Dell Smashing Expectations

In this issue of the Peel:

• Non-farm payrolls increased by 187,000 last month, jumping over estimates of 170,000.
• Dell, the boomer a** computer company your dad probably thinks is on par with Apple, had a helluva quarter.
• Instacart, the grocery delivery and tech company crazy enough to try this out, is officially set to go public this month.

Market Snapshot

Happy Tuesday, apes.

Hope you had a great long weekend and that yesterday was enough to recover from the hangover. Let’s see what we missed.

While your portfolio might’ve had a tough day, given a weak performance from everyone’s favorite names like Nvidia and Tesla, the rest of the market was mostly pretty okay. Breadth was mostly positive while 3/4 of major U.S. indices were up, with the Nasdaq as the only loser on a 0.02% scoot lower.

Meanwhile, long-dated bond yields jumped following the release of the August Jobs Report on Friday (more below, obviously) and held strong at elevated levels by early overnight sessions yesterday. The 10-year is chilling around Musk’s favorite yield of 4.20% and the 2-year is dancing around 4.9%.

Let’s get into it.

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Macro Monkey Says

Jobs Day

Like most earnings reports we’ve seen this szn, the U.S. economy beat estimates on its monthly job growth figures in August. And it might not be a good thing.

Non-farm payrolls increased by 187,000 last month, jumping over estimates of 170,000. But, if recent months can offer any guidance, economists may soon once again realize they were even more wrong than they thought as both June and July’s job addition figures were revised lower, by 80,000 and 30,000, respectively.

Source

As you can see above, less and less people are getting that new job. But don’t worry, as you’ll see below, they’re also getting paid less for it, too.

From Fed Chair JPow’s perspective, the man whose sole goal over the past year-and-a-half has been to make sure your job search is as difficult as possible in order to slow inflation, the beat isn’t ideal. But, at the same time, unemployment jumped to 3.8% from 3.5%. Alleged “true unemployment” also spiked to 7.1%.

"... less and less people are getting that new job."

How tf is that possible? Great question. I was wondering the same thing but recall that to be considered “unemployed” by the BLS, you must have actively looked for a job in the past 4-weeks. If not, you’re considered “outside the labor force.”

Last month, while unemployment jumped, the labor force participation rate also increased 0.2% to 62.8%. What we’re seeing is an increase in the number of Americans looking for jobs but not being able to find them - hence, you not getting the return offer.

In addition to the below chart, this is exactly what JPow wants to see.

Source

Like we’ve known for months and almost years now, the goal with JPow’s rate hikes wasn’t just to double your monthly mortgage payments, but slowing an economy in the stranglehold of wage-push inflation requires you to make less money and have a harder time finding a job.

"... slowing an economy in the stranglehold of wage-push inflation requires you to make less money..."

But, all in all, the report was more representative of a labor market with supply and demand moving somewhat close to anything near equilibrium, meaning the trend is moving in the right direction. Still, the odds of another rate hike fell from 22% a week ago to less than one-third of that now at just 7%, confirming the idea that no one has any idea what’s going on.

What's Ripe

Dell Technologies (DELL) ↑ 21.25% ↑

• If you’re like me, you probably forgot this company even exists, but it’s still there and still going strong. Dell, the boomer a** computer company your dad probably thinks is on par with Apple, had a helluva quarter.
• Expectations were smashed from the top to bottom line, with revenue of $22.9bn blowing through the company’s own high-end estimates of $21.2bn. Net income came in at $1.74/sh vs $1.14/sh priced in by the Street.
• The PC business, which has been suffering all year, continued to suffer (just like the rest of us), but by far less than anticipated. On top of a less sh*tty market for the company’s primary products, major Zuck-esque cost-cutting has helped drive income and cash flow from operations growth.
• Not bad, but when was the last time someone said “I can’t wait for the new Dell model!” Yeah…good for them, but we’ll see how long that can last.

Lululemon (LULU) ↑ 6.01% ↑

• Because everyone in America loves overpaying for average-quality clothing, Lululemon shares ripped following earnings on Friday.
• Nike’s worst nightmare delivered a net income of $2.68/sh while analysts were looking for $2.54/sh while sales of $2.21bn beat as well.
• International markets, especially China, were primarily responsible for the jacked quarter. In a so-cringely named plan that must be some kind of meme called “Power of Three x2”, Lululemon has been seeking to hit sales levels of $12.5bn in 2026, doubling that of 2021.
• Seems to be working out, despite the cringe. There are not many lemons according to this report, but the company still managed to make lemonade.

