Friday Four Play: The “Return of Tariff Man” Edition
Dateline: May 1, 2020 — “Tariff Man” strikes again!
You thought he was gone, dear reader, but Tariff Man is mulling a return from retirement. We haven’t seen this much groaning since Rob Gronkowski’s appearance on The Masked Singer.
According to The Washington Post, U.S. officials are debating retaliatory proposals for China’s handling of COVID-19. The report said that ideas include canceling part of the U.S.’s debt obligations to China … and renewed tariffs are on the table.
When asked about canceling U.S. debt obligations, President Trump said: “I could do the same thing but even for more money, just putting on tariffs.”
Looks like I have to dust off the ol’ Great Stuff Trade War Cycle chart.
Following Trump’s tariff comments, the Dow plunged more than 400 points on the market open.
Going by the Trade War Cycle chart, we’ve already blown through the “Administration is tough on trade with China” phase … plunging headlong into the “Market sells off on trade war fears” phase:
I’m providing the chart today for all the new Great Stuff readers out there, just so you know what could be headed our way. We followed this exact cycle for the latter half of 2019 until the phase 1 trade deal was signed in early January.
However, I don’t see this latest tariff threat lasting long. The economy already struggles with the COVID-19 pandemic lockdown. A renewed trade war — complete with nasty tariffs — would hurt the technology sector badly. That’s unfortunate because tech has been the one market sector to outperform so far this year.
Hopefully, the market’s reaction to the tariff news will give Trump a pause about pushing ahead with this plan of action — for all our portfolios’ sakes.
And now for something completely different … here’s your Friday Four Play:
No. 1: A Clean Sweep
Congratulations are in order, dear readers!
If you bought into Clorox Co. (NYSE: CLX) when Great Stuff recommended it back on January 31, you’re up more than 20%! (For the record, the S&P 500 is down more than 11% for this period. You’re beating the market!)
In fact, Clorox shares were among the few bright spots in today’s market. The stock gained more than 4% after Clorox beat Wall Street’s quarterly earnings and revenue expectations.
“Beyond the extraordinary growth in our disinfecting products, we saw broad-based growth across all four segments as our portfolio is uniquely positioned to serve consumers in this unprecedented time,” said CEO Benno Dorer.
If you already own CLX, I’m putting a “hold” on the shares. Yes, Clorox should continue to see solid earnings throughout the COVID-19 pandemic, but CLX is approaching key price resistance near $200.
In other words, I expect CLX to trade sideways below $200 for the time being. I don’t recommend buying in at this price point, but I also don’t recommend selling yet. CLX should hold its value better than the rest of the market.
No. 2: Today’s Secret Word? Buybacks!
More of the same? From Apple?! Color me surprised. I’m flabbergasted. Shook.
Apple Inc. (NASDAQ: AAPL) reported earnings after yesterday’s close, and if you need any help sleeping this weekend, the company’s business update is … is … zzzzz.
Both earnings and revenue beat analysts’ estimates by sizeable margins. So far, decent. Heck, I’d be impressed if things stopped there. But, just like almost every other Apple quarterly report for the past few years, you can already guess what comes next:
IPhone revenue drops!
Services revenue rises!
When supply chain issues early in the quarter meet falling iPhone demand (Give me headphone jacks or give me … better Bluetooth!), it’s not like this was an unlikely scenario. Throw some brand-new tariff uncertainty into the bag of Apples, and it’s almost like we’re back in the balmy days of 2019 … and 2018.
CEO Tim Cook says: “We have great confidence in the long-term of our business. In the short-term, it’s hard to see out the windshield to know what the next 60 days look like, and so we’re not giving guidance because of that lack of visibility and uncertainty.”
Long-term confidence? I say “nay nay.”
Do you know what instills long-term business confidence? Innovation. A clear direction forward. New products — not slightly different iterations of the same one. Above all? Reinvesting in the business.
When it comes to that last point Tim Cook also said “nay nay.” Now, get ready to scream! Instead of pouring its profits back into tech research and development, it’s time for $50 billion worth of buybacks! (Whoooo-eeee!)
