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Six Beverage Stocks to Buy for Profits

Six beverage stocks to buy for profits feature a London-based, multinational provider of premium alcohol, three U.S. soft drink companies, an energy drink…

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Six beverage stocks to buy for profits feature a London-based, multinational provider of premium alcohol, three U.S. soft drink companies, an energy drink maker and a creator of healthy coconut concoctions.

Beverage stocks are the top-rated consumer staples sub-sector, according to BofA Global Research. Household, beauty and personal care companies followed closely behind, among stocks that consumers typically reward during all economic conditions.

Britain’s Diageo plc (NYSE: DEO) received an upgraded rating of “outperform,” up from market perform, on Monday, Feb. 6, from Sanford C. Bernstein, a New York-based financial advisory firm. The investment firm projected a potential upside in the stock up close to 30%.

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Six Beverage Stocks to Buy for Profits: Diageo Inc.

Diageo’s brands of alcohol feature Johnnie Walker, Crown Royal, JeB, Buchanan’s, Windsor and Bushmills whiskies, Smirnoff, Ciroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness. Its multinational reach encompasses the world’s biggest markets, including North America; Europe and Turkey; Africa; Latin America and the Caribbean; and the Asia-Pacific.

Jim Woods, who concurrently leads the Intelligence Report investment newsletter and the Bullseye Stock Trader advisory service, told me he likes the company’s prospects, especially after a recent pullback that reduces its valuation. Woods, whose trading service features both stocks and options, is an aficionado of fine dining and premium drinks. He has yet to recommend the stock but indicated to me he is keeping an eye on it.

Chart courtesy of www.stockcharts.com

Woods Picks His Favorite of Six Beverage Stocks to Buy for Profits

On Jan. 26, Diageo reported an 18.4% rise in net sales during the second half of 2022, compared to the same time the year before, primarily reflecting strong organic net sales growth as well as favorable impacts from foreign exchange stemming from a rising U.S. dollar. The company’s operating profit grew 15.2% to $3.86 billion, or £3.2 billion.

However, Diageo reported a drop in operating margin of 92 basis points, or .92%, for the last six months of 2022 compared to the comparable period the previous year, with organic margin expansion more than offset by one-time operating items and foreign exchange. Diageo also reported that its organic operating profit grew 9.7% in second-half 2022, compared to the same six months of 2021, and its organic operating margin expanded by 9 basis points, or .09%, driven by leverage on operating costs due to disciplined cost controls, despite inflation.

Price increases and supply productivity savings more than offset the impact of absolute cost inflation on gross margin, Diageo reported. Growth flowed across most categories, primarily scotch, tequila and beer, the company announced. Premium-plus brands contributed 57% of Diageo’s reported net sales and drove 65% of organic net sales growth.

Paul Dykewicz meets with Jim Woods, head of Bullseye Stock Trader.

Six Beverage Stocks to Buy for Profits: Coca-Cola

Consumer staples food and beverage companies have shown “surprisingly inelastic” demand for their products, according to BofA. The investment firm foresees upside for gross margins, along with upgraded earnings revisions, as input inflation plateaus and the U.S. dollar weakens.

Unlike last quarter, BofA broadly predicts earnings estimates for fiscal year 2023 will be in-line or advance due to a brightening outlook.

Atlanta-based Coca-Cola is recommended both by BofA and Mark Skousen, PhD, who leads the Forecasts & Strategies investment newsletter. Coca-Cola is among the Flying Five stocks that Skousen recommends by choosing five Dow Jones Industrial Average positions that have the lowest price from a list of the 10 highest-yielding companies in the index. His Flying Five recommendations have beaten the market most of the years he has used the strategy.

Mark Skousen, a scion of Ben Franklin and head of Fast Money Alert, meets Paul Dykewicz.

Coca-Cola’s total returns have reached 47.2% since Skousen recommended it on July 31, 2017.

Chart courtesy of www.stockcharts.com

Six Beverage Stocks to Buy for Profits: Coca-Cola’s Organic Growth Impresses BofA

BofA projects “solid organic sales growth” from Coca-Cola, aided by price hikes and strong demand. The investment firm set a $74 price objective on the stock, giving it a premium to non-alcoholic-beverage peers.

“In our view, a premium multiple is warranted by balanced and resilient organic sales growth,” BofA wrote in a research note.

