Did Amazon make a major mistake?...

 As Paul wrote in the February 5 Digest Premium…

 

Having worked in asset management, it's easy for me to see why Netflix shares plummeted. The small group of fund managers who buy stocks like Netflix do it for one reason: growth   Once the growth stopped, these fund managers wanted nothing to do with the company. So shares plummeted.   These same fund managers likely own Amazon. And with the online retailer looking to dramatically increase the price of its subscriptions, these fund managers are going to connect the dots, just like they did with Netflix. They won't wait for Amazon to report slowing growth. They will anticipate it... and start to dump shares.   From my experience, when these fund managers are selling, you want to get out of the way.

 Amazon shares were up today. But Paul thinks shares could fall as much as 80%, if you place its valuation in line with fellow retail giant Wal-Mart. Keep an eye on shares of Amazon as it rolls out the price increase for Prime.

 

 Stansberry's Investment Advisory recommendation Dollar General announced fourth-quarter earnings this morning…

 

The discount retailer earned $322.2 million in the quarter ended January 31, up from $317.4 million a year ago. Revenue jumped 7%, from $4.2 billion to $4.5 billion. Dollar General hit analyst expectations on earnings, but fell short on revenue.

 

The company also reported the 24th consecutive year of same-store sales growth. Still, shares fell 3% today on the news.

 

 Porter's research team recommended Dollar General shares to take advantage of shifting consumer trends. As they wrote in the December 2013 issue...

 

Mike Duke, Wal-Mart's CEO, has noticed a change in his customer base. They still eat the same amount of food... they still buy the same amount of cleaning supplies and have remained loyal to most of their favorite brands. What has changed is where they go to buy these basic necessities.   Many customers have moved back into town. Some became renters or moved in with family. People are shopping closer to home. Instead of getting a cab or loading the family minivan for a trip to Wal-Mart, mom may push the stroller to a neighborhood store.

 Wal-Mart is building smaller stores to capitalize on this trend. But as the largest discount retailer in the country, Dollar General is already in those neighborhoods.

 

 In the February 5 Digest, we discussed how Dollar General was moving into selling higher-margin products like tobacco products and alcohol to attract new customers to their 11,000 retail outlets.

 

Dollar General reported lower gross margins, down from 32.5% a year ago to 31.9% in the fourth quarter. But its gross margins are still among the best in the industry.

 

And offering tobacco and alcohol products should convert more people into Dollar General shoppers.

 

 I asked E.B. Tucker, Porter's lead analyst on the Dollar General research, for his take on the company's earnings...

 

I like the release.   Sure, Dollar General missed by an estimated $0.15 a share, but really, I think that is less operational and more circumstance (due to a harsh winter).   The company will open 700 stores this year. It should grow 8%-9% in 2014. I'd guess 5% of that will come from new stores... the rest from existing stores.   The margins are fine. Milk, eggs, and bread are lower-margin, but traffic is up and those people buy other things, too.   My prediction is we are still in a good part of the cycle for Dollar General. This should be a solid growth year. I don't see the company making bad management decisions at this point. That will come when it's bigger.

 

 

 New 52-week highs (as of 3/12/14): Activision Blizzard (ATVI), Berkshire Hathaway (BRK), Diebold (DBD), Dolby Laboratories (DLB), KLA-Tencor (KLAC), and Skyworks Solutions (SWKS).

 

 We received loads of e-mails about how you're faring during this bull market. We'd still like to hear more of your stories. Send your notes to feedback@stansberryresearch.com.

 

 "Checked out of the market at 13,000. It can't possibly go higher! Sitting on the sidelines waiting for the shoe to drop." – Paid-up subscriber VC

 

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 "As part of an overall retirement plan we sold our California home in 2011 on order to rightsize into something smaller. We timed the real estate market here perfectly. High sales price low purchase price and we had enough left over to invest. At about the same time a friend introduced me to S&A. I subscribed in order to learn how deal with my retirement stash. Since there's no teaching I must have been a great learner. I now understand the wealth effect. My stash has almost doubled, and we're living large in our mountain retreat. Without Porter's prodding it's likely we would have missed it. We've definitely participated in the bull market. Now I've got to learn how to protect it. The learning never stops." – Paid-up subscriber Bob

 

Regards,

 

Sean Goldsmith

Miami Beach, Florida

March 13, 2014