🦉 The Night Owl Newsletter for March 30th

The unusual signal flashing green again (ProsperityPub)

Venezuelan Tariffs Could Power These 3 Diesel-Driven Winners

Written by Gabriel Osorio-Mazilli

The energy sector has been one of the most cautious areas of the stock market recently, as President Trump started to roll out more trade tariffs in this and other sectors that are dependent on the price of oil and its swings. The most recent hit has come to Venezuela, where the penalty comes through a 25% tariff for all countries and companies that deal with Venezuelan oil. While that may seem bearish overall, it actually creates a massive opportunity.

This opportunity can only be taken by those who know what they are looking for, and this is where Venezuelan oil makes a difference. Compared to West Texas Intermediate (WTI) oil, which is mostly used for gasoline due to its light and sweet nature, the heavy and sour oil coming out of Venezuela makes it suitable for other types of products, such as diesel. Bottlenecks forming in this heavy oil could spike margins and earnings for the companies that deal in this space.

Companies like Valero Energy Co. (NYSE: VLO) and Marathon Petroleum Co. (NYSE: MPC) are equipped to refine heavy, sour crude into diesel fuel. From there, Cummins Inc. (NYSE: CMI) enters the picture as a key player manufacturing diesel engines and related machinery.

Cummins Stock Gains Momentum on Trade Tariff Speculation

As soon as the potential for trade tariffs started to hit the newswire around the markets, investors were left scrambling to find out what the effects might be on the different industries of the market. However, some analysts on Wall Street had already connected the dots moving forward on this very question.

As of February 2025, those from Evercore decided to reiterate their Outperform rating for Cummins stock and boost their valuation targets to a high of $451 per share, significantly higher than their previous $408 valuation views on the stock. This is not only an initial vote of confidence but also a major sign of what could come in the future.

Compared to where the stock trades today, this valuation means not only that the stock needs to make a new 52-week high price but also that there is an implied rally of as much as 37.5% in the coming months. These views make sense as the company could soon be exposed to more demand breakouts for its diesel engines and machinery if tariffs end up creating bottlenecks.

Because of this view, institutional buyers from UBS Asset Management decided to boost their holdings in Cummins stock by as much as 6.5% as of February 2025, bringing their net position to a high of $566.9 million today, or 1.2% ownership in the company.

Why Valero Energy Could See Earnings Upside Amid Industry Shifts

Looking at Valero Energy’s valuation metrics, investors may notice the market could be pricing in the wrong assumptions about the company’s future earnings.

With a current P/E ratio of 15.8x, Valero trades at a steep discount to the energy sector’s average of 47.3x.

This discount might have been justified a couple of quarters ago when the industry remained uncertain about oil prices and policy.

However, the situation has become a bit clearer, and these recent tariff announcements now show everyone the path forward regarding the heavier Venezuelan oil.

Part of that belief might be why up to $2.6 billion of institutional capital made its way into Valero Energy stock over the past quarter, reiterating the thesis that a bottleneck for these refiners of heavy oil might bring about better earnings in the future.

Marathon Petroleum’s Diesel Bottleneck Thesis Gains Momentum

Now that Marathon Petroleum shares are trading at 68% of their 52-week highs, the risk-to-reward ratio becomes immensely favorable for those looking to invest in the company’s story. This story includes a massive earnings per share (EPS) growth rate in the coming quarters.

Based on Wall Street analyst forecasts for EPS, Marathon Petroleum could report up to $2.74, a significant boost from today’s reported $0.77 EPS.

Considering that stock prices are mainly driven by underlying EPS, this forecast sets the path forward for investors to connect the dots on this diesel bottleneck thesis.

This view also explains why analysts at Wells & Fargo decided to keep their Overweight ratings as of March 2025, alongside a valuation boost to $185 per share to call for as much as 23.5% upside from where the stock trades today.

All of this reiterates the risk-to-reward ratio as well as the bullish thesis on diesel refiners and prices.

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Should You Buy UPS Stock Now? Deep Dive Into Its 5-Year Low

Written by Jeffrey Neal Johnson

United Parcel Service (NYSE: UPS), a leading indicator for global commerce, transportation, and logistics, has seen its stock trading near a five-year low. This has presented investors with a critical decision: Does this represent a strategic entry point into a global powerhouse with a substantial dividend yield, or is it a warning sign of fundamental challenges ahead?

