Is this sector a value yet?... Buffett will 'slap you'... The death of the big-box retailer – and the U.S. shopping mall... No new lows... What's up with Blackstone?
The air is still coming out of the momentum-stock rally...
But do these technology companies offer value now that shares have fallen by half (or more)?
The selloff started in early March... Companies with sky-high valuations like Amazon (AMZN),Tesla (TSLA), and Twitter (TWTR) got crushed – all falling between 25% and 40%.
Twitter fell 21% in two days last week after its "lockup period" expired and early investors and employees could sell shares on the market. When companies first go public… executives, directors, and other early investors are prohibited from selling their share for the first six months after the initial public offering. Once the stock gets past that so-called six-month "lockup" period, the share price usually suffers. Twitter just hit that mark… and its stock dropped right on cue.
Even after its fall, Twitter trades for 285 times forward earnings – down from 1,154 times earnings in March.
"You can't go to Warren Buffett and say, 'Buy Twitter, it's cheap,'" Seth Setrakian, co-head of domestic equities at brokerage firm First New York Securities told theWall Street Journal. "He'd slap you."
As we recently experienced, rallies can send popular stocks to absurd valuations – even when no fundamentals support such pricing. But like the tech bubble, they always end the same way – in tears.
Mitch Rubin, chief investment officer at $3.1 billion asset manager RiverPark Funds, summed it up for theJournal... "We've gone from three times silly to two times silly... When the facts start to matter for these stocks, the bottom is a long way off."
Rubin is still betting stocks like Amazon and Twitter will fall farther. And he may have good reason...
As hedge-fund manager David Einhorn, one of the best minds in finance, said at this month's Ira Sohn Investment Conference in New York City...
"The reason people like bubble stocks is because they are going up. But when they reverse, they become falling knives. The gap between a bubble price for these stocks and the price at which a growth investor will step in and pay for them is very large."
So what is that gap? 80%? 90%? We'll find out soon enough...
The death of traditional retailers is one of the big themes Porter and his analysts are currently covering forStansberry's Investment Advisory. The Internet is decimating big-box retailers. And the trend is accelerating (more on that in a moment).
No company better serves as the poster child for this than department store J.C. Penney (JCP)...
We've written extensively about the fate of JCP. You can get a good summary of the situationhere. But at its heart, the situation is simple... Customers are leaving, sales are falling, debt is mounting...
This isn't just bad news for retailers and their shareholders… Department-store closures – particularly the loss of Sears and J.C. Penney stores – have serious implications for U.S. shopping malls.
Nearly half of the 1,050 malls in the U.S. have both J.C. Penney and Sears as anchor tenants, according to real-estate research firm Green Street Advisors. Nearly a quarter of those malls generate less than $300 a year in sales per square foot. In comparison, Apple stores (the envy of many retailers) will generate $4,542 sales per square foot this fiscal year to date, according to theWall Street Journal. Renowned jeweler Tiffany & Co. had sales of $3,453 per square foot last year and popular yoga-clothes retailer Lululemon Athletica pulled in $2,464 per square foot last year.
Green Street Advisors also reported that those J.C. Penney/Sears malls suffer average vacancy rates of more than 20%. The number of "dead malls," with vacancy rates exceeding 40%, has almost tripled since 2006 to 74 properties. Replacing an anchor tenant when business is already crumbling won't be easy.
Bonnie Baha, director of global developed credit for DoubleLine Capital (the fixed-income shop run by the so-called "Bond God" Jeff Gundlach) recently discussed J.C. Penney and Sears holdings in an article forForbesmagazine:
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Both of these retailers are doomed. If they have any value today, it's in their real estate. Sears has regularly engaged in asset liquidations, and the current investment thesis for J.C. Penney's senior bonds depends largely on extracting value from its real estate, not from any operating turnaround. The Internet has rewritten the logistics of retail and the habits of consumers. So betting on mall real estate is a risky game. Indeed, Chicago's ShopperTrak reported that U.S. store visits fell 21% in the week prior to Christmas 2013. |
In the March 31Digest Premium,Stansberry's Investment Advisorylead analyst Bryan Beach presented two charts that showed the decline of the American shopping mall. From that issue:
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Even Black Friday – the day after Thanksgiving, notoriously the busiest shopping day of the year – is dying. Black Friday sales declined in 2013 for the first time in four years. Meanwhile, sales on Cyber Monday, the online retailer's answer to Black Friday, increased 21% year over year. The results of this trend are obvious. Of the more than $4 trillion in annual U.S. retail sales, 8%-10% occur online. Online sales results continue to surpass expectations...
If 8%-10% doesn't seem like much, remember that retail sales are comprised of all categories of purchases, including gas, food, and basic essentials. People aren't buying chips, diapers, or toilet paper online, which is why retailers like Dollar General and Wal-Mart are less affected by this trend. Most of every dollar that leaves traditional retailers and finds its way to the Internet is likely tied to a non-essential purchase that could have occurred at a shopping mall. |
Porter and his team recommended their favorite way to profit from the decline of the American shopping mall in the February 2014 issue ofStansberry's Investment Advisory. And in the most recent issue, they added another retailer to their victims list... one they say has "no way out" of its predicament.
