Transcription
Hey, bow tie nation. Joseph Hog here with your weekly stock market update. 9:00 a.m. Eastern every Monday morning with the stocks to watch and the stock market news you need to see.
And nation, the biggest news last week wasn't the markets continued to set new record highs. It was the fasttracking of a Supreme Court decision for the President Trump's tariffs. A decision that could see a trillion dollar cash boost coming for some of the hardest hit stocks this year. I'll highlight how to invest around that news and reveal the nine stocks I'm watching along with the updates to the Trade Desk, Oracle, and Super Microcomputers and a major shift I'm following in the markets.
But first, as promised, announcing those two October meetups for the bow tie nation. First on October 3rd at the NASDAQ market site and then October 7th at the SIBO. I'll be speaking at the Blossom Investor Tour and we'll have our meetups right after that. I'll leave a link below for the tickets which are going to cover food, drinks, and some free swags. Make sure you use coupon code Hog15 to get a special community discount.
If you can't make it to New York or Chicago, don't worry. I'm planning at least five more meetups next year in Tampa, Austin, DC, and Palm Springs. In the meantime, make sure you use the invite link below to join me on the Blossom app and see what over 400,000 investors are talking about. All free with the invite link below.
Back to our main topic though, and the Supreme Court could soon hand a trillion dollar payday to some of the biggest value stocks since the April 1st tariff liberation day. Cold hard cash sitting in Uncle Sam's pocket, but handed back to the companies that paid it. I found nine stocks to watch for it.
Let's start with the basics, though. Even though the EA sounds like a bad memecoin, the International Emergency Economic Powers Act dates back to 1977. You see, it's actually Congress that has the power to impose tariffs on other countries, not the president. But the EA said that in emergencies of unusual and extraordinary threats to the US, the president can take over with extra powers. President Trump has used this to claim that the trade deficits, the fact that Americans buy more stuff than they sell to the rest of the world, so there's more money flowing out for goods, is a national emergency, and has imposed his reciprocal tariffs under that powers.
But here's the kicker. Two courts have already ruled this year that three decades of trade deficits isn't exactly unusual or extraordinary and have struck down Trump's use of those tariffs, giving the power back to Congress. The US has run trade deficits continuously since the8s because again, Americans love to buy all the shits. Just check your neighbor's garage or probably your own. In fact, one judge summed it up by saying, "Look, trade deficits is not a national emergency. It's just economics."
So, if those rulings stand, it would mean the government has to refund all the reciprocal tariffs it has collected back to those US companies that have paid them. So far, the US has collected over $162 billion in tariffs this year, more than double the previous record and hundred billion plus more than in most years. Treasury Secretary Bessent estimated that the number could reach as high as $1 trillion refunded to those companies.
Against this, the president has asked the Supreme Court to step in, giving the final say on the tariffs and the president's use of that EPA. The court has agreed to fasttrack the case and hear it in November, which means we're likely to get a ruling by the end of the year.
Now, there is always a chance the court rules in Trump's favor, and the government keeps that money. Trump appointed three of the nine justices, and twothirds of the justices do vote conservative on most issues, but the court seems to have done a decent job this year of remaining neutral on a lot of the rulings. And you may not agree with the rulings, but it doesn't seem like either political party has gotten a free pass and everything it wanted. And I think there is a good chance the court comes down against the president on this one. Overturning two lower court rulings wouldn't be unheard of, but would be the exception. And there is a strong argument that while a giant trade deficit isn't sustainable, it is not unusual and it is not extraordinary or an emergency. Allowing the president to use any reason he likes to claim emergency powers be a very slippery slope that I think the Supreme Court is going to try to avoid.
And that is where we get the potential for a big pop in the stock's hardest hit on these tariffs. A refund of those tariffs would go back to the importers of record. That's the companies that wrote the checks to customs when they imported those goods into the US. American companies like Walmart, Home Depot, Nike, and Lululemon.
Now, beyond that initial bump on the tariff rebate, these companies would see profitability surge because most have already started raising prices to cover those new costs. Walmart CFO John Rainey said in May that we're wired for lower prices, but the magnitude of these increases is more than any retailer can absorb. There are areas that we are passing tariff costs on to consumers. Best Buy CEO Cory Barry has said that the company has already started raising prices on products. Now, there it will be public job owning and lowering the costs if the tariffs are refunded, but some of those higher prices are going to remain, and it's going to be a boost to profits for these companies.
