👉 Week in Review: 9/24/23

Happy Sunday, everyone.

In case you’ve missed it, we’ve had a handful of IPOs (initial public offerings) take place over the last several weeks. Continue reading through this post to see breakdowns of a few of our favorites.

• Arm Holdings (ARM)

Arm Holdings is a London-based semiconductor company that designs and manufactures intellectual property licenses for its partners to develop digital electronic products. Currently, more than 260 major technology companies use licenses provided by Arm — includes Apple, Amazon, Intel, Nvidia, Alphabet, Microsoft, Samsung, and TSMC.

Arm’s IPO is the largest on the US market in the last two years. Some have speculated that this company’s IPO will be the catalyst the market needs to reinvigorate the IPO market — I would disagree.

Reasons to be excited about ARM:

1. They’re a clear leader in the chip design segment and work with the world’s largest technology companies — ensuring cash flow and steady profitability for years to come.

2. The company operates within a growing industry and is expected to grow by +12% compounded annually through 2032.

Reasons to be on the sidelines:

1. Their operating income margin is the lowest amongst their peers at only 20% — however, this might turn into an expansion opportunity in the coming years.

2. Current valuation ($52 / share) implies a forward price / sales ratio of 19X, compared to names like Nvidia (14X) and AMD (6X). Nvidia and AMD are trading lower sales multiples with higher profit margins — therefore, it’s safe to assume ARM is on the frothy side right now.

My thoughts:

• Important Reminder for Accredited Investors

Consider learning more about where Farmland might fit inside of your diversified investment portfolio. Investing in farmland can take many shapes — that might mean soybeans, corn, and even timber.

However, the rationale behind the investment is always the same — potential capital appreciation and passive income. 

Over time, the farmland itself appreciates in value (similar to any form of real estate). This is usually 2-3% per year in appreciation. Also similar to other forms of real estate, passive income can be generated for the investor by leasing the land to farmers. Sort of like renting a house to a tenant. 

The AcreTrader team is deeply experienced in all things Farmland — education, investment opportunities, and news. I’ve begun to take Farmland investing, specifically Timber Tracts, very seriously. If you want to learn more about AcreTrader — how they select their investments, potential returns, financial projections, and everything in between — click this link! 

If you’re an accredited investor looking to diversify into an asset class that’s relatively uncorrelated to the S&P 500, has displayed decades of stable returns, and certainly isn’t going away — be sure to check out AcreTrader.

Here’s my video from last week breaking it all down.

Portfolio Updates:

Don’t forget, the Portfolio Tracker is not only the HQ for all things stocks and ideas — it’s also where I share Wall Street’s price target for each individual name as well as its SeekingAlpha Quant Rating.

If you’re not yet a paying subscriber, consider becoming one to unlock portfolio access!

As you all know, I decided to allocate $26,250 to buying 100 shares of Tesla in efforts to generate passive income through covered calls over deploying it directly into the Dividend Growth Portfolio.

I should have fresh capital to deploy and trade with in the coming week or two — so stay tuned there. As it relates to the covered call strategy with Tesla, all is well! I’ve generated $1,505 in passive income for simply owning the stock — something I should be able to replicate again in October.

My goal is continue to write covered calls against these 100 shares until I completely recoup my entire $26K investment (should take 10-14 months) — then re-evaluate.

There’s always the chance my shares get assigned and I have to sell them at the agreed upon strike price (higher than what I paid for them), but with the market headed further and further lower, I’m not sure this is going to be a problem.

At time of writing, I should be able to collect another $1,470 in premium when this covered call expires on October 20th. I’ll keep you all posted!

Quick Reminder: consider dollar cost averaging into some Bitcoin. Right now, Bitcoin and cryptocurrency are cuss words. We all know you make the most money when buying the despair and selling the euphoria.

Week in Review — Too Long, Didn’t Read:

AutoZone enters my watchlist, Darden Restaurants are finally put to the test, deep dive on the Instacart IPO, Cisco pulled out its checkbook to buy Splunk, Auto strikes are still in full force, Fed rate cuts now aren’t expected until the end of 2024, the Conference Board’s Leading Economic Index still isn’t looking great, and Existing Home Sales are absurdly low.

Key Earnings Announcements:

AutoZone reiterates plan to open 500 new stores, and Darden Restaurants experienced relatively flat traffic to their locations.

• AutoZone (AZO)

Key Metrics

Revenue: $5.7 billion, an increase of +6% YoY

Operating Income: $1.2 billion, an increase of +11% YoY

Profits: $864.8 million, an increase of +7% YoY

Earnings Release Callout

“During the quarter ended August 26, 2023, AutoZone opened 53 new stores and closed one in the U.S., and 27 new stores in Mexico and 17 in Brazil for a total of 96 net new stores.

For the year, the Company opened 197 net new stores. As of August 26, 2023, the Company had 6,300 stores in the U.S., 740 in Mexico and 100 in Brazil for a total store count of 7,140.”

My Takeaway

• Darden Restaurants (DRI)

Key Metrics

Revenue: $2.7 billion, an increase of +12% YoY

Operating Income: $252.9 million, an increase of +4% YoY

Profits: $194.5 million, an increase of +1% YoY

Earnings Release Callout

“Looking across our entire portfolio, I am pleased with our first quarter results. Our strategy is working.  We continue to grow share, strengthen margins, and make meaningful investments in our business while returning capital to shareholders."

