FA Alpha Weekly Digest - 04 03 2023

Wall Street’s stock picks can’t be trusted and the advertising bias of the mainstream financial media makes their news only sensationalist-driven. Gain an edge by knowing the trends that matter and some of the mispriced names in the market.

We bring you the FA Alpha Weekly Digest, a roundup of FA Alpha’s unique and unparalleled equity, credit, and macroeconomic insights over the past week.

In today’s digest, we’ll take a look at Fed’s rate hikes, eXp World Holdings (EXPI), Pediatrix Medical Group (MD), Cracker Barrel Old Country Store (CBRL), and The Consumer Staples Select Sector SPDR Fund.

That may have been the Fed’s last rate hike for a while… here’s what that means

Banks fell apart in the course of a week and shook investor confidence. During the Federal Open Market Committee (FOMC) meeting, the Fed raised rates to 5%. The Fed was in a similar position in the late 1940s to help cool off inflation. It used a number of tools to combat inflation that is very similar to what the central bank has been trying to do for the past year, although mainly through rate hikes. While the headlines from the banks that went under recently have put the market on edge, it’s telling that the stock market isn’t plummeting as the Fed will implement policies to stabilize the economy during periods of uncertainty.

Here is another big beneficiary of the scarce home supply

Expectations of decreasing housing market demand with increasing interest rates have not become real. People would most likely retain owning their houses and will keep on building up homes, carrying demand for homebuilders such as eXp World Holdings (EXPI), which have been resilient to increasing rates. Having launched right after the housing crisis around 2008, the company is poised to capitalize on this trend and continue its upward trajectory.

Credit markets seem to misunderstand the underlying risk for this company

Spin-offs and re-organizations can be noisy due to a misunderstanding from both equity and credit markets. In the last two years, Pediatrix Medical Group (MD) sold its radiology business to solely focus on its highly successful pediatrics and obstetrics businesses. After the transaction, the company also changed its name from Mednax to Pediatrix Medical Group. Opposed to investors’ worries, the company was able to mitigate the risks of the transaction and reached its goals towards a healthier balance sheet. Moreover, Pediatrix has plenty of time to refinance its debt load until 2027.

This company still has not recovered from the pandemic, and inflation makes it worse

Consumer staple companies prospered with skyrocketing gross margins while rates have been increasing as a response to rising inflation. But labor cost inflation hurts all industries including consumer goods. Operating restaurants with gift shops, Cracker Barrel Old Country Store (CBRL) saw its margins continue to be under pressure because of labor cost inflation. Although it has taken a big hit, we can see through Embedded Expectations Analysis if there could be any upside opportunities.

Investors might consider being more exposed to safe havens like this ETF

The consumer staples sector tends to be less sensitive to market fluctuations than other sectors such as technology. The growing distrust in the banking sector has led investors looking for other safe haven investments, such as The Consumer Staples Select Sector SPDR Fund. Let’s take a look at this fundand evaluate if it can prove that its consumer staple holdings are profitable.

We hope you find this week’s FA Alpha Daily articles insightful.

See you next week as we talk about another set of interesting names.

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