🍻 Seeing the 30-Rack Through the Cans

Happy Sunday to everyone on The Street.

We're going to start today's edition with a riddle. What company has a five-syllable name, a three-letter US stock ticker, and accounts for roughly one of every four beers sold worldwide?

We'll give you a hint: they used to sell America's best-selling beer until Grupo Modelo’s Modelo Especial replaced it in the top spot.

And here’s another: it actually owns both Bud Light and Grupo Modelo.

Yup, it’s Anheuser-Busch InBev. And although it trades under the ticker BUD, it doesn’t appear to be in need of a cold one to drown its sorrows. While many thought the company might be recovering from a hangover after its controversial partnership with a transgender influencer, the brewing behemoth posted surprisingly robust results on Thursday.

Revenue last quarter jumped 7.2% on an annual basis. Estimates were calling for just 4.1% growth.

Yes, North American organic sales by beer volume did tumble 14.1% year-over-year due to the boycott. But global volumes fell just 1.4%. In the Asia-Pacific region, volumes were up 9.5%. In total, revenue actually rose in more than 85% of the company's global markets.

The takeaway is twofold: we still have no idea whether or not the Bud Light brand will take a permanent hit. Right now, it still doesn't look great. But as investors, sometimes it pays to see the 30-rack through the cans, so to speak — especially when it comes to a massively diversified global conglomerate.

AB InBev is still projecting EBITDA growth of 4% to 8% this year. This is unchanged from its May forecast and in line with its medium-term growth targets. Not bad for a beer campaign gone bad.

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Review

US stocks fell Friday after a slew of major earnings and employment data.

The US economy created 187,000 jobs in July, which was below expectations of 200,000 and the 12-month average of 312,000, but still roughly double the 70,000 to 100,000 necessary to keep up with growth.

The unemployment rate in the US also decreased to 3.5% in July from 3.6% in June, offering another sign of a still-tight labor market despite the Fed’s aggressive hiking campaign.

On the earnings front, Amazon CEO Andy Jassy's cost-cutting efforts led to the company's biggest earnings beat since the fourth quarter of 2020.

The company reported an 11% increase in revenue for the second quarter, which exceeded analysts' expectations, and total net income was $6.7 billion compared to a loss of $2 billion in the same quarter last year.

Amazon Web Services generated $22.1 billion in revenue, while advertising revenue was $10.7 billion. For the third quarter, Amazon also expects sales growth between 9% and 13%.

Meanwhile, Apple's earnings showed a decline in sales for its hardware products, including the iPhone, iPad, and Mac. However, the company's services business, which includes subscriptions, warranties, licensing fees, and Apple Pay, reported an all-time revenue record in categories such as advertising, App Store, and music.

While sales of iPads and Macs are expected to decline, Apple anticipates better performance for iPhone sales.

Finally, Airbnb reported an almost 11% increase in nights and experiences booked in the second quarter, falling short of analysts' expectations. The company's revenue grew 18% year over year, reaching $2.48 billion, and net income reached $650 million.

The company also introduced Rooms, an affordable option for renting a bedroom. Airbnb CEO Brian Chesky said there are plenty of services people can buy when they stay in hotels and resorts that Airbnb has yet to make available to its guests.

For the week as a whole, the Nasdaq Composite and S&P 500 fell about 2.85% and 2.27%, respectively. The Dow moved 1.11% lower during the same time period.

Preview

Tomorrow, used car prices will be released. This metric, which tracks the prices of used cars sold at wholesale auctions, dropped 10.3% annually in June, the most since January.

Tuesday, investors can expect the NFIB Small Business Optimism Index. In June 2023, this measure of business confidence edged up to a 7-month high. Still, nearly a quarter of all business owners cited high inflation as their biggest concern. There will also be an update to the US trade deficit, which sat at $69 billion as of May.

On Wednesday, a flurry of reports related to US mortgages will be released, including refinances, applications, and the average 30-year fixed-rate mortgage, which currently sits at 6.93%.

On Thursday, the widely-watched inflation rate will come in for July. Last month, inflation slowed to just 3%, the lowest reading since March 2021. Core inflation — which excludes food and energy prices — will also be released. It clocked in at 4.8% in June.

