Signals From Our Investing Notebook (original) (raw)

* We’re opening our investing notebook to share some of the latest ripped-from-the-headlines signals and confirmation points for our portfolio holdings.

Aging Population

When a company announces it is pivoting to address an accelerating demographic shift, like the one we see with this theme, it adds to our conviction.

“As alarming as population aging may be for economic growth and public finances, it presents an opportunity for Swiss food and nutrition conglomerate Nestlé. The company, whose founder invented the first form of infant formula, is now prioritizing products for the elderly. “The 50+ age group in most countries around the world is going to increase significantly over the next 10 to 20 years,” Nestlé’s CEO Mark Schneider told the Financial Times. “With that, and with the specific nutritional needs of that age group, there is an opportunity for us.” Read more here

Aging of the Population, Consumer Inflation Fighters

The tailwind from one theme is powerful, but the intersection of two or more is even more so. In this case, the intersection speaks to the pain of inflation hitting those on fixed incomes, adding another layer of support for our positions in Costco (COST) and Amazon (AMZN) .

“Following three years of elevated inflation, 30% of retirees say they are considering working a temporary job (between one and three shifts per week), according to a new report from Indeed Flex, a job search app. Many of these people are worried about outliving their retirement savings. “Increased cost of living is the driving force behind why the aging population is considering un-retirement,” Indeed said in the report, noting that 71.6% of retirees cite inflation as the reason that going back to work is on their mind.” Read more here

CHIPS Act

The below tells us the flow of funds with the CHIPS Act has begun, a positive not only for Applied Materials (AMAT) but also for our positions in United Rentals (URI) and Vulcan Materials (VMC) as construction on these new facilities begins.

“The Biden administration's CHIPS Act is pumping money into chip manufacturing construction at a historic rate. According to a recent report from the U.S. Census Bureau, the growth of computer and electrical manufacturing construction funding is so great that the U.S. government will add as much funding to the sector in 2024 alone as it did in the prior 27 years.” Read more here

Consumer Inflation Fighters

These signals reinforce our view about the current state of the consumer and our Costco and Amazon positions.

“A survey by Uswitch.com has found 43% of 18 to 24s – or GenZs – do not have a credit card with one in three perceiving them as ‘potential debt traps’. The research also found only one in five of the Gen Zs quizzed said they had ‘no concerns regarding credit card usage’. But the remaining 80% revealed they had concerns about overspending, high interest rates, annual fees, impact on credit scores and fraud.” Read more here

“Dollar Tree Chairman and Chief Executive Officer Rick Dreiling credited the decline to lower discretionary spending as consumers — many living paycheck to paycheck — cut back. The retailer saw an average decline of 1.1% in ticket size across both its stores.” Read more here

“PYMNTS Intelligence surveyed more than 2,300 U.S. consumers to understand how inflation and increasing retail prices changed their shopping behavior. The study found that among the 43% of consumers who used secondhand channels to make retail purchases last year, 1 in 5 did so to buy furniture. That share jumped to 38% for bridge millennials (older millennials and younger members of Generation X) and 34% for millennials.” Read more here

“… 80% of American households have less cash available than they did in 2019, while credit card debt has reached a historic high. Meanwhile, a JP Morgan survey found that over 70% of low-income consumers are having a hard time making ends meet. Notably, middle-income households are also feeling pinched; 67% believe their income is falling behind the current cost of living… value messaging is proliferating everywhere right now – on TV, on social media, in brands’ apps, in consumers’ mailboxes.” Read more here

“Findings from the National Retail Federation’s NRF Retail Monitor announced Monday (June 10) showed that in May, consumer spending increased 1.35% relative to April, the highest month-to-month rise recorded in more than a year, and spending was up nearly 3% year over year… economic pressures continue to influence consumer behavior, leading to conservative spending patterns. Inflation in services and the lingering impacts of the pandemic on spending habits persist, prompting retailers to see consumers prioritizing essential expenditures and experiences over general merchandise and discretionary items.” Read more here

Cybersecurity

More support for why we continue to be owners of the First Trust Nasdaq Cybersecurity ETF (CIBR) in the portfolio.

“Cybersecurity company Cylance confirmed the legitimacy of data being sold on a hacking forum, stating that it is old data stolen from a "third-party platform." The data allegedly includes a substantial amount of information, such as 34,000,000 customer and employee emails and personally identifiable information belonging to Cylance customers, partners, and employees.” Read more here

“Internal source code and data belonging to The New York Times was leaked on the 4chan message board after being stolen from the company's GitHub repositories in January 2024… The Times leak is the second one published to 4chan this week, with the first being a leak of 415MB of stolen internal documents for Disney's Club Penguin game. Sources exclusively told BleepingComputer that the Club Penguin leak was part of a more significant breach of Disney's Confluence server , where the threat actors stole 2.5 GB of internal corporate data.” Read more here

“On Monday (June 10), it was announced that a “significant volume of data” was stolen from at least 165 customers of multi-cloud data warehousing platform Snowflake, with the incident thought to be linked to earlier massive data breaches at Ticketmaster and Santander Bank; while the City of Cleveland suffered its own cyberattack on Sunday (June 9), forcing it to shut down its IT systems and citizen-facing services.” Read more here

Data Privacy

While we do not have a current portfolio position geared toward Data Privacy, this signal reminds us it is a potential pitfall of AI adoption.

