Morning Watchlist: Monday Edition
A quick note from Behind the Markets
It's the start of another week. And the biggest number of last week arrived Friday morning, after most of the market had already made up its mind about October.
The economy added 29,000 jobs in September. Wall Street wanted about 85,000. Unemployment ticked up to 4.2%, July was revised all the way down to a loss of 10,000 jobs, August was trimmed too — 60,000 jobs erased from the record in one morning — and wage growth held at 3.0%. Stocks jumped on the news and yields fell, because the market read it the way we do: the Fed that hiked in September just lost its case for hiking in October.
Three stories this morning. Three pairings. Let's get into it.
1) Twenty-Nine Thousand
The crowd will spend Monday trading the obvious version of Friday's number — buy the rate-sensitive growth stocks, celebrate the pause. We'd rather follow the second-order trade.
Think about what 7%-plus mortgages actually did this year. They didn't just hurt homebuilders. They froze transactions — the act of a house changing hands. We've owned that freeze all quarter through the landlord (Invitation Homes) and the repairman (Frontdoor). But there's a business we've never owned that gets paid only when the ice cracks: the one sitting at the closing table.
Last Wednesday, with the 30-year mortgage near 7.3% and weekly applications sliding, the market dumped the whole housing-finance aisle — title insurers and mortgage insurers fell 4% to 6% in a day, on no company news. Two days later, the jobs report yanked yields back down. The aisle got marked for a permanent freeze right before the weather report changed.
The pairing: First American Financial (FAF) — Buy
First American is the second-largest title insurer in America. When a house or an office building changes hands, somebody has to verify the seller actually owns it, clear the liens, run the escrow, and insure the whole chain of paperwork. Think of title insurance as the Carfax of houses — nobody buys without the report, whoever the buyer is. It's a toll booth on transactions, and transaction volume is sitting at the bottom of a deep freeze.
Here's what we like about the price of this toll booth. At $60.74, near a 52-week low of $56.20 — First American is a $6.2 billion company, trading at about 8.6 times next year's expected earnings. The S&P 500: 21 times. The dividend, just raised, yields 4.0%. Six covering analysts all say Buy, with an average target of $87.67 — more than 40% above the price. And while residential waits, the business isn't idle: second-quarter revenue of $2.12 billion beat estimates by 3%, earnings came in at $2.08 a share against the $1.84 expected, commercial title is doing the heavy lifting — and the escrow float earns today's 5% shelf rate while everyone waits. Paid per closing, and paid to wait for it.
The honest risks. We sold a homebuilder in September for betting on a single data point, and one soft jobs print is exactly that. Housing could simply stay frozen into 2027. And regulator Bill Pulte spent Wednesday calling mortgage-insurance costs "unnecessary" — the referee who swung at FICO is swinging near this aisle. Earnings land October 21st.
2) The Swoosh Went to Confession
Thursday night, Nike reported — the exam we named when we flagged it as a Watch on September 22nd at $35.51, near a 12-year low. We promised to grade it out loud: cycle-broken earns an entrance, brand-broken doesn't.
The quarter itself beat: 48 cents a share against the 43 expected, and gross margins actually improved. Then the guidance arrived. Revenue down 4% to $11.21 billion, a miss. Greater China down 26% — about two-thirds of the entire decline. For the full year: revenue guided to a high-single-digit decline, with earnings of $1.15 to $1.35 a share against the $1.61 consensus — below every published estimate — plus a restructuring called Pace targeting $2.5 billion of savings through 2031, with layoffs. One more detail the dividend investors noticed: the $1.64 annual dividend is now bigger than the entire guided earnings range. The stock fell more than 6% in late trading Thursday.
Our grade: the entrance needed inventories clean, margins stabilizing, and China moderating. Margins passed. China failed spectacularly. That's a cut that leans brand-broken, not cycle-broken — so no entrance, no chase. Still Watch. It also answers the tell we set at Dick's in August: a giant guiding its revenue down high-single-digits is a promo wave with a bigger donor, not a promo wave breaking.
