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CNBC
5 days ago
- Business
- CNBC
Best Stocks: An 'AI wolf in sheep's clothing' with a great entry point for investors
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh here — There will always be an agriculture cycle and companies in the agriculture space will always be, to some extent, beholden to it. In fact, companies in most sectors of the economy must contend with one cycle or another — commodities, interest rates, housing, capex, etc. But in the digital age, companies have found ways to annuitize their businesses and transcend this cyclicality. Converting traditional transaction-based business models into subscription or annually recurring revenue (ARR) business models has been one of the keys to the stock market's relentless rise over the last ten years. When companies begin to generate earnings growth reliably, the multiple investors are willing to pay on those earnings re-rates higher. This is why the market's multiple has trended higher over the last 20 years. On average, we are paying more for stocks on a price-to-earnings basis because the companies these stocks represent have gotten better at building predictable, reliable cash flow streams. In our Best Stocks in the Market column, we have written about Spotify and Netflix recently, both of which are great examples of what I'm referring to. One used to buy CDs or DVDs, paying for each product at the time of use, with the purveyors of movies and music awaiting our next purchase. Now we pay subscriptions and have access to as many songs or movies or TV shows as we want. Consumers love it and Wall Street does too. Annually recurring revenue models are all the rage (and the market capitalization) these days, even in unexpected places — like tractors and farming equipment. Today, Sean is going to tell you about Deere (DE) , a 188-year-old American stalwart that has set a goal for itself of converting 10% of its revenue to an ARR model by the year 2030. In 2024, the ag equipment giant did $51.7 billion in sales. Assuming it can get to its own stated target, the company would have approximately $5 billion or more of consistent top line revenue which The Street would gladly pay a premium for, just as it does with other companies in other industries. This is yet another example of how corporations are adapting to the new age of technology and capitalism. Best Stocks spotlight: Deere (DE) On the list since: 5/9/2025 Sean — Deere is the world's leading manufacturer of agricultural and construction equipment. The brand is synonymous with reliability, quality, and a deeply rooted connection to American industrialism. Its iconic green and yellow color scheme is recognized by many people, without having used or experienced their products at all. The company officially started using the iconic green and yellow color combination around 1910. The green and yellow colors serve a larger purpose than branding — the green helps machinery blend into agricultural fields, reducing the visual impact on the landscape and the yellow provides contrast for when operators are looking for their machinery. Every detail is thought about through the lens of the operator. DE is incredibly focused on innovation and quality. In 1837, John Deere (a blacksmith in Illinois) developed the first commercially successful steel plow. Deere's innovation dramatically increased farming efficiency and helped fuel agricultural expansion in the United States. In 2025, they're still pushing the boundaries of agriculture. Today, 50% of operating earnings come from Production and Precision Agriculture — their largest and most profitable segment, focused on transforming farming into a tech-focused, data-driven operation. AI of agriculture DE has a fleet of IoT devices and they are all connected to the John Deere Operations Center — a cloud-based farm management platform that optimizes operations through data-driven insights. DE is tracking data, gathering insights, and deploying machinery in a smarter and efficient way in real time, saving farmers time and money — it's the AI of agriculture. Via Quartr, tariffs are expected to have a pretax impact of over $500 million in fiscal 2025, with roughly $400 million of that falling in the second half, adding some headwinds to margins. However, the company is taking actions to mitigate these impacts through supply chain adjustments and targeted pricing adjustments for 2026 and beyond. As of their last earnings call, the U.S. represented 79% of its complete goods and 76% of its components. Tariffs will impact DE, but not in a meaningfully detrimental way. John Deere is an industrial company, but they've built a cloud-based, AI-capable software as a service platform within it. DEs Production and Precision segment is forecasting 15.5%-17% operating margins for 2025. The company is expecting 18% EPS growth in the next year. DE trades at a 25x trailing PE and a 23x forward PE. The company has a competent and experienced management team, an exciting growth story, a defensible moat, and a reasonable valuation. On a technical basis — DE is reflecting strength. Over the last 3 years, DE has touched its 200-week moving average once on a weekly closing