🗞️ Canadian Takeout?

WHILE YOU POUR THE JOE… ☕️
More Where That Came From

We were a bit early, but it was better than being completely off.

Shares of Tesla took a dump after earnings 📉, but we had a good idea that this was going to happen; in fact, we were pretty certain.

While mainstream media and even the earnings announcement might not tell you why the stock entered into free fall, the truth behind the selloff is all yours inside this post.

Far from predicting the future, we are fans of aligning our views (and portfolios) with the winning side of history, and that’s what we’re looking to repeat today.

Speaking of being on the winning side of the trend, let’s get on with today’s email 📧…

MACROECONOMICS
Time For the Underdogs to Play

So you know how the leading names in the artificial intelligence space have been the ones taking over the YouTube Furu (financial guru) space?

It’s because they’ve brought on easy wins and easy money for most in the market, especially retail traders. I kid you not I was at an LA fitness a few months ago and overheard a conversation between middle schoolers, how they were going to YOLO into Nvidia stock call options 🥶.

I mean, kudos to them for jumping into the game early and start figuring out the world of financial markets. But, having done that myself, it will likely be a bumpy road for them.

Which way should they turn? I have a simple way of describing the stocks that will likely outperform in the coming quarters, and it is that the slower businesses will kick ass 😎.

Why? Oh, you have no idea what’s about to slap the market in the face before the year is over.

Weak Dollar = Good?

Not typically, since it hurts domestic companies and consumer buying power. But both are already hurt despite operating with one of the strongest levels on the dollar index.

This time, some sectors that have significantly underperformed could use a weaker dollar to boost their business activity. Here’s the idea in a picture:

The manufacturing PMI index is one of the main drivers behind a country’s GDP and stock market.

For the U.S., it has been suffering for over 20 consecutive months with readings below 50% 📉 (anything below 50% is a contraction).

Those studying economics know that a strong dollar means foreign nations will not look to buy American exports, so why on Earth would manufacturing activity be up?

This is what the EUR/USD price 💶 looks like today; it is not cheap, but it is not expensive. Considering that Europe is one of the U.S.’s main trading partners, this doesn’t help.

Against the Canadian dollar, Canada is another significant trading partner for the U.S., and our currency looks to be on the expensive end.

Okay, here is a last example: our dollar against the Japanese yen 💴. You get the picture; none of our trading partners want to buy our stuff, but they are glad to sell us theirs instead.

So, why is the dollar set to go down, and why is that good for the manufacturing stocks 🔎?

Game of Perception

Gold prices have hit a new all-time high, and those at Goldman Sachs (my alma mater) now want to see gold at $2,700 an ounce 🎯.

The rally in gold comes as a result of different countries stockpiling their gold holdings, which is basically a f*ck you to our dollar, a vote of no confidence in our currency or our economy.

Markets have yet to catch up to this view, though, as central banks have kept interest rates on the higher end and have also been buying dollars to prop up the price.

Think about it: When pretty much the whole world uses dollars, and the COVID-19 pandemic brought global inflation, then the dollar is going to suffer by extension. This uncertainty creates a higher need to hold dollars, and we go back and forth to keep our dollar higher.

But the massive gold buying and simultaneous dumping of treasuries are a side bet that when interest rates are cut in the U.S., the dollar will fall.

** Quick tip 🔎: Interest rates determine the value of a currency; there’s a lot more to it, but that’s a rule of thumb.

With a lower dollar, we believe a few stocks could outperform, as they rely more on international markets (so that a weaker dollar doesn’t affect them as much since they sell in other countries) and also because they usually export many products.

Boeing (NYSE: BA)

Like it or not, Boeing is the major aircraft provider in the world 🌎️. Sure, this monopolistic position caused some of the safety measures to be a bit lax lately, but that happens when you get near the top of your game.

The fact is, nearly every major airline relies on Boeing as a supplier of the airplanes it needs to cover its demand cycle.

