All Hail Powell!
There are still a lot of minefields strewn ahead of us, but for now, let's celebrate what Powell did. He refrained from lowering rates despite unrelenting pressure from the Commander-in-Chief. He reassured the market that interest rates will soon be lowered. Yet, he left out a date certain for a July cut. He was brilliant, he was reassuring, he did nothing, and may end up never doing anything, and that is fantastic. We should never doubt his ability to communicate ever again.
I'm Not Giving the All-Clear Signal
I will leave the in-depth exploration of what dangers we have ahead of us for my Sunday note. We have the run-up to the G20 in Japan on the 28th to trade without fear. The common wisdom is that Trump and Xi will clap each other on the back and announce a path to a trade agreement. For now, let's set aside potential exogenous events to dissuade us from the pervasive optimism of the market. To wit, Iran shot down a US Air Force drone, and the market shook off any possibility of war. I am not saying this is wrong, but the S&P futures are pointing to all-time highs despite this news. We must listen to the message of the market: Higher! Also the prime directive: "Don't Fight the Fed" is in operation. The Fed wants the market to soar; let's help it. Here's what to trade:
Enterprise & Cloud Software
Little noted by me because I relegated Oracle (NYSE:ORCL) to the bad list, but it announced a partnership with Microsoft (NASDAQ:MSFT) 15 days ago to run its software - both applications and its new autonomous database on Azure. This was little noticed in the financial media, and so it gives us an opportunity for a trade. During its earnings report last night, which ORCL handily beat, it was noted that its automated database is getting a lot of interest. Also, the company claimed to be THE winner on cloud-based apps. Financial and HR are doing much better. Autonomous DB is a fantastic concept, using AI to do all the upkeep of a database administrator. An enterprise database needs whole departments to manage and with autonomy. All that brain power can be unleashed to designing new big data applications. I discounted this great innovation because it was exclusive to the Oracle Cloud. This is no longer the case with the Azure partnership, and I have to reassess my lack of esteem for this name. ORCL with its unmatched database and well-established business applications can be bought today.
Slack (NYSE:WORK) is going public today, and the target price will be $26. it will probably jump at the outset. I would try to buy it up to 10 points higher. I was hoping that the Powell meeting would have been less perfect and we would have a bit of a sell-off today and allowing us to pick up WORK at a cheaper price no matter. WORK is going to be one of those go-to names to invest in like NOW, WDAY, NEWR, OKTA, MDB, etc. You know my list by now. There is a huge growth path for it, and it is the type of application that can be a platform for other productivity applications. I will trot out an old-is-new-again word, WORK is a "Portal" and, as such, it will have extreme stickiness with customers. I am not saying to go all in today; as always I advocate taking a gradual approach, and if Spotify (NYSE:SPOT) is a guide as a non-IPO debut, SPOT closed high on the first day and then fell a bit a few days later. Buy a little today and then look to add at any weakness.
Let me just say that if you want to trade on cloud software names like NOW, WDAY, NEWR, OKTA, MDB, SPLK, PLAN, SMAR, SHOP, any of the previously listed names I have presented to you, and you feel comfortable with them from your own research, you can trade, but be ready to take profits going into the G20. Please don't expend all your cash. If you follow my discipline and are holding 25% to 35% cash, allocate only 1/3rd of that this week.
Update on Kratos
Kratos' (NASDAQ:KTOS) Stealthy XQ-58 Valkyrie Test Flight on June 11, 2019, took off over Yuma, Arizona. The 29-feet-long, jet-powered drone "successfully completed all test objectives during a 71-minute flight," the Air Force Research Laboratory announced. The Valkyrie's first flight took place in March 2019. The Air Force and California drone-maker Kratos plan to conduct five test sorties during this phase of the XQ-58's development. The Valkyrie is the "Loyal Wingman," I wrote about in glowing terms just a week ago. I won't go into all the potential of what the Loyal Wingman concept will be; read more on the "National Interest" as well for more details. Just note that this tiny company has... shall I indelicately say humiliated Boeing (NYSE:BA)? Perhaps BA should just be ashamed on its own. All it has in this competition is a model on a stand. If you have room for an allocation for non-dividend-paying stocks, take a small position on this name and hold it for 10 years. There is a very bright future for KTOS.
Alphabet (GOOG/GOOGL) announces Waymo joint venture with Nissan (OTCPK:NSANY) and Renault (OTC:RNSDF) for robotaxis. GOOGL hasn't gone anywhere, and with this announcement, market participants will have to start including Waymo into their valuation models. Buy GOOG/GOOGL. We should be able to scalp some good alpha on GOOGL going into the 28th.
Chewy (NYSE:CHWY); this past Tuesday, four insiders including the CFO and CEO spent $4 million on shares @ $22. CHWY closed yesterday at about $35. I think it's very interesting that insiders are buying so soon after the IPO (June 14). I am not sure that this piece of news justifies an investment in CHWY, but if you are looking to make a trade, this data could justify the risk irrespective of the price differential of what the insiders paid.
Good luck trading today!
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.