Monday, June 17, 2024

Watch What We Do

  • Consumers are behaving well.
  • Elon starts a new book.
  • It’s good to be invested.
Senior Editor, StockPick Daily
MARKETS

How To Feel About Sentiment

Things are better than they seem.

By the time the University of Michigan calculates its final consumer sentiment index for June people will probably have experienced cheaper gas prices.
And that’ll probably help them feel a little better about the way things are going out there.
Sentiment surveys – for many reasons, including pure partisanship – are increasingly less reliable indicators of what’s really happening. They reflect vibes, not data.
Fortunately, there is a lot of data out there – from government and university as well as purely independent sources.
Let’s take a look at a couple of them for some insight on recent economic activity.
According to oil and refined products analyst Patrick De Haan – he’s @GasBuddyGuy on X – the average price of gasoline in the US decreased for two consecutive weeks through June 10, declining by 10 cents from June 3 to $3.40 per gallon.
“The national average is down 23.0 cents from a month ago and is 18.2 cents per gallon lower than a year ago,” De Haan noted a week ago.
Gas prices were down in nearly every state. Prices in nearly every state are also down compared to a month ago. “Americans will spend roughly $425 million less per week on gasoline than a year ago,” De Haan calculated.
Not that gas prices are getting in the way of our good time, as data from the National Retail Federation and CNBC released on June 10 indicate.

The CNBC/NRF Retail Monitor showed a 1.35 percent year-over-year rise in total retail sales in May.
The most important incoming data this week will be Tuesday’s report from the US Census Bureau on May retail sales. The consensus expects a 0.3 percent month-over-month increase.
We have a pretty good look-through from the CNBC/NRF Retail Monitor for May, which showed a 0.26 percent month-over-month increase in total retail sales, reversing a 0.6 percent decline in April.
The NRF cited job growth and continuing wage gains for the way consumers are behaving.
It’s a good idea to watch what people do rather than listen to what they say.
Speaking of speakers, we’ll hear from seven different Fed governors between Monday and Tuesday and then our central bankers will go quiet for the rest of the week.
Wednesday is Juneteenth Day, and the New York Stock Exchange, the Nasdaq, and the US bond market will be closed.
Retail sales will be followed by housing starts on Thursday and existing home sales on Friday.
The forecast for housing starts is for 1.380 million on a seasonally adjusted annual rate, up from 1.360 million in April.  Analysts see existing home sales of 4.10 million, down from 4.14 million.
Happy Monday.
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June 17, 2024
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DEEP DIVE

The $6 Trillion Man

“It’s just math.”

My friend J.C. Parets has different perspective on Elon Musk and the $50 billion-odd pay package his shareholders at Tesla $TSLA voted once more to award him.
As a law-school graduate I can see the merits of his case: This looks a lot like a bargained-for exchange, and that’s the foundation of a contract.
As J.C. observed last week, in 2019 TSLA was worth “a tiny” $30 billion. By 2021 its market capitalization was approaching $1.3 trillion.
“The job of a CEO is to increase shareholder value. Period. No CEO in history made shareholders more money faster than Elon Musk. It’s just math,” J.C. concludes.
“The CEO works for shareholders. Shareholders only get paid if ‘line go up.’ And, boy, did it…”
TSLA has corrected from its November 2021 all-time highs and is now a $567.709 billion company. It’s standard stuff from a technical perspective.
And, according to J.C., there’s plenty of room to the upside from here.

Tesla $TSLA is down 56.58 percent from its November 4, 2021, all-time closing high.
Consider what Elon’s stake will be worth if he’s able to execute on his latest pronouncement.
Or is it Cathie Wood’s gauntlet?
On Wednesday, the founder and chief strategist of ARK Invest set a 2029 price target of $2,600 for TSLA. That’s a market cap of approximately $8 trillion.
Wood values the EV segment at $1 trillion, the autonomous-driving segment at $5 trillion, and the rest of Tesla’s businesses, including stationary power storage, at $2 trillion. 
On Thursday, taking the stage in his own way, the CEO agreed with Wood’s assessment of the autonomous-driving segment.
From there, though, he went off on Optimus, Tesla’s humanoid robot business: “I think when large-scale volume is reached, Tesla would basically make about $1 trillion of profit a year” from Optimus.
He also compared his robots to R2-D2 and C-3PO in “Star Wars,” suggesting they could cook or clean for you, do factory work, or even teach your children.
Running the back-of-the-envelope numbers in real time, Elon said at a price-to-earnings multiple of 20 or 25 Optimus by itself would have a market cap of $20 trillion to $25 trillion. 
The self-declared “pathologically optimistic” Musk said his company is on to not just a “new chapter” but a “new book.”
If it all comes together his stake would worth something in the neighborhood of $6 trillion.
MACROECONOMICS

The US Economy Is Very Strong

And it’s been surprisingly resilient.

And it’s been surprisingly resilient.There are many good reasons to be invested in the stock market right now, according to GLOBALT Investments senior portfolio manager Thomas Martin.
“Our short -term view on the US economy is that it is very strong,” Martin noted in a recent StockPick Interview. “And everybody knows that it has been surprisingly resilient for quite some time.”
Martin said things have started to decelerate, but inflation is also coming down, and the labor market remains in good shape despite a recent uptick in the unemployment rate.
The bottom line is the consumer remains strong – and sentiment, though it did tick down during the first part of June – remains strong too.
Martin explained that the lower end of the income spectrum is struggling a little bit more than the higher end, which is reflected in results for different retailers and restaurants and services.
What we have is a sustainable level of growth supported by multiple areas of the economy. 
“It looks as though that's what we're going to get for the near term: GDP growth in the 2 percent-plus area for the remainder of the year,” Martin said. “And companies’ earnings growth will continue to accelerate from the first quarter of the year.”
Martin explained that technical underpinnings are solid, that sentiment is not so strong that we should feel contrarian about it, and that we’re in the strongest three-month period during an election year.
That’s in addition to strong underlying fundamentals at the operating level for companies.
So it’s a good time to be invested, according to Martin. And, if you have fresh capital to deploy, he shares three names that offer some opportunity at today's prices.

The stock market has been historically calm this year, with just one 2 percent move, the fewest since 2017 through this point in the year.
One is Uber Technologies $UBER, which “had a good run at the beginning of this year and then corrected significantly from there without a real change in the fundamentals.”
UBER is in the heart of the mobility business, it's got strong free cash flow, and it has many ways to grow revenue through user growth, increased penetration, and new products, and there’s opportunity for margin expansion as well.
Vertiv Holdings $VRT manufactures cooling systems for server racks and processors at the data centers being built to accommodate cloud computing and the artificial intelligence revolution.
Those markets are growing at a compound annual growth rate of approximately 40 percent, and VRT gets about 75 percent of its revenue from them.
Finally we have FreshPet $FRPT, which makes fresh pet food. It’s a niche market. Though pet household formation has flatlined lately, the company is growing as people discover its products.
“This trend to treat your pets very, very well continues to grow with pet owners,” Martin said. FRPT is adding users, and existing users are increasing their spend on its products.
There’s no AI component. But FRPT is showing strong revenue growth and margin expansion.

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