Hot PPI – Time to Call the Tariffs Off

Markets opened weak today after a shocking producer-price report. The new data showed inflation is picking up, with a 0.9% increase — much stronger than expected, and the largest monthly rise in over three years. Stocks jumped yesterday after solid CPI data, but as I emphasized the other day: someone has to eat the tariffs. And as long as it isn’t the consumer, it’s the corporations. Deere and Caterpillar are two behemoths in the machinery industry, and both are noting a heavy impact from the tariffs. They’re bracing for way more to come. These aren’t good signs. Even worse: the market keeps ignoring them.

Trump can run around as excited as he wants and fire the bearers of bad news. But eventually, he will need to face the fact that his love child – enormous tariffs – causes inflation. Does he really think that companies will keep eating most of the impact? He can’t be that clueless.

For the markets, this news is a double-negative. Not only is inflation picking up, which puts strain on the economy, but if this is the beginning of the materialization of the tariffs, then the Fed has a very good excuse not to lower rates in September. The market is currently pricing in three rate cuts this year. But if inflation keeps ramping up, that’s nothing more than delusional dreaming. In fact, several regional Fed presidents have already voiced concerns about the negative signal rate cuts would send right now — in this dire economic situation.

All of that points to disaster, but it won’t come to that. Stay with me here:

This could age very badly. I predict we will see increased tariff impact over the coming months, leading to a significant drawdown in the stock market. I don’t know what is driving the markets right now — maybe it’s AI or maybe it’s pure hubris. But there is no case in world history where tariffs haven’t taken a toll on the economy. That point is going to come soon. The president will face a difficult decision: chicken out or crash the economy.

And when I say decision, I mean he only has one choice. But before he eventually tucks his tail, markets will tumble. Trading at all-time highs while being in the buildup of an economic crisis is never a good position.

However, I embrace the idea of a market crash: 10%, 20%, 30%? The more, the better. My horizon is long-term, my stocks are already undervalued, and crashes create massive opportunities. Personally, I consider a crash a win-win situation: Trump would have to walk back his nonsense, and investors could load up on great companies.

$DE (+0.53%)
$CAT (+3.33%)

US markets opened strongly today, then faded throughout the day, while President Trump made headlines by proposing new tariffs on semiconductors and pharmaceutical imports, emphasizing onshore production. Despite broader market hesitation, Palantir ($PLTR (+1.15%) ) impressed with strong earnings, while other players fell flat on expectations, voicing concerns about tariff impact. I also doubled down on one of my key positions, Salesforce ($CRM (+0.44%) ), reinforcing my conviction in the company’s bright future. Looking forward, my eyes are on Oscar Health ($OSCR ) and Novo Nordisk ($NVO (+1.57%) /$NOVO B (+2.41%) ), both of which report earnings tomorrow.

Macro View – Trump vs. The Economy

After sending a rather peculiar letter to drug companies last week demanding lower prices, President Trump continued his harassment tour of pharmaceutical companies today by threatening an initially “low” tariff rate, which would then eventually increase to 250% over the next 12 to 18 months.

Sorry Mr. President having to break it to you, but you can’t dictate companies to throw out their pricing strategies, just because you disapprove of them, only to tell them a week later they’ll have to pay three times more to import their drugs. The math doesn’t add up: Lower prices don’t mix well with higher production costs. That’s business 101, a course a Wharton graduate should have attended, at least physically, if not mentally.

Earnings – The ONE Massively Overvalued Exception

While many earnings left investors disappointed amid this booming earnings season, from Caterpillar ($CAT (+3.33%) ) over Lucid ($LCID (-3.87%) ) to SuperMicro ($SMCI (+2.72%) ), citing different reasons for their misses, ranging from an increasingly noticeable impact of tariffs to just weak execution, one name continues its upward trajectory: Palantir, a great company with an exorbitant price tag.

Don’t get me wrong, I find Palantir to be an incredibly interesting business, with strong growth prospects and a solid leadership, but I just can’t imagine a reality in which a P/E ratio of close to 800 is justified for any company. Even if they cured cancer, that valuation would be a stretch. But I suppose the stock has become more of a religion or cult anyway, rather than an investment based on fundamentals.

