Monday, September 18, 2017

Transportation and Warehousing


8/26/17 Convergence alert, AMZN is buying up what was formerly the world's largest mall in Ohio to become a warehouse.

I was really struck by Table 1 of this Obama presidentially funded report. No matter what your politics are, the fact that consolidation in the Transportation and Warehousing and Retail Trade industries has increased over 11% from 1997 - 2012 should get our attention. Same old story, mom and pop companies edged out, a few big strong players such as AMZN and WMT in retail when the smoke clears.

But who is winning the Transportation and Warehousing world? This is not my area of expertise, but right off the bat UPS and Fedex come to mind. Walmart does their own thing, (another moat factor). Schneider is private. So, let's add Roadway, Yellow, C.H. Robinson, and Crete as a starting list on the trucking side.

I know less about warehousing then trucking.  Google, at least, seems to equate "warehouse" to "logistics", since this is just a notebook, we will go with that for the moment. This webpage claims to list the top ten and we have to start somewhere: C.H. Robinson, Echo, Transplace, Ryder, UPS, J.B. Hunt, Kenco, Penske Logistics, Unyson, Seko, Menlo, Landstar.

ACTION: setting a Google alert for C.H. Robinson and need to get on some mailing lists to understand the Transportation and Warehousing sector better.


Tuesday, August 29, 2017

A 10 year tale of three ETFs "Growth versus Value"

We are starting to see articles about it is time for value focused stocks to have their day in the sun. Hmmm. Most of my family's assets are in low overhead Vanguard ETFs to prevent a hot head like me from making some stupid rash decision.

If we look at this Google Finance chart comparing Vanguard Growth and Value, you can see over ten years Growth is the better bet, but MORE IMPORTANTLY, they are highly correlated, one goes up, the other goes up, etc.




Now just for fun, I added a 3rd ETF, a highly overhead Value, that gives Vanguard Growth, VIGAX more of a run for its money.

With the money that I have set aside for personal investing, more as a hobby than anything else, I am starting to fall into a bit of a trap. As detailed in other posts, my family did well with big plays on spectacular growth stories. We took our profits are are largely on the sidelines trying to get back in. With an 8 year bull run behind me, I am expecting some buying opportunities. My brain keeps being focused on large, safe, companies and getting them at a good price. There is nothing wrong with this strategy, except that unless I really devote a lot of time and brain power, I will simply be correlated with various ETFs and could have used the time to do other things.

How to break the code?  

1) My first temptation was to buy some RPV on a dip. Yikes, what am I NOT thinking? While it is performing very well compared to Vanguard's value, it is still massively correlated and for good reason, the top choices of the fund are in the 2% or slightly less of the total fund range. That means they do a great job of spreading risk across multiple companies, but so do all of my other ETFs. No!

2) I could go overweight with a company that appears to be undervalued and ready to ascend. That is every investor's dream. The problem with that is I only really know and understand a finite number of companies. No!

3) Try to figure out what the next macro trends are and the companies that stand to benefit. This strategy has two parts, getting in on the hype early and I think my family's successful investments in AMZN and TSLA were just that. Then we profit took and jumped out. But, the longer view of investing in, staying with, learning more about a few companies with the right business model, purchased at the right price, (WMT < 70, AMZN < 900 etc), is probably the best strategy. Some thoughts about Macro trends:
- Demise of malls, ok, people still need shoes and groceries, where will they shop?
- Overt consumerism, at some point people will wonder why they have closets full of clothes and drawers full of pocket knife, companies with really good, really useful products will be in good shape. In 2008 after the downturn there were a number of articles about consumerism is not sustainable, consumerism is dead and so forth, but while the message is muted in 2017, the numbers are there. And the link to the decline of shopping malls is clear and obvious. 
- The robotic economy.  From bricklaying to hamburger cooking, robotics are increasingly entering the workforce. Who is making them, who is selling them, who is using them, who is making money because they use them? the ETF ROBO is doing well, but has an almost 1% management fee. Buying on a dip might be a short term way to get some exposure.

Saturday, August 26, 2017

The war for retail will be won in groceries AMZN, WMT, KR, COST

8/26/17 I read that the war for retail will be won in groceries on a CNN blog so it must be true! But please forgive my twisted mind for diving deeper. The article is centered around Amazon and Whole Foods which is < 2% of the grocery market. This blog post will consider other retail than groceries, but they are a sector that begs watching.

