Wall Street Unplugged
Episode: 975November 23, 2022

Two big opportunities for profits into 2023

Happy Thanksgiving! Daniel joins me to discuss the volatility in oil prices… rumors of upcoming sanctions on Russian energy… why many energy stocks are trading near 52-week highs while oil prices sit near 12-month lows… and how to play the sector. 

We also discuss how China’s lockdowns will impact oil demand… as well as companies like Starbucks, Nike, and the mighty Apple.

And I break down the recent quarterly earnings from Dick’s Sporting Goods (DKS)… why the company is crazy to raise guidance… and an easy way to make money from Dick’s (and other retailers’) shortsightedness.

Inside this episode:
  • What’s causing the volatility in oil? [2:08]
  • Why price caps on Russian oil are a bad idea [6:20]
  • An outperforming energy sector to watch [11:15]
  • How China’s lockdowns will impact various companies [16:25]
  • Why retailers should be worried [20:10]
  • How to make a killing in this market [34:40]
Transcript

Wall Street Unplugged | 975

Two big opportunities for profits into 2023

Editor’s note: This is an unedited transcript.

Speaker 1:

Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.

Frank:

What’s good out there? It’s November 23rd. I’m Frank Curzio, the Wall Street Unplugged podcast to break the headlines and tell you what’s really moving these markets. Happy Pre-Thanksgiving. Daniel Creech’s in the house. It is Wednesday. What’s going on man? How’s everything?

Daniel:

Frank, happy early Thanksgiving to you and everybody else listening. One of the subscribers emailed me, or listeners thank you, and said that Daniel Creech Day is a recognized holiday in his household. That’s amazing. We’re taking off. That’s the exciting thing there.

Frank:

Ah, that’s awesome. Listen, we’re not going to have a podcast tomorrow obviously with the holiday and we usually do Frankly Speaking on Friday for our subscribers on any one of our products. We’re not going to do that one either and give everyone a break so you don’t have to listen to my voice, which is probably a really good thing. But I wanted to talk about a broad range of things going into just December. Forget about next year because a lot’s going to happen in December. We got Black Friday, holiday sales, a lot of companies in retail sector, I read a report, we’ll break down some of those. But just going December, what’s going to happen? A lot of people expecting a rally, just it’s seasonal, a lot of money coming into the market that was recently sold off. But just so much uncertainty out there, and we wanted to cover a few things, a few topics here.

At the top of the list is oil, right? I mean oil, so many people bullish on it. We’re seeing a hit, oil close in on basically a 52 week low, pretty close to that, on news that there’s going to be price caps on Russia oil, just are they increasing output with OPEC? Are they not increasing output, they’re back and forth? What are your thoughts? I mean long term, I know we spoke about this where you’re bullish, but just I’m surprised to see that oil prices have really come down as far as they have, and yet we have seen over the past week or so, Daniel, that oil stocks have pulled back a little bit but still really outperform the underlying commodity.

Daniel:

Yeah, absolutely. If you want to pull up Finvis or anything, I mean ExxonMobil and those have pulled back, but they’re very close to 52 week highs. Quickly, to recap the saga in oil this week, Frank, there’s actually some fun stuff to point to this week. Long story short, we want to, I’m speaking for Frank here, he can interrupt me, but we are bullish on oil and energy because we want to bet against the policies worldwide for energy and the coming policies that are going to fix the Russian-Ukraine war.

Frank, earlier this week, oil dropped over 5% in a single trading day on rumors that OPEC was going to cut production. Saudi Arabia leading of OPEC, was going to cut production by around a half a million, 500,000 barrels a day right before, so this is December 4th is their next meeting, because on December 5th, supposedly these more sanctions from the United States and Europe go in on Russian oil. Oil drops 5% in a day only later on in the trading day to say, OPEC’s spokesman comes out and says, “Well, we’re really not talking about that.” What does oil do? It reverses higher. Then oil drops again because you have record cases, I believe record, breaking out coronavirus cases in China, you have more economic locks down there. We can talk about how it’s avoiding the mighty Apple. Frank, we don’t want to talk about it loud because they’re riding over there.

But oil is just this ping pong back and forth. In the short term, the price could go low. To your point, it’s over 12 months lows, but oil stocks and other stocks like shipping have not pulled back. They’re at 52 week highs in case. The entire point of this is going through December, I want to say December is a cap month because you have governments trying to cap the price of Russian oil. There’s rumors from CNBC to Reuters, to the Wall Street Journal. Frank, they’re going to try to cap the Russia per barrel of oil to be sold at somewhere between $60 and $70. Some countries think that’s way too high. Remember, the entire point of this, let me dumb this down to my level for everybody, they, meaning the United States and Europe, are trying to cap the price of Russian oil sold to the world.

