📊 Undervalued Stocks To Watch

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Happy Father’s Day!

Are you a fan of Nvidia?

There’s no doubt Nvidia’s performance over the last 5 years has been incredible, with the stock returning almost 3,400% in the past 5 years.

Even more mind-blowing? Nvidia has single-handedly contributed to 34.5% of the S&P 500’s 2024 gains.

As for the broader market, the S&P 500 is up roughly 15%. In contrast, the equal-weighted S&P 500 index has only climbed by 3.39%.

What does this all mean? If Nvidia’s momentum begins to lose steam, the S&P 500 could be in for quite a ride.

Some key data bites from this week that you should know: 

• Berkshire Hathaway $BRK.B purchased 2.6M shares of Occidental Petroleum $OXY, increasing its stake to 250.6M shares.

• Health care spending is on track to make up 20% of U.S. GDP by 2032.

• PE firms have avoided taxes on over $1T in income due to a loophole.

• BeReal is being acquired for €500M by Voodoo.

• U.S. companies are now sitting on $4.11T in cash.

• Tesla $TSLA shareholders approved Musk’s $56B pay package.

• Broadcom $AVGO announced a 10-for-1 stock split.

• Virgin Galactic $SPCE announced a 1-for-20 reverse stock split.

• The EU is imposing tariffs as high as 48% on EVs from China.

• GameStop $GME raised $2.1B thanks to recent rally.

In today’s newsletter:

• 🍎 Apple’s Sales Breakdown

• ✈️ Delta Is Flying On Profits

• 🔥 U.S. Inflation Since 2000

• ☢️ Zyndemic

• 🇺🇸 U.S. Stocks Outperform

• 🔎 Undervalued Stocks To Watch

Let’s dive right in!

Can Apple Intelligence help reaccelerate iPhone sales?

Since FY21, total iPhone revenue has increased just 3.7%.

During Apple’s recent WWDC event, they unveiled a wave of new AI-driven features.

However, there’s a catch: these enhancements won’t be available on older iPhone models or even the standard iPhone 15.

To tap into the full potential of Apple Intelligence, users will need to opt for the iPhone 15 Pro series or consider upgrading to the iPhone 16 when it comes out.

These AI advancements bring a range of capabilities, from context-based notifications to enhanced writing tools and image generation.

Notably, Siri is evolving into a robust AI-powered assistant, ready to assist users seamlessly.

Apple also teased integration with OpenAI’s ChatGPT, offering even more versatility.

Delta can claim the throne as the most profitable public airline company in the U.S.

The company boasts a net income of $5.01B over the past twelve months. 

This puts them well ahead of United Airlines, which holds the second spot with $2.69B.

However, not all airlines are riding high. JetBlue and Spirit Airlines have faced challenges, both reporting losses over the last twelve months.

JetBlue recently scrapped its $3.8B Merger Agreement with Spirit after facing regulatory hurdles.

In the customer satisfaction department, Delta shone bright, earning top marks in first/business and premium economy cabins, according to JD Power's annual airline survey. 

Southwest also stood out, winning in the economy cabin category.

Despite accolades, Southwest has caught the eye of Activist Elliott Management, which acquired a $1.9B stake in the company this week.

The hedge fund aims to drive leadership changes to enhance Southwest's recent lackluster performance.

Inflation might finally be easing up a bit.

The CPI index in May came in flat this week, increasing just 3.3% from the previous year. This was below estimates of a 3.4% increase.

Core CPI, which excludes food and energy prices, landed at 3.4%, below the expected 3.5%.

With both headline and core inflation coming in lower than expected, the markets rallied off the news.

Following the report, the Fed announced it would leave interest rates unchanged and projected it would cut interest rates once this year.

This is down from an estimate of three in March.

The Fed continues to reiterate its stance of observing a clear trend of inflation declining before considering any cuts.

Zooming out, prices of goods and services have surged since 2000, with an overall increase of about 85%.

Hospital services have shot up by 271%, and college tuition by 187%, far surpassing overall inflation.

On the flip side, items like TVs, toys, and computer software have seen considerable price drops.

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If you’re a fan of Zyns, I’ve got bad news for you.

The popular nicotine pouches are facing a national shortage due to a surge in demand.

This increased demand has led to a slowdown in U.S. sales growth for Zyns, causing a slip in market share in recent weeks.

But this doesn’t undermine its explosive growth story.

Back in Q1 2017, U.S. shipments totaled 1M units.

