Group 1 - Concerns about a consumer slowdown are impacting the retail sector in 2025, with the SPDR S&P Retail ETF (XRT) down nearly 12% year to date, including dividends [1] - The performance of the S&P 500 ETF Trust (SPY) is also relevant in the context of the retail sector's struggles [1]

Core Viewpoint - Buying top dividend stocks near their 52-week lows can provide long-term investors with higher yields and potential for future capital appreciation Group 1: Target (TGT) - Target has faced challenges with declining sales due to reduced consumer discretionary spending, with a revenue drop of less than 1% to under $107 billion for the year ending Feb. 1 [4] - Despite the sales decline, Target maintains a strong profit margin, with a payout ratio around 50%, allowing for continued dividend increases; the current yield is 4.3% and the dividend has been raised by 70% over five years [5] - The stock has only increased by 2% over the past five years and is trading at 12 times trailing earnings, close to its 52-week low of $103.46, indicating potential for long-term investment despite short-term challenges [6] Group 2: PepsiCo (PEP) - PepsiCo has a 53-year streak of dividend increases, with a recent 7% hike, offering a current yield of 3.7%, which is significantly higher than the S&P 500 average of 1.4% [7] - The company reported flat sales of $91.9 billion in 2024, with concerns about the impact of GLP-1 weight loss drugs on consumer behavior; PepsiCo is adapting by acquiring healthier brands, such as Poppi for $2 billion [8] - PepsiCo shares have declined by 8% in the past year and are trading near their 52-week low of $141.51 at 22 times trailing earnings, presenting a potential buying opportunity [9] Group 3: Stanley Black & Decker (SWK) - Stanley Black & Decker has the longest dividend increase streak at 57 years, with a current yield exceeding 4%, making it attractive for income-focused investors [10] - The company has experienced sales declines over the past two years due to economic conditions affecting consumer spending on repairs and renovations; it is focusing on cost-cutting and debt reduction, with long-term debt at $5.6 billion [12] - Although the trailing earnings multiple is high at 43 due to restructuring charges, the forward price-to-earnings multiple is estimated at 15, and the stock is near its 52-week low of $77.70, suggesting it may be undervalued for long-term investors [13]

Group 1: Share Buyback Programs - Several major firms have announced significant new share buyback programs as Q1 2025 concludes, with three stocks having buyback capacity of 8% or more of their market capitalizations [1] - Applied Materials has authorized a $10 billion share buyback program, bringing its total buyback capacity to $17.6 billion, which is nearly 14% of its $126 billion market capitalization [1] - Churchill Downs has approved a $500 million share repurchase program, resulting in a total buyback capacity of $626 million, approximately 8% of its $8 billion market capitalization [6] - DICK'S Sporting Goods announced a $3 billion share buyback program, giving it a total buyback capacity of approximately $3.51 billion, equal to 22% of its nearly $16 billion market capitalization [11][12] Group 2: Dividend Increases - Applied Materials announced a significant dividend increase of 15%, raising the payment to $0.46 per share, with a yield of 1.2% [4] - DICK'S Sporting Goods also raised its dividend by 10%, planning to pay a total of $4.85 over the next four quarters, resulting in a dividend yield of 2.5% [14] Group 3: Financial Performance and Metrics - Applied Materials has repurchased $4.4 billion worth of shares over the last four quarters, but the timing of these purchases was not optimal as the current share price is 19% lower than the average repurchase price of $192 [2][3] - Churchill Downs has repurchased $216 million worth of shares in the last 12 months, which is moderately above its average repurchase pace of $187 million over the past decade [7] - DICK'S Sporting Goods spent $268 million on share buybacks in fiscal 2024, below its average annual buyback pace of $430 million over the past 10 years, with the current share price being 8% lower than the average price paid for shares [13]

Economic Outlook - The U.S. economy is showing signs of potential recession, with the Atlanta Federal Reserve predicting a 2.1% decline in Q1 GDP after earlier forecasts of over 2% growth [1] Walmart - Walmart is positioned as a top defensive stock, having gained 2% during the Covid recession while the S&P 500 lost 25%, and rose 12% during the Great Recession of 2008-2009 [2][3] - The company benefits from its size and scale, providing significant buying power that allows it to be a price leader during economic downturns [4] - Walmart's extensive reach means 90% of the U.S. population lives within 10 miles of a store, which supports its Walmart+ membership growth, particularly among wealthier consumers [5] - Upper-income households, defined as those earning $100,000 or more, have been a key growth driver for Walmart, potentially increasing their patronage during a recession [6] - Walmart is also expanding its advertising and online marketplace businesses, enhancing fulfillment capabilities for third-party merchants [7] Philip Morris International - Philip Morris International's traditional cigarette business remains strong, with modest volume growth and strong pricing power, particularly in international markets [8] - The company's smokeless products, such as Zyn and IQOS, are significant growth drivers, with Zyn projected to see volume growth of 34% to 41% this year [9] - IQOS has also experienced solid growth, with plans for broader rollout in the U.S. pending FDA approval [10] - Zyn and IQOS offer better unit economics compared to traditional cigarettes, with Zyn's contribution level being six times greater and IQOS's twice as good [11] - The addictive nature of Philip Morris' products makes them resilient during economic downturns, and the company offers a 3.5% dividend yield, making it an attractive growth stock in a defensive industry [12]

