Morning Watchlist: Friday Edition
A quick note from Behind the Markets
We're closing out a week that belonged to needles — the one in your arm, and the one on the bond-yield chart.
On Wednesday, a government advisory panel said yes, three times, to a blood test that screens for dozens of cancers from a single draw. The same afternoon, the 5-year Treasury yield crossed 5% for the first time since 2007, and everything that depends on a relaxed consumer — burgers, breadsticks, hotel rooms — got marked down in a hurry.
Three stories this morning. Three pairings. Let's get into it.
1) The Blood Test Got Its Yes
On Wednesday, the FDA's advisory panel voted on Grail's Galleri test — the screen that hunts for cancer's fingerprints on DNA fragments floating in the blood. The scores: 10–0 that the test is safe, 6–4 that it's effective, and 7–2 (with one abstention) that the benefits outweigh the risks. The FDA isn't required to follow its panels, but it usually does — and approval is the likeliest road to Medicare and insurance reimbursement, the difference between a boutique product and screening at population scale.
Note that middle vote, though. 6–4 is a yes with a furrowed brow.
First, we flagged Illumina as a Watch on Wednesday at $238.82; our entrance was an air pocket, and a surprise "no" would have made one. The panel said yes instead: Illumina rose 3.2% to $255.38, pennies from its high, average analyst target still below the price. No air pocket, no entrance, no chase. Still Watch.
But step once more behind the headline. Grail — up 36% Monday, higher again Wednesday — is now a $4.9 billion company on $165 million of trailing revenue. Illumina reads the tests. So who takes the blood? Millions of screens a year — Grail's, or any rival's — all begin the same way: an arm, a needle, a vial.
The pairing: Quest Diagnostics (DGX) — Buy
Quest has been Grail's collection partner since 2021: Galleri is ordered through Quest's system and drawn at Quest's nationwide network of patient service centers. A new kind of mail doesn't need a new post office — it needs the one already on every corner.
And cancer screening is only one letter in the bag. Blood is quietly becoming medicine's front door: Quest now runs Roche's new pTau217 blood test for Alzheimer's pathology, and an Apple Health integration arriving this year will let iPhone users order Quest lab tests themselves.
The numbers: at about $233, Quest is a $25.7 billion company growing revenue 9.9% over the past year to $11.6 billion, with earnings per share up 12.8%. It costs roughly 20 times next year's expected earnings — about the market multiple — with a 1.5% dividend and a Buy consensus at a $246.73 average target. Honest flags: up about 25% in a year and ~6% off its high, so we're not early, and a market multiple leaves no bargain cushion. The risks: that 6–4 vote means the FDA's final word is not a formality, Galleri won't move an $11.6 billion revenue base for years, and lab testing lives under the permanent shadow of government fee cuts. This is a bet on the direction of medicine.
2) The Drive-Thru Hit a Wall
On Wednesday, McDonald's fell about 5% to $236.65 — a four-year low, roughly 30% below its late-winter high. At its investor day, management warned that U.S. foot-traffic recovery "may lag" as inflation squeezes low-income diners, unveiled an $8.5 billion franchisee-support plan — remodel help, value-menu subsidies — and pushed its 50,000-restaurant target from 2027 to 2028.
Thursday morning, Darden — Olive Garden's parent — missed on revenue and slipped more than 5% in early trading. Look inside that report: LongHorn Steakhouse comps grew 6.2% while Olive Garden managed 1.1%. Same company, two menus, one squeezed customer choosing carefully. Meanwhile Airbnb fell 6% Wednesday and Wayfair nearly 8%, as 5% risk-free money repriced the whole discretionary aisle.
But the consumer isn't vanishing. Cracker Barrel, the value-priced comfort-food chain, beat estimates Wednesday and jumped nearly 8%. Card-spending data we cited last week showed August spending accelerating. The money isn't disappearing. It's migrating down the price ladder — the migration we've tracked since August, from Ross to Ollie's to BJ's to the outlet malls.
The pairing: Dollar General (DG) — Buy
When a $12 combo meal gets skipped, where does dinner come from? The bottom rung of the price ladder — and Dollar General is standing on it, catching everyone who slides down: more than 20,000 small-format stores in the towns the big boxes skip, a plan to expand its $1 product selection by 40% for the holidays, and a same-day delivery expansion with Instacart announced Wednesday.
The numbers: at $120.60, Dollar General costs about 15 times earnings — trailing and forward — against the S&P 500's 21, after growing earnings per share 42.6% last fiscal year. There's a ~2% dividend, the stock sits about 24% below its 52-week high, and the consensus is a skeptical Hold with an average target of $139.55 — above the price. Skepticism priced in; growth not.
The honest risks: Dollar General's core customer is precisely the one McDonald's just warned about — trade-down fills the till only while that customer has anything left to spend. Tariffs raise costs on imported goods, and Walmart's price war never sleeps. If the low-income consumer goes from squeezed to broke, the bottom rung shakes too.
3) The Buyer Left the Open House
On Wednesday evening, Barry Diller's People Inc. withdrew its proposal to buy MGM Resorts — $48.30 a share, roughly an $18 billion valuation — after months of talks with the board's special committee. Diller's words: "We didn't feel the mix was coming together in the way we had hoped." Thursday's premarket took MGM down about 9% to $34 and change — nearly 30% below the withdrawn offer — dropping it to an $8.6 billion market cap.
Regular readers know this movie. In August, Wendy's lost its buyer and we told you to buy Burger King's parent instead — the jilted property was donating traffic. In September, PayPal lost its buyer and we bought PayPal — a 10-times-earnings cash machine marked down for no operating reason. Same headline, opposite calls. A dead deal tells you nothing until you inspect the house.
The pairing: MGM Resorts (MGM) — Watch
So inspect it. Revenue grew 3.2% over the past year, BetMGM has momentum, and there's MGM China plus a new Osaka resort coming. The share count has been cut nearly in half over five years — management buys its own stock relentlessly. And the walked-away buyer still owns about 27% of the company and says he remains "open to and interested in" a strategic transaction.
But the price isn't PayPal-cheap: net income fell 21% over the past year, and at $34 the stock still costs roughly 19 times next year's expected earnings — while its customer is the same squeezed consumer from story two, walking into the most discretionary building in America. Bank of America resumed coverage Wednesday at Neutral with a $40 target; the broader consensus says Buy at $50.41.
Our entrance: a washout toward the $29 52-week low that pays us for the consumer risk, or the next earnings report (late October) showing Las Vegas holding up. The kill: Vegas bookings cracking as the low-end squeeze moves upmarket, or Diller quietly trimming that 27%.
Before You Go
The post office of the blood-test era, the bottom rung of the price ladder, and an $18 billion offer that walked out the door.
One theme, as always: the best opportunities stand one step behind the headline.
Housekeeping from a crowded Thursday. TD SYNNEX — our September 7th Buy near $263 — cleared the high bar we named: record revenue of $21.6 billion against $19 billion expected, earnings of $5.68 a share versus $4.70, and guidance far above consensus; the first reaction Thursday morning was a ~3% dip to about $279, still comfortably above our flag — full grade in tomorrow's review.
The Trump–Xi summit headline arrived Wednesday: Treasury Secretary Bessent said the trade truce extends through January 10 — our Andersons Buy and Axcelis Watch are listening. And crude bounced back into the low $90s Thursday morning from Tuesday's two-week low — a reminder on Alaska Air that the re-armed trigger needs tankers through the strait, not offers at a podium.
We'll see you tomorrow.
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Written by Behind the Markets