The problem with the CNN Thesis is that groceries tend to be a defensive stock. As the Investopedia article points out, they do better in harder times, have slower growth in good times. It claims: "Despite this eat, drink or smoke perception and despite modern-day developments, tobacco shares have miraculously never disappeared or been wiped out. Not all food companies are actually defensive stocks, but a good rule is that if the bulk of the sales comes from grocery stores, the stock is probably a defensive one." 

Perhaps, but WMT, AMZN, COST, KR all did fairly well post great recession. Our family benefited from their performance. But only KR has a weak footprint in non-grocery, but they certainly have feet in that camp, (Fred Meyer is a major local presence in Washington State). So perhaps the thesis is better stated:

9/9/17 The war for retail will be won by vendors that balance consumer goods and groceries well. I think that is a more accurate thesis. It helps explain why a number of retailers and such are struggling. 

AMZN

9/25/17 Seeking Alpha, "The company may well be fully valued for essentially all future growth." Grated this thesis is a bit brash, but it does help with perspective.

Here are some more stories, I am guessing this is more about Monday being the day the acquisition is complete instead of actual news, NPR, FortuneBloomberg, and a story about beauty supplier Ulta, (keep in mind Wal-Mart is not out of position here either). Then for desert, I saw a story that should be considered seriously about how Amazon is the most overhyped company in the world.

I understand and agree that Amazon disrupted a lot of retail. Their total retail is 5% according to CNBC. And we all know and agree the classic big box stores are struggling with more growth going to online.

A really big statement in the CNBC article is: "But this is coupled with big names in the retail space — Wal-Mart, Costco, Home Depot, Target — seen as losing market share as their margins shrink and dollars shift back to Jeff Bezos' company, the analyst added." Hmmm, maybe, maybe not. 8/31/17 A bit of sanity, AMZN might be the weakest of the major retailers.

Those are four companies that I am following closely, the only one that I am not ready to open a position on tomorrow, if prices drop and the time is right, is Target.
One thing that will be interesting to watch are the brands themselves. Whole Foods has many "house" brands, (as do the rest). One of the Consumer Packaged Goods, (CPG) brands is Campbell Soup and they have the increasing problem that demand is decreasing for what they are peddling.

COST


Bias alert! Kathy and I spend winters on Kauai, Costco and Wal-Mart are the best grocery buys on the island by a far piece.

8/27/17 There is an article that is better than most about why COST might be in for more of a dip in prices, naturally the AMZN Whole Foods is mentioned, but they point out poor eCommerce performance and lower membership rate than AMZN Prime, plus much higher PE than Wal-Mart.

WMT

The recent 2% drop in WMT yesterday was not enough to tempt, it is still really close to 80 and in my dreams I buy in below 70. However, the 8% drop in KR, was enough to get me to set a limit buy in case it dropped again today, (it rose).

I don't want to be a Blockbuster or Circuit City dinosaur and blindly bet against AMZN. We held the stock until June 26, 2017 and sold it for 1009.14. Today AMZN is trading for 945.26. It just isn't clear to me why WMT which is slightly up for the same 3 month time period is the next Blockbuster.

Nobody died and left me smart, but if we are in fact riding an 8 year old bull market, change could be in the air. The magic of the growth companies may be coming to an end. We didn't just sell AMZN in June, we sold:
COST @ 158.19 now 152.45
GOOGL @ 990.00 now 930.50
TSLA @ 386.69 now 348.05

And thank them all from the bottom of our hearts for their hard work that made profit taking possible. Now, with bull market ending, the thought of value coming back into style conceivable, we want to get back in the game. Leaving a lot of money on the sidelines does not make sense.

I am leaning towards larger companies right now. We have managed to get a position in IBM, I want to add more, but the pesky stock keeps going up. I did establish a position in XOM and may add just a little more if it drops enough. WMT and KR are on the shopping list.

KR

Kroger is big enough that they should be able to compete, but they may be out of step, sort of like Chili's, Applebees, Radio Shack and so forth, if their model doesn't work they will get creamed. We still have a limit order in for KR.

9/8/17 250 limit@ 18.02

I may drop it further. Between 2008 and 2012 going into 2013 they spent a long time in the $12 - 15 dollar range.