A, that’s difficult because Russia says they’re not going to play, they’re not going to sell to anybody that puts a cap on their oil and energy. Two, you have to threaten everybody else to follow your lead because you don’t produce it and you don’t ship it. There are insurance sides. That’s what they’re trying to do. They’re trying to squeeze the insurance of the cargo itself because United States and Europe control that market, basically everybody under the rule of United States and Europe ensure those ships. My point is that in the short term, oil could drop to $75 a barrel or lower. And I hate to sound like I’m not changing my mind because as you say, when data changes, but nothing on the refining side, nothing on the fracking or, excuse me, the production side is making any meaningful difference over the next few months. I would take any weakness to look to add. We definitely will in CRA as I have more influence on that, Frank, than any other product here. But your name’s on the door so you got to watch out for me.

But overall, it’s great to see oil trade on rumors like this because it shows you, in my opinion, how tight of a market it is globally, and I think the risk is much higher upside than downside from current levels. Again, if you’re hiding out in oil stocks, you’re not getting hurt like the price of oil is. That’s a good thing for investors.

Frank:

Yeah, definitely a good thing for investors. It’s so amazing how just the G7 about to implement prices on Russia oil, and yeah, I just love how Russia’s such the enemy, even though we don’t have almost any exposure to Russia. Just every time there’s collusion with Trump, it’s Russia. Hunter Biden’s laptop, it’s Russia. They’re responsible for our inflation, it’s Russia. I mean, we blame every single thing on Russia. We never blame it on China ever. I mean, still can’t say that COVID was started there, even though they didn’t let the World Health Organization or anyone else go into Wuhan, and WHO still came out and said, “Oh they handled COVID great,” and stuff like that. It is just amazing how we’re not allowed to say anything bad about China, yet they’re so much worse than Russia in terms of what they’re doing.

It’s crazy, the videos that you’re seeing, we’ll talk about that in a minute, but just you look at Russia here, and this going to the bigger conversation, is what are the purpose of price caps? Price caps is to limit the revenue Russia can make from its oil exports while also averting a shortage of the fuel. That’s the point of it, which I think is hysterical. Basically, what the world is saying to Russia is, “Listen, we desperately need your oil, but we want to make sure that you’re going to get poor selling it.”

How is Russia going to respond to this? I mean, maybe they could say, “Okay, F it, we’re going to cut production by millions of barrels,” which would destroy the EU and oil prices could go up significantly. I think JP Morgan had $190 target of something like this, and this was a few months ago when they had this whole report. You’re looking at Russia and again, not too much exposure when it comes to US, but the second large export of cobalt, which is a very important element in making for rechargeable batteries, world’s second largest supplier of [inaudible 00:07:14] using large scale energy storage and steel making, supplies 10% of the world’s nickel, again, a big component for batteries and cars.

China’s one of the largest importers from Russia counting 15% of Russia’s total exports. The UK accounts for 7%, Germany 6%. So Russia’s a really big deal to a lot of places, not just us, a lot of places. Also the world’s large exporter of wheat, which impacts food prices. One of largest exporters of fertilizers when it comes to fertilizer is very important. It helps increase crop yields, produce…

Daniel:

Only if you want to eat.

Frank:

So people don’t talk about that, but responsible 40% of global exports are potash, Belarus. So just be careful if you’re going to mess up Russia here because Russia likes to respond. They told Ukraine at the beginning and said, “Look guys, just don’t talk about Crimea and don’t go near NATO and we’re fine.” And just again, you are looking at Ukraine did the exact opposite, and maybe that was going to come anyway and the war’s going to come anyway and I get it.

But it’s your poking the bear, poking the bear, poking the bear here. Russia has a lot of power and I think we have to realize that. But look at EU, China, India, they have tons, tons, tons of exposure to Russia, and you’re looking at the power that they have. They could significantly hurt the world economy. And yes, it might be cutting off your nose to spite your face and I get it, right? But if you look at Russia’s perspective, if they’re going to go down, they’re going to take as many countries as possible. I’m not talking about nuclear threat or anything, but just they have the power to really destroy or make it really tough for so many of developed and emerging markets. In other words, they have incredible leverage. And speaking from a stock perspective. I don’t agree with what Russia is doing. War’s terrible. Ukraine, what’s going on is horrible.

They do have incredible leverage. Not sure how they tend on using it, but it makes me think this war with Ukraine is nowhere close to ending because we are trying everything we can to hurt them, and we’re not able to hurt them. All the other countries, it’s not really hurting them. I mean, their currency is doing well. They have a good balance sheet still. They wouldn’t be able to hold up. They’d have to stop the war, but they’re not. But when I look at Russia and see what’s going on in terms of oil, are price cap’s really going to work? Is that the way to do it? I mean you’re basically saying, “Hey we really, really need you. We need you really, really badly, but we’re going to make sure you’re not going to generate as much profits on it.” Well, I don’t know. I think Russia is smart enough to find a way around that.