My Move – Added to $CRM (Salesforce)

While markets were busy decoding Trump’s latest comments and speculating about his future FED chair pick, I expanded my position in Salesforce, by buying 5 shares at $250, bringing my total share count to 25, which equates to roughly 4% of my portfolio, representing the second largest position behind ASML ($ASML (+1.56%) ).

Salesforce is trading at a forward P/E ratio of 21, while boasting solid 8% revenue growth YoY and strong double-digit EPS expansion. Admittedly, the company isn’t the growth machine it once was, but its focus has shifted visibly from expansion at every cost to an emphasis on profitability. Margins are steadily improving, with gross profit approaching 80%. That’s part of the game, as companies become more mature, they grow different metrics.

One thing to look at, however, is Salesforce’s implementation of AI. The main reason for the stock’s weakness and historically low valuation is concerns about the company’s AI-powered task-managing platform Agentforce, which hasn’t yet shown the results investors would have hoped for. Nevertheless, I see an attractive risk/reward ratio at the current levels. And let’s not forget that Marc Benioff and his team have consistently delivered and proven strong execution. If the stock dips further, I may add more.

Looking Ahead

Tomorrow two companies in my portfolio will report earnings: Novo Nordisk and Oscar Health. I am bullish on both, for different reasons.

I recently published a detailed analysis on Novo Nordisk, arguing that while short-term headwinds might persist, long-term trends remain in place and the company is in a prime spot to capitalize on them. If I had to bet, I would bet on a beat tomorrow, given the conservative estimates and comments from the recently appointed CEO.

With Oscar it’s simpler: I firmly believe in its disruption potential within the health insurance industry, and I look forward to hearing from the company’s stellar leadership during the earnings call.

No matter what happens tomorrow, I remain confident in both companies and will be following them closely.

$CAT (+3.33%)

🔹 Revenue: $16.57B (Est. $16.33B) 🟢; +1% YoY

🔹 Adj. EPS: $4.72 (Est. $4.88) 🔴; -21% YoY

🔹 Adj. OI: $2.92B (Est. $2.98B) 🔴; -22% YoY

🔹 Order Backlog: UP +$2.5B QoQ; UP +$8.9B YoY

FY Guide

🔹 Sales: Slightly higher vs. 2024

🔹 Net Incremental Tariffs: $1.3B–$1.5B

🔹 Adj. Op. Margin: Bottom half of target range incl. tariffs

🔹 ME&T Free Cash Flow: Around middle of $5B–$10B target

Q3 Guidance

🔹 Sales & Revenue: Expected to grow moderately YoY

🔹 Net Incremental Tariffs: $400M–$500M

🔹 Adj. Op. Margin: Similar YoY ex-tariffs; lower YoY including tariffs

Q2 Segment:

Machinery, Energy & Transportation

🔹 Revenue: $15.67B; DOWN -1% YoY

Construction Industries

🔹 Revenue: $6.2B; DOWN -7% YoY

🔹 Segment Profit: $1.24B; DOWN -29% YoY

🔹 Margin: 20.1% vs. 26.1% YoY

Resource Industries

🔹 Revenue: $3.1B; DOWN -4% YoY

🔹 Segment Profit: $537M; DOWN -25% YoY

🔹 Margin: 17.4% vs. 22.4% YoY

Energy & Transportation

🔹 Revenue: $7.8B; UP +7% YoY

🔹 Segment Profit: $1.59B; UP +4% YoY

🔹 Margin: 20.2% vs. 20.8% YoY

Financial Products

🔹 Revenue: $1.04B; UP +4% YoY

🔹 Segment Profit: $248M; UP +9% YoY

Other Metrics

🔹 Adj. Operating Margin: 17.6% vs. 22.4% YoY

🔹 ME&T Free Cash Flow: $2.4B; DOWN ~$0.1B YoY

🔹 Shareholder Returns: $1.5B returned via dividends and buybacks

🔹 Dividend: Raised 7%; 5th consecutive year of high single-digit increase

🔹 Capital Expenditures (FY): ~$2.5B

CEO Commentary

🔸 “Adjusted operating profit and margin exceeded our internal expectations despite tariff headwinds.”

🔸 “Order backlog increased across all three primary segments, reflecting healthy demand.”

🔸 “We continue to execute on our long-term profitable growth strategy.”

Sell $CAT (+3.33%) +30% profit buy $BUNZL👏

$CAT (+3.33%) I'm waiting for it like when I bought it 270 - $280