VIDEO: Dell Upsize Is Bullish for These Holdings

In today’s video, Chris Versace discusses how quarterly results from McCormick (MKC)  reaffirm why margins will be a focal point for the upcoming September quarter earnings season. He also review Dell’s (DELL)  upsized multi-year revenue guidance, why it is the latest bullish data point for multiple Portfolio positions and what it has us examining next. 

Chris touches on Evercore ISI’s downgrade this morning for several homebuilders, and how it is keeping us on the sidelines with Builders FirstSource (BLDR)  in the Bullpen. He ends the video by explaining why we will be analyzing consensus EPS expectations for newly public Black Rock Coffee (BRCB) with an eye toward our position in Dutch Bros (BROS) .

Other tickers mentioned include:  (PEP) ,  (MRVL) ,  (CSCO) ,  (TOL) ,  (KBH) ,  (DHI)  and  (PHM) .

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here, Tuesday, October 7. And after setting another round of new highs yesterday, the stock market, it's a little changed with the S&P 500 and the NASDAQ down slightly but still in that overbought condition we talked with you about in our opening comments today. If you haven't seen those comments, I would suggest that you take a few minutes. Please read them. They lay out our thinking near term and how we're kind of gaming out how we'll proceed from the government shutdown, so I really suggest that you read those comments.

But in today's video, we wanted to chat about some things that we saw in earnings out this morning from McCormick that are kind of reaffirming our view about why margins will be so important over the next couple weeks as more companies report. We also want to talk about Dell's multi-year guidance that it revised this morning, which is another supportive data point for a few things in the portfolio. We also wanted to discuss Evercore's downgrade of the homebuilders and share while we're watching shares of newly public Black Rock Coffee. Let's begin.

So spice and flavorings company McCormick reported its quarterly results, which at first blush, they were better than the Wall Street community had expected. But yet, the shares are moving lower. And I think that's really due to three factors. First, despite the improvement in volume that the company reported, gross margins fell year over year.

Now, this speaks to the concern that we've been talking about regarding margin pressures as companies are having a tougher time passing through price increases while contending with higher input costs. This hearkens back to some of the learnings that we've shared in the last couple breakdowns of the monthly ISM data, both on manufacturing and services. We said we would be paying attention for this. And we are seeing signs of this in what McCormick has to say.

Second, as it relates to McCormick, they softened their gross margin guidance for the year compared to what they saw in June. They no longer see gross margins improving. They saw that back in June. They no longer see it for all of 2025.

Third, yes, McCormick did report an EPS beat to the tune of about $0.03 relative to what the market was looking for the quarter that they just reported. But the company lowered its EPS expectations for the current year. It now sees at around $3.05, down about a nickel from what it was previously saying-- again, modest, but not really what you want to see from a directional perspective when a company comes off delivering an EPS beat.

So the takeaway from McCormick's report is that, as we suspected, margins will matter in the September quarter earnings season. And the next point of an examination on this front is going to come on Thursday when PepsiCo reports its quarterly results. We'll be looking at what they have to say about their beverage business, their snack business from a pricing perspective, from a input cost perspective and what that means for margins.

Let's move on-- Dell. Now, Dell raised its long-term revenue and profit growth forecast today, signaling robust demand for servers that-- excuse me-- power AI workloads. Here's the thing. Dell now expects compound annual revenue growth between 7% and 9% over the next several years. That's up from its prior forecast of 3% to 4%.

Now, that's the headline. But I wanted to share with you a comment from Michael Dell. He said customers are hungry for AI in the compute, storage, and networking we provide to deploy intelligence at scale. So yes, on the one hand, this is another positive shot in the arm for the AI trade, as people call it. And we're well covered in the portfolio for that.

But to us, it's the networking comment from Michael Dell that stands out. Remember, our thinking has been that as AI adoption accelerates in the enterprise and with consumers that it is going to bottleneck network capacity, driving incremental capital spending. That's part of our thesis on the shares of Marvell. But given this raised multi-year forecast from Dell, it's going to lead us to take a fresh look at Cisco. It maybe one of other two names in the space. Stay tuned.

And as you know, one area that we've been avoiding and we will continue to avoid in the near term is housing. Today, Evercore ISI downgraded several homebuilders-- Toll, Pulte, DR Horton, KB Home-- sharing that it has found that homebuilding stocks rallied over the summer in anticipation that falling mortgage rates would stimulate a rebound in housing demand. But as Evercore notes, that rebounded demand has yet to emerge, even though at the margins, housing affordability's gotten a little bit better. I will say this. If you listen to last week's podcast where we talked with Louis Llanes and myself, we talked about how both of our homes are on the market.

I can give you an update that despite being on the market for, now, 27 days, there has been modest interest. If you remember Louis' comment over a month ago when we had him on the his home in Denver was bumping up around 73 days. Obviously, it's been longer than that. So I'll be interested to see what Louis is seeing in light of these comments from Evercore ISI. But from our perspective-- our perspective-- it simply reiterates the notion that we have to focus not just on the prospect for mortgage rates, especially if the Fed is likely to deliver one or two more rate cuts before the end of the year.

We'll hear potentially more on that Thursday when Fed Chair Powell speaks. But we also have to pay very close attention to the demand side of the equation and the corresponding signals that we get by looking at key inputs for the housing market. We're talking lumber. We're talking copper. So we're going to be mindful of all of that.

I would also say that given my time covering the housing sector years ago, we were going to continue to pay close attention to job creation because that is as important as a indicator for housing demand as some of these other factors that people tend to follow. And as we've seen, the jobs data has softened of late-- kind of helps explain this. I also think that the current furloughs and if we get any massive Trump layoffs, that's going to raise even more concern, not only about consumer spending but on the homebuilding front. So for a variety of reasons, we're going to keep Builders FirstSource in the bullpen. I don't see us calling it up near term as demand remains weak, but again, comments from Evercore ISI just kind of speaking to our thinking on that.

Finally, we are seeing newly public Black Rock Coffee, ticker symbol BRCB, fetch a couple of buy ratings, as well as some price targets between $24 and $32 from its underwriters. Now, as we digest these ratings, we're going to take a look and see where these consensus EPS figures land. And that should give us something to consider as we revisit shares of Dutch Bros, which, as you know, have continued to struggle. We've talked very openly about our plan for the shares-- waiting to see if we get these massive layoffs or not. I do think, as I just mentioned, that they are kind of spooking potential consumer spending or thoughts about consumer spending in the holiday shopping season.

But yet, when we look at the chart-- the daily chart-- the daily chart shows us that Bros' shares are deeply, deeply oversold. And when we take a look at the weekly chart, they are bumping up against some layers of support. Now, I shared these charts in the Conversations section to our opening comments this morning because people were inquiring, which is why I'm talking about it. And I will repost those two charts in the Conversation for this video alert as well, so everyone can see them. We'll call attention to them.

So that does mean that we are going to have a lot more coming your way. So please check your emails. Check your alerts. We want to make sure you're getting our latest thoughts. And if there are any moves that we make with the portfolio, we want to make sure that you are right there with us.

To the extent you have questions, comments, thoughts, use the Conversation section below each alert. But also take a look at the Forum. That's where a lot of folks tend to go. And we can cover a lot of ground and make sure that everyone is seeing the conversation that's being had.

So thank you, my friends. Stay tuned. We got a lot more coming your way.

At the time of publication, TheStreet Pro Portfolio was long BROS and MRVL.