Outperformance could occur with strong growth in developed and emerging markets, a weakening U.S. dollar compared to other currencies and improved free cash flow conversion, BofA opined. Risks to meeting that price target include volatility in developed and emerging markets, earnings per share (EPS) headwinds if the U.S. dollar strengthens and consumer concerns about sugar and calories, the investment firm wrote.

Six Beverage Stocks to Buy for Profits: PepsiCo

Harrison, New York-based PepsiCo (NASDAQ: PEP) is another major beverage stock. The company also owns the popular Frito-Lay brand of snack foods, as well as Quaker Oats. BoA put a buy recommendation on PepsiCo, along with a $205 price target.

“We expect PEP is set up for another quarter of strong organic sales growth, modeling 4Q22 organic sales growth of +8%,” BofA wrote.

PepsiCo received a premium valuation to its non-alcoholic-beverage peers that is “justified” based on the stock’s positioning to deliver against its long-term algorithm and return cash to shareholders via dividends and share repurchases, according to BofA’s research note. Further pluses for PepsiCo include low-to-moderate foreign exchange headwinds, growth opportunities and improving volume/price/mix in soft drinks.

Potential risks to reaching the price target include foreign exchange becoming a drag on results and Frito-Lay North America incurring a decline in volumes due to price hikes. As a personal fan of Quaker Oats products, I have noticed prices for those goods rising sharply to the point that I recently switched to buying store brands instead.

Chart courtesy of www.stockcharts.com

Six Beverage Stocks to Buy for Profits: ‘Pepsi Please,’ Connell Says

Michelle Connell, chief executive officer of Dallas-based Portia Capital Management, also recommends Pepsi. Even though inflation has caused many consumers to trade down with their consumer staple purchases and buy cheaper products, Pepsi has not felt this pressure, Connell commented.

While Pepsi had a strong performance in 2022, the stock is off 4.89% year to date. Wall Street analysts estimate that the stock has upside of 10-15% over the next 12 months, Connell told me.

Pepsi can no longer be considered a pure beverage play, Connell said. Convenience foods represent 55% of the company’s sales, while beverages account for the remaining 45%.

“So, every time you walk into a convenience store and grab a package of Lays, Cheetos or Doritos, you are purchasing a Pepsi product,” Connell told me.

Michelle Connell leads Dallas-based Portia Capital Management.

Wall Street expects Pepsi to beat the company’s guidance when it reports results on Feb. 9. Pepsi has been able to pass on price increases caused by inflation. Sales have not diminished, as Pepsi has raised prices, since consumers largely are shunning generic beverages, she added.

“The company has also been able to increase its beverage market share, especially in the water and athletic beverage categories,” Connell continued.

One area of potential weakness is negative currency effects from a strong U.S. dollar, Connell counseled.

International markets have become increasingly significant for Pepsi’s future, Connell said. Currently, 40% of the company’s sales and one-third of its operating income come from outside the United States.

“Emerging markets have younger consumers that are just turning the corner from poverty to middle class status,” Connell said. “Disposable income allows these individuals to purchase more foods and beverages more in line with those of their developed market peers.”

In addition, economic forecasts indicate emerging market countries may be the only nations to report positive gross domestic product (GDP) this year. They include China, India and several others in Asia, she added.

Six Beverage Stocks to Buy for Profits: Keurig Dr Pepper

Keurig Dr Pepper (NASDAQ: KDP), of Burlington, Massachusetts, is another BofA recommendation. The investment firm placed a $45 price target on the stock. The valuation takes into account KDP’s “attractive portfolio” of products that can grow sales and earnings, particularly with the addition of the C4 energy drink brand, BofA wrote.

Potential to outperform the price target could come from additional synergies, reduced volatility in the coffee business, increased adoption of Keurig brewers and pods, as well as attractive mergers and acquisitions (M&A) candidates.

Several risks could create headwinds to attain the price objective, according to BofA. They include any industry shifts away from single serve coffee, which could lead to slower than anticipated de-leveraging, along with weak consumer spending around the holiday season that could negatively impact sales of the Keurig brewers.

Chart courtesy of www.stockcharts.com

Six Beverage Stocks to Buy for Profits: Monster Beverage

Corona, California-based Monster Beverage Corporation (NYSE: MNST) is a holding company for its consolidated subsidiaries that develop and market energy drinks, including Monster Energy.