Either way I think that should be a positive for oil going forward. I’m not telling you to buy all these oil stocks at highs, but there’s different places within oil industry. So many submarkets, I mean natural guests taking off today, it’s up 10%. You could throw coal in there. You could throw just fracking companies in there, US frackers. You could throw oil services companies that have global exposure, LNG companies. There’s just so many different subsets of this that could do well. And I know that you would talk about one which I was surprised is at a 52 week highs, which is pretty amazing. I’ll turn over to you, but these are some pretty cool stocks, not saying you should buy them all time highs. I was surprised to see the chart and how much they’re going up.

Daniel:

And one last thing outside of everything else, Reuters is talking about Germany’s planning a 33% windfall tax on gas, coal, and oil firms. Think of the disruption you have in energy markets with the prices getting out of hand. People are hurting. The only problem solving idea they can come up with is price caps. And to your point, we haven’t even talked about, and there’s articles in the Wall Street Journal that are well written and there’s articles all over. What they don’t talk about in the price cap conversation, Frank, is who pays for it? So let’s say the price is XYZ. Yeah, well that doesn’t mean that’s actually what it’s cost. That’s what you’re willing to pay for it. Well who makes up the difference? If you just printed out a thin air, is that going to help inflation during a high inflationary time, adding money? And if I have one bone to pick with all the editors out there, nobody is talking about that.

Anyway, I could go on a Thanksgiving rant about that. To your point, 52 week highs, you’re going to have to be more specific. Hell, there’s so many of them we’re talking about shipping. I know I’m having fun. Do you have FinVis up? Because we can look at a couple of shipping. ASC is Ardmore Shipping. That’s at a 52 week high, if you pull up a weekly chart, or excuse me, a yearly chart. These guys, NAT, an old familiar of Curzio Ventures, Nordic American Tankers, NAT, is doing well. It’s not quite…

Frank:

ASC, though. Wow, $15. That’s amazing. I mean if you look at these charts, it just keeps going higher and higher and higher. The day rates are going higher. And this is on a YouTube page if you want to watch. If not, I’m going to explain it to you. If you listen to iTunes or anything or on a site [inaudible 00:11:50] research. But yeah, and what was the other one? That’s ASC and…

Daniel:

ASC, NAT is Nordic American Tankers. They report earnings I believe on the 30th. So next week watch out for that. It may be volatile. That is an interesting story because their ships carry a million barrels of crude, Frank. That CEO is one of the most fun CEOs to follow in business. If you’re an analyst, you probably hate him because he calls you out all the time. He rants and raves about his stock. It’s quite comical, but they’re big. I think in September he bought another 100,000 shares. Him and his family own a large chunk of that stock. It’s going to be volatile because they’re going to manage their debt. Cash goes right to the bottom line when average daily rates for their shipping vessels increases. Frank?

Frank:

I have Finviz up. This is a great free site but as you can see, if it’s up, they’ll throw like 50 advertising here and everything all over the place. But it’s a free site. I like to bring up free sites for you guys. But you can see so many ads pop up with these sites because they’re free. But it does show you the upgrades, downgrades. You could screen for a lot of these things. I’ll show you the insider of buys and sells. I mean all latest news on it. They give you the income statement. I mean this is a really, really cool site, Finviz, for you guys looking just. You’ll have to deal with the ads cause it’s absolutely free. But that’s okay. Again, I try to provide free sites for you guys to look at. But yeah, so NAT, again…

Daniel:

NAT, big insider ownership, and those, like I said, these are volatile stocks because they trade a lot of them. If you just look at, and you’ve talked about this in the past to educate investors, if you look at the dividend rate, it could be absorbed. Oh man, this is paying 12, 15, 18% higher. However, those are volatile. A lot like oil and gas companies, they’re variable and things like that. So don’t just buy this thinking…

Frank:

[inaudible 00:13:32] yeah.

Daniel:

Exactly.

Frank:

To be in a certain percentage of payout and stuff like that. So they’re not fixed payouts.

Daniel:

And Nordic American Tankers, to give you an idea of the volatility, this is from August 30th when they reported quarterly earnings, their average day rates went to $20,080 per day.

Frank:

Why are they going up? Why these stocks have hit 52 week high?

Daniel:

Because they have to. So a lot of it is around the Russia and upcoming sanctions because production… We’ve talked about refining capacity is still below pre-covid levels. That’s a dangerous situation because it doesn’t matter what you’re pulling out of the ground, it matters how fast can you refine that and get into the products for use, diesel, et cetera, et cetera.

The other situation is you have oil demand already back to pre-covid levels globally. And the big kicker here, Frank, is when you’re a business and you’re shipping stuff around the world, that takes time. Not to be a smart Alec, but it takes time. When you have to plan for maybe not being able to take this crude from point A to point B and you have to increase either your travel time or you have to increase the volume before the sanctions take place, you’re going to reap the benefits.

So these stocks I’m going to watch closely because A, just mentally, it’s hard to buy stuff when it’s breaking out a 52 week high. It looks like you’re trying to just chase a rocket ship. On the other side of that is when Nordic American Tankers reports earnings, they’re going to give an update on, “Hey, what has prices done since then? What do they think after the Russia-Ukrainian sanctions and all that?” A lot of it’s still a gray area, but to give you an example of how much they’ve gone up a little bit, Nordic American Tankers said that their average per day per ship rate was $20,080 during the last quarter. That was up from 8,870 the prior quarter. So they more than doubled.

