I highly recommend watching this. Porter Stansberry explains why stocks are over valued today when measured bye enterprise value (adding on corporate debt and subtracting cash for the market cap). He believes the corporate bond bubble is worse than the 2000 tech bubble.by
Watching the British Pound plummet to historic lows and stock markets sharply sell off can be shocking to say the least. People are scared and markets hate uncertainty.
What I find interesting are the pockets of safety that occurred today during the sell off. Other than the U.S. dollar, gold, silver, and U.S treasuries rallying there are a few stocks that are holding there own during the market sell off.
Noticeably the following:
|Hormel Foods Corporation||HRL||2.52%||$35.46|
|Campbell Soup Company||CPB||0.75%||$63.11|
|Reynolds American Inc.||RAI||2.03%||$51.87|
The above is just a small sample of stocks that I came across today. All of them are up except for Tootsie Roll which is down slightly.
What do the stocks above all have in common? They are brands that people know, companies that have been around along time with a great track record. They sell things or offer a service where people keep coming back and show up for more. They all pay a dividend and have done so for years. These are incredible moves as the Down Jones has sold off over 500 points today!
There is safety in stocks, and I while I don’t know what will happen next week or next month I believe we will start seeing a trend into safe stocks and a move away from government bonds.
As I mentioned before, we could still see a drop in stocks including the ones above, and one last push for government bonds. Looking out over the years to come I would rather own safe companies than “safe” long term government bonds.by
Thinking a bit more after my article on why Walmart should buy B&N, I started thinking more about the advantages of Amazon to traditional retailers and how Walmart and other retailers could effectively compete. How can a brick and mortar store compete with the ecommerce giant?
Amazon gets to know you very well. You let Amazon know exactly who you are, they have your purchase history, when you buy, how much you buy and why you buy.
While I assume Walmart certainly tracks as much as it can, how many people come in the store, what items are selling what items are not, and probably basket analysis (aka Co-occurrence). The store however does not know who you are and your specific history. BTW, I am bullish on Walmart right now.
Now imagine the following:
- You walk into a Walmart
- Your phone buzzes
- You look at your phone and are prompted to sign into Walmart’s free Wifi which will automatically also signs you into the companies website Walmart.com.
- Settings and agreements on your phone can be managed so that this sign in process automatically happens when you walk into the store.
- Walmart.com knows that you are ‘in-store’.
- You pick out a shopping cart which has a unique identifier and links the shopping cart to your in-store shopping session.
- The shopping cart also has a build in wireless charger for your phone.
- You pick up an item place in your cart, the item shows up in your online walmart.com shopping cart as well. Possibly tracked by RFID and your phone.
- You walk down the aisle and notice your favorite beef jerky is out of stock. You hold your phone and scan the QR code, the product enters your cart anyway notifying you it will be shipped within a few days to your home.
- You are all done shopping. You hit ‘Proceed to Check-Out’ on your phone. You are offered an additional discount off the total price for using this system. Your beef jerky was also qualified for free shipping. You hit the final button and pay.
- Being a good environmental shopper you brought your own bags and a employee shows up to offer you help out with a big smile as you avoid the check-out line.
Now Walmart knows who you are, they can build a history and send you precision type ads and notifications. You equally become use to shopping online with their site. While the above is extremely complex and needs to integrate data centers, single-sign on, location, RFID and shopping cart tracking it is possible. Obviously this would need to be tested with a small number of stores first. But the above shopping experience would provide a huge competitive advantage with Amazon.com.
Maybe the above is already being developed? Amazon.com could also end up partnering with retailers to offer the in-store website shopping service as well.
The above shopping scenario could very well be the future. Well it happen? I have no idea. This is really just me thinking out loud as a fun exercise. But this is what I would be thinking about if I was an executive at a major retailer.
Now, I realize this sounds like one step away from facial recognition personalized shopping like in the movie Minority Report. The cell phone step would make the transition less terrifying for most people.
Folks will no doubt also be concerned about privacy. I believe there will be a market for those not willing to give up their privacy. When we tend to move far in one direction in society, something else seems to arise to counter. I am an advocate for anonymous based browsing and shopping and I hope the two worlds can co-exist.by
Walmart has been in the news a lot lately. The stock has been moving steadily down since it’s 2015 high of almost $90 a share. It recently closed over a 100 U.S. stores and announced it will be placing more money into it’s online operations to compete with Amazon.com. Walmart is now a big hiring company in Silicon Valley.