Chart courtesy of www.stockcharts.com

Six Beverage Stocks to Buy for Profits: Vita Coco (NASDAQ: COCO)

New York-based Vita Coco (NASDAQ: COCO) offers brands that provide coconut water, Vita Coco, clean energy drink Runa, sustainable enhanced water and protein-infused water. Vita Coco and Captain Morgan announced an agreement on Feb. 1 to team up to sell Vita Coco Spiked with Captain Morgan spiced rum. Both companies are No. 1 in their respective beverage niches.

BofA put a buy recommendation on Vita Coco and a $16 price objective on the stock. The investment firm valued Vita Coco’s shares in line with “platform companies,” concluding a premium is not warranted despite expecting COCO generate stronger earnings before interest, taxes, depreciation and amortization (EBITDA) growth. Indeed, the forecast is highly dependent on the ocean freight market, which is beyond COCO’s control.

A chance exists that Vita Coco could exceed its price objective if ocean freight rates decline faster than expected and result in meaningful margin expansion, if growth in the product category remains strong and COCO keeps growing market share. Risks to Vita Coco meeting its price objective are inflationary pressures worsening and delaying margin recovery, volume growth slowing meaningfully in a recession, competition stiffening and COCO losing market share.

Chart courtesy of www.stockcharts.com

Russia’s War Against Ukraine Intensifies

The six beverage stocks to buy for profits are largely protected from the ferocious fighting now taking place in Bakhmut, Ukraine, where Russian forces are seeking to seize control of a key highway and capture that important transportation route. Russian airborne units have joined Wagner mercenary fighters in the battle for the city.

Russia’s troops are “leveling Bakhmut to the ground, killing everyone they can reach,” Pavlo Kyrylenko, a Ukrainian prosecutor and politician who also is the current Governor of Donetsk Oblast, wrote on Telegram. Russia claimed on Tuesday, Feb. 1 to have captured a village just to north of Bakhmut as it tries to surround the city and seize control.

The U.S. State Department accused Russia of violating a key nuclear arms agreement by refusing to allow inspections of its nuclear facilities. The only agreement left to regulate the nuclear arsenals of the United States and Russia is the New START treaty, but inspections have been on hold since 2020 due to the COVID-19 pandemic.

Russia is sustaining its onslaught of increased strikes that began in October, targeting Ukraine’s energy and civilian infrastructure. Ukraine is seeking and receiving additional tanks by its allies to fend off Russia’s unrelenting onslaught.

President Biden, in his State of the Union to a Joint Session of the U.S. Congress on Tuesday night, Feb. 7, said Russia’s President Vladimir Putin ordered a “murderous assault” against Ukraine, evoking images of the “death and destruction” Europe suffered in World War II. During the speech, President Biden recognized the presence of Ukraine’s Ambassador to the United States Oksana Markarova.

“She represents not just her nation, but the courage of her people,” Biden said. “Ambassador, America is united in our support for your country. We will stand with you as long as it takes,”

President Putin launched what he called a “special military operation” in eastern Ukraine on February 24, 2022, by attacking his neighboring nation in violation of international law.

China’s Officials Admit to 82,000 COVID Deaths in Past Two Months

China continues to be criticized for its lack of transparency in reporting the COVID-19 cases and deaths in its country. Its officials tweaked the country’s death toll to include those caused by COVID-related illnesses, bringing the total to 82,000 deaths in the last two months. However, only people who died in hospitals are counted, not those who perished at home, news reports indicated.

President Biden recently announced plans to end the current U.S. public health emergency declaration due to COVID-19 this May. However, worldwide COVID-19 deaths rose to 6,846,764 people, with total cases of 672,033,032, Johns Hopkins reported on Feb. 7. COVID-19 cases in the United States totaled 102,645,744, while deaths reached 1,112,124 as of Feb. 7, according to Johns Hopkins University. Until recent reports that China had more than 248 million cases of COVID-19, America had ranked as the nation with the most coronavirus cases and deaths.

The U.S. Centers for Disease Control and Prevention reported that 269,064,626 people, or 81.0% the U.S. population, have received at least one dose of a COVID-19 vaccine, as of Feb. 1. People who have completed the primary COVID-19 doses totaled 229,719,115 of the U.S. population, or 69.2%, according to the CDC. The United States has given a bivalent COVID-19 booster to 49,078,211 people who are age 18 and up, equaling 19% as of Feb. 1, compared to 18.8% as of Jan. 26, 18.5% on Jan. 18, 18.2% on Jan. 11, 17.7% as of Jan. 4, 17.3% on Dec. 28, 16.8% the previous week, 16.3% the week before that one and 15.5% the preceding week.