You’d think that with Apple designing chips to detangle itself from Intel’s clutches … and the fact that we’re nearly knee-deep in recession mode, tariff talk and supply chain disruption … even a three-year-old could find better ways to spend $50 billion. Maybe then, AAPL investors would at least get ice cream or a Hot Wheels track out of the deal.
Forget Apple… If you want actual innovative tech to invest in, Paul knows just where to start. Click here!
No. 3: Why Don’t You Have a Seat?
Wall Street expected Amazon.com Inc. (Nasdaq: AMZN) to crush revenue targets. And it did.
What investors didn’t expect, however, was for the company to return to spending cash like a drunken sailor on shore leave after 12 months at sea.
As the de facto online retailer for the pandemic stay-at-home market, Amazon raked in sales of $75.45 billion last quarter. Very impressive. Earnings, however, came up a touch short due to increased spending. But that was the tip of the iceberg.
“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” CEO Jeff Bezos told investors in the company’s conference call.
The company anticipates $4 billion in COVID-19-related costs for the current quarter. That’s basically all of Amazon’s profits, leading analysts to speculate that the company could post its first quarterly loss in five years.
In fact, Amazon projected the current quarter’s operating income to land between a loss of $1.5 billion to a gain of $1.5 billion. How’s that for uncertainty?
That said, long-term Amazon investors are used to the company spending money hand over fist. Amazon knows that you need to spend money to make money. Still, anyone looking to buy AMZN might want to wait for a retest of the $2,200 area — home to the stock’s February highs.
All the AMZN newbies out there will be shocked by this spending spree, and an extended decline to support levels due to profit-taking is likely in the cards.
No. 4: Big Beats Are the Best
Dear AbbVie, my arthritis has me burning up lately, and all my husband gives a $@&# about is biotech earnings beats. How can I get him invested in me again? — Feeling traded, Boise, ID.
Break out the IcyHot: Biotech giant and Great Stuff Pick AbbVie Inc. (NYSE: ABBV) just delivered the pandemic earnings season triple threat!
First, we have earnings in at $2.42 per share — a big beat on expectations for $2.25 a share. Better still, AbbVie racked up $8.62 billion in sales worldwide, besting analysts’ estimates by $300 million and some change.
Here’s the sweetener: Not only did AbbVie keep guidance intact … the company even projected full-year earnings will rise 7.5% over 2019’s figures.
How? Because of billion-dollar blockbuster Humira, which treats arthritis, plaque psoriasis, ankylosing spondylitis (bless you), Crohn’s disease and ulcerative colitis. It’s like the Swiss Army Knife of immune system drugs, and it’s AbbVie’s secret sauce to navigating the pandemic market.
If you bought when we recommended ABBV in our “4 Stocks to Beat the Wuhan Virus” issue … you’re up about 3%. Hey, not every biotech play is a high-flying, overnight millionaire maker. (That said … can I get a “heck yeah!” for Great Stuff readers who banked triple-digit gains on our free Inovio Pharmaceuticals Inc. (Nasdaq: INO) biotech trade?)
The market’s just now waking up to AbbVie’s resilience, and you know what? That’s OK. Because today, AbbVie proved its mettle as a solid, cash-printing machine. And that’s a whole lot more certain than the dozens of “Me, me, look at my vaccine!” biotech bets that the market has pushed up over the past month.
(Editor’s Note: It’s a biotech blowout bonanza! Still looking for a way to invest? It’s not too late … if you click here ASAP.)
Great Stuff: So Long and Thanks for All the Fish!
That just about wraps up what might be earnings season’s busiest week yet. And next week looks like no sleeper when it comes to tech, biotech and e-commerce stocks.
Stick with Great Stuff, and we’ll keep you in the loop with all the earnings excitement your eyes and ears can handle!
Don’t go gentle into that good weekend — but do remember that Great Stuff is always on social media too. Here we are on Facebook and Twitter.
Until next time, be Great!
Joseph Hargett
Editor, Great Stuff