🧽 Sterilize Your Portfolio

Happy Sunday to everyone on The Street.

If you're looking for a starter home, don't hold your breath.

The US housing market is about 320,000 homes short when it comes to affordable options for middle-income buyers. These are buyers that earn as much as $75,000 and are looking for listings under $256,000 according to a report from the National Association of Realtors and Realtor.com.

COVID isn’t solely to blame. There’s been a chronic issue with new supply in this segment for years. With that said, the pandemic didn't help. Prices largely went up and to the right starting in 2020 and then last year mortgage rates spiked. Homeowners who locked in lower rates are hesitant to move, which is sometimes referred to as a “sellers strike”. This further reduced inventory.

The report notes that buyers need to be making at least $125,000 a year or more to afford half of the US homes on the market. This is up from just $75,000 five years ago.

— Brooks

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Review

US stocks finished higher Friday as investors looked ahead to this week’s CPI data and Fed interest rate decision. As it stands, markets are pricing in a roughly 70% chance the Fed will hold rates where they are. This would be the first meeting since March 2022 without a rate hike.

On the earnings front, DocuSign surpassed analyst top- and bottom-line expectations. The e-signature provider saw a 12% year-over-year increase in revenue and announced new products and services, including Webforms, a way for organizations to create, customize, and manage forms. The company also made a handful of strategic hires last quarter, including appointing a new Chief Financial Officer, Chief Product Officer, and Chief Information Security Officer.

In other company-specific news, General Motors will follow Ford’s lead in partnering with Tesla to use its North American electric vehicle charging network. GM will also begin installing the NACS charging port used by Tesla in all of its EVs starting in 2025. As a result of this deal, the automaker expects to save up to $400 million.

On the economic front, Americans now hold a record $988 billion of credit card debt, just shy of $1 trillion. On average, individuals carry around $5,700 in credit card debt, with Americans aged 40 to 49 carrying the highest average at $7,600.

With interest rates at decade-high levels, the cost of carrying that debt has also increased to more than 20%, compared to 16% a year ago.

In total for the week, the Dow Jones Industrial Average finished 0.34% higher, while the S&P 500 added 0.39%. The Nasdaq Composite was up 0.14%.

Preview

Tomorrow, the US government will offer investors a look into its monthly budget. In April, the government operated at a surplus of $176 billion thanks to tax filing season receipts, its first surplus since April 2022.

On Tuesday, investors will receive the monthly inflation update for May. As of April, the core inflation rate sat at 5.5%, a 0.1% decrease from the month before.

Wednesday will be a widely-watched day, as the Federal Reserve is set to announce its latest interest rate decision. After raising interest rates for 10 months straight, the market is pricing in around a 70% chance the Fed will hold off on a rate hike for June.

Thursday will be the busiest day of the week, as investors digest the previous day’s decision, along with a flurry of economic reports to be released. These include retail sales, import prices, export prices, industrial production, and business inventories.

On Friday, the week will close out with speeches from two members of the Federal Reserve, Chris Waller and James Bullard. Their comments will give further context to the Fed’s June policy decision, and investors will look for early clues as to the central bank’s plans for July.

Earnings Spotlight

Tomorrow, Oracle (ORCL) will kick off the earnings week by giving investors an update on its business. Last quarter, the software company reported quarterly earnings growth of 48%, driven by its two cloud businesses, infrastructure and applications. With the widespread adoption of generative AI, the need for cloud computing has only accelerated since this report. Investors will be eager to see the impact that the AI wave has had on Oracle’s top- and bottom-lines.

On Tuesday, Iteris (ITI) will offer an update on its business. Investors will tune in to see how the changing transportation landscape has impacted the California-based company, which uses information technology and digital image processing to enhance driver safety. Last quarter, Iteris posted revenue of $40.7 million, up 27% year-over-year.

On Wednesday, Anterix (ATEX) will report its quarterly earnings to investors. They will look to hear more about the private broadband company’s recent partnership with the Lower Colorado River Authority.

On Thursday, Kroger (KR) will report on its sales from the past quarter. Investors will be eager to hear the latest on its merger with Safeway-owner Albertsons (ACI), which is being held up by regulators. If the merger is successful, it will create a grocery store conglomerate with 5,000 stores in 48 states. Adobe (ADBE) will also hand in a report card, and will surely touch on its buzzy new AI art generation tool, Firefly.

Sterilize Your Portfolio With Steris

Clean Up-side

Being clean is still trendy, even if the days of sterilizing Amazon (AMZN) packages have faded post-pandemic. Hospitals still want clean and sterilized equipment — and that’s where Steris (STE) comes into play.

The company specializes in sterilization, producing products widely used in hospitals and other medical settings. The stock is currently trading at 22.3x 12-month forward earnings which compares to the S&P 500 Index’s 18.3x. While this is pricey by some standards, bulls think there’s room for upside.

After all, hospitals are returning to pre-COVID levels in terms of procedures and it doesn’t hurt that a good chunk of Steris’ revenue is recurring.

Some Ups and Downs

As with every stock, there’s been ups and downs despite the fact Steris is a fairly stable business.

