Weekly Roundup: Off to a Strong Start in May

The stock market closed out a down month for April, which erased a few percentage points for the S&P 500, Nasdaq Composite, and other market benchmarks following their strong showing in Q1 2024. May started a bit wobbly following comments from Fed Chair Powell Wednesday afternoon that the central bank doesn’t see it as appropriate to cut rates until it has more confidence that inflation is sustainably approaching its 2% target.

Recent data mean it will take longer for the Fed to get that confidence. But Powell did toss the market a present by saying that monetary policy is sufficiently restrictive and he does not see the need to hike rates any further.

Thursday night and Friday the market received some welcoming news. Quarterly results from Apple were not just better-than-feared but better-than-expected and the April Employment Report showed the slowest level of job creation in six months. That jobs report also showed the Unemployment Rate rising to 3.9% as well as a downtick in wage pressure, a welcome sign especially as it reflects new fast-food minimum wages in California. We’ll need to do some math to confirm, but our thinking is we strip out that California increase, the year-over-year rise in average hourly wages in the jobs report would have been even lower.

Friday’s modest fall in the 10-year Treasury yield to around 4.5% from 4.7% late last week was also welcome news for the market. While constructive, we have seen the market get ahead of itself more than a few times over the past few quarters when it comes to rate-cut timing.

We could be seeing that once again given movement in the CME Fed Watch Tool, which on Friday showed the market starting to factor in a September rate cut. We’ve discussed that timing and the presidential election as to why that isn’t likely to happen. We continue to think we could see one rate cut late this year, but if we see more pricing data like we did with this week’s April Manufacturing and Non-Manufacturing reports from ISM, it could slip into 2025. In both of those reports, the respective prices paid components jumped considerably month over month, signaling little letdown in inflation pressures.

Given the lack of fresh economic data next week, this should make comments from Fed speakers a focal point in the coming days. While some may come down with a case of rate cut hopium, we’ll continue to follow the data and position the portfolio accordingly.

Catching Up on the Portfolio This Week

April ended with the S&P 500 down 4.2% and the Nasdaq Composite off 4.4%, which led to favorable showings for the portfolio’s inverse ETFs. Other strong performers during April included Alphabet (GOOGL), SPDR Gold (GLD), Lockheed Martin (LMT), Elevance Health (ELV), and PepsiCo (PEP). On a relative basis, numerous other holdings outperformed those market barometers, which allowed the portfolio to make up previously lost ground relative to its benchmark.

During the first few days of May, we’re off to a strong start thanks in part to Apple’s (AAPL) surprise earnings report but also continued strength in Amazon (AMZN), Universal Display (OLED), Qualcomm (QCOM), Trade Desk (TTD) and several other holdings.

Because of the Fed’s policy meeting this week and the barrage of economic data, we took no action with the portfolio until Friday. Following the slower-than-consensus April job creation and decline in year-over-year wage growth, we exited the portfolio’s market inverse ETF positions, funneling those proceeds into more shares of Applied Materials (AMAT) and Labcorp (LH).

We lifted several position price targets this week, notably for AAPL, OLED, AMZN, and QCOM shares – those moves are captured in our position write-ups below.

Exiting the week, our cash position stands at just over 14% of the portfolio’s assets. We plan to opportunistically but prudently put more cash to work via our portfolio shopping list, which includes Waste Management (WM), Trade Desk, Labcorp, Microsoft (MSFT), Applied Materials (AMAT), and CIBR ETF shares.

This Week's Portfolio Videos and Podcasts

We cover a lot of ground during the week in our Daily Rundowns and the Portfolio Podcast. If you happened to miss one or more of them, here are some helpful links:

Monday, April 29: What Wall Street Is Missing About Marvell

Tuesday, April 30: What We're Watching for From Amazon, AMD, and Super Micro After the Close

Wednesday, May 1: This Is How Skyworks' Poor Outlook Affects Our Thinking on Apple

Wednesday, May 1: Talking All Things Oil With Prairie Operating CEO Ed Kovalik

Thursday, May 2: Let's Review Our Plan for Apple Tonight

Key Global Economic Readings

(Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)

Chart of the Week: Renaissance IPO ETF

The initial public offering (IPO) market has been sleepy for quite some time. It is hard to recall the last group of high-quality names to come public and have sustainability in the market. Basically, a stock like Oatly (OTLY) or Reddit (RDDT) comes to market when the money in the stock market is flowing. What that means is a company will go public, do an IPO, and sell shares exchanged for usually much-needed cash to grow their businesses. Some very successful IPOs over the last 25 years include Meta (META) and Alphabet (GOOGL).

The IPO market plays a vital role in the stock market and financial companies. A healthy stock market depends on new companies coming out and making themselves available to share buyers. On the one hand, when companies are coming to market and selling themselves to the public it opens new investment opportunities. Statistics show the number of companies public has been shrinking over the last 25 years, however. One reason would be the poor IPO market and the lack of quality companies being released. On the other hand, banks and financials make heavy profits via IPO releases, and when they are plentiful the earnings from companies such as Morgan Stanley, Goldman Sachs, and Bank of America reflect it. Their fees for bringing out companies are massive.

On the docket planned for the rest of 2024 are some high-quality private companies, including Stripe, Klarna, Chime, Databricks, Discord, SKIMS, SpaceX, Panera, and MobiKwik. If these companies come out to market this year, then we might consider the IPO market strong and vibrant. That’s a good sign for the stock market and the economy in general.

The chart of the Renaissance IPO ETF (IPO) is interesting and may be offering a nice buying opportunity. The ETF has pulled back sharply from recent highs, about 10% or so, and is just starting to turn up. A 10-15% correction from a 45% move up (from October to March) is quite normal and healthy.

There's no question that interest is there in IPOs, we can see it in the chart as well, with strong volume bars from earlier in the year. While the ETF is unchanged on the year, if the names above come to market, we’ll see this IPO ETF really start to run higher.

Other charts we shared with you this week were:

Monday, March 25: S&P 500 - Nice Recovery But More Work Is Needed

Monday, March 25: Axon (AXON) - Axon Is Showing Some Bullish Flare

Tuesday, March 26: Eaton Corp. (ETN) - This New Bullpen Name Is Where the Power Is

Wednesday, March 27: Nvidia (NVDA) – Nvidia Hangs On

Thursday, March 28: Costco (COST) - Look What's Happening at Costco

The Coming Week

Coming off a heavy economic data week, and the Fed’s latest policy meeting, we will see a lull in economic data next week, but the slack will be taken up to some degree by a half dozen or so Fed speakers making the rounds. As we drink in their comments, we’ll reflect on Fed Chair Powell’s comments from this week, which suggested the odds of a rate cut this year are falling. We’ll be interested in how the Fed speakers frame the uptick in April PMI price index data versus slower job growth and improving wage pressure in Friday’s April Employment Report.

