Buy it before it splits!

**Note from Keith: We’ve had a phenomenal number of people join the morning 5 with Fitz Family recently and if you are one of ‘em – Welcome! – I am thrilled you’re here! I’ve written the “5” for my own use for years to clarify my own thinking. Frankly, I had no idea so many people would find ‘em helpful. My goal is super simple ... to share what I know about making money in the markets in an open, transparent, and actionable format suitable for beginners and pros alike. No hype, no gimmicks. All in plain English. Along with the occasionally irreverent take because well, life’s too short!

**

Good morning! 👋

The markets look to extend what is now the longest string of weekly gains since 2017.

Hooyah!

The S&P 500 has tacked on 3.3% for the month while the Dow and the Nazzy (the Nasdaq) have risen 3.8% and 4.1% higher, respectively. Perhaps more impressively, the Dow posted an intraday record on Friday while the Nasdaq 100 had a new closing high.

There is still plenty of upside ahead.

In fact, I just told the wonderful David Asman this morning that my initial 2024 target of 5100 may be too conservative. (Watch)

This is just about as perfect a setup as you’ll see when it comes to investing.

Here’s my playbook.

1 –Forget prices and the notion that certain stocks are “expensive” for a moment

Focus on psychology.

There may be $7-10T on the sidelines, most of which is in short-term cash, bonds, and money market funds… substantially all of which will come a’running as the upside momentum builds.

Tactically speaking, I think the Fed still has one more rate hike planned for Q1 2024 but, as is almost always the case, history shows very clearly that will be an opportunity.

This time around, I think it’s also going to be the last gasp for bearish investors who will finally throw in the towel and admit defeat, having missed most of the rally so far.

In my best Brooklyn accent… tink abouuuttit youz guys!

Analysts have low growth expectations at a time when inflation is slowing, upside momentum is building and the amount of money on the sidelines getting ready to flood back in is staggering.

The best stocks will rise to the top yet again!

Many already are.

Keith’s Investing Tip: Fund investors are going to enjoy the upside because a rising tide raises all boats. But I expect specific stocks will do considerably better, particularly if they make “must have” goods and services the world cannot live without. Buy the best, ignore the rest!

2 – Nippon Steel’s deal: take the money and run!

Japan’s Nippon Steel is planning to buy US Steel for $14.9B and shares are hopping this morning. (Read)

I think it ends badly.

The situation reminds me very much of some of the earliest deals I was involved with in my career in the late 1980s when Japanese companies were gobbling up global real estate.

Here’s why.

Japanese executives saw real estate back then as an asset stash would only appreciate over time; the defining characteristic of nearly every deal they purchased was that they were willing to overpay dramatically. That, in turn, created huge cash flow problems and ultimately losses when they were forced to unload years later as the Japanese markets fell into a funk.

In this case, Nippon steel has offered $55 dollars a share which represents a premium of 142% since the company announced a review on August 11^th.  The company is betting that US steel demand will accelerate as car makers increase production following UAW strikes.

Again, I can’t help but have tremendous sense of deja vu.

I think Japanese execs are so focused on steel production and their global goal of 100 tonnes in capacity that they are 1) underestimating the introduction of alternative materials to the car making process while 2) completely dismissing the looming entry of Chinese car makers into car markets worldwide.

If anything, I see US car production and steel consumption coming down over the next 10 years.

• If you own US Steel, I’d think seriously about taking the money and running for the hills.
• If you own Nippon Steel I would also think seriously about getting while the getting is good.

Yudantaiteki (油断大敵) – false security is dangerous enemy!

3 – Buy it before it splits

Yes, it’s expensive.

Yes, we talk about it frequently.

And yes, it can go a lot higher.

I see Costco topping $700 a share and or a split fairly quickly.

I hope I’m smart enough to buy more!

Shares have returned 590.31% over the past decade versus the S&P 500 which has generated 165.82% over the same time frame, according to Koyfin. That’s nearly $3.57 for every $1 invested in the former versus the latter!!!

My bride, incidentally, rolled her eyes when she saw the company’s latest earnings report knowing how I feel about the stock. I am still under strict orders to keep both hands on the cart at all times when we shop there. 😊

4 – Affirm isn’t a bad company but…

Morgan Stanley downgraded Affirm this morning from Underweight to Equal-Weight while raising the company’s target from $15 to $20. (Read)

Wouldn’t it be great if Wall Street reports were easier to understand??!!

Here’s my take.

Wall Street doesn’t listen to their own analysts when making decisions about what to buy or sell. You shouldn’t either.

MyPOV is that Affirm is a great company with a solid business model. In fact, I’ve recommended it in the past and may one day again.

What I don’t like is that the quality of their customers is going down dramatically.

That’s the real danger sign here.

You can only have so many 0% promotions!

BNPL (buy now pay later) is a fancy financial model cooked up to make customers think that high ticket items are within their reach. It’s no different than car leases, which I positively hate by the way.

It stands to reason that defaults and payment failures will go up as customer “quality” goes down no matter how good Affirm’s business model is.

Sell or buy putskies.

5 – More coffee badgers = more robots & more network security

There’s a new trend for office workers… “coffee badging” - a term used to describe remote or hybrid workers who show up at the office long enough to have a cup of coffee and swipe their badge as a way of proving they were there. (Read)

You can see where this is going just like I can.

An Owl Labs study showed that more than half (58%) of hybrid workers are “coffee badging.”

Experts are saying that this reflects poorly on the company’s policies or mirrors employee’s concerns about an organization’s culture.

Perhaps.

But I can guaran-dang-tee-you that this won’t end the way scores of erstwhile remote workers think.

This kind of stuff will accelerate the introduction of AI, robotics and all sorts of other things that allow managers to do more with fewer workers. Robots and AI, for example, don’t need 3pm yoga breaks, vacations, or warm cinnamon buns in the kitchen.

At the same time, this is going to propel company network security concerns to the very top of the capital expenditure list. Corporate workers who do work remotely or coffee badge are an open security risk.

One of my favourites – and a prime OBA recommendation – has returned 151% YTD versus the S&P 500 which has tacked on an impressive 23.77%. Any investor who put $1,000 into the company I’m talking about at the beginning of this year versus the one who’d put the same $1,000 into the S&P 500 would now have $2,510 versus $1,238,

If you’ve got this covered, that’s great and my hat is off to you. Most investors do not.

Stories like this one highlight changes in how we work will propel investments in “the nature of” work choices including digital security.

Invest accordingly!

Bottom Line

Pessimists have a hard time making money.

Be an optimist.

Life is a lot more pleasant, and profits become a lot more consistent.

Keith 😊