Comments on Trump's latest tariff threats; A look at earnings from Deckers Outdoor

1) The markets are down today on President Donald Trump's latest tariff threats...

Earlier this morning, he threatened to enact a 50% tariff on the European Union. Meanwhile, he also floated the possibility of at least a 25% tariff on tech giant Apple (AAPL) for iPhones made overseas.

The Wall Street Journal has more details on Trump's frustrations with the EU and Apple in this new article: Trump Threatens Fresh Tariffs on EU, iPhones Made Overseas. Excerpt:

The U.S. president has long criticized European nations on trade, and he said in his Friday morning social-media post that trade discussions with the bloc had made little progress. "Our discussions with them are going nowhere!" he wrote. He said the 50% tariff would go into effect on June. 1...

Last week, Trump chided [CEO Tim Cook] for Apple's plans to shift final assembly for many U.S.-bound devices to India, and he reiterated his demands that the company bring manufacturing back to America. He called the CEO his "friend," but suggested that Apple's plan to invest some $500 billion in America wasn't enough.

The S&P 500 Index is down nearly 1% today in response to the tariff threats.

If such tariffs were actually implemented, the markets would be down much more. But investors are – correctly, in my opinion – viewing this as yet more negotiating bluster.

A report that a friend e-mailed me from Vital Knowledge Media captures it well in these bullet points:

• We've been here before – Trump has never followed through on his most bombastic tariff threats, and there's no reason to think he's about to change now (which means there won't be a 50% tariff on the EU or a 25% tariff on iPhones)...
• The absurdity of the threat undermines its credibility – recall that the EU's reciprocal tariff back on 4/2 was only 20%, which would mean a 30% all-in tariff assuming the 10% baseline. Why that suddenly jumps to 50% on June 1 (which is a month before the 90-day reciprocal pause was set to expire) is unclear (and why the EU would be subject to a higher tariff than China is also unclear). On the iPhone, a 25% tariff won't bring production to the US (Apple would still be better off producing them internationally) and if the devices were manufactured domestically, they would probably cost more than what some BYD electric vehicles are priced at in China.

That said, the report also says to keep in mind that the existing 10% baseline EU tariff burden is already substantial – and that the threat of higher tariffs is real. As the report continues with this next bullet point:

• A 50% tariff on the EU would guarantee a recession, which is why Treasuries are spiking, ironically helping to alleviate what had been the biggest market overhang of the week.

As I've long said, investors should simply ignore the fearmongering headlines the vast majority of the time – and today is another example of this.

I don't expect a 50% tariff on the EU and a 25% tariff on iPhones. But I do think that investors have been overly complacent recently – and perhaps forgetting that the trade tensions are far from fully over. I'll repeat what I said on Monday:

I don't know when and to what degree, but it's certain that there will be plenty of volatility in the markets going forward – and I suspect more than usual.

Keep that in mind for the weeks ahead!

2) Shifting gears, let's turn to a stock I've been keeping my eye on in recent months...

Shares of footwear maker Deckers Outdoor (DECK) fell as much as 24% this morning after the company reported fourth-quarter earnings after the close yesterday.

Year over year for the quarter, revenue was up 7.5% constant-currency basis – slightly ahead of expectations. And earnings per share ("EPS") jumped 22% to $1. That crushed estimates of $0.61.

So why is the stock down? Because the market is forward-looking – and Deckers gave a weak outlook.

The company declined to give full-year guidance (unlike previous years). Instead, it only provided estimates for the current quarter, which were well below expectations.

Deckers said revenues would be between $890 million and $910 million – below estimates of $925 million. And it said EPS would be in a range of $0.62 to $0.67, which was well below estimates of $0.79.

Regular readers will recall that I wrote three times about the stock in March: a first look on March 7, a closer look on March 10, and final thoughts on March 12. As I concluded in my final e-mail in the series:

Deckers had unusually strong tailwinds... it has reset expectations... and, along with concerns about tariffs and the economy, the stock has been nearly cut in half in less than six weeks.

With an expectation for Deckers to earn $6.66 per share in the coming fiscal year (starting April 1), that means the stock is trading at about 18.1 times forward earnings.

That's attractive for a high-quality company with such pristine financials.

That said, I noted that my team and I would dig deeper into the stock to see if it was compelling enough to add to our Stansberry's Investment Advisory model portfolio.

In particular, we would focus on whether there were any long-term concerns about Deckers' two major brands, Ugg and Hoka.

We didn't end up pulling the trigger. And it's a good thing we didn't, as the company didn't reset expectations enough (hence the stock's massive collapse today).

Coming into earnings, analyst estimates for the next 12 months had declined to $6.12 per share – and they'll surely decline to a bit below $6 after the weak guidance.

That which means the stock is trading at around 17 times forward earnings – only slightly below where it was when my team and I took a pass in March.

But this remains a very interesting situation – we love it when the stocks of high-quality businesses crash by more than 50% in a matter of months – so we'll take a closer look in the wake of the new earnings report.

As always, if we decide the stock is compelling enough to add to the Investment Advisory model portfolio, our subscribers will be the first to know.

If you aren't already an Investment Advisory subscriber, you can find out how to become one – plus learn how to gain immediate access to the entire portfolio of existing open recommendations – right here.

Best regards,

Whitney

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P.P.S. The stock market and our offices will be closed on Monday for Memorial Day. Look for my next daily e-mail in your inbox on Tuesday, May 27. Enjoy the holiday!