Morning Watchlist: Thursday Edition
A quick note from Behind the Markets
The fourth quarter starts this morning, and it opens with a stacked calendar. Micron reported Wednesday night. Nike confesses tonight. Friday morning, the jobs report referees everything.
But the story that framed the whole week landed Tuesday, in one strange split-screen: consumer confidence fell to a 12-year low — the same morning a cruise line reported the best quarter in its history.
Three stories this morning. Three pairings. Let's get into it.
1) The Gloomiest Consumer Just Booked a Cruise
On Tuesday, Carnival — the world's largest cruise operator — reported record everything: revenue of $8.44 billion, adjusted earnings of $1.43 a share against the $1.36 the Street wanted, customer deposits of $7.6 billion, and record 2027 bookings at record prices. Management raised full-year guidance, S&P upgraded the company's debt to investment grade, and the stock jumped about 12% to just under $25.
CEO Josh Weinstein's explanation was five words long: "vacations are sacrosanct."
Hold that against Tuesday's other headline — consumer confidence at a 12-year low — and you have the most useful consumer read of the quarter. People are gloomy about the economy and protecting the vacation anyway. That's the thesis behind our OneSpaWorld Buy from September 14th (the massage table on every full ship) and our Travel + Leisure Buy from September 24th (the timeshare season ticket). Carnival's quarter is a receipt for both. Both calls stand.
So is the cheap cruise line the next move? Maybe.
The pairing: Norwegian Cruise Line (NCLH) — Watch
Norwegian is the one ticket in the aisle still on the clearance rack: at about $14.80, near its 52-week low of $13.63 and down more than 40% from its high, it trades at roughly 9 times next year's expected earnings. Carnival, after Tuesday, fetches around 11. The S&P 500: 21.
But an empty restaurant on a busy street is not automatically a bargain. Carnival just proved the street has traffic; Norwegian's problem is the kitchen. Its own guidance has full-year pricing (net yields) falling about 5%, management admits it's below its optimal booked position for the next twelve months, and the company carries $15 billion of debt — 5.3 times its yearly cash earnings — in a world where money costs 5%. The discount is real, and so far it's earned. One clue worth logging: insiders bought about $31 million of stock over the past year and sold almost none. A clue, not a bell. The entrance: bookings back to optimal and yields flattening at the next print. The kill: another yield guide-down, or refinancing costs eating the recovery.
2) The Referee Took FICO's Thumb Off the Scale
Three weeks ago, regulators ended FICO's mortgage-score monopoly and the stock had its worst day since 2020. On Tuesday came the second leg down. The FHFA announced that Fannie Mae and Freddie Mac will move to a single loan-pricing grid covering both FICO and its rival score, VantageScore — erasing the pricing structure that quietly favored FICO. In plain English: the grocery chain just ended its exclusive with the expensive brand and gave the house brand equal shelf space.
FICO fell another 21% to a multi-year low. TD Cowen's Jaret Seiberg was blunt about the intent: "This is not about which model is more predictive of defaults. It is about FHFA shifting LLPA pricing to get lenders to use Vantage over FICO."
Here's the part the tape got wrong, in our view. The credit bureaus fell too — TransUnion slipped about 3%, to around $64. But remember who owns the house brand: VantageScore is the bureaus' own creation, jointly owned by TransUnion, Equifax, and Experian. The score that just won equal pricing pays royalties to the companies the market marked down.
The pairing: TransUnion (TRU) — Buy
We flagged TransUnion on September 8th, at about $79, as a Watch — the pantry plus the winning recipe — and we named two entrances: the regulatory fight resolving, or "a washout toward the ~$63 low where the risk is paid for." At $64, the washout has effectively printed, and the recipe just won shelf parity. When the entrance we named shows up, we take it.
At this price the whole company costs about 17 times trailing earnings — against 21 for the average S&P 500 company — for a business woven into nearly every loan decision in America, with the average analyst target near $94. The honest risks haven't vanished: the regulator has also floated cutting mortgage credit reports from three bureaus to two, which would shrink industry volumes by a third — that's the swing that kept us outside the ring, and it's still possible. Score-shopping could turn scoring into a price war rather than an accuracy contest. And this referee is unpredictable by design. We're buying with the risk priced, not the risk gone.
3) Six More Chip Factories, Says the Whisper
Taiwan's Economic Daily reported this week that TSMC — the company that manufactures the world's most advanced chips — is evaluating a second American manufacturing cluster, in Texas, of up to six new fabs. That would come on top of a planned Arizona complex of twelve fabs, four packaging plants, and a research center, at a committed cost of up to $265 billion. The reported logic for Texas: more labor, more power, lower taxes — and a customer base that's now over 75% American.
Our rule from the Embraer call applies: a report is not a groundbreaking, and TSMC's board hasn't decided anything. You don't pay for whispers. But you can own the company that gets paid whether or not this particular whisper comes true — because the build-out already underway is the largest industrial construction wave in America.
Before anyone argues about nanometers, somebody has to flatten a square mile of dirt, grade it, and run utilities to it. The first check every construction boom writes goes to the bulldozers.
The pairing: Sterling Infrastructure (STRL) — Buy
Sterling, based in the Houston suburbs, does exactly that site work — its E-Infrastructure segment preps the ground for data centers and semiconductor plants, and it grew revenue 192% last quarter. Company-wide, revenue rose 90%, earnings more than doubled, and committed backlog hit $4.3 billion, up 116%, with more than 92% of it mission-critical work. Management raised full-year guidance to about $20 a share in adjusted earnings.
And the stock? It got cut in half. From a high of $1,005, Sterling now trades near $505 — not because business slowed, but because the multiple got ahead of itself (it touched 45 times forward earnings) and September's AI-capex jitters marked down the whole aisle. Today you pay about 23 times next year's expected earnings — a hair above the S&P 500's 21 — for growth running several times the market's. Eight analysts call it a Strong Buy with an average target of $845. The Texas whisper is a free option; the backlog is the thesis. The honest risks: an AI-capex retrench (the Oracle force-majeure creak we're watching on Powell Industries is the same watch item here), a shortage of electricians capping how fast the work converts, and a halved stock that can keep de-rating if the aisle stays out of favor.
Before You Go
That's the watchlist: the gloomy consumer who booked a cruise anyway, the scorekeeper's rival getting equal shelf space, and the bulldozers that get paid before the chips exist. One theme, as always: the best opportunities stand one step behind the headline.
Housekeeping: Tonight, Nike reports: the tell we named on August 27th for the promo wave, and the exam for our September 22nd Nike Watch — clean inventories and stabilizing China earn an entrance; another guide-down means brand-broken. September auto sales land today, a read on our Lithia and Ally Buys. GameStop CEO Ryan Cohen bought 447,000 more shares, lifting his stake to 8.12% — a clue, but our named entrance is the buyback actually firing; still Watch. And rate-hike odds slipped to a coin flip after the New York Fed's John Williams saw "no need for urgency" — Friday's jobs report gets the deciding vote.
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Written by Behind the Markets