Elon Musk continues to steal headlines, as every tweet, email or comment attracts the media’s attention.
Last week, Musk emailed the top managers at Tesla (NASDAQ:TSLA), stating that he has a “super bad feeling” about the economy and that he wanted to cut staff by 10%. The email’s subject line was a bit ominous, too, saying to “pause all hiring worldwide.”
The richest man in the world is concerned about the future of the economy… should you be concerned?
Short answer, no.
In today’s Market360, we’ll take a look at Musk’s recent antics and why I don’t share his same concerns…
Musk’s “Super Bad Feeling” Vs. The Facts
The email came on the heels of Musk demanding that all Tesla employees work at least 40 hours per week in the office. He effectively ended remote working. In my opinion, Musk wanted to flush out the Tesla employees who were unwilling to go back to work in the office full-time.
But I find his hiring freeze a bit confusing, as Tesla’s new manufacturing plants in Austin, Texas, and Berlin, Germany, are still not operating at full capacity. Plus, the company has a record order backlog. Add in the fact that Ford (NYSE:F) is increasing its employees — adding 6,200 workers in Michigan, Missouri and Ohio — to boost electric vehicle (EV) production, and Musk’s hiring freeze is even more confusing.
Perhaps Tesla continues to have acute supply problems, especially from Chinese suppliers, and is still feeling the pinch of high costs for lithium, nickel and cobalt. Maybe that’s why Musk has a “super bad feeling” about the economy.
But wherever his “super bad feeling” stems from, I think it’s a bit unfounded right now…
Consider this: The Labor Department revealed that 390,000 jobs were created in May — well above economists’ consensus estimate for 328,000 jobs. The unemployment rate remained unchanged at 3.6%, but the labor force participation rate rose to 62.3%, up from 62.2% in April. The April payroll report was also revised up to 436,000 jobs, compared to the previous estimate for 428,000 jobs.
Now, the ADP report wasn’t as positive last week, with only 128,000 private payroll jobs created in May. That was well below economists’ estimates for 299,000 jobs. It was also the smallest monthly gain since the pandemic recovery. However, I should add that weekly unemployment claims are now running at the slowest pace since 1969.
It was also encouraging that the Institute of Supply Management (ISM) announced that its manufacturing index improved to 56.1 in May, up from 55.4 in April. This was a big surprise since economists were expecting 54.5. The fact that manufacturing activity is resurging bodes well for second-quarter GDP growth estimates. Currently, the Atlanta Fed expects second-quarter GDP growth of 1.3%.
Estimates for global GDP growth are also improving since China’s economic activity is finally recovering after its most recent COVID-19 shutdowns. Tesla even announced that its Shanghai plant is back to operating at 70% capacity. Tesla and Volkswagen AG (OTCMKTS:VWAGY) will continue to keep their Shanghai manufacturing plants isolated in “closed loop” management systems until June 10.
Now, let me be clear: Although economic activity is improving in China and around the world, until all the COVID-19 restrictions are lifted and inflation is tamed, GDP growth will remain constrained. The fact is that inflation in the Eurozone soared to a record high annual rate of 8.1% in May; and inflation here in the U.S., based on the latest Personal Consumption Expenditures (PCE) price index, increased 4.9% year-over-year in April. So, prices still remain elevated around the world.
The Rays of Light
My point is that there are some rays of light breaking through the clouds, and I don’t think we need to be pessimistic or have a “super bad feeling” about the economy.
Plus, I still don’t think that the U.S. will slip into a recession in the near term. Now, with inflation likely to remain high for the foreseeable future, the best way to protect (and grow) your portfolio is by investing in stocks that will prosper in a more inflationary environment. Currently, that’s energy, commodity and shipping stocks.
This is the investing approach I am taking in Growth Investor, and I’m pleased to say that the underlying fundamentals associated with my Growth Investor stocks are truly “out of the park” with 61.8% annual sales growth, 448% annual earnings growth, 82.6% annual dividend growth and median forecasted earnings of 10.6! It’s why I expect my Growth Investor stocks to emerge as an oasis and lead the market higher.
Case in point: Star Bulk Carriers Corporation (NASDAQ:SBLK), a shipping company that primarily transports dry bulk cargoes around the world.
On May 25, Star Bulk Carriers revealed first-quarter earnings and revenue that crushed analysts’ expectations. First-quarter adjusted earnings soared 377.8% year-over-year to $1.72 per share, up from $0.36 per share in the same quarter a year ago. Revenue jumped 80% year-over-year to $360.88 million, compared to $200.47 million in the first quarter of 2021. The analyst community expected first-quarter adjusted earnings of $1.45 per share on $296.97 million in revenue, so SBLK posted a 18.6% earnings surprise and a 21.5% revenue surprise.
The stock popped 5.5% at the open on May 26, and then went on to climb to a new 52-week high of $33.99 on May 31. Year-to-date, the stock is up 18%, while the S&P 500, Dow Jones Industrial Average and NASDAQ Composite are down, 14%, 10% and 23%, respectively.
So, as always, I encourage you to block out the fearmongering financial media and stay focused on fundamentally superior stocks.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Ford Motor Company (F), Volkswagen AG (VWAGY), Star Bulk Carriers Corporation (SBLK)
