VIDEO: Why These Positions Are Moving to the Downside
Swings can happen, but we’ll stick to the fundamental story and our investment thesis.
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In today’s Pro Portfolio video, Chris Versace uses Friday's pullback in the market to explain the concept of beta, which measures a stock’s price volatility relative to the market.
As part of that discussion, the difference between high beta and low beta stocks is covered, and how that fits into some of the wider moves we’re seeing in the Portfolio’s holdings.
As a few of our higher beta positions move to the downside on Friday, including the shares of Dutch Bros BROS, Chris revisits why we own them in the Portfolio and why their investment thesis remains intact.
Transcript
CHRIS VERSACE: Hey, everyone, Chris Versace here. And it is Friday the 13th, ha ha, yes, Friday the 13th. So off the bat, I'm going to remind you folks that we are not a superstitious lot here at the portfolio. No, sir. No, ma'am.
As you know, we follow the data, heeding the signals and confirmation points. But we always have our eyes and ears open. So we continue to evaluate what's unfolding around us and adapt the portfolio as needed as necessary.
Now, while we're closing out the week, yes, the S&P 500 is down today. Given the escalating developments that we've seen between Israel and Iran, and odds there's a little more to come based on reports that are making the rounds, but so far, the S&P 500 is holding on to some modest gains on a week over week basis. When it comes to the portfolio, however, we are seeing some of our positions move a little more aggressively to the downside today. You're probably seeing this with Dutch Bros, Marvell, and the shares of Universal Display.
Now, I have to say, you probably know that all three of those companies, they're extremely different. They address different end markets. They have different drivers. So why are they all down more so than the market today?
Well, the answer to that, I think, stems from the fact that they all have one thing in common. And that is that their betas are well above those for the market or the S&P 500. Now beta, this is not something that we talk about all the time. But what is beta? Well, it's a measure of price volatility relative to the market.
So if the S&P 500 has a beta of 1, if we see a stock's beta higher than that, it means it's going to have greater price volatility, meaning it's going to move more so than the market in good times and in questionable times. A beta below 1 means that it is less price volatile, more of a "Steady Eddie" if you want to think of it that way. So with that said, let's take a look at what the betas are for Bros, Marvell, and OLED. And no surprise, they are significantly higher than the market.
OLED, 1.5, Marvell, 1.76, and Dutch Bros 2.74. So on days like today, barring any company-specific or industry-related developments, we should not be surprised by wider swings in some of those stocks, again, the ones with higher betas. At the same time, however, looking at all three, we would argue that based on data that we've shared with you of late and have continued to check that the reasons why we own these shares remain intact.
Dutch Bros, domestic play, geographic expansion. Marvell, no question that AI and data center demand for chips continues to remain robust. And the company is making progress on its white label chipset business. And we expect to hear more about that at its upcoming event. But I will share that in this weekend's signals out on Saturday, we will be touching on a particular report from Canalys that touches on proprietary AI chip development, calling it a very important factor. So we see that kind of supporting our position in Marvell as well.
And then with Universal Display, I think we've shared many, many, many data points about the accelerating shift towards organic light emitting diode displays and how that benefits Universal Display. So again, all three, even though they're moving a little bit more than the market today, it's explained by their beta, checking the underlying reasons why we want to own them. They remain intact. So we're not really flummoxed, if you will, by what's happening today.
On the flip side, we are seeing some of our stocks with low betas and largely US-centric business models move higher, Waste Management, beta of 0.67, Labcorp, 0.79. Now, as we talk about these, given what we could see as a return of volatility in the coming weeks when we update our portfolio table to share with you the latest RSI levels for each position, consensus EPS expectations for each position in the portfolio. We will add a column featuring each stock's beta as well.
Now looking past today, we will continue to monitor geopolitical events over the weekend and other developments as we get ready for the Fed's June policy meeting next week. Coming up later today, because it is Friday, we will have the weekly roundup tomorrow, a fresh, fresh, excuse me, batch of signals, as I just mentioned. And Sunday, a more light hearted alert as we discuss what is phubbing. We'll share a potential summer read. And we'll hear directly from some Apple executives on what is going on with Siri and AI. All that and much more in the Sunday suit.
And with that, I'll say, folks, have a great weekend. Stay cool. I know temps are moving higher, humidity is coming in as we move into the summer months. But we will still see you back here on Monday. Again, have a great weekend.
At the time of publication, TheStreet Pro Portfolio was long BROS.