The six beverage stocks to buy for profits offer refreshing investment opportunities when the market overall has been struggling in the past year to find sustained strength.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Special Holiday Offer: Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.

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‘The Official Truth’: The End Of Free Speech That Will End America

‘The Official Truth’: The End Of Free Speech That Will End America

Authored by J.B.Shurk via The Gatestone Institute,

If legacy news corporations…

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May 29, 2023

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'The Official Truth': The End Of Free Speech That Will End America

Authored by J.B.Shurk via The Gatestone Institute,

If legacy news corporations fail to report that large majorities of the American public now view their journalistic product as straight-up propaganda, does that make it any less true?

According to a survey by Rasmussen Reports, 59% of likely voters in the United States view the corporate news media as "truly the enemy of the people." This is a majority view, held regardless of race: "58% of whites, 51% of black voters, and 68% of other minorities" — all agree that the mainstream media has become their "enemy."

This scorching indictment of the Fourth Estate piggybacks similar polling from Harvard-Harris showing that Americans hold almost diametrically opposing viewpoints from those that news corporations predominantly broadcast as the official "truth."

Drawing attention to the divergence between the public's perceived reality and the news media's prevailing "narratives," independent journalist Glenn Greenwald dissected the Harvard-Harris poll to highlight just how differently some of the most important issues of the last few years have been understood. While corporate news fixated on purported Trump-Russia collusion since 2016, majorities of Americans now see this story "as a hoax and a fraud."

While the news media hid behind the Intelligence Community's claims that Hunter Biden's potentially incriminating laptop (allegedly containing evidence of his family's influence-peddling) was a product of "Russian disinformation" and consequently enforced an information blackout on the explosive story during the final weeks of the 2020 presidential election, strong majorities of Americans currently believe the laptop's contents are "real." In other words, Americans have correctly concluded that journalists and spies advanced a "fraud" on voters as part of an effort to censor a damaging story and "help Biden win." Nevertheless, The New York Times and The Washington Post have yet to return the Pulitzer Prizes they received for reporting totally discredited "fake news."

Similarly, majorities of Americans suspect that President Joe Biden has used the powers of his various offices to profit from influence-peddling schemes and that the FBI has intentionally refrained from investigating any possible Biden crimes. Huge majorities of Americans, in fact, seem not at all surprised to learn that the FBI has been caught abusing its own powers to influence elections, and are strongly convinced that "sweeping reform" is needed. Likewise, large majorities of Americans have "serious doubts about Biden's mental fitness to be president" and suspect that others behind the scenes are "puppeteers" running the nation.

Few, if any, of these poll results have been widely reported. In a seemingly-authoritarian disconnect with the American people, corporate news media continue to ignore the public's majority opinion and instead "relentlessly advocate" those viewpoints that Americans "reject." When journalists fail to investigate facts and deliberately distort stories so that they fit snugly within preconceived worldviews, reporters act as propagandists.

Constitutional law scholar Jonathan Turley recently asked, "Do we have a de facto state media?" In answering his own question, he notes that the news blackout surrounding congressional investigations into Biden family members who have allegedly received more than ten million dollars in suspicious payments from foreign entities "fits the past standards used to denounce Russian propaganda patterns and practices." After Republican members of Congress traced funds to nine Biden family members "from corrupt figures in Romania, China, and other countries," Turley writes, "The New Republic quickly ran a story headlined 'Republicans Finally Admit They Have No Incriminating Evidence on Joe Biden.'"

Excoriating the news media's penchant for mindlessly embracing stories that hurt former President Donald Trump while simultaneously ignoring stories that might damage President Biden, Turley concludes:

"Under the current approach to journalism, it is the New York Times that receives a Pulitzer for a now debunked Russian collusion story rather than the New York Post for a now proven Hunter Biden laptop story."

Americans now evidently view the major sources for their news and information as part of a larger political machine pushing particular points of view, unconstrained by any ethical obligation to report facts objectively or dispassionately seek truth. That Americans now see the news media in their country as serving a similar role as Pravda did for the Soviet Union's Communist Party is a significant departure from the country's historic embrace of free speech and traditional fondness for a skeptical, adversarial press.

