Cava has blowout year, market takeaways: Asking for a Trend

On today's episode of Asking for a Trend, host Josh Lipton tackles an array of subjects, including fast food stocks and broader trading insights,

Food stocks are in focus as more chains turn to value offerings in order to attract consumers. However, Cava (CAVA) continues to outperform, having a strong year following the Mediterranean food giant's public debut just one year ago.

The show then dives into market dynamics, with Nathaniel Popper, journalist and author of "The Trolls of Wall Street," joining to discuss how "troll" investors attract market participants.

This post was written by Angel Smith

Video transcript

Hello and welcome to asking for a trend.

I'm Josh Lipton for the next half hour.

We're going to be breaking down the trends of the day that will move stocks tomorrow.

There's a lot to keep track of.

So we're focusing on what you need to know to get ahead of the curve.

Here are some of the trends.

We're going to be diving into the battle may be won but the war is far from over Elon Musk pay package getting the ok for more than seven percent of Tesla shareholders.

Now the fate of must pay out heads back to the judge who struck it down and it is not certain yesterday's vote will be enough to tip the scale and no momentum soured in today's trade.

The S and P 500 closed down a winning week after hitting multiple new record highs, investors cheered encouraging signs in the fight against inflation after the fed rate steady.

Now they hope the trend will continue in a steady stream of data in the coming weeks plus the A I story.

It's alive and well driving Apple's market cap briefly above that of Microsoft after the iphone maker announced its A I strategy early this week but the games were short lived Apple ending the week behind Microsoft once again with NVIDIA as a close third according to a Thursday post on Reddit, Keith Gill A K A Warren Kitty is now one of gamestop's largest shareholders, the Redditor who helped spark the meme stock craze share.

He currently holds more than 9 million shares of the video game retailer and that stake leaves just three other investors in front of him, Blackrock Vanguard and gamestop, Ceo Ryan Cohen's investment firm.

But let's take a step back before this latest meme meme rally was ignited before the Gamestop surge of 2021 and take a look at the subreddit that helped start all Wall Street bets.

Nathaniel Popper is a journalist and the author of the trolls of Wall Street, how the outcast and degenerates are hacking the markets and he joins me.

Now, Nathaniel, it is great to see you.

You know, it's interesting, Nathaniel, the, the meme stock craze.

I bet there are plenty of folks who thought, you know, this is fun.

It's entertaining but it, it's gonna fade, it's gonna come and go.

But you know what?

It's June 2024 Nathaniel.

And we are still talking about it when I started writing this book about the, the trolls as I as I call them, you know, I have to say, I, I didn't think it was going to be alive in quite this way.

Uh uh You know, when I actually finished the book, um, but you know, what I saw, what made me want to write a book about this new world of online trading and investing is the fact that this had much deeper roots than most people understood.

And it was much more broad based in the markets.

And there are just millions of young American, particularly young men who are obsessed with the markets and that, you know, people keep thinking that's gonna go away but it hasn't gone away because it's bigger than I think people understand.

And, and are, are there differences Nathaniel between, let's say now and 2021 that you see in terms of the trend and the theme and as you point out, you, you would argue it's broadening.

Yeah, I mean, I think it's funny that right now we are once again paying attention to meme stocks, meme stocks are certainly a part of this.

But since 2021 you know, since that moment in 2021 when Gamestop first really took off, uh, you've got, you've gotten millions of more people into the markets and what's happened over time is that they've actually j in, in broad terms, moved away from the most speculative plays and from meme stocks.

So meme stocks have become actually a smaller portion of the retail action over time.

What I trace in my book and what I find so interesting is that this retail crowd, you know, they're often called the dumb money, but they've sort of learned over time, they figured out that there are smart investments and, and dumb investments and they've generally moved in the direction of smart investments.

And so even though, you know, meme stocks are a part of it, they've actually become a smaller part over time.

I'm interested.

Nathaniel, you know, II I got a buddy, he, he was used to be a trader at Goldman and he once told me, you know, I'm not any smarter than the retail trader.

I just have much, much better tools.

Hey, that, that counts for a lot.

And I guess I'm interested in Nathaniel.

When, when you know you're talking to the folks you're you're talking to for your book, some of them are making money but you know, are, are, are a lot of them making money.

I mean, do we have any kind of line of sight?

There, there are a lot of interesting new data sources coming online that give us some insights into that and what I the the the data, I find the most interesting looks at the aggregate sort of retail position in positions in individual stock.

So this is taking sort of retail traders and removing, removing the mutual funds, removing retirement investing, just looking at individual stock purchases.

