🗞️ There Ain't No Saints on Wall Street

WHILE YOU POUR THE JOE… ☕️
A Game of Hide and Seek

Thank God it’s Friday; it’s been a crazy week, with enough market volatility and political tensions.

First, it was the assassination attempt, then Biden gets sick, and Harris is eyeing the presidency, more curbs on China tech sending semiconductor stocks down… I’m ready for a cigar and a beer 🍻.

But at least you would have made a few bucks 💵 by following our calls lately. We already boasted about Starbucks and Tesla, but we need to add our most recent from Potlatch. Remember? The one we called a few weeks ago on this post?

Anyway, here’s how that ended up:

And, then there’s Magna International, we also called that right around the time we spotted Potlatch:

I’m ready to give you some better - bigger - calls this week 🎯. They’re all based on the premise of a weaker dollar in the coming quarters, as Trump has announced a few measures he will implement if he becomes president.

But not everything that glitters is gold.

Speaking of gold, let’s get on with today’s email 📧…

STRATEGY MAKEUP
Your Order has Been Shipped

Today, I want you to look at the market in terms of domestic and foreign names, as the U.S. dollar is about to seriously take a dump 📉.

Why am I so sure? Look at gold prices right now; they’re reaching an all-time high, and that is a global arena voting equivalent of a weak dollar as a result of a U.S. economy.

Not going to go over it again, I mean I’d love to, but we got stuff to cover today. So, head over to this post on gold to understand why everyone is betting on a dollar collapse right now.

Anyway, what does a weak dollar mean? Two things.

Americans will have less - much less - buying power, so domestic companies that depend on imports, like Walmart, Target, and Home Depot, will likely suffer 📉.

On the other hand, a weak dollar makes American exports more attractive for foreign buyers since their currencies go a longer way when buying dollar-quoted goodies.

We are betting on the latter since this is what the United States manufacturing PMI index looks like today:

That white line represents the 50 mark, and anything below means a contraction in manufacturing.

We have been in a contraction for over a year and a half now; since the dollar has been so strong lately, nobody wants to buy our stuff, so why would you expect to see the index do anything else than contract.

2 Stocks to Watch on This Thesis

Following along, you can consider these two exporters to gain exposure to the following export wave that might hit the U.S. economy.

Waste Management (NYSE: WM)

On a twenty-foot equivalent unit (TEU) basis, Waste Management is the seventh largest exporter in the U.S. at 75,300 units.

This makes sense as American-made waste, which will always be generated as long as humans are alive, is exported to be taken care of offshore.

So, betting on this company is a sure bet. Still, the thesis is supported by fundamentals and quantitative data 💻️.

The stock’s low volatility and almost predictable annual performances are justified by the return on invested capital (ROIC) rates. These come out to a five-year average of 13.5%, and that’s where investors are exposed to compounding their wealth 📈.

With a gross margin of 38.8% and net income margins nearing 12%, with no end to the business model, it makes sense to keep buying this stock as a hedge whether the dollar is going strong or going on one leg.

There has to be a reason why up to $84.3 billion of institutional capital flowed into Waste Management stock in the past year 💰️—it’s a political hedge.

Smurfit WestRock (NYSE: WRK)

WestRock is the tenth largest exporter in the U.S., with 66,300 TEU. That company recently merged with Smurfit Kappa, so you'll find it under its new symbol, $SW, and named Smurfit WestRock.

Anyway, this company does export U.S.-made products in the paper and packaging industry, so it likely has little to do with Waste Management's lack of cyclicality.

The combined company now generates ROIC rates of 12% and has 33.6% gross margins along with 6.7% net income margins, but those are only a few of the initial metrics we are looking at. Here's the rest.

• Wall Street analysts forecast 88% EPS growth 🔥 in the next 12 months, above industry peers.

• J.P. Morgan Chase analysts want to see the stock at $66 a share, or 41% upside on this exporting giant.

• No Free Cash Flow growth, but neither a contraction, so we like that stability.

STOCK OF THE WEEK(END)
Second Amendment, But Global

You know how people like to have the right to bear arms in the U.S.? Well, the nation needs that, too.

With rising global tensions, such as curbs on Chinese technology and Russian-Ukraine conflicts driving sanctions across the other side of the world, the U.S. may want to ready itself (just in case) 🔫.

Even with a Trump presidency, which historically speaking has kept the U.S. outside of most major conflicts, we can only stay away by flexing our military muscle.

Plus, as our trade routes and dollar status are being threatened, it makes sense to invest in military-based companies; after all, the military is the largest expense item in our national budget.

That’s why we’re not afraid of looking like the bad guys, as we want to consider:

Lockheed Martin (NYSE: LMT)

The market obviously has no problem investing in this stock, as momentum has favored it to a new 52-week high 📈. But then again, markets are forward-looking, so this might be their version of admitting that Trump will win.

But apart from price action, there are other metrics that investors might want to consider before making a more educated decision.

As always, our focus will be on the forecasted future growth rate in earnings per share (EPS), price targets, and how the market is regarding the stock’s valuations compared to peers.

• EPS growth forecasts set at 8.4% for the next 12 months, not great but not bad.

• Price targets from Citigroup set at $525 a share, or roughly 10% upside from today.

• The stock trades at 16.8x price-to-book (P/B), compared to the defense industry’s average 3.1x valuation.

Knowing that markets are willing to bring this stock to a new 52-week high 📈 and that it is valued at a multiple premium to its peers gives another good reason for investors to start considering Lockheed Martin's potentially bullish future.

Not making any predictions here, but…

Lockheed Martin will report its quarterly earnings next week 📆, and judging by the price action and premium valuations, the stock could rally on the results without any further due diligence.

If I find a sensible reason to get into this trade, you will see it on our Twitter live and up to the minute.

NOW GO AND MAKE IT HAPPEN
Weekend Entertainment

I’ve sent you plenty of book recommendations 📖 in the past. Still, this weekend feels like a much-needed break for me, so today’s recommendation comes in video entertainment instead of recommending a book.

If you’ve got the time, watch the HBO documentary “Becoming Warren Buffett.” I think it’s still free on YouTube. Hopefully, some of Uncle Warren’s habits and mental frameworks will stick with you.

To your success,

G. 🥃