Rather than taking a step back to consider the implications such a shift in public perception will have for America's future stability, some officials appear even more committed to expanding government control over what can be said and debated online. After the Department of Homeland Security (DHS), in the wake of public backlash over First Amendment concerns, halted its efforts to construct an official "disinformation governance board" last year, the question remained whether other government attempts to silence or shape online information would rear their head. The wait for that answer did not take long.

The government apparently took the public's censorship concerns so seriously that it quietly moved on from the collapse of its plans for a "disinformation governance board" within the DHS and proceeded within the space of a month to create a new "disinformation" office known as the Foreign Malign Influence Center, which now operates from within the Office of the Director of National Intelligence. Although ostensibly geared toward countering information warfare arising from "foreign" threats, one of its principal objectives is to monitor and control "public opinion and behaviors."

As independent journalist Matt Taibbi concludes of the government's resurrected Ministry of Truth:

"It's the basic rhetorical trick of the censorship age: raise a fuss about a foreign threat, using it as a battering ram to get everyone from Congress to the tech companies to submit to increased regulation and surveillance. Then, slowly, adjust your aim to domestic targets."

If it were not jarring enough to learn that the Office of the Director of National Intelligence has picked up the government's speech police baton right where the DHS set it down, there is ample evidence to suggest that officials are eager to go much further in the near future. Democrat Senator Michael Bennet has already proposed a bill that would create a Federal Digital Platform Commission with "the authority to promulgate rules, impose civil penalties, hold hearings, conduct investigations, and support research."

Filled with "disinformation" specialists empowered to create "enforceable behavioral codes" for online communication — and generously paid for by the Biden Administration with taxpayers' money — the special commission would also "designate 'systemically important digital platforms' subject to extra oversight, reporting, and regulation" requirements. Effectively, a small number of unelected commissioners would have de facto power to monitor and police online communication.

Should any particular website or platform run afoul of the government's First Amendment Star Chamber, it would immediately place itself within the commission's crosshairs for greater oversight, regulation, and punishment.

Will this new creation become an American KGB, Stasi or CCP — empowered to target half the population for disagreeing with current government policies, promoting "wrongthink," or merely going to church? Will a small secretive body decide which Americans are actually "domestic terrorists" in the making? US Attorney General Merrick Garland has gone after traditional Catholics who attend Latin mass, but why would government suspicions end with the Latin language? When small commissions exist to decide which Americans are the "enemy," there is no telling who will be designated as a "threat" and punished next.

It is not difficult to see the dangers that lie ahead. Now that the government has fully inserted itself into the news and information industry, the criminalization of free speech is a very real threat. This has always been a chief complaint against international institutions such as the World Economic Forum that spend a great deal of time, power, and money promoting the thoughts and opinions of an insular cabal of global leaders, while showing negligible respect for the personal rights and liberties of the billions of ordinary citizens they claim to represent.

WEF Chairman Klaus Schwab has gone so far as to hire hundreds of thousands of "information warriors" whose mission is to "control the Internet" by "policing social media," eliminating dissent, disrupting the public square, and "covertly seed[ing] support" for the WEF's "Great Reset." If Schwab's online army were not execrable enough, advocates for free speech must also gird themselves for the repercussions of Elon Musk's appointment of Linda Yaccarino, reportedly a "neo-liberal wokeist" with strong WEF affiliations, as the new CEO of Twitter.

Throughout much of the West, unfortunately, free speech has been only weakly protected when those with power find its defense inconvenient or messages a nuisance. It is therefore of little surprise to learn that French authorities are now prosecuting government protesters for "flipping-off" President Emmanuel Macron. It does not seem particularly astonishing that a German man has been sentenced to three years in prison for engaging in "pro-Russian" political speech regarding the war in Ukraine. It also no longer appears shocking to read that UK Technology and Science Secretary Michelle Donelan reportedly seeks to imprison social media executives who fail to censor online speech that the government might subjectively adjudge "harmful." Sadly, as Ireland continues to find new ways to punish citizens for expressing certain points of view, its movement toward criminalizing not just speech but also "hateful" thoughts should have been predictable.

From an American's perspective, these overseas encroachments against free speech — especially within the borders of closely-allied lands — have seemed sinister yet entirely foreign. Now, however, what was once observed from some distance has made its way home; it feels as if a faraway communist enemy has finally stormed America's beaches and come ashore in force.

