Can a coffee stock hedge inflation risk?
Investor Bob Iaccino thinks so.
He’s worried central bankers are so determined to cut interest rates as soon as possible that they’re risking losing the long term war against inflation.
As a result, he’s betting on the reflation theme through stocks tied to commodities — including coffee!
You can find his investment ideas in our picks section at the bottom of the newsletter.
Happy reading!
Let’s talk for a minute about Tesla…
One of the reasons I write this newsletter is because so many of you ask me questions.
Thank you so much for your inquiries!
I got one this week about Tesla, so I figured this was a good time for a deep dive on Wall Street’s view.
The answer is…it’s complicated.
The long and short (no pun intended) on Tesla is that the views are deeply divided.
In fact, it’s hard to think of any company with more polarized opinion groups.
We’re seeing that play out in the very loud debate over Elon Musk’s pay package.
And we see it in the way Wall Street analysts cover the company.
Unlike pretty much all of the big companies we talk about, the majority of analysts who cover Tesla are not recommending the stock.
Currently, 40% of the analysts who cover the company have buy ratings, according to Bloomberg data.
However, as we know, Wall Street has come up with an extremely flawed framework for advising clients on whether to buy or sell a stock.
It is rooted in a 12-month forecasting cycle.
In the short term, it seems clear that electric vehicle demand is uncertain.
Yet, in the long run, the entire industry is transitioning towards an EV future.
Meanwhile, Tesla’s ambitions in the area of autonomy and potential world filled with robotaxis is not a 12 month story.
So that’s why you can have a majority of analysts who are cautious on a stock, while simultaneously having bulls like Dan Ives and Adam Jonas and Tom Narayan who see great opportunity ahead for investors.
And it’s pretty much as simple as that.
For what it’s worth, Jonathan Corpina of Meridian Equity Partners likes the stock. You can find his other investment idea in the picks section at the bottom of the newsletter.
Meanwhile, about my post on X…
Before I move on from Tesla, I lot of people have been talking about this post on X.
I take a lot heat from people for highlighting past performance.
Ironically, I also take heat from people when I share estimates on future performance.
Here’s what I can tell you with certainty…
The future is unknown.
In addition, history may not repeat itself, but it can help to inform our thinking about the future.
As a society, we place great value on thinking about where we’ve been and where we’re going.
And I can tell you that I’ll continue to explore data surrounding both the past and the future.
The road to $3 trillion
One of the headlines investors have been digesting is Nvidia’s new market cap milestone. Nvida’s stock surge has been so remarkable that the company reached a $3 trillion market cap only a few months after reaching the $2 trillion milestone – and just over a year after reaching a $1 trillion market cap. This is not a normal re-rating for a business. And to give you a bit more context on the speed at which the AI chip darling has risen to the top of list of the world’s most valuable companies, let’s compare its ascent with other members of the $3 trillion market cap club — Apple and Microsoft.
Time it took to reach a $3 trillion valuation:
Microsoft: 48 years, 9 months
Apple: 45 years, 9 months
Nvidia: 31 years, 2 months
By the way, ETF analyst Athan Psarofagis of Bloomberg Intelligence notes the Nvidia frenzy has fueled exchange traded funds, such as the VanEck Semiconductor ETF or the GraniteShares 2x Long NVDA Daily ETF.
An analyst’s view on the best AI stocks to invest in…
Speaking of Nvidia, that AI question has been one of the most popular questions in 2024.
I checked in with our old friend, analyst Dan Ives of Wedbush Securities, to talk about it this past week.
And his main message was… not to overthink it.
Some of the big names with all the buzz, in his opinion, will continue to gain traction.
That would include Nvdia and AMD.
That would include Microsoft.
Dan also felt the market freak out over potential AI competition for Salesforce was way overblown, especially since the company itself is leaning into the AI opportunity.
Interestingly, I had a similar conversation this week with Coveo CEO Louis Tetu, who feels the market is misinterpreting his stock story.
Anyway, back to Ives, the other story he’ll be watching closely this week is Apple.
The company has its big developers gathering and he believes Apple will lay the foundation for an AI app store, where developers can build consumer apps on Apple’s AI stack.