Now, we’ll see what they report next week. But Frontline, FRO, if you’re still on FinVis, that’s another tanker logistics play. These guys are just going to reap the benefits. The nice thing about these businesses, Frank, is your cost are fixed. So Nordic American Tankers can tell you, “Hey, it costs 15,000.” I’m picking a number here. Frontline, I believe it costs 20,700, let’s round up to 21,000, basically across the board for their fleet. Well if day rates are at 30, 50, 80, your costs don’t change. That’s why those dividends and things can be lumpy. But the point is is that we’re trying to show you, hey, just because the price of oil is going down don’t fall for the idea that oil or energy bull market is over. There’s a lot of pockets from producing, refining and logistics and transporting it.

We haven’t even gotten to railroad strikes, Frank. We haven’t even talked about… There’s all kinds of other chaos we could point to to this fire. So just don’t get caught up in the price of oil per barrel going down in the short term, I guess.

Frank:

Yeah. I mean, really great stuff, really great stuff. The one thing is, will we be in a global recession next year? And another thing too is demand from China and we need to talk about that, right, Daniel? Because China is a disaster right now. So you want to see the building. I mean, look, China was supposed to ease Covid restrictions. They were supposed to ease Covid restrictions. That was the thesis of the past two to three months. That was when stocks were making new lows. So we hit highs I think in August and then after that, market now September. And a lot of the thesis going forward was like, “Look, the fed’s got to pause and they’re going to pivot and they’re going to stop that.” That’s not happening. We know that.

And then it was China, right? That’s where the growth’s coming from. And China’s going to ease their Covid restrictions. Well, cases just hit record highs. China’s now seeing record levels of lockdowns, record levels of lockdowns. That’s Financial Times reporting. It’s a massive story. We have great contacts there and one in particular who’s awesome, who really keeps us up to date on all videos, all links that are very difficult to find. You’re not going to find probably on your Google searches and traditional stuff. I don’t know why we suppress everything China. We have to make sure China is this great place that’s amazing, that’s awesome, that it’s happy. And again, we know that a lot of this stuff is paid. Our politicians and we know how big of a partner China is and we’re always careful to tiptoe around, right?

Russia, we have no exposure. We could say everything we blame on Russia. That was the point I was getting to before. But China for some reason we’re not allowed to ever, ever, ever say anything bad about it. Yet if you’re looking there and even now they’re starting to show videos of the Foxcon factories and stuff. I mean there’s a lot of rebelling going on. A lot of people who are pissed off. How are covid restrictions worse now? We know Covid. We know who it impacts. We know who needs to be protected.

I mean, my father-in-law got covid and he was okay as a vaccine and booster shots, that’s fine. He should have it, right? But younger generation kids should not be getting this. Again, this clear evidence everywhere of this of who gets it. You shouldn’t be totally deathly afraid of this because for most people, most of the population, if you don’t have underlying conditions and you are under, say, I’ll even say 50, you could be under 60, 55, most people are okay, but massive lockdowns, which we proved on every single level, it was the worst thing that we’ve ever done. It should have never happened in every country.

And now China’s still going to this. So remember this, Dan, because the Fed is doing everything it can to destroy growth. They’re raising rates by the fast paced in the modern Fed era. We’re seeing data showing how wow, the economy’s doing great and people are cheering it. That means if Fed’s going to continue raising rates probably a lot further than they should. So careful what you cheer for. Yeah, it’s not what the fed’s looking for. The fed’s looking for [inaudible 00:18:57]. That’s why every single fed government’s like, “We’re not even close. I don’t even think we’re pausing anytime soon.” Every one of them has said that. They’re like, “Oh, okay, maybe.” But every one of them’s like, not even on a table pausing. Yet we’re assuming that we’re going to pause early next year. I don’t see that happening.

They’re shrinking this balance sheet through QT, quantitative tightening, which we’re not even talking about, which is massive. There’s a clear correlation between liquidity going in and out of the market S&P 500s, a 70% correlation, which Morgan Stanley came out with a study. Liquidity is drawing up tremendously, and it’s going to continue to be that way because they have to shrink their balance sheet by trillions over the next couple years. That’s what they’re doing. That’s what they’re going to do.

We’re not talking about that. Everyone looks at rates, but you’re constantly taking liquidity out of the market. That’s why you’re seeing debt levels skyrocket and saving levels come down. China was supposed to be that one growth catalyst, Daniel, heading into next year where there was supposed to ease those Covid restrictions. This catalyst was on a list of 10 different sell side firms or these analysts highlighting what they have here is the bullish case or the bearish case.