Thursday, August 24, 2017

Buy list

8/31/17 Thesis, there will be some uncertainty in the markets if Congress screws up the debt ceiling and Government continuing resolution. Kathy and I have been able to buy some:
The potential buy list:
                     Today          52L        52H     Limit1   Limit2

AAPL          163.35         102.53   163.89
AMZN         967.59        710.10    1083.31
COST          154.44         142.11     183.18
GOOGL      943.63         743.59    1008.61
IBM              142.56       139.13      182.79
KR                  22.20         20.46        36.44
WMT             78.54          65.28        81.99
XOM              76.10         76.05        93.21


At reasonable prices on dips. We expect them to drop even further. Have to balance being careful with letting the opportunity pass. Plan to start using historical 52 week low as a guide.
NOTE: XOM is below the 52 week low when we bought it.

The problem is that even a 52 week low is potentially high since it is an 8 year bull. And any stock that has not appreciated since five years ago is not likely to now, unless there is one heck of a story.

Limits 8/31/17
KR    200 20.02
WMT 50 77.02
XOM 50 75.02

8/24/17 AMZN announced it was dropping prices on Whole Foods and KR dropped 8%, WMT 2%. Also, the US Government is having a tough time with their budget. Let's start setting some limits for worthy companies, who knows, wish us luck, will revisit ROK soon?

WMT 50 77.53
WMT 50 77.02
KR 200 20.52

Monday, August 14, 2017

XOM

After cashing out, I am trying to get back in the game at reasonable prices.

Exxon, (XOM) thesis: One of the largest companies in the world. They have been whacked by sustained cheap oil. They have debt and cash flow under control. They fell under their 52 week low today.

8/9/17 50 shares market 80.015 (opening the position to force me to spend a lot more time watching the company)

8/9/17 Limit 200 shares@77.74, I would not be surprised if that hits the week of Aug 14, current: 87.17. Even after the limit hits I would not be surprised to see the stock drop. I am tempted to break this into two orders, one even lower, but if I get too greedy, I may miss the bus, no reason not to sleep on it as is.

8/15/17 Limit hit 200 @ 77.94

Wednesday, August 2, 2017

DOW 22,000 and Cramer

I'm not a Cramer disciple by any means. However, he does make a lot of sense especially at major tops and bottoms. I thought this was sensible and want to remind myself of this:

"I found the celebration particularly disturbing because the last thousand Dow points were really the work of a handful of stocks — actually, just four of them: Boeing, McDonald's, UnitedHealth and Apple," the "Mad Money" host said. "In other words, the strength in the Dow isn't much of a tell for the broader market."

I agree with the analysis not that I have any right to second guess Mr. Cramer's analysis and would extend the observation to some non DOW stocks that are bringing the market higher, AMZN, TSLA, GOOG etc. He goes on to say:

"The Dow surged towards this arbitrary mark just as a large fund began selling its positions in a slew of Nasdaq stocks, otherwise known on Wall Street as a "sell program," Cramer said."

That is the whole point of this trading notebook. I am a small investor without access to Wall Street trading algorithms, supercomputers, and lightning fast trading. Right or wrong, and only time will tell my family jumped out of AMZN, TSLA, GOOG at the end of June 2017.

That money is on the sidelines currently. I think IBM is a candidate for getting back in, but need to be patient, right stock at the right price and all of that.  Back to Mr. Cramer:

What matters, though, is that there are plenty of companies out there that saw their stocks get laid low by these sell programs, and when they get taken down like that, you're always going to hear the sirens of panic telling you to sell everything," Cramer said. "In reality, it's more likely to be the sound of opportunity knocking. You just have to have some cash ready to buy the dip in a responsible way."

I tend to agree, so what are the buying opportunities? I still have my eye on Wal-Mart, but the price is very high. I agree with Cramer on transport and came to that conclusion myself, but still trying to study.

Stocks of companies with no, (or very little), debt and 1 year performance include: CTSX +8, LSI -9, -9, FFIV -12, TROW + 10, ISRG +52%. FRX -6, RHT +25, CTSH -18, ADSK -9, MA +42, EXPD -21.

Mini-thesis: if I can find solid companies with no debt, they will have an advantage. One to look at closely is Mastercard. It is up and I doubt it will drop much, but it almost perfectly matches Visa.

I held ISRG in the past and it was good, lost it in the switch to ETFs. Not sure if I want to add it back with my "mad money".

I want to like F5, FFIV, they just do not seem to have a really compelling product line. I ended up going with Palo Alto, PANW and did a bit better, but just sold it two weeks ago for an ETF. Citrix too,  CTSX, was really in a good place ten years ago, but I think the whole cloud thing thumped them a good one.  Some of these companies I really don't know, I used to use AutoCad every day, would be fun to start getting to know Autodesk, ADSK again.


