What to make of retail stocks, dividends and inflation, and the WWE...
TradeSmith Snippets for the Week of March 13
Happy Monday — we're glad you're here to start the week with us in a new issue of TradeSmith Snippets.
With the constant bombardment of news, many investors are facing decision fatigue, not knowing how to act on what they are hearing.
In TradeSmith Snippets, we're here to tell you what really matters and help you overcome that analysis paralysis. We run these ideas through our proprietary trading tools as well as our experts' proprietary tools to give you actionable information, spotlighting places to make money and the potholes that can wipe out that money.
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Snippet No. 1: More Spending Doesn't Make Retail Stocks a Buy
Overview
Personal consumption expenditures (PCE) — consumer spending on goods and services purchased by or on behalf of United States residents — was up 1.8% in January.
The Breakdown
After cooling modestly in November and December, consumer spending picked right back up again in January, increasing by $312 billion.
This has bucked many expectations, and on the surface, a consumer spending money is good for the economy.
But lurking underneath the surface is the question of how people are paying for all these purchases — and what sort of funds they have left over to cover an emergency.
Credit card balances increased 6.6% in the fourth quarter of 2022, which is the highest quarterly growth rate since the data started to be tracked in 1999. As of mid-January, Goldman Sachs Group Inc. (GS) estimated that Americans had also spent roughly 35% of the extra savings they built up during the pandemic. By the end of 2023, Goldman Sachs projects 65% of those savings will be gone.
The TradeSmith Takeaway
The narrative around people spending more may seem like a clue to look into buying retail stocks, but with consumers depleting their savings and racking up more credit card debt, that's not necessarily the case.
Just look at the guidance from prominent retailers: Home Depot Inc. (HD) has warned of flat sales for 2023, and Walmart Inc. (WMT) has offered a cautious outlook as well.
To take an even deeper dive into what to make of retail stocks, Quantum Edge Pro editor Jason Bodner recently ran five retail stocks – Dick's Sporting Goods Inc. (DKS), Target Corp. (TGT), Macy's Inc. (M), Best Buy Company Inc. (BBY), and Nordstrom Inc. (JWN) — through his system to see if there were any standouts worth knowing about.
Out of the bunch, Jason notes that DKS is a good company, but he would still focus on other opportunities.
As for retail stocks in general, Jason says, “I'm sorry to say that the moneymaking prospects in most retail stocks are mixed at best right now, which make sense as the Federal Reserve continues to fight inflation.”
Snippet No. 2: “Dividends” and “Inflation” Are the Top FactSet Searches
Overview
On the financial data and software company FactSet's Document Search application, two of the top three searches in the fourth quarter of 2022 were “dividends” and “inflation,” with dividends ranking as the top search and inflation coming in third.
The Breakdown
Though inflation is cooling, it's still high and well above the Fed's target rate of 2%.
It makes sense that people would be heavily searching for inflation, but it makes even more sense that dividends topped the list.
After all, when the cost of living continues to rise and the market continues to careen to wild extremes, dividend stocks are an appealing place for investors to put their money. Financially strong companies that offer dividends can add some measure of stability to a portfolio. Besides that, dividend payments give investors a way to earn money in the here and now during periods of high inflation.
The TradeSmith Takeaway
In May 2022, Senior Analyst Mike Burnick said that high inflation would be here to stay, and he has stressed the importance of generating income through dividend-paying stocks.
Mike says that by owning shares of the dividend-paying companies that will be rewarded for their sound financial performances, you are better equipped to keep up with the high prices for goods and services — and less likely to see your hard-earned money dwindle away.
That's why you want to own inflation-resistant stocks that can handle continued high prices to produce goods.
In April, World Wrestling Entertainment Inc. (WWE) will reportedly meet with buyers for first-round bids.
The Breakdown
Former WWE CEO Vince McMahon stepped down in July 2022 due to sexual misconduct allegations, but he returned to the WWE board in January to reportedly help prepare the company for a sale.
WWE has a legal monopoly on the wrestling world and unique content for companies competing in the streaming wars.
The global video-streaming market is projected to soar from $473.39 billion today to $1.69 trillion by 2029. And what's needed to capture the majority of that money up for grabs is exceptional content… Content that is exclusive to a particular streaming service — like sports.
Alphabet Inc. (GOOGL) inked a $2 billion deal with the National Football League (NFL) to stream its Sunday Ticket package on YouTube TV starting in 2023, and there will undoubtedly be more companies looking for sports content.
WWE would be a crown jewel of original sports content for Amazon.com Inc. (AMZN), Walt Disney Co. (DIS), Alphabet, Apple Inc. (AAPL), Netflix Inc. (NFLX), or any other potential suitors.
Jason Bodner said that this stock has also been a top-20 stock in his system all year, with several noticeable movements from Big Money jumping in and buying up the stock.
As of this writing, WWE has a market cap of just over $6 billion, and McMahon is reportedly seeking $9 billion for the company.
There's no guarantee that any deal will materialize, but if one were to happen, it could offer a nice-sized premium from what the stock is trading for now.
If a deal doesn't happen, our tools say that WWE is still worth owning on its own, as it is in our Green Zone and has a Business Quality Score of 97 out of 100.
Have a great start to your week.
Take care,
Team TradeSmith
Invest in Artificial Intelligence or Invest with Artificial Intelligence?
We've been sharing a lot of the opportunities that AI stocks have to offer, as AI is going to be a huge market where a lot of money will be made: Its value is expected to climb from $328 billion in 2022 to $1.3 trillion by 2029.
That's just six short years away.
Again, there will be a lot of money made by investing in AI stocks.
But what most people aren't talking about is the amount of money to be made by investing along with AI systems, like the trading tools we have at TradeSmith.
To develop one tool in particular…
It took years…
It cost millions…
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But we finally created an “instant cash ” algorithm that has identified winning trades nearly 95% of the time — even in bear markets.
Now, when hearing about investing tools, a lot of people may think they need to know how coding works or be an expert at computers.
But if you're reading this on a phone, computer, or tablet right now, you have all the technical know-how you need to use this algorithm.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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