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In the 1976 Watergate docudrama “All the President’s Men,” the White House source “Deep Throat” urges a young journalist to “follow the money.”
It’s a great strategy — for journalists and for investors. But we’ve got another strategy. We tell folks to “follow the breadcrumbs.”
You know what we mean: those tiny, often subtle “clues” the author of a novel uses to lead you through the story — keeping you hooked, but not giving away the ending.
As a reader, you can’t tear yourself away — but you also can’t quite see the whole picture.
The stock market is a lot like a novel.
The “clues” are the news events, big and small, that come at us like a sensory-overloading artillery barrage.
Just like with a novel, it’s tough to make sense of it all: You see the pieces and know there’s a bigger story that unites them, but you can’t quite put those elements together into a picture that lets you take action with your money.
Take a peek at the type of hypothetical headlines that you are accustomed to seeing:
- Airlines can’t keep up with the demand for flights from summer travelers.
- A groundbreaking drug is now in clinical trials — and it could well reach $1 billion in sales the first year it hits the market.
- Car repossessions have doubled since 2020.
We’re here to help with that.
That’s why we’re introducing a new feature called TradeSmith Snippets.
We’re going to identify the “breadcrumbs” that matter and tell you what they really mean. We’ll also put TradeSmith’s quant-based tool kit to work for you — running these ideas through our proprietary analytics to give you specific actions to take. We’ll spotlight places to make money. And we’ll warn you about the potholes that can wipe out that money.
And we’ll do this in a forum where we’ll run through those key few items quickly — maximizing your time.
You’re not alone. Those breadcrumbs will confuse you no longer. Because we’re here to help you see the end of the story.
Snippet No. 1: Are the Top Airlines Also the Top Investments?Overview
With travel demand picking up, we’re diving into the recently released list of the top airlines in the world for 2022 to see if there are any hidden profit opportunities.
On July 14, AirlineRatings.com released its ranking of the top 20 airlines in the world based on innovation, passenger comfort, safety, staff engagement, and service.
The top spot went to Qatar Airways from the independent state of Qatar in the Persian Gulf, while three United States-based companies also made the list.
Of the U.S. companies that TradeSmith readers may be eyeing up, JetBlue Airways came in at No. 14, Hawaiian Airlines posted No. 17, and Alaska Airlines just barely squeaked by at position No. 19.
The TradeSmith Takeaway
As illustrated by the horror stories about airports right now — like travelers waiting for days in London’s Heathrow Airport to get their suitcases back from what some are calling “Luggage Mountain” — airlines are struggling to keep up with demand.
While the checkpoint travel numbers that we’re about to share haven’t returned to the pre-COVID levels, more folks have taken to the air from July 12 to July 18 of this year than in the same time period in both 2021 and 2020.
However, increased travel demand and being voted the best airlines don’t add up to a profit opportunity by owning Hawaiian Holdings Inc. (HA), JetBlue Airways (JBLU), and Alaska Air Group Inc. (ALK).
All those companies mentioned above are in our Red Zone (think of this as a stop light) and are considered high risk. The VQ values are as of the time of this writing and may have changed since.
Volatility Quotient (VQ) Level Breakdown:
- Up to 15% = Low Risk
- 15%-30% = Medium Risk
- 30%-50% = High Risk
- 50% and above = Sky-High Risk
Instead of the airlines, a different sector that benefits from the pent-up demand for travel is companies in the lodging and hospitality industry.
Ryman Hospitality Properties Inc. (RHP) is a resort, hotel, and media company that owns the Grand Ole Opry brand and five of the top 10 largest non-gaming convention center hotels, which operate under the Gaylord Hotels brand.
Apple Hospitality REIT (APLE) operates a portfolio of upscale hotels, with 219 locations across 36 states in 86 markets. Owning properties across different states helps protect against issues of being too concentrated in one market or just a few markets, with a prime example being the different travel restrictions imposed by different states during COVID-19; tighter restrictions in one particular state mean fewer people are able to travel and stay at hotels.
Finally, one of the most unique lodging companies on this list is Target Hospitality Corp. (TH). It’s a hospitality and rental company that caters to different clients, one of which is the energy sector. It has housing and hospitality solutions in key locations for energy firms, including the Bakken, Permian, and Anadarko oil fields. As the U.S. looks for domestic energy sources instead of relying on foreign energy sources, this would continue to benefit Target Hospitality Corp., as the company would see growth in providing rental services for energy workers.
The VQ is high for all these companies, especially TH, but all the companies still have a Bullish rating and are in our Green Zone.
Snippet No. 2: The Power of the DollarOverview
The surging U.S. dollar (USD) spells trouble for some publicly traded companies, while others will benefit.
