Boockvar on the Cost of MacBooks, Sentiment, Commercial Metals
From Peter Boockvar:
Do you know what multiple homebuilders traded at in mid 2000s?/Sentiment/Restaurant biz
I will be taking next week off for the first time since December and writing sporadically, if at all. Most likely the latter. Happy 250.
I expressed yesterday that I felt it was much more informative to value a highly cyclical business relative to sales rather than earnings to get a fuller picture of the multiple. After hearing again yesterday that Micron was cheap, trading at only 7x earnings, I want to highlight that Toll Brothers was trading at 6x earnings in 2006. I heard then it was cheap. After falling by 75% by late 2008, its stock was trading at 30x earnings. For a highly cyclical business, it was thus better to sell perceived ‘cheap’ and buy ‘expensive.’ To also say again, this is no advice or opinion on where Micron and other memory/storage stocks go as maybe the strategic customer agreements being signed smooth out the business volatility and a higher multiple is deserved but just trying to recommend a broader way to value stocks such as this.
While some investors now are seemingly waking up to the fact that hyperscaler free cash flows are disappearing, I want to point that this started in Q4 2025 when Oracle was punished when investors realized how exposed they are to OpenAI, along with raising its CapEx plans to 75% of revenue (now at 100%) from 10% in 2022, something I’ve been pointing out for many quarters now. Meta has crushed it revenue wise over the past three quarters because of its robust base business but investors have punished the stock after each reporting period because the CapEx figures keep going up. Dot, dot, dot, you get the point again. We are in the midst of a major transition from what was market leadership over the past 15 years to eventually something else. These mega cap tech stocks, incredible companies that have had historic market performance are going to go from growth stocks to value I believe, and that evolves over time but marked by years of underperformance relative to other things.
With respect to the Apple product price increases reported yesterday, I just wanted to put percentage changes behind the absolute price changes. The MacBook Neo, its new laptop, is seeing a price increase of 17%. The MacBook Air is rising in price by 18%. The 14 inch MacBook Pro will cost 18% more while the 11 inch iPad Pro is going up by 20% and the iPad Air will be higher in price by 25%. The history of technology on pricing is deflation, always has been and always will be and what makes this price increases eye popping, but we are just in one of those cyclical periods where it’s not for reasons we’re all well aware of.
I wanted to do a quick stock market sentiment check because the Investors Intelligence survey is getting very close to be extreme as I define a 40 point spread between Bulls and Bears. Bulls rose to 55.8 from 51.9 (as of last Friday) while Bears dropped to just 17.3 from 21.2. Those are levels last seen back in February. In the AAII retail investor survey, Bulls rose by 8.3 pts to 44.9, the most since late April while Bears fell to 36.1, the least since mid May. The Citi Panic/Euphoria index remains well in Euphoria at .82, double the threshold of .41. The only metric that is the reverse of the above is the CNN Fear/Greed index which was 25 yesterday, ‘Extreme Fear.’
Darden reported yesterday and because of its wide breadth of restaurant chains in terms of customers served, it’s always a helpful call to go through. They say, “Full service dining is a variety seeking category, and we have a collection of brands that give us reach across multiple dining occasions, guest demographics, price points, geographies, and cuisine types.” The stock was little changed and they said this:
“Several of our brands enjoyed record performance on Mother’s Day, including the highest ever traffic day at Olive Garden and LongHorn Steakhouse.”
Olive Garden saw 4% comp gain, “which is above the high end of Darden’s long-term framework. LongHorn delivered same restaurant sales growth of over 7% for the year (and 9.5% for the quarter helped by higher beef prices but still providing value at this chain), reflecting their focus on food quality and execution.” This chain contributes almost half of Darden’s operating profit and 42% of sales.
Yard House had a comp gain of 5.6%.
Their fine dining division which includes Capital Grille, Ruth’s Chris Steak, Seasons 52 and Eddie V’s saw a slower comp gain of 1.9%.
They believe the key to their success has been pricing their menu below inflation “over time to preserve our value proposition and support traffic.”
They said with respect to food and beverage expenses that were flat, “commodity inflation of approximately 3% and unfavorable mix was fully offset by pricing.” They saw total labor inflation of 3.2%.
On their consumer, “we really haven’t seen a whole lot of change, based on what we’ve been saying for the last couple of quarters. Consumer spending remains pretty resilient. Overall, the mood with consumers is still a little cautious. But as we’ve said a couple of times before, the weaker consumer sentiment hasn’t necessarily translated into reduced spending.”
“A little bit different this quarter, our casual brands saw an increase in visits y/o/y from all income groups, including the bottom quartile. Some of that might have been tax refunds, but they did see some increase y/o/y from all income groups. We did see a little softness in guests under 35.” This helps to explain why other chains that cater to younger consumers are seeing slower comp growth.
Commercial Metals in its earnings call gave a good lay of their land:
“As related to end markets, the outlook continues to be positive. More than 50% of the IIJA (Infrastructure Investment and Jobs Act) funding is yet to be spent, supporting highway construction and general infrastructure spending across our core markets remaining steady. While residential demand remains broadly subdued, pockets of resilience persist in markets such as Charlotte and parts of the Mid-Atlantic. Multi family construction continues to outperform and is expected to remain stronger than single family.”
“For non-residential markets, demand is increasingly being driven by a growing pipeline of large scale megaprojects. Investments across data center, semiconductor capacity and energy networks are driving a multiyear pipeline of construction activity with a significant concentration of these projects in our Sunbelt and East Coast footprints.”
In the KC manufacturing survey seen yesterday for June they asked a special question to manufacturers “about their ability to pass through prices and supply chain change expectations.” This were the results:
1)38% of firms reported that they are currently able to pass through 0-20% of the higher costs from inputs and labor.
2)10% of firms are able to pass through 20-40%.
3)10% are able to pass through 40-60%.
4)11% can pass through 60-80%.
5)19% can pass through 80-100%.
6)4% can pass through more than 100%.
7)8% of firms had to decrease prices.
The 12 month outlook for price changes is not much different and this spells to me like a margin squeeze with only 23% being able to pass on most of their cost pressures. This also gets to my point that just looking at consumer prices does not give the whole inflation picture and we must too watch PPI. I hope Kevin Warsh and Co believe the same because running monetary policy on just one side and not both would be treating a patient with only signals from half the body.
The June Tokyo CPI rose 1.7% headline y/o/y and 1.9% ex food and energy, both one tenth above expectations and helped by consumer energy subsidies. The 2 yr yield was unchanged in response but the BoJ has more reason to hike rates from its current 1.00% level. The yen is slightly higher as the US dollar is broadly weaker today.
