🗞 Gift Card Time

WHILE YOU POUR THE JOE… ☕️
Another One Bites the Dust

This is the current lineup in the Middle East coming from the United States, all with the intention of supporting and protecting Israel and other interests in the area from attacks.

We had spoken about the possibility of a global conflict after China and other nations started hoarding gold reserves this year, which explained the commodity's new all-time high price.

Nations typically do this to protect themselves against a bearish dollar scenario, which is typical of some wars when the currency is no longer seen as a safe haven.

Nobody wants a war, and we don't want to sound like heartless capitalists. Still, there are ways to hedge your capital during these conflicts. Defense and arms stocks like Lockheed Martin have been on a tear lately, but we also pitched that a couple of months ago, well before this played out.

An unlikely candidate is now found in a shipping stock that covers most of Africa's trade routes and is therefore set to command whatever (or near whatever) price they want for their freight services.

That stock is Tidewater (NYSE: TDW).

Speaking of calling the shots, let's get on with today's email 📧…

ZOOMING OUT
Does Anyone Care Anymore?

The latest manufacturing PMI data just came out yesterday, marking the 23rd consecutive month of contraction readings, a warning sign we’ve been pointing out for months now. 📉 

Typically, the S&P 500 has a 12-18 lag to a contracting manufacturing PMI index, so today’s contraction makes us think the overall market is overdue for a correction.

There are other reasons, too, fundamental and technical, all of which you can find on Monday’s post, which seemed to get a lot of positive feedback:

Anyway, it’s time to break down the manufacturing PMI report and check for potential trends and ideas we can undertake in the coming months.

Here are all the important segments and what they did over the past month: 👀 

New Orders

New orders basically drive most of the business activity in the sector, so we have a lead as to which industries we might want to keep a short bias on based on falling new orders. 📉 

However bearish this may seem, we think that new interest rate cuts coming from the Federal Reserve might be working their way through the economy now.

Production

While still in contraction territory, production did manage to push the best recovery reading, narrowing their contraction to near flat by a factor of 5% on the index.

That gives us a clue into potentially bottoming industries, as long as they have rising production (preferably with some new orders) then we could expect to see signs of bottoming stocks and earnings in those areas.

Of course this is only taking care of the demand side, what about supply?

Inventories

Inventories contracted just as much as production went up, which might imply demand is about to pick up significantly without enough inventory on hand to satisfy coming orders.

So, we now have two criteria to follow when picking industries and stocks moving forward, we want to see rising production and contracting inventories to show signs of recovering demand, which might lead to higher earnings.

Here are some examples:

Alright, now we know that the Computer & Electronic products industry is giving us our best chances of seeing a potential bottoming and bullish price action in the coming months.

Now it’s up to us to figure out which stocks we’ll go after on the long side, but before we do, here’s a bonus piece of information:

Executives from the industry are literally telling you that they are doing much better than the rest of the economy, so there you go stacking the odds in your favor. 🫰 

TRADE OF THE WEEK
No More Savings

In case you didn’t know or haven’t been following the story, a few port workers are now going on strike, and that is set to cause some issues in the economy.

First, the more these people delay their work, the less items and supplies reach domestic stores and merchandisers like Target and Walmart, both of which depend on imports for their business.

Second, even if the strikes are resolved, and the workers get the raises they want, we are all going to have to pay for it through increased costs of.. well.. everything.

Sucks to live in a nation that makes nothing and imports everything, I guess.

But while domestic retail chains will be affected, others in support functions might be able to step in and offer a little help.

Think of other transportation stocks that relatively dominate the industry; of course, think outside of freight due to these strikes.

Air transport and shipping can potentially become attractive alternatives during these times, which is why we are considering keeping an eye on FedEx stock.

After an earnings “Flop,” the stock is now trading at a major dip, one that could be close when and if customers and businesses look to FedEx as a potential aid in these transportation supply disruptions.

As this might be the case, analysts at J.P. Morgan Chase decided to place a $350 price target 🎯 on FedEx stock today, which calls for an upside potential of nearly 30% from today’s price.

Even if this doesn’t play out on the long side, here are a few reasons why considering a short in Walmart and Target might be worth it:

• Walmart CEO sold up to $2.3 million worth of stock just days before the strikes were announced to begin.

• Target insider Richard H. Gomez also sold as much as $1 million worth of the stock as well.

Either way, whether we make money on these plays or not, we’re going to have to pay for the mistakes of the administration that led to these strikes in the first place, so get ready to pull out all those unused gift cards. 💳️ 

NOW GO AND MAKE IT HAPPEN
Better Business

When wars and other international conflicts occur, I can only remember the potential stage we’re in as a nation, as described in today’s book recommendation 📖.

Ray Dalio did an insane study of all the major empires throughout history and found that they all share the same typical path from being in power to fighting to keep it and then losing it.

Can you guess where the US is today?

To your success,

G. 🥃