Fast forward to Q1 2024, and U.S. shipments surged to 443M, marking a massive 138.81% compound annual growth rate since 2017.

To cope with this demand surge, Zyn’s manufacturer, Philip Morris, is ramping up production capacity at the brand’s only U.S. factory in Kentucky.

However, resolving the shortage by year-end seems unlikely, according to the company's spokesman.

Are you a big fan of the S&P 500? This is likely one of the reasons why.

U.S. stocks have been outshining global equities for over 15 years now.

Since 2010, the S&P 500 has been delivering a solid 13.3% yearly return, including dividends.

Compare that to the EAFE Index, tracking developed countries outside the U.S., which returned 5.9% annually.

The Emerging Markets Index? It lagged behind even more, returning just 3.2% per year.

This long streak of U.S. dominance has led many investors to overlook international markets.

But remember, past performance doesn't guarantee future results.

There's a compelling case for looking beyond U.S. borders, according to Morgan Stanley.

International markets currently offer lower valuations, higher dividend yields, and potential growth opportunities.

They can also potentially serve as a hedge against a downturn in the U.S. market.

Interestingly, before the U.S. took the lead in 2009, Bloomberg data shows that the EAFE actually outperformed the S&P 500 from 1970 to 2009, averaging 10.2% annually, slightly ahead of the S&P 500.

The data also shows that the EAFE won the performance race 56% of the time over rolling 10-year periods during this time frame.

One of the best ways to find out if a company is potentially undervalued?

The Price/Earnings-to-Growth (PEG) Ratio.

This metric goes beyond the basic PE ratio by factoring in expected future earnings growth, giving a more comprehensive view of a stock's value.

Legendary investor Peter Lynch popularized the PEG ratio, scavenging for companies with a PEG under 1.

There’s a handful of notable names trading at or under a PEG ratio of 1.

These include Meta, Bank of America, Toyota, HSBC, Intel, KKR, Target, PayPal, Baker Hughes, and Liberty Media to name a few.

Now, does this mean you should rush to buy stocks with a PEG < 1? 

Not necessarily. It simply suggests that these companies merit further investigation.

Keep in mind that PEG ratios can vary depending on the data source, as they often rely on different analyst estimates for future growth.

Nevertheless, the PEG ratio is a valuable tool among many others when evaluating a company.

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Notable Companies Reporting Earnings Next Week:

• Monday (6/17):

  • Lennar $LEN

• Thursday (6/20):

  • Accenture $ACN, Kroger $KR

All of the companies that are reporting earnings next week can be viewed here.

Buys

• Josh Gottheimer (D)

  • Company: Microsoft ($MSFT)

    • Amount Purchased: $1M - $5M

      • Details: Call Options, Strike Price $225, Expires: 06/20/2025

    • Amount Purchased: $1M - $5M

      • Details: Call Options, Strike Price $220, Expires: 06/20/2025

• Tommy Tuberville (D)

  • Company: Intel ($INTC)

    • Amount Purchased: $250K - $600K

Sells

• Josh Gottheimer (D)

  • Company: Microsoft ($MSFT)

    • Amount Sold: $1M - $5M

      • Details: Call Options, Strike Price $230, Expires: 12/19/2025

    • Amount Sold: $1M - $5M

      • Details: Call Options, Strike Price $225, Expires: 12/19/2025

• Tommy Tuberville (R)

  • Company: Intel ($INTC)

    • Amount Sold: $300K - $750K

  • Company: Cleveland Cliffs ($CLF)

    • Amount Sold: $266K - $665K

  • Company: PayPal ($PYPL)

    • Amount Sold: $100K - $250K

Buys

• Zillow Group ($ZG)

  • Insider: Jay Hoag (Director)

    • # of Shares Purchased: 2,676,072

    • $ Amount: $105,383,488

    • SEC Forms: [1]

• ProKidney Corp ($PROK)

  • Insider: Pablo Legorreta (Director)

    • # of Shares Purchased: 22,617,909

    • $ Amount: $54,735,340

    • SEC Forms: [1]

Sells

• Dell ($DELL)

  • Insider: Michael Dell (Chief Executive Officer)

    • # of Shares Sold: 7,022,752

    • $ Amount: $940,576,962

    • SEC Forms: [1], [2]

• Intuit ($INTU)

  • Insider: Scott Cook (Founder)

    • # of Shares Sold: 177,309

    • $ Amount: $101,271,599

    • SEC Forms: [1]

🤝 Review of the Week