We’ll continue to revisit our thinking on the timing of Fed rate cuts as fresh data become available. As you can see in the coming reports below, there won’t be much of that next week.

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

U.S.

Tuesday, May 7

Consumer Credit – March (3 PM ET)

Wednesday, May 8

Weekly MBA Mortgage Applications (7:00 AM ET)
Wholesale Inventories – March (10:00 AM ET)
Weekly EIA Crude Oil Inventories (10:30 AM ET)

Thursday, May 9

Weekly Initial & Continuing Jobless Claims (8:30 AM ET)
Weekly EIA Natural Gas Inventories (10:30 AM ET)

Friday, May 10

The University of Michigan Consumer Sentiment Index (Preliminary) – May (10:00 AM ET)

International

Monday, May 6

China: Caixin Service PMI - April
Eurozone: HCOB Services PMI – April

Tuesday, May 7

Japan: Jibun Bank Services PMI - April
Germany: Imports/Exports – March
Eurozone: Retail Sales – March

Wednesday, May 8

Eurozone: European Central Bank Non-Monetary Policy Meeting

Thursday, May 9

China: Imports/Exports - April
Japan: Leading Economic Index (Preliminary) - March
UK: Bank of England Interest Rate Decision

Friday, May 10

Japan: Eco Watchers Survey - April
UK: GDP – 1Q 2024

Following two barn-burning weeks of earnings reports, we’ll start to see a slower pace next week. Even so, we’ll have three portfolio holdings reporting – Axon (AXON), Coty (COTY), and Trade Desk (TTD). Outside of those reports, we’ll continue to collect data points that will serve to update our thinking about our holdings, the economy, and the consumer.

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

Monday, May 6

Open: TreeHouse Foods (THS), Tyson Foods (TSN),
Close: Axon (AXON), Coty (COTY), International Flavors & Fragrances (IFF), Palantir (PLTR), Simon Properties (SPG).

Tuesday, May 7

Open: Bandwidth (BAND), BP (BP), Duke Energy (DUK), GlobalFoundries (GFS), Jacobs Engineering (J), Surgery Partners (SGRY), Walt Disney (DIS),
Close: Astera Labs (ALAB), Dutch Bros (BROS), Electronic Arts (EA), Inter Parfums (IPAR), Redfin (RDFN), Veeco Instruments (VECO).

Wednesday, May 8

Open: Affirm (AFRM), Emerson (EMR), Kennametal (KMT), Radware (RDWR),
Close: Airbnb (ABNB), Cheesecake Factory (CAKE), The Trade Desk (TTD).

Thursday, May 9

Open: Ceva (CEVA), GoodRx (GDRX), Hanesbrands (HBI), Papa John’s (PZZA), Roblox (RBLX), Tapestry (TPR),
Close: Akami (AKAM), AMN Healthcare (AMN), Blink Charging (BLNK), Dropbox (DBX), indie Semiconductor (INDI), Insulet (PODD), Rackspace Technology (RXT), Synaptics (SYNA), Trex (TREX).

Friday, May 10

Open: Construction Partners (ROAD), Digital Ocean (DOCN).

Portfolio Investor Resource Guide

· Economic Data: Here's a List of Links to the Key Economic Data We Closely Watch

· Investing Terminology: 16 Key Terms Club Members Should Know

· 10-Ks: Want to Know About a Stock? Read the Company's Reports

· 10-Qs: Unlock the Numbers and Key Information Behind Your Stock With the 10-Q

· Income Statement -Our Cheat Sheet to Understanding This Financial Document

· Balance sheet, Cash Flow Statements, and Dividends - How to Know If a Company Is Off-Kilter? Read Its Balance Sheet

· Valuation Metrics - Everyone Wants a Value. Here's How Investors Can Find

The Portfolio Ratings System

1 - Buy Now (BN): Stocks that look compelling to buy right now.

2 - Stockpile (SP): Positions we would add to on pullbacks or a successful test of technical support levels.

3 - Holding Pattern (HP): Stocks we are holding as we wait for a fresh catalyst to make our next move.

4 - Sell (S): Positions we intend to exit.

ONES

Alphabet GOOGL; $167.24; 1,035 shares; 4.05%; Sector: Communication Services

WEEKLY UPDATE: Following the strong post-March quarter earnings move, GOOGL shares gave back a portion of those gains this week, but on a year-to-date basis the stock is still up ~19%, well ahead of the major market indexes. During the week, Google shared that it's building closer ties with its media partners, injecting more generative artificial intelligence into ad technology as streaming players increase uptake of ad-supported channels. Reports also indicated Google closed a deal with News Corp. (NWSA) to pay the media company between $5M and $6M per year to develop artificial intelligence-related content and products. Despite those developments, the company continues to have a tight focus on its costs. Google has laid off at least 200 employees in its "Core" teams and will undergo a reorganization that results in some jobs moving to India and Mexico. The "Core" unit is responsible for the technical work behind Google's flagship products and protecting online safety. We continue to see Google’s business and the shares well positioned to capture the accelerating shift to digital advertising, especially in a presidential election year, as well as the cloud. Given Google’s reach, our thinking continues to be the company will be a meaningful player in AI. The company will pay its first quarterly $0.20 per share dividend on June 17 to shareholders of record on June 10.

1-Wk. Price Change: -2.7%; Yield: 0.5%

INVESTMENT THESIS: We believe that while search and digital ad dominance are what will carry shares in the near- to mid-term, 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. Lastly, adding to 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. The company is also preparing to roll out Gemini Subscription with enterprise plans for workspace, according to a report. All good news for Alphabet.

Target Price: Reiterate $200; Rating: One

Panic Point: $140

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

Amazon AMZN; $186.21; 835 shares; 3.66%; Sector: Consumer Discretionary

WEEKLY UPDATE: Following Amazon’s March-quarter results on Tuesday, we boosted our price target to $220 from $200. There were many positives in Amazon’s results, including the reacceleration of sales growth at Amazon Web Services, and the company showed further progress on driving costs out of its overall business as its operating margin for the quarter cracked double digits for the first time. Our thinking is we are seeing the benefits of cumulative efforts to drive costs out of Amazon’s business segments. We continue to see AMZN well-positioned as shoppers reembrace digital shopping, especially as they contend with persistent inflation. AI and cloud adoption should remain a tailwind for Amazon Web Services, and we continue to see favorable growth ahead for Amazon’s subscription and advertising offerings.