A Walmart, ticker WMT, is the biggest beneficiary as the largest importer of record in the US and one of the first to start passing those costs on through prices. It won't be the biggest return from a refund ruling, though, as the stock has clawed back most of its tariff selloff. Walmart has the purchasing power to lean on its suppliers to eat their own costs and can better manage its inventory to avoid those tariffs. So, it hasn't been hit quite as hard.
Now, apparel and footwear companies like Lululemon Athletica, ticker LLU, Nike, NK, and VF Corporation, VFC, are going to be some of the best potential returns. Apparel is one of the hardest hit categories with reciprocal tariffs on East Asia jumping more than 30% on average and years needed to move those manufacturing locations. Toys are also another category with most of its manufacturing in Asia, especially China where tariffs reached as high as 145% before coming down in a temporary truce. Now, Hasbro ticker HAS has managed to continue higher, but Mattel MAT is flat on the air and others like Jax Pacific, ticker J AK, and Funko FN KO are down hard on those tariffs. I'm also watching Home Depot, ticker HD, and Best Buy, BBY. Both major importers and both that have already talked about passing on prices to consumers. Home Depot has managed to rebound and is up 8% this year, but Best Buy is still down 11% on terror fears.
Looking at the stocks I'm watching this week, the Trade Desk TTD plunged 13% last week and is now down 61% on the year. Now, the big drop last week was on news that Amazon will allow brands to use its demandside platform, the DSP, to purchase ad space on Netflix starting in the fourth quarter. The service is going to start with 11 countries including the US and Europe. And since Trade Desk is the largest DSP, the news reignited fears of competition in the space, but we have heard this one before, folks. It was that impetus that sent shares down 34% in February after the fourth quarter earnings only to see the shares shoot back up 48% in May when those earnings continue to show growth for that first fourth quarter. The global ad space is still a giant $900 billion opportunity and Trades offers one of the best DSPs with a strong share of the growing market. Revenue is still forecast to grow at a 17% pace this year and next with $2.86 billion estimated just for this year. The sell-off has brought the stock down to a deep value at just eight and a half times on a price to sales basis. A 66% discount to the 25 times valuation investors were paying just in December. Now, I doubt that it's going to get back up to that valuation, but even a 13x valuation on this year of sales of 2.86 billion would be a $75 stock and a 68% return from here. Third quarter earnings are scheduled for the first week of November. We could get a repeat of the first quarter surprise showing no real competition effects and a bump in the shares.
Oracle Corporation ticker OCL jumped 25% last week when the company reported its backlog of cloud infrastructure business jumped to $455 billion with AI deals from OpenAI and Meta. That news was a boon to all the networking and data center stocks that we've been following this year, including Astera Labs, ALAB, Broadcom, ABGO, and Arista Networks, ticker A&E, up as much as 75% this year. This is all part of that $364 billion in AI data center spending just this year. And projects like Stargate budgeting $500 billion for AI infrastructure. That spending is not slowing down, folks. and these networking, the servers and the chip stocks going to continue to benefit.
And super microcomput ticker SMCI also benefited on that with shares up 11% on the week and the news that it had started shipping servers with Nvidia's new Blackwell chips. SMCI works closely with chipmakers Nvidia and AMD to fully integrate their chips into its servers, producing the best rack solution available in that AI data center theme. I'm back to a 27% return and $200,000 profit on my position, but continue to hold for at least $80 a share. Folks, the haters out there are still trying to push this lower with 21% of the shares shorted. And I see investors rush into the comments asking for an update every time the stock falls 2%. But here at Nation, you have got to understand the outlook on this and have that confidence in your research. SMCI is one of the biggest beneficiaries of that AI data center boom expected to grow sales 45% this year to $32 billion at a $26 billion market cap. That is a price of just83 times this year of sales. Even a valuation back to 1.4 times price to sales would be a $75 stock price and that would still be cheap.
And Apple Inc. took her AAPL has lagged almost all the other big tech companies going nowhere for more than a year but could be coming into a very attractive place to buy. The shares have lagged on a very stale refresh cycle to its iPhone lineup. And this month's worldwide developers conference, the WWDC, the big annual event unveiling new products, failed to help any. Shares are flat for the month and down 6 and a half% this year with the thinner iPhone Air model release underwhelming.
