By Brian Nelson, CFA
Inflation Remains Subdued Based on Latest PCE Reading
On March 29, the Fed’s preferred metric with respect to its inflation assessment, the personal consumption expenditure (PCE) price index, was released and came in at a 2.8% year-over-year increase, excluding food and energy, for the month of February, roughly in line with expectations. The Fed’s aggressive rate-hiking cycle during 2022 seems to have been enough to get inflation back to reasonable levels, in our view, and we view the reading as a positive one as the Fed continues to work to get inflation back to 2.0%. The Fed is also aware that it doesn’t want to overshoot inflation to the downside (below 2.0%), so the reading for February speaks again to potentially continued dovish policy expectations in the coming months and potential rate cuts to its benchmark rate during 2024.
Walgreens Reports Decent Quarterly Results But Recent Dividend Cut Weighs on Our View of Shares
On March 28, Walgreens Boots Alliance (WBA) reported second-quarter results for fiscal 2024. The company noted that its operational results came in-line with expectations, but the firm’s quarter included a rather large $5.8 billion after-tax non-cash impairment charge related to VillageMD goodwill. Sales during its fiscal second quarter advanced 6.3% on a year-over-year basis and 5.7% on a constant-currency basis. On an adjusted basis, earnings per share advanced 3.4%, up 2.8% on a constant-currency basis. The company narrowed its fiscal 2024 adjusted earnings guidance to the range of $3.20-$3.35 per share, pointing to a challenging retail environment in the U.S. Management reiterated that it remains confident in its goal to achieve $1 billion in cost savings during the fiscal year, however. With Walgreens’ wheeling and dealing the past several years coupled with its recent dividend cut, we remain on the sidelines with respect to shares.
SPACs and IPO Markets Still Active
We’re generally not fans of special purpose acquisition companies (SPACs) or initial public offerings (IPOs) as they tend to come to market at an inopportune time for the investing public. On March 20, Reddit (RDDT) priced its initial public offering at $34 per share under the ticker symbol “RDDT.” According to Seeking Alpha, one of the oldest social media entities on the web had 267.5 million weekly active users, and while advertising revenue continues to advance at a nice clip, the company still put up a net loss to the tune of $90.8 million in 2023. The stock shot up after it began trading, but it has now fallen back near its initial IPO open price. Another IPO Astera Labs (ALAB) as well as SPAC Digital World Acquisition’s and Trump Media & Technology Group’s combination into Trump Media & Technology (DJT) have also captured investors’ attention. We’re not interested in RDDT, ALAB, or DJT at this time, though speculators should expect their shares to be volatile.
Tanker Collision Could Result in the Largest Insured Marine Loss in History
We don’t place a great emphasis on insurers (IAK) in our coverage universe, save for insurance and industrial conglomerate Berkshire Hathaway (BRK.A) (BRK.B), but recent news regarding the collision of the tanker Dali with the Francis Scott Key Bridge in Baltimore has gotten considerable attention of late. According to reports, the near-1,000-foot vessel Dali lost power while navigating out of the Baltimore Harbor, striking the Francis Scott Key Bridge leading to its collapse that claimed the lives of six construction workers. According to reports from Bloomberg, it could cost as much as $2 billion to rebuild the bridge. We won’t know the full extent of insured losses for some time now, but many in the industry expect the losses to be manageable as well as take a while for the claims process to play out. There’s no change to our opinion regarding the insurance space, and we don’t include any insurers, save for Berkshire, in the simulated newsletter portfolios.
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Also tickerized for holdings in the IAK.
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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