VIDEO: 3 Holdings Offering Attractive Pick-Up Points

In today’s Daily Rundown video, Chris Versace digs deeper into today’s portfolio action, explaining why the combination of circumstances led us to make those trades and why we see still headwinds ahead for the market. 

Chris also discusses the tick-up in investment banking activity and what that means for two portfolio holdings as well as another that offers a favorable risk-to-reward pick-up point for members. 

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here, Wednesday, March 12th. As you probably know, I had expected to be in New York for meetings. But as we all know, sometimes things happen. That unfortunate botching of my travel plans is actually good news for the portfolio because not only were we able to start a new position in Palantir shares yesterday, but following the combination of the market being oversold, deeply oversold, especially for the S&P 500 and today's softer than expected CPI report, we were able to put some more capital to work for the portfolio, picking up some additional shares of Palantir, but also those for Axon, American Express, Dutch Bros, ServiceNow, and Marvell.

Now, you'll notice for the most part, that these buys were not substantial in size. And as we'll talk about in a few minutes, there are specific reasons for that. But as to why we picked these particular positions, well, when it comes to most of them, the position sizes were on the smaller end of the spectrum for the portfolio, except for ServiceNow, which was around 3.5% or so ahead of today's pickup.

Why did we opt to do ServiceNow? Well, first off, the shares have been extremely hard hit, despite what we've seen sharing with you in the various signals that we have on the weekend and other data points that enterprise AI adoption continues to accelerate. Now, I recognize that some of the recent pressure has been concern over federal spending cuts related to DOGE. But as we've talked about in some of our Alerts, and I think we discussed a little bit in Monday's office hours, with Congress kind of reasserting itself in terms of the approval process, we think that a lot of the bluster isn't going to translate into the degree of cuts that were initially targeted.

So we kind of see that as a risk or overhang, if you will, kind of being removed for not only ServiceNow shares, but candidly, also those for elastic as well. So that's the reason why we kind of deviated a little bit with picking up more ServiceNow shares. But there's also something else I really wanted to impart with you, which is this. And this is really important, really I would say the real message of today's video, which is that even though we made today's trades taking advantage of the market's oversold condition and what that meant, particularly for those positions that we scooped up, we still see some uncertainties and headwinds ahead.

One better than expected inflation report does not remove all of that. We still have the prospect of additional tariffs ahead and the impact that is likely to weigh on companies when they issue their June quarter guidance when they report their March quarter results. Now, that includes any Trump response to today's EU countermeasures, as well as reciprocal tariffs that Trump has shared will go into effect on April 2nd.

Here's the thing. Stepping back and looking at what the market expects for S&P 500 earnings in the June quarter, they're supposed to be up about 9% compared to the March quarter. So second quarter earnings up 9% compared to the current one. Here's the deal. That is a good deal stronger than when we saw it last year. It was up about 6.5%, 7% or so. And last year we didn't have the prospect of tariffs and the concern about the impact of tariffs on the consumer.

And uncertainty that we shared with you yesterday is starting to bubble up in small businesses. As we know, when uncertainty happens, companies like a deer caught in the headlights, they kind of stop what they're doing, waiting to see what lies ahead. So the bottom line here is that when we get that June quarter guidance, we would not be surprised to see companies take a more cautious path, given the uncertainty that is out there and likely incremental uncertainty depending on what happens next on those tariff fronts.

Should that happen, that is going to raise questions about the S&P 500 earnings expectations for the second half, something we already discussed. Remember, the current consensus expectations are second half earnings expectations will be up 14% compared to the first half of the year. That's pretty robust. Now, could there be some hopium in there on Trump tax cuts? Certainly there could be.

But as we've discussed with you, that is really an event, Trump tax cuts, that is likely to unfold sometime late in the second quarter, which means as of now, companies aren't going to be able to bake those into their June quarter outlooks. So while we are taking advantage of the market's oversold condition to pick up some shares, we aren't out of the woods just yet.

And remember this too, that as earnings expectations come down for the S&P 500, we could see some renewed questions about the market multiple. So again, a number of reasons why we want to be careful here, even though we're being opportunistic today. We also have to recognize that as we discussed earlier this week, the market still faces some technical resistance ahead. That means it's going to take much more positive developments than just one to push it through those levels that begin with the 200-day moving average.

So while we've made some moves today, the bottom line is our plan remains the same. Now, I'm also going to remind you that given the recent concerns that have kind of increased about consumer spending coming off of not just the recent wave of retailers, but also to that we can add what we heard from Kohl's, Dick's Sporting Goods about their outlook, but also too what we started to hear from the airlines, Delta Airlines in particular about softer domestic spending.

That's going to keep our eyes on Mastercard. We did downgrade the shares to a three rating yesterday. And as we noted, if we see the shares rally back, they could become a source of funds. And yes, I will also share that we will keep our ear to the ground on Trump tax cuts. And if there is some pull forward in that, that could be a reason for us to revisit the three rating on Mastercard shares.

Now, before we close out today's video. I also wanted to talk about what appears to be an upswing in M&A activity, as well as forthcoming IPOs from Core Weave and one-- I don't know why we should be surprised about this-- from One American News Network. Apparently, that is one of President Trump's more favored networks. No surprise, I guess.

The message here is that we are starting to see investment banking activity perk up a little bit. Yes, it did start off a little bit slower than expected in the current quarter. But it is starting to pick up. And that activity is a big thesis of ours behind the shares of Morgan Stanley and Bank of America. We will be watching how these IPOs price for Core Weave, One American News Network, and some others to the extent that they are successful, good aftermarket performance.

That could start to chip away at the big IPO backlog that is out there. And again, if we start to see some other policies from President Trump start to take hold in a positive way for the economy, we would not be surprised to see that level of activity pick up. Remember, too, that there are a lot of thoughts that as the regulatory environment loosens, we could start to see an even bigger pickup in M&A activity.

So that keeps us constructive, bullish longer term on the shares of Morgan Stanley, Bank of America. And even though we did not pick them up today for the portfolio, largely because they have larger position sizes in the portfolio than a number of the ones that we picked up today, the risk reward currently in the shares of Morgan Stanley and Bank of America are good ones.

They skew favorably. So if you're a newer member or if you are a member whose position size in either one, Morgan Stanley, Bank of America, is less than the portfolio, we see it as a good pickup point. Coming up later today, I do want to share that we're going to have some comments coming off Eaton's investor day. We'll also be talking about their announced acquisition of Fiber Bond that was announced yesterday. Here too we continue to like that stock, its positioning as it continues to benefit from data center construction, as well as the larger pain point that is the US electrical grid.

And we'll be talking about that. Here, too, folks, it is a good a good pickup point if you're a newer member or a member whose position size is less than the portfolio's. Eaton shares are one of the larger ones in the portfolio, just under 4%. So again, here too risk reward for Eaton shares skews favorably. I suggest you take a look at it.

And with that I would say please be sure to check your emails, your alerts. We want to make sure you're getting our latest thoughts. And as you saw this morning, if we make any moves with the portfolio, we want you right there with us. Thanks for watching.