But nation, if you've been following Apple long enough, as long as I have, you know that this stock is all about that refresh cycle. Investors pile in when the big updates get ready to come out and the company sees that wave of sales growth as customers upgrade their products. But then as growth stalls over the next couple of years between those major updates, investor enthusiasm waines and the stock stagnates. That is what we've been seeing over the last year with sales growth of just 5 to 6% this year and next. But here we're likely coming up to another major upgrade cycle. Not just in the iPhone, but also driven by acquisitions paid for by the company's massive 65 billion in cash and hundred billion a year in cash generation. Now folks, this is not going to happen overnight, but there could be lots of catalysts over the next year. And with the stock trading at just 8.6 times on a price to sales basis, it is an attractive value territory compared to past valuations. And I think you can start adding shares gradually ahead of that refresh. and the upside it's going to bring.
Now showing you that bigger picture with the sector spider sector tracker. Nine of the 11 stock sectors closed higher last week with the typical growth sectors, technology, communication services, and consumer discretionary outperforming as as investors seek those higher return areas. It's also interesting though that stocks and utilities join the group higher with the investors bidding on that power generation stocks up on the AI theme. There's likely more room to run in that idea. But it does worry me that utility stocks are getting very expensive here and if we do see a market sell off the sector, it's not going to provide the kind of safety that investors usually think it will. Instead, I do continue to favor stocks in healthcare and energy for that eventual need for safety. I think the growth themes like AI, robotics, quantum, and cyber security can continue to dominate a while longer, but I'm gradually shifting my portfolio to a barbell approach. This is where you hold up about half of your portfolio in those high-risk, high return stocks like the AI names, but then the other half in the ultra safe investments.
Energy and healthcare companies aren't exactly ultra safe like those cash or bonds, but are in attractive value territories and are going to protect your portfolio in the sell-offs. Besides the broad ETFs with these sectors like the Energy Spider, the XLE, and the Healthcare ETF, ticker XLV, I'm also watching stocks like EOG Resources, ticker EOG, Chevron, CVX, United Health Group, UNH, and Novartis, NVS.
Updating our market outlook. It is the week everyone has been waiting for. The Fed interest rate meeting wraps up on Wednesday, and investors are giddy like a school girl waiting for her conciera. Retail sales on Tuesday are expected to slow slightly slower growth than last month, but the market is likely to completely overlook it in anticipation. Stocks have now priced in near certainty of a quarter point decrease in the Fed's benchmark rate. The CME Fed watch rate tool based on futures pricing. It shows 93% odds of a 25 basis point cut. Now, we saw odds of a jumbo cut of half a percent shoot to 11% after that jobs numbers were revised lower last week, but the market quickly came back to only expecting a 0.25% 25% cut.
More important is going to be what Chair Powell and the Fed says about inflation, the economy, and those future rate cuts. The market is now pricing in two more rate cuts this year and then two more by June of next year. Nation, that is 1 and a.5% lower interest rates, counting that quarter point cut this week. A big move lower in the borrowing costs for businesses and consumers and should be enough to keep investors happy for now. I don't expect the Fed to ruin the mood this week. And it'll be on each month's inflation reports to derail the market. That means the personal consumption expenditures, the PCE report at the end of the each month and then the CPI and the PPI inflation reports around the 12th of each month. Those are really going to be the days to watch for any market weakness.
Now against all this optimism though, we are seeing a major shift in the market and nobody is paying attention to it. Nation, if I were to ask you what the best stocks over the last month were, most investors would come back with the big tech names like Nvidia, Palunteer, Meta or Microsoft. But the four tech giants are actually down almost 5% on average over the last month. In fact, the magnificent seven tech stocks are up just half a percent last month. And that's only with the giant 18% jump in Alphabet, ticker gogg lifting the group. No, the market is shifting, broadening out into other groups. And you need to be paying attention to know where to invest. I've been pushing for investors to broaden out into stocks in healthcare, energy, and real estate for months now. Not just to protect your portfolio if we do see that correction in the tech stocks but also on the steep valuation discounts in these sectors. Those valuations are now starting to attract the market with names like United Health Group UNH up 34%. Eli Liy ticker LLY up 18% and Valero Energy VLOO up 17% over the last month. These three groups are still going to have room to grow. Man, I love this idea because not only can you see some solid returns as that bull market broadens out, but these three sectors, that's healthcare, energy, and real estate, they're also going to help protect your money if we do see a bare market.
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