Core Viewpoint - Walmart's stock has experienced significant volatility, with a 19% decline from its all-time high due to muted guidance and economic concerns [1][5][8] Group 1: Company Performance - In fiscal 2025, Walmart's net sales increased by 5.6% year-over-year on a constant currency basis, and adjusted EPS rose by 13.1% to $2.51, exceeding initial targets [3][7] - The e-commerce segment saw a 20% sales increase in the fourth quarter, contributing significantly to comparable store sales growth, indicating improved competitiveness against Amazon [4][7] Group 2: Future Guidance - For fiscal 2026, Walmart expects net sales growth of 3% to 4%, a slowdown compared to the previous year [5][7] - The EPS target for fiscal 2026 is set between $2.50 and $2.60, which is a modest increase from fiscal 2025 and below analyst consensus of $2.76 [6][7] Group 3: Market Context - The stock's valuation has decreased from nearly 40 times its consensus fiscal 2026 EPS to around 32, still slightly above its five-year average P/E ratio of 31 [8] - Economic uncertainties, including trade tariffs and mixed labor market indicators, may impact Walmart's supply chain and pricing strategy, adding risk to earnings [7][8] Group 4: Investment Outlook - Walmart is expected to remain volatile as the global economic conditions evolve, but it is well-positioned to reward shareholders over the long term [9]

Economic Environment - The US effective tariff rate increase continues to create uncertainty in the market, with unclear long-term implications from the Trump administration [1] - The Volatility Index remains in the 20s, Treasury yields are fluctuating, and stock prices are nearing correction territory [2] Consumer Sentiment - Consumer confidence has declined, with cautionary guidance from companies during Q4 earnings calls [4] - The Johnson Redbook Index indicates steady year-over-year same-store sales growth in the 4% to 7% range since late 2023 [5] - Bank of America reported a 2.4% annualized increase in consumer spending for February 2025 [5] Corporate Performance - Delta Air Lines, American Airlines, and Southwest Airlines have lowered their earnings projections due to weaker travel demand [5][6] - Walmart reported strong Q4 earnings but provided guidance below market expectations, leading to a significant drop in its share price [6] - Lululemon is set to report Q4 earnings, with expectations of net revenue between $3.56 billion and $3.58 billion, reflecting an 11% to 12% increase year-over-year [11] Market Trends - Lululemon's stock has decreased from $423 to just above $325, mirroring broader retail sector weaknesses [10] - Disney's upcoming annual shareholder meeting is anticipated to provide insights into its streaming service and theme park performance, amid a 10% year-to-date stock decline [14][15] Future Outlook - The upcoming earnings reports from Lululemon and Disney are expected to shed light on consumer spending trends and overall economic health [16]

Market Overview - The S&P 500 is down 5.9% year to date, while the Nasdaq Composite is in correction, down over 10% from a recent high [1] - Despite broader market declines, the healthcare sector, utilities, and consumer staples have posted year-to-date gains [1] Healthcare Sector - The Vanguard Health Care ETF has gained 4.5% this year, with a low expense ratio of 0.09% and a minimum investment of $1 [3] - The healthcare sector is generally considered safe due to consistent demand for healthcare products and services, which are less affected by economic cycles [4] - Eli Lilly has significantly influenced the sector, with a market cap of $719 billion and a 10.5% weighting in the Vanguard Health Care ETF, raising concerns about the sector's safety due to its reliance on discretionary products [5] - The Vanguard Health Care ETF has a yield of 1.4% and a P/E ratio of 31.6, indicating a more expensive valuation compared to the S&P 500 [6] Utilities Sector - The Vanguard Utilities ETF yields 2.9% and has a P/E ratio of 20.2, making it attractive for passive income and value investors [7] - Over 61% of the fund is invested in electric utilities, which are regulated and provide predictable cash flows, although they have lower growth prospects [8] - The utility sector is considered one of the safest in the stock market, with minimal exposure to tariffs, but it tends to trade at a discount to the S&P 500 due to its low growth potential [9] Consumer Staples Sector - The Vanguard Consumer Staples ETF includes major retailers and everyday product manufacturers, which tend to perform well during economic downturns [10] - The sector benefits from steady growth driven by population increases and global consumption, with companies able to pass on higher costs to consumers [11] - Costco and Walmart, which make up over a quarter of the Vanguard Consumer Staples ETF, have recently experienced stock pullbacks despite their strong market positions [12] - The Vanguard Consumer Staples ETF has a yield of 2.1% and a P/E ratio of 24.8, offering higher passive income potential compared to the S&P 500 [13] Investment Strategy - Safe sectors like healthcare, utilities, and consumer staples can provide stability in a diversified portfolio, reducing overall volatility [14] - Over-concentration in high-growth stocks can lead to increased portfolio risk, making it beneficial to include safer dividend stocks or ETFs [15]

