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The Fed is NOT your friend. Plus, how to play Boeing

Jul 27, 2022

Good morning!

‍It’s Fed Day (again)!

As I noted during a conversation with Maria Bartiromo earlier this morning, I don’t have high expectations. In fact, I think Powell will talk in circles and his remarks will be buzzword bingo. (Watch)

Still, all is not lost.

In fact, futures are in the green this morning led by – you guessed it – big tech.

Here’s my playbook.

This is NOT a company that’s failing

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The headline clickbait artists lost no time getting busy yesterday when Microsoft “missed” but really?

The company didn’t miss at all. Analysts did.

Take a good hard look at this graphic. The only two “losses” in year over year terms are Windows OEM and Xbox content services with declines of -2% and -6% respectively.

This is NOT a company that’s failing!

You know what to do.

Knowing what to buy is about understanding contrasts

Many investors are flummoxed because they can’t figure out which stocks to buy. That doesn’t have to happen.

The key, as we’ve been discussing for months as the downturn progressed, is to concentrate on executives with positive outlooks. The guidance doesn’t really matter.

For example, WMT got hammered because the company guided lower which is neither here nor there. Management was very negative because the company has too much of the wrong type of inventory on hand so it’s gonna take a hit as they have to “discount” it out.

Or Alphabet/Google. CEO Pichai said the company isn’t “immune to headwinds”, a very negative message.

Contrast that with what you heard from MSFT, which we just spoke about. The company is growing at 10-12% a year on average and it expects double-digit revenue/income growth in constant currency and US dollars.

Translation ... we're doing fine (thank you very much) to the analyst community. I think it's telling that the company's gross margin is 69.85%.

Think about that for a second because it’s really a very positive message.

BTW – As great as Walmart has been for as long as it’s been, there’s another retailer I like even better. Shares are more stable and people pay to shop there. One Bar Ahead™ members have been on it for months. (Learn more)

Deutsche Bank downgrade makes me wonder who’s buying

One of the cardinal rules in today’s markets is to always do what Wall Street does, not what it says. That’s why the news that Deutsche Bank downgraded MCD caught my attention.

The bank's analysts downgraded the company saying that it’s got limited upside and adjusted the price target from $259 to $263. It’s trading at $257.09 as I type.

The news makes me wonder who’s buying?

Sell-side analysts are bought and paid for. It’s one of the dirtiest secrets on Wall Street which is why you almost never want to take what they have to say at face value.

Read Full of Bull if you haven’t already.

I guarantee you will never look at another analyst report or earnings season the same way again.

Buy Boeing?

Investors are excited to be back out and about again. Many are betting on a rebound in air travel so they’re eyeballing Boeing.

That’s a mistake; it takes years to work an aircraft through the sales/production cycle. The company just missed and has loads of challenges ahead. (Read)

Going upstream with a stock like Alaska Air makes more sense because the relationship is more direct to the consumer’s wallet.

New single hedged ETFs more risky, not less

Wall Street may be a lot of things but stupid isn’t one of ‘em.

The wizards are flogging new single-stock ETFs designed to provide investors with a hedged exposure to volatile stocks like Tesla that they’d otherwise stay away from.

The premise is appealing.

Buy the stocks you want at reduced risk so you can participate in the upside without the risk. Or so goes the sales pitch.

The ETFs use a combination of options and treasuries to assemble a limited risk/limited upside investment choice. They do NOT invest directly in the underlying shares.

Maximum returns are set by the quarter and, in the case of Tesla, are capped at 8.7% while the 90% allocation to T-Bills will attempt to cap losses at “just 10%” according to a Wall Street Journal article on the matter.

This is a negative risk-to-reward ratio and I guaran-flippin’-tee-you that Wall Street’s highly computerized traders have already figured out how to game ‘em. Anybody who buys one of these things is playing with fire.

Wall Street doesn’t do anything unless it knows it can turn a buck at your expense. So don’t give ‘em the opportunity to separate you from your money in the first place.

Steer clear.

Or, here’s a thought – simply learning how to use options yourself. We covered how to insure any stock instantly in the May 2021 issue of One Bar Ahead™ if that interests you. (Read the issue here)