And when you look at that portfolio over time, they have done in a a according to Vander research which is one company that tracks this in, in really interesting detail that that retail portfolio has done better over time than the S and P 500.

You know, the, the classic way to think about.

Are you beating the market?

Is, are you doing better than uh than the indexes and retail have at most points outperformed the indexes over the last 10 years over the last five years over the last three years.

Now, that may be an artifact of this moment in the markets when, you know, sort of speculative future looking companies, you know, A I companies, Tesla Electric car companies have been doing well, but you know, the retail crowd has taken risks and it's paid off in broad terms.

Now, of course, there have been sort of these, these uh tremendously sad stories, big losses.

You know, when you go on Wall Street bets, I trace this all through the community, Wall Street bets, you know, losing, being honest about your losses was a big part of the allure and the appeal of Wall Street bets.

But what you've seen over time is that when you see people losing, you have an opportunity to learn Nathaniel, such a great, super interesting conversation.

I wish we had more time, but thank you so much for joining the show, Nathaniel.

Appreciate it.

Thanks for having me, the NASDAQ and S and P 500 Lock in a winning week as the NASDAQ closes at another record.

Here with more on the train day takeaways.

Let's get to Yahoo.

Finance's very own.

Jared Blick.

Jared Apple is back.

That's my biggest take away for the week.

We searched to record highs finally after a lull in the action.

And let's go to our NASDAQ 100 heat map here where I'm going to show the price action for the week.

There you go.

What?

You're gonna first notice, guess what Apple was on top yesterday.

It's not on top today.

I had a losing day and Microsoft is bigger by just a hair, but check out NVIDIA right by it there.

I'm gonna change this to intraday and then actually to market cap and you can see how close these are.

Josh in just creeping up on Apple, which is creeping up on Microsoft.

These three could easily, easily switch place any day here.

But why Apple?

Why is this important?

Well, I did this, I presented this earlier in the week when Apple breaks out the way it has, uh, it tends to get continuation.

This shows what happens a day, a week, a month quarter, a year later on average, 33% in gains a year later, percent positive, 88% of the time, not quite as good when you go down to a week later, but still these are really solid gains.

And one more thing, Josh, I wanna show you, I, I prepared this uh at the beginning of the year it looks pretty good for a bit.

But then look at that September, September bad for Apple.

This goes all the way back to 1982.

So basically 40 years of history here and you can see June also a negative month.

Ok, we're in June right now, but obviously it's not a negative month for Apple just yet.

Uh But all that shows is that this is gonna be an incredible tail potentially in July or August when the stock bucks bucks seasonality.

So Apple being positive right now, that just means that the tail winds are that much more bullish.

It's so interesting that, because I wonder how Jared, how much of this is folks get.

Is this just excitement building for Tim Cook taking the stage?

You know, any of those new iphones sell the news?

Yeah, I think a lot of it was WW DC tends to happen in June.

So maybe a sell the news event, but this goes back 40 years.

I found the seasonality pa uh this exists pre iphone.

You can go back to the nineties and you will still see these patterns so pretty powerful there.

No, we gotta move on.

So we gotta talk about the, the record stocks that we had in stocks this week, those records in light of CP I in light of the fed.

Now, this is another chart I update pre periodically.

This goes back to the beginning of the bull market in October of 2022.

This purple line is spy.

So it's basically the S and P 500 these other lines show you how market reacted on different report days.

So for instance, CP I is in blue, that's all the way up here.

This produced 16 net spy points over the last year and a half or so.

And then you have the jobs report that's about eight or nine points.

What's interesting is the fed decision that are you telling me J Powell doesn't matter?

Is that what this is telling me?

Very interesting.

What I think we can glean from this is that there's not that much event risk on FED Day.

In other words, the FED is doing a decent job of communication.

So if you remember way back when Powell started this whole thing uh at the, at the Fed, he was event risk.

This guy could tank the market with any press conference.

That's not what we're seeing anymore.

So maybe he's learned.

All right.

Third point, Jared, you got it cash on the sidelines at a record latest B of a money market fund tally is showing we are north well north of six trillion in assets.

This goes back to before the global financial crisis.

And what I want to show you is these peaks here because we are at another peak.

Here's a peak.

It peaked in January of 2009.

This peak was May of 2000 uh 20 these peaks coincide with the change in interest rates.

So when you see this going up, that's because money market rates are going up short term, interest rates are going up as the fed.

But when the fed pivots thinks about cutting rates, that's when we see money market funds compared to these, uh these rates are not as competitive anymore.

So we saw this big rush of money out of money market funds in the wake of the global financial crisis went into stocks.

Same thing in 2020 in the latter part of 2020.