1-Wk. Price Change: 3.7%; Yield: 0.0%

INVESTMENT THESIS: We believe upside will result from Amazon's continued eCommerce dominance, AWS's 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. While we believe the increasing share of the revenue from these higher margin businesses will be key to driving profitability longer-term, we think margins on eCommerce 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.

Target Price: Reiterate $220; Rating: One

Panic Point: $155

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.

Coty Inc. COTY ; $11.60; 14,480 shares; 3.94%; Sector: Consumer Discretionary

WEEKLY UPDATE: Ahead of COTY reporting its quarterly results early next week, Estee Lauder’s (EL) earnings report confirmed, in our view, Coty’s fragrance and skincare businesses and its geographic exposure have it well positioned. While Estee Lauder’s results were hampered by slower-than-expected China sales, its skincare and fragrance segments posted favorable year-over-year sales gains. This follows similar revelations in recent earnings from LVMH (LVMUY) and L’Oréal. In Coty’s earnings report, we’ll be looking for an update on management's debt reduction targets and what that could mean for EPS expectations in the coming quarters.

1-Wk. Price Change: 1.2%; Yield: 0.0%

INVESTMENT THESIS: Founded in Paris in 1904, Coty is one of the world's largest beauty companies with a portfolio of iconic brands across fragrance, color cosmetics, and skin and body care. Coty serves consumers around the world, selling luxury and mass-market products in more than 130 countries and territories. The company derives almost 45% of its revenue from the Americas, 44% from Europe, the Middle East, and Africa, and the balance from Asia Pacific. By revenue category, Prestige drives 62% of Coty's revenue but more than 80% of its operating income with the balance derived from its Consumer Beauty segment. Management intends to further grow the Prestige business, expanding its prestige fragrance brands, through the ongoing expansion into prestige cosmetics, and the building of a comprehensive skincare portfolio leveraging existing brands. Management is also targeting margin improvement at its Consumer Beauty brands as well as expanding its presence in China across both of its reporting segments. China's beauty and personal care market is expected to grow at a quicker pace of 5.4% per annum through 2027, putting it at $70 billion-$75 billion by 2027.

Target Price: $14; Rating: One

Panic Point: $9.50

RISKS: Industry competition and consolidation, product efficacy and safety, currency, and brand licensing.

Marvell Technology MRVL; $68.51; 2,420 shares; 3.88%; Sector: Technology

WEEKLY UPDATE: Over the last two weeks Meta (META), Alphabet, Microsoft (MSFT), and Amazon (AMZN) have all telegraphed greater year-over-year spending on AI and data center. Late this week, South Korean chipmaker SK Hynix shared that its high-bandwidth memory (HBM) chips used for AI chipsets were sold out for this year and almost fully booked for the next year, amid demand for semiconductors required to develop AI services. Those comments follow recent ones from Micron (MU) that its HBM chips were sold out for this year and the bulk of its supply for next year was already booked. And on the topic of HBM chips, earlier this week Samsung (SSNLF) noted that 2024 shipments of its HBM chips are anticipated to grow over three-fold. All of this points to favorable AI and data center demand for Marvell. Another positive for Marvell is Intel’s data center chip business being capacity-constrained. When Marvell last reported, it guided for a H2 2024 rebound in its Networking and Carrier Infrastructure businesses. We continue to think AI adoption and AI-on-device will re-ignite spending in those areas, but we’ll want Marvell management to at least reiterate its prior outlook. Following Marvell’s recent “Accelerated Infrastructure for the AI Era” event, an incremental update on its chip partnerships with Amazon, Alphabet, and Microsoft would be a nice addition. Because we continue to see ramping AI and data center demand as well as the upcoming AI-on-device upgrade cycle rekindling demand for Marvell’s network and carrier infrastructure business in the coming quarters, we intend to be owners of MRVL shares.

1-Wk. Price Change: -1.6%; Yield: 0.4%

INVESTMENT THESIS: Marvell is a fabless supplier of high-performance standard and semi-custom infrastructure semiconductor solutions. These solutions power the data economy, enabling the data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial end markets. With roughly 75%-80% of Marvell's revenue stream tied to digital infrastructure, we see it continuing to benefit from rising content consumption and creation. Pointing to that rising demand that necessitates network densification and the build of digital infrastructure, Ericsson sees global monthly average usage per smartphone reach 46 gigabytes (GB) by the end of 2028 vs. 19 GB in 2023 and 15 GB in 2022.

Target Price: Reiterate $95; Rating: One

Panic Point: $59

RISKS: Technology risk, customer risk, competition risk, reliance on manufacturing partners, and supply chain constraints.

The Trade Desk TTD; $88.59; 1,100 shares; 2.30%; Sector: Technology

WEEKLY UPDATE: Year-over-year advertising revenue gains at Alphabet, Pinterest (PINS), Amazon (AMZN), and others point to the accelerating shift to digital advertising that led us to call up TTD from Bullpen. Ahead of Trade Desk’s earnings report on May 8, this week Jefferies upgraded TTD to a "Buy" from "Hold" and boosted its price target to match our $105 target. With more companies like Disney (DIS) embracing programmatic advertising, we may need to revisit our TTD target following next week’s earnings report. Because TTD shares are a recent portfolio addition, we have room to grow the portfolio’s exposure.

1-Wk. Price Change: 4.6%; Yield: 0.0%

INVESTMENT THESIS: The Trade Desk offers a cloud-based ad-buying platform that empowers its clients to plan and manage data-driven digital advertising campaigns across ad formats and channels, including video, display, audio, digital-out-of-home, and social. Modalities for those campaigns span a multitude of devices, such as computers, mobile devices, televisions, and streaming devices. This positions the Trade Desk to benefit from the accelerating shift toward digital advertising. That shift is expected to see digital advertising account for more than 70% of total ad spending in 2025 rising to ~74% by 2027. We also see the company benefitting from the use of digital advertising in the 2024 presidential campaign, which is expected to grow more than 150% compared to 2024, putting it around $3.5 billion.

Target Price: Reiterate $105; Rating: One

Panic Point: $69

RISKS: Advertising spending; customer risk and loss; evolving market dynamics and competitive landscape; platform disruptions and outages.

