the pandemic the outlook for this aspect of the company's Windows business looks challenging. Even so, this week, Microsoft announced new versions of its Surface laptops on Wednesday, including the Surface Laptop 5, the new Surface Pro 9, and the new Surface Studio 2 all-in-one desktop. Also this week, U.K. regulators have moved to an in-depth probe of Microsoft's proposed Activision Blizzard (ATVI) acquisition pushing the timetable out for any potential transaction even further. Despite the move lower in the shares, we will remain on the sidelines given the prospects for the PC market and dollar headwinds given the company derives 50% of its revenue outside the U.S. Microsoft will report its quarterly results on October 25.

1-Wk. Price Change: -2.4% Yield: 1.1%

INVESTMENT THESIS: We believe the cloud to be a secular growth trend and that upside to shares will result from Microsoft's hybrid cloud leadership as the company grabs market share in this expanding industry. While companies may look to build out multi-cloud environments, Microsoft's Azure offering will be a prime choice thanks to the company's decision to provide the same "stack" used in the public cloud, to companies for their on-premise data centers. Additionally, we would note that hybrid environments are currently the preference for most companies because it allows them to maintain critical data in-house while taking advantage of the agility and scalability provided by public clouds. Outside of the cloud opportunity, we maintain a positive view on the company's growing gaming business, which we believe is becoming an increasingly prominent factor in the Microsoft growth story as gaming becomes more mainstream, management works to convert its gaming revenue from one-time license purchase to a recurring subscription model and as technologies like augmented/virtual reality evolve. Finally, as it relates to LinkedIn and other subscription-based services such as O365 and various Dynamics products, we continue to value them highly for their recurring revenue streams, which we remind members, provide for greater transparency of future earnings. Microsoft recently declared a 10% increase in its next quarterly dividend of $0.68 per share. This new dividend will be paid on Dec. 8 to shareholders of record on Nov. 17.

Target Price: Reiterate $310; Rating: Two.

RISKS: Slowdown in IT spending, competition, cannibalization of on-premises business by the cloud.

ACTIONS, ANALYSIS & MORE: FY4Q21 Earnings Analysis (7/27/21), Ignite 2021, Microsoft Acquires ZeniMax (9/22/20), CEO Satya Nadella on CNBC (3/25/20), CEO Satya Nadella speaks at the World Economic Forum (1/23/20)

PepsiCo Inc. (PEP) ; $170.19; 745 shares; 3.8%; Sector: Consumer Defensive

WEEKLY UPDATE: PepsiCo reported stronger-than-expected September-quarter earnings led primarily by pricing actions taken in preceding quarters, confirming our investment thesis for the shares. Those results paired with the company's upsized 2022 organic revenue guidance of 12% vs. its prior forecast for 10% and call for core EPS of $6.73 vs. its prior forecast of $6.63, led to several price target increases this week that are closer to our own $190 target. While Jefferies raised its target to $181 from $171, JPMorgan lifted its to $188 from $186 and Barclays boosted its to $185. With just over 10% upside to our target, members should wait for any market-related pullbacks before adding to their PEP holdings.

1-Wk. Price Change: 5.3%; Yield: 2.6%

INVESTMENT THESIS: PepsiCo is one of the largest food-and-beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The combination of the consumable nature of those products along with PepsiCo's ability to realize price increases has led to consistent revenue, EPS, and dividend growth during both the Great Recession and the Covid pandemic. The company's most recent dividend increase marks its 50th consecutive one and that 7% bump moves the annualized dividend to $4.60 per share up from the prior $4.30.

Target Price: Reiterate $190; Rating: Two

RISKS: Economic conditions, supply chain constraints, raw material costs.

ACTIONS, ANALYSIS & MORE: Adding to 2 Positions on Market Weakness, We're Initiating 1 Name While Adding to Another, This Stock Should Have 'Pep,' Even in a Recession, Investor Relations

United Parcel Service (UPS) ; $161.68; 565 shares; 2.8%; Sector: Industrials

WEEKLY UPDATE: The shares received several price target cuts this week to the $200-$205 range by Raymond James and KeyBanc, with the latter keeping its Overweight rating intact. Those cuts reflect a more cautious stance on freight given the slowing global economy. We'll look to revisit our price target when UPS reports its quarterly earnings on Oct. 25, but we see the possibility that fuel cost surcharges and consumers shifting back to digital shopping laying the groundwork for a solid quarterly report.

1-Wk. Price Change: 1.6% Yield: 3.8%

INVESTMENT THESIS: We are fans of CEO Carol Tomé. Throughout her time at Home Depot, Tomé built an impressive reputation as a turnaround artist, and we think her fresh perspective and intense focus on efficiencies will create a better UPS. However, near-term global supply-chain issues paired with rising transportation costs could be a thorn in the company's side. We appreciate UPS's nearly 50 years of stability and growth in dividends, which management calls the "hallmark" of the company's financial strength. In February 2022, the company announced a 49% hike to its quarterly dividend putting it at $1.52 per share.

Target Price: Reiterate $230; Rating: Two

RISKS: Weakness in the broader economy, rising fuel prices, execution, cost management, pricing power.

ACTIONS, ANALYSIS & MORE: FY2Q21 Earnings Analysis (7/27/21), Investor/Analyst Day Analysis (6/9/21), Investor Relations

Vulcan Materials Company (VMC) ; $148.44; 305 shares; 1.4%; Sector: Building Materials

WEEKLY UPDATE: The shares received a few price target cuts this week, including D.A. Davidson's reduction to $200 from $205 and Citigroup cut to $189 from $199. The cited catalysts for the revisions include supply constraints, rail issues, and weather in the near term even though conversations with non-residential exposed contractor suppliers point to a positive pipeline heading into 2023. We will continue to focus on the longer view as Biden Infrastructure Law picks up, but VMC shares are ones that we are looking to increase exposure to in the portfolio.