The narrative surrounding UPS is complex. While there are concerns about forward-looking revenue guidance, the company is undergoing significant corporate transformation efforts to boost profitability and maintain an attractive income stream for shareholders. Parsing these conflicting signals is crucial for potential investors.

Unpacking the Pressure

As of late March 2025, UPS’s stock price has dropped by approximately 25% over the past year due to multiple issues putting downward pressure on the stock. The company’s full-year 2025 revenue guidance, issued on January 30, 2025, was a key factor in investor concerns. Management’s projection of consolidated revenues around $89.0 billion fell short of the $91.1 billion achieved in 2024 and was below analyst expectations.

This forecast reflects anticipated lower volumes and a significant strategic shift: a planned reduction of over half of the business with its largest customer (widely believed to be Amazon) by the second half of 2026.

This deliberate move away from lower-margin, high-volume business raises questions about UPS’s ability to replace that volume profitably and manage the transition effectively. Adding to these company-specific challenges are broader concerns about weakening package delivery demand as the e-commerce surge during the pandemic normalizes. Several Wall Street analysts have recently lowered their price targets by reflecting these near-term headwinds.

Following the January guidance, numerous adjustments were made. In late March 2025, both Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC) again lowered their targets, citing potential first-quarter weakness due to volumes and tariff uncertainty, even while maintaining generally positive long-term ratings.

How UPS Aims to Navigate the Downturn

UPS is actively responding to challenges by initiating a strategic transformation called “Efficiency Reimagined.” This initiative, which will span from 2025 to 2027, aims to achieve approximately $1.0 billion in annualized savings through a substantial network reconfiguration, including facility consolidation and fleet optimization. While expected to streamline operations and enhance long-term margins, these efforts will incur near-term costs, estimated at $300 to $400 million in 2025, mainly for severance and professional services.

Additional measures include fully insourcing the UPS SurePost product as of January 1, 2025, which allows for greater control, potential margin improvement, and continued investment in high-growth, high-margin areas like healthcare logistics and SMB services. The March 2025 launch of UPS Global Checkout, a digital tool simplifying cross-border e-commerce by providing upfront calculations of duties and taxes, aims to boost international shipment volumes.

Management’s guidance for an improved adjusted operating margin of approximately 10.8% in 2025, compared to 9.8% in 2024, reflects their confidence that these efficiency measures will enhance profitability despite lower revenue projections.

Finding Value in the Volume Dip

UPS’s stock currently presents a compelling investment opportunity with a dividend yield of approximately 5.91% at its recent price near $111. UPS has a strong track record of returning capital to shareholders, having raised its dividend payout for 16 consecutive years. This commitment was recently reinforced by a quarterly dividend increase from $1.63 to $1.64 per share, announced in February 2025.

While the payout ratio based on trailing 12-month earnings appears high, the ratio based on cash flow is more manageable, and forward estimates suggest further moderation. The stock’s valuation is also attractive, trading near five-year lows with a trailing price-to-earnings ratio(P/E) around 16.4 and a forward P/E near 14.0. This may represent a discount relative to the company’s historical performance and intrinsic value.

Operational resilience was evident in the fourth-quarter 2024 results, where adjusted earnings per share (EPS) exceeded consensus estimates. Despite recent price target reductions, the overall analyst consensus rating remains a moderate buy, with an average price target implying significant potential upside. This suggests continued confidence in the company’s long-term recovery.

Does UPS Belong in Your Long-Term Portfolio?

Investors in United Parcel Service are currently facing a classic dilemma. The stock’s price is near a five-year low, and the dividend yield is almost 6%. The management team is actively pursuing significant cost savings and strategic repositioning. This creates a potentially compelling value and income narrative, as acquiring shares in a global logistics leader at a depressed valuation with a substantial yield is attractive.

However, there are substantial risks. The company is deliberately reducing volume from its largest customer. The global economic outlook is uncertain, and executing a massive operational transformation is inherently complex. These factors cast a shadow over the near-to-medium-term outlook, and the lower revenue guidance for 2025 cannot be ignored.