But here's the thing about the shoe aisle. The market trades it like Nike's problems are contagious. They're not — they're transferable. Shelf space is musical chairs, and when the biggest player stands up, somebody else sits down.
The pairing: Deckers Outdoor (DECK) — Buy
Deckers owns HOKA — the running brand that has spent three years taking exactly the share Nike keeps donating — and UGG. On Friday it traded around $79, within two dollars of its 52-week low, down about 35% from its high. Now look at what the business did while the stock did that: the first billion-dollar fiscal first quarter in company history, earnings of 94 cents against the 88 expected, gross margins of 56.4% — fatter than Nike's — and a raised full-year forecast, with HOKA guided to low-double-digit growth and management expecting both brands to accelerate in the second half.
The price of all that: about 10 times next year's expected earnings. Nike, mid-confession, costs more than twice that on its own freshly lowered numbers. The S&P 500: 21. Twenty-seven analysts rate Deckers a Buy with an average target of $120.41 — more than 50% above the price. The honest risks: HOKA's growth has decelerated from its wild years, and the thesis needs it to stay double-digit; the promo wave Nike just extended discounts against $140 running shoes; and the squeezed consumer we track every week buys shoes too. But paying 10 times earnings for the player picking up the chairs beats paying 20 for the one who just stood up.
3) The Ink Dries Tomorrow
Tomorrow, barring a last surprise, the biggest media deal in a generation completes. A federal judge approved the consent decree last Wednesday, and Paramount Skydance's roughly $110 billion purchase of Warner Bros. Discovery is set to close Tuesday, with Warner shareholders cashed out at $31 a share.
We already own a piece of this story — we bought Cinemark on September 23rd, when the settlement wrote a production floor under the film supply: at least 30 theatrical films a year from the merged studio, rising to 32, plus $300 million more in annual production spending, with penalties. The closing adds the detail we like even more: every one of those films must stay in theaters at least 45 days, and off streaming for 90. A court just wrote the theatrical window into an enforceable decree, for the biggest film library on Earth.
So who else collects on that, besides the theater chain? The company that owns the best seat in the house.
The pairing: IMAX (IMAX) — Watch
IMAX mostly doesn't own theaters. It licenses its giant screens and projection systems to the people who do, and takes a slice of the box office on every ticket. Cinemark is the toll road; IMAX is the express lane — it charges a premium per car and doesn't have to pave the asphalt. And business is historically good: IMAX just posted its highest-grossing summer ever, $728 million worldwide, up 73% from the prior record, with Christopher Nolan's The Odyssey becoming the biggest IMAX release of all time at $289 million.
So why Watch and not Buy? You already know the answer: price. At $52.91 Thursday, IMAX sits within about 9% of its 52-week high — up more than 70% off its low — and costs roughly 25 times next year's expected earnings after a record everyone can see. Morgan Stanley just initiated coverage at Overweight with a $63 target, which tells you the crowd has found the express lane. We don't chase above-target pops, and we don't pay record-summer prices for next year's calendar. The entrance: a digestion pullback toward the mid-$40s, or the late-October report proving the slate converts at a saner price. The kill: a 2027 release gap while the newly merged studios reorganize — the same risk we carry, more cheaply, at Cinemark.
Before You Go
Quick grades from the Monday checklist. Tesla's third-quarter deliveries, out Friday morning: 486,532 — beating the roughly 462,000 consensus, though down 2.1% from last year's record. September auto sales came in solid — Toyota's U.S. sales rose 8.4%, a receipt for our September 21st Buy, and Hyundai reported a record month. Demand at the dealership is holding, which keeps Lithia and Ally where they were — with the honest footnote that Friday's 29,000 is now the number to watch on both: a softening labor market is how auto credit eventually cracks.
That's the watchlist: a toll booth on the closing table priced for permanent ice, a game of musical chairs the market is scoring backwards, and an express lane we'll merge into at the right price. One theme, as always: the best opportunities stand one step behind the headline.
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Written by Behind the Markets