Weekly Recap

This week, markets were relatively uneventful. Everything remained pretty flat, with the Dow and S&P gaining barely 0.5%, while the Nasdaq and Russell 2000 slightly crept lower.

Energy stocks emerged as the clear outperformers this week, with the XLE up close to 3%, led by oil powerhouses Chevron, Exxon, ConocoPhillips, and EOG, all up 4-5%.

On Wednesday, TikTok ban legislation hit the House floor. The bill, which has now been passed, sits on President Biden's desk. It would force the social media platform's Chinese owner, ByteDance, to sell its U.S. assets or face a ban.

The big news to end the week was UBER and LYFT will halt operations in Minneapolis starting May 1st as the city passes a law that requires ride-hailing services to pay drivers a minimum wage of $15.57 per hour in the city. Whose next?

The standout in earnings this week was Oracle. They beat on both the top and bottom lines and expressed that demand far outweighs supply. Sound familiar? The stock jumped 10% to a new 52-week high.

Lastly, this week we saw Bank of America raise its 2024 S&P 500 earnings estimates to $250, up from the previous forecast of $235 on the back of the AI wave. At the S&P’s current price ($5,150) that puts the index at a 20.6x P/E currently. B of A also introduced their EPS forecast for 2025, setting it at $275.

This week's hottest topic was the TikTok ban legislation that reached the House floor. The decision was voted on by the U.S. House of Representatives, which would compel the social media platform's Chinese owner, ByteDance, to sell its U.S. assets or face a ban. On Wednesday, the bill was approved by the House and is now awaiting the President's signature to become law.

Regarding my thoughts: For transparency, I am not on TikTok at all. The social media apps I use include Instagram, Facebook, Snapchat, and X (formerly Twitter). While there are many other players in the game, such as Pinterest, Threads, Be Real, etc., I tend to limit myself to select social media platforms.

That being said, I believe I understand why this bill is in question. I'm not suggesting whether it's right or wrong, but the logic behind it makes sense. Did you know that in China, Facebook, Instagram, Google/YouTube, Pinterest, Reddit, and many more websites and social media platforms are completely blocked for its citizens? This is because their government aims to prevent American companies, culture, and propaganda from infiltrating their society and influencing their mindset.

So wouldn't it make sense if the U.S. held them to the same standard? The U.S. ban on the Chinese-owned TikTok aims to "protect" its citizens from potential propaganda and cultural influence by the Chinese Communist Party (CCP). There are concerns that the CCP could exploit TikTok's data on Americans to manipulate views, thoughts, and opinions, particularly concerning elections and the rest of the world.

Personally, I can understand where they are coming from. However, some may argue that the U.S. is now censoring content creation and restricting access to certain platforms. But in reality, they already do that to some extent, and secondly, nobody is preventing users from creating the same content on platforms like Instagram/facebook Reels or Snapchat's Spotlights. The landscape may change, but the content can remain the same.

What really interests me is the opportunity that will arise for other social media platforms and advertisers. TikTok, owned by ByteDance, was estimated to bring in $120 billion in revenue last year, with $16 billion coming from the U.S.. If it is banned in the U.S. and does not divest its assets, we can expect other players to see a significant boost in ad revenue. I would keep an eye on companies like Meta, Google, Amazon, and Snap if the ban goes through.

If TikTok's U.S. assets are sold to a domestic company, it would instantly make that company a major social media and advertising platform powerhouse. The two rumors I have heard so far is Oracle (ORCL) & Microsoft (MSFT) are possible public partners for the assets, but now way the DOJ lets powerhouse MSFT get even more powerful.

The other rumor is former U.S. Treasury Secretary Steven Mnuchin says he’s going to put together an investor group to buy TikTok. Will have to wait to see how this progresses over the 6 month timeline.

