VIDEO: How Can Market Withstand Latest Trump Tariff Turmoil?

In today’s Daily Rundown video, Chris Versace recaps today’s moves made by the Portfolio as well as why the market isn’t pulling back more following President Trump’s latest tariff threats. 

Following a few member questions, Chris shares the Portfolio’s latest thinking on Dutch Bros BROS, touching on why Brazil-related coffee concerns may be overblown. We also share another Portfolio position we are watching closely with an eye toward buying more shares. 

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here. It is Friday, July 11. And after climbing over the last few weeks, the stock market is closing what looks to be in on a down week.

Now, today, as you probably noticed, we don't have any real fresh economic data. We don't have any meaningful earnings out today either. Rather, as we discussed in our opening comments this morning, what we're seeing with the market is digestion of just the latest tariff salvo by President Trump, which, as we discussed, includes a potential 35% tariff on certain imports from Canada and a potential escalation in the baseline tariff from 10% that Trump originally talked about, excuse me, back on liberation day to maybe 15%, maybe even 20%.

And as a result, I think what we're seeing are some out there in the market doing some modest scenario analysis as we get ready for the June quarter earnings season to really ramp. As you know, we continue to think that the uncertainty that all of this tariff movement and potential reciprocal tariff movement is creating is likely to lead to companies to deliver more cautious than not guidance.

Certainly in the last couple of days, we've started to hear more about companies, about how the impact of tariffs and higher costs are impacting their guidance. I'm referring to Conagra, Helen of Troy, Levi Strauss, and others. And of course, it is taking a bit of a toll.

But I also think, though, that when we look at the market reaction today, the reality is that the market is not necessarily convinced that we will see these higher tariffs. If the market thought that was the case, then at least today, we would have expected a larger reaction.

I think that some softening in the language that President Trump has kind of said later this morning, early afternoon, he's telling reporters he's going to speak with Brazil. He said that Canada called after they received their tariff letter. And of course, he also said that he's not going to fire Jerome Powell.

Not that he could, but it's these type of things that reaffirm our view that Trump is waiving the tariff saber, so to speak, to reclaim the trade deal narrative, get countries to come back, and start delivering on trade deals. Remember, the administration had hoped to have trade deals announced by July 9. That's obviously slipped. Trump looking to regain the narrative.

So we will continue to follow the details and course correcting with the portfolio as needed based on final trade deals and their details. Sorry, final trade announcements and their details. Sorry, folks, it's been a long day.

But I will say too that coming into the market today, we did recognize that as those tariff headlines were hitting that the market was overbought. And given the VIX, the market was also complacent. So as you saw this morning, we did opt to take some very profitable and additional chips in United Rentals and NVIDIA off the table.

We funneled those proceeds primarily into the shares of Axon. And if you read our alert about Axon this morning, I think you'll understand what pulled the shares lower. It was really a disappointing comment on an earnings call from a tangential at best company that serves the consumer market with nonlethal products. Not at all what Axon does.

And Axon, of course, is a much larger story, with not only body cameras and drones, but really their cloud services that are higher margin, that are recurring revenue in nature. And of course, they're also layering on AI to that offering. So very, very different. And as a result, we opted to pick up some more shares of Axon this morning.

But since then, there was a nice reaffirming report out that just added to our confidence in the decision that we made today. And that's that Secretary of Defense Hegseth has reportedly issued sweeping new orders to ramp up production and deployment of drones. That is a positive for Axon. Obviously they're in the drone business.

But as we think about the body camera business, the drone business, they are feeders, as we like to say, for the higher margin recurring revenue stream that is the services business. So continue to like the Axon story. Continue to the mix shift towards those higher margin recurring revenue stories, positive services, excuse me, and their impact on margins and bottom line EPS growth expectations.

Now, we've also been getting some comments, questions, if you will, about Dutch Bros. And I will say that, yes, we are aware the shares have traded off, and yes, we are interested in picking up more shares. Our thesis is sent around the West to East expansion that continues to track. And remember, it's not a 2025 story. It's a multi-year story through to 2029.

We've seen these West to East expansion stories many, many times. And they tend to do very nicely in terms of revenue growth, EPS growth, and stock price appreciation along the way. So we continue to that. And remember too, with Dutch Bros, they are taking a bit of the playbook out of Starbucks with the ramp next year in food. That should drive revenues higher as well.

However, there have been some questions on the topic of coffee beans, given what's going on with Brazil. So when we think about Bros, yes, they do import and roast coffee beans from Central and South America. That's what they disclose in their 10-K. Now, we do know, folks, that Brazil is the largest coffee exporter, but other notable exporters include Colombia, Honduras, and Guatemala.

But here's the thing. Let's remember that Dutch Bros has said specifically that coffee accounts for less than 10% of its cost of goods sold. So even a dramatic increase in that one line item isn't going to translate into a margin destroyer. We also have to remember, too, that when the company updated its outlook back in March, sorry, back after reporting its March quarter that they factored into their gross margin guidance the impact of tariffs and higher prices across the board.

So I would say that there's going to be some wiggle room there. But by and large, yes, we are interested in ramping up the portfolio's exposure. So I'm going to say that that is a good reason for members to continue to follow our comments, track your emails. Because as we continue to do our work, we will refine in on a price point that will be palatable for not only Dutch Bros, but also others that are on our shopping list.

And that includes the shares of waste management, which I think is pulled back nicely. And I really like the sticky nature of that business, the pricing power that they have, and the opportunity to replicate their strategies across the medical waste business. So that one we are watching extremely closely. But there are others out there, as I alluded to in some of our comments to you this morning.

So again, more reasons to pay attention to what we're doing. And remember, when we make any trades, we want to make sure that you are right there with us. But I will say, folks, that we do have a lot more coming your way. It is Friday. That means we have the weekly roundup.

Saturday we'll have our latest batch of ripped from the headlines signals. And I teased some of them in our Axon write up this morning. But let me assure you that there are far more coming across a wider array of our thematics and touching on a greater number of portfolio positions.

Then on Sunday, we have the Sunday soup, a more light hearted collection of things. But I will share that there is going to be something you'll want to pay very close attention to as it relates to Google. It's one of my favorite podcasts, and they are doing or starting to do, I should say, their very big deep dive on the company. I've already listened to it. It's fascinating. I think you'll enjoy it. I would encourage you to consume that podcast as well.

Now, with all of those things ahead of us, I have got to get cracking. So I will say to you now, have a wonderful weekend, and we'll see you back here on Monday.

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