🦉 The Night Owl Newsletter for May 26th

Do You Believe In President Trump? Answer This 1 Question (Colonial Metals)

Workday Stock Price Implosion: An Automatic Buy for AI Investors

Written by Thomas Hughes

Workday’s (NASDAQ: WDAY) May stock price implosion is a signal for AI investors to buy. The drop was caused by a tepid guide that included an expectation for sustained and accelerating double-digit growth and comes with a high likelihood of being beaten. Not only has Workday outperformed its consensus estimates for top and bottom line results 99.5% of the time since 2020, but the Q2 outlook and reaffirmed 2025 guidance reflect none of the Q1 strength.

The Q1 strengths are substantial, including backlog growth, margin expansion, and free cash flow improvements. The takeaway for investors is that at $235, Workday’s price offers a low risk-to-reward profile and potential catalyst for higher prices in upcoming earnings reports.

Analysts are a headwind in late Q2 but are helping to set up a stock price rebound for later in the year. Most revisions following the Q2 release are price target reductions, with the low end leading to the $250 level. The critical details are that this stock remains a Moderate Buy rated and the revision activity aligns with the consensus estimates.

The total and trimmed revisions average is $290, about $3 or 100 basis points below the consensus. Consensus forecasts an 18-month closing high, a 17% gain from the critical support level; the market catalyst will be a reversion to price target increases spurred by upcoming business strength.

WDAY stock chart

Workday Builds Momentum in Q1 With Agentic AI and Automation

Workday had a solid quarter in Q1 with its core subscription business growing by 13.4%, driving a 12.6% top-line gain, 100 basis points better than MarketBeat’s reported consensus. The strength is in long-term contracts and large clients, including increased business with names like Chipotle Mexican Grill and new business with names like United Airlines and Dover Corporation.

Other strengths were seen in the margins. The company expanded its gross and operating margins due to improved revenue leverage and operational quality, driving a 430-basis-point increase in the adjusted operating margin and a significant improvement in cash flow and free cash flow.

Adjusted profit grew by 31% and adjusted earnings by 28%, outpacing the consensus by 1100 basis points, while cash flow increased by 22% and free cash flow by 44%. The critical takeaway is that the free cash flow is sufficient to cover the share buybacks and sustain the healthy balance sheet.

The guidance is the market’s sticking point. The company reaffirmed the outlook for 2025 despite the Q1 strength, forecasting a weaker-than-consensus result in Q2. However, Q2 subscription revenue growth is predicted to accelerate, and the guidance is likely low. Details like the 15.6% increase in long-term subscription backlog and 19% increase in total subscription backlog suggest the outperformance could be substantial.

Workday’s Balance Sheet Is a Fortress for Tech Investors to Take Shelter In

Workday’s balance sheet is a fortress and getting stronger by the quarter. The improved cash flow allows for accelerating share repurchases, which are on the brink of overtaking dilutive actions, including share-based compensation.

Highlights at the end of Q1 include reduced cash and total assets, flat equity and share count, but leverage remains low, the company is net cash, and the stage is set for value gains later in the year.

The question now is what the institutions will do. The institutions own about 90% of the stock and are the primary force behind long-term market direction. They have been buying in 2025, but activity slowed in Q2. The post-release price plunge puts the market back into the institutional buying range.

If they fail to support the market now, this stock could fall below critical support and revert to previous lows.

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MercadoLibre Is Soaring—Should You Wait for a Better Entry?

Written by Ryan Hasson

MercadoLibre (NASDAQ: MELI), an e-commerce giant operating out of Latin America, has quietly evolved into one of the fastest-growing and most dominant companies on the global stage. Though it may not yet be a household name in the U.S., the company’s growth trajectory is impossible to ignore.

Earlier this month, MELI broke into the top 50 most valuable global brands, coming in at No. 50 on Kantar’s 2025 list, a significant milestone that underscores its rising international profile.

The stock has surged 53% so far in 2025, powered by strong earnings, broad-based growth, and increasing investor confidence. With the company firing on all cylinders both fundamentally and technically, prospective investors must decide whether now is the right time to jump in or if it’s better to wait for a more favorable entry point.