Universal Display OLED; $170.82; 965 shares; 3.89%; Sector: Technology

WEEKLY UPDATE: Following Universal’s beat-and-raise March quarter results, we boosted our price target to $225 from $200. Management lifted the low end of its 2024 top-line guidance but, in our view, it understates likely revenue growth as organic light-emitting diode displays hit a tipping point. The combination of Qualcomm’s (QCOM) guidance for 5G smartphones this year, up high-single to-low double-digits plus Apple’s (AAPL) pending iPad launch with organic light-emitting diodes display and competing offers suggest Universal’s guidance is conservative. On top of that, we are also starting to see greater inroads for organic light-emitting diodes in other applications, including the automotive market. For example, the 2025 Min Cooper EV includes a giant, round organic light-emitting screen. Others expected to do the same include Audi, BMW, Cadillac, Mercedes-Benz, Porsche, and others. Approaching the larger tipping point for organic light-emitting diode displays, we intend to be owners of OLED shares. As those adoption rates rise, it will give us reasons to revisit our OLED price target further.

1-Wk. Price Change: 7.9%; Yield: 0.9%

INVESTMENT THESIS: Universal Display focuses on the development and commercialization of organic light-emitting diode (OLED) technologies and materials for use in display and solid-state lighting applications. OLED displays are capturing a growing share of the display market, especially in the mobile phone, television, monitor, wearable, tablet, notebook, personal computer, augmented reality (AR), virtual reality (VR), and automotive markets. This adoption reflects advantages over competing display technologies with respect to power efficiency, contrast ratio, viewing angle, video response time, form factor, and manufacturing cost. Universal's business strategy is to develop new OLED materials and sell existing and new materials to product manufacturers for display applications, such as mobile phones, televisions, monitors, wearables, tablets, portable media devices, notebook computers, personal computers, and automotive applications, and specialty and general lighting products. The company also looks to license its OLED material, device design, and manufacturing technologies to those manufacturers. As such, Universal has a significant portfolio of proprietary OLED technologies and materials with more than 5,500 patents issued and pending worldwide.

Target Price: Reiterate $225; Rating: One

Panic Point: $140

RISKS: Patent and Intellectual property protection; maintaining OLED manufacturing and customer relationships; technology risk; market risk.

Vulcan Materials Company VMC ; $264.44; 613 shares; 3.82%; Sector: Building Materials

WEEKLY UPDATE: Following Vulcan’s modest top and bottom-line March-quarter beat and management reiterating its double-digit adjusted EBITDA target, we are maintaining our One rating and $310 price target. During the quarter, Vulcan’s core geographies contended with unusually cold and wet weather that restrained its top-line performance in the quarter. On the cost side, pricing momentum and cost deceleration led to year-over-year margin improvements. Our thinking is that as we move past the winter weather into the seasonally stronger period for construction activity, Vulcan should realize greater economies of scale, driving further margin improvement. On the earnings call, management commented that single-family housing strength in its core footprint is being offset by slower multi-family housing construction. The team also shared that over two-thirds of federal highway spending is allocated to Vulcan states. Additionally, other public infrastructure activity, which benefits from infrastructure funding is growing faster in Vulcan states than the overall country. Against that backdrop, we continue to rate VMC shares a One.

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

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 $310; Rating: One

Panic Point: $225

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.

TWOS

Apple AAPL ; $183.38; 790 shares; 3.44%; Sector: Technology

WEEKLY UPDATE: Following Apple’s stronger-than-expected March-quarter results that included a dividend boost and upsizing its buyback program by a record $110 billion, we boosted our price target to $220 from $205. While iPhone revenue fell 10% year over year in the March quarter, weighing on Product segment gross profit dollars, margin gains at the already meaningfully higher Services business more than made up for that Product decline. What the March quarter showed is Apple’s profit generation is less dependent on the iPhone than in the past. Flip that around, and it means that as the iPhone and its other products rebound, we should see even better profit and EPS generation. That is what’s powering the increase in our AAPL price target. As much as we were impressed by Apple’s results and guidance that says more of the same is on the way in the current quarter, we are not going to chase AAPL shares. We have hoped to pick up more shares if AAPL sank after last night’s earnings report and guidance, but that opportunity isn’t going to present itself. The good news is we have a hefty amount of AAPL shares in the portfolio, and Friday's move will drive the portfolio’s year-to-date returns even higher. We will continue to look for opportunities to scoop up more shares before the AI-on-device upgrade cycle takes hold. Near-term, two Apple events on the horizon should support the shares and could build investor enthusiasm for them. The first one is next week’s iPad-centric event that is expected to unveil some of the company’s AI efforts as well as new models utilizing organic light-emitting diode displays, a positive for our shares of Universal Display. And in the coming weeks, we will have the 2024 WWDC, where Apple will showcase its next iteration of iOS, MacOS, iPadOS, and Apple Watch Software. The event is also expected to be a showcase for Apple’s initial AI efforts, and we expect to hear ample chatter leading into the event.

1-Wk. Price Change: 8.3%; Yield: 0.5%

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 each 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 $220; Rating: Two

Panic Point: Reiterate $150

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

Applied Materials Inc. AMAT ; $204.09; 460 shares; 2.21%; Sector: Semiconductor Manufacturing

WEEKLY UPDATE: AMAT continues to make a comeback following a sharp drop in mid-April. The stock was blitzed for a 22% drop in a very short time. Since bottoming out two weeks ago Applied is right back up into a higher range. We now see the stock has re-captured the 20-day moving average on good volume, telling us the strong-handed institutions are buying the stock on the dip. Applied had some wild moves this week after some large earnings from the likes of Qualcomm (QCOM) and Super Micro Computer (SMCI). This week we added more shares of Applied Materials after exiting two other positions. BNP Paribas threw in the towel this week, lifting its price target to $190 from $162, but the Wall Street consensus remains with us at $225. Applied will report its quarterly results on May 16.

1-Wk. Price Change: 0.3%; Yield: 0.8%

INVESTMENT THESIS: Applied provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. With its diverse technology capabilities, Applied delivers products and services that improve device performance, power, yield, and cost. Applied's customers include manufacturers of semiconductor chips, liquid crystal, and organic light-emitting diode displays, and other electronic devices. Applied operates in three reportable segments: Semiconductor Systems (73% of 2022 revenue, 78% of 2022 operating income), Applied Global Services (22%, 19%), and Display and Adjacent Markets (5%, 2%). Key customers include Samsung (12% of 2022 sales), Taiwan Semiconductor (20%), and Intel (10%).

