🎟️ Big-Ticket Belt Bags

Plus, massive recalls from Kia and Chrysler

Happy Monday afternoon to everyone on The Street. Here's a snapshot of where markets ended the trading session, plus tomorrow's trade idea delivered to you today.

  • 🟩 | US Stocks Rose on Monday. The S&P 500 and the Nasdaq Composite closed at record highs despite uncertainty surrounding May inflation data and the Fed’s looming rate decision.

  • 📈 | One Notable Gainer: Shares of Diamond Offshore Drilling surged 11% following news that it will be acquired by the world’s biggest offshore oil rig contractor, Noble Corp, in a deal valued at $1.6 billion.

  • 📉 | One Notable Decliner: Advanced Micro Devices saw its stock drop 4% after Morgan Stanley downgraded it to Equal Weight from Overweight, citing valuation concerns.

  • 🎟️ | Tomorrow's Trade: Big-Ticket Belt Bags. Scroll down for more.

LAST FRIDAY’S POLL RESULTS

🟩🟩🟩🟩🟩🟩 Bullish

🟨⬜️⬜️⬜️⬜️⬜️ Bearish

S&P 500 Heatmap. Credit: Finviz

All Stock Heatmap. Credit: Finviz

Global ADR snapshot. Credit: Finviz

MARKET MOVERS

TSLA (-2%) Shares of Tesla fell despite the automaker clearing another hurdle to launch completely self-driving vehicles in China (CNN)

CRWD (+7%) Shares of cybersecurity company CrowsStrike rallied to a record high after an announcement that it will be joining the S&P 500 (CNBC)

DKNG (+3%) Sports entertainment and betting company DraftKings saw shares rise after Morgan Stanley announced it is one of its top picks (SA)

AAPL (-2%) Apple’s stock fell despite hosting its Worldwide Developers Conference and announcing a variety of new AI features (CNBC)

LLY (+2%) Eli Lilly’s stock hit a 52-week high after the FDA greenlit its Alzeihmer’s treatment as effective for patients in early treatment (Bloomberg)

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OVERHEARD ON THE STREET

The Verge: Apple is partnering with OpenAI to put ChatGPT into Siri, and ChatGPT will be available for free in iOS 18 and macOS Seqoia later this year.

CNN: Kia is recalling 463,000 Telluride SUVs and telling customers to leave their cars parked outside as the front seats could catch fire.

AP: More recalls… Chrysler is recalling 211,000 SUVs and pickup trucks due to a malfunction that could disable the cars’ electronic stability control systems.

CNBC: Moderna said its combination vaccine targeting Covid and the flu was more effective than existing standalone shots in a late-stage trial.

BI: The New York Fed estimated in its latest recession forecast that the US has a 50-50 chance of slipping into a downturn within the next 12 months.

TOMORROW’S TRADE IDEA, TODAY

Slowing Growth

Lululemon’s (LULU) stock has plummeted over 35% YTD. This fall-off has been largely caused by investor fears of stalling growth in North and South America. The stock has also been plagued by recent news that the athleticwear company's Chief Product Officer resigned.

Despite beating sales and net income expectations, Lululemon’s recent earnings call confirmed slowing growth in the Americas. Analysts expected 1% growth in the region, but the number came in flat. CEO Calvin McDonald downplayed this indicator, pointing to legging and bag inventory issues as the culprit.

Tactical Proximity

Analysts don’t wholly agree with McDonald’s assessment, noting that the company may be losing touch with its customers. Lululemon has transitioned from a yoga company to selling a wide range of athletic apparel. This has allowed smaller, more focused competitors to steal some business. 

Competitors Alo Yoga and Vuori have been opening their stores in close proximity to Lulu locations. Around 90% of Vuori and 84% of Alo Yoga’s US stores are within a half mile of Lululemon storefronts. The smaller athleticwear companies gained a 1% market share each over the past 12 months, while Lululemon stayed flat.

Justifying the Price

Alo and Vuori’s combined US women’s annual revenue comes in at $1.5 billion, amounting to around 38% of Lululemon’s comparable revenue. 

Lulu is predicting around 12% revenue growth this fiscal year, as it expects growth outside of the Americas to remain strong. It boasts one of the highest operating margins in the nonluxury apparel industry. However, the stock’s premium price is looking less and less attractive. 

The company’s new leadership will have to sell more than just belt bags to its investors.

Are you bullish or bearish on Lululemon (LULU) over the next 12 months?

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Make your money rise and grind while you sit and chill, with the automated investing and savings app that makes it easy to be invested.

ON OUR RADAR

Bloomberg: One of Tesla’s longest-standing holders, Scottish asset manager Baillie Gifford, will vote in favor of Elon Musk’s $56 billion pay package.

Fox Business: According to a BMO Financial survey, 71% of Americans are waiting on interest rate cuts before hunting for homes.

CNN: Microsoft and Google are offering free or discounted cybersecurity services to rural hospitals that have been plagued by cybercriminal attacks.

Bloomberg: Donald Trump said he'd scrap taxes on tipped earnings for hospitality workers if he wins the White House.

YF: Bill Gates and his energy company are starting construction at their Wyoming site for a next-generation nuclear power plant.

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