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Buy stocks that don’t make you guess what they’ll do next

Apr 12, 2023

Good morning! 👋

The major indices were basically in holding mode yesterday ahead of the March inflation report.

The situation is impossible to handicap, but not impossible to game.

If the reading (which hasn’t come out yet as I type) is higher, then the markets may sell off because traders will likely believe that the Fed could be more aggressive when it comes to hikes.

On the other hand, if the readings demonstrate any kind of slowing trajectory, I expect traders to get back on the gas relatively quickly because they cannot afford to be caught offsides if the Fed blinks or pauses.

For the most part, it’ll be a big excuse to do absolutely nothing when the opening bell dings.

What you want to do, instead, is let traders and their hi-falutin’ computers take the initiative as they clean out the unsuspecting punters who have bet ahead of time and whose orders they can see.

Then “fade” the move as the dust settles.

This is NOT the time to be a hero.

Be diligent, stick to the big names... but especially those with pricing power and margin protection, and those making goods and services the world cannot live without.

Here’s my playbook.

Tesla conquers China

Many US companies are beating feet out of China—including the likes of Apple, Microsoft, and Google, just to name a few.

Tesla, on the other hand, just named Tom Zhu to the #2 slot, senior VP of Automotive. If that name doesn’t ring any bells, it should. Zhu was head of Tesla’s Chinese operations and a rising star from Day One.

That tells me El-Musko is serious about having his cake and eating it too.

No guesswork needed.

Tesla China sold 137,429 EVs during Q1, a 13% increase, according to CarNewsChina.com. (Read) What’s more, Tesla sold 76,663 Model Y and Model 3 vehicles in China during Q1. That’s more than the 42 other makers in the 200,000–300,000 RMB range combined, according to Matthew Donegan-Ryan (@MatthewDR), who recently posted that little tidbit in a tweet citing Dongchedi data.

I’m not crazy about investing in China... but investing because of China is a different proposition entirely.

The top of TSLA’s statistical range is $244.72 as I type, and the path of least resistance is higher as long as the company puts up numbers, and even if there’s still some Fed-related selling ahead.

$188 a share or lower strikes me as being worth an “add.”

Buy the best “earners” to defend against recession

This isn’t rocket science.

Dividend-producing stocks are often more stable and more consistent investments than the so-called “growth stocks” that everybody seems to crave. Especially if the going gets tough.

Let me prove it to you.

I’ve heard plenty of armchair experts talk about the possibility of a 10% market crash lately. The Fed’s going to kill markets, politics... blah, blah, blah...

Imagine buying 100 shares of XYZ for $10,000 and that it pays a dividend of $300 per year for a yield of 3%. Also imagine that the company has a long history of raising its dividend each year, and over the next 10 years, it increases that dividend by an average of 5% a year.

Now imagine that Captain Motormouth is correct and XYZ does, in fact, fall by 10%. If you bought the stock and reinvested your dividends while the price is falling and the dividends are rising, you’ll end up with $12,773.37. That’s a 27.7% increase, even though the price of the stock has dropped by 10%.

Not bad, eh?!!

That’s why I’ve just started a new feature in One Bar Ahead®; I call it Dividend Fortune Builders. It’s a cheesy name, I know—but it’s the best I could do for now. If you’ve got this covered, that’s fabulous, but if you’d like some help along the way, I’m here. Or technically speaking, here —> Upgrade to Paid

Beating Buffett to the punch (again)

Uncle Warren noted recently that “there are always a few [Japanese companies] that he’s thinking about” when asked about future Japanese investments. (Read) Berkshire Hathaway already owns just over 5% in Japan’s big 5 trading houses—Itochu, Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., and Marubeni—and increased holdings in each last November.

No surprise that the OBA Family is already in on the action. Not coincidentally, I’m looking to boost exposure too.

29.4% upside, according to JPMorgan

Musk isn’t the only game in town when it comes to China.

Casinos are big business.

JPMorgan analyst Joseph Greff boosted his price target for Wynn Resorts (WYNN) from $131 to $141, a 7.6% boost. The stock is trading at $109 as I type, so this implies a 29.4% upside move. (Read)

No doubt that’s appealing, but WYNN has already jumped 117.1% from a 52-week low of $50.20, so you could argue that a double+ is enough.

Hmmm.

Walmart’s robots WILL impact the bottom line

Many people are still thinking about robots as job stealers... and they’re right.

The view is different as an investor, though.

Robots will be profit enhancers.

Case in point, Walmart’s CEO expects a significant workforce “composition” change—meaning fewer people in the warehouses, but more delivering schtuff.

I agree.

Unit costs could improve by 20%–30%, which, of course, will translate first to the bottom line and then to WMT’s stock price over time. All the layoffs people are worried about will also result in tremendous cost savings that, in turn, will translate to higher earnings as the cost of theft, inventory churn, and physical-location maintenance is eliminated.

Shares are up 5.8% YTD as I type, but my favourite big boxer is nearly double that. OBAers who are along for the ride know why.