The 'Death of Retail' Rolls On
The 'death of retail' rolls on… This year could mark one of the most important milestones in the history of commerce… Online holiday shopping could beat traditional retail for first time… Amazon's blockbuster quarter… New 40-year lows for JC Penney… An unbelievable fact about Chinese stocks…
Regular Digest readers are familiar with the 'death of retail' trend...
Thousands of brick-and-mortar stores are disappearing as rapidly growing online retailers steal market share.
While we've warned that this trend may be getting ahead of itself in the near term, it's important to remember that it's only just begun. Despite the carnage in the weakest retailers over the past few years, traditional retail still accounts for 90% of retails sales.
But make no mistake... this balance is slowly shifting. And this year could mark one of most important milestones in this trend to date...
Last year, we noted a big shift on Black Friday...
According to the National Retail Federation, 108 million people shopped online during Thanksgiving weekend in 2016, the unofficial kickoff of the holiday shopping season. That compares with just 99 million who ventured out to take advantage of Black Friday sales offered by physical retailers that weekend.
This year could be even bigger...
You see, for the first time ever, Americans are expected to spend more money online than in stores over the entire holiday season this year.
According to a recent survey from financial-consulting firm Deloitte, Americans plan to spend 51% of their holiday-shopping budget online versus 42% in stores. This compares with an even split of 47% and 47% last year. And in-store shopping trounced online shopping in every year prior.
This is a big deal...
E-commerce has already taken the lead during the most important shopping day of the year... and is now about to do the same during the most important shopping months of the year. It's only a matter time before it does the same year-round.
There's likely no better example of this trend in action than the latest quarterly results of Amazon (AMZN)...
The online behemoth reported third-quarter earnings last Thursday... and they trumped analyst expectations across the board. As news service Reuters reported...
Revenue rose 34% to $43.7 billion in the third quarter, including $1.3 billion in sales from Whole Foods [Market]. Analysts had expected $42.1 billion...
In a first, Amazon broke out sales for its online retail business and for its physical bookstores and Whole Foods locations. Revenue from its online stores jumped 22% to $26.4 billion, the fastest growth Amazon has seen in the segment in more than a year... Revenue from subscription fees such as Prime grew 59% to $2.4 billion.
And Amazon Web Services, which handles data and computing for large enterprises, saw its profit margin expand from the previous quarter. It posted a 41.9% rise in sales to $4.58 billion, beating the average estimate of $4.52 billion, according to analytics firm FactSet.
Perhaps most notable, Amazon reported dramatically higher-than-expected quarterly profits...
The third quarter of the year tends to be one of the company's least profitable, as it ramps up spending ahead of the holiday season. But this quarter, the company reported that net income rose to $256 million, or $0.52 per share. Analysts had expected just $0.03 per share.
In other words, it appears Amazon may have finally reached a point where it can maintain its aggressive capital spending and still earn a profit for shareholders.
It was a controversial idea at the time...
But this is essentially what our colleague Dr. David "Doc" Eifrig predicted when he recommended Amazon shares earlier this year.
As Doc noted at the time, Amazon didn't fit the usual "mold" of a Retirement Millionaire recommendation. From the May issue...
The risk in Amazon shares doesn't come from its financials. It comes from valuation...
Retirement Millionaire has never before bought a stock with a price-to-earnings ratio of 176 times, as Amazon trades today.
There's no way to sugarcoat that. It's a very high valuation.
But as Doc explained, folks who were worried about the company's high valuation were likely missing a critical point about the company's business (emphasis added)...
Just like Bezos, you have to think long term as an Amazon shareholder. Its share price could be volatile in the short term given its valuation.
However, if you give it three to five years, you can pretty much guarantee a few developments...
First, Amazon will be bigger in the future than it is today. Unlike so many flash-in-the-pan tech companies, Amazon has major competitive advantages and an infrastructure that cannot be replicated.
We often hear about how digital sales are killing other retail stores... But lost in all that hype is the fact that online purchases still account for roughly 10% of retail spending. Whether you think that online spending will account for 30%, 50%, or 90% of spending in the future, it's clear that it will be multiple times larger than it is now. And the primary beneficiary will be Amazon.
Second, you can be sure that Amazon will have the ability to be massively profitable at any time. It may wait a long time to turn on the profit spigot, but it's there waiting...
Don't let valuation and short-term thinking keep you from investing in one of the best businesses in the world. We may see some volatility, but a long-term perspective will provide great returns for shareholders.
Amazon shares surged more than 13% on Friday. They're now trading above $1,100 for the first time. Retirement Millionaire subscribers who took Doc's unconventional advice are already up 16% in about five months.
On the other hand, there may be no better posterchild for the fall of traditional retailers than JC Penney (JCP)...
The troubled department store has closed hundreds of stores in recent years, as sales and earnings have plummeted. Shares have lost 95% of their value over the past 10 years.
But on Friday, the news got even worse for investors, as JC Penney warned that full-year earnings would be much weaker than originally expected. As the Wall Street Journal reported...
JC Penney spooked investors ahead of the holiday season, after the struggling department-store chain slashed its profit goals for the year and warned of weakening sales...
The Plano, Texas, company now expects per-share earnings, excluding certain costs, of 2 cents to 8 cents for its fiscal year ending Jan. 31, well below its previous guidance for earnings of 40 cents to 65 cents.
Penney added that comparable sales are unlikely to improve for the year as it takes extensive efforts to overhaul its inventory. The company now expects same-store sales to be flat to down 1% for the year; it previously predicted a range of minus 1% to plus 1%.