Not a day seems to go by without some new battlefront opening up in the war on free speech and free thought. The Richard Stengel of the Council on Foreign Relations has been increasingly vocal about the importance of journalists and think tanks to act as "primary provocateurs" and "propagandists" who "have to" manipulate the American population and shape the public's perception of world events. Senator Rand Paul has alleged that the DHS uses at least 12 separate programs to "track what Americans say online," as well as to engage in social media censorship.

As part of its efforts to silence dissenting arguments, the Biden administration is pursuing a policy that would make it unlawful to use data and datasets that reflect accurate information yet lead to "discriminatory outcomes" for "protected classes." In other words, if the data is perceived to be "racist," it must be expunged. At the same time, the Department of Justice has indicted four radical black leftists for having somehow "weaponized" their free speech rights in support of Russian "disinformation." So, objective datasets can be deemed "discriminatory" against minorities, while actual discrimination against minorities' free speech is excused when that speech contradicts official government policy.

Meanwhile, the DHS has been exposed for paying tens of millions of dollars to third-party "anti-terrorism" programs that have not so coincidentally equated Christians, Republicans, and philosophical conservatives to Germany's Nazi Party. Similarly, California Governor Gavin Newsom has set up a Soviet-style "snitch line" that encourages neighbors to report on each other's public or private displays of "hate."

Finally, ABC News proudly admits that it has censored parts of Robert F. Kennedy Jr.'s interviews because some of his answers include "false claims about the COVID-19 vaccines." Essentially, the corporate news media have deemed Kennedy's viewpoints unworthy of being transmitted and heard, even though the 2024 presidential candidate is running a strong second behind Joe Biden in the Democrat primary, with around 20% support from the electorate.

Taken all together, it is clear that not only has the war on free speech come to America, but also that it is clobbering Americans in a relentless campaign of "shock and awe." And why not? In a litigation battle presently being waged over the federal government's extensive censorship programs, the Biden administration has defended its inherent authority to control Americans' thoughts as an instrumental component of "government infrastructure." What Americans think and believe is openly referred to as part of the nation's "cognitive infrastructure" — as if the Matrix movies were simply reflecting real life.

Today, America's mainstream news corporations are already viewed as processing plants that manufacture political propaganda. That is an unbelievably searing indictment of a once-vibrant free press in the United States. It is also, unfortunately, only the first heavy shoe to drop in the war against free speech. Many Chinese-Americans who survived the Cultural Revolution look around the country today and see similarities everywhere. During that totalitarian "reign of terror," everything a person did was monitored, including what was said while asleep.

In an America now plagued with the stench of official "snitch lines," censorship of certain presidential candidates, widespread online surveillance, a resurrected "disinformation governance board," and increasingly frequent criminal prosecutions targeting Americans who exercise their free speech, the question is not whether what we inaudibly think or say in our sleep will someday be used against us, but rather how soon that day will come unless we stop it. After all, with smartphones, smart TVs, "smart" appliances, video-recording doorbells, and the rise of artificial intelligence, somebody, somewhere is always listening.

Tyler Durden Sun, 05/28/2023 - 23:00

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International

Never Short a Dull Market; AI is Sexy, But Everyone Hates Oil

There’s an old adage of Wall Street, which says: "never short a dull market." And while AI is getting all the press these days, the oil market is about…

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May 28, 2023

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There's an old adage of Wall Street, which says: "never short a dull market." And while AI is getting all the press these days, the oil market is about as dull as it gets. This, of course, brings the energy sector to the top of my contrarian alert list.

This is not to say that I'm buying oil-related assets with both hands. It just means that, at this point, it makes more sense to look at energy as a value asset, as it is oversold and ripe for a move up whenever the right set of variables required to deliver such a move line up just right.

In the current world, the variables could line up just right as early as today.

There are No Oil Bulls Left

Nobody loves oil.

The level of bearishness expressed by futures traders is at least equal to where it was during the pandemic, and after the Silicon Valley Bank (SIVB) collapse. The International Energy Agency (IEA), forecasts that, of the expected $2.8 trillion in energy investments for 2023, roughly $1.7 trillion will be allocated to low carbon energy sources, including nuclear, solar, and other potential sources. Only $1.1 trillion will be invested in fossil fuels.

