The Week Ahead

Monday	Tuesday	Wednesday	Thursday	Friday
Domino’s (DPZ) Workday (WDAY)	Cava (CAVA)	Snowflake (SNOW) Salesforce (CRM)	Personal Consumption Expenditures (PCE) Zscaler (ZS)	–

Macro Movers

PCE: Core PCE for January is forecasted to come in at 2.8% annual and 0.4% monthly basis. With strong corporate earnings and elevated PPI, investors should brace for an upside surprise contrary to the Fed’s 2% mandate. 

The market has tolerated hotter inflation in January, attributing it to seasonal factors. I anticipate the market’s toleration of higher inflation will extend to PCE, as it covers January. However, I do not expect this same tolerance once we reach data pertaining to February. 

Micro Movers

While I anticipate PCE to be the focus, several companies are reporting earnings that could present lucrative trading opportunities or become valuable additions to your individual portfolio.

---

Domino’s (DPZ): Under Russell Weiner, who assumed the CEO position in May 2022, DPZ has been diligently working to earn the top spot in the pizza market, both domestically and internationally. Management has done a remarkable job creating value for customers through price and promotion. Furthermore, through investments in technology, DPZ now offers a streamlined experience online, in-app, and through partnerships with third parties like UberEats, allowing it to reach and appeal to a wider demographic than its competitors.

The quarter could be the stock’s inflection point. We will know more shortly, as the company is set to report around the time this newsletter hits your inbox. With a positive update, DPZ may still be worth considering even after an upward move post-earnings.

Cava (CAVA):  While many are fixated on finding the next Nvidia, I find it unintentionally ignorant to believe a successor is out there right now.

That being said, might I interest you in the next Chipotle?

That seems to be the aim of the Mediterranean fast-casual chain, Cava. The company IPO’d midway through last year and has since risen by ~33%.

Frankly, with only two quarters as a public company and a triple-digit P/E ratio, I’m not yet comfortable anointing or rejecting its potential claim as Chipotle’s successor. Nevertheless, it is one of the few IPOs in the last 12-24 months that has been successful. It doesn’t take much to see the promise here. As such, I see no harm in adding it to your watchlist or starting a small position as we observe how its business evolves.

Workday (WDAY), Salesforce (CRM), Snowflake (SNOW): These three companies have distinguished themselves as AI-enabled cloud providers integral to scaling a business. Right now, there are three distinct economies:

1. The enterprise economy: businesses engaged in transactions with other businesses.
2. The high-net-worth economy: individuals with substantial wealth who are less affected by high inflation and benefit from saving with high-interest rates.
3. Everyone else.

The first two economies are thriving. WDAY, CRM, and SNOW operate within the enterprise economy. Therefore, solid performance is expected from this trio. Among them, SNOW stands out. It offers businesses the opportunity to affordably rent the AI infrastructure that is otherwise unattainably expensive, except for a handful of extremely deep-pocketed companies, from Nvidia.

Zscaler (ZS): This cybersecurity company was dragged down by the sell-off in Palo Alto (PANW). Thanks to optimism surrounding Nvidia, ZS has recovered a significant portion of those losses. While PANW may have cast some doubt on the fundamentals behind cybersecurity, if ZS can deliver an impressive quarter, demonstrating that it did not deserve to be dragged down with PANW, which reported a genuinely disappointing quarter, I believe ZS will regain bullish momentum. However, this company reports right after PCE, which could complicate trading decisions around earnings.

Gorilla Tactics: Adobe (ABDE) & Palo Alto (PANW)

Adobe (ABDE)

Let’s take another look at Adobe (ADBE), shall we? Following the release of SORA, a text-to-video AI tool by OpenAI, ADBE experienced a sell-off driven by competitive fears. However, it managed to find support at its 200-day SMA. In my earlier Gorilla Tactics note, I had suggested using the 90-day SMA as the stop-loss; however, I believe the market has misjudged this.

The market’s reaction implies SORA poses a threat to Adobe. However, in my view, SORA actually complements Adobe’s offerings. While SORA generates raw footage, Adobe’s products refine this raw material into polished, market-ready content. With SORA making raw footage – typically an expensive asset – more accessible, SORA should stimulate demand for Adobe’s editing tools rather than stifle it.

As a result, I increased my position in ADBE last week. Apart from my contrarian view on SORA, I also believe that the market is undervaluing Adobe’s capacity to introduce new AI tools without the financial and personnel distractions that come with the Figma acquisition. Additionally, the sell-off triggered by SORA likely shook out weak-handed, fair-weather shareholders who lack deep understanding of Adobe beyond its share price. Overall, the sell-off lowers earnings expectations, making it easier for ADBE to perform as we approach the 3/14 quarterly report.

Palo Alto Networks (PANW)

Regarding Palo Alto (PANW), I won’t sugarcoat it. The guidance was surprisingly lackluster, and management’s explanation left much to be desired. In summary, management is lowering prices to showcase their full suite of cybersecurity products, aiming to encourage bundling. If successful, management will have built a stickier customer base with a more profitable business model. I believe the decline was primarily due to the poor explanation of this strategy, a failure to clarify the decision to alter strategies, and uncertainty regarding the timeline for the associated upside.

Despite this, I support the approach: management is prioritizing long-term prosperity over short-term gains. However, I understand the market’s unwillingness to reward sacrifice without greater assurance of success regarding management’s ultimate goals.

For those considering adding PANW to their portfolio, I recommend initiating a quarter of your position either now or after PCE. Then, consider adding (or bailing) with each quarter or fundamental update on management’s plan. Implementing a new strategy is a timely and uncertain endeavor. Consequently, it makes sense to build this position gradually.