He sees that as a great way to drive Apple’s services business.
Meanwhile, Ives expects iPhone 16 to include exclusive AI features.
And in his opinion, Wall Street is giving Apple very little credit for its opportunity to monetize around AI.
He currently has a $275 target price on Apple’s stock.
Perplexity’s IPO plans?
The rise of AI has taken the world by storm. We’ve seen that in the stock market, with the record run-up in stocks like Nvidia. And, in the private markets, where standout players are attracting investor attention too. Take Perplexity, which is standing out in a fast growing chatbot market and already giving the traditional search engine business dominated by the likes of Google a run for its money. In fact, Nvidia CEO Jensen Huang is a big fan. And Amazon founder Jeff Bezos is an investor.
I spoke with Perplexity’s co-founder and CEO, Aravind Srinivas this week.
He noted people want search engines to work for them, not for advertisers. He argues Perplexity is better at serving users because it provides answers to their questions directly without forcing people to skim through different sites to figure out what is accurate and relevant.
“People don’t have to waste their time browsing, instead, they just get an answer.”
Srinivas said advertising may well play a role in the company’s revenue model at some point, but the critical next step will be to do it in a way that doesn’t compromise the user experience.
And even though the startup is less than two years old, he’s already thinking about taking Perplexity public.
“Of course we want to go public,” he told me. “At some point, you have to get serious about building a business.”
He doesn’t anticipate Perplexity will be going public next year, but an IPO “is definitely on the cards five years from now.”
An energy bull on the OPEC confusion
You’ve probably noticed the volatility in the oil price recently.
At a time when concerns around weakening demand were already rising, the OPEC+ plan to gradually boost production increased bearishness in the sector.
Of course, that prompted OPEC representatives, including Saudi Arabia’s energy minister, to bark back and remind bears that the plan can always be reversed.
We spoke to longtime energy investor Eric Nuttal of Ninepoint Partners to get his take.
In explaining the daily swings in oil, he noted the influence of Wall Street algorithms.
“The financial market for oil is 30-50% bigger than the physical market, so you can get this breakdown when there are bearish headlines,” he noted in our interview.
“But what the market missed in the OPEC announcement is that while this is a roadmap, but it is not etched in shown. In fact, the cornerstone of OPEC policy has been to be proactive, pre-emptive, and precautionary. Anyone who follows OPEC should have known this is not a rigid plan and it is subject to market conditions.”
Ultimately, Nuttal views the OPEC update as a bullish indicator. He argues we are entering a period where draws from global inventories are set to meaningfully increase and that will create more bullish sentiment and push WTI pricing towards $90.
Of course, Nuttal is aware that energy investors are often up against a negative bias.
He says that’s because “few people in the world benefit from a rising oil price. It’s essentially, OPEC, oil companies and my clients. Everyone else gets hurt. So you’re always fighting negativity, which often is rooted in ignorance or bad data.”
“I think the vast majority of investors globally have completely missed the opportunity because they listened to the ESG nonsense.”
As for what Nuttal’s doing with his own money, he has been actively deploying his cash.
He has essentially gone from being roughly a third invested to nearly fully invested.
And the area he is investing most of that money is in Canadian oil producers.
His thesis is simple and it’s based on the feedback he has received from the management teams at these companies.
“These are firms that scale from 90,000 to 120,000 barrels a day and keep that consistent for years and give investors 75% of all that free cash flow.
Remember, total returns are based on two components — stock price appreciation and shareholder returns.
And since he sees Canadian producers trading at between 15-30% free cash flow yields that are committing to return cash to investors for years to come, he sees a scenario that would allow for 10-20% annual total returns for the foreseeable future.
“I can’t find any better opportunity in the world than Canada’s energy sector.”
Why China’s appetite for gold may continue…
It’s worth spending a minute on the current drivers behind the price of gold.
Earlier this year, there had been a lot of talk about how growing expectations for interest rate cuts by the U.S. Federal Reserve were fueling gold prices.
The idea there being that if the Fed cuts rates, that will lessen demand for the U.S. dollar and greenback weakness can help to increase the price of gold.