Tuesday, July 25, 2017

WMT AMZN TGT shopping malls and all that Jazz

7/25/17 This is not going to be a post about buying stock in AMZN vs. WMT. The answer to that is simple. Buy both, but at the right price. If AMZN drops below 900 or WMT below 70, please wake me up! Until then, keep in mind there are macro forces working in their favor.


Target TGT

8/26/17 55.01 down 22% for the year. I still am not ready to issue even a limit order for Target. Too many questions, but still watching them closely.

8/15/17 Target has their issues, but they are too big, too well positioned to write them off. As other retailers fail, it makes a bit more space for Target. They are giving this immediate gratification, (Next day delivery etc), a close look and not just looking. Buying a shipping/logistics company! WSJ reports they are hiring the skills they would need: "Target is hiring former executives from General Mills (NYSE:GIS) and Wal-Mart (NYSE:WMT) to help bolster its food and beverage business. "Across all categories of our business, we are investing to build an even better Target (NYSE:TGT) for our guests," said Mark Tritton, executive vice president and chief merchandising officer. "We have been making positive progress with our assortment, presentation and operations."" Target is currently selling for 55.00. I am not big on the impact of earnings on stocks, but this is their chance to explain what their next steps are.

7/25/17 TGT is down almost 28% for the past 52 weeks. They need to make some major moves soon. However Morningstar, (A rating), shows they have a lot of debt. That could make that juicy dividend hard to fund over the next few years. I doubt they are a good long investment and possibly will be more market share for AMZN and WMT.


COST


6/30/17 Motley Fool had this to say about Costco, "Management is willing to give up short-term profitability to keep its subscriber base thrilled with the shopping experience. Its 2% net income margin puts it far below other retailing chains, but has been a key driver behind its unusually high sales growth."

Big Box and Mall Retail Shopping Crisis BBBY, KOHL SHLD, RSHCQ

In search of a thesis: the next section has a number of reasons malls are in trouble and the retail jobs that go with them. Everyone knows that, the question is not who is going down, retailers, REITs that specialize in malls. But, I would prefer to profit on growth, who and what stands to benefit from this opportunity.

9/20/17 Bed Bath and Beyond BBBY dropped 15% in the stock market today to 22.81. This is a very small sample size, but Kathy and I have only been in a store, one time in three years.  Granted out house is furnished. When we needed washcloths we went to Wal-Mart.

9/19/17 Kohl and Amazon have announced a business tie-up, they are going to test being an Amazon return center. This is the closest thing I have seen to a potential re-vitalization of shopping malls and complements many AMZNs strategy, not sure about Kohls.

9/18/17 Now TOYS, Toys R Us looks like it will file for bankruptcy. This story keeps coming down to debt, "It must refinance $400 million of its crushing $5 billion debt next year with lenders who have grown less patient about waiting for results and who are less confident about the future of traditional retailers." In 2005,  KKR and Bain Capital and Vornado took the company private in a $6.6 billion deal. No they have a lot of debt.

8/26/17 The latest media attention seems to be Footlocker, FL, 35.88 down 46% for the year and other sporting goods stores.

UPDATE: 6/3/17 this notebook entry started out focused on Sears, but I realize that the entire retail industry is strongly affected.

SHLD. For years, many would argue since 2004, Sears Holdings, (Sears and K-mart) have been faltering. They are now at death's door. The Washington Post has a great story about the fall of Sears. As of June 2, SHLD has lost almost 45% of its value. 6/13/17 SHLD has announced they are cutting 400 jobs. Conventional wisdom is still that Seritage Growth Properties (NYSE:SRG), a real estate investment and has interests in 266 properties, most of them from Sears Holdings.

Since the REIT was created in 2015, financial pundits have been claiming that as Sears Holding decreased, the REIT would increase by leasing the closed properties. Recently, we have seen some, "I'm not so sure" posts. This is because malls are closing, CNN Money reports that 25% of the malls will be closed in five years. If this is true, who will lease SRG's properties, (SRG is down over 10% in the past 90 days)? Sears Canada, (SHLD is an investor), is running out of money and must borrow to remain operational for another year. Since these are mall stores this also affects Canadian REITs. 6/22/17 WSJ reports Sears Canada about to file bankruptcy.