In the News
Earlier this month, on July 5, the U.S. Dollar Index (a measure of the value of the U.S. dollar relative to a basket of currencies) reached its highest level since December 2002.
This is happening because of a “flight to safety” to the dollar, which creates two unique situations.
The first is that U.S.-based companies can benefit from a stronger dollar by importing products from overseas to sell domestically.
The second is that U.S. exports cost more to foreign buyers, which has a chilling effect on multinational companies.
The TradeSmith Takeaway
You don’t want to invest in or avoid a company solely on one metric, idea, or concept, but it’s good to know the headwinds that could affect the bottom line and the companies best positioned to handle any issues.
One of the winners of a stronger U.S. dollar could be Walmart Inc. (WMT).
Walmart is a multinational company whose sales could be affected overseas, but it’s also a massive importer of foreign goods, which are cheaper when the dollar is strong.
In 2021, Walmart topped the importer list for Joc.com’s Top 100 U.S. Importers and Exporters, with 930,000 20-foot container equivalent units (TEU) of merchandise.
The next largest company was Target Corp. (TGT) with 775,000 TEU.
With a stronger dollar, buying goods from overseas — which companies can already make strong margins on — becomes even cheaper and more profitable to sell.
Walmart is currently in our Red Zone with a medium-risk VQ, and it’s a company TradeSmith CEO Keith Kaplan has called a “long-term winner” and a “forever stock.” Some of the “losers” of a stronger dollar are tech companies. Their products become more expensive to sell abroad, which can cut down on sales.
In June, Microsoft Corp. (MSFT) revised its expected revenue for Q4 2022 by subtracting $460 million.
Salesforce Inc. (CRM) believed foreign currency rates could have a $300 million impact on revenue for 2022, but management revised its forecasts and believes that impact will be closer to $600 million.
While these are just three companies, expect many more companies to comment on how a strong dollar will affect their revenue in their upcoming earnings reports.
Snippet No. 3: All Eyes on Netflix Inc. (NFLX) Subscriber CountOverview
The big challenge for Netflix remains the same: subscriber count.
In the News
Netflix Inc. (NFLX) released earnings on Tuesday after market close, and all eyes were on how many subscribers the company lost.
Instead of losing the 2 million subscribers the company originally projected, Netflix lost 970,000.
Even though it’s still a hit, a smaller-than-expected loss was welcome news. The company also projects it will add 1 million net new subscribers in the current quarter.
And to help generate more revenue, Reed Hastings, Netflix CEO, previously announced an agreement with Microsoft Corp. (MSFT) to help build out an “ad-supported” streaming subscription. Hastings has resisted that route for years, not wanting to air commercials, but proponents argue that a free tier would attract more viewers, and ultimately, more subscribers.
The TradeSmith Takeaway
TradeSmith Senior Analyst Mike Burnick called Netflix the “Buy of a Lifetime” on June 14, but he didn’t believe it was time to buy just yet.
“As much as I’m convinced this overly beaten-down tech stock is the buy of a lifetime,” Mike wrote, “I also wouldn’t make a move until our tools tell us it’s time to buy.”
Well, our tools still say it is not the time to buy Netflix — which is in the Red Zone, in a Down-Trend, and High Risk.
But with Netflix expected to add more subscribers, this is a company you’ll want to add to your watchlist and be ready to pounce on when our tools say it’s time to buy.
That brings us to the end of TradeSmith Snippets.
Which Snippet did you like the most?
- Snippet No. 1: Are the Top Airlines Also the Top Investments?
- Snippet No. 2: The Power of the Dollar
- Snippet No. 3: All Eyes on Netflix Inc. (NFLX) Subscriber Count
The TradeSmith team would love to hear what you have to say.
And before you go…
“Wall Street” is one of Mike Burnick’s favorite films, and Mike told the TradeSmith team he had recently rewatched it for the hundredth time.
In fact, he said that he was so energized by the line “Money never sleeps, pal,” that he jumped on his computer and put together a report on three money-never-sleeps businesses.
The excitement in the room was contagious after Mike shared his three companies, and he asked if we could do him a favor and get that report out to you as soon as possible.
Of course, we are going to oblige and are always willing to go the extra mile for our readers, so we’re going to do something a little unprecedented.
Make sure to check your inbox tomorrow at 11:30 a.m. Eastern because we are going to release a special weekend edition of TradeSmith Daily. And if you could, do us a favor and get a pen and paper or pull up the calendar on your phone.
Write a note you can stick on the fridge or set up an automatic reminder to check your email at 11:30 a.m. Eastern on July 23.
We’d hate for you to miss this.