At first glance it may seem unrealistic that buying Barnes & Noble would help Walmart compete, but the company needs something to desperately draw people to it’s ecommerce website. That something could and should be ebooks. Business Insider points out that B&N has extremely loyal Nook users, however the companies ebook reader the Nook is bleeding the company of cash.
If Walmart owned the Nook it could push other Walmart.com ads to inexpensive Nook readers just as Amazon.com does with it’s Kindle.
Walmart wants developers for it’s website, imagine that it could fold barnesandnoble.com into Walmart.com and expand it’s media library along with all of barnesandnoble.com content and reviews and retain those developers as well. Think about when you go to Amazon.com. What keeps you on the site is content and being able to explore new items that you did not know existed. B&N has the content, they have customer reviews along with “Customers Who Bought This Item Also Bought…”
What about all the book stores? B&N is currently in the process of closing it’s non-profitable stores as sales are down. Can Walmart turn them around? I’m not suggesting that Walmart can change the trend of brick and mortar books stores, but I believe the companies experience and leverage may be able to help manage it’s current operations and reduce costs. The overall strategy of the buyout would not be for the stores, but for the website catalog and the Nook device, the stores would be a bonus as I believe they could be continued to be operated profitably.
Isn’t this all just playing catchup?
Yes. It is. That is the reality. Walmart needs to catchup in one major aspect. Digital content. Right now Walmart is trying to also attract affiliate members just like Amazon’s affiliate program, but Walmart will continue to have issues unless they get that content so that visitors want to hang out longer on their site.
B&N has a market cap of just over $600 million. Walmart pulled in $15 billion of cashflow just in 2015. Even if they paid a premium for B&N it would barely put a dent in their annual cash flow.
The next step after the Nook? Streaming movies programs to draw in more customers. I bet Walmart could pick up the Blockbuster brand name for a song. 🙂 It may be possible that Walmart using it’s stores can come up with a program more desirable than Amazon prime. Time will tell.by
Yesterday I explained that I do not believe we are going to see a “correction” as bad as something like 08/09. I stated that after this 6 year bull market people should expect stocks to drop at some point.
Today I am going to elaborate a bit more on why I think the current stock market drop won’t turn into a catastrophe (at least in terms of the Dow Jones).
First there is major support for the Dow at 12,000 points. You can see it in the chart below.
If the Dow drops to the 12,000 from today we are looking at a further 12% to 15% drop.
The last time the Dow was at this level was back in 2011. So, why do we know that there are strong hands at this level? I can give you a concrete example using Johnson & Johnson.
Lets say you bought shares of JNJ in 2011 when it was trading at $65 a share. Today it JNJ is trading for around $92 so you would have a 30% capital gain. Not to bad. Now here is the important part, since 2011 JNJ has raised it’s dividend 6 times!
JNJ now pays out a total of $12.92 a year per share in dividends. Your new effective yield would be 12.8% a year (65/12.92 * 100)!
Ok now let me as you this, what would it take for you to freak out and sell shares in one of the oldest companies on the Dow Jones that raises its dividend every year and makes tons of freaking money? Would you rather collect almost 13% a year from this company or put your money in the bank for a chance at 1% interest?
OK. I thoughts so.
“Sure” you say, “But what about one of the less attractive stocks of the Dow?”.
Lets do the same thing with McDonald’s. I think we can all agree that McDonald’s has not been popular. The trend is to better restaurants and McDonald’s revenue has been declining and some stores have been closing, however they still are the biggest restaurant in the world.
Lets say we bought MCD for $80 a share in 2011. Today we would have about a 13% capital gain, not that great but better than a kick in the teeth.
MCD has raised their dividends 5 times since 2011, and you effective yield would 4.25%. Not awesome like JNJ but really not that bad either and still a lot better than the bank.
So what would make these stocks plummet past their 12,000 support level? You got it! Slashing dividends. If you see various Dow components start to cut their dividends then you should know there is a serious problem. I’m not saying it won’t happen, but I doubt to the extent of 08/09 where just about every company was slashing left and right.
Ask yourself can you stomach a 15% drop in the Dow if you own these stocks? If so, then all you need to do is pay attention to dividend cuts. So far the list for 2015 is small and are mostly coming from the resource sector. You can see them here: http://www.streetinsider.com/dividend_biggest.php?type=cuts
Now of course I’m just talking about the big guys in the Dow. If you have a lot of stocks that are growth stocks, stocks that have a good story and are more speculative you are going to be experiencing a lot of volatility. Please use trailing stops!
I am currently making a free trailing stops system that I will make available to you. If you haven’t already please enter in your email over on the right hand side of the page to get updates. Protecting your capital and limiting your losses is the most important thing you can do if you have entered into the stock market.
