VIDEO: Updates on 3 Holdings Under Pressure, and EPS Diplomats News

March 13 (8:23)

In today's Pro Portfolio video, Chris Versace explains why we're taking a cautious approach as we close out the week and brace for weekend developments regarding the U.S.-Iran conflict.

We also revisit three of the Portfolio’s holdings that have been under pressure of late, with Chris discussing which two we’re watching closely with an eye toward scooping up more shares, subject to market dynamics. With the third, Chris details why the Portfolio is more inclined to hold off making a move in the near-term.

We close out the video with some exciting news on the Portfolio’s EPS Diplomats strategy.

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Transcript

CHRIS VERSACE: All right, folks, here we go. Friday, March 13. The market, as you've probably noticed, it's jumping around today. But when we look at the S&P 500, it is shaping up to be, I'm afraid to say, another down week. As I record this, it's down around 1%.

And I have to be honest, given what's been driving the market of late, all the things that we've talked about with you over the last several days, I would not rule out a late afternoon fade in the market ahead of the weekend. As we know, a lot can happen over the weekend, some good, some not so good. And odds are traders will not want to be exposed until we know more about any weekend developments.

So what are we going to do and talk about in today's video? Well, I want to talk about three particular names in the Portfolio that have been hard hit of late, share some thoughts on them. And I'm doing so because we've gotten some questions from members in various comment sections of our various alerts. So let's talk about them. And the three are Axon, American Express, and United Rentals.

With Axon, remember earlier this year, the shares were hard hit. They bottomed out around $400 and then they rallied very hard following the December quarter results that included multi-year backlog, great contract values, and a multi-year outlook. There was also, as we pointed out, most likely some short covering that was helping extend the upward move in the shares.

Well, they have now come back, and I have to say that we are closely watching the shares, because the entry point, the risk reward point, is growing increasingly in our favor. I'd also share just a anecdotal point with you from my trip to New York earlier this week. I was in the Moynihan Hall, which is one of the new parts of Penn Station. You pick up the Amtrak there.

And I made a point of talking with the New York Police Department officers that were there. And yes, they did have Axon body cameras. But I asked them about some of the AI tools, including real time translation. Now, they had heard about some of these things. They haven't seen them yet. But their message was that, boy, tools like that, given the various languages that are in and around Manhattan and in the train station, it would be a game changer for them.

And I think when we think about these productivity tools that are coming from Axon and being increasingly bundled in their AI offering, which is part of the higher margin software services business, this really tells us that we're going to see more adoption ahead as contracts get renewed. That keeps us very bullish on Axon shares. What I want to do with them here, given the pullback, is let's see if the shares form a base and then we can plot our next move. Remember, the risk reward is improving, but the market uncertainty, we want to be a little cautious here.

Similar comment with American Express. We talked about the shares earlier as part of rising oil and gas prices, concern on consumer spending. But we also pointed out the very differentiated membership business model, which drives about 70 plus percent of AmEx's pre-tax income. Remember, we are still in the midst of a very robust platinum card refresh. And the key for American Express, therefore, is increasing number of cards in force and the higher average fee per card. Excuse me.

And as AmEx, given its higher price point, moves higher with the platinum card refresh, we should see that continue to tick up a nice step up in earnings. So with that in mind, given the pullback in AmEx shares, we are closely tracking them with an eye to scooping up some additional shares, as well as revisiting our two rating when we do so. So hang tight for that.

And then finally, when we talk about rating change, we've got some questions about the shares of United Rentals, which have fallen, currently around the 732, 733 level, which does offer very big upside to our 950 target. We realize that. But here's the thing. And I know some folks are asking questions about this. So let's just get it out there.

The current quarter, we have seen multiple bouts of I can't even call it inclement weather. Let's just say severe winter weather. That tends to be a real headwind for construction activity. Have we seen, therefore, consensus EPS numbers trick lower over the last several weeks to reflect that for United Rentals' current quarter? The answer to that is we have not. That tells us that there is some downside risk as a result of that severe winter weather. But at the same time, the escalation we're seeing not only in gas but really diesel prices tells us that there could be another potential risk to the current quarter.

So with that in mind, do we see a pickup in construction activity, a bounce back coming when the weather normalizes and we have more milder weather? Yeah, absolutely. We've seen this before, which is why in the near term, we want to stay to the sidelines with United Rentals. Let all the bad news, so to speak, get priced into the shares.

Now, I will say, is it possible that we won't bottom tick the shares? Probably not. But I would much rather scoop up more shares when all the bad news is priced in and the risk to reward is tilted even more in our favor. So with that in mind, we're going to keep an eye on United Rentals shares. It could be a little bit before we make a move. We'll continue to check various construction data sets and data points. And if we see a pickup in that type of non-residential construction activity, that could be a reason for us to move maybe a little sooner. But we'll continue to follow the data.

Now, one last thing I want to share in today's video, and it concerns the EPS Diplomats. What I want to share is that we will be increasing the Portfolio's exposure to this strategy when we rebuild the basket. We'll be doing that or start to do that in about 12 trading days. So I wanted to get out ahead of this and tell you the following. We will be increasing the Portfolio's exposure to 4%. Remember, when we first started this strategy and when we reconstituted it earlier this year, coming into the current quarter, we were only at 2%. So we're going to double the Portfolio's exposure to the strategy.

Now, between now and when we do this, we'll be communicating a little bit more about the mechanics and how we're going to do this. I'll also share that we might need to do some position jockeying to make a little bit of room to do this. Maybe not a lot, but again, we're evaluating that now and we'll talk much more about it as we get closer to the reconstitution period. Remember, when it comes to the Diplomats model, we sell out of the positions that aren't going to be in the new basket on the last day of the quarter, and we rebuild the position, including the new ones and any carryovers on the first day of the new quarter.

Now, with that, my friends, a couple of things. One, do we have a Weekly Roundup coming your way later today? We sure do. And do we have a fresh batch, excuse me, of signals to share with you over the weekend? Yes, we do. I will just tell you, please be sure to read them. There's a number of really good ones, and they speak to some of the other things we've talked about over the past week. Enjoy the weekend. We will see what develops, and we'll be ready to tackle it with you right back here Monday morning.

At the time of publication, TheStreet Pro Portfolio was long AXON, AXP and URI.