Sears Holdings CEO Ed. Lampert's Seritage thesis. As the market currently stands physical shopping centers, home of the declining big box stores, are ideally located, and at least at the moment, believed to be valuable real estate. If Sears Holdings unravels too fast for Seritage to take advantage then what? It isn't just Sears/K-Mart, Macy's, JC Penney, Kohls, J Crew, etc. are closing stores fast, see Clark report for comprehensive list. Nordstrom just released a PR expressing interesting in going private. It is worth pointing out that Wal-Mart goes it alone as opposed to anchoring malls. In some cases, the chains are going bankrupt. 6/20/17 Amazon Prime Wardrobe hits JC Penney and Nordstrom, (does anyone actually buy clothes at JC Penney other than kids to small to fight back to school?)

Is the combined Sears and K-mart market share enough to matter? Do they command enough of the market that someone can profit from their demise. Six years ago I would have said yes, today, not so much. 6/8/17 Sears is closing 72 more stores leaving 1,200 down from 2,073 five years ago. 8/26/17 Sears posts another loss, suppliers report trouble getting account receivable insurance.

Malls in general.

9/20/17 I found a 2012 URL with the top 10 REITS with mall exposure. Number 1 was SPG, they appeared to peak mid-2016 above 220, have dropped at lot and are selling at 159 something. Note: when they need credit to spruce up malls, where is it going to come from? #2 GGP has a similar curve.

Is online retail the future or even the present? BusinessInsider predicts 8 - 12% growth in online retail in 2017. Globally, Amazon Inc., Wal-Mart Stores Inc. and Apple Inc. are the top 3. A better way to look at purchase future is high-value. This 1/5 of customers account for 50% of sales and that is a long standing rule of thumb.

- Is the overall decline in big box brick and mortar and the malls that host them a major factor? USA Today has a thought provoking piece. For a real downer Market Watch is comparing brick and mortar to the oil and gas industry. CNN Money says, "Brokerage firm Credit Suisse said in a research report released earlier this month that it's possible more than 8,600 brick-and-mortar stores will close their doors in 2017. " McKinsey says that just selling doesn't work, the mall has to be an experience, (take with a grain of sand, shopping at Wal-Mart can hardly be called an experience, that is back to value.).

NPR carried a piece on the malls in danger, "LEINBERGER: It's the middle-market malls that are in biggest danger of going dark. The fortress malls - those huge, you know, 1-and-a-half-, 2-million-square-foot malls like the King of Prussia Mall outside of Philadelphia - those are fine. But it's the ones anchored by JCPenneys and Sears that are and will go increasingly dark."

I did find an author that claims physical space is "coming back", "But physical space is reinventing itself. Malls continue to focus on "experience" versus "things". The example he gives is PEI who has lost 54% of their value in the past 12 months. The author may be right, eventually, but I am betting against physical space in the short term. Have you ever seen what happens when the asphalt of the parking lot starts to give way?

- Who is the "dark horse", the unknown that will benefit from the change in shopping habits? Online retail!  If you focus on Amazon, most people say Wal-Mart, the number 2. If you focus on Wal-Mart most people say Target, which doesn't make any sense to me, but bears investigation, (they are profitable, have an attractive P/E and a decent dividend, (as of 6/1/17 TGT is down almost 20%, they also have more debt than I like to see, but they are managing it so far.).

Retail jobs crisis. 

And what about the people that work in those stores? Retail, according to marketwatch has shed 30,000 positions over 12 months. BusinessInsider reports, "The US administration has focused its rhetoric on coal and manufacturing jobs. However, it's notable that the number of workers in general merchandise stores who have lost their jobs since October is greater than the entire number of people employed in the US coal industry." And yet we do not hear the furor that we hear from manufacturing and coal. But it can't remain silent much longer as it is impacting the economy. What other industry needs the skills of retail jobs? There are already "transition" articles appearing, but this one sounds like a rehash of retail. Some of them will end up in Amazon fulfillment centers, but retail is spread across the country and fulfillment centers are strategically placed.

It does not seem like there is enough demand for Stein Mart, Hobby Lobby  and Five Below to reuse many of the big boxes. Empty big boxes can be adapted for churches, after all, most mall parking lots are not full on Sunday morning, however it requires a church with solid funding, (if you were a loan officer, would you make a loan to a church), in need of a big building.  Looks like another case of a big opportunity looking for a bigger idea. Oh well.

Dark Horse revisited, online retail.

Rather than rehash Amazon and Wal-Mart, what are the categories of items being purchased online?  According to EngageCustomer, "The top five products bought online in the last 12 months were books (63 per cent), clothing/footwear (61 per cent), DVDs (54 per cent), CDs (43 per cent) and beauty & healthcare products (32 per cent)."