Target Price: Reiterate $225; Rating: Two

Panic Point: $175

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

Axon Enterprise AXON; $318.55; 535 shares; 4.01%; Sector: Aerospace & Defense

WEEKLY UPDATE: Ahead of Axon’s reporting its quarterly results after the market close on Monday, May 6, late this week Motorola Solutions delivered a beat-and-raise earnings report. The company’s record-setting backlog of $14.4 billion, up 2% year over year and up modestly on a sequential basis, prompted management to up its 2024 revenue guidance to +7% year over year from +6%. Not the biggest upward revision, but it supports the spending strength that is being had in the public safety market. Motorola’s conference call comment that it is seeing accelerated adoption of cloud offerings is a signpost that our thesis for Axon is on track. Axon will benefit from public safety spending, but it’s the mix shift toward the higher margin, recurring cloud revenue stream that will drive EPS and incremental margin expansion. If Axon’s backlog grows more than expected or its margin profile shows the need to re-think operating margin and EPS expectations, we may need to boost our current AXON price target.

1-Wk. Price Change: 3.3%; Yield: 0.00%

INVESTMENT THESIS: Axon Enterprise 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 & Sensors manufactures 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 $330; Rating: Two

Panic Point: $260

RISKS: Manufacturing and supply chain, competitive factors, government regulation, technology change.

Bank of America Corp. BAC ; $37.24 ; 4,000 shares; 3.51%; Sector: Financial Services

WEEKLY UPDATE: Coming into this week, JPMorgan lifted its BAC price target to $40.50 from $39.50. That modest effort followed Daiwa’s upping its BAC price target to $41 from $39 last week. Following this week’s IPO pricing for Viking Holdings (VIK), we are incrementally more positive about the outlook for the IPO market. As more transactions come to market, we’ll look to revisit our current BAC target of $39. With interest rates poised to remain at elevated levels through most of H2 2024, we’ll closely monitor the strength of the economy and what that means for loan demand. Coming up is the next iteration of the quarterly Senior Loan Officer Opinion Survey (SLOOS) and what it says about bank lending could lead us to revisit our Net Interest Income expectations for BAC. We will also continue to watch developments toward reworking Basel III rules that would require banks to hold more capital as soon as August. While exact changes are still being formulated, reports indicate officials may release as soon as next week data from banks detailing how the changes could affect aspects of their businesses.

1-Wk. Price Change: -1.6%; Yield: 2.6%

INVESTMENT THESIS: Bank of America is one of the world's leading financial institutions, serving individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 67 million consumer and small business clients with approximately 3,900 retail financial centers, approximately 16,000 ATMs, and award-winning digital banking with approximately 56 million verified digital users. Bank of America is a global leader in wealth management, corporate and investment banking, and trading across a broad range of asset classes, serving corporations, governments, institutions, and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business households through a suite of innovative, easy-to-use online products and services. The company serves clients through operations across the United States, its territories, and approximately 35 countries. From a reporting basis, the company's business breaks down as follows: Net Interest Income breakdown: Consumer Banking 57%, Global Banking 23%, Global Wealth & Investment Management 14%, and Global Markets 6%; Income Before Tax breakdown: Consumer Banking 42%, Global Banking 27%, Global Wealth & Investment Management 16%, and Global Markets 15%. Bank of America pays a quarterly dividend of $0.22 per share.

Target Price: $39; Rating: Two

Panic Point: $31

RISKS: Financial markets, fiscal, monetary, and regulatory policies, economic conditions, and credit ratings.

Costco Wholesale COST ; $743.90; 240 shares; 4.19%; Sector: Consumer Staples

WEEKLY UPDATE: During the week, a growing number of companies pointed to consumers being selective in their purchasing, while a few noted consumers are trading down in their spending. That is a favorable environment for Costco and explains why its March sales outperformed to the degree that they did. COST stock is basing nicely at the higher end of the chart and is attempting to break higher. A move above the $750 level would do it, putting in a series of higher lows with higher highs. There is some resistance at the $750 level from the selling that took place in March, but that might start to be challenged soon. Interestingly, Costco is offering large discounts on electric vehicles made by several companies including Volvo, Polestar, Chevrolet, and Cadillac EVs between May 1-July 31. That could help goose its sales figures for those months. The next known catalyst for the shares will be the company's April sales report on May 8. For now, we’ll keep our $800 price target, but if the company’s April sales show similar gains to those found in its March report, it could be a reason for us to revisit that target with an upward bias. Costco will pay its next quarterly dividend on May 10 to shareholders of record on April 26. We continue to wait for the eventual membership fee price increase announcement, one that will lead to upward EPS expectations and be a catalyst to boost our price target.

1-Wk. Price Change: 2.0%; Yield: 0.6%

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. 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.

Target Price: Reiterate $800. Rating: Two

Panic Point: $615

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

Elevance Health ELV; $526.96; 275 shares; 3.41%; Sector: Health Care

WEEKLY UPDATE: Elevance shares pulled back this week after a very strong Q1 2024 with further gains in April. That put ELV shares in an overbought position coming into this week, so a modest retreat shouldn’t be unexpected. The recent high near $541 matched the all-time high tagged back in 2022 so we could consider that price very tough resistance. However, the shares have nice support near $513, but a pullback near $498 would offer an even better risk-reward level for newer members. Rival Cigna reported earnings this past week and crushed earnings as revenue soared. This has been a theme of the HMO group. Cigna also raised their guidance for the full year. This week, Argus raised its target on Elevance to $600 from $540, a move that follows last week’s upward adjustment by Cowen to $624 from $555 and Mizuho boosting its price target to $585.

1-Wk. Price Change: -1.9%; Yield: 1.2%

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.

Target Price: Reiterate $560; Rating: Two

Panic Point: $450

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).

The Energy Select Sector SPDR Fund XLE ; $92.57; 1,345 shares; 2.92%; Sector: Energy

WEEKLY UPDATE: Following a pronounced move of more than 12.5% during Q1 2024, XLE shares pulled back modestly in April and that continued as we commenced April. While oil prices edged higher on Friday, they had posted their steepest weekly loss in three months amid uncertainty about demand, the expectation for minimal rate cuts this year, and cooling geopolitical tensions. April Manufacturing PMIs this week showed a leg down in that part of the economy, while ISM’s April Non-Manufacturing Index indicated that part of the economy started off the new quarter on softer footing. Two offsetting factors were the tick higher in the April Caixin Manufacturing PMI to 51.4 from 51.1 in April which included the stronger print for new orders in a year, and the prospect OPEC+ will continue to curb output. As we discussed with Prairie Operating Co (PROP) on this week’s podcast, the medium to longer-term outlook for power demand keeps us bullish on XLE shares. We would re-consider the position if signs emerge the economy is slowing more than expected.