Of course, over the course of the year, the market has had a major re-think on whether the Fed will cut rates at all this year.
And yet, gold is having a fairly strong run.
So let’s cancel out that narrative and zero in on the real gold story — China.
And if you needed any evidence of that, it came this week when prices dropped on headlines
that China’s central bank didn’t buy any more gold last month.
China has been a huge buyer of bullion over the past 18 months and some speculated that the latest data suggests the massive buying spree has come to an end.
But some in the gold mining industry would dismiss that thinking.
Ahead of the China news this week, we spoke with Ross Beaty, Chairman of Equinox Gold, who laid out the story with more context.
“This is stemming from a desire by the Chinese to move off the U.S. dollar as a functional currency and move to other currencies that are global and have worked for 5,000 years like gold.”
Beaty says it began when Russia invaded Ukraine and the U.S. used the dollar as “more of less a tool of war.”
“Chinese got nervous out this and started buying gold. And I suspect it’s going to be for a long time, because it’s a cyclical move away from the dollar.”
In addition, Beaty noted you have to look at the China story in two parts — one is the central bank buying. The other is retail buying.
“If you travel to China, you see gold stores all over the country,” he said.
“So when you unleash that massive force — driven, not only by a large population, but a tremendous amount of access to money in China, I think you could see really long-term secular demand in China.”
ETFs that will benefit from Bank of Canada’s policy pivot?
The Bank of Canada made headlines this past week, becoming the first G7 player to cut rates, lowering borrowing costs for the first time in roughly 4 years.
We had a good conversation with Athan Psarofagis, who covers the ETF market for Bloomberg Intelligence.
He noted that the Bank of Canada’s action immediately started to build interest in exchange traded funds offering higher yields — the idea being that if rates are going lower, that will increase demand for higher yielding products.
One ETF he’s watching in particular is the Evolve Canadian Banks & Lifecos Enhanced Yield ETF, which trades under the symbol “BANK” on the TSX.
India’s incredible stock market returns over the past decade
The Indian election this past week was an opportunity to talk again about the tremendous growth India is experiencing. And while the results themselves may force Prime Minister Modi to make some compromises to govern effectively, there are plenty of global watchers who continue to see a brighter economic future for India, compared to other large economies around the world. How might that translate for investors? We shall see, but here’s a look back at some of the global stock market returns over the past 10 years:
India: +188%
USA: +172%
Japan: +158%
Brazil: +128%
Russia: +117%
Sweden: +86%
Germany: +85%
Bermuda: +76%
France: +75%
Chile: +68%
New Zealand: +67%
South Africa: +57%
China: +52%
Canada: +48%
Australia: +41%
Switzerland: +39%
South Korea: +32%
Mexico: +27%
UK: +20%
Saudi Arabia: +18%
Spain: +5%
Betting big on weight loss drugmakers
I had a good chat this week with our friend Brenda O’Connor Juanas of UBS.
She’s continuing to monitor the appetite for weight loss drug manufacturers.
Aside from AI stocks, we know names like Eli Lilly and Novo Nordisk have had a hot hand.
And in O’Connor Juanas’ opinion, there is still lots of upside ahead for a couple of reasons.
First, these companies are continuing to experiment with new, easier-to-use delivery formats, such as ingestible formats.
But she is also looking at the obesity reality in the United States, noting that roughly 70% of the more than 330 million people in the U.S. are deemed to be overweight.
More broadly, she likes healthcare stocks as a sector with defensive qualities that tend to outperform at this stage of a market rally.
She also still likes tech stocks and she likes small caps. But overall, she continues to see bonds as the most attractive trade because she believes yields will ultimately trend lower. In her view, the Fed is delayed in cutting rates, but not derailed.
Look out, below…
Shares of Five Below were hit hard this week, after the company reported weaker-than-expected results and cut its sales forecast for the year.
The notable scapegoat? Squishmallows!
The stuffed animals have been one of the toy industry’s biggest hits in recent years, but demand could be fading.
Five Below says it stocked more Squishmallows than shoppers wanted to buy.