“The rise of consumer-permissioned data in the U.S. promises to expand the credit landscape. And for the “connectors “and the “collectors” of that data — which includes bank account level information that helps would be lenders follow the money, we’re seeing the emergence of new business models. These go-betweens, which link the bank account or payment information to the lenders who want to gain a holistic insight into the consumers’ credit-worthiness — where the data includes everything from rental payments to mobile phone payments to on-time utility payments — are monetizing that data.” Read more here

“Part of what Apple calls "a brand new standard for privacy and AI" is achieved through on-device processing. Federighi said "many" of Apple's generative AI models can run entirely on a device powered by an A17+ or M-series chips, eliminating the risk of sending your personal data to a remote server. When a bigger, cloud-based model is needed to fulfill a generative AI request, though, Federighi stressed that it will" run on servers we've created especially using Apple silicon," which allows for the use of security tools built into the Swift programming language . The Apple Intelligence system "sends only the data that's relevant to completing your task" to those servers, Federighi said, rather than giving blanket access to the entirety of the contextual information the device has access to.” Read more here

Homebuilding & Materials

The below two signals are constructive for recently added Builders FirstSource (BLDR) shares. The first speaks to the growing demand for repair and remodel spending, while the second reinforces part of our decision to call up BLDR shares from the Bullpen.

“Of about 1,400 resale agents nationwide surveyed by John Burns Research & Consulting, 99% said they’ve seen homes for sale that need repairs or updates, with two-thirds of agents saying listings showed deficiencies in at least four different areas, including outdated kitchens and bathrooms. The takeaway: Desperate homebuyers aren’t that desperate. Fixer-uppers can stay on the market longer and sometimes require discounts, with elevated prices and mortgage rates already straining the budgets of Americans looking to purchase a house.” Read more here

“Home loan rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans. Yields have eased recently following some economic data showing slower growth. On Thursday, a report showed inflation at the wholesale level fell from April into May.” Read more here

Rebuilding America

Signals like the one below remind us we are still in the early innings when it comes to infrastructure spending out of Washington, keeping us bullish on URI, VMC, and Waste Management (WM) as well.

“According to a quarterly construction report from Wells Fargo Bank, most market data indicators point toward a continuation of steady end user demand for 2024 and into 2025. Infrastructure and mega project spending, mostly the result of recent federal legislation, will be a key driver of equipment demand, the report said. The most noteworthy spending will come from the $1 trillion infrastructure legislation passed in 2021 which will provide a springboard for activity with the bulk of the spending to occur during the next four years.” Read more here

Safety & Security

In last week’s Signals, we shared that TJX Cos. (TJX) was deploying body cameras, and the first signal below shows it isn’t the only company. We’ll be looking to see how widespread this becomes among retailers, but what we’ve seen so far supports Axon’s (AXON) body camera and cloud businesses spreading beyond the traditional public safety market.

The second signal showcases the need for the U.S. to re-stock the military after supporting Ukraine and Israel, a positive for defense spending and our shares of Lockheed Martin (LMT) .

“In the U.K., Lidl last August said it became the first U.K. grocer to provide body-worn cameras to all associates in the region as part of efforts “to address the alarming rise of incidents facing retail workers every day.” Tesco also started providing body-worn cameras last fall to staff members after seeing physical assaults rise by a third in a year. U.K. bakery chain Greggs earlier this year gave associates body cameras after a rise in thefts and threats from customers…” Read more here

“In recent months, US supplies of 155mm shells have been drained by shipments to Ukraine and Washington’s support of Israel’s operations in the Gaza Strip. Black powder, the critical propellant for the shells, is also in short supply because the US produces little of it compared with the past. TNT, another basic component of ammunition, hasn’t been made in America since the 1980s—forcing the Pentagon to buy it from countries including Poland and Turkey… The Army is now playing a costly game of catchup. Congress has allocated $650 million for a TNT production facility that will take two years to build, according to Doug Bush, the Army’s top weapons buyer. ” Read more here

At the time of publication, TheStreet Pro Portfolio was long COST, AMZN, AMAT, URI, VMC, CIBR, BLDR, AXON and WM.