1-Wk. Price Change: -3.3%; Yield: 3.6%

INVESTMENT THESIS: The Energy Select Sector SPDR Fund is an exchange-traded fund 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 $100; Rating: Two

Panic Point: $84

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

First Trust Nasdaq Cybersecurity ETF CIBR ; $54.08; 2,530 shares; 3.21%; Sector: Cybersecurity

WEEKLY UPDATE: Another week, another batch of headlines on the latest hacks and cyber-attacks. We continue to think all investors should have exposure to cybersecurity and we like the diversified exposure we have with the CIBR ETF. As some of the core holdings in the underlying basket report their quarterly results and guidance, we’ll revisit our current $62 target. Favorable guidance from that basket could propel the shares past strong resistance at $55-$56. We are interested in expanding the portfolio’s position size. As we digest those earnings, we’ll plot our next move with CIBR shares noting support near the $51 level.

1-Wk. Price Change: -1.4%; Yield: 0.0%

INVESTMENT THESIS: The First Trust Nasdaq Cybersecurity ETF 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. 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

Panic Point: Reiterate $48

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

Laboratory Corporation of America LH ; $201.32; 460 shares; 2.18%; Sector: Healthcare

WEEKLY UPDATE: It was a relatively quiet week for Labcorp following last week’s earnings report. Our plan will be to digest earnings reports and conference call comments from healthcare, hospital, and related companies, taking note of comments about procedures and testing. We continue to favor Labcorp as part of our aging of the population investment theme as well as its ability to fold in nip and tuck acquisitions to expand its testing portfolio. On Friday, we used the proceeds from closing out the portfolio’s inverse ETF positions to boost its exposure to LH shares. Even after that trade, we have room to grow that exposure. Barring a new acquisition or solution offering, we’d be buyers of additional shares closer to $195. Labcorp will pay its next quarterly dividend of $0.72 per share on June 12 to shareholders of record on May 28.

1-Wk. Price Change: 1.5%; Yield: 1.4%

INVESTMENT THESIS: Labcorp is a global leader in innovative and comprehensive laboratory services that provides vital information to help doctors, hospitals, pharmaceutical companies, researchers, and patients make clear and confident decisions. By leveraging its diagnostics and drug development capabilities, the company provides insights and accelerates innovations to improve health and improve lives. The Company is organized under two segments, consisting of Diagnostics Laboratories (Dx), which includes routine testing and specialty/esoteric testing, and Biopharma Laboratory Services (BLS), consisting of Early Development Research Laboratories and Central Laboratory Services. Our attraction to LH shares stems from the combination of the aging population driving diagnostic testing growth and the increasing array of diagnostic testing as well. That combination is expected to drive the healthcare testing services market to $12.6 billion by 2029, from $7.4 billion in 2024, according to Markets and Markets. To augment its position in oncology, women's health, autoimmune diseases, and neurology, the company has been expanding through acquisitions and partnerships with health systems and regional local labs.

Target Price: Reiterate $235; Rating: Two

Panic Point: Reiterate $170

RISKS: Macroeconomic factors, changes in healthcare reimbursement models and products, government regulations, product discontinuations or recalls.

Lockheed Martin Corp. LMT; $461.91; 330 shares; 3.58%; Sector: Aerospace & Defense

WEEKLY UPDATE: Following the climb in LMT shares during March and April, we saw a modest pullback this week. The 20-day moving average would be appropriate for a test of support. On a positive note, the retreat is on lower turnover, which is what you want to see rather than high volume selling. In news, the company said it would not buy more of satellite solutions provider Terran Orbital, a smaller name in the satellite business. We are reading reports of rising defense spending levels outside the U.S., a positive for Lockheed’s business. Our view remains the key catalyst for Lockheed’s EPS and our shares is the re-ramp for F-35 shipments. We continue to see that as a “when” not “if” issue, considering its backlog at the end of March of $159 billion including 373 F-35s. Until then, should LMT shares find their way to the low $440s, we may elect to scoop up some additional shares. As of now, there is strong support between $438-$442 for the shares.

1-Wk. Price Change: 0.1%; Yield: 2.7%

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. In October 2022, Lockheed announced its board authorized the purchase of up to an additional $14.0 billion of LMT stock under its share-repurchase program.

Target Price: $520; Rating: Two

Panic Point: $375

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

Mastercard MA; $443.58; 275 shares; 2.88%; Sector: Info. Tech

WEEKLY UPDATE: Mastercard shares traded off in response to the company’s March-quarter earnings and revised guidance, which now calls for 2024 net revenue and adjusted earnings to increase on the low-end of low double-digit figures, compared to its previous views of high-end low double-digit growth. Given comments about more selective consumers, we aren’t surprised but we’ve also taken a more cautious stance with our MA price target of $490 compared to others at $510 or higher. We’re maintaining our $490 target even though others, like Evercore ISI, TD Cowen, and JPMorgan all cut their MA targets to $510-$540 from $520-$545. While job growth remains favorable as does real wage growth, we will continue to monitor consumer spending and related metrics that drive Mastercard’s transactions volumes. What that data tell us will dictate our next move with MA shares. In terms of Mastercard’s China JV, management shared it is building out issuance relationships with banking partners in China and building out the acceptance footprint. This suggests we could see more meaningful news later this year.

1-Wk. Price Change: -4.1%; Yield: 0.6%

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 (V), 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.

Target Price: Reiterate $490 Rating: Two

Panic Point: $400

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

Microsoft Corp. MSFT; $406.66; 325 shares; 3.11%; Sector: Technology

WEEKLY UPDATE: MSFT shares have been a bit volatile after the company posted a strong earnings report last week. What we see is the shares are stubbornly trading below the 20-day moving average, which is now bending down. This simply means the moving average acts as strong resistance until the stock moves above for a sustainable amount of time. In the meantime, lower highs, and lower lows plague MSFT shares. Recently, however, momentum indicators (RSI, MACD, Bollinger bands) tell us the stock may be due for a nice run higher. During the week CEO Nadella stated the need to beef up the company’s security team after facing criticisms over cyber-attacks and the SEC ended an investigative probe into Activision/Microsoft merger, finding no wrongdoing. While we did add some shares of AMAT and LH on Friday, MSFT shares are on our portfolio shopping list.

