Is the rally over?

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Salesforce’s shares plunged about 16% in extended trading after giving a subpar guidance for the current quarter. Its growth rate is expected to post at the slowest pace in history with just 8% growth. Its profit outlook also came in lower than estimates with about $2.35 a share versus $2.40 expected. Salesforce has struggled to maintain its revenue growth in the last few quarters. So, it turned to cost-cutting moves to boost profit and bought back shares and initiated a dividend. However, it couldn’t keep surprising on the profit side. As a result, investors begin to question if Salesforce is over-investing in AI products that haven’t resulted in bottom line profits. - “I would question if a lot of the focus by CIOs on AI is coming at the expense of expansions at Salesforce,” said Rishi Jaluria, an analyst at RBC Capital Markets. Could it be the beginning of a modest growth for technology companies? We will see. Nvidia has been holding up the market due to its massive growth rate (and its overweight in the index). We will see if the rally is able to sustain with other companies starting to show some cracks in their growth stories. The 10-year Treasury also topped 4.6% yesterday. Generally, higher yields drag down stocks because investors will demand more attractive valuations from stocks (such as lower P/E) when yields are high in Treasury bills and money market funds. In short, there is more competition. - “We have a ‘higher for longer’ backdrop, which is not new news, but in the [current] catalyst vacuum, is weighing upon the average stock — particularly at an extended valuation like we’re currently at,” said Ross Mayfield, Baird investment strategy analyst. Today, we will get weekly jobless claims number and the second reading of the real GDP for the first quarter. The PCE report will be out on Friday (an inflation reading). Best Buy and Dollar will report earnings this morning, while Dell Technologies, Costco, Gap and Nordstrom will report after the markets close. Feeling uncertain about the markets? This steady stock can be perfect Today’s Stock Pick: Kaiser Aluminum Corp. (KALU) We like Kaiser Aluminum as a long-term play because of its exposure in the aerospace industry. Why? There are lots of airplanes that will be manufactured over the next few years. The industry is playing catch-up after the production plummeted during the pandemic era. The production level hasn’t recovered fully due to supply chain troubles and Boeing’s unending woes. So, Kaiser expects the production to soar to more than 2,500 in 2030 (from about 1,250 in the recent year). (Source: Kaiser Aluminum) This means plenty of business for Kaiser for years to come. The company offers wide-ranging aluminum products for aircrafts. In the graphic bellow, you can see how there are about 38 aluminum products required to build a single aircraft. (Source: Kaiser Aluminum) Moreover, the backlog has exploded for Boeing and Airbus. This gives Kaiser plenty of revenue certainty in the next five years for its aerospace segment. (Source: Kaiser Aluminum) The aerospace industry accounts for about 36% of Kaiser’s total revenue. Packaging is the second largest segment with 24%. Kaiser offers aluminum for beverage and food cans. General engineering is another growth segment because of the trend of nearshoring. (Source: Kaiser Aluminum) All in all, Kaiser expects all segments to show at least 2% CAGR. Its top two segments (aerospace and packaging) are projected to grow 3-5% CAGR. Remember that they are growth projections for these markets themselves — not the company itself. (Source: Kaiser Aluminum) Kaiser is well-positioned to profit from these growing markets. It has 14 manufacturing locations in North America. Because it is produced in the USA, it might benefit from the government’s new priority of making products in the country. (Source: Kaiser Aluminum) What about the risk of metal prices? Kaiser passes through the cost of metal for more than 95% of shipment. Meaning? If metal prices jumped, the company will simply pass along the cost to the customers. They are built into contracts and part of the industry practice. Now, the company has a good track record of increasing dividends. Its dividend per share soared by 156% in ten years from 2013 to 2023. It is attractive because the company is now yielding 3.48% in dividends. That yield could rise to more than 6% if a shareholder buys the stock now and holds it for the next decade — assuming that the dividend growth maintains the previous decade’s pace. (Source: Kaiser Aluminum) Bottom line: Kaiser Aluminum is a good dividend stock for those investors who are looking a defensive stock with a track record of boosting dividends per share. 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