Shares plunged, touching a fresh 40-year low of $2.76 intraday on Friday, and are down nearly 15% from Thursday's close. Shares have now lost more than 60% of their value year to date.
'Nobody around the world cares'...
Finally, we have some more great news for Steve Sjuggerud's True Wealth China Opportunities subscribers.
Earlier this month, we highlighted an incredibly bullish report for investors in Chinese shares. In short, recent moves by the Chinese government are likely to drive more than $1 trillion of Chinese investor money into these stocks in coming years. (This is in addition to the $1 trillion of institutional money that is already guaranteed to flow into these stocks in the next several years.)
But even this may not be the biggest reason to own shares today. As Steve shared in this morning's edition of our free DailyWealth e-letter...
"It was hard to get meetings," a China-fund manager told me last week. He was traveling in the U.S. to spread the China stock story to anyone who would listen. Turns out, nobody would...
"I wish it wasn't the case, candidly, Steve. I managed to fill the schedule. But not necessarily with several top-tier firms," he said.
The China-fund manager was positive, though... "The lack of interest in China makes me more bullish," he told me. "Investors still don't appreciate what is taking place in China today. When folks are throwing rose petals at my feet, and I'm too busy to return your phone call, that's my ultimate sell indicator."
In other words, despite the big gains in Chinese stocks this year, investors STILL aren't interested at all. More from Steve...
Shockingly, $4.5 billion has flowed OUT of China exchange-traded funds (ETFs) globally so far this year. Most importantly for you, we're still early in this China trade...
Nobody cares about Chinese stocks today. Billions of dollars have flowed out of China ETFs this year. And China-fund managers can hardly find someone willing to give them the time of day.
This is not what a top looks like. When this fund manager won't take my call (because he's too busy basking in rose petals), then I'll know we're at the top. We're a long way from that today. This is more what a bottom looks like than a top.
It's time for you to get some money into Chinese stocks, if you haven't already. I promise, you haven't missed it yet. It's time to take action... Buy China, now...
New 52-week highs (as of 10/27/17): AllianceBernstein (AB), Amazon (AMZN), American Express (AXP), WisdomTree Japan Hedged Equity Fund (DXJ), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), iShares MSCI Japan Fund (EWJ), iShares MSCI Singapore Capped Fund (EWS), iShares MSCI South Korea Capped Fund (EWY), Facebook (FB), iShares China Large-Cap Fund (FXI), Alphabet (GOOGL), Grubhub (GRUB), Intel (INTC), ETFMG Prime Mobile Payments Fund (IPAY), iShares U.S. Home Construction Fund (ITB), JPMorgan Chase (JPM), KraneShares Bosera MSCI China A Fund (KBA), Microsoft (MSFT), Nvidia (NVDA), NVR (NVR), ProShares Ultra Technology Fund (ROM), Sabine Royalty Trust (SBR), iShares MSCI India Small-Cap Fund (SMIN), ProShares Ultra S&P 500 Fund (SSO), ProShares Ultra Financials Fund (UYG), and short position in GGP (GGP).
In today's mailbag, several readers respond to our latest Friday Digest... and another weighs in on the "Melt Up." What's on your mind? Let us know at feedback@stansberryresearch.com.
"'Something's wrong...' What came to mind immediately upon reading the first paragraph of the latest Friday Digest was this: And how about someone in a Las Vegas hotel room gunning down 58 people and wounding hundreds more. Almost as terrible as someone kneeling during the national anthem, right? You guys ain't just 'whistling Dixie.' You hit the nail on the head, as you always do." – Paid-up subscriber Jay R.
"When mentioning the debt crisis in America it is worth noting all the facts that Porter has pointed out in his research, such as the fact that millions of Americans can't keep up with the cost of living, and that wages overall are not keeping up with inflation. But how about keeping up with Jones... how about the enormous amount of time that we spend in front of a TV telling us to buy, buy, buy... how about the lack of financial education at our schools that don't teach our children simple rules like saving and living below our means.
"Even if the government forgives all the debt that currently exists and corporations go out of business, we reset and start fresh, but the underlying problem remains. The urge to consume and consume is the biggest problem in America, and yes consumption moves the economy but we as a society need to learn to do it responsibly, what is the government going to do about that?
"Financial education is a good way to start but sadly the government and our politicians don't care about that, countless students make it to high school not knowing how to balance a check book, yet they know the latest trends in fashion, the hottest brand of luxury automobiles, and the best video games out there. What's happening in our country goes beyond inflation and there's no indication of a near solution. Thank you for all the great work you guys do to keep us one step ahead." – Paid-up subscriber Ivan M.
"I have been saying for many years: Revolution happens when people are willing to die to affect change. You don't need to keep your populace happy so much as generally content to the point where they aren't willing to die in order to fight back. The powers that be are becoming so detached from "regular" Americans they seem to be forgetting this. The next decade or so will interesting to watch." – Paid-up subscriber Ian F.
"Did everyone feel the real start of the melt-up [on Friday]? Yes, I've been waiting for this sign that the money in cash is going to come in and come in fast. Fear is gone. Money is flowing in. I'm holding with plenty of gold exposure and short positions. It's just begun folks and the real ride is at hand. Enjoy, but hedge! You won't see your portfolio go up as fast, but you won't see it fall as much through the inevitable small corrections either. Live large my friends! Be patient and stand strong." – Paid-up subscriber Marty S.
Regards,
Justin Brill
Baltimore, Maryland
October 30, 2017