Now that the Transportation Security Administration (TSA) has reported a record number of daily travelers, the aircraft demand cycle is in full swing, and some on Wall Street have noticed this fact.

Notice that the few metrics that drive a stock price, both the forward P/E ratio (PE2 column) and the rate of earnings growth for next year (EG2), make Boeing stock an outlier in its peer group.

Wall Street analysts expect up to 371.9% growth 🔥 in earnings per share (EPS). Markets have no issues believing such bold predictions, as judged by the amount they are willing to pay for these future earnings today, a 40.6x forward P/E compared to an 18.9x average valuation for the peer group.

A weaker dollar will make Boeing’s exports more attractive to foreign buyers and spark new demand for travel to international markets, creating the same effect for boosted exports.

Procter & Gamble (NYSE: PG)

I don't have to tell you that people still need detergents, diapers, and toothpaste in other countries outside the U.S., too. That's why it doesn't matter where the dollar is trading; Procter & Gamble has a near-sure money machine.

While not as aggressive as Boeing’s spread against the group, markets are still willing to overpay for Procter & Gamble stock on a price-to-sales (P/S) basis.

Notice that there isn’t much EPS growth; therefore, there is no need to overpay for earnings. That’s because the company is $389 billion 💰️, so growth will be hard for it.

Nonetheless, the one metric markets can overpay for is sales, and they did just that to show you their preference for this stock in the coming dollar weakness 👀.

STOCK OF THE WEEK(END)
Canadian Takeout

Most people think that Uber operates in a vacuum, but that’s just not true. There is another contender in the delivery space that is worth taking a second look at.

Not only are markets going crazy about the stock, but management is giving investors even more reasons to take on the same behavior.

DoorDash (NASDAQ: DASH)

This stock is a stealthy runner. It is not as big as Uber, being smaller by roughly $100 billion, but it is still worth considering the right moves.

Markets will surely reward stock based on growing financials 📈 and management’s decision to expand to Canadian markets.

A nearly 1,000% EPS growth forecast 🔥, what’s that about?!

No biggie, the markets are paying the most expensive forward P/E just to access DoorDash’s future earnings, which will also be announced next week, so watch out.

We liked DoorDash most because it experienced double-digit growth in all of its drivers, including orders and revenue.

More than that, the company has achieved a steady level of positive free cash flow (operating cash flows minus capital expenditures).

Positive free cash flow is how businesses compound their earnings, and that compounding is reflected in the stock price moving forward, so that’s also good for investors.

Now, here’s what the stock’s chart looks like leading up to the earnings announcement:

That’s called market profile; it’s very confusing until you understand what it means.

For now, just know that the turquoise lines are levels where buyers and sellers will come to agree on whether the price of DoorDash should be higher or lower.

We are currently at one of those levels, $100-$101 a share, where I took a trade to ride it back up to the $107.5 level above for a 7% profit 🔥 in hours.

I’m not kidding; I was tweeting about it live on this thread here.

But anyway, we are back to that level now, and likely moving very quickly away from it, but where?

Hang on, all you future investment bank traders and hedge fund analysts, ‘cause you’ll be seeing a lot of this below:

That’s the nature of DoorDash stock as of the past five years, and that's how we can expect it to behave.

In short, the highest-probability moves will be a positive 2.5-4.5% day 📈 and a 4.5-6.5% day, bringing the next potential up day to—you guessed it—our turquoise area of $105 🎯.

On the downside, we see the stock (statistically speaking) going down to $97.7 a share, but that’s nowhere close to our levels where buyers and sellers have been very active, so we are guiding our potential entries based on the profile this time.

Follow our Twitter (X?) for live updates on whether we will trade this and when.

NOW GO AND MAKE IT HAPPEN
Understand the Print

Today’s book recommendation 📖 was a gem I found by following one of my favorite Twitter users. It helped me understand all of those numbers I used to see come in when I was at Goldman.

That wasn’t my department, so I couldn’t just come tap someone on the shoulder to ask about what they were up to, so…

To your success,

G. 🥃