basis: Looking at the 1-year chart earlier in the article, the rising 200-day moving average is serving as strong support. DE is an AI-wolf in sheep's clothing. At first glance, the tariff narrative may seem like a headwind for DE. But look a little deeper, and it's clear the company continues to innovate with the same spirit it had in the late 1800s. Risk management Josh — This one is simple to me. As you can see in the one-year chart above, DE buyers have respected the 200-day moving average since November. There was a false breakdown below it this April during the tariff announcement that was cleaned up relatively quickly. I would trail a position here with a rolling stop just below the 200-day. The stock has cooled off from its high in early May but the uptrend is intact and an RSI reading in the 50s is a better entry point than when the stock was making fresh highs and RSI was pushing 75. This is my kind of set-up. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC" TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
CNBC
29-05-2025
- Business
- CNBC
Best stocks: Why this dining stock is hitting highs, even though Josh Brown never eats at Olive Garden
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh here — One of the things I've learned to do over the years is to stop thinking about investment opportunities purely through the lens of my own taste or experiences. I may not always be representative of the attitudes and desires of the bulk of the population. Nowhere is this more true than when it comes to consumer discretionary stocks and especially within the restaurant group. Darden Restaurants (DRI) owns eleven major dining brands, including the Capital Grille, Ruth's Chris, Yard House, Eddie V's, Longhorn Steakhouse and Seasons 52. Most people know Darden as the former owner of the Red Lobster chain (no longer part of the company) and the current owner of their flagship chain, The Olive Garden. I live in Nassau County, Long Island, home to the highest concentration of incredible Italian restaurants anywhere in America outside of Brooklyn and Manhattan. I'm a fifteen minute drive away from Cippolini in Manhasset, Il Mulino and 388 in Roslyn, Chris and Tony's in Syosset or, if I want to play a home game, Matteo's or Bella Notte in Bellmore. Suffice it to say, I'm not ever eating at an Olive Garden. But most people don't live where I live or have the same choices that I have. Most people don't even know the difference or what they're missing. For most people, The Olive Garden is a good night out, close enough to home, and at a reasonable price. That's probably why the stock price looks like this with the company hitting our Best Stocks in the Market list this week: They do a great job serving their customers and maintaining the chain's brand equity in a race-to-the-bottom sector where most of their competitors are relying on gimmicks and discounts. Last year, Olive Garden did $3.83 billion in sales earning over $800 million in profit for the company. Darden's systemwide sales are projected to top $12.1 billion this year, with a juicy 2.6% dividend, an authorized stock buyback and a healthy earnings per share number of around $9.50. I also want to say that if you find yourself near a shopping mall or a strange downtown area and you're not 100% sure where to go for lunch or dinner, Capital Grille will never let you down. Get the NY Strip with the au poivre sauce or the ribeye with the cajun rub and it'll be a "lights out" experience for you. You can't go wrong. Fortunately, for the shareholders of Darden, my opinions about their other chains don't mean anything. Their audience of diners are voting with their wallets and the share price is reflecting this. Sean's going to go a little deeper into the technicals and fundamentals while I figure out what's for lunch. Best Stock Spotlight: Darden (DRI) On the list since: 5/27/2025 Sean: Darden is the largest restaurant operator in the U.S., representing 3% to 4% market share — this comes out to about 2,000 company-operated restaurants in the U.S., according to YCharts. Olive Garden represents 44% of the company's revenue, Longhorn Steakhouse is 25% of revenue, fine dining is 11% of revenue, and the rest of the brands make up the last 20%. This is a geographically and economically diversified restaurant chain. It caters to most people along the income spectrum, which is a key diversifier for a restaurant business. Darden has improved segment profit margins across its major brands. Olive Garden's segment profit margin increased from 22.5% to 23.0% YoY in the latest quarter, driven from lower costs of goods sold. A number of brands are seeing positive sales and cost efficiency savings. Leaning into the company's growth capabilities, DRI rolled out its first-party delivery service through various partnerships which has expanded sales channels and improved guest experience, and these improvements are showing up on the top and bottom lines. Over the past 5 years, DRI has compounded revenue at a 6% annual clip. More impressively, they have grown EPS at a 12% clip annually during that same period, and the growth doesn't stop there. EPS is expected to grow 9% annually over the next two years. Darden's