My Takeaway

Investor Events / Global Affairs:

Instacart’s big time IPO, Cisco’s acquisition of Splunk, and the UAW strike continues to cause issues across the auto industry.

• Breaking Down the Instacart (CART) IPO

Instacart (also known as “Maplebear”) provides online grocery shopping services to households in North America. They sell and deliver a range of products — including food, alcohol, consumer health, pet care, ready-made meals, and other grocery-store-found products.

They make money by taking a small percentage of sales conducted through their marketplace. Over the last 12 months, nearly $30 billion in gross transaction volume took place across their marketplace — over 263 million orders. This produced a gross profit of $2.2B for the company, and $486M in adj. EBITDA.

Reasons to be excited:

1. Instacart’s market share for online grocery deliver is incredible. According to their S-1, they have a 76% market share on online grocery delivery over $75 in basket value. Orders over $75 in value make up ~75% of their orders (a good thing for Instacart).

2. They’re operating a profitable business — and their operating income margin is industry-leading at 5%.

Reason to be on the sidelines: 

1. Covid-19 catalyzed this company’s success — can this momentum last for several more years? Or are people going to eventually stop with grocery delivery all together?

2. Competition is plentiful. Target, Walmart, Kroger, Whole Foods / Amazon, DoorDash, Uber Ears, GoPuff, and Drizly all come to mind as direct competitors to Instacart.

My thoughts:

If you all like these IPO breakdowns, be sure to let me know in the comment section below. I’d be more than happy to create some sort of monthly series where I dive deep into newly-listed companies and share my updated thoughts!

• Cisco (CSCO) Acquires Splunk (SPLK)

Cisco is making its largest-ever acquisition by purchasing cybersecurity software company Splunk for approximately $28 billion in an all-cash deal. Splunk specializes in data monitoring and analysis to enhance security and resolve technical issues.

The acquisition aligns with Cisco's focus on expanding its cybersecurity business and harnessing AI capabilities from Splunk to bolster network protection.

The deal is expected to close in the third quarter of 2024 and is aimed at improving Cisco's gross margins in the first year and non-GAAP earnings in the second year.

Somebody also made a nice little 45,650% return on Splunk call options overnight — clearly knowing the acquisition was coming the day before it was announced…

• Auto Strike Continues to Gain Momentum

The United Auto Workers (UAW) is expanding strikes to 38 parts & distribution factories across 20 states — targeting General Motors (GM) and Stellantis (STLA).

These strikes are expected to impact 5,600+ autoworkers — including approximately 3,500 employees at GM. However, UAW will not initiate additional strikes at Ford Motor (F), as they perceive Ford as serious about reaching a deal.

The strikes at GM and Stellantis parts suppliers will add to the ongoing strikes with the Detroit automakers. The union has made progress with Ford on various issues — including wage tiers and cost-of-living adjustments — but key economic issues still need resolution in their eyes.

Widespread disruptions for car dealers, auto repair shops, and customers are expected.

Major Economic Events:

Fed reactions, the Leading Economic Index, and Existing Home Sales.

• Fed Meeting Takeaways — Higher for Longer?

The Federal Reserve has decided to keep interest rates unchanged at a 22-year high — but is considering one more rate hike this year.

Fed Chair Jerome Powell interestingly used the phrase “proceed carefully” six times during his press conference on Wednesday — but most officials lean toward at least one more increase.

The Fed anticipates maintaining higher rates into 2024 and is more confident in achieving its 2% inflation target without a severe economic slowdown. The stock market dipped after the announcement, and yields on the 2-year Treasury note reached their highest level since 2006.

Goldman Sachs now predicts that the Fed won’t have a rate cut until Q4’24. Forecasts as recent as this summer were largely at Q4’23, Q1’24, and Q2’24 for the first cut — and now it’s expected to be more than a calendar year from now. 

• Leading Economic Index (LEI)

The Conference Board Leading Economic Index (LEI) for the U.S. declined by -0.4% in August to 105.4 (2016=100) — following a decline of -0.3% in July.

The LEI is down -3.8% over the six-month period between February and August 2023— hardly changing from its -3.9% contraction over the previous six months (August 2022 to February 2023).

• Existing Home Sales

Existing home sales unexpectedly fall in August — now down -15.3% over the last year. This marks the lowest level for existing home sales since 2010.

If you’re starting your investing journey or are interested in buying T-bills yielding 5% or more, consider visiting Public.com.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

AcreTrader Financial, LLC member FINRA|SIPC Disclaimer:

Alternative investments are considered speculative, involve a high degree of risk, including complete loss of principal and are not suitable for all investors. Past performance does not guarantee future results and there is no guarantee this trend will continue. Sources *(n.d.). Annual Historical Farmland Returns. NCREIF Farmland Index. You cannot directly invest in an index. Does not represent results of a real investment.

This is a sponsored promotion for the AcreTrader platform. Austin Hankwitz may have investments in companies represented on the AcreTrader platform. This informational newsletter is by no means a promotion, solicitation, or recommendation of any specific investment.