Airbnb Winner!
In this post, I shared the opportunity for one of you to win a free cabin weekend — now, one month later, I’m delighted to share that Justin D. has been randomly selected to win the trip!
Thank you to the 50+ of y’all who shared Rate of Return with your friends and family, and we’ll be sure to host another giveaway of some sort soon.
If you have any ideas — let us know! Happy to giveaway books, reasonably-priced electronics, etc.
Big move inbound?
On Thursday, the S&P 500 ETF (SPY) saw its biggest inflow since the vaccine news hit in 2020 and its sixth biggest over the last decade.
At the same time — we’re seeing an all-time record for the purchases of put options. Friday saw 37.4M put option contracts traded.
On Thursday — there was 27.3M put options traded. This was the 8th largest day ever.
The question then becomes — is there something bigger brewing here?
Are ‘big fish’ placing large, long equity bets — and then selling protective puts on the backend?
This is worth noting and reporting back on to you. Shoutout to The Short Bear for the details.
Portfolio Updates:
Kicking things off with the obvious — the algorithmically-driven dividend growth strategy on Quantbase had (minimal) exposure to bank stocks.
Consequently, the strategy is now in the red by a few percentage points.
As a reminder, the strategy’s rules are below.
The Strategy’s Rules:
Only select stocks from the S&P 500
Buy a stock if it’s forward dividend yield is >3%
Buy a stock if it’s 5-year dividend compounded annual growth rate is >10%
Sell a stock if its forward dividend yield drops below 1% OR if its 5-year dividend compounded annual growth rate drops below 5%
Rebalance every 8 weeks
Just so we’re all on the same page — the above strategy when back-tested to 2012 outperformed the S&P 500 by +80%.
Obviously, past performance does not indicate future returns — but I have not lost confidence in the slightest and will continue to dollar cost average into the strategy throughout 2023.
Below is an update on the fundamentals of each bank stock:
USB — healthy, they’re depositing $1B into FRC to establish confidence
PFG — healthy, strong balance sheet + reduced risk through insurance products
KEY — this research depicts a strong portfolio and limited downside
HIG — healthy, strong balance sheet + reduced risk through insurance products
FITB — diversified portfolio + southeast expansion efforts on the horizon
Other Changes:
I exited three positions on Friday totaling $544.96 — RocketLab (RKLB), Bill.com (BILL), and Dutch Bros Coffee (BROS).
RocketLab — Despite their growing backlog, the $84 I had invested in this company could be better used elsewhere.
Dutch Bros Coffee — again sentiment assuming we’ll see a continued downtrend in the markets, my $208 could be better invested elsewhere.
Bill.com — Quickbooks has begun to compete directly with Bill.com, which will not bode well for my $251 position in the company over the coming quarters.
Looking Forward:
I’m looking to increase my position in Salesforce (CRM), Realty Income Corporation (O), and cybersecurity as a whole (PANW, CRWD). I’ve also begun to expand my positions in Bitcoin and Ethereum after reading this tweet.
Week in Review — Too Long, Didn’t Read:
Academy Sports & Outdoors (ASO) reports a significant amount of free cash flow, SentinelOne (S) is focused on becoming free cash flow positive, Adobe (ADBE) reported record revenue, First Republic Bank (FRC) gets billions in assistance from their banking buddies, UBS Group (UBS) agrees to buy arch rival Credit Suisse (CS), The Conference Board’s Leading Economic Index (LEI) still gives recession warnings, Core CPI heats up, and PPI surprisingly cools down.
Key Earnings Announcements:
Academy Sports & Outdoors reports a significant amount of free cash flow, SentinelOne is focused on becoming free cash flow positive, and Adobe reported record revenue.
Academy Sports and Outdoors (ASO)
Key Metrics
Revenue: $1.7 billion, compared to $1.8 billion last year
Operating Income: $204.8 million, an increase of +3.3% YoY
Profits: $157.7 million, an increase of +11.2% YoY
Earnings Release Callout
“While our business faced pressures from the uncertain macro-economic environment throughout the year, our team effectively executed against our strategic plan, and as a result, we delivered solid earnings, generated and returned a significant amount of free cash flow, and created value for our stakeholders, even though we did not meet our sales expectations.
Our focus in 2023 will be investing for growth by opening new stores, building a more powerful omnichannel business, strengthening our current store base, and leveraging and scaling our supply chain.”
My Takeaway
Give me the free cash flow! Their stock is up +28% since posting this original pitch on the company back in December.
2022 was a banner year for ASO — mainly because their profits were up +27% while comparable sales declined (alluding to expanding margins and disciplined cost management).
Management shared with us their inventory levels are fully stocked for the 2023 Spring shopping season — a supply chain-induced problem they faced in 2022. This will allow them to fully meet the demand that is expected to come their way.
I continue to believe ASO will shine during the “more difficult” macro environment coming later this year — given their strong “everyday” value offerings and continued margin benefits from supply chain initiatives.
ASO plans to increase their store base by +30% over the next 5 years — with 14 new locations planned for 2023. +100 news stores could conservatively add +$4.00 in EPS ($2B annual run rate) putting their stock price closer to $110 / share assuming historical valuation metrics.
Don’t forget that incredible dividend! Very, very happy with this position.
SentinelOne (S)