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Costco’s still the one

Dec 15, 2023

Good morning! 👋

The markets are ready to build on what could be the 7^th positive week in a row.

Honestly, I am surprised we have not seen a bout of short-term profit taking yet but the fact that we haven’t tells me that we’re on the right track.

Here’s why.

All the buying since October and this week, in particular, suggests there’s even more money on the sidelines than I thought. You and I have been talking about $3-5T… what if it really is north of $10T.

ECON 101 dictates that more money chasing fewer stocks = higher prices over time.

Yowza!

Here’s my playbook.

1 – Some profit taking would be normal today

Many people would love nothing more than to see the markets charge higher – and to be fair – we’ve gotten a good dose of that lately.

While I love that, I want to see some short-term profit taking first.

That’s because the markets require buying AND selling to work normally which is why I constantly talk about the give and take that comes with it as an opportunity, not a threat.

MyPOV: Think about stocks like groceries… occasionally they go “on sale” and that’s when you pounce or buy a little extra. 😊

2 – There’s only one retail stock I want to own

I couldn’t have been happier to see Costco’s results. I am particularly impressed with the special dividend (which I’ve told OBAers was in the works for some time now) and the fact that the company has repeatedly built upon Covid-era challenges rather than chasing its tail because it’s worried about ‘em. (Read)

Shares have returned 43.68% YTD versus 22.92% from the S&P 500.

I hope I’m smart enough to buy more.

3 – Intel’s “me too” AI chip

NVDA clearly dominates the AI market when it comes to data centres. AMD is going after ‘em using a strategy oriented around “acceleration” and “inference” – meaning running AI applications after they’ve been trained.

Now Intel wants in. (Read)

While I think CEO Pat Gelsinger knows exactly what he’s doing, I worry that a) it’s too little too late and b) the move is classic Intel “we want to be everything to everyone thinking.”

I’d rather see focus.

Pairs trade idea: Long AMD/Short INTC.

4 - $886 billion reasons defense stocks are still a no-brainer

Congress just voted in favour of the largest defense policy bill in history. (Read)

Makes sense.

The world is a super complicated place at the moment and there isn’t a nation on earth that will risk national defense, including the US.

I’m surprised the bill isn’t larger.

Defense stocks have been largely ignored this year but I have a sneaking suspicion that could change quickly.

I hope you’ve been accumulating shares all along (because buying whenever everybody else is selling is almost always a good idea) as I have repeatedly suggested.

Keith Quick Tip: People make investing complicated but broad sweeping decisions like this prove it’s super simple repeatedly.

5 – Beijing doesn’t care what Yellen thinks

Treasury Secretary Janet Yellen says that China’s current economic approach is unfair and that the country needs to shift from a state-driven approach to health competition. (Read)

Like Beijing’s gonna give a rip!

China will not waiver from its plans; all the finger-wagging in the world (which is how Chinese leaders perceive comments like Yellen’s) won’t change a thing.

What China wants and will pursue at all costs is the ability to make its own rules rather than having to put up with being a follower.

I put it this way for investors.

The Dragon is coming to dinner on Tuesday. The only decision you need to make as an investor is whether you want to be at the table or on the menu.

MyPOV: Invest because of China, not in China. There are only a handful of Chinese companies worth your time at the moment and, ironically, not one of ‘em because of their local activities. It’s the global playbook that interests me. Think Toyota in the late 1960s or Kia in the early 1990s.

Bottom Line

"It takes 20 years to build a reputation and five minutes to ruin it.”