And what are we gonna get there now?

Where does it flow into Jared?

Exactly.

It's all going to the game stop, obviously.

No, it's gonna go, you know, it depends on how quickly the fed comes down in interest rates.

But, you know, this money generally goes into risk assets.

All right, Jared B Blacky.

Thank you, my friend.

That was great.

Still to come while A I and Tech IP Os have been all the rage this year.

There is one fast casual restaurant chain that while still new is lapping the competition.

Stay tuned more.

Asking for a trend on the other side.

It's one year since Kava went public and the rally since its debut is capturing Wall Street's attention.

Yahoo Finances.

Julie Hyman joins me now with a closer look.

Julie.

Yeah, because of how the stock is done since it went public a year.

Ago, the valuation has gone higher and there's an interesting way to look at that valuation through the prism of how many outlets it has.

K. Of course, the Mediterranean Fast Casual chain, some have called it the Mediterranean Chipotle.

In fact, makes sense to compare it with that company.

The shares of the company went public on June 14th last year, at 22 bucks a share started trading at northwards of $45 a share.

And they've quadrupled from the IP O price, they've doubled since that first trade here.

So we've seen the valuation go to about 10 and a quarter billion dollars.

If you break that down into a per restaurant valuation, it has 323 restaurants, you get a valuation per restaurant here of somewhere like $33 million per restaurant.

So it's it's pretty astonishing.

Um to see the comparison with some of the other restaurants.

Chipotle doesn't see that kind of valuation per restaurant.

Chipotle has a lot more uh location, sweet Green, even Portillo Shake Shack and Wing Stop or some of the others that we're looking at to compare here.

Um And even if you think that we will see a chipotle ization of so to speak, that kind of growth, um still it is a relatively lofty valuation when you look at it in these kinds of terms.

And Julie after a run like this, you know, analysts who cover this name, what do they think they think it's worth it here.

Yeah, I mean, another way to sort of compare it with Chipotle is to look at how many buy ratings you've got.

About two thirds of the analysts who cover Chipotle have buy ratings just over half have by ratings for Kava.

And there have been a couple of downgrades.

Uh, recently, JP Morgan recently cutting the stock to neutral from overweight and said that this level of valuation is unprecedented.

That's where the $33 million valuation per store comes from Piper Sandler also recently cutting its recommendation to neutral from underweight uh from overweight, excuse me.

So there has been a little bit of pulling back on enthusiasm for the stock, by the way.

Speaking of pulling back on Enthusiasm Ron, who is the chair of the company, he sold about 100 and 23 million of his shares worth 100 and $7 million.

That fi that news coming in a filing on Monday and the largest uh owner shareholder of the company International Scar Tall.

Um also selling uh a part of its stake in that company.

So we've seen insiders selling a little bit and also some of the analysts who are fans getting a little bit more tepid on those shares.

All right, Julie, thank you, appreciate it in the world of fast food companies are rolling out value meals to keep consumers coming back as inflation we know stays high.

Mcdonald's announced earlier this year that a new $5 meal deal is coming later this month for $5 customers can get a mcchicken or mcdole four piece chicken nuggets fries and a drink getting hungry just thinking about it and it's not alone rival Burger King also launching a $5 meal deal even ahead of mcdonald's.

And just this week, breakfast foods are getting into the trend as well.

Starbucks launching a pairings menu that offers customers a drink and breakfast item combo from anywhere between five and $7.

Also throwing their hats into their Wendy's and Popeye's.

But the question remains, how will these deals translate to traffic and revenue and here to help us sort through all that is RJ Hoty head of analytical research at Placer dot A I RJ.

You are just the man I talked to about this.

So the deals they're coming fast and furious RJ is gonna work is gonna, is gonna drive traffic.

Yeah, so far I think they have been successful and it's not just the QSR guys are getting into the game.

It's the casual diners themselves.

As you mentioned, Burger King is front running mcdonald's in a lot of ways by offering its own $5 value menu.

And we just looked at the data this week for how visitation trends are doing year over year and we saw definitive acceleration in the last two weeks of Burger King visitation trends.

So value is front and center on consumers' minds right now, I think mcdonald's is also going to see a similar pop when we look at the numbers after the launch on June 25th, you know, chili, buffalo Wild Wings.

All these promotional deals right now are the key thing that are driving visits across the restaurant industry.

And why is that?

Because we saw a lot of visitation lost to things like value grocers and discount stores and uh even convenience stores are another channel that we've seen.

And this is a uh restaurant's way of recapturing that lost market share a little bit.

It's being helped out by food at home.

Inflation coming down a bit.