1-Wk. Price Change: -5.7% Yield: 1.1%

INVESTMENT THESIS: Vulcan Materials operates primarily in the U.S. and is the nation's largest supplier of construction aggregates (primarily crushed stone, sand, and gravel), a major producer of asphalt mix and ready-mixed concrete, and a supplier of construction paving services. Its products are the indispensable materials used in building homes, offices, places of worship, schools, hospitals, and factories, as well as vital infrastructure including highways, bridges, roads, ports and harbors, water systems, campuses, dams, airports, and rail networks. Ramping spending associated with the Biden Infrastructure Law should drive demand for Vulcan's products over the coming years. Vulcan has historically complemented its organic growth prospects by acquiring businesses to expand its geographic reach and product scope. Since 2014, the company has acquired more than two-dozen companies, including the 2021 acquisition of U.S. Concrete. That combination has allowed the company to deliver steady top and bottom-line growth over the last decade, with only a modest decline when the pandemic hit in 2020.

Target Price: Reiterate $222; Rating: Two

RISKS: General economic and business conditions; dependence on the construction industry; timing of federal, state, and local funding for infrastructure; changes in the level of spending for private residential and private nonresidential construction.

ACTIONS, ANALYSIS & MORE: Initiation Post, Investor Relations

Energy Select Sector SPDR Fund (XLE) ; $80.28; 855 shares; 2.1%; Sector: Energy

WEEKLY UPDATE: Oil and natural gas prices ended the week lower, but still up on a year-over-year basis. While those prices will likely continue to drift amid supply constraints and concerns over the speed of the global economy, XLE's two largest constituents, Exxon Mobil (XOM) and Chevron (CVX) will both report their quarterly results on Oct. 28. We will continue to monitor oil and natural gas inventories as we plan our next steps for this holding.

1-Wk. Price Change: -1.9%; Yield: 3.5%

INVESTMENT THESIS: Energy Select Sector SPDR Fund is an exchange-traded fund (ETF) that tracks the performance of the Energy Select Sector Index. The ETF holds large-cap U.S. energy stocks. It invests in companies that develop & produce crude oil & natural gas, and provide drilling and other energy-related services. The holdings are weighted by market capitalization.

Target Price: Reiterate $98; Rating: Two

RISKS: interest rates, weakness in the broad economy, energy prices.

ACTIONS, ANALYSIS & MORE: Adding to 2 Positions on Market Weakness, We're Initiating a Position in the Energy Sector, State Street Global Advisors SPDR Fact Sheet for XLE.

Market-Hedging Positions

ProShares Short QQQ ETF (PSQ) ; $15.25; 4,070 shares; 1.9%

WEEKLY UPDATE: With the Fed on a path to tame inflation, a move that will see further interest-rate hikes in the coming months, we remain concerned over the potential for the central bank to overreach and scuttle the domestic economy. We continue to see signs of slowing enterprise spending, dollar headwinds, and continued supply-chain issues that are likely to lead to further downward revisions to GDP and earnings expectations. That concern keeps PSQ shares in play as we now navigate the path to the September-quarter earnings season and the Fed's next monetary policy to be held in November.

1-Wk. Price Change: 3.2%; Yield: 0.00%

INVESTMENT THESIS: ProShares Short QQQ seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the Nasdaq 100 Index. The Nasdaq 100 Index includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization.

Target Price: N/A

RISKS: Because PSQ shares track the inverse of the Nasdaq 100 Index, PSQ shares will move lower when the Nasdaq 100 Index moves higher.

ACTIONS, ANALYSIS & MORE: Selling Shares in 1 Position, Closing Another, Adding to 1, and Initiating 1

ProShares Short S&P 500 ETF (SH) ; $17.23; 3,310 shares; 1.7%

WEEKLY UPDATE: With the Fed on a path to tame inflation, a move that will see further interest rate hikes in the coming months, we remain concerned over the potential for the central bank to overreach and scuttle the domestic economy. We continue to see signs of slowing enterprise spending, dollar headwinds, continued supply-chain issues, and persistent inflation that are likely to lead to further downward revisions to GDP and earnings expectations. Our suspicion is we will continue to see companies trimming back expectations, offer conservative guidance, or both. That concern keeps SH shares in play as we now navigate the path to the September quarter earnings season and the Fed's next monetary policy to be held in November.

1-Wk. Price Change: 1.4%; Yield: 0.00%

INVESTMENT THESIS: The ProShares Short S&P 500 ETF seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the S&P 500. We are using SH shares to blunt market volatility and hedge the portfolio's performance against its benchmark, the S&P 500. Given the tactical nature of this position, we do not expect to hold SH shares for the same length of time as we do the portfolio's long positions.

Target Price: NA

RISKS: Because SH shares track the inverse of the S&P 500, SH shares will move lower when the S&P 500 moves higher.

ACTIONS, ANALYSIS & MORE: Selling Shares in 1 Position, Closing Another, Adding to 1 and Initiating 1, Trimming 2 Names While Initiating Coverage of a Third

Action Alerts PLUS is long AXON, LMT, ELV, GLD, SH, PSQ, XLE, UPS, PEP, MA, F, CIBR, AWK, AMZN, VZ, URI, NVDA, MSFT, MKC, GOOGL, DE, COST, CMG, CHPT, CBOE, AAPL, AMN, VMC and YOU.