long-term chart is up and to the right. This stock has bounced off its 200-day moving average only twice on a weekly basis, going back 5 years: And this year, it's stuck especially close to its 50 day moving average (see one year chart in Josh's commentary). DRI has a 63 Relative Strength Index— not too hot, not too cold. It's about 6% above its 50-day moving average and 19% above its 200-day moving average, solidly in an uptrend which is what we like to see. It's hitting new 52 week highs and all-time highs in what has been a challenging macro environment. Risk Management Josh: Traders want to eyeball the level just below $200 for a change in the short-term trend. That neatly coincides with where the 50-day moving average is keying off of. Investors can use $180 as their line in the sand. Darden reports before the open on Friday, June 20. On each of the last four earnings reports, investors bought the news that day. Good luck and have a great weekend. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC" TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
CNBC
27-05-2025
- Business
- CNBC
Best Stock: A former high flyer that's coming back into favor because of improving fundamentals
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh: This week we saw a few new names hit the Best Stocks in the Market list, including a former high-flier that's now come back into favor. Remember the Snowflake (SNOW) IPO? It was a big deal. At the time it came public in September 2020, investors were clamoring for cloud computing stocks and the whole tech sector was red hot. SNOW debuted with the largest IPO in history, raising $3.36 billion. And, if you can believe it, the stock turned out to have been underpriced. Shares were sold to the public at $120, but ultimately got as high as $300 on the first day of trading. The company had a valuation of $75 billion right out of the gate, a multiple of approximately 75 times its projected full-year revenues. Fun fact — it's the first time I can remember seeing Berkshire Hathaway on the holders list of a hot new issue (Warren Buffett's firm sold its whole position out a long time ago). If you thought that was the top, you hadn't seen anything yet. By Thanksgiving the following year, Snowflake hit its all-time high of $401.89 per share. That was the top of the post-pandemic tech rally. From there, a collapse of over 70% to an all-time low of $107 in September 2024. Shareholders who had held from the IPO for the next four years were now looking at unrealized losses after all that volatility. But then a funny thing happened. The CEO stepped back and took the chairman's role while promoting internally to bring the company's head of AI into the C-Suite and onto the board of directors. The company put together a few quarters in a row of 25% growth and has begun surprising The Street to the upside. Sean's going to share some more of the details below. This is a stock that's still 50% below its all-time high, but is now a double off of the lows and climbing. In my experience, institutions don't mind paying up for a growth company as the story improves. Snowflake's biggest drawback for most professionals has been its long and winding path to full-year profitability. Best stocks stats As of 5/27/2025 morning, there are 106 names on The Best Stocks in the Market list. Top sector ranking: Top 5 Best Stocks by Relative Strength: New addition: Snowflake Sean: SNOW was added to our Best Stocks in the Market list last week following a great earnings report. SNOW is classified as "IT Services" below, but software and software-related names are the strongest stocks in the market right now: The IGV (iShares Expanded Tech-Software Sector ETF) is up 2% in total return YTD and up 20% the past year, nearly doubling the performance of the Nasdaq 100 over the past year. Snowflake is a cloud-based data platform that enables organizations to store, manage, and analyze large volumes of data seamlessly across multiple cloud environments. You can't do anything useful in AI if your data isn't clean, organized and unified. Snowflake helps companies optimize their data for machine learning, model-training and other stuff. SNOW went public in September of 2020, right before we experienced the largest tech bubble since the dot-com implosion in 2001. It's had a difficult couple of years if you look at the chart since its inception: As a trader, it's not the prettiest chart. But if it can maintain support around the $190 level, which has been an important level of resistance for the stock going back to 2022, there's some room for the bulls to push this higher. Looking at the chart below since inception, on a weekly basis the stock has been in a down trend, but after this latest earnings beat, both moving averages are beginning to flatten, showing possible support for an uptrend: As an investor, the stock has not been rewarding, but the fundamentals are improving. During last week's earnings call, SNOW beat on the top and bottom lines, with revenue growing 4%, EBIT (earnings before interest and taxes, also known as operating earnings) growing 74%, and EPS growing 13%, all YoY. (Data via Quartr.) SNOW now has 606 companies paying them over $1 million