So far, since launching ThePeachPit Model Portfolio on February 28, 2024, the broader portfolio is up 5.10%. The portfolio declined by -17bps this last week as a result of some churn going into the end of the week. Though the broader market has pulled back -5% in the last week driven by a broader tech sell-off, I do not expect this to become a trend in the near term. I believe that much of the selling was the result of rebalancing funds into “safer” assets like fixed income as the world faces heightened geopolitical risks as well as fear of markets going too far too fast. Though this last point makes me grate my teeth, I expect some pivotal news to come out of q1’24 reporting in the coming weeks. I believe that my AI thesis will begin shedding some light on the consumer vs. corporate demand, which will kick off later this week with Intel reporting their earnings.
This week is set to be quite the busy one with earnings season running full steam. Macro data is going to be relatively light, so any broad-stroke sell-offs will be the result of microeconomic factors found across individual names. Two of my steel names, Nucor (NUE) and Cleveland Cliffs (CLF) both report later this morning. I anticipate that these two reports will set the direction for the duration of the year as to whether we should expect some level of a slowdown/recession across the broader US economy. My rationale behind this is that the steel industry SHOULD be front and center for all of these major infrastructure developments that are expected to drive economic growth. This pertains to the major foundry projects Intel (NASDAQ: INTC) and Taiwan Semiconductor (NYSE: TSM) have under development.
Intel reports their results on the 25th. I anticipate management to confirm their trajectory towards releasing and ramping up their 20A series chips as well as provide insight into the development of 18A. I remain net bearish on the firm as I anticipate a certain degree of challenges in developing their contract foundry business for advanced semiconductor manufacturing. Given that Intel’s goal is to manufacture semiconductors that will compete with their homegrown chip sets, I anticipate a slower path to viability for the business plan. Though I’m sure Intel will be capable of attaining the much-needed business, an act of God will need to occur for chip developers to turn to Intel. Considering the growing geopolitical risks laid out over the last few weeks, this may not be such a farfetched assertion.
Schlumberger (NYSE: SLB) reported strong earnings on Friday as the firm undergoes their acquisition of ChampionX, as reported in ThePeachPit single-name stock report earlier that morning. International sales grew tremendously by 18% while the US slumped as a result of lower drilling services. As iterated across my E&P names, operators are drilling less holes and focusing more heavily on extracting more oil out of each well through enhanced oil recovery methods. I anticipate this to continue as firms seek to cut down on CAPEX while managing OPEX. I updated my firm guidance on Seeking Alpha over the weekend post-earnings to provide additional insights.
Schlumberger Has Significant Upside Potential With ChampionX
Baker Hughes (NASDAQ: BKR) is set to report on the 24th. I anticipate much of the same verbiage with BKR with potentially more significant downward pressure on the stock post-earnings as the firm has greater domestic drilling exposure when compared to SLB. Though my initial pitch for BKR shares was positioned as a turnaround play, we may see some challenges with the firm’s rejuvenated growth story as producers pull rigs from basins and focus more heavily on the above-mentioned EOR strategy. If this is the case, I believe it will be prudent to shift our attention away from this turnaround flop and focus more heavily on SLB/CHX and their production chemicals business. I’ll report back with my findings on BKR in next week’s report.
EQT (NYSE: EQT) reports this coming Wednesday, the 24th. Rounding back to SLB & BKR, I expect EQT to give us some additional insights into the shift from dry gas to liquids and whether we should anticipate additional dry gas production being taken off the market until prices improve. Be sure to review my previous report on the name, EQT Is going Through EQui-Transitory Headwinds (NYSE: EQT),
From a macro perspective, I expect a moderately lackluster quarter for dry gas producers and recommend reducing positions in anticipation of earnings disappointments. This covers names such as Southwestern (NYSE: SWN), Range Resources (NYSE: RRC), Chesapeake Energy (NASDAQ: CHK), and Comstock (NYSE: CRK). Though I do not anticipate a drastic pullback in shares as the business opportunity for new LNG export capacity comes into play towards the end of 2024 & early 2025, I do expect some headwinds to cash flow in the meantime. Specifically, names in the Haynesville/Bossier Basin are most exposed to LNG export capacity, which will most heavily affect Comstock.
Lastly, both ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) report earnings this coming Friday, which should offer some insight into the durability of the liquids market. I anticipate some verbiage on the ongoing merger discussions between the firms and the to-be-acquired Hess (NYSE: HES) deal with Chevron. Though management remains adamant in seeing the deal through, I anticipate some questions as to the viability of the deal if the Guyana assets were to fall through the cracks and be reacquired by ExxonMobil. Hess had warned earlier this month that the arbitration case could potentially drag out to 2025, bringing further uncertainty as to whether Chevron would remain a suiter for the prized assets.
Final Thoughts
I think what’s on everyone’s mind is whether Nvidia’s (NASDAQ: NVDA) selloff is justified and whether it will turn into a trend. Operationally, I anticipate Nvidia to continue to realize significant strength in demand for their GPUs as the world shifts into a data-centric economy. As more data centers are cropping up left and right and as more firms adopt GenAI in the workplace, I anticipate continued heightened demand for Nvidia’s products. Though I expect consumer demand to remain suppressed as a result of tighter budgetary constraints, I do expect corporate growth to more than offset any decline. My recommendation is to remain patient with this stock. I believe it’s only natural for a price retracement before a continuation of the upcycle. I’ll be updating my views on the name after the firm reports their next quarterly update.
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