Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Monday, March 3. Today’s Stock On The Contrarian Radar©️ is CACI 0.00%↑ at the bottom of this page.
Be sure to read this month’s Contrarian Portfolio update letter!
State of Play
Stocks advanced on Friday, all thanks to a late-day rally that came out of nowhere. As we eye our board of indicators for signs of direction at 0640, it looks like risk-on is set to continue, thanks in no small part to the crypto market:
Cryptos are rallying, with Bitcoin up 7.5% to trade around $92,500 after President Trump announced a strategic crypto reserve over the weekend;
Stock index futures are moving a bit higher, led by small-caps. The Russell 2000 is up 0.7% with S&P 500 and Nasdaq up about 0.5%;
Commodity prices are rising, especially gold which is up 1.3%. Copper is up 0.9%. WTI crude oil unchanged around $70/barrel;
Bonds aren’t doing much. The 10-year yield is up 3 basis points to 4.26% (yields move inversely to prices).
Today’s Known Events
A couple of economic data releases are all that’s on the calendar today:
ISM Manufacturing PMIs are out at 1000. Economists who were surveyed expect a reading of 50.6, a bit below the 50.9 recorded last month but still north of the 50 line that separates expansion from contraction.
Construction spending is out at the same time. The expectation here is for a drop of 0.1% month-over-month in February after an increase of 0.5% last month.
The highlight of the week is Friday’s non-farm payrolls. Before then we’ll get earnings from Target (TGT 0.00%↑) and other retailers tomorrow, chipmaker Marvell (MRVL 0.00%↑), and Costco (COST 0.00%↑) on Thursday.
The Bottom Line
Friday’s late-day rally really came out of nowhere. It’s unusual for stocks to turn so suddenly on a Friday afternoon on no news. Maybe it was a last-minute attempt by investors to juice their monthly returns, though that gets a bit into conspiracy theory territory.
What it does show is that there is still risk appetite floating around out there looking for a home. The weekend rally in cryptos bears this out. Does this rally have legs or will it fall back to earth like almost everything else this last week-and-a-half?
We shall see. It would not be at all unusual for cryptos to unleash the animal spirits however, at least until Target earnings tomorrow.
Stocks on the Contrarian Radar
CACI International (CACI 0.00%↑), a government contractor in the realm of research and consulting, primary to the defense sector, was one of the worst-performing stocks overnight. It was down 5% in the pre-market at some point to sink to fresh 52-week lows. It has since rebounded.
Still, it’s clearly been a rough couple of months for CACI, a result of (you guessed it) DOGE:
A drop like this for a company on government contracts would in normal times be a buying opportunity. However these are not normal times. Elon Musk & Co. have made it their mission to slash government spending and one would think contractors offering consulting of all things would be very high on the list of non-essential services to fall victim to these efforts.
For this reason it makes sense for the stock to trade at a discount. How much of a discount though? Surely at some point consultants will figure out a way to consult again — and charge obscene amounts of money for their, um, expertise? Right?
Unfortunately, CACI is not exactly screaming cheap, trading at:
16x forward earnings
0.9x forward sales
15x forward cash flows
Earnings and sales multiples aren’t bad. Cash flows not great.
The balance sheet seems to check out at first glance, with $3.4 billion of debt versus $7.5 billion of assets. But a closer look at assets reveals $4.9 billion (!) in “goodwill” (always a red flag) and $1.2 billion in “other intangibles.” So that’s more than $6 billion of its $7.5 billion assets in things that basically don’t exist.
Did we mention this is a consulting company?
Oh yeah, and $3 billion of its debt is long term.
Hard pass.
Verdict: CACI may be cheaper than it once was. But that does not make it cheap enough. The amount of weird assets (goodwill and ‘other intangibles’) is a red flag even during good times. These would appear to not be good times for government contractors. Even assuming DOGE does not manage to do anything substantial, it’s hard to see how this is a company whose stock one would want to buy. The Contrarian will sit this one out.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
Read this month’s portfolio update letter here. The Substack chat tracks The Contrarian’s trades in (almost) real time.
If this daily thing is drowning your inbox and/or you CBF to bother with it and prefer to just get the guest feature or actionable highlights — you can control these settings on your account page.
Finally, if you enjoy this and want others to experience it, please gift a subscription to your friends (or even your enemies).
Share this post