Earlier in the year, Steris’ share price slumped on poor guidance due to supply chain issues. However, it recouped those losses and then some on the back of better-than-expected fiscal fourth-quarter top-and bottom-line results.

Since mid-May, shares are down about 5% — but the company may be poised to post an EPS of $8.66 for fiscal year 2024 and revenue of $5.33 billion. That’s a 5% and 7% increase, respectively. If Steris hits both targets, it would mark its highest year-over-year growth on record.

Pricing Power Gives It an Edge

Another thing Steris has going for it is pricing power.

Disinfectants and sterilization chemicals aren’t typically highly-priced. So it's not an area hospitals look at to reduce costs. Therefore, when Steris hiked prices by 3.3% recently, to adjust for inflation, its customers didn’t bat an eye. Or is it eyelash? Apparently both work.

Moreover, if expenses decrease and Steris realizes savings from its acquisition of Cantel, which makes infection-prevention products, earnings could see an additional boost.

Other possible catalysts include a potential acquisition by a larger player and the new $500 million share buyback program Steris recently announced. It's the first time the company has engaged in a buyback to take advantage of what it considers a low stock price. Now it’s time to see if Wall Street agrees.

Wealth Conductor?

Giddy Up

Copper prices are down, but they likely won’t stay that way forever — and it’s got some Wall Street analysts giddy.

That’s the case for Citi (C) which expects copper prices at the very least to increase by about 50% to $12,000 per ton by 2025. The Wall Street firm predicts the metal can even hit $15,000 per ton between now and then, doubling from current levels.

Citi thinks investors should build a position in copper over the next six months, arguing it presents an “attractive risk-reward.” Citi isn’t alone. Goldman Sachs (GS) is also pounding the table on copper, predicting prices will rise 25% over the course of the next 12 months.

EV Demand Driving Growth

The way these Wall Street firms see it, demand for copper is only going to increase as electric vehicle production ramps up. Copper is used in batteries, wiring, and charging points for the EV market. The precious metal is also used in several different applications in the construction and industrial markets.

How to Get Exposure

When it comes to getting copper exposure, there are several stocks that have buy ratings, including Teck Resources (TECK), NGEx Minerals, Foran Mining, China Gold International Resources, and Filo Mining.

A few analysts expect NGEx Minerals, the Canadian miner, to have the most potential upside at close to 100%. (Good time for a quick reminder: that’s their prediction, not ours. Do your own due diligence). Meanwhile, Filo Mining has the highest percentage of analysts with buy ratings, hovering around 91%.

Then there’s Teck Resources, the US copper producer which has the potential for a 10% upside, according to Wall Street estimates. For more passive investors, there are several ETFs, including the United States Copper Index ETF (CPER) and the iPath Series B Bloomberg Copper Subindex Total Return (JJCB).

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Will AI Transform Travel?

Too Early to Tell

AI is everywhere with all sorts of industries deploying the technology to boost productivity and cut costs. One area that could — and arguably should — benefit is travel.

It will almost certainly take a while to roll out. But AI does promise to provide more than just a new marketing vehicle for the travel industry. Eventually, it could provide online travel agencies with an alternative way to reach potential customers beyond Google (GOOGL).

“You’re not going to necessarily see an immediate impact — at least we don’t think so,” Nick Jones, an analyst at JMP Securities told CNBC. But over time he said AI could be used for rebookings and cancellations, automating those tasks and reducing the need for staff, while also helping to land new customers. That in turn would lower costs and boost profits.

Expedia Already Embraces It

One travel company that is already embracing AI is Expedia (EXPE). The travel site has a chatbot powered by ChatGPT. But it's in the early innings, and not yet clear how the tech will integrate into its business or be received by its customer base.

Booking (BKNG) and Airbnb (ABNB) may also benefit from AI as they pour investment dollars into the technology. JMP’s Jones thinks the online travel agents with the deepest pockets will benefit the most. He pointed to Booking, saying its higher margins could mean more investments in AI.

Meanwhile, Dan Wasiolek, an analyst at Morningstar, thinks the travel companies with the highest traffic levels and the deepest customer data sets will benefit the most from AI.

Tripadvisor’s Uphill Battle

For a potential loser in the AI arms race, Wasiolek points to Tripadvisor (TRIP). He made the call largely because Tripadvisor isn’t a direct online travel agent so much as a hybrid online travel agent and metasearch company. As a result, it could face more competition from Google and Meta Networks (META) if they launch their own AI travel services.

That’s not to say the likes of Expedia and Booking won’t get hurt by big tech’s potential expansion too. They would also surely lose business if consumers start using Google to book travel. But, if Microsoft’s (MSFT) influential move to integrate ChatGPT into Bing is any indication, AI can entirely change the name of the game. And, for now, it's anyone's game to win.

“It’s just so early to know how that’s all going to shake out because consumers are going to need to trust the system,” said JMP’s Jones. “It’s going to make errors in the early days.”

Last Week's Poll Results

Are you bullish or bearish on CRH over the next 12 months?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish

Are you bullish or bearish on Marvell Technology?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨⬜️⬜️⬜️⬜️⬜️ 🐻 Bearish

Are you bullish or bearish on Japanese equities over the next 6 months?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨⬜️⬜️⬜️⬜️ 🐻 Bearish

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