On Friday, producer price inflation, another key inflation metric, will be released. In June, core producer prices nudged up just 0.1% on a monthly basis.

Earnings Spotlight

Tomorrow, data analytics company Palantir (PLTR) will release its earnings report, giving investors a highly anticipated update on its AI platform. According to CEO Alex Karp, the new platform is “without precedent.” Meat-substitute company Beyond Meat (BYND) and EV automaker Lucid Group (LCID) will also report.

Tuesday, investors will receive report cards from Eli Lilly (LLY), UPS (UPS), and Twilio (TWLO). Investors have been patiently waiting to hear from UPS, as the shipping company’s report was delayed due to a looming strike from its Teamsters Union. Now they’ll be eager for more details on the logistics company’s new labor agreement, which staved off a 300,000-worker walkout.

On Wednesday, Disney (DIS) will give insight into its latest quarter. The entertainment giant appears to be considering its succession plan for CEO Bob Iger, who just tapped two former Disney executives to help advise. Additionally, hydrogen fuel company Plug Power (PLUG) and digital gaming company Roblox (RBLX) will report.

On Thursday, investors will be in for a treat — literally. Krispy Kreme (DNUT) will report before the open, as will entertainment giant Six Flags (SIX). Donut connoisseurs and shareholders alike will be curious to hear the details behind Krispy Kreme’s latest marketing strategy, in which it handed out free donuts to lottery losers.

On Friday, Spectrum Brands (SPB) and Nauticus Robotics (KITT) will round out the week. Management for the autonomous robotics company will likely speak on the company’s new fleet of all-electric surface and subsea robots.

Disney Bets on Theme Parks & Streaming

House of Mouse Stock Down But Not Out

It’s no secret: Disney (DIS) has lost some of its magic.

Multi-billion-dollar bets on streaming haven’t paid off yet and recent movie releases are not performing as well as Barbie and Oppenheimer. Shares are down 60% from their peak set in March 2021 as growth investors lose interest.

To bring back the magic, CEO Bob Iger is betting on Disney’s theme parks and streaming platform. The rest, including sports rights and high-priced shows, could potentially be sold off. Moreover, Disney is actively cutting costs, reducing 7,000 jobs to save $5.5 billion, in pursuit of their goal, while also declaring plans to reinstate dividends to attract investors by year-end.

Iger has until 2026 — when his current contract is up — to turn the tides and enchant investors again.

Streaming Isn’t Profitable…Yet

Disney’s theme parks, cruises, and consumer products unit has long been a bright spot and one expected to be a major growth driver in years to come.

The unit accounted for over a third of sales last fiscal year and two-thirds of operating profit. The launch of premium offerings at theme parks has increased per capita spending at its parks by 40% when compared to 2019.

Streaming is a different story — but one Iger thinks he can rewrite.

Losses have mounted in the past quarters with content costs growing faster than subscription revenue. Nonetheless, Disney expects the streaming unit to break even by the end of fiscal 2024.

Wall Street isn't too sure. The current narrative in streaming is focused on the extent to which subscriber growth translates into profitability. They expect a loss of around $500 million for the unit in that timeframe.

Stock Undervalued?

Bulls argue Disney presents an opportunity for bargain hunters.

None of Disney’s potential is factored into shares which are trading around 18 times 12-month forward earnings. That’s a lot lower than its five-year average of 29 times.

Netflix (NFLX) in comparison, trades at 30.6 times 12-month forward earnings. Warner Bros Discovery (WBD) trades at 196 times. If Disney’s multiple reached 22 times, shares would rise almost 25%.

Theme parks and cruises can’t carry it alone. Disney needs a profitable and growing streaming business too. It thinks it's on the cusp of achieving that, now investors have to get in line for the ride.

India On The Up-And-Up. Should Investors Climb Aboard?

World’s Most Populous Country

India is on a tear and investors may want to take notice. The Asian giant just surpassed China to become the most populous country in the world.

But it’s not just adding people. Its roads and infrastructure are being built up. Government bureaucracy is improving. And, crucially, its economy is growing. A decade ago, India’s economy was the tenth largest in the world. Today, it’s fifth.

