VIDEO: The Weekend’s Big Cyberattack Is Good News for This Holding

In today’s Pro Portfolio video, Chris Versace discusses the big week ahead for June-quarter earnings season as move past big bank earnings to a wider array of companies, including Alphabet GOOGL, SAP SE SAP, and ServiceNow NOW. We remind you why it’s important to connect the dots as this latest earnings season unfolds.

Following today’s pick up of additional shares of American Express AXP and TJX Companies TJX, Chris discusses which holdings we’re watching as part of our shopping list.

We also discuss weekend reports about cyber-attackers exploiting a Microsoft MSFT security flaw and why that bad news is good news for the Pro Portfolio.

Transcript

CHRIS VERSACE: Hey, everyone. It is Monday, July 21. And if you're new around here, I'm Chris Versace, Portfolio Manager of the TheStreet Pro Portfolio. And, yes, we are starting off another week of trading. And it's going to be a big one filled with earnings, one that will also bring the flash July PMI report.

This is something, if you read the weekly roundup from Friday, you'll know it's a report that we are keen on digging into, given what it's likely to say about the speed of the economy, hiring, and of course, inflation. But as we start off the week, yes, the market is pushing higher.

And if you're watching, you've probably seen that this means that both the S&P 500 and the NASDAQ Composite have moved into overbought territory. And of course, we're basing that simply on their Relative Strength Index or RSI levels. Both are above 70.

At the same time, we do realize that stocks can be overbought for a relatively long period of time, a longer period of time, I guess. But we also have the volatility index hovering around 16 and 1/2. And while that might say complacent, the market's not extremely complacent.

For that, we typically want to see it between 15 and 16, so we're not there yet. But we do have, as I said, a big week of earnings. And as we've discussed with you over the last several weeks, in our view, the June quarter earnings season is extremely important to the market, especially the guidance that we will get.

And so far, to be fair, the guidance has been a little better than expected. But we have to remember, that over the last few months, we have seen consensus expectations for S&P 500 earnings in the second half of the year come down compared to where they were at the end of March. So in our view with the market moving higher, overbought, and with the S&P 500 moving into some new highs last week, we will want to see guidance, surprise to the upside in order to propel the market higher on a sustained basis.

This means that the earnings season that we're going into now, putting big banks behind us and moving forward with a wider array of companies, including the start of big tech earnings this week with Alphabet, we're going to want to see those earnings expectations, that guidance, again, surprise to the upside, earnings move higher for 2025. So that's what we'll be watching.

Again, it's going to kick off with Alphabet. But we're also going to see ServiceNow, United Rentals from the portfolio this week. But ahead of all of that, we are going to get quarterly results after the close on Tuesday from SAP.

And why am I bringing this up? Because one of the things that we like to do, as you know, is connect the dots between the companies that have reported, what they tell us about their end markets, about demand, assess their forward guidance, and tie that back to our portfolio holdings or perhaps some contenders that we're looking at in the bullpen, maybe even elsewhere.

So for us, it's very much going to be more of that. In fact, really over the next two, arguably three, maybe even four weeks, you are going to hear me say, connect the dots, connect the dots, connect the dots. And it's important.

And I say this not just because it's what we do. But we do have a group of companies in the portfolio-- ones from ServiceNow, Labcorp, Universal Display, arguably even Dutch Bros-- that they're not generators of a lot of headlines. There's a lot of other third-party data out there that we like to mine.

We want to be mindful of what their customers, competitors, their suppliers are saying. That is why we connect the dots in general, but especially for those companies that are a little on the quiet side, let's call it. And there's a lot of extra legwork involved. But as you know, we are up to the task.

Now, again, as we collect all these data points, we will be imparting them with you. But we also will be keeping an eye, as we like to do because we're prudent investors, on position sizing. It's all wonderful when the market is moving higher. But because we are prudent investors, because we're disciplined investors, we do have to be mindful when they start bumping up against our 4 and 1/2% position sizes.

We don't have any yet. But there are two that have started to move past the 4% level in a meaningful manner. We're going to keep our eyes on those. And if the market pushes substantially higher and those positions become excessively large, in our opinion, we may opt to lock in some profits.

And that would actually, if we did it, replenish some of the cash that we used today when we picked up more shares of American Express and TJX Companies. Now, I will concede that even after this move, TJX Companies is still a somewhat smallish position for the portfolio. And it is one that we would look to build out further over time.

Now, you're probably wondering, OK, Chris, after these moves, what else is on our shopping list? Well, if we can get them at the right price, I would say SuRo Capital, Waste Management, and Dutch Bros. Maybe one or two others. But I would say those are the ones that are on the smaller side in the portfolio, they're nice dividend payers, SuRo especially, Waste Management. And these would be the ones that we're focused on.

But remember, we're going to continue to look for new opportunities for the portfolio. Granted, with the market being overbought, there may not be as many opportunities. But we do have ample cash on hand.

And as I said, if any of our positions move past that 4 and 1/2% level, we might have the opportunity to not only lock in some big gains, but we might be able to goose our cash position a little bit as well. I do want to talk about a couple other things before we get out of here today.

First, over the weekend, we received a very strong data point in support of our position in the cyber ETF. I'm, of course, referring to reports that hackers exploited a major security flaw in a widely used Microsoft server software to launch, a global attack on government agencies and businesses, breaching US federal and state agencies, universities, energy companies, and an Asian telecommunications company.

Now, cyber shares, as you have most likely noticed over the last two years or so, they have been a very, very nice performer, kind of a steady Eddie, if you will, which is no surprise to us, given the continued number of cyber attacks that we see, companies having to continue to spend to shore up their defenses, protect their crown jewels. And I suspect that coming on the heels of this attack, we're likely to hear this earnings season about companies spending more on cybersecurity, as well as AI.

And really that, to me, those two go hand in hand, especially as cyber attackers use AI to augment their attacks. To me, one helps feed the other. So we continue to see cybersecurity as a great place to be. And yes, we do have some other exposure outside of cyber ETF.

We're talking about Alphabet. We're talking about Microsoft and Elastic. But I will say that with cyber shares kind of approaching our $78 price target, I wouldn't be surprised as we go through the earnings season, we kind of revisit demand spending for cybersecurity that we have to revisit are cyber, CIBR, ETF price target.

And with that, I just want to say that we do have more stuff coming your way today. We will have an updated portfolio table. We do have the return of office hours in the portfolio forum, between 4:00 and 5:00 PM. As I like to say, you bring your questions, we'll bring as many answers as we can get to in the time allotted.

And I hope you saw our piece on dividends today. In that, we actually teased who's going to be on the Stocks and Markets podcast this week. It is going to be SuRo Capital's chairman and CEO, Mark Klein. And I would say, it's going to be a conversation that you simply won't want to miss.

Now, folks, that's it for today's video. Thank you so much for tuning in. But as I said, we have a lot more coming your way, so stay tuned.

Keep your eyes on your emails. Keep your eyes on your alerts. You are not going to want to miss what we have coming up. Thanks for watching.

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At the time of publication, TheStreet Pro Portfolio was long GOOGL, NOW and MSFT.