Core Viewpoint - Target's stock has experienced a significant decline of 55% over the past few years, contrasting sharply with the S&P 500's 20% increase during the same period, raising questions about its investment potential [1][2]. Group 1: Company Performance - Despite the stock's poor performance, Target is a blue-chip company with a strong brand and a history of success, including 58 consecutive annual dividend increases [2]. - Target's business fundamentals remain solid, but its stock price has suffered due to its cyclical nature compared to competitors like Walmart, which has a higher proportion of staple goods sales [2][4]. - Target's merchandise sales include only about 40% from groceries and household staples, making it more vulnerable during economic downturns when discretionary spending decreases [4][6]. Group 2: Financial Health - Target maintains a strong financial foundation, with a current dividend yield of 3.9%, a payout ratio of only 45% of cash flow, and a manageable leverage ratio of 1.8 times EBITDA [8]. - The company has $4.7 billion in cash and holds an "A" credit rating, indicating stability despite current challenges [8]. - Analysts project earnings growth of just over 6% annually over the next three to five years, resulting in a reasonable PEG ratio of 2.1, suggesting the stock is now more appropriately valued [11]. Group 3: Investment Considerations - While the stock is not considered a generational bargain, it could provide solid total returns of 10% to 11% annually through dividends and earnings growth, making it a potential buying opportunity [12]. - The stock may continue to struggle until discretionary spending recovers, but the current financial stability allows for a degree of investor confidence [9][12].

Core Insights - Warren Buffett's history with Costco stock is not flawless despite the company's long-term success, which has seen a rise of over 14,000% since 1985 [1] - Charlie Munger, Buffett's late partner, had a more favorable relationship with Costco, being a board member and holding it in his personal portfolio [2] - Buffett acknowledged selling Costco stock in June 2020 as a mistake, especially as the stock has since gained over 200% [5] Group 1: Business Model and Performance - Costco's primary business model revolves around selling memberships, which are highly profitable compared to its low-margin merchandise sales [7] - The company enjoys a stable revenue stream from membership fees, leading to predictable financial performance [8] - Operating income increased from $5.4 billion in fiscal 2020 to $9.3 billion in fiscal 2024, reflecting a 71% growth over four years, or an annualized growth rate of 14% [11] Group 2: Current Investment Considerations - Costco's operating income growth has slowed to 12% in the first half of fiscal 2025, indicating potential challenges ahead [12] - The stock's price-to-earnings (P/E) ratio has risen from around 35 to approximately 57, suggesting elevated valuations compared to its historical performance [12] - Despite its strong business model, the combination of slowing growth and high valuations raises questions about the attractiveness of investing in Costco stock at present [13]

Group 1: Nvidia - Nvidia reported a 78% increase in revenue to $39 billion in Q4, driven by strong demand for AI hardware in the data center segment [3] - Non-GAAP net income rose 71% to $0.89 per diluted share, although gross margin declined by 3 points [3] - Concerns about AI infrastructure spending have been alleviated, with DeepSeek's efficient training methods potentially increasing demand for Nvidia chips [4] - The durability of the AI boom positions Nvidia favorably, especially with the rise of physical AI technologies [5] - Nvidia's GPUs are the leading AI accelerators, supported by a robust software ecosystem, particularly the CUDA platform [6] - Despite a nearly 30% decline from its peak, Nvidia's stock is currently trading at 24 times forward earnings, the lowest valuation in the past year, making it attractive for patient investors [7] Group 2: Amazon - Amazon's total revenue increased by 10% to $187 billion in Q4, with GAAP net income rising 86% to $1.00 per diluted share [8] - The company is well-positioned in three growing industries: online retail, advertising, and cloud services, aiming to become the world's largest retailer by 2025 [9] - Morgan Stanley analysts view Amazon as an underappreciated leader in generative AI within retail and cloud services, expecting it to capture a larger share of consumer spending [10] - Amazon's stock has fallen 20% from its high, but adjusted earnings are projected to grow 14% in 2025, making the current valuation of 35 times adjusted earnings appear relatively expensive [11]