Next week, there are two significant events to watch:

First and obviously, the most important event to watch is Nvidia's GTC conference, a global artificial intelligence conference for developers that brings together developers, engineers, researchers, inventors, and IT professionals. Expect the largest and most prominent companies to showcase their technology, products, and new partnerships at this event. It will undoubtedly influence NVDA's stock and the markets, as discussions on chip/AI demand and supply, growth rates, TAM, and more will be featured. Stay tuned for updates from this event!

Second, the FOMC meets on March 19th and 20th where we will get their next decision on interest rate levels and overall comments on the economy. The street is pricing in a 99% chance (source 7) rates stay where they are (5.25%-5.50%), so I do not expect too much excitement or volatility from this event this month.

Earnings To Watch:

• Wednesday: Micron Technology & General Mills

• Thursday: Accenture, Nike, FedEx, Lululemon

We're keeping an eye on companies with fiscal calendars that differ from the norm. On Tuesday, I'll be monitoring General Mills, one of the top consumer staples stocks in the market. They own popular snack and food brands like Cheerios, Nature Valley, Chex Mix, Cinnamon Toast Crunch, and more. I expect earnings to be in line, nothing extraordinary. I'll be curious to see if there are any comments on how the GLP-1 weight loss drugs may affect the company.

Thursday is a significant day, primarily for two major retailers. LULU continues to impress with its high-quality products, albeit at premium prices. While it caters to a niche market, it has captured a sizable share. As for Nike, the focus will be on reaccelerating top-line (sales) growth. Until that happens, it's challenging to justify the stock trading at a 25x-30x P/E ratio. China could play a key role in driving growth. However, at just $100 a share, the stock is certainly compelling. I'll be keeping a close watch.

Starbucks (SBUX) - The stock is currently consolidating within its trading range, awaiting news, whether positive or negative, to break it out of this pattern. The range spans from $90 to $95 and has remained stagnant since September 2023, with the exception of a false breakout indicated in the chart to the right. Although the stock tested $90 this week, it quickly rebounded back to $92. Once a breakout occurs, the stock is likely to move rapidly, in my opinion. A breakdown below $90 would likely lead to a swift decline to $85, while a breakout and sustainment above $95 would likely propel the stock to $100. Since earnings are not expected until the end of April, the stock may remain stagnant until then, unless there are developments prior to that. I still believe the stock is currently undervalued, but real concerns loom. All eyes will remain focused on the company's operations in China.

The Boeing Company (BA) - A few weeks ago, I highlighted BA after its drop from $260 down to the $210s. I noted that I would not be a buyer until it fell under $200. Now, we sit at the low $180s, and I believe shares look very appealing in terms of risk-to-reward ratio. Despite recent serious plane production and quality issues affecting the stock, along with airline buyers like Southwest and Alaskan Airlines, we aim to buy when others are pessimistic or fearful. While BA could potentially decline further, remember that they lead a duopoly that, in many eyes, is going nowhere. In fact, there is more demand for planes than the two can supply. I believe now is a great time to start a position in BA, with the current risk-to-reward ratio standing at 6x (the upside is 6x the potential downside from current prices).

ASML Holdings (ASML) - This is arguably one of the biggest winners in the AI race, yet it receives little credit or publicity for its contributions. Perhaps this is because they are an international company with headquarters in the Netherlands. Regardless, ASML is the company responsible for manufacturing the machines that produce semiconductors. In simpler terms, companies like NVIDIA (NVDA) cannot produce semiconductors without these machines, each of which costs around a third of a billion dollars. ASML is truly the dominant player in this field, presenting investors with a compelling opportunity. Despite its significance, the stock has only risen roughly 60% over the past year, whereas other chip players like NVDA, AMD, SMCI, and AVGO have seen gains in the hundreds of percentages due to the surge in demand. This suggests there may still be room for ASML to grow. With a market capitalization of $375 billion, I believe this stock can go even higher. However, I hope for a stock split soon as the current share price hovers around $965.