dollars in revenue each, a figure which is up 27% year over year. Gross margins have expanded from 59% in 2021 to 67% today, bringing the company closer to its profitability goals. SNOW's net revenue retention rate hit 124% for the quarter, which is a great sign. A net revenue retention rate of 124% means that, on average, a company's existing customers are spending 24% more, even after accounting for customer churn, downgrades, cancellations, etc. In simpler terms, if you started the year with customers paying $100, by the end of that year, the same group is paying you $124 without adding any new customers. It means existing customers are growing in value to the business. SNOW is not profitable on an operating basis, but with the growth and scale they are achieving, profitability on an operating and net income basis is on the horizon, which would mean higher stock prices with it. Risk Management Josh: Below, I'm zooming in on the last 100 days or so because SNOW has run right back up to its February highs. It's just had a parabolic move higher after reporting great results. Ideally if I'm a trader, I'm waiting for an entry on a low volume pullback into the 190s. I'd use $175 - $180 as my line in the sand. That area should hold as support. If it doesn't, the setup didn't work. Longer-term investors can give it a wider berth and let the flat-lining 200-day (now at $160) turn up a bit. I'd be using that as a stop, checking it on a weekly closing basis each Friday. I was going to end this by saying "Stay Frosty" but then I'd have to slam my own fingers in a desk drawer just to distract from the cringe. And nobody wants that. Good luck out there, Sean and I will return later in the week. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC" TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
CNBC
19-05-2025
- Business
- CNBC
Best stocks: 2 stocks from the aerospace defense industry on the verge of breaking out
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh here — In today's report we're going to talk about where the strength is in this market and, just as importantly, where it isn't. Industrials are on the leaderboard in a major way this week, thanks to aerospace and defense stocks breaking out to all-time highs. Some of the names in this group are already extended technically, but we'll show you two set-ups that aren't. Utilities are another story. Earlier this year the utility trade was working beautifully thanks to a combination of its defensive characteristics, as well as continued enthusiasm for the AI trend. But the market has changed character since the April low and these stocks have now fallen out of favor. Sean is going to show you what's happening broadly and dig into the rotation a bit. Then I'll chime in with a pair of defense companies worth keeping on your radar, pun intended. Sector Leaderboard As of 5/19/2025 morning, there are 102 names on The Best Stocks in the Market list Top Sector Ranking: Top Industries: Utilities falling off The Best Stocks List Removed: Duke Energy Corp (DUK), American Water Works Co Inc (AWK), Southern Co (SO), American Electric Power Co Inc (AEP), Consolidated Edison Inc (ED) Sean: Southern Co. (SO) and four other utility firms fell off our list last week — this is why we keep a dynamic list of stocks. The market is constantly rotating, and we just saw the early innings of a shift under the surface. During the first few iterations of the Best Stocks in the Market, the utilities sector was the most populous sector on our list. On May 5th and May 12th, there were 14 utility firms on the list, making them the first and second strongest sector for those weeks, respectively. Utilities are considered a defensive sector within portfolios because they provide essential services that customers would not (or cannot) turn off. Electricity, water, gas — consumers will continue to use regardless of economic conditions. You will be ditching Netflix, your car, McDonalds, and any other discretionary items before you cut off power or water. This consistent demand results in stable revenues and predictable cash flows, which often support reliable dividend payments, and as a result, utility stocks tend to exhibit lower volatility and higher yields. During periods of market stress or economic downturns, investors will often hide out in these names while chaos occurs in the more exciting, growth-oriented sectors of the market. That's what happened earlier this year, and that's what is currently happening on our list. From the first trading day of the year through April 3rd (Liberation Day) investors had been buyers of utilities and sellers of the S & P 500: At the bottom on April 8th, on a total return basis, utilities were down 3% for 2025 while the S & P 500 was down 15%. Being defensive paid off. However, from the bottom, we have seen a lightning fast V-shaped recovery, and momentum is swinging back to the higher growth categories. Tech is up an extraordinary 30% from April 8, while consumer discretionary stocks and industrials are up 22% from that date, rounding out the top 3 best performing sectors from the bottom. Digging into tech a bit further - from the market bottom, the VanEck Semiconductor ETF (SMH) was up 