This was all in the bullish case. This was one of the biggest things, number two in the bullish case other than the Fed. So you have the Fed, which is doing everything you can to stop growth, but we have China coming back online, which is clearly not the case. So my question is, where the hell is the growth going to come from next year? Where are you going to see it? I mean could this impact oil? Absolutely. Could it impact? I mean China is a growth engine of the world, guys, and they’re locking down, record lock downs. Where’s it coming from?

So you’re looking at companies, not only is a dollar hurting, the dollar’s easing a little bit because a lot of these companies do business overseas. But if you’re looking at the growth model for, what was the growth model for Starbucks, which reported decent quarter. Watch out. I mean, a growth model is China, Nike, Nvidia. 45% of their revenue. When? Las Vegas Sans, Hilton has a lot of exposure to China. Start looking at companies that have exposure to China that reported decent quarters because those companies are going to get nailed. This isn’t a temporary thing. This is going to go on for at least a couple of quarters.

Apple, I mean you’re seeing clear slower demand before everything happened with China, their plants are getting impacted significantly. They do have pricing power, I guess. How much pricing power are they going to have into next year where the 14 is kind of exactly like the 13 a little bit upgrades. It’s not a necessity. You don’t need the 14 if you had 13 or even the 12. But you have to look at so many of these companies that are getting their revenue, generating their revenue from China because it’s shut off right now and I feel like nobody’s talking about this like they should because this is number two in terms of growth callus heading into next year.

And now we’re seeing the markets rise into the end of the year and yes, we’ll see it a little bit more and stuff like that, but it’s pretty crazy to me where stocks go higher based on earnings, earnings are going to come down tremendously. We’ve seen earnings being revised significantly lower into every single quarter, which to the point where Best Buy, granted it’s down 50%, reported that they’re only going to see same store sales declines next year of 10% and the stock went up 10%. That’s amazing to me. We’re saying that, holy shit, sales not only slow 10% this year, same store sales are going to slow 10% next year and that stock went up, right? That’s because they’re like, “Oh, we thought it was going to slow by 13%.” I mean that’s the market that we’re in that we have to be very, very careful because the more good news we get and we’re seeing slowdowns here in mortgages and the job picture’s getting a little better, which means that we’re seeing more people file more claims.

Be careful what you wish for because as these numbers and as the economy’s moving along and it seems like it’s strong. It means that companies still have pricing power, which you saw last earnings. And that means the fed’s not going to stop. They’re not going to stop raising. So it’s going to be a difficult market next year. You could find some situations but get it out of your head. You used to be a growth investor for 12 years. Get that out of your head. Don’t go bomb and fishing on these growth stocks, especially technology stocks. They have too many headwinds, too many headwind. The dollar demand, it’s much harder for them to cut costs because their margins are already high, special software companies. Be very, very, very careful. Companies that have a lot of debt, be very, very careful that cost of debt’s got to be very expensive and value going to take a front seat here.

And there’s a lot of great value companies that are boring, nobody wants to know about. We just recommended one today in our newsletter, which come out today for Courtesy Adventure Opportunities, a name that you never heard of, value, boring, but just down tremendously. Insiders are buying, which you’re not seeing. Insiders are selling crazy right now by the way. You’re not seeing tons of insider buys. You’re not seeing tons of insider buys, which you’re going to see a couple buybacks and the buyback window open. But when I’m looking into next year and I see China, holy shit, man, I mean things are really, really, really bad if you just do a little research and I feel like nobody’s really talking about that as much as they should be, especially in the media.

Daniel:

The China story will be wild. It’s sad to see what goes on. You got to take everything with a lot of salt because you don’t know. We were seeing across at CNBC earlier, Frank, that the AP was reporting, I don’t think NBC has verified it yet, but the videos and stuff surfacing on the riots and clashes, for lack of a better word, at the Apple plants over in China. Just to separate the conversations here, I agree with you on looking at companies that rely on China for the growth engine of the world. Speaking specifically on oil, I don’t think you need the growth. I do think it’s a headwind for the price of oil. The price of oil, don’t get me wrong. And I do think that at some point they have to open up. I don’t think it’s logical to think that… Don’t get me wrong, they’ve locked down a lot more and a lot longer than I would’ve anticipated. They have a controlled economy.

President G just got his what lifetime whatever. He’s in charge. At some point you would think he’s going to make himself look good because that’s what everybody does in that realm. That can take a lot more time. My point is that for oil, I don’t think you need China to be the growth engine. A global recession would hurt demand. But I just don’t think that happens overnight I guess is my point. So yes, it’s a headwind for the price of oil, but as we’ve talked about in different sectors, that doesn’t mean the whole play is over. And I know you’re not saying that specifically. I wanted to separate that.

Frank:

I mean look, it’s factoring I. I mean in China and the lockdowns and stuff like that, maybe it’s not a coincidence. That’s just driving oil lower. It might not be just because of what the news is reporting in terms of these price caps and OPEC. Yes, it has an influence and we’ve seen that even in daily movements because OPEC said they’re not cutting back and forth.

