June 26, 2017

Amazon's acquisition of Whole Foods could threaten Grocery Store Chains and More

An estimated 8,000 retail stores are closing in 2017 alone VS around 4,000 in the last recession of 2008

Amazon planned purchase of Whole Foods may not go very smoothly. There is a lot of opposition and regulatory hurdles for Amazon to clear the deal. This may be a selling opportunity for Amazon shareholders.

Doug Kass writes on TheStreet,
"The traditional bricks-and-mortar grocery chains face an existential threat.The values of the companies will now diminish over time coincident with a changing business landscape characterized by lower sales volumes and margin contraction.
Food manufacturers are also expected to face margin pressures -- perhaps not immediately, but certainly down the road. Besides the profit reductions, the values of those previously moated businesses are now uncertain.
Anticipated losers not only may be other retailers and suppliers but also in the ad industry. Amazon is NOT good for advertisers and Walmart advertises with great reluctance."

 Even politicians may get involved in this deal seeking to block it. 
"I am not at all sure antitrust forces will stand idly by, nor am I certain that politicians will stand by. Predatory price cutting may be a term that might become more familiar. I think this deal may take longer to close than anyone's wildest imagination. It threatens a lot of jobs. These employees have representatives and senators."

via www.thestreet.com/story/14185132/1/amazon-swallowing-whole-foods-will-produce-more-retail-indigestion-more-scrutiny.html

June 22, 2017

Contrarian, outside of the envelope views/analysis/thoughts are rarely sought after in the business media

June 19, 2017

Fed may keep Interest Rates at a high level for a while

The three major indexes ended mixed for last week, with the S&P and Dow pulling in weekly gains and the Nasdaq falling slightly. Stock funds also pulled in $24.6 billion last week, the most since President Donald Trump won the election. About four stocks advanced for every three decliners at the New York Stock Exchange. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.4.

A risk that the market appears to be ignoring is the risk of Interest Rates. According to Doug Kass ,

"The Fed is tightening, and for the third time in 18 months has increased rates, which it did yesterday. Few will remember Edson Gould's rule of thumb of " three steps and a stumble," which states that stocks may fall after the Federal Reserve raises rates three times in a row without a decrease, according to the Market's Technician Association. The idea is three increases show the Fed is serious about keeping rates at a relatively high level for a significant length of time. As previously discussed, the Fed's monetary largesse has depressed volatility and has provided a friendly backdrop for the elevation of stocks. This monetary setting is now changing."

via thestreet

June 14, 2017

The bullish case for Facebook and Google (Alphabet)

U.S. stock markets punished tech stocks last week, and big tech names saw the worst of it. Apple, Alphabet(Google), Microsoft, Facebook and Amazon — lost more than $97.5 billion in market value between the close on Thursday and the close on Friday.

Shares of Apple fell nearly 4 percent on Friday, while the other four companies fell more than 3 percent. 

The underlying fundamentals behind these companies are strong and could be attractive buys at lower prices.

Doug Kass writes his bullish thesis on Facebook and Alphabet.

"Though I would not be a buyer at current levels, I can find little fault with Facebook and Alphabet shares as attractive investments (subject to more reasonable pricing) over time. Based on what I believe to be solid forward growth, neither is expensive. 

For what it is worth, I estimate Facebook will grow Ebitd at 30% annually over the next few years. For Google, that growth in cash flow is about 15% per year. Moreover, both generate significant free cash flow and both currently show revenue growth in excess of my estimates for Ebitd growth. Given the low cost of goods sold for both firms, they have great control over cost and can manage reported Ebitd. 

Facebook is terrific about over estimating expense growth on its conference calls. A reasonably intelligent case can be made that Google is a value stock."