Updates on Joby Aviation, Vertical Aerospace, and Lululemon Athletica; Increasing uncertainty about the economy and U.S. deficit

1) Let's catch up on some stocks I've written about previously, starting with Joby Aviation (JOBY), a company that makes air taxis – specifically, electric vertical takeoff and landing ("eVTOL") aircraft.

The stock jumped as much as 15.6% this morning on news that President Donald Trump signed an executive order, Unleashing American Drone Dominance, which calls for the "Establishment of an Electric Vertical Takeoff and Landing Pilot Program" in Section 6.

Here's a New York Times article about it: Trump Signs Orders Intended to Jolt U.S. Drone Manufacturing. Excerpt:

It also backed a program to test aircraft that make vertical takeoffs and landings, which have the potential to improve cargo transport, medical responses and access to rural areas.

The news is consistent with this slide from my January 19, 2024 e-mail:

Longtime readers know that I think Joby has "moonshot" potential. (For more on this innovative company that I visited 21 months ago, see the six e-mails I've written about it, most recently on May 29 – it includes links to the previous five.)

2) Speaking of eVTOLs, my old friend Jason Mudrick of hedge fund Mudrick Capital Management now controls a British maker of these electric aircraft, Vertical Aerospace (EVTL). Here's a Wall Street Journal article with the story: Meme Stocks Made Him a Fortune. Now He's Betting on Flying Taxis. Excerpt:

After booking a nine-figure profit by riding the meme-stock craze for old-school bricks-and-mortar businesses, hedge-fund manager Jason Mudrick was looking for his next big bet. He was as surprised as anyone that he settled on flying taxis.

Mudrick specializes in distressed companies, often established businesses that have fallen out of favor. But when late last year he became the biggest shareholder of a British aerospace startup and forced out its founder, he was making a long-shot play on a futuristic industry that for years has seemed just around the corner – yet still hasn't arrived.

The company, Vertical Aerospace, is aiming to bring one of the world's first so-called "electric vertical takeoff and landing aircraft" to market by 2028. Its aircraft is akin to a battery-powered helicopter that is much quieter, safer and cheaper to operate than its conventional counterpart, while carrying up to six passengers and their suitcases.

Vertical is much riskier than Joby: It's smaller, isn't as far along in developing its aircraft, doesn't have partnerships with bigger companies, and lacks the support of the U.S. government – but I'd never bet against Jason!

3) I last wrote about apparel company Lululemon Athletica (LULU) on March 31 after it reported fourth-quarter earnings and plunged more than 14% to close at $293.06. I concluded:

I definitely like the stock today more than I did before it reported earnings. But it's not quite cheap enough where I would want to officially recommend adding it to the model portfolio for our firm's Stansberry's Investment Advisory flagship newsletter.

It was a good call, as LULU reported first-quarter earnings on Thursday evening. As a result, the stock crashed 20% on Friday to close at $265.27.

Revenue was up 8% on a constant-currency basis on a 1% increase in same-store sales, and earnings per share ("EPS") were $2.60, up 2.4% year over year. These figures were in line with expectations, but it's a big slowdown in growth for Lululemon.

The stock plunged because the company guided down second-quarter EPS to a range of $2.85 to $2.90 per share, well below expectations of $3.32. For the year, it now expects EPS of $14.58 to $14.78, below estimates of $14.97 (though it did affirm revenue guidance for the year).

My friend Steven Levinson, a portfolio manager at a family office, was (correctly) bearish on the stock earlier this year, and he e-mailed me his thoughts:

Lululemon reported rising inventory, increased markdowns, and elevated selling, general, and administrative expenses against weaker U.S. comps and traffic. Q2 trends are tracking in line with Q1, despite easier comparisons and new product launches.

Markdowns are running above historical averages, reflecting weakening pricing power. Product newness is not replacing its core customer, and rising inventory and competition is driving more promotional activity.

Conclusion: I expect continued margin pressure from increased promotions, rising costs, and weaker traffic, as increasing competition challenges LULU's ability to sustain its prior growth and profitability. The most notable takeaway was the company lowering its margin expectations, driven by higher tariff costs and increased markdowns – highlighting fading brand relevance and weakening pricing power.

I'm not a buyer here. The stock screens as cheap, but I don't see a clear catalyst. U.S. traffic continues to soften just as promotional activity increases, and China sales – once the core of the bull thesis – are decelerating.

Using the midpoint EPS guidance of $14.68, the stock is currently trading at 18.1 times this year's earnings. That's about half of its historical average of 35.6 times and close to its 10-year low of 16.2 times.

But is it cheap enough to pull the trigger, in light of the issues my friend raises? That's what my team and I will be looking at...

If we decide the stock is compelling enough to recommend, as always, our subscribers will be the first to know. (If you aren't an Investment Advisory subscriber already, you can find out how to become one right here.)

4) This article on the front page of today's WSJ highlights the current economic uncertainty: The U.S. Economy Is Headed Toward an Uncomfortable Summer. Excerpt:

Job growth held steady in May, with the economy adding 139,000 jobs. The unemployment rate has stayed in a tight range, between 4% and 4.2%, over the past year.

But there are cracks beneath the surface. Businesses are warning that constantly shifting trade policies are interfering with their ability to plan for the future, leading to hiring and investment freezes.

Policy uncertainty has unfolded against the backdrop of an economy with slower job growth and a cooling housing market. Compared with last year, the Federal Reserve is more reluctant to cut interest rates because officials are worried about new inflation risks.

5) There's also a great deal of uncertainty about the Trump administration's "big, beautiful bill," as this NYT article notes: Deficit Politics Returns in Debate Over Trump Tax Cuts. Excerpt:

The federal government's publicly held debt is already at its highest level since World War II, measuring at about 100 percent of the size of the economy. It is set to grow at a rate that most economists believe would be unsustainable.

That trajectory – and the extent to which the nation can afford to remain on its current path – is complicating the White House's efforts to nail down support for Mr. Trump's domestic policy bill, which includes the tax cuts. The proposal is expected to add $2.4 trillion to the debt over the next decade, according to an estimate from the nonpartisan Congressional Budget Office.

But that price tag does not include an additional $551 billion in costs that the United States would have to incur to sustain that level of borrowing, congressional scorekeepers predicted on Thursday, as they warned that debt held by the public would total nearly 124 percent of the nation's gross domestic product by 2034 if the bill were to become law.

The figures have exposed disagreements among Republicans that have been papered over in recent years, and have contributed to growing unease on Wall Street over the extent to which the White House may exacerbate the sort of borrowing Mr. Trump has promised to reduce.

I don't foresee a U.S. government debt crisis anytime soon – our debt-to-GDP ratio is below where Japan's was 25 years ago, and Japan still hasn't had a debt crisis. But the trend is worrisome, as this chart posted on social platform X (courtesy of Charlie Bilello) shows:

The high level of uncertainty combined with a huge rebound in the market (the S&P 500 Index is only 2.3% below its all-time high) is why my outlook remains cautious, though not bearish.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.