Daniel:

But to your point, I mean a lockdown hampers demand. So I’m saying there’s nothing there yet. I’m just saying you don’t need China to be the growth engine in the world like it’s been for the last 10 years to be bullish on energy.

Frank:

On energy.

Daniel:

Yes, that’s my [inaudible 00:25:39]. But hey, Starbucks and everybody else, oh, absolutely.

Frank:

I mean those are a lot of companies. You have to be careful because listen, they have their core businesses, but their growth model, which is 20, 30%. That’s what the stock gets to high multiple from is what are they going to do growth perspective? Okay, well China’s huge for Starbucks. We’re going to open up a ton of places. Well, a lot of these places are being closed right now and yet, okay, you report a good quarter and let’s get to that. Let’s retailers because I’m going to go over some of the retailers here that reported.

Again, this is going December. I just want to have fun a little bit here because it is the day before Thanksgiving and hopefully you’re not listening to this and you’re enjoying and having fun at your family’s house or something. If you are listening, if you are, retailers, good retailers have reported, good in terms of the stock price and where they went. Dick’s, Best Buy, Walmart, Ross, Burlington. If you look at Ross and Burlington, even TJ Maxx are pretty good, all have pricing power. They’re getting the inventory from other stores and reselling them, which is in a great market right now.

Abercrombie, Footlocker killed it. GAP, Bath and Body Works, Macy’s, bad was Target. Nordstrom, Dollar Tree, Kohl’s, William’s Sonoma, these are company that report over the past few days. I could tell you that when I’m looking at the retailers, guys, you have to take a very close look at them. Some of them, when they’re going up 20, 25% in a day, that means probably it’s a lot of short covering and people on the wrong side, unless the numbers are really, really, really good. But when it comes to these retailers, you have to look which ones are US-based, who gets their money from the U.S., which a better position.

So those with ties to China are probably going to get nailed. I want to see how these companies are beating and dig through them. I started digging through a few of them. I dug through Target, I dug through Walmart. Walmart obviously has pricing power. Target doesn’t. I want to look a little more at Macy’s. I looked at Best Buy, which I covered yesterday, Daniel. And Best Buy was just, again they’re seeing earnings slow. They train at 12 and a half times for earnings, which is their historical PE than what they normally trade at, yet you’re seeing earnings, you’re seeing sales come down. They came off monster year last year, $10. I think the highest they ever generated was like $7 and something. But to generate $10 a share… Now it’s going to go back to seven, six next two years below seven next two years.

To me, they’re great. I love that company. I’m a big fan. I’m actually a member there and have whatever membership there is because I buy so much stuff at the place. But I’d be worried in terms of the stock price because I hate when stocks do better. It’s less worse when the stock is down. But still they have to figure out, “Okay, how do they right the ship? How do they get earnings back up? How do they get…” I don’t know how they’re going to do that when we’re heading into the recession. It’s going to be cost cutting and that’s what we want to look at it as well.

And really quick, is look at the numbers and are you seeing revenue not growing, which I’m seeing a lot, but earnings are growing. That means they’re doing a great job cutting costs, right? It’s not really necessarily higher traffic or is it? Find that out. Which ones have inventory under control as demand slows to a crawl if the holiday season, which is important and pay attention to who’s going to offer the biggest discounts on Black Friday. Outside of Walmart and Target and Amazon who always has most of the office, but specifically who have your email that is pounding you with emails. Those are usually the ones that have lots of inventory. Those are the ones that usually don’t have pricing power. They got to get rid of a lot of stuff. Pay attention because that’s going to lead to next quarter where you’re going to see these same retailers and a lot of them that went up 15, 20%, you could see them decline 15, 20, 30% if they don’t have a good holiday season, and not everyone is going to have a good holiday season.

People are not spending as much. They’re looking for more at discount. There’s going to be huge competition on the same products. I think you’re going to get fantastic bargains. It’s great if you’re a buyer’s market, but for these companies, sales market, I’d be careful but pay attention to how these companies are beating. Look deep into their numbers, see what categories are performing well. Is there specific retailer to focus on just that one category? Maybe it’s groceries. We saw groceries do great in Target, in Costco, in Walmart. So whose folks more? Who has more exposure? Just an example. But that’s how I’m looking at this because some of these retailers are reporting.

I’m a little bit surprised that the numbers are better than expected. But let’s see going into next month and the month after because we could see a lot of warnings. I have a feeling.

Daniel:

To your point, it’s all about beating expectations. When expectations are coming low, just Best Buy and everybody else under the corner, it lowers the bar and you’re going to have some relief rallies and short covering and all that kind of thing. This is playing out just like we’ve been talking about it. Not to say we were right and point to that. We have been saying though, this is going to be a stock picker’s market. The economy as the headwinds of inflation flow through the economy, just like things flow down a river, it shouldn’t surprise. Yes, Dollar Tree was off a little bit, but overall the stock has been very good. It shouldn’t surprise you that Walmart’s the discount retailers, the TJ Maxx, the Burlington stores, Ross are doing well versus your high scale Nordstroms. You’re going to see that discrepancy with consumer spending and all that kind of stuff.