What's Rotten

Walgreens (WBA) ↓ 7.43% ↓

• It’s never a great sign for a boat when the Captain jumps overboard, and apparently investors feel the same about abruptly departing CEOs. At least, that’s the case for Walgreens and Rosalind Brewer.
• The move totally caught analysts by surprise, but yes it’s true, CEO Rosalind Brewer has departed. It was called a “mutual agreement” by Brewer and the company, but the abruptness has to make you wonder…
• Expectations are low for the fiscal year, so early speculation is that the ousting/separation has to do with underperformance as shares are down 37% YTD compared to the S&P’s +18.48% ride.

Broadcom (AVGO) ↓ 5.46% ↓

• Being a semiconductor stock in 2023, meeting expectations is far from meeting expectations, thanks to the Big Brother that is Nvidia looming over the sector.
• With that in mind, it makes sense why investors threw up profusely on Friday despite Broadcom’s very solid earning figures. Last quarter, the semi name brought in $10.54/sh on $8.8bn vs estimates for $10.42/sh on the same amount of sales.
• Not bad, but the real crybaby-ing started on the fact that the firm's guidance was…in line with what Wall Street was hoping for. Shares have traded up along Nvidia’s gravitational pull of the chip sector, but unlike its larger rival, Broadcom hasn’t actually delivered any kind of fundamental…anything…as justification.

Data Peel

Thought Banana

Instacart IPO

Shopping is almost never fun, but shopping for new shares in our portfolios is always a blast. Soon, we’ll be able to do it all in one fun place under the aptly named ticker of $CART.

Instacart, the grocery delivery and tech company crazy enough to try this out, is officially set to go public this month. The exact date isn’t yet set, but the firm’s profits and at least one major investor already are.

It goes without saying that the tech IPO market is in the dumps, but after recent listings with mixed success from companies in other industries like Cava, Better.com , and the scam SPAC that was VinFast, Instacart has decided to give it a go.

And before even going public, one of the company's largest customers, PepsiCo, is already in for a $175mn stake. The move to act as both a customer and a shareholder could be seen as a nice big hug from the beverage giant, but then again, maybe they just want some say in the prices of those ad spots they buy.

"... one of the company's largest customers - PepsiCo - is already in for a $175mn stake."

Interestingly enough, that is how Instacart makes the vast majority of its profit, essentially as an ad platform per their S-1. Transaction revenue drives most of the revenue, however, their ad sales drive far higher margins, thus feeding more into the bottom line.

Regardless, the company has built a nice little niche for itself where the 4 essential players are all set to benefit, including:

● Grocers: Who like the company because it drives more volume and higher average ticket spend at their stores

● Brands: Who get a boost from the above and have the ability to spend big on ads on the platform to drive further sales (a win for the grocers too)

● Customers: Who have the luxury of forcing someone else to go buy their sh*t for them because they’re just soooo busy, and

● Shoppers: Who are lucky enough to get paid to go and run errands for your lazy ass

"... Instacart makes the vast majority of its profit, essentially as an ad platform per their S-1"

As with any IPO, the only thing we can be sure of is that there will be volatility. Arguably more rare than finding a unicorn, this pre-IPO tech company is actually profitable (crazy, right?), raking in $1.8bn in 2022. Can’t wait to see how this one goes.

The big question: Are you buying Instacart at the IPO? What kind of multiple will this thing get assigned?

Banana Brain Teaser

Friday —

In this teaser you have been given two definitions. Each pair of definitions is for two unrelated words. Your task is to discover what these two words are. In the answer to the second word, I took the first word, but changed one of its letters to make a completely different word. (i.e. table - fable)

1. An instrument used to measure time - an outer garment.
2. An instrument used in woodworking for smoothing wood - a shallow dish used for eating food.
3. A deep basin used to hold liquids or food - to utter a loud prolonged cry.
4. A position of authority - a group of singers.

Answer

1. clock - cloak
2. plane - plate
3. bowl - howl
4. chair - choir

Today —

A man is trapped in a room. The room has only two possible exits: two doors. Through the first door there is a room constructed from magnifying glass. The blazing hot sun instantly fries anything or anyone that enters. Through the second door there is a fire-breathing dragon. How does the man escape?

Wise Investor Says

“Investing in IPOs is like buying a lottery ticket. The potential for a windfall is there, but so is the risk of significant loss.” — Peter Lynch

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team