🗞 Where to Captain

WHILE YOU POUR THE JOE… ☕️
The Deepest Cut in 16 Years

The market has been waiting for interest rates to be cut for a while now, and they finally got the 50 basis points they wanted. The problem is that nobody was really thinking ahead to figure out what to do next.

Now that the cuts are in, investors like yourself might be wondering what to do with cash set aside for the next opportunity, and the answer is going to take a lot of work today.

People think that rate cuts always equal higher stock prices, but given this is the most aggressive cut in 16 years 📉, it might not be a good sign after all.

Why?

If things were okay, the Fed would not have cut by 50 bps. This is a state of emergency that calls for your undivided attention, and you need to act now.

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

THINK BIGGER
What Happens Now?

I think the answer is obvious: We’re about to have an economic crash like no other, in stocks, that is.

The economy has been down for over two years now, and the market is just catching up to that fact. This is where you need to prepare yourself.

How?

If you’ve been following us for a while or follow our Twitter account, then you know we’ve been positioning ourselves in commodities (like silver against gold, which just had a massive run) and bonds.

Now that silver had its rally and bonds are starting to top out a bit, we wanted to look elsewhere for answers.

Here’s what we got:

First of, it’s going to be all about oil, and I wish I had bought more of Chesapeake Energy when we spotted this trade. 🛢️ 

We pitched it out not too long ago when it was only $70.5; now, it’s up close to 10% since. 🔥 

But

We think it has a bit more upside, especially now that rate cuts will work their way through currency markets and the broader economy. This could act as a potential tailwind for oil prices.

For reasons we’ve discussed before, such as premium valuations and insane EPS growth forecasts, we’re sticking with this one until oil is back above $100 a share.

An alternative? Check out Transocean stock; we’ll probably break that deal down soon enough. 👀 

Another worthy mention:

An unlikely candidate, but we thought to mention it as it is a positive outlier within the real estate space. 🏠️ 

This Real Estate Investment Trust (REIT) pays a 3% dividend. It commands the highest premium within its industry, even above REITs that own hospitals and other necessary institutions.

The portfolio is made up of cooling warehouses and other such spaces. You know when you walk in the Publix / Whole Foods aisle, it’s always freezing cold? You can thank these guys for that.

We pitched a similar idea through Hudson Technologies (NASDAQ: HDSN) a few months ago inside our Twitter. Still, it has taken a little while to take off as new regulations regarding refrigeration get underway.

Anyhow, this REIT might be first in line to get paid for these new regulatory changes, especially the Clean Air Act, which increases the need for reclamation gas callbacks.

TRADE OF THE WEEK
I Like Cigar Butts and I Cannot Lie

We get it. Advance Auto Parts isn’t sexy, and I doubt it ever really was.

The thing is, we think it might be one of those companies that Warren Buffet used to describe as a cigar butt, one that nobody liked but usually had one more pull left in it. 📈 

There are about 30 other trade ideas we need to get to, so we wouldn’t really waste our time (or yours) with just a random pick if we didn’t think there was some juice left in it.

So, let’s break it from the top:

Just like Kamala said like ten times during the debate, let’s understand how we got here.

People started looking around at their neighbors and friends driving around in new cars and decided it was time for them to upgrade as well. After all, they deserve it, right?

The thing is, these laggards came in when rates were already on the rise or near the peak, which was 2023-2024. As a result, the average car payment reached a high of $750 per month. 💵 

When things tightened up at the gas pump, on the insurance premium, and at the supermarket, credit cards first became delinquent, and then car payments, too.

You can probably guess what happened next, and it rhymes with tow trucks coming and rolling out brand new cars from people like this guy:

A sub 500 credit score, not enough income to afford it, but still gets approved for a Mercedes on only $500 down.

He got screwed twice, first by the twig next to him, then by the car dealer as he probably has a 20%+ interest rate on this new car.

Okay, how does this benefit Advance Auto Parts?

Simple, new vehicle market is going to collapse, so used car market is going to take over.

I bought a 2021 Volvo XC60 with only 11k miles on it. Guess what? Negotiating the price on that baby was the easiest thing since buying Google stock at $147. This is because there are no new buyers coming in, so the few buyers that are left can control the narrative.

So, now that people are stuck with their older cars and dealers need to keep up with repairs and maintenance to bring the repossessed vehicles back into the market, parts and service brands like Advance Auto Parts come into play.

Now trading at the lowest level (based on price action) against peers like AutoZone and O’Reilly Automotive, Advance Auto Parts offers an outlier data point worth taking a second look at.

Wall Street analysts think this stock could grow their EPS by much more than peers, making current valuations a little ridiculous compared to the future growth potential.

Here’s one thing that the company is doing right and caught our attention as a potential recovery play:

Operating cash flows swung from a net outflow of $167.3 million last year to a net inflow of $87.8 million; the main driver is the new efficiencies management created in the company’s inventory levels.

They’re starting to earn their pay, aren’t they?

If this keeps going, the bottom line will have a major swing, just like the one that analysts currently expect to see.

Now, here’s the price action that convinced us of this trade:

Sure, there is no seeming bottom other than the one a decade earlier (not shown in the chart), but the nice thing is the quick rebound we had at $37.5 on above-average volume. 📈 

It’s not an end-all be-all indicator, but to us, it means that the auction being this low has attracted new buyers coming in and taking advantage of what they think is a low price.

So, even if the stock is set for a doomed future and goes bankrupt, it doesn’t matter. Some traders believe they can get one last pull out of Advance Auto Parts, and we think it can reach the $49.5 mark 🎯 before we figure out if there will be more buyers.

This is nearly a 16.8% upside from today’s price, which, of course, will be amplified by option structures, which are our bread and butter.

This is not a safe trade, so we have set aside a lighter amount of capital for this idea, much less than we put toward our Boeing pitch from Wednesday. Now, that’s an A+ trade idea.

NOW GO AND MAKE IT HAPPEN
One Good Trade

Most of you know prop trading firms; they are now taking on the shape of funded accounts, and every Financial YouTuber seems to be sponsored by them.

But, remember, what sounds too good to be true often is. So, today’s book recommendation 📖 guides you a bit deeper into the world of prop trading, psychology, and proper methodologies to employ in your daily life as a professional trader.

To your success,

G. 🥃