Doesn’t mean it’s the end of the world. Like you said, I focus on the US and stuff. I think Dick’s stands out to me because it’s a very nice retail store. It’s in the sporting category and the stock is only, I think $20 off its all time highs or recent highs. Now, not saying you haven’t seen a lot of volatility, I just think that that stock is holding up very well. That’s because what we’ve been saying, you have a great management team there. You have cost initiatives and they raise… You got to love management teams, Frankie. Come out and say, “Hey, this things look terrible, I’ll be honest with you.” And then you can come out next quarter and say, “Well, they’re not that bad.”

Dick’s kind of did that two quarters ago, came out and said, “Hey, this is our updates.” What do they do? UPS between their prior forecast was 10 to $12. Now they’re coming in at 11.70 to 13.10. Still down overall but better than most recent. So kind of that shell game. But the better management teams and things are rising at the top just like Dick’s and everybody else is showing.

Frank:

It is interesting. I’m trying to pull up a couple things on Dick’s Sporting Goods because I’m very familiar with that brand and their prices are very, very high. They sell all the new stuff from Under Armor, Nike, all the big brands, even Golf Section and stuff like that. It is interesting to see how they’re going to keep that pricing power because I know even on the retail end, you can go to TJ Maxx Raw Stars and get a lot of really cool Nike stuff and everything. I mean the quality of those clothes, even at Burlington, if you notice, they’re another company that nobody talks about. I’ve gone to Burlington by accident and next day I know I bought a bunch of shirts, a bunch of pants. I barely spent any money and this was for good brands. But the quality used to be like, “Ah, this is okay, here’s the ugly shirt that you’re trying to sell that’s green that they’re going to sell for nine bucks or something that’s on a rack.”

And they had some really, really cool clothing that I wear and it was a lot cheaper. So I don’t know how long Dick’s could… I want to look at that quarter a little bit more. Good for them, more power to them of how they’ve been able to get a big winner during Covid. More people started doing more outdoor activity and stuff and these guys did great, but comps were great. They were supposed to come in I think negative and they came in positive 6%, if that’s correct. I mean. That’s what I’m reading here from a report. Guidance raised, which I think companies that are raising guidance into next quarter I think are easy to buy puts on. I think it’s a layup because we see how quickly when it comes to the chip sector, the autos, the housing industry, and even Walmart and Target retailers like nine months ago when they reported, six and a half months ago, whatever it was, when they saw the quickest one day, the largest one day decline because state, they didn’t even get a chance to warrant.

That’s how quick things happen. And demand falls off a cliff when you’re raising rates by the amount that the Fed has done and they’re going to continue that, right? So a company like Dick’s trading near its highs, selling a lot of stuff that again, that are also sold through the actual companies because they get a lot of the new stuff there, the new sneakers like Foot Locker, it’s outlets or anything like that. I’d be surprised they can keep up that pricing power.

I’m also surprised that companies raising guidance right now is very… You don’t need to raise guidance. You really don’t. You’re going to get a nice top in your stock. There’s so much uncertainty going out into next year that I think it’s crazy to raise. You don’t have to. You really don’t have to. Maybe you get a little bump with your stock like, “Holy shit, things are good,” but I’m telling you man, now you have expectations sky high for an apparel retailer that’s selling clothes well above market. Again, I shop there and they have good clothes there, but it is really, really expensive. You’re paying $40 for a golf shirt for Under Armor where you could pay probably about $17 in an outlet for Under Armor, right?

Daniel:

I’ll take the over on 40. I don’t know any golf shirts for $40. That seems low at Dick’s.

Frank:

It might be. It might be even higher, but I know that those same shirts go under $20 at the outlets. Yeah, and they’re good. They’re good shirts. So yeah, that’s just one example. Again, I need to look more at that quarter, but I was just surprised to see that they beat by that much. Very impressive same store sales. I think it’s a layup, especially with retailers right now of buying long data puts out nine months and just betting that these stocks will fall by more than 20% over the next six months to nine months because the quarters coming up are going to be incredibly difficult, especially the companies that raise the bar like Dick’s. And I think if they’re that close to its all time high, I’d be very, very careful of these companies going into next year and we’ll see. Maybe they outperform, I don’t know, maybe the Fed stops raising rates.

I changed my mind if the Fed said, “Hey, we’re not raising rates anymore. We might lower rates.” All of a sudden, of course you got to change your mind. With the mandate of what the Fed is doing into next year, guys, doing everything it can to destroy demand, they’re not slowing, right? They’re going to slow the pace a little bit, but they’re not going to stop probably through March. And even if they do, well, under this impression, once they stop, things are great. The terminal rate’s going to be well above 5%, guys. It’s going to be 5% for all of next year because inflation’s not coming down below three and a half, maybe comes to 4% by the end of the year and the Fed cannot lower rates with inflation over 4%.