Let’s look at what’s behind MELI’s rise and where opportunities might lie for an entry.

MercadoLibre: South America’s E-Commerce Powerhouse

While best known for its e-commerce platform, MercadoLibre’s business extends beyond online retail. The company’s comprehensive digital ecosystem addresses Latin America’s structural gaps in logistics, financial services, and digital commerce. Its logistics network streamlines fulfillment and delivery.

Its payments platform, Mercado Pago, has become a key player in the region’s push toward digital finance. And its credit business, Mercado Credito, is opening up access to capital for consumers and small businesses that have historically been underserved.

This integrated strategy has helped the company grow deep roots in markets like Brazil, Mexico, and Argentina, countries with large populations, rising internet penetration, and underdeveloped financial infrastructure. That combination continues to serve as a powerful long-term tailwind.

Q1 Earnings Underscore the Growth Story

MercadoLibre’s Q1 2025 results, reported on May 7, reinforced how well the company executes on all fronts. The company posted earnings per share of $9.74, beating estimates by nearly 18%. Revenue came in at $5.93 billion, up 37% year-over-year and well ahead of the $5.52 billion analysts expected.

Gross merchandise volume rose 17% to $13.3 billion, reflecting continued strength in e-commerce demand. Total payment volume jumped 43% to $58.3 billion, fueled by robust adoption of its fintech services. The company also added millions of new users, growing its unique active buyer base by 25% to 67 million.

Its fintech division stood out, with revenue climbing 43% and monthly active users up 31%. Credit card transaction volume surged 166%, showing increasing engagement with its broader financial ecosystem. Despite some margin pressure tied to logistics and credit expansion investments, operating income rose 37%, and net income jumped more than 43% to $494 million.

This kind of growth across multiple verticals in a challenging macro environment highlights MELI’s execution and resilience. Analysts remain bullish, with the stock carrying a consensus Moderate Buy rating.

At These Levels, Patience May Pay Off

There’s no denying that MELI’s stock has been on a tear. The 53% year-to-date rally has propelled it well above key resistance levels, and the stock’s RSI currently sits near 76, firmly in overbought territory. That’s not a red flag for long-term holders, but for new investors, it does suggest the potential for a short-term pullback.

Valuation is another consideration. MELI currently trades at a P/E ratio of 64, with a forward P/E of 38. While the company’s strong growth may justify that, it still represents a premium. A retracement to the $2,400 level, now a key technical support area after being significant resistance, could provide a more favorable risk-reward setup and entry for new investors.

A Long-Term Leader With Emerging Market Upside

MercadoLibre has firmly established itself as the digital backbone of Latin America, offering exposure to e-commerce, fintech, and logistics in some of the world’s fastest-growing markets. The company continues to fire on all cylinders, with rising brand value, strong earnings momentum, and a long growth runway ahead.

The story remains compelling for current shareholders. For investors looking to initiate a position, a pullback could present a golden opportunity to buy one of the most exciting growth stories in emerging markets at a better price.

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Doubt the Market? 3 Stocks to Rideout Fear, Uncertainty and Doubt

Written by Dan Schmidt

Lately, the market has been delivering more plot twists to investors than a season of Severance. Solid tech earnings come in tandem with pulled guidance from public-facing companies like airlines and retailers. Economic data points to consumer and job market resilience, yet public sentiment continues to sour, and business surveys show inflation expectations continuing to creep higher.

And of course, erratic tariff policy looms over stocks like a storm cloud, threatening to puncture profit margins across a wide range of companies and sectors.

The S&P 500 has rallied more than 15% off its April 8 low following President Trump’s reciprocal tariff pause, but uncertainty keeps the February all-time high at arm’s length.

When the future becomes cloudy, the search for growth must be balanced with security. Value investing pioneer Benjamin Graham emphasized the ‘margin of safety’ when picking stocks, which means searching for assets and trading for less than their intrinsic value.

