Keep the rules simple, and then consider using puts and credit spreads to your advantage.
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You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: The June Watch List]( Keep the rules simple, and then consider using puts and credit spreads to your advantage. [Garrett {NAME}]( May 31
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Market Update: There’s been a surprising rotation to the small-cap side, with money flowing out of the larger caps and a greater focus elsewhere. We’re witnessing our first losing week for the S&P 500 in six weeks, a signal of solid liquidity off the back of the post-tax day payouts. That said, some softness in the cryptocurrency and gold markets raises questions about the impact of interest rates. Remember… higher for longer is still the mantra. But we might be talking about “How High” and the threat of another rate hike in 2025 if they don’t get spending under control. Our intraday signals remain Yellow.
--------------------------------------------------------------- Dear Fellow Expat: Greetings from Fort Myers, as we’re returning to the Florida Republic. This weekend, we have some real estate business to address… and I’ll look for new, innovative ways to ride down a water slide. I’m flying on Delta, a sharp contrast from the traditional, direct Southwest flight—you know… [the one that always seems to have miracle-healing powers in the sky](. After a great month (seasonality during an election season helps), we’re heading into June. This is also a very good period for the markets. Things could get bumpy into the final three months before everyone votes. But you know I remain bullish about a wave of fiscal spending on the eve of the election—plus additional monetary support well into 2025. With that in mind, I wanted to put together a watchlist for June. Some stocks have caught my attention, and investors might want to notice. Given their fiscal strength and limited downside, these may be good candidates for put selling or credit spread selling in a positive momentum environment. But first… Hey There, Cathie Wood [I’ve long argued that Cathie Wood]( is a bad money manager. But there’s really no reason to pile on any more. We’ve proven our point. Most of the “innovative” stocks she’s picked over the last few years have seen almost zero insider buying. As I always ask, if the insiders at the company aren’t buying their own stock… Why is she? Wood told us a few years ago to wait five years. And as more investors continue to pile out of her Ark Innovation Fund (ARKK), things are getting bleaker and bleaker for the money manager. Wood was considered the top stock picker in 2020 and 2021 - but now we know why… The Fed pumped trillions of dollars into the markets… and she picked everything that considered itself “innovative.” Without all this easy money, most of these companies would have gone out of business. Cathie Wood's ARKK is now down almost 60% in three years. Meanwhile, as Quoth the Raven notes, the Nasdaq-themed Invesco QQQ Trust (QQQ) gained 37%. Wood had predicted "a 40% compound annual rate of return during the next five years.” That didn’t happen. But that doesn’t mean there aren’t stocks in her portfolio that I want to kill. One of my top watchlist stocks for June is on the list. And I’m starting to think it’s a buy. Watch List Stock No. 1: Zoom Video Communications (ZM) I don’t know anyone who prefers Microsoft Teams or RingCentral over Zoom. If you are that person, come collect your prize, just a balloon covered in mustard. This is the easiest damn technology to use, but it’s one of the most aggravating stocks in the world. I have long hated Zoom as an investment after years of nosebleed valuations and a lack of profitability. I hate that it has no economic moat. I do hate that it has no real competitive advantages over it… except that everyone knows what it is, and it’s easy to use. This stock once traded at $560 during the COVID boom. It’s at $60 right now. It has an F score of 7, a price-to-Graham figure at 1.00, an ROIC of 16%, and a cash-to-debt ratio of 108. The average price target on the stock is around $74.00, and fair value is somewhere in this range. There is a lot of bias against it, but it feels like one of those range-bound stocks like Gravity (GRVY). It's never a bad time to pick up a few shares and try to sell them 10% to 15% higher with patience. With people starting to panic over Bird Flu, don’t be shocked if just some speculation happens. But even without the Fear Porn, this feels like the floor at $60.00, rivaling where the stock bottomed out in October 2023. Watch List Stock No. 2: Sunoco LP (SUN) On the insider front, this stock has been very busy. After a pullback from about $64.00 per share in early March, executives have been buying this stock. Sunoco LP (SUN) retails and distributes motor fuels across America. It powers about 10,000 locations, including convenience stores, commercial customers, and independent dealers in over 40 states. And it’s driving season. But again… this is about the insiders. I’ll dive into this one on Monday, but something is happening for this stock to get a lot of bidding at this level - after such an impressive run-up in the price since 2020. I’m going to sit on this one a little and investigate. This price is around fair value for me… so I’m wondering if there’s anything else on the horizon. The dividend is just shy of 6.7% (but it requires a K-1). The average price target here is $60.00 from analysts. That’s the lowest forecast. It’s a positive sign that insiders are buying after a big run for the shares but doing so right around the 20-day moving average. Watch List Stock No. 3: Yelp (YELP) Now, this one doesn’t have any insider buying. Woof… And if the insiders aren’t buying their stock, why the heck out I? Remember, it’s a tech company, so many people are paid in stock. But there’s something about Yelp that has my attention. First off… no one can fix a damn thing themselves. Second, services inflation remains sticky. Third, it justk makes sense that their advertising sees more targeting due to the importance of customer reviews in this society. No one tries anything new without a safety helmet. And this company is a giant plastic wrap bubble for would-be customers. Yelp has an F score of 8. Its gross margins are 91.5%. But the Net Margins are just 8.4%. That can’t be fixed? Capital efficiency is pretty good. The Return on Equity is 15.8%, and the ROIC is 16.4%. Goldman just slapped a $52 price target on this stock (it’s at $36.40 right now). So… maybe this becomes an attractive target for an activist. Maybe it just becomes a reason to sell put spreads on the underlying stock. Regardless, this - like Zoom - has reached a place where the downside is much lower than the upside. Pay close attention. Stock to Watch No. 4 - Domino’s Pizza It's one of our favorite stocks of all time. I’ve written about the potential of AI and how this company is just a cash flow machine. Remember to reread my piece on [Domino’s (DPZ) from last summer](. The stock’s up 57% since that article. Shares are closing on all-time highs from before the Fed started raising rates. This company's ROIC is north of 50%… This company is just incredible, and I wouldn’t be shocked to see it breach that all-time high by the end of the year. Stocks to Watch in June 2024 Other stocks to watch… that we’ll cover in June… - Croc’s (CROX) - The shoe company that could. I don’t get it, but the numbers are incredible. - Apple (AAPL) - The rebound continues for the stock, and there’s plenty of upside with strong buybacks and cash flow. - Zoetis (ZTS) - I don’t understand how people aren’t in love with this company. Animal health remains one of the most misunderstood profit opportunities of the 21st century. I'll be back tomorrow with an update or two… and then on Sunday, I’ll have the week ahead. Stay positive, Garrett {NAME} Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money. [Like](
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