1-Wk. Price Change: 0.1%; Yield: 0.7%

INVESTMENT THESIS: We believe the cloud to be a secular growth trend and that upside to the 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 its decision to provide the same "stack" used in the public cloud, to companies for their on-premises data centers. Additionally, we would note that hybrid environments are currently the preference for most companies because they allow 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.

Target Price: $480; Rating: Two

Panic Point: Reiterate $350

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

Morgan Stanley MS ; $93.64; 1,575 shares; 3.48%; Sector: Financial Services

WEEKLY UPDATE: Following this week’s IPO pricing for Viking Holdings (VIK), we are incrementally more positive about the outlook for the IPO market. On the slate for 2024 are Stripe, Klarna, Discord, Chime, and others. That bodes well for the return of favorable operating leverage for Morgan’s investment banking business and MS shares. As more transactions come to market, we’ll look to revisit our current MS target of $100. We will also continue to watch developments toward reworking Basel III rules that would require banks to hold more capital as soon as August. While exact changes are still being formulated, reports indicate officials may release as soon as next week data from banks detailing how the changes could affect aspects of their businesses. We will also be looking for data on April stock market inflow figures, data that will help us wrap our hands around Morgan’s asset and wealth management business in the current quarter.

1-Wk. Price Change: 0.9%; Yield: 3.6%

INVESTMENT THESIS: Morgan Stanley reports in three business segments: Institutional Securities (42% of trailing 12-month revenue, 38% of trailing 12-month Income Before Tax), Wealth Management (48%, 55%) and Investment Management (10%, 6%). While the IPO window has yet to reopen, the potential IPO class for 2024 continues to build with recent additions including Panera Bread, Reddit, Fanatics, and Skims, which is backed by Kim Kardashian. This along with the Fed increasingly likely to start cutting rates in H1 2024, suggests we are far closer to the IPO window opening on a sustained basis than we have been in some time. That would be a boon to private equity firms and others that have been nursing IPO candidates during the dark period and a positive for Morgan's investment banking business. Marginally lower rates could also generate a pick-up in M&A activity as the cost of capital with rates improving. As the Fed continues its cutting cycle to get rates back to normalized levels, that effort would also reduce rates for stock market alternatives, ones that quashed the "there is no alternative" trade earlier this year. That along with folks continuing to be behind in retirement savings bodes well for Morgan's wealth management business in the coming quarters.

Target Price: $100; Rating Two

Panic Point: $78

RISKS: Market and interest rate risk, credit risk, country risk, and operational risk, including cybersecurity.

Nvidia Corp. NVDA; $887.89; 170 shares; 3.55%; Sector: Technology

WEEKLY UPDATE: Over the last two weeks Meta (META), Alphabet, Microsoft (MSFT), and Amazon (AMZN) have all telegraphed greater year-over-year spending on AI and data center. Late this week, South Korean chipmaker SK Hynix said its high-bandwidth memory (HBM) chips used for AI chipsets were sold out for this year and almost fully booked for the next year, amid demand for semiconductors required to develop AI services. Those comments follow recent ones from Micron (MU) that its HBM chips were sold out for this year and the bulk of its supply for next year was already booked. And on the topic of HBM chips, earlier this week Samsung (SSNLF) noted that 2024 shipments of its HBM chips are anticipated to grow over three-fold. All of this points to favorable AI and data center demand for Marvell. Another positive for Nvidia is Intel’s data center chip business being capacity-constrained. We also need to mention competitor Advanced Micro Devices (AMD) upping its 2024 data center GPU revenue forecast this week to more than $4 billion, up from $3.5 billion in January. Those collected data points point to positive demand trends for Nvidia when it reports its quarterly results on May 22. We used April to bulk up on the portfolio’s exposure to NVDA, and we have some room to add a few more shares if NVDA pulls back near the $800 level.

1-Wk. Price Change: 1.2%; Yield: 0.0%

INVESTMENT THESIS: Nvidia is well positioned to benefit from ramping AI and data center spending. The company pioneered accelerated computing to help solve the most challenging computational problems. Nvidia is now a full-stack computing infrastructure company with data-center-scale offerings that are reshaping the industry. The company's full stack includes the foundational CUDA programming model that runs on all Nvidia GPUs, as well as hundreds of domain-specific software libraries, software development kits, or SDKs, and Application Programming Interfaces, or APIs. This deep and broad software stack accelerates the performance and eases the deployment of Nvidia accelerated computing for computationally intensive workloads such as artificial intelligence, or AI, model training and inference, data analytics, scientific computing, and 3D graphics, with vertical-specific optimizations to address industries ranging from healthcare and telecom to automotive and manufacturing. Nvidia reports in two business segments: Compute & Networking and Graphics. The Compute & Networking segment (78% of revenue, 85% of operating income) is comprised of Data Center accelerated computing platforms and end-to-end networking platforms including Quantum for InfiniBand and Spectrum for Ethernet; NVIDIA DRIVE automated-driving platform and automotive development agreements; Jetson robotics and other embedded platforms; Nvidia AI Enterprise and other software; and DGX Cloud software and services. The Graphics segment (22% of revenue, 15% of operating income) includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU, or vGPU, software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse Enterprise software for building and operating metaverse and 3D internet applications.

Target Price: $950; Rating Two

Panic Point: $760

RISKS: Market and interest rate risk, credit risk, country risk, and operational risk, including cybersecurity.

PepsiCo Inc. PEP; $176.15; 800 shares; 3.31%; Sector: Consumer Defensive

WEEKLY UPDATE: This week showed consolidation around the current price level for PEP. The range this past week was narrow following a pretty volatile move the prior week. A little sideways action is always good to prepare for the next move. That appears to be higher for PepsiCo, as we see an uptrend established from the lows in March. That consists of a series of higher highs and higher lows, the textbook definition of an uptrend. Rival Coca-Cola (KO) reported strong earnings this past week, while PepsiCo declared and raised its dividend. As we put the seasonably weakest quarter for PepsiCo in the rearview mirror, snacking competitor Kellanova (K) shared expectations for snacking volumes to stabilize in the current quarter and improve in H2 2024. Another PepsiCo competitor Utz Brands (UTZ) reaffirmed our expectation for the typical seasonal snacking pattern to play out, guiding its 2024 revenue to be split 49%-51% between H1 and H2 2024. Because of the high margins tied to the snacking business, that bodes well for EPS generation at PepsiCo. PepsiCo’s new quarterly dividend of $1.355 per share, a 7% increase, will be paid on June 28 to shareholders of record on June 7. This marks the 52nd consecutive annual dividend increase for this Dividend King, a sure sign in our book of a high-quality company.