Searching for Safety Amidst Market Volatility

Investors tend to flock to less volatile assets like blue-chip stocks when the only certainty is more uncertainty. Blue chips often meet Graham’s margin of safety definition through their large market caps, strong sales growth, market dominance, and a history of dividend increases.

Today, we’ll look at three stocks built to ride out a storm of uncertainty.

These stocks were chosen based on fundamental factors like valuation, earnings potential, and dividend strength, along with technical metrics like beta that measure volatility in relation to the broader market. If you remain unconvinced by this recent stock rally, consider these three companies for further inspection.

Philip Morris International: Foundations for a Smoke-free Future

Tobacco companies like Philip Morris International Inc. (NYSE: PM) are often popular stocks in uncertain periods thanks to their generous dividends and minimal volatility; PM fits both categories with a 3% yield and 0.52 beta. However, the firm is also ahead of the pack in future growth plans thanks to its priority on smokeless products.

Philip Morris manufactures the popular ZYN nicotine pouches, along with other smokeless products like IQOS that heat tobacco to create an aerosol instead of burning it to produce smoke.

Smokeless products are seen as a healthier alternative to cigarettes and vaporizers, and PM generated more than 40% of its Q1 2025 revenue from smokeless sources. ZYN was an especially hot seller, with shipments increasing by more than 50% in the quarter.

The company aims to sell 100% smoke-free products by 2030.

PM shares have jumped to new all-time highs in 2025, posting over 40% year-to-date gains. The valuation is loftier than that of competitors like Altria Group Inc. (NYSE: MO), but PM is better positioned for the smokeless transition ahead, which explains the stock’s outperformance.

PM expects earnings growth of more than 10% over the next 12 months (while MO’s decline), and the dividend payout rate is projected to drop to a manageable 68% in 2026, likely preceding an 18th consecutive annual payout increase.

Cardinal Health: A Bright Light in a Sunless Sector

The healthcare and medical sectors have been lagging behind the broader market for years, but Cardinal Health Inc. (NYSE: CAH) has been one of the few healthcare stocks that have shown strength. The stock punched through a new all-time high in early 2024 and continues to rally, with shares up more than 25% in 2025.

Cardinal Health has a strong dividend with a DPR under 35% and a 29-year track record of payment increases, but the earnings strength is what has investors taking notice.

The company reported fiscal Q3 2025 earnings earlier this month and posted a solid beat. EPS exceeded analyst estimates by 9% and showed year-over-year growth of over 13%.

Revenue slightly missed expectations, but the firm raised full-year 2025 EPS guidance from $7.90 to a $8.05 to $8.15 range. Following the report, analysts at Morgan Stanley and Robert Baird boosted price targets to $166 and $170, which would indicate an upside potential of 9% to 16% from current levels.

Alphabet Inc: Growth at a Value Price

Google-parent Alphabet Inc. (NASDAQ: GOOGL) might not be what investors first envision when thinking of blue chips, but it’s not 2017 anymore, and Alphabet has an enticing valuation to match the growth potential of mega-cap tech.

The stock trades at less than 20 times earnings, the first time since 2012 that GOOGL shares have traded with a sub-20 P/E. With a beta of 1.01, its volatility is nearly even to the S&P 500, and the company even paid its first dividend last year, indicating future emphasis on rewarding shareholders along with R/D reinvestments.

Alphabet has been the subject of recent DOJ investigations, and comments by Apple’s Eddy Cue about AI replacing traditional search have negatively impacted the stock this month.

However, the company posted strong top and bottom-line earnings on April 25, and the average price target amongst analysts covering the stock is $199, representing potential upside of over 15%.

Strong Earnings and Safe Dividends: An Elixir for Market Uncertainty

Investing in blue chips is a great way to limit downside risk in volatile markets, but it’s not a replacement for due diligence or personal risk tolerance analysis. Always research specific companies before buying shares to ensure they fit your investment plan.

Use resources like MarketBeat’s dividend calculator to aid your decision-making, and always consult an advisor before making any changes to your portfolio.

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