VIDEO: An Intriguing Area of Interest for the Bullpen... Maybe the Portfolio

In today’s Pro Portfolio video, Chris Versace offers a quick take on earnings from Bank of America (BAC) before reviewing the November Retail Sales report and its implications on the Pro Portfolio.

Chris also offers his take on the November Producer Price Index and discusses why the threat of a U.S. military strike on Iran is weighing on the market.

We also review our trades made earlier Wednesday and share an area of interest that we’re exploring for the Bullpen or perhaps the Portfolio that could quench a particular thirst.

More Pro Portfolio:

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

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. It is Wednesday, January 14. I apologize, much later than usual. Candidly, the home inspection for this place behind me took far longer than expected. Good news is that it turned out well, which means that I have a lot more firsthand perspective to share with you in the coming days about the housing market. Yes, if you listen to the podcast on Monday, I did let it slip that an offer has been made on my home, and we're kind of going through that. More to come. And again, thank you for your patience and understanding.

As we take a look at the portfolio today, we did have Bank of America report. There were good numbers. Very good numbers. I will say that given the reaction, I am glad that we stuck to our portfolio discipline recently and trimmed back the position at around 721 stocks down, about 10% or so from that level. We will be having a more detailed note out on Bank of America earnings. We're going to do this tomorrow.

And in it, we're going to talk about a lot of the banks that have reported, as well as Morgan Stanley's results, which come out tomorrow. So we'll be talking about Bank of America, JPMorgan, touching on perhaps some things that Citi had to say as well, as well as weaving in our comments on ratings, price targets, and pickup levels for Bank of America and Morgan Stanley. So that will be tomorrow.

I do want to talk about some things that happened today, though. Earlier today, you probably saw that we had the November retail sales report, November. Talk about a lingering effect of the shutdown. I'm going to say that this was widely as expected. Remember, we had some very nice comments coming out of those companies presenting at the ICR conference that we shared with you on Monday, and that really set us up for some expectations about not only November, but December.

So let's quickly recap the November retail sales report, and I'll have some comments and takeaway points from it. So first and foremost, November retail sales headline, 3.3% year over year. Same as October. Remember that includes quite a bit of stuff, including restaurant sales and other things. We look at the pure retail number, that was up 3.1% year over year in November, again the same as it was in October.

So I would say that the key point in the retail sales is that they continued to be, I would say, healthy, especially as we move past the government shutdown. I suspect what we will see again, given those comments from ICR and even the ICR conference and even what we saw with Costco's numbers, there will probably be a nice step up in December. The only question is, when will we get that data? We don't know because the Census Bureau hasn't released that date yet. But we will keep our eyes on it.

Now, when we compare November to December, get a little more granular, what was up in November compared to October, or at least on par? Grocery was up, clothing was up, non-store. There was up more than 7% in both on-- this is year over year basis in both November and October. Remember one of our thoughts as it relates to Amazon and to some extent for Costco, was that consumers would lean into digital shopping in order to stretch their disposable spending dollars, looking for sales, discounts, that sort of thing.

So when you think about this, digital shopping was up more than double what overall retail sales were, not only in November, but October as well. Clearly, clearly, that part of the spending economy is continuing to win out over brick and mortar. No major surprise.

Food service was up almost 5%. That's up from about 4.4% on a year over year basis in October. I would argue that is a nice indication for our position in Dutch Bros. Now, as we think about that clothing thing, the clothing figures are up nicely, really stepping up quite a bit in November. Yes, holiday shopping season, but arguably good for our position in TJX. And obviously I touched on Costco a second ago. But when we think about these numbers, particularly these year over year retail numbers, we have to contemplate Costco's adjusted comp sales.

So in November-- sorry, in November, they were up 5.8%. That's adjusted. No gas, no foreign exchange. That compares to that 3.1% figure for overall retail. Now, Costco's December US adjusted sales accelerated from that 5.8% figure to 6.3%. This just tells us, yes, another confirmation point for Costco continuing to successfully take consumer wallet share. As it relates to Costco, the shares have been moving of late, and in about two weeks, a little over two weeks, we will get the January sales report from Costco. And at that point, we will revisit our $1,100 price target, as I like to say, as needed.

I also want to talk about the PPI report. This also came in for November. And, the key point here is that both PPI headline and core PPI increased on a year over year basis, effectively moving the wrong way. And given what we saw with our discussion of the November CPI report and the lack of data for the October CPI report, there isn't anything in this November PPI report that is really going to change heads or expectations.

As such, we're going to continue to follow the jobs data very closely. The Fed is doing that. But inflation, just not making enough progress to allow the Fed to move unless we see an all out collapse in the jobs market. And again, we haven't really seen it. We will be listening throughout the earnings season about companies adopting AI and what they say about headcount, layoffs, reductions in force, that sort of thing. And we'll revisit our expectations for rate cuts accordingly.