So unless we see that, which we’re not going to see, nobody’s forecasting next year, they’re not lowering rates the entire year next year yet. We’re going to have a full year of probably averaging four and a half percent plus rates. Something that we haven’t seen in a very, very, very, very, very long time. And usually earnings contract tremendously, yet consensus estimates are showing that we are going to see earnings increase by 5% next year, which is freaking insane. I believe it’s going to be a 20% cut. A lot of companies out there you can make money on again that have gotten hit already, but also learn how to buy puts.

I said it’s like shooting fish in a bow right now. We get tons of emails, I’m telling you, I don’t care how you do. If you want to buy a money flow, trade of product, we lowered it to 4.99 for three months so you could try it out and learn this stuff and follow Genia. I mean the emails that we’re getting, or even if you don’t, doesn’t matter. Learn how to do this. Protect your portfolio allows you to stay long so you’re not missing a 5% one day move sometimes that you see in NASDAQ or whatever on a positive economic report. But also you’re seeing earnings come down tremendously, and it’s going to allow you to play that into the next couple of earning seasons, which I think these companies, I mean some of them, it’s crazy how optimistic these analysts are when it comes to earnings right now. They need to come down a ton, a ton.

Hopefully I’m wrong on that. Actually, hopefully I’m not wrong on that because I’m not betting against that. I keep saying hopefully I’m wrong on that. You know what? We’ve been right so far with a lot of this. I thought that the crash would come a little bit quicker and I said in my report when we had this in October, mid-October that hey, if it doesn’t come over the next couple weeks, it’s probably going to come early next year because earnings have to come down significantly. That’s the driver of stocks. I’m not too sure where the growth engine’s coming from. It’s not China, it’s not the Fed. Good luck, and companies are going to be in cost cutting mode. You’re going to see unemployment go higher. It’s not going to be a pretty market, but there is ways to make money and buying puts is the easiest way right now, long data puts and also focusing on value.

Train your mind to focus on value. I know you love stories. I told this story in careers of venture opportunities yesterday, which is going out subscribers. My dad has done this for 30 years, Daniel, had three stocks, I mean recommended a ton of stocks and it was three and that people always went crazy. I think it was Canada Sun Petroleum, which got taken over. Magellan Petroleum was another one. And then TPL, which my mom still owns, I think it’s like $2,500 or $2,700 a share. They owned it in the single digits. My mom still owns that.

But they were captured by the stories. The stocks you’re going to buy over the next three years and make money are not going to have good stories. They’re going to be boring as shit. They’re going to be paying dividends. They’re going to have good balance sheets. Insides are going to be buying. They’re the ones that are going to be taking market share. You got to get out of like the ESG thing, the EV thing, the cloud computing, data analytics, AI. Get out of that mode right now because growth, you’re not going to see growth next year. It’s going to slow dramatically. And a lot of these names with high, high multiples that have already come down are probably going to come down a lot more. So just be careful, learn how to transition and I think you’ll do well, especially in December, especially into next year.

Daniel:

Yeah, enjoy while it lasts into the quarter. New calendar’s always a reason to… Just last year with the bull market and January starting this year. So we’ll be prepared for that. But enjoy it while it lasts, and have a happy Thanksgiving, Frank. Don’t burn your Turkey.

Frank:

Yeah, you too, buddy. Have a happy Thanksgiving. And guys, thanks for all the support. I mean, I’m always here for you. Question, comment, email is frank@curzioresearch.com. For me, I mean, my goal’s always been to challenge everything, to challenge status quo, challenge what you hear on TV. We’ve done that with Disney. We’ve done that with a lot of different stocks. When people tell you the wrong story, I feel like we’re here to say, “Hey, this is what’s really going on.” So be careful, right? And have your best interests because having your best interest means that you’re going to be subscriber long. You’ll subscribe to our products and that’s why we’ve been around for, I’ve been around for over 30 years. But it doesn’t mean you have to agree with everything we say. That’s why I like to hear feedback, frank@curzioresearch.com. Even if you’re in different industries, please, that’s where we get the best research from. That’s research I can’t do.

If you’re in a specific industry and you’ve been there for 10, 20 years or if you own your own shops, even if you’re a college student seeing different trends, that’s what I want to hear from. Links and different things, I love that. I mean, it gives us a huge edge in real time over everyone else. And that’s why this podcast’s so popular and powerful not because of you or not because of me, I should say, but because of you, because of all the emails we get and it is a great network. I just want to say thank you. It’s one of the things I want to say I’m thankful for. Happy Thanksgiving. Eat a lot of food, drink a lot of alcohol, have fun with your families, watch some football. Please don’t talk politics since you’re never, ever, ever, ever going to change anyone’s mind when it comes to politics.

So let’s just stop debating it. We should be fine, especially don’t do that on Thanksgiving. Just enjoy a day with your families, and I’ll see you guys next week. Take care.

Speaker 1:

Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guest. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.

Frank Curzio
Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 12 million times.
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