Wall Street Breakfast

Fed will take notice of FedEx

Global macro proxy FedEx jumps on strong earnings. (0:16) Tesla attracts a new bull. (4:08) The IRS says sorry. (5:00)

Show Notes
Goldman’s top 50 high Sharpe Ratio stocks
These 5 stocks in the S&P now have the highest prices following Chipotle's split
Whirlpool stock jumps as Bosch weighs takeover bid

Episode transcripts: seekingalpha.com/wsb

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Duration:: 7m
Broadcast on:: 26 Jun 2024
Audio Format:: mp3

[music] Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news and analysis. [music] Good afternoon. Today is Wednesday, June 26th, and I'm your host, Kim Khan. Our top story, so far. FedEx is rallying sharply after topping earnings expectations with revenue growth inflecting positively. JPMorgan upgraded FedEx to an overweight. Analyst Brian Austin Beck said FDX is forging a new identity under its first CEO other than founder Fred Smith. Austin Beck noted heightened focus on profitable growth, improving capital efficiency, and cost savings across the portfolio. Bank of America reiterated its buy rating, citing momentum and structural cost takeout, and potential unlocking a value from its strategic review of FedEx Freight. An Evercore ISI's Jonathan Capell said, "We believe the key to the FedEx investment thesis is continued execution on its drive savings program and a smooth consolidation of the ground express business rather than relying on a macro that is increasingly uncertain." Investors won't be the only Fed heads taking notice. As a proxy for the global economy, FedEx's results will also be parsed by the Federal Reserve as they look to engineer soft landing. Recent soft numbers on the growth side have raised the possibility of the FOMC pulling the rate-cutting cycle forward. Global rates have been higher this morning and the 10-year treasury yield saw a substantial move back about 4.3%, despite a very thin economic data calendar. While the market has been pricing out a recession for a while, JPMorgan strategist Marco Kalanovich points out that the labor market may be telling a different story. He says the SAM rule, a recession indicator, has been ticking up. The rule signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.5 percentage points or more relative to the minimum of the three-month averages from the previous 12 months. Currently, at 0.37, if we see unemployment at 1 or 2/10 higher for a few months, this would hit 0.5, triggering a recession warning, which could alarm people, Kalanovich said. In today's training, stocks are scrapping for direction with growth outperforming slightly. Chipotle, Mexican Grill, executed its first stock split ever. The 50 to 1 split stood out as one of the biggest in the history of the New York Stock Exchange. Following the high-profile split, the stocks in the S&P 500 index with the highest share prices are NVR, booking holdings, AutoZone, Broadcom, and Fair Isaac. On the economic front, U.S. new home sales dropped 11.3% in May to rate of 619,000, lower than the 650,000 expected and down from 698,000 in April. The softer demand was also reflected in home sales prices. The medium new home sales price was $417,400, down from $4.33, $500 in April and $520,000 in May 2023. Among active stocks in today's session, World Pool rallied after a report that German engineering group Robert Bosch was weighing a bid for the company. Reuters reported that Bosch has been in discussions with potential advisors about the possibility of making an offer for the Implyance Maker. Southwest Airlines fell sharply after it said it now expects Q2 2024 revenue per available seat mile to decline year over year in the 4 to 4.5% range compared with its prior expectation of 1.5 to 3.5%. The cut in Southwest's RASM expectations was driven primarily by complexities in adapting its revenue management to current booking patterns. City boosted its price target on NVIDIA to 150 from 126, citing the company's plans for 2025 to build its GB 200 GPUs in both the NVL 36 and 76 configurations. Analyst Atif Malek says although the major cloud service providers account for roughly 40% of NVIDIA's data center sales, enterprise AI agents are the next wave of artificial intelligence demand, especially in inference. And Stiefel launched coverage on Tesla for the first time ever with a buy rating and a price target of $265. Analyst Stephen Gengaro said Tesla is very well positioned to deliver robust multi-year growth in the next three years due to upcoming revamps to both the Model 3 and Model Y vehicles as well as the introduction of the next generation Model 2 vehicle. Gengaro also said Tesla's full self-driving initiative can bring value through sales, licensing and the potential Robotaxy opportunities. As you heard on Wall Street Breakfast, Alphabet's Waymo has launched its commercial Robotaxy service for everyone in San Francisco. Now, even though these self-driving cars don't need them, I'm waiting until they install the Robodriver so I can shoot the breeze with them like Johnny Cab in total recall. And for fella sci-fi geeks, Johnny Cab was voiced by Robert Piccardo who went on to play the Doctor in Star Trek Voyager. In other news of note, the IRS apologized to sit at LCO Ken Griffin as well as thousands of other wealthy Americans whose personal tax information was leaked to the press by a former IRS contractor. Charles Littlejohn, who was serving a five-year prison sentence, exploited system loopholes to steal the income tax returns of wealthy people, including Elon Musk, Jeff Bezos and former President Donald Trump. Littlejohn then leaked the information in 2021 to the New York Times and ProPublica. The IRS said it takes its responsibility seriously and acknowledges that it failed to prevent Littlejohn's criminal conduct and unlawful disclosure of Griffin's confidential data. It added that it made substantial investments in its data security safeguarding taxpayer information which addressed potential weaknesses in the IRS system. And in the Wall Street research corner, Goldman Sachs screamed for the top stocks in the S&P for risk-adjusted relative returns. They ranked stocks using the sharp ratio, specifically in this case the return compared to the consensus 12-month price target divided by the six-month option implied volatility. Since June 2023, the basket has underperformed the cap-weighted S&P but outperformed the equal-weight S&P. Strategist David Causton says "recent underperformance relative to the aggregate S&P 500 is at odds with history as the strategy has a long track record of outperforming the index on both an absolute and risk-adjusted return basis." Since 1999, the basket has posted a 63% semi-annual hit rate of outperformance versus the S&P 500 with an average excess return of 221 basis points and 442 basis points annualized. Among the 50 stocks that make the grade are Disney, Las Vegas Sands, McDonald's, Monster Beverage, Assurance, United Airlines, Intel, Adobe, and Wirehauser. Check out all 50 in our story. The link can be found at the top of show notes. That's all for today's Wall Street Lunch. Look for links for stories in the show notes section. Don't forget, these episodes will be up with transcriptions at seekingalpha.com/WSB. And make sure you're getting the most out of your portfolio with quant, news, and analysis by heading to seekingalpha.com/subscriptions.