VIDEO: When to Buy Lockheed, Two Stocks on Our Shopping List

In today’s Daily Rundown video, Chris Versace connects the dots between quarterly results from HP HPQ and Best Buy BBY to several Portfolio holdings. 

He also answers member questions on AI and Lockheed Martin LMT and calls out two shopping list stocks. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Thursday, May 30. And with trading underway, yes, the market is in the red today with all major averages, again, trading lower. But candidly, the market's faring a little better than equity futures suggested they would.

Now, whether we're going to look at the performance of Salesforce this morning or Kohl's or perhaps even Foot Locker, the reality is that we remain very much in a selective market. And what that means is that we are going to continue to keep our nose to the grindstone when it comes to data, whether it's the economic data, industry-specific data, company data, or thematic data.

And as we continue to get ready for the final month of the current quarter, we will remain in a mode that has us poring over all of that, especially as we close out this week with not only the April PCE price index, but-- but-- some of the official China statistics for the month of May. And of course, next week, we have the usual start of the month Datapalooza. We'll be getting the May PMI reports from S&P Global and ISM, which are going to be very important as they'll help update our thinking about the velocity of the overall economy. But they'll also have some key insights on inflation.

Remember that the flash PMI report for May from S&P Global showed that input/output costs escalated. And when we looked at the Fed Beige Book that came out yesterday, which measured data between the start of April and mid May, it too showed some additional escalation in prices. So we'll be looking for the follow-through on that. If we get it, it's going to be another set of data that says, hey, rate cuts are likely to be the end of the year at the soonest. That has been our expectation. And as we've seen over the last couple days, the market is continuing to slowly come around to our way of thinking.

Now, what else did we see in terms of data today that might be slightly impacting the market? Well, we did get the second print for first quarter GDP, and it did show that it contracted to plus 1.3% compared to the original 1.6% print. For folks looking for rate cuts, that's a nice positive, slower growth, but it's more than offset by what we saw in the second print for core PCE for the first quarter. That dipped only to 3.6% compared to 3.7%.

Now, in our opening comments this morning, I talked about these numbers, and I said, they're a little rearview facing. And again, I say that largely because of the data that we'll get a little bit tomorrow. But it's really going to be next week's data and what it says about May that is different. Remember that the updated print for the first quarter was just that, first quarter data. In the rear view and even tomorrow's data that we'll get for the April PCE price index, we've gotten a number of different data points about inflation for the month of April, and they've said, not really a lot of progress.

And to that, we can, of course, add my comments I just made about the flash PMI report for May and the Beige Book. So again, our thinking is going to be next week's data is going to be far more important than anything we get. We will be taking a hard look at the China NBS data. That's the official statistics. That will be out tomorrow morning for May regarding China's manufacturing and non-manufacturing economies.

What will we be looking for? Well, are the stimulative efforts paying off? Are we seeing economic activity pick up? And if it does pick up perhaps more than expected, what are the inflation implications there? Because we know that if China's economy is picking up, it's going to pull demand for certain commodities, including oil. So, again, we'll want to be watching that and revisiting our thoughts, largely because it's going to be important. But also we know that the Fed is going to be doing the same.

Now, after today's market close, we have two portfolio companies reporting. First is going to be Costco and then Marvell. With Costco, look, we already know that the figures that they report on their monthly basis show that the company continues to win consumer wallet share. For us, we're really going to be focusing in on that all-important membership growth. We're also going to want to get an update on what the company says for its warehouse footprint expansion plans.

The big wild card-- will we hear something about the long anticipated membership price hike? If we do, we're going to see a lot of folks raising their price targets across Wall Street. We will probably do the same, again, if we hear the company say, this is the time for us to boost our membership price point.

So that's what we'll be listening for on that. And with Marvell, look, we've got a lot of positive data points about the data center business. What we really want to hear, though, is its outlook for the second half of the year when it comes to the network business and the carrier infrastructure business. Our thinking remains that AI adoption and the looming AI on device upgrade cycle is going to drive network capacity, fostering incremental spending on those areas, both in the network and the carrier infrastructure side. That will help re-accelerate that business at Marvell. So that's what we'll be listening for.

But I also wanted to talk just about one or two other things that we kind of heard between last night and this morning as it relates to a couple of our holdings. First, HP reported last night, and I just want to share with you exactly what they said on their earnings conference call. Quote, "Introduction of AI PCs accelerate demand over and above the anticipated PC refresh cycle in Windows 11 rollout." They also went on to say that they announced a new next-gen AI PC last week, which is part of a series of launches planned for this year that will expand its portfolio of AI PCs.

Clearly, they are getting ready for that. We see that supporting not only the expected AI on device upgrade cycle we've been talking about, but really, really supports our view on Microsoft and Qualcomm. To that, we can add some comments from Best Buy this morning, where they said that artificial intelligence computers and devices are expected sales drivers, again, speaking kind of in line, no surprise, given what Best Buy does in the PC market. But we see Best Buy's comments kind of expanding a little bit, offering not only support for Microsoft and Qualcomm but Apple as well. And of course, both of those comments feed into our thinking about Marvell and their data center and carrier infrastructure businesses that I just talked about.

Now, let's close out today's video with a couple member questions. First one here is, "What if this AI hype is all a bunch of--" and this is a direct quote-- "BS?" You know, I really don't think that's the case. If anything, my position on AI has been it's a lot like the internet back in 1998, 1999-- a lot of noise, but it's what we see on the follow-through with new applications that get us increasingly comfortable with AI, just like we saw with the internet back then.

Will it take some time to come about? Yes. Might expectations be slightly ahead? Possibly. But when we look at the number of headlines of companies embracing AI across a variety of sectors, it kind of tells us that this is a real deal. But I would also say that if we consider the medium to longer term aspects of AI, just like the internet, there are probably going to be things that emerge that we haven't even thought of. So I remain excited for that, and I think it's going to be great as AI adoption proliferates for the portfolio, and we've got some nice positions in there. So we should be doing rather well.

And then, finally, there was one other question that I'm carrying over from the forum was a question about Lockheed. I believe a person said, "Hey, I don't have a lot of Lockheed Martin shares. What would be a good entry point?" Well, as you know, Lockheed Martin has been really racking up a lot of program wins. And with geopolitical tensions expected to endure over the next couple months, potentially even to the end of the year, if we think about recent headlines about Israel, odds are we're going to see further program wins.

Remember, too, that the NATO allies in Europe are also increasing their defense spending, another positive for Lockheed. But here's the thing. What's the catalyst that we have to watch for when it comes to Lockheed Martin? It's going to be the resumption of shipments for the F-35. That's expected to be in the third quarter, maybe a little on the back half of the third quarter. So I think we'll have some time. My suggestion is, if we see Lockheed shares pull back to the 440, 450, 445 range-- excuse me-- 440 to 445 range, that would be a great place to pick up some additional Lockheed Martin shares.

We're also going to continue to keep our eyes on our shopping list. Obviously, Labcorp is on there, given our comments yesterday. Remember, too, we're also watching Pepsi as it pulls back closer to the 170-171 level. So we'll continue to watch that. You continue to watch your alerts in your emails because we want you to get our latest thoughts, insights, and of course, we want you to match any moves that we make with the portfolio. Thanks for watching today's video.

At the time of publication, TheStreet Pro Portfolio was long LMT.