🗞 Underwater Volleyballs

WHILE YOU POUR THE JOE… ☕️
No One is Above the Law

So only weeks before pardoning his son, Hunter Biden, Joe Biden tweeted that no one is above the law. 🧑‍⚖️ 

He of course said this in reference to President Trump, which ended up working against him in the end, sort of poetic justice if you will.

Anyway, the whole situation in South Korea might call for the same tweets from their president, as riots have been spurred and martial law has been called into place.

Markets don’t like this uncertainty, and neither did I when I woke up to the news, but hey, we’re traders, and we need to make the most of it.

Speaking of making the most out of it, let’s get on with today’s email 📧…

LOOKING UP
New Landscape

The Manufacturing PMI index, one of the market's most important (yet most overlooked) reports, has recently given us a pleasant surprise. 👀 

Even though the reading was still below 50%, meaning contraction, it ticked slightly higher to 48.4% this month, driven by one main segment in the sector.

Apart from this segment, which we’ll cover shortly, the manufacturing PMI provides some additional evidence that leads us to believe our current market view might be in the right direction.

Which, as you know, is for a dollar selloff to revive the energy stocks and other domestic consumption names we’ve been pitching to you. You know what I'm talking about, especially the discretionary names with heavy Euro revenue exposure. 💶 

New Orders

New orders represent one of the index's biggest segments and drivers, so seeing the reading shoot slightly past 50% into expansion was encouraging.

In the following sense

Now that production and supply are tight in the United States, any new uptick in demand, such as a New Orders expansion, could quickly become a bottleneck for supply and logistics chains.

For this reason, we believe that the manufacturing names are what could be called underwater volleyballs, as they could pop higher on a whiff. 📈 

And we’re not the only ones who think of the sector in this way; here is the consensus view coming from executives in manufacturing overall:

The commentaries from the industry suggest that costs and current capacity is a concern. No sh*t, nobody is producing anything right now. When tariffs come next year, domestic production will be the answer to avoid inflation.

Let me explain

Tariffs are being placed on our main trading partners (China, Mexico, Canada) for good reason.

But

The end result, unless we start taking on a manufacturing leadership somehow, will be insane inflation levels for our economy. Even if the market doesn’t behave that way right now, they’re calling for a recession more or less.

Anyway, if we want to avoid our fate for a little longer, demand will have to be met through “Made in America” products, of which there aren’t many today.

So think about this: If manufacturing in the U.S. is going to be called upon to meet demand, then tight capacity will create a sharp rise in prices due to bottlenecks.

And that’s good for certain stocks. It’s like being the only soda brand in town during a hot summer—you call the price! 👀 

But who exactly is going to call the price here?

Well, there’s an answer to that, too, my friend, and it’s in the PMI index itself. If New Orders are on the rise and driving new manufacturing activity, then we need to pinpoint the industries with breakouts from new orders.

These are:

• Apparel / Textile Mills

• Food & Beverage

• Primary Metals

So, think of the domestic names that operate here.

Apparel: $COLM and $FL

Food & Beverage: $CELH and $TSN

Primary Metals: We’re working on this one. There’s a lot of law to figure out in the U.S. steel and aluminum space.

Nonetheless, you will get an in-depth look at each deal in the coming weeks. 🫰 

 TRADE OF THE WEEK
K-Pop Nope, K-Dip

We woke up yesterday to the news that South Korea had fallen into martial law, and the Korean Won plummeted along with the country’s stock market.

And just like Uncle Warren likes to say, “Be greedy when others are fearful.” Well, we've gotten greedy, very greedy. 😁 

We tweeted that certain stocks in South Korea would rebound and come back stronger than before after all of this was done; here were our picks:

- $EWY as a diversified ETF with over 90 South Korean companies

- $KEP for a utility company that's down over 5%, not usual for the sector, and a quick rebound to follow, in my opinion

- $CPNG as the best one here, I think, a South Korean e-commerce platform with major exposure to most international consumer markets; this dip will be erased before Friday

But that’s what the people on Twitter get; you’re here with a bigger commitment, so let’s get you the cream, shall we?

On a size-adjusted basis, we think that Coupang stock is the best selection here compared to eBay and Etsy, as there’s a reason behind the market’s willingness to pay a forward P/E and P/B premium for this name.

The reason at play? Well, an obscene earnings per share (EPS) growth forecast compared to the peer group. 🔥 

More than that, if you understand what is happening across bonds and commodities in the United States, especially adding the implications from the recent manufacturing PMI this month, then everyone is calling for a dollar index selloff here soon.

How would that improve Coupang’s situation?

Well, look at what the USD/JPY is doing recently, and consider that when the dollar falls, Asian currencies will strengthen in a way that the region’s consumer activity will begin to take off to benefit Coupang.

More than that, as the dollar loses its buying power, more arbitrage will be called for in American consumerism, and that’s where these platforms come into play. They allow consumers to manage buying cheaper alternatives from Asia and bringing them into the U.S.

Wall Street seems to agree, as the consensus price target is set at $27.6 with a high of $32 a share, calling for 15-34% upside 📈 from today’s stock price.

NOW GO AND MAKE IT HAPPEN
For the Culture

Most of us suffer from recency bias, where we place more weight on recent trends and data above what has actually been happening elsewhere.

In life, business, and the world. That's why in today’s book recommendation 📖, we want to give you a path to think about how the Asian economy works and how it has changed over the past few decades.

It has helped us understand how and why it will succeed on a lower dollar, and it can help you too.

To your success,

G. 🥃