And according to the Financial Times, auctioneers in Texas are trying to unload two brand new fracking rigs, which together cost $70 million, for a starting combined bid of just below $17 million.

Supply is the Primary Influence on Oil Prices

Meanwhile, oil companies are quietly merging with competitors, and exploration outside the United States is continuing aggressively, with new discoveries being frequently announced. 

Simultaneously, the U.S. active rig count is slowly falling, led by natural gas. The price of gasoline is steadily rising, as the market begins to price in future supply reductions. Just in my neck of the woods, regular unleaded is up some $0.32 in the last week alone.

That doesn't sound like an industry that's planning on fading away. It sounds like an industry that's hunkering down and waiting for better times and preparing to squeeze supply in order to boost prices.

Charting the Oil Sector

The price chart for West Texas Intermediate Crude, the U.S. benchmark (WTIC), shows the depressed price picture which has led investors to walk away. And, until proven otherwise, there are plenty of sellers at the $75-$80 price area, where a sizeable Volume by Price bar highlights the point of resistance.

At first glance, there little difference in the general price behavior for Brent Crude, the European benchmark. (BRENT) where there is a resistance band defined by VBP bars between $80 and $90. A closer look reveals an uptick in Accumulation Distribution (ADI) and the semblance of some nibbling in On Balance Volume (OBV). It's subtle, but it's there.

The oil stocks are far from a bull trend. The Energy Select Sector SPDR ETF (XLE) is trading below its 200-day moving average, facing resistance put from $78 to $90 (VBP bars).

So why bother? Simply stated, OPEC has an upcoming meeting on June 3-4. The cartel is not happy about the prices and the way things are evolving. The Saudi oil minister recently warned bearish speculators to "watch out." And my gut is doing flips when I think about oil, as I see gasoline prices creep up when I drive to work.

But mostly, it's because there are no oil bulls left. This is what we saw in the technology sector a few months ago before its current rally. In early 2023, the tech sector was pronounced dead. The stories were all about the technology sector shuddering as the economy slowed. How about this one, from March 2023, which breathlessly announced a 5.2% decrease in semiconductor sales on a month to month basis and an 18.5% year to year drop?

Yet, as validated by the recent AI-fueled rally, the bad news first marked a bottom, while preceding a significant move up in tech shares.

Never short a dull market.

I've recently recommended several energy sector picks. You can have a look at them with a free trial to my service. In addition, I've posted a Special Report on the oil market which you can gain access to here.

Bond and Mortgage Roller Coaster Reverses Course

Expect negative news about the effect of rising mortgage rates on the homebuilder industry. That's because, as the chart below illustrates, there is a tight and very close correlation between rising bond yields, mortgage rates, and the homebuilder stocks (SPHB).

Moreover, the rise above 3.75% on the U.S. Ten Year Note yield (TNX) has triggered headlines about mortgage rates climbing above 7%. What the news isn't reporting is that, once bond yields roll over, which they are likely to do at some point in the future when the economy shows more signs of slowing and the Fed finally admits that they must pause, is that mortgage rates will drop and demand for new homes will once again pick up. Thus, we will see the homebuilders pick up where they left off.

As things stood last week, SPHB seems to have made a short term bottom.

For now, expect a continuation of the backing and filling in the homebuilder stocks. But, if I'm right and bond yields reverse course, the homebuilders are likely to rally again.

For an in-depth comprehensive outlook on the homebuilder sector click here.

NYAD Holds Above 200-Day Moving Average. SPX Joins NDX in Breaking Out. Liquidity is Shrinking.

The New York Stock Exchange Advance Decline line (NYAD) tested its 200-day moving average on an intra-week basis but did not break below the key technical level. On the other hand, NYAD remained below its 50-day moving average, which is still an intermediate-term negative.

Moreover, with the major indexes (see below) breaking out to new highs, we remain in a technical divergence as the market's breadth is lagging the action in the indexes. This is of some concern, given the fade in the market's liquidity, as I point out below.

The Nasdaq 100 Index (NDX) extended its recent breakout, closing the week well above 14,200. The current move is unsustainable, so some sort of pullback and consolidation are likely over the next few days to weeks. Both ADI and OBV remain encouraging.

What's more bullish is that the S&P 500 (SPX) finally broke out above the 4100–4200 trading range on 5/24/23. On Balance Volume (OBV) is perking up while the Accumulation Distribution (ADI) indicator is very encouraging.