36.7%, marking the best 28-day return for the SMH since inception in 2011. This is a great example of momentum and an interesting use case for keeping a list of momentum-oriented names. This list gives us a market barometer, measuring what's going on under the surface. And right now, the market is rotating out of its defensive posture. On May 13 last week, five utility sector stocks fell below their 200 day moving average, removing them from our list: AEP, AWK, DUK, ED, SO. As it stands, industrials, tech, and financials are all flashing signs of momentum, while utilities have fallen to fourth on our sector dashboard. We aren't making predictions as to where the market will go next, but we are taking note as to what's working well and what isn't, and utilities are lagging while growth-oriented areas of the market are taking their leadership back. Best Stocks in the Aerospace & Defense industry: Josh: Now let's take a look at where the strength is. As Ed Yardeni wrote this week, President Trump has gone from "Tariff Man" to "Sales Man" during his whirlwind trip through the Middle East and a major airplane order was one of the highlights. UAE's Etihad Airlines committed to buying 28 wide-body Boeing aircraft with GE engines for $14.5 billion. In the table below, a list of the Aerospace & Defense names on the Best Stocks list at the moment. GE Aerospace, Boeing and Howmet Aerospace have been on a monster run but they look overdone in the short-term, with screaming-hot RSI readings approaching 80 (most technicians consider 70 or above to be overbought). But there are two names on our list that are just now breaking out and haven't gotten as far as the others yet: Axon Enterprise (AXON) Josh: First up, a company whose products you've heard of even if you don't know the name. Axon Enterprise (AXON) is a public safety technology company headquartered in Scottsdale, Arizona, best known for its TASER conducted energy weapons, body-worn cameras, in-car video systems, and cloud-based digital evidence management platform, Axon Evidence. Their products and services are primarily sold to law enforcement agencies, federal and military organizations, corrections departments, and increasingly to private sector clients in industries like retail and logistics. During its last earnings report, Axon raised revenue guidance for the full year to between $2.6 billion and $2.7 billion thanks to strong demand for both hardware and software from its customers. Risk Management: Josh: As you can see below, this is a breakout in progress. Short-term traders would use $700 as a pivot point. Investors may want to set a stop at the top of that gap around the $600 level. A pullback on light volume could help the stock work off its slightly overbought momentum and may provide a good entry. RTX Corp (RTX) Josh: I also want to show you RTX, which is the merged company formed when Raytheon acquired United Technologies back in 2023. RTX has three core businesses — Pratt & Whitney, Collins Aerospace, and Raytheon. They sell aircraft engines, avionics, missile defense systems, satellites as well as cybersecurity solutions. RTX's customers include government defense agencies, commercial airlines and space programs. This year they're projecting 2025 revenues of up to $84.0 billion and earnings per share between $6.00 to $6.15. RTX is on the verge of breaking out. As you can see below, the $135 level had been resistance this spring but the stock is back at that high and challenging. Momentum is solid on this retest and not yet overbought. Risk Management: Josh: I like the rising 200-day at $122 as a trailing stop. I would revisit it every Friday at the close. So long as the stock stays in that uptrend on a weekly closing basis, I think you can be long. DISCLOSURES: None All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC" TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
CNBC
15-05-2025
- Business
- CNBC
Best stocks: This software name is a category killer and has broken out
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh: Today we're spotlighting a stock you've probably heard me talking about on CNBC over the past few years, Toast (TOST) . For the first time ever, Toast has hit our list of the Best Stocks in the Market . Sean was really excited to write this one up and I was excited to read his take on the fundamental story. My take is very simple — I believe this company has reached the point where it is an established, acknowledged category killer. I love catching stories like these in the earlier stages, before everyone figures out the dominant player is going to have advantages that become cumulative. This is where the Toast story is now. The more penetration they get into a given metropolitan area, the more local service industry workers (and their employers) are comfortable using the software within their counter service or restaurant business. Toast becomes the de facto default option for point-of-sale payment systems. Everyone is trained on it and it becomes entrenched. Once Toast gets to a certain threshold within these markets, it's a wrap. They are then able to knock down the rest of local players and the sales cycle gets shorter and easier. Next they can sell