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☕ Two stocks worth a look this week, and why

Sep 30, 2024

Good morning! 👋

The curmudgeons told you straight up, “September was gonna be tough.” I, on the other hand, encouraged you not to let their particular brand of nonsense bother you.

I hope you took that to heart.

The Dow’s up 8%, the S&P 500’s tacked on 5% and the Nasdaq is 2% higher as we come into today’s session.

Naturally and even though they’re 0 for 1, the Doom & Gloom Squad is at it again.

I’m seeing a raft of headlines this morning about how challenging Oktober'll be, why volatility could be just around the corner and more.

Both of those things could be true but it’s far more likely they’re not.

What I encourage you to focus on instead is that the markets finish Q4 higher 3 of every 4 years.

Now is not the time to fight the Fed, nor the tape!

Here’s my playbook.

1 – Two stocks worth a look this week

The super-savvy Stuart Varney asked me straight up what I make of markets just ahead of today’s opening bell and which two stocks I’m watching closely this week. (Watch)

Both could be interesting if – and that’s a big “if” - I see signs they’re worth the risk.

Keith’s Investing Tip: Every investment involves risk but where most investors screw up is that not all risks are worth the investment. If you can’t explain what the company does in terms a 5-year-old understands, do NOT buy it. Simple as that.

2 – Another strike 🤦‍♂️

Port workers are getting ready to strike yet again and businesses are moving billions of dollars in cargo before that takes hold at midnight. (Read)

I understand but, doggonit already.

Striking now could unwind everything the Fed’s (not) done and the markets have with regard to inflation.

This strike, which would be the biggest since the 70s, is estimated to reduce U.S. economic activity by $4.5B - $7.5B for every week it continues, according to Oxford Economics.

Analyst reports I saw over the weekend suggest that spot ocean rates may increase by 20-50%, not to mention demurrage fees and detention charges. That will naturally find its way through to consumers in the form of higher prices.

Which companies will get hit hardest?

The usual suspects.

Investing Implication: Strikes like this are hard to game but plenty of people will try. Implied volatility will likely increase for the biggest importers if the strike goes forward. That will make buying insurance – typically put options - ahead of upcoming earnings more expensive than usual. My preference – and what I’ll be looking for – is to simply capitalize on chaos with a few well-placed LowBall Orders. Buy low, sell high is how you play the game.

3 - Apple takes a bite of OpenAI’s funding pie, then spits it out

I made the observation last week that OpenAI could be a digital version of WeWork.

And it would appear that I’m onto something.

Reports are flyin’ that Apple has apparently pulled out of OpenAI’s latest funding round, which is expected to raise up to $6.5 billion. (Read)

The public story is that Apple’s not happy with rumors that OpenAI is shifting to a “for profit” model but there’s clearly more to the story.

My guess is Apple has gotten a glimpse of something that threatens its business model if it were to invest.

I can imagine a few alternatives... being banned from companies that currently rely on Apple devices if it ties up with OpenAI, a material shift in Apple’s ecosphere if OpenAI biffs it, something in OpenAI’s architecture that threatens Apple’s plans to “on board” AI in its devices.

Hmmm.

Meanwhile, Apple is UP on the news which reinforces my thinking.

4 - I can only imagine Ford’s C-suite discussion

I would have loved to be a fly on the wall in Ford’s C-Suite leading up to today’s announcement that the company is going to give away free chargers and tchotchkes to anyone buying or leasing a new Ford EV. (Read)

Executive 1: "Looks like our overpriced, underwhelming electric trucks aren't moving off the lot. Maybe we should throw in free chargers to sweeten the deal? Our earnings already stink... maybe nobody will notice if we spin it correctly."

Executive 2: "Great idea! That way, we can distract customers from the fact that Tesla is kicking our you know what in the EV market and the Chinese are beating us at our own game."

The “Ford Power Promise” sounds like an attempt to catch up to Tesla and self-justification, err, spin, intended to position the move positively.

Just in Q2 2024:

Ford sold 23,957 EVs.

Tesla sold 443,956 EVs.

Tesla remains the only American automaker making any money on their EVs.

Ford’s doing much better than a lot of legacy automakers in their quest to sell EVs, I’ll give ‘em that. But we’re talking about a company that saw EV sales spike 61% yet experienced a Model E EBIT of –99.5% in Q2, as pushed back, deferred, or abandoned $12B in EV investments.

The real challenge with Ford is that Tesla and the Chinese can go from prototype to production 3-5X quicker at 1/3rd the cost.

I think there’s a good chance Ford breaks $10 a share and stays there for much longer than a lot of people would like. Meanwhile, I think Tesla retakes $300, effectively a “double” off April 2024 lows. At the same time, I see a few very specific Chinese car makers I’ve suggested continue to grow globally.

You know what to do and, if for some reason you don’t, I’ll be here if you need me.

5 – Netflix and Amazon Prime Reign Supreme as DirecTV and Dish Bleed Out

DirecTV has agreed to buy EchoStar’s TV business, including Dish TV (Read).

For $1.

Call me crazy, but I’ll be leaving that one on the table.

It’s a non-starter of epic proportions for two reasons.

First, DirecTV will pay just a buck but get $9.8B in debt.

And second, the company’s bond holders will be required to write off $1.6B in Dish-related debt. 🤦

It wasn’t that long ago that satellite TV providers like DirecTV and DISH were the kings of the home entertainment castle. Everyone wanted a piece of their high-tech, diverse channel lineups whilst they enjoyed a golden age of growth and popularity.

Times have changed.

These days, streaming services like Netflix and Amazon Prime are stealing the show with their on-demand content and flexibility. Not to mention a 70-80% market share.

Traditional TV providers, including satellite TV companies, are struggling to keep up, hemorrhaging subscribers and losing ground faster than you can change the channel.

Some experts predict that satellite TV's time is running out, with maybe just five years left before they become obsolete.

I think that’s generous.

The satellites themselves have a limited lifespan, and new ones aren't being launched at the same rate as before. It's a tough pill to swallow for an industry that once had it all.

It’s not an accident Musk is doing what he’s doing with Starlink.