We’re Shaking Up the Bullpen With 4 Additions and 4 Removals

As the dust settles on the Pro Portfolio’s trade today initiating a position in Builders First Source (BLDR), we are now turning our gaze to the Bullpen, as we look to freshen it up for what’s ahead.

Before we move any further, however, a quick reminder: just because a company is added to the Bullpen does not guarantee it will eventually make its way into the Portfolio. The Bullpen helps us identify companies landing on our radar screen, given their fundamentals, technicals, thematics, and/or recent share-price dynamics. In the case of Builders FirstSource, we waited a long time until the risk-to-reward tradeoff in the shares became compelling enough for us to act, as the prospects for better fundamentals improved.

First, we’re making a series deletions from the Bullpen to free up room for new candidates. We’re removing American Water Works (AWK), D.R. Horton (DHI), Home Depot (HD), and the Utilities Select Sector ETF (XLU). The removal of AWK reflects the company approaching the end of its seasonally strong time of year. With DHI and HD, we now have our housing play in place. As for XLU, rising capital spending budgets will benefit our AI and data center-related plays, but not those spending the capital. For longer-term followers of Pro Portfolio, that line of reasoning is the same as when we did not want to own wireless companies that were funding the 5G buildout.

Now let’s turn to the names we are adding to the Bullpen today. We’re adding Linde plc (LIN) following the pronounced fall in the stock. We will also add Toast (TOST), in part because we like its subscription services business model and the payment processing that drives the bulk of its revenue. The potential play here is that as oil prices and other inflation pressures fall, consumer spending on dining out could improve. Toast’s financial success is heavily tied to consumer dining spending because about 80% of its revenue comes from taking a percentage cut of credit and debit card transactions processed through its systems.

Moving on, we’ve noted a growing number of comments about robots, not the ones so much from Elon Musk, but more like this one from Amazon (AMZN) CFO Brian Olsavsky last week during the company’s earnings call:

“We’re expanding our deployment of robotics and automation, which have been integral to our operations for decades. We’re retrofitting our facilities with our latest generation technology, and we expect to more than double our fleet of robotic arms…“

That is leading us to add both Rockwell Automation (ROK) and the Robo Global Robotics & Automation ETF (ROBO) to the Bullpen. We may get some questions about why ROBO instead of the Global X Robotics and Artificial Intelligence ETF (BOTZ). The reason behind our preference is that ROBO offers more diverse exposure, with its top-10 holdings accounting for ~17% of its assets.

With BOTZ, the ETF’s top-10 holdings account for nearly 60% of its assets, and among those Nvidia (NVDA) accounts for more than 8%. We’re looking to be mindful with the Portfolio’s overall AI and data-center chip exposure. ROBO does have exposure to NVDA in its basket, but at around 1.3%, the exposure is far smaller.

We’ll admit that we’re also doing some work in the healthcare space, but our preliminary work shows multiple companies are poised to deliver slower top and bottom-line growth in the coming quarters. That said, we have more work to do, and at the end of it, we may opt for some diverse exposure as we get with First Trust Nasdaq Cybersecurity ETF (CIBR).

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