Until next time!
U.S stocks have been in a bull market now for the last 6 years. It seems as though a correction should not be coming out of left field for everyone.
Hopefully your discipline has led you to keep some powder dry (cash) and you are building a great watch list of companies you would like to own.
My suggestion is to watch companies that you KNOW will be around a couple of decades from now and love to reward their shareholders with dividends. Now the tough part is to wait.
While stocks are entering a new phase, gold is holding steady up $4 bucks. This is why folks need to have true diversification. The pro’s in the investment world often only talk about stock diversification. The say being diversified in all types of stocks will protect you.
But what if the entire market is going down? What if Europe and Asia are also going down? This is why having at least 10% of your wealth in precious metals is important. It is why also owning real estate is important. It’s even important to own bonds, even at the end of what must be a 30 year bull market.
The 10-year treasury is now back under a 2% yield. The Dow was down as much 1,000 points this morning, and is now hovering down around the 400 mark, this after being down around 500 points on Friday and 300 last Thursday. We will have to see where it ends up at the end of the day. This reminds me back 2008 when we had the Dow 777 drop.
My thinking goes that this correction will not nearly be as bad. This correction should be more expected than in 2008/2009, but there are no guarantees.
Raise cash and build that watch list!
Until next time.
There is a burger renaissance going on, at least here in Seattle there are a multitude of places to get a unique killer burger. Just to name a few:
- Blue Moon Burgers
- Red Mill Burgers
- Uneeda Burger
- Dick’s Drive-in
- Giddy Up Burgers
On top of all those, I guess In and Out is also coming to Seattle. Seriously, all the places I listed are amazing. I think my top two favorites are Blue Moon and Giddy UP, and yes I have been to all of them. Blue Moon replaced Red Mill for me. Sorry Red Mill!
I have never been to a Shake Shack ($SHAK). I am sure they are great. The stock has been going gang busters with a market cap over $3 billion. It finally had a major correction today of almost 10%. Not sure what triggered the correction, but it is likely due to the stock being over valued.
Think back to the 1980’s and 90’s, there weren’t that many good food options back in the day. Not like the casual dinning experience with fantastic food we are getting now. People really seemed to enjoy fast food during that time period. Then we grew up and realized what crap it all was. Why not pay a few dollars more and get something that you will really enjoy? Not to mention, what if you are a vegetarian like my wife? Fast food does not offer good vegetarian options, but almost all of the burger places I mentioned above have great in house veggie burgers not to mention local craft beer to wash it all down.
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Porter Stansberry thinks McDonald’s ($MCD) is a great buy right now. He may be correct. He points out things like huge cash flow, a high return on equity and low price to sales ratio. McDonald’s collects royalties by franchising which is a great way to make money and McDonald’s is getting out of running any of the few remaining corporate stores themselves. Porter is banking on the ability of McDonald’s to change directions.
Porter may be right, how ever I would not pull the trigger on buying the stock yet. He does admit the company should buy a higher end burger place like Shack Shack and put those in places where McDonald’s does not do well (higher end trending places). The strategy does make sense IF they actually start changing.
Before I would purchase McDonald’s I would like to see the following happen:
- End those damn “I’m loving it” jingles. They were never good, they have been played way to long and if they want to claim they are now different they need something WAY less annoying.
- The menu needs to be further cut and to get rid of the McCaffe. I actually like McDonald’s drip, but the espresso stuff is crap and a waste of time, money and adds complication.
- Forget trying to be healthy. The people that complain about the health of fast food are not the people that go eat a these restaurants. So why listen to them.
- Offer one vegetarian option for a hamburger. No, this does not contrast with number 3. There are lots of vegetarian things that are not good for you.
- I don’t care about customizing my McDonald’s Hamburger.
- Make the restaurants less depressing (Everything feels cheap).
- Make the restaurant less noisy. What’s up with all the loud beeping from the kitchen all the time?
- Don’t ever use ketchup packets again.
- Brand your own ketchup in stores.
- Give me a non-fructose corn syrup soda option.
- I have the feeling the all day breakfast will be a successes. Run with it.
- Give me something to read. Want people to use your app? Offer the paper for free from your app. If not, I’ll still buy the paper.
McDonald’s is one I am watching carefully. I think you should as well. The company now has TONS of competition. Hell, I didn’t even mention “5 Guys”, and “What-a-Burger” plus all the other fast food places that are fighting for the same customers. I am sure there are many more superior burger joints out there. If you start to notice really good changes from the company then pick up shares before everyone else starts to notice too. Warning: we may be waiting a while.