Happy Humpday Coachmen, after monster returns (ba dum tss) from our picks yesterday, netting 2.3% on SLP and 2.2% on MNST, we’re back with two more picks to get the creative juices flowing and some excess returns to your portfolio.
“Know what you own, and know why you own it”
- Peter Lynch
While the market descended to the lowest level it has reached in years just over a week ago, the S&P 500 has done a bit of a U-turn while trying to regain the key 4000-point support level.
An interesting point to make note of here is that markets are starting to price in a less aggressive hawkish agenda from the Federal reserve, as over the same time period of the market’s aforementioned U-turn, the probability of a lower rate hike than what’s currently been priced into the market has increased almost 50%. A less aggressive rate hike 21 days from now would likely materially impact management guidance during Q2 reporting and act as a positive catalyst for equities.
Short: Helen of Troy, Inc (HELE-NASDAQ) | Timeline: 2-3 days
Helen of Troy is a US-based consumer conglomerate which owns a variety of consumer brands including; Hydro Flask, OXO, Osprey, Honeywell, Braun, Vicks and more. This well-diversified portfolio combines consumer essentials, with consumer discretionary products to create a portfolio that should be able to maintain a steady foundation no matter the economic situation. However, throughout the first quarter of this year, we’ve seen many retail giants, such as Walmart and Target report large disappointments. With earnings reported tomorrow, the company’s EPS is expected to be $2, a modest decrease from their recorded Q4 EPS of $2.51. Even still, we believe there is a downside in Helen of Troy as US consumer spending has only increased by .45% since Q4 of 2021.
There are two issues with this lack of increase, first off, it’s nearly enough to compete with inflation, second of all, we must ask ourselves where this spending increase was derived from. Gas prices alone are up from an average of $3.33 to $3.41, representing a 2.4% increase, meaning that the disposable income of the American consumer was likely eaten up by rises in essential goods, rather than discretionary items. In terms of the technicals, while the company did clear through the 20-day SMA on July 1, it is still trading far below the 50, and 200-day. In terms of the history of this stock around earnings, it often has a run-up in the days prior to earnings, then experiences a sudden drop over the span of 2-3 days even if the results are positive. With that being said, a reminder that past performance is not always indicative of future results.
Short: WD-40 Company (WDFC-NASDAQ) | Timeline: 2-3 days
WD-40 Company (WDFC) develops and sells maintenance products, as well as homecare and cleaning products in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. Companies similar to WDFC have fared well through the pandemic, however, investors are quite skeptical about how they’ve performed over the last three months as inflationary pressure has crushed the company’s gross margins. That being said, the company has lowered guidance after having its worst start to a year since 1970 (down 20%).
Taking a look at the chart, the company has had a recent spike due to the announcement of board changes but has since cooled off. Aside from that, the MACD has been exhausted with very little price movement - a bearish signal as the MACD channelling upwards signals potential bear energy that can be triggered at any moment by a poor earnings report or negative news.
Chart of the Day
Inflation’s Effects on the European Consumer