• P.S. - ASML is considering relocating its headquarters to France, citing difficulties in finding enough high-quality workers domestically. The country's strict stance on refugees and immigrants limits their ability to recruit skilled workers. If they decide to leave the Netherlands, it could have a detrimental impact on the country's economy, as ASML currently contributes to over 20% of its economy and market.
• 
  

* Disclaimer - It's important to highlight that, on occasion, I may have existing positions in the stocks I highlight in my newsletter. This disclosure aims to be transparent about potential conflicts of interest. Although I strive for unbiased analysis, my ownership of certain stocks may influence those that I highlight. Rest assured, my commitment to providing well-researched insights remains unchanged. 

With another hot CPI report this week, it's only fitting to address and break down where inflation has been coming from over the last year.

The obvious outlier is auto insurance, and to be honest, there's no good or definitive answer as to why this category has seen such a significant increase compared to others. My best guess would start with the rising cost of car parts due to supply chain problems and increasing input costs. Additionally, maintenance has become more expensive because of technological advances in cars. For instance, getting rear-ended nowadays doesn't just mean replacing the bumper; you also have to consider replacing rear/back-up cameras, sensors around the car, and anything else that may be damaged, all of which incur significant costs.

The other five categories above our yellow marker for overall inflation all make sense to me. Housing and rent prices are still up because supply still can't match the level of demand needed (low supply = high demand = higher prices). Earnings are also elevated to try and offset the effects of inflation and because, in some industries, there's still a shortage of workers (low participation rate).

Now, looking at the bottom, the decrease in rental car prices makes sense because their cost skyrocketed in the past few years. The decline in airfare, appliances, and furniture over the past year leads me to believe that the consumer may be weakening slightly. If the cost of big-ticket items is decreasing, it's probably because consumers no longer have excess cash to spend on discretionary goods.

The key takeaway here is that overall inflation needs to continue its descent. While 2% is the ideal target, even lower would be preferable. For now, the focus is on getting that number steadily back on track, with a gradual decrease. Currently stuck at 3%, this inflation level is causing significant concern and uncertainty for investors and the markets.

In Weekend favorites, I share my thoughts on events I'm attending, the new series I'm planning to marathon, the movie I'm dying to see, restaurant craving to taste, or the big game I won't miss. 

This past weekend, I attended two Tucson events that injected excitement and hope into the town's development and atmosphere. On Friday night, I went to the Midlands concert (best known for their song "Drinkin' Problems"), and on Sunday, I attended the Tucson Festival of Books held downtown on the U of A campus, coinciding with Spring Break.

The concert exceeded my expectations. While I'm not the biggest fan of Tucson's own Midlands or country music in general, their performance was outstanding. They even had a few songs I had to add to the playlist, including "Burn Out" and "Cheatin' Songs." The Festival of Books was equally impressive, with thousands of people gathering to explore books, meet authors, and enjoy the delicious food trucks stationed nearby.

In Tucson, it's easy to feel like there's a limited range of activities, especially with Phoenix so close by offering a plethora of options like sporting events, live concerts, and innovative restaurants. These events, however, reinforced my belief that we're on the right track.

Tucson has been experiencing notable development and progress in terms of entertainment options. Exciting, active restaurants are popping up, events are being scheduled, and more people are recognizing the value our town offers.

One area I'd like to see more growth in is live entertainment, particularly comedy shows and concerts. While the unfortunate incident involving the late artist/rapper Lil Peep may have cast a shadow over that scene for some time, I believe we're close to overcoming that hurdle.

Overall, I'm incredibly excited to see what the future holds for Tucson!

P.S. - Adam Sandler's new "Spaceman" movie on Netflix is a must watch! It is trippy and suspenseful and unlike any of his typical rolls, yet he still does an amazing job... AGAIN!

To read more of Jake's Analysis on Seeking Alpha where he shares his thoughts, opinions, stock ratings, and price targets on different stocks and ETFs, use the link below!