This might also be a reality check on the health of the U.S. consumer, with Five Below’s CEO saying shoppers are spending more on food items.
“Consumers were more discerning with their dollars, increasingly buying to need,” Chief Executive Joel Anderson told investors.
Some value stocks based on earnings growth
We wanted to take a fresh look for value in a stock market that continues to reach record highs. The PEG ratio is a popular metric for assessing value among companies with earnings growth. More simply put, it measures a stock’s price compared to the company’s earnings growth. Generally, a reading below one highlights an opportunity. We screened the TSX, the S&P 500 and the NASDAQ 100 for names that met that criteria. We then refined the list to include slightly larger companies based on market cap — specifically $10 billion or more. And then we screened out any stocks that do not have a majority of buy ratings from the analysts who cover them. That gave us a list of 40 names…
Netflix
W.R. Berkley
Uber
AIG
Goldman Sachs
Halliburton
Schlumberger
DoorDash
Ross Stores
PDD
Merck
GM
Royal Caribbean
Fifth Third Bank
Barrick
Citigroup
FedEx
Rogers Communications
GE Vernova
Global Payments
Fidelity National Information Services
Ivanhoe Mines
First Solar
Super Micro
Aptiv
Weyerhauser
Keysight
Micron Technology
Global Foundries
Analog Devices
Microchip Technology
Nutrien
Teck Resources
Deere
Valero
Agnico Eagle Mines
Delta Air Lines
MetLife
Progressive
Baker Hughes
Standout stocks among dividend aristocrats
We wanted to talk about some companies that have displayed extreme discipline on the dividend front. There is a group of S&P 500 stocks known as the dividend aristocrats. These are defined as businesses that have raised their dividends for at least 25 consecutive years.
Now, this group is tracked through a popular index and the more than 50 components have become the holdings of some ETFs that track the index. But we wanted to go a step further to screen for some of wall street’s favorite names within this group. Now, first, we should point out that the large majority of these companies are expected to keep raising their dividends over the next 3 years, based on Bloomberg’s forecasting tools.
We screened out the ones that are not expected to remain aristocrats. After that, we screened for stocks in this group that are recommended by a majority of the analysts who cover them.
And finally, we wanted to limit our list to the majority buy rated dividend aristocrats that analysts believe could see their stocks rally by at least 10% in the next 12 months. Against that backdrop, here are the names that made our list:
Abbott Labs
Abbvie
Albermarle
Becton Dickinson
Chevron
Emerson Electric
Exxon Mobil
Federal Realty Investment Trust
Pentair
PPG Industrials
Roper Tech
S&P Global
Sherwin-Williams
Sysco
Target
Johnson & Johnson
West Pharmaceuticals
When did they make their first million?
Before we dive into this week’s stock picks, a reminder wealth milestones can come at any age. Here’s when some notable entrepreneurs reached millionaire status in their lives…
Mark Zuckerberg: 22
Michael Dell: 23
Evan Spiegel: 23
Larry Page: 25
Bill Gates: 26
Elon Musk: 27
Sara Blakely: 29
Warren Buffett: 30
Oprah Winfrey: 32
Mark Cuban: 32
Jeff Bezos: 33
Jack M a: 35
George Lucas: 34
Phil Knight: 42
Larry Ellison: 42
Armancio Ortega: 49
Colonel Sanders: 73
Picks Of The Week
Jonathan Corpina, Meridian Equity Partners: Amazon, Tesla
Ross Gerber, Gerber Kawasaki: Dell, Apple, MGM Resorts
Liz Miller, Summit Place Financial Advisors: Carlisle Holdings, Digital Realty
Bob Iaccino, Path Trading Partners: Dutch Bros, Newmont, Hecla Mining (all based on reflation thesis)
Skyler Weinand, chief investment officer, Regan Capital: 10-year treasury yield
One more thing…
If you like this newsletter, make sure you’re subscribed.
And do me this one favor this week…tell a friend to sign up too.
Thanks for reading!
Hi Jon. I really enjoy and learn from the content you create. While my TV is usually tuned to CNBC, I love seeing your creativity on social. 🇨🇦