The company is in a stagnant market... And Wal-Mart, the world's largest retailer, just decided to enter this company's exact, niche market. And there's an event on May 23 that could send shares of this retailer plummeting.
Out of respect toInvestment Advisorysubscribers, we have to withhold the details here. You can learn more about a subscription toStansberry's Investment Advisory– which would give you access to Porter's work on the retail sector – by clickinghere...
Before presenting our "new highs," it's worth noting... Not a single portfolio company of ours hit a 52-week low yesterday. I can't recall ever seeing this before. I'm not bragging about our investment prowess... Just noting,it's a bull market.
New 52-week highs (as of 5/12/14): Alcoa (AA), American Financial Group (AFG), Becton-Dickinson (BDX), Chesapeake Energy (CHK), C&J Energy Services (CJES), Callon Petroleum (CPE), CVS Caremark (CVS), Dorchester Minerals (DMLP), Energy Transfer Equity (ETE), SPDR Euro Stoxx 50 Fund (FEZ), First United Bancorp (FUBC), Lorillard (LO), 3M (MMM), Altria Group (MO), Allianz GI Equity & Convertible Fund (NIE), ProShares S&P 500 Buy Write Fund (PBP), Market Vectors India Small-Cap Index Fund (SCIF), ProShares Ultra S&P 500 Fund (SSO), Skyworks Solutions (SWKS), Targa Resources (TRGP), Travelers (TRV), U.S. Commodity Index Fund (USCI), and Alleghany (Y).
Are you worried about locking in triple-digit gains? Just use trailing stops. And send your feedback tofeedback@stansberryresearch.com.
"You have time and again made the case for BX. I am concerned that it has continued to fall, and it is below its 2007 IPO of $31. Can you please address feelings on BX this week in your letter?" – Paid-up subscriber Bob Baker
Goldsmith comment: I'm not sure what the worry is, Bob...True Wealthreaders are still up more than 132% on Blackstone. Editor Steve Sjuggerud noted Blackstone's downturn in his most recent issue ofTrue Wealth. He recommended readers mind their trailing stops.
Regards,
Sean Goldsmith
New York, New York
May 13, 2014
A new high for a hated asset…
Indian stocks have staged a major rally from their September 2013 bottom… But as we explain in today'sDigest Premium…the emerging market could still have lots of upside – thanks to this catalyst.
To subscribe toDigest Premiumand access today's analysis,click here.
A new high for a hated asset…
True Wealtheditor Steve Sjuggerud first visited India in 2008… The Indian stock market had fallen by around 75%.
His host for the trip was Chennai, India-based fund manager, Rahul Saraogi, whom Steve dubs the "Warren Buffett of India." Nobody wanted to invest in India at the time, which made Steve even more interested…
Steve invested with Rahul after 2008… In the next two years, Indian stocks surged 345%.
Why am I telling you this today? Well, the Indian stock market fell by 80% over the past three years. And now, the stocks are coming off a bottom. You can see the upturn in the following chart of the Market Vectors India Small-Cap Fund (SCIF) – which holds a basket of small Indian stocks. In fact, SCIF hit a 52-week high yesterday…
Steve recently spoke with Rahul, who said the past three years have been "the most terrible time in India." The country is experiencing corruption, inflation, a weakening currency, lower investment, and high interest rates…
Rahul says India is cheaper than it has been at any time in his 15-year career. Remember, the last time Indian stocks were super cheap, Steve more than doubled his money.
As Steve likes to say, India is "cheap, hated, and in an uptrend." But there's also a major catalyst that could send shares even higher…
India's elections for the new prime minister ended May 12… And exit polls show the pro-business candidate, Narendra Modi, is the likely victor. As we wrote in the May 5Digest…
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Modi is the current chief minister of the Indian state Gujarat. Since Modi took the helm, Gujarat has led India in [gross domestic product] growth, with around 16% of the country's total industrial output and 22% of exports. That's impressive, considering Gujarat is responsible for just 5% of India's total population. That's because Modi is business-friendly… He convinced Indian billionaire Raja Tata to build a car factory in Gujarat by removing the typical red tape. He has heavily invested in the state's infrastructure. And he has shunned the typical backroom dealings and bribery in India and the country's socialist ideals (for example, bidding for government contracts in Gujarat is done online). And he supports privatization of ports, water, and power. |
Arjun Divecha, head of emerging markets for the famed asset manager GMO, discussed the Indian elections at the recentGrant's Interest Rate Observerconference in New York City.
He started his speech by saying he makes the most money investing when things go from "truly awful to merely bad." We have that situation in India today.
And if Modi wins, Indian stocks will go up "a lot," Divecha said. If the incumbent stays in office, stocks will get crushed… It's either-or.
Today, India has gone from bad to less bad… It looks like a new, pro-business party is taking control of the country. Triple-digit gains in Indian stocks could be on the way.
– Sean Goldsmith
A new high for a hated asset…
Indian stocks have staged a major rally from their September 2013 bottom… But as we explain in today'sDigest Premium…the emerging market could still have lots of upside – thanks to this catalyst.
To continue reading, scroll down orclick here.