Ultimately, the decision to invest in UPS today depends on an individual’s risk tolerance, investment time horizon, and confidence in management’s ability to navigate this challenging transition successfully. If management can transform the company into a leaner, more profitable entity, it can deliver long-term shareholder value despite shedding significant volume.

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4 Healthcare Stocks With Massive Gains—and More to Come

Written by Sarah Horvath

The American stock markets have had a rough month as investors remain jittery over international tariff fears. While this market downturn has affected most sectors of the economy, healthcare stocks are doing exceptionally well, outperforming the general market as the most successful sector of 2025 so far.

Even as the industry sees overall success, some healthcare stocks are rising above competitors and attracting more investor attention. Each of these stocks has risen in price by at least 30% this year, with some smaller stocks seeing an appreciation of 50% or more. Analysts suggest they could be undervalued right now.

Royalty Pharma Sees 25% YTD Price Appreciation With Institutional Investments

One of the largest domestic buyers of biopharmaceutical royalties and a leading funder of innovation across the biotech sector, Royalty Pharma (NASDAQ: RPRX) has seen share prices surge nearly 25% since 2024.

Its portfolio, which includes market-leading treatments for conditions like lupus and growth hormone deficiency, puts it in a great position to profit from future royalties, a sentiment supported by analyst estimates and institutional investments.

Analyst ratings for Royalty Pharma are largely positive, with the stock maintaining an aggregate Buy rating from analysts. Institutional buying increased in the fourth quarter of 2024, with share purchases rising to $748 million from just $177 in the third quarter.

RPRX currently carries a potential upside of 29.86% for an aggregate price target of $41.60.

Falling Short Interest May Indicate Good Things to Come for CVS

Another healthcare stock that’s bucking market trends, CVS (NYSE: CVS), has seen an astonishing 50% in share price appreciation since the beginning of the year.

While rising utilization rates through its health insurance partner Aetna resulted in a dip in share prices lasting throughout 2024, new leadership and earnings that beat estimates in Q4 of 2025 could indicate future fairer weather for this stock.

Short interest trends indicate investor confidence, with short interest rates falling by more than 12% since last month.

Stock analysts give CVS a solid Moderate Buy rating, with a 4.25% predicted upside in the next year.

Long-term investors looking for income generation may find CVS to be a particularly appealing investment thanks to its 3.94% dividend yield and 9.97% annualized three-year dividend growth rate.

Tempus AI Sees Improved Financials, 60% YTD Increase in Share Price

As investor interest in AI comes to a peak, Tempus AI (NASDAQ: TEM) is seeing a surge in buying activity, with share prices rising by nearly 60% since the beginning of the year.

This price appreciation comes from the company’s most recent quarterly financial report, which included a series of data points suggesting higher profitability is to come.

Quarterly revenue for Tempus AI increased 35.8% year-over-year to $200.7 million in the fourth quarter of 2024, while gross profit increased 49.7% to $122.1 million.

Tempus AI recently released its Olivia AI-enabled personal health app, which is designed to use AI-assisted insights to provide more personalized health guidance to users.

This feature, along with the company’s generative AI R&D segment, could contribute to aggregate Moderate Buy ratings from analysts.

Guardant Health Sees Shares Rise by 50% YTD

Guardant Health (NASDAQ: GH) is a leading provider of liquid biopsy tests and oncology products. Since the beginning of the year, its share prices have increased by nearly 50%.

As demand for this type of cancer test increases and adoption becomes more widespread, Guardant Health could be well-positioned to see future growth.

Analyst estimates for Guardant Health indicate confidence in the company’s prospects, with a consensus Buy rating from analysts. While the stock currently carries a modest potential upside of 8.67%, actual revenue has consistently beaten analyst estimates, and predictions project earnings growth next year.

The future of Guardant Health will largely depend on operating expense management alongside product adoption. Guardant’s path to profitability is still uncertain, and high ongoing marketing expenses may be required for years to fully inform healthcare professionals of its test effectiveness.

The company could also face increased competition if multi-cancer detection tests become more widely affordable, making it a riskier pick compared to other healthcare stocks.

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