They're able to withstand a little bit more on the uh discounting side.

But really this is a way to get back in the battle because there has been market share loss the last couple of months.

And RJ as you, you know, listen, you're an investor and you're listening to this and you're in some of these names and you're hearing about all these deals.

How should you be thinking about margins and the impact there?

Yeah, I think we're going to see a margin hit here too.

I mean, some of these very extreme value promotions, I think that there will be a near term margin hit.

I think that that that goes without saying yes, there's going to be incremental visits because of that.

But I do think at the end of the day just where we are in terms of cost pressures, especially when we add on labor and other things.

Uh I think we will look at a margin hit.

The key is whether or not the visit frequency can sustain itself.

Can they have that, that, that consumer who comes in for that, that value menu come back and maybe pay full price.

And that's a big question right now as to how sustainable that is because we are not going to see value grocers and other uh you know, convenience stores and other channels lay down.

They are going to get in the promotional game as well.

So it's going to be very competitive.

Uh I think this summer really is going to go down as the summer value wars for the restaurant category.

And let me ask you RJ, you know, you know, this space so well as you look at this sector and you study, you see the themes, what is it telling you about the state of the consumer here?

How healthy, how resilient do you think the consumer is?

Yeah, I think it really kind of shows more of a K shaped, you know, recovery and where we are post pandemic.

I do think that lower income consumer remains under pressure.

And a lot of that is the cumulative effect of inflation that we've seen in the last couple of years.

If you look where we are food inflation compared to, you know, the start or the right after the pandemic, we're still up about 30%.

And even though that has slowed down this year, that still is a big chunk of discretionary spend that consumers are given inflation.

There other things are starting to creep into whether that's insurance, whether that's um or other service oriented type factors, healthcare being another one in there as well.

I think we're looking at consumer that is really looking to stress their household budgets.

Interestingly, we do see that consumers are still willing to spend for big events and activities and holidays, but it's a shorter periods in between that consumers are really taking a pause right now and we've seen trade down or trade out a lot of cases.

So I think it's a situation where this, this right now really has to be the focal point for not only restaurants but a lot of anything catering to the kind of that lower to middle income consumer is really is that low price point that consumers are fixated on and what really is driving visits.

But also innovation too, it has to be low prices or competitive prices but also something new.

It can't be just something that, you know, you can get anywhere else.

It has to be something differentiated.

And I know that's tough to say, but if you look at kind of the winners of the last couple, uh you know, really the last year or so in this food retail space, all the trader Joe's, which are low prices but innovators as well.

And I think the restaurant guys are starting to figure out the innovation plus value is the key to driving deserts RJ.

I'll get you out of here on this.

Given.

Given kind of your broad views on the market.

The consumer.

Are there certain names in fast food, fast casual RJ that you think are just better positioned than others?

Yeah, it's a great question and looking across the board, I mean, I do think some of the the casual dining chains that are starting to really see a turnaround in visitation trends that maybe have gotten not as much love as they should have gotten.

So Brinker International, which is the parent company, Chili's, I think is really interesting with kind of the visitation trends we started to see there.

Um you know, looking kind of broadly mcdonald's is another one that I think will be very interesting to see the success of this value menu launch.

Um You know, there's a, there's an interesting story on that one and, you know, I think that they're starting to find that uh they can innovate around that as well.

So those would be two names that just pop out uh top of the head here.

Um You know, it could be interesting to see in terms of uh where we are in visitation trends because I think those do generally have a pretty good correlation with where we end up seeing these stocks go over time.

So RJ, great to have you on the show.

Great to have you in this insight.

Have a great weekend.

You too, thanks Josh.

Coming up, it's what to watch for next week.

I'm gonna tell you everything you need to know to kick start your Monday.

Stay tuned.

We're asking for a trend on the other side time now for what to watch next week starting off on the economy, us retail sales data for May is coming out on Tuesday.

Economists forecast that number to take up 0.3% is coming after Americans unexpectedly pause their spending in April giving us some more insight on consumers as they continue to battle inflation and moving on earnings home builders in focus as we get reporting from Lear and KB Home Lear announcing second quarter results next week and expecting the company's net new home sales to increase by about 18% and take a look at Boeing.

Outgoing Ceo Dave Calhoun is testifying in front of a senate subcomittee on Tuesday.

And finally, Yahoo Finance Finance will be on the ground at Cannes bringing you coverage all next week.

We've got some big interviews lined up including conversations with executives at Mattel and Pinterest.

That is a wrap on today's asking for a trend.

Be sure to come back Monday at 4:30 p.m. Eastern for all the latest market, moving stories affecting your wallet.

Have a great weekend.