Much of the improvement is tied to China’s woes. India is expected to grow by 6.3% next year. That compares to 4.5% for China. Add tensions with the US to the mix and investors and companies are pouring money into India instead.

Entering India via US Companies

For investors looking to bank on India's development, there are several low-risk options, including investing in US companies.

Here, there's no shortage of choices — General Electric (GE), Micron Technology (MU), Boeing (BA), Walmart (WMT), Amazon (AMZN), and Apple (AAPL) are all investing more and expanding their businesses across the Southeast Asian country.

GE inked a deal to make engines for India’s Air Force jet fighters. Micron is opening a new chip test assembly plant. Boeing is spending $100 million to train pilots in the country. Walmart is increasing its product sourcing in India. Amazon Web Services plans to invest $13 billion in the country by 2030. And Apple is tripling the production of iPhones made in India.

It seems just about every major American company wants a piece of the emerging market. Perhaps investors will too.

Funds That Give You Indian Investments

Then there is also the option of investing with companies based in India, trading on the Indian National Stock Exchange. Many have strong balance sheets and provide robust returns on their equity and assets. Some also have little in the way of debt, including Persistent Systems (PSYS.India) and APL Apollo Tubes (APAT.India).

Financials are another way to play the improving market. In particular, HDFC Bank (HDB), which trades in the US, is on bulls' radars. And, for investors who want less company-specific exposure, several ETFs including the iShares MSCI India ETF (INDA) and the WisdomTree India Earnings ETF (EPI) might provide it.

As China struggles, India is having a moment. Investors seeking international exposure, with an emerging market bent, may want to consider what is now the most populous country in the world.

PRESENTED BY SEMPRA

A Growth-Focused Utility with a Historically Strong Dividend

We’re celebrating 25 years of success with total shareholder returns up 1,200% and 810% Market Cap Growth since our formation in 1998. At Sempra, progress means investing in the infrastructure needed for the energy transition and providing safe, reliable and increasingly cleaner energy to those we are privileged to serve. Join us on our journey and learn about our strategy for the next 25 years.

AI Could Transform the Battlefield — And Some Defense Stocks

AI Spending Increasing by Governments

Artificial intelligence isn’t just for writing papers in seconds or trying on clothes in a virtual dressing room. It's also being used on battlefields and in war rooms.

The Pentagon alone plans to spend $1.8 billion on AI in fiscal year 2024. Meanwhile, the number of defense-related AI and machine-learning patents has soared in the past few years. In 2022, there were close to 4,000 patent applications filed. In 2015, it was under 1,000.

That bodes well for the likes of Lockheed Martin (LMT) and General Dynamics (GD), two defense companies committed to AI. They are both working on automated sensors to identify targets. Others are using the technology to collect and analyze data to make on-the-spot decisions during battles.

Beyond the Battlefield

AI’s role in defense goes beyond the battlefield. It's also being used for surveillance and to stave off cyber attacks.

The latter is growing in demand as hackers become increasingly sophisticated. AI’s ability to quickly block and fight cyber attacks is expected to be a major driver of demand. There are several defense companies focused on this area of AI including BAE Systems (BAESF), Northrop Grumman (NOC), Booz Allen Hamilton (BAH), and Palantir (PLTR).

Still in the Early Days

Another area where AI is beginning to play a role is with unmanned aerial vehicles and underwater vehicles that can be used in battle. Boeing (BA) is partnering with Shield AI, a defense technology company, to bring AI pilots to military clients.

AI is transforming many industries including defense. As it's in the early stages of development, when it will make an impact remains to be seen. But, if this widespread adoption of advanced technology by militaries worldwide over the years is any indication, AI is poised to become a major driver of business for defense companies for years to come.

Last Week's Poll Results

Are you bullish or bearish on Frontier Communications (FYBR) over the next 24 months?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨🟨🟨🟨⬜️ 🐻 Bearish

Are you bullish or bearish on alternative meat as an investing theme?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish

Which stock do you think is going to outperform over the next 12 months?

🟩🟩🟩🟩🟩🟩 Mattel (MAT)

🟨🟨⬜️⬜️⬜️⬜️ Five Below (FIVE)

🟨🟨🟨⬜️⬜️⬜️ Warner Bros. Discovery (WBD)

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