all sorts of horizontal software solutions to the same population of customers — food ordering, staff tracking, payroll, etc. Writing about the company's most recent quarterly report last week, Mizuho analyst Dan Dolev cited the company's ability to defy the "difficult environment" for restaurants and relay strong guidance while giants McDonalds, Sweetgreen and Chipotle were posting warnings. Dan was bullish about Toast's increased take rate as well — they kept 48 basis points of all transaction revenue on their platform (1 basis point equals 0.01%). He sees even more opportunity on this front as contracts with customer-restaurants are renegotiated. I originally put this position on for myself as a trade a long time ago but the more I saw these guys execute, the more I wanted to stay. Now I consider myself a long-term investor in the name. Best Stock Spotlight: Toast Inc (TOST) On the list since: May 13th, 2025 Sean: TOST is a digital platform for 140,000-plus restaurants, generating revenue from subscription fees and transaction fees. Unlike its competitors, Toast intermediates every payment transaction on its platform; it processed more than $150 billion in gross platform volume in 2024. TOST is digitizing the fragmented and highly competitive restaurant industry, and the stock is breaking out. TOST just broke out above its November 2024 high of $43. TOST hasn't traded above the $45 mark since November of 2021. Similar to Monday's Best Stocks in the Market piece on Carvana, TOST has spent a lot of time below all time highs. TOST has been a public company since September of 2021, equal to 916 trading days. Of those 916 trading days, TOST saw an all time high on just 3 of them, and the first 2 all-time highs came on the first and second day of trading. It's last all time high occurred on November 3rd of 2021 — 885 days ago. TOST's all-time low came in May of 2022 in the midst of the hottest run of inflation prints the market had seen since the early 80s. Investors priced in a reduction of restaurant spending by consumers because of this inflation. A recession became the base case for nearly 100% of economists. Those economists were wrong, and we saw the hottest spending trends come into the service category. In 2023, consumer spending on food away from home increased to $1.5 trillion, up from $1.3 trillion in 2022, marking a significant shift as dining out expenditures surpassed grocery spending. TOST is up 254% off its 2022 low. TOST hit $43 in November as the animal spirits about the U.S. economy came roaring into the headlines. From that November level, TOST hit a low of $30 on April 8th, down 30% from November, again reflecting worries about the U.S. consumer and their ability to spend with an ongoing trade war. Again, we're seeing economists throw the recession word around. And again, TOST is shrugging off those worries. High-growth stock TOST is a high-growth business. It has compounded its top line revenue by 48% annually going back to 2020. Their profitability is growing too. Looking at its operating margin from Q4 of 2023 through Q1 of 2025, its gone from -4.1% to 3.7%, growing profitability by 780 basis points. Part of the reason why TOST landed on our list is the outstanding earnings call it just reported. TOST delivered record Q1 2025 results with 31% annual recurring revenue growth, 22% gross payment volume growth, and profitability driven by strong customer spending and massive enterprise wins. TOST added 6,000 net new locations bringing the total to 140,000 locations, which is a 25% YoY increase. Toast's profitability margins have improved significantly. Gross profit margin increased from 20.5% in Q4 2022 to 25.9% in Q1 2025. Operating margin turned positive, going from -12.9% to 3.2%. Net profit margins improved from -12.9% to 4.19%, and EBITDA margin grew from -12.1% to 10.0% over the same period. (data via QUARTR) TOST also reported a partnership with Applebee's, which represents the company's largest deal to date. The enterprise pipeline is described as the strongest it has ever been for TOST, with ongoing conversations with other large brands. The economics of these enterprise deals are super beneficial for TOST, with large value-add ARR opportunities and lower churn rates for larger customers. TOST reported these numbers on May 8, and the stock was up 11.4% the next day. From April 8th through 5/14 the stock is up 50%. The market is pricing in this growth, and the stock is in breakout mode. Risk Management Josh: My instinct here is the stock pulls back and retests the recent breakout. If the volume is light and the buyers come in to defend that gap ($39.75), that becomes the new support and we could be off to the races. If Toast gets back into the gap and fills it, you're back in the $35-$37 range, coincidentally the rising 200-day is there to cushion the fall as well (see below). Toast has been a volatile stock as investors doubted the company's commitment to reaching consistent profitability. Now those doubts are fading away and my hope would be that the volatility can fade with them. DISCLOSURES: Josh owns the stock All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . 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