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No regrets: This could be your last chance to buy at these levels

May 17, 2023

Good morning! 👋

The markets are up a skosh in early going ahead of the bell on hopes of a debt ceiling deal.

I’m not holding my breath.

Instead, I am hunting for opportunity.

Chaos has a funny way of creating openings that can often lead to surprising results down the line.

To a point one of my mentors used to make frequently... “Buy when others are despondently selling.”

Here’s my playbook.

Musk to naysayers: Pfffffft

Expectations heading into yesterday’s annual meeting were low enough to win a limbo contest, but as I suspected would happen, CEO Elon Musk came out swinging.

I was happy to see him acknowledge that the next 12 months will be tough... then lay out plans, new products, and—get this—advertising for the first time. (Watch)

Critics are poo-hooing everything, of course. Such direct commentary interferes with their version of reality. But there’s no doubt in my mind that they’ll be sorry (again).

The stock is up 1.4% in pre-market trading, and this may be your last chance to buy it at these levels if my read on the situation is correct. I think the stock will be $300 12–24 months from now.

I hope I’m smart enough to buy more.

Target hits the mark

Target’s results were better than expected, but as I noted this past Monday morning, consumers continue to pare back discretionary spending while preferring to buy “must have” products, chief among which is groceries.

Consistent inflation, running out of savings, penny pinching...

These things are all signs that consumers continue to get the short end of the stick. What catches my attention, though, is that CEO Brian Cornell noted that online deliveries tend to be more discretionary items but that curbside pickups are necessities. Oh, and “shrink” (theft) will cost the company $500 million this year.

There are a number of investing takeaways here.

First, retail stocks are nowhere near out of the woods. I think Walmart is the better play if you’re comparing Walmart and Target. Also don’t forget there’s a “Boycott Target” move underway, similar to the situation with Bud Light, that could cost the company significantly if it accelerates.

Meanwhile, I’d rather own another big boxer (and do).

Shares have returned 173.98% over the past 5 years versus the S&P 500, which has tacked on 50.96% over the same time frame, according to Eikon.

That’s a 3-to-1 performance advantage for anybody following along—and enough to turn every $1,000 invested back then into $2,739.80 today. The same $1,000 invested in an S&P 500 index fund or the SPY would be worth just $1,509.60, which is respectable but obviously quite a bit less.

Now it’s time for a shameless sales pitch.

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Rats off a ship or...???

This is interesting.

Crypto firm Ripple has apparently purchased Metaco, a Swiss startup crypto custodian, as the SEC continues to crack down on crypto and, in the process, forces companies to consider overseas moves. (Read)

Most people are going to focus on the deal itself, which is expected to give Ripple access to big-name clients like Citi and BNP Paribas. Or that the move is happening while Ripple awaits the results of a contested lawsuit.

They’re missing the point.

The thing you want to focus on is deceptively simple and one of my most important investing maxims... Money, like water, always flows to where it is treated best.

That’s why, as an investor, you want to seek out companies with fluid management who understand the principle.

I don’t like crypto at the moment, but I sure as heck like Ripple’s CEO Brad Garlinghouse who said pointedly, “We’re going to play offense.”

Indeed! 💯

Refiners run rates

AAA predicts that this year’s Memorial Day holiday weekend will be the third-busiest for auto travel since 2000 and the most active at US airports since 2005. (Read)

US refineries are ramping up production and want to hit 94%.

There are two important takeaways here.

First, we still need dinosaur juice to get us where we’re going.

Second, running refinery utilization rates at higher levels during the summer months was a common pre-COVID practice. And now it’s a sign that demand is accelerating, even though recessionary fears loom.

You know what to do!

Reinventing the wheel

I’m a motorhead and I love the open road, which is why this caught my attention.

Tires are the next big-ticket item up for debate in a transition to all-EV world. (Read)

Here’s why.

EV are much heavier than their traditional ICE counterparts. Many people are surprised to learn, for example, that the F-150 Lightning weighs up to 6,500 lbs. while a regular F-150 weighs between 4,021 and 5,014 lbs., according to Jack Demmer Ford.

That extra weight causes the tires to wear out much faster—up to 50% faster, according to Michelin and Goodyear.

So?

First, when tires hit the road, tiny particles are emitted, which in turn causes ecological chaos that we still don’t fully understand but are beginning to.

Here in the PNW, for instance, we’ve salmon-sensitive rivers and some of the world’s most fertile fishing grounds at risk. Chances are you’ve got something similar in your neck of the proverbial woods, too.

Second, tires wearing out up to 50% faster on EVs is a big deal because they’re not cheap. Some studies suggest that as much as 70% of Americans couldn’t afford an unexpected $500 expense without financial hardship or going into debt.

I could easily make a bullish case for materials under the circumstances. For how long, though... nobody knows.

There are three publicly traded tire companies that could make a nice speculative flyer if you’re jonesing for one: The Goodyear Tire & Rubber Company (GT), Bridgestone Corporation (BRDCY), and Compagnie Générale des Établissements Michelin Société en commandite par actions (MGDDY). There’s also Hankook Tire & Technology Co. Ltd. (KRX: 161390)