The Toughest Job in the World?

Earn While You Learn! ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, The Toughest Job in the World? The Federal Reserve may have the toughest job in the world. Its effort to pull off a soft landing just got even more complicated after yesterday’s inflation report. The CPI came in hotter-than-expected. The core CPI rose slightly to 3.3%, based on a year-over-year percent change. The headline CPI fell to 2.4%. Initial jobless claims jumped to 258,000 which was above the estimate for 230,000. (Nearly all of the gain can be attributed to storm-hit states Florida and North Carolina, along with Michigan due to the Boeing strike.) Maybe it will be a temporary setback. Initial jobless claims might fall again once the hurricane impact fades away and/or the Boeing strike ends. - “One slightly hotter-than-expected CPI reading doesn’t mean a new wave of inflation has been unleashed, but the fact that it accompanied a jump in weekly jobless claims may add to short-term market uncertainty,” said Chris Larkin at E*Trade from Morgan Stanley. - “These weren’t good numbers — but that doesn’t mean they upended the larger outlook for solid economic growth and moderate inflation.” Regardless, the data makes it more difficult for the Fed’s next interest rate decision. Inflation is warmer while the labor market is cooler. It is the opposite of what the Fed wants to see. - “If inflation data continues to indicate that prices are generally rising amid a backdrop of a cooler labor market, the Fed’s next meeting will undoubtedly involve a more heated discussion of which of the Fed’s mandates takes precedence,” Quincy Krosby at LPL Financial said. Quincy Krosby at LPL Financial (Photo: CNBC) There are some signs that the economy is slowing. Domino’s Pizza recently reported its earnings, and the company cut its 2024 projection for sales growth (6% vs. the previous guidance of 7%) and new locations. McDonald’s CEO Chris Kempczinski warned that the fast-food chain expects consumers to struggle into next year. In July, it reported its first quarterly same-store sales drop in about four years, due to a pullback in consumer spending. Kempczinski remarked at a Boston College Chief Executives Club event that 2025 is poised to be “another challenging year.” - “We’re starting to talk about 2025, and my message to our teams has been: ‘We need to be preparing for another challenging year,’” he said. “We need to be making sure that we’ve got a really strong value proposition in all of our markets.” Delta Air Lines also gave 2024 guidance that fell short of Wall Street’s estimates for profit and sales. Several Fed officials spoke publicly yesterday. John Williams, Austan Goolsbee and Thomas Barkin didn’t panic about yesterday’s higher-than-forecast CPI data. They still expect to keep cutting rates. However, Raphael Bostic of the Atlanta Fed said he was open to a pause in one of the next two remaining meetings this year. For now, Wall Street still expects the Fed to cut rates during the next FOMC meeting in November. It is still early, though. Fed officials will get another jobs report before its meeting, and anything can happen after the report. - “Given that the most recent jobs report was so strong, it was possible that a big upside surprise to inflation could have caused the Fed to pause at the next meeting and leave rates unchanged,” Chris Zaccarelli at Independent Advisor Alliance said. - “However, given that this month’s report was a little higher than expected it is still likely that the Fed will go ahead and cut by 25 bps next month and – if nothing in the labor market or inflation readings materially changes by the end of the year – another 25 bps in December.” The Premium Stock To Own Right Now Today’s Stock Pick: Shake Shack (SHK) In the previous section, I wrote about how McDonald’s and Domino’s are struggling due to a pullback in consumer spending. Shake Shack isn’t feeling it as much. It is considered as a “premier fast food” where its prices are much above typical fast food restaurants, including Chipotle. What makes Shake Shack popular is its high-quality foods. For example, it has no antibiotic and no added hormone proteins. It uses cane sugar instead of corn syrup and uses cage-free eggs and fresh dairy in its custard. (Source: Shake Shack) Consumers are responding well to it. Shake Shack modified its packaging to emphasize that it uses no antibiotics / no-added hormone chicken in its Chicken Shack sandwich. As a result, it boosted sales in chicken sandwich. (Source: Shake Shack) Now, the restaurant is starting to show incredible financial results. It focused on decreasing costs in the operation. Food and paper costs were 27.8% of Shack sales in the second quarter. It was down 1.2% year-over-year. Blended food and paper inflation was about flat year-over-year. How? Shake Shack executed supply chain cost saving initiatives that decreased paper and packaging costs by mid single-digits. Beef and fries continue to show high inflation, but cost initiatives in other cost areas led to higher margins. (Source: Shake Shack) Total revenue jumped 16.4% year over year in the previous quarter. System-wide sales increased 13.5%. Same-Shack sales (SSS) grew 4% year-over-year. Now, listen… Shake Shack is growing its revenue while cutting costs. Meaning? A strong operating leverage. Good enough, its operating income soared to $10.8 million in the previous quarter, versus $4.7 million last year. (Source: Shake Shack) So, the company is on track to meet its financial targets for FY2024: a total revenue growth of 14% to 15% and an adjusted EBITDA growth of more than 25% year over year. Finally, it expected to reach positive free cash flow for FY2024 for the first time since 2017. Bottom line: Shake Shack is hitting an inflection point where its earnings is growing much faster than revenue. It is poised to turn positive for free cash flow. This is a stock to watch out for. 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