We may be seeing a shift from a short-covering rally to a fear-of-missing-out buyer's rally.

VIX Holds Steady

The CBOE Volatility Index (VIX) remained below 20, as it has since March 2023. This remains a positive for the markets, as it shows short sellers are staying away at the moment.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity is Getting Squeezed

The market's liquidity is now in a downtrend. The Eurodollar Index (XED) is now below 94.5, and looks weak. A move above 95 will be a bullish development. Usually, a stable or rising XED is very bullish for stocks.

To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I've made my NYAD-Complexity - Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.


Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe's exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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International

Costco Tells Americans the Truth About Inflation and Price Increases

The warehouse club has seen some troubling trends but it’s also trumpeting something positive that most retailers wouldn’t share.

Published

11 hours ago

on

May 28, 2023

By

Costco has been a refuge for customers during both the pandemic and during the period when supply chain and inflation issues have driven prices higher. In the worst days of the covid pandemic, the membership-based warehouse club not only had the key household items people needed, it also kept selling them at fair prices.

With inflation -- no matter what the reason for it -- Costco  (COST) - Get Free Report worked aggressively to keep prices down. During that period (and really always) CFO Richard Galanti talked about how his company leaned on vendors to provide better prices while sometimes also eating some of the increase rather than passing it onto customers.

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That wasn't an altruistic move. Costco plays the long game, and it focuses on doing whatever is needed to keep its members happy in order to keep them renewing their memberships.

It's a model that has worked spectacularly well, according to Galanti.

"In terms of renewal rates, at third quarter end, our US and Canada renewal rate was 92.6%, and our worldwide rate came in at 90.5%. These figures are the same all-time high renewal rates that were achieved in the second quarter, just 12 weeks ago here," he said during the company's third-quarter earnings call.

Galanti, however, did report some news that suggests that significant problems remain in the economy.

Costco has done an incredibly good job at holding onto members.

Image source: Xinhua/Ting Shen via Getty Images

Costco Does See Some Economic Weakness

When people worry about the economy, they sometimes trade down when it comes to retailers. Walmart executives (WMT) - Get Free Report, for example, have talked about seeing more customers that earn six figures shopping in their stores.

Costco has always had a diverse customer base, but one weakness in its business may be a warning sign for its rivals like Target (TGT) - Get Free Report, Best Buy (BBY) - Get Free Report, and Amazon (AMZN) - Get Free Report. Galanti broke down some of the numbers during the call.

"Traffic or shopping frequency remains pretty good, increasing 4.8% worldwide and 3.5% in the U.S. during the quarter," he shared.

People shopped more, but they were also spending less, according to the CFO.

"Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., impacted, in large part, from weakness in bigger-ticket nonfood discretionary items," he shared.

Now, not buying a new TV, jewelry, or other big-ticket items could just be a sign that consumers are being cautious. But, if they're not buying those items at Costco (generally the lowest-cost option) that does not bode well for other retailers.

Galanti laid out the numbers as well as how they broke down between digital and warehouse.

"You saw in the release that e-commerce was a minus 10% sales decline on a comp basis," he said. "As I discussed on our second quarter call and in our monthly sales recordings, in Q3, big-ticket discretionary departments, notably majors, home furnishings, small electrics, jewelry, and hardware, were down about 20% in e-com and made up 55% of e-com sales. These same departments were down about 17% in warehouse, but they only make up 8% in warehouse sales."

Costco's CFO Also Had Good News For Shoppers

Galanti has been very open about sharing information about the prices Costco has seen from vendors. He has shared in the past, for example, that the chain does not pass on gas price increases as fast as they happen nor does it lower prices as quick as they sometimes fall.

In the most recent call, he shared some very good news on inflation (that also puts pressure on Target, Walmart, and Amazon to lower prices).

"A few comments on inflation. Inflation continues to abate somewhat. If you go back a year ago to the fourth quarter of '22 last summer, we had estimated that year-over-year inflation at the time was up 8%. And by Q1 and Q2, it was down to 6% and 7% and then 5% and 6%," he shared. "In this quarter, we're estimating the year-over-year inflation in the 3% to 4% range."

The CFO also explained that he sees prices dropping on some very key consumer staples.

"We continue to see improvements in many items, notably food items like nuts, eggs and meat, as well as items that include, as part of their components, commodities like steel and resins on the nonfood side," he added.

  

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