Now, outside of that economic data, folks, we're kind of expecting potential ruling by the Supreme Court on Trump tariffs. We did not get that. The Supreme Court did rule on a couple other matters, but they gave no indication as to either when they will be ruling on anything next, or when we should expect them to say anything about the Trump tariffs. So that's going to be a lingering thing out there.

In its place, though, in its place, we are seeing reports that the US may attack Iran within the next 24 hours, first broke on Reuters. And we are seeing, in response reports, I guess you'd call it, of Iran warning of retaliation if Trump goes ahead and orders a strike. So that has brought about some renewed uncertainty. That is, of course, weighing in on the markets.

Once again, we will wait and see. We know the President has a tactic, I guess we'd call it, of announcing or threatening one thing, dialing it back to get something else in return. So we will see if that is the case. But when I was talking with our good friend Bob Lang about this today, he reminded me of an old Wall Street adage, when the bombs fly, it is time to buy.

Now, we did some buying today. I'm sure you've seen the note. We continued our repositioning of the portfolios chip exposure late last night. We downgraded Qualcomm to a 4 rating. Shouldn't have really surprised anybody. We had a lot more confirmation about the potential pressure that we'll see as a result of AI and data center memory demand and the impact on pricing and what that means for the PC market and the smartphone market in 2026. So we downgraded Qualcomm last night to a 4. Again, no surprise given our recent downgrade to a 3.

But we also trimmed back the portfolio's exposure today. And as I said in the note, based on what we hear from Taiwan Semiconductor, in their guidance, we may opt to exit the entirety of the remaining Qualcomm shares, perhaps a little more quickly. Again, we will see what happens.

What did we do with the proceeds? We picked up more shares of Broadcom. Again, AI and data center strength, but also its position in the custom AI chip business. And of course, the software side of the business, which has very good margins. We also picked up some more shares of the cybersecurity ETF cyber. No surprise here too. As I alluded to in the note, I don't think a week goes by that we don't learn of some new attack. Some weeks, there are more high profile ones than others.

But clearly cybersecurity remains on a growth vector. And we saw that pick up point that we use today as a very nice one from a risk reward perspective. And again, as it relates to the bulk of the remaining Qualcomm shares, let's get past quarterly results from Taiwan Semiconductor and we can make a decision.

Now I also want to shift gears and talk a little bit about the bullpen, because we did take two companies out of there. But I just want to give you some high level thoughts on something that I'm starting to think about. And I'm sure you've seen some of this, I know we've captured them in some of the signal alerts, that Gen Z is drinking significantly less alcohol than other generations. And if you don't think this is true. I would say go look at the recent earnings report from Constellation Brands and look at the year over year drop in volume. I think that would be, let's just say, very, very confirming.

So the question is if Gen Z's not drinking alcohol, what are they drinking? Because the shift in preference-- this falls into one of the things that we look for structural changes, which is psychographics. And people are going to drink. And there's an interesting data point from Coca-Cola, which is that they see that there are-- I want to get this right-- 64 to 65 billion daily thirst quenching occasions across the globe.

Now, 64 to 65 billion, how do you get to that? Well, there's about 8.1 billion people across the globe this year and about eight servings a day. So when we talk about beverages, that runs the gamut. Everything from water, tea, coffee, alcohol, I assume is in there, and perhaps juice milks, that sort of thing. So that's a big market. And we know that people consume beverages on a daily basis. So we're going to do a little bit of digging and we'll see what we come up with as it relates to the bullpen, maybe even the portfolio. We'll see.

You're likely going to say, Chris, some of these companies, Coca-Cola, National Beverage, Keurig, Dr Pepper, PepsiCo, I would say that that's the usual starting point, but we'll see what else we can turn up. I will share a few things. One with PepsiCo. Remember, we used to own this. We're very familiar with the company. Well, while we're focusing on beverages, that's what we want to focus in on here, the concern with PepsiCo is perhaps the retooling reconfiguration reingredient integration, if that's even a word, of its snack business that is happening and the potential cost to do that and retool its factories.

So we're a little, not necessarily going to lean into PepsiCo, but we will see what their lineup is and take a look at it. I would also say that some of the other categories of coffee and energy drinks, there is Monster, out there and some other things, Celsius. But remember, we already have some exposure to that given our position in Dutch Bros. So odds are we're not going to lean too far into that.

So we will see what we come up with. And we'll also remember too, that given the size of the population, this is a global market. So we're going to put our thinking caps on and in the I like to say coming days. But earnings season is going to heat up. But as we get more thoughts together on this, we'll be writing them up and sharing them with you. So please watch out for that.

And as I like to say, folks, we're going to have a lot more coming at you this week. We will have that note on big bank earnings. We have Taiwan Semiconductor tomorrow. So please continue to check your emails, your alerts, and if we make any moves with the portfolio, we want to make sure that you are right there with us. Thanks for watching. And again, apologies. Getting a little sidetracked today, given the stuff that I mentioned at the top about the home inspection. But don't worry, we're back in action. Talk to you soon.