1-Wk. Price Change: 0.3%; Yield: 3.1%

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.

Target Price: Reiterate $185; Rating: Two

Panic Point: $145

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

Qualcomm Inc. QCOM ; $179.64; 1,040 shares; 4.36%; Sector: Technology

WEEKLY UPDATE: QCOM shares rebounded this week, clawing back some of the prior week’s move lower. Despite the setback, QCOM shares are up in the low double-digits so far this year, well ahead of the major market indexes. Qualcomm will report its quarterly results next week, and we expect a good report following March-quarter results from Taiwan Semiconductor (TSM) and signs the Android smartphone market is improving. As we’ve seen so far in the current earnings season, guidance is key, and we will be looking to see if Qualcomm lifts its smartphone market forecast and if it adds additional color for the upcoming AI-on-device upgrade cycle. The odds of that are good following TSM’s guidance for the current quarter which points to another strong showing for smartphones. With our position in QCOM shares over 4%, the odds of adding further shares to the portfolio are low. If Qualcomm’s outlook disappoints and the shares find their way back to support near $154, that could be a good spot for newer members to add some shares.

1-Wk. Price Change: 8.4%; Yield: 1.9%

INVESTMENT THESIS: Qualcomm focuses on foundational technologies for the wireless industry, including 3G (third generation), 4G (fourth generation), and 5G (fifth generation) wireless technologies and processor technologies including high-performance, low-power computing, and on-device artificial intelligence technologies. As a connected processor company, its technology roadmap aims to enable the connected intelligent edge (the next generation of smart devices) across industries and applications beyond handsets, including automotive and the Internet of Things (IoT). Qualcomm has three reportable segments: QCT (Qualcomm CDMA Technologies) semiconductor business, which develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in mobile devices; automotive systems for connectivity, digital cockpit, and ADAS/AD; and IoT including consumer electronic devices; industrial devices; and edge networking products. QCT accounts for 80%-85% of revenue. QTL (Qualcomm Technology Licensing) licensing business grants licenses or otherwise provides rights to use portions of the company's intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. QTL accounts for ~15% of Qualcomm's revenue but contributes a greater portion of the company's operating income.

Target Price: $200; Rating Two

Panic Point: $140

RISKS: Customer risk, technology advancement, competition risk, third-party supplier, and manufacturing partner risk.

SPDR Gold Shares ETF GLD ; $212.99; 238 shares; 1.19%; Sector: Commodities

WEEKLY UPDATE: A down week again for GLD but the ETF is simply working down from a massively overbought condition that lasted for nearly six weeks. Volume trends have retreated to a more neutral stance from bullish. GLD has pulled back to its lower Bollinger band (often support), which is just below some short-term moving averages. The ETF has corrected 5% off the all-time highs reached in mid-April. This past week gold was very active with the Federal Reserve’s decision to stand pat on rates, but more interesting was Chair Powell’s comment that the next move for rates would not be a hike. These words added spark to gold and silver while putting pressure on the U.S. dollar. In some reports this week, including the April Manufacturing and Service PMI ones from ISM, the data clearly showed pricing pressures remain elevated. In the May 3rd Services report, the prices paid index was 59.2 in April versus 53.4 in March, quite a large jump. This leads us to think gold may continue to catch a bid as long as inflation lurks and remains sticky.

1-Wk. Price Change: -1.7%; Yield: 0.0%

INVESTMENT THESIS: The GLD ETF is a proxy for gold. This "trust" buys and sells gold futures each day 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 $220; Rating: Two

Panic Point: $190

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

United Rentals URI ; $666.66; 232 shares; 3.66%; Sector: Industrials

WEEKLY UPDATE: Following last week’s quarterly earnings report from United Rentals, coming into this week Stifel Nicolaus raised its URI price target to match our $750 target. Truist boosted its target to $796 from $793. While a bit backward looking given United’s March-quarter results, the March Construction Spending report showed double-digit spending growth continued. We continue to see United’s rental business benefitting from infrastructure spending programs, and as the company digests its recent Yak acquisition, we could see other nip-and-tuck acquisitions in the coming quarter. With the shares below the 50-day moving average near $682, the next level of support is at $636. Should the shares test that level, we would reconsider our current Two rating. United will pay its next quarterly dividend of $1.63 per share on May 22 to shareholders of record as of May 8.

1-Wk. Price Change: -3.5%; Yield: 1.0%

INVESTMENT THESIS: United Rentals, 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 around 4% of revenue. We see the company benefiting 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 $750; Rating: Two

Panic Point: $600

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

Waste Management WM ; $207.92; 425 shares; 2.08%; Sector: Industrials

WEEKLY UPDATE: WM shares traded off this week in response to the softer manufacturing data found in the April Manufacturing PMI reports from ISM and S&P Global. However, non-residential construction spending figures for March as well as comments from Vulcan Materials and others point to continued strength in non-residential construction. WM March-quarter results showed meaningful margin improvement due to pricing power, cost containment, and productivity gains, and the prospect for that to continue. We continue to favor the sticky residential business, especially because of further margin-improvement prospects, while the non-residential business continues to benefit from non-residential construction business tied to multiple stimulus programs out of Washington and growing electric power demands. WM shares are on our shopping list, and if we see the shares trend closer to the $200 level, we would be inclined to pull the trigger.

1-Wk. Price Change: -1.0%; Yield: 1.4%

INVESTMENT THESIS: 2024 will see more nonresidential construction activity because of the Biden Infrastructure Law, but now we can finally factor in activity for the CHIPS Act, which saw its first award this week. Other potential drivers include spending associated with the Inflation Reduction Act, including the much-awaited start of building out a nationwide network of EV charging stations. Recently President Biden announced an $8.2 billion passenger rail project, which will likely take several quarters to come onstream, leading us to think it's more of a 2025 catalyst. Alongside that bright outlook for WM's commercial business, automation efforts and pricing power in its sticky residential business should drive margins and EPS generation higher in the coming quarters.

Target Price: Reiterate $230; Rating: Two

Panic Point: $178

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