🚚 Kick Rocks Wall Street

Happy Sunday to everyone on The Street. 

We're thinking about a few ways to integrate hedge fund letters into our offering since 90% of you said you want to read more. While we mull over some options, check out this one from Octahedron Capital. It's over 100 pages long, but the format is actually pretty digestible. More to come on this front.

One other thing before we dive in. Has anyone else been following the downfall of Bird (BRDS)? The scooter company is essentially a penny stock now. When Bird SPAC'd last year, the company started trading at $8.40 per share. It's now hovering around $0.31 per share with a market cap of $78 million. According to PitchBook, the company has raised $1.14 billion to date. Pretty tough for investors, but maybe not so much for the original CEO who bought a $21.8 million waterfront home in Miami.

But hey, who are we to judge? We'll turn it over to you. Can Bird turn it around and take flight? Or did the glass wall it ran in to take the wind out of its sails? Cast your vote below.

Plus, poll results from last week

• Are you bullish or bearish on Pool? 60% of you said BEARISH, 40% said bullish.

• Are you bullish or bearish on Volkswagen? 55% of you said BULLISH, 45% said bearish.

• Are you bullish or bearish on Kroger? 67% of you said BULLISH, 33% said bearish.

Review

US stocks fell precipitously Friday, dragged lower by fears related to rising rates. Investors both at home and abroad are concerned the Federal Reserve's aggressive plan to tame inflation will cause a full-blown recession.

Last Wednesday the central bank enacted another 75-basis points rate hike and indicated it will likely push forward with another one in November. As a result, bond yields jumped causing the 10-year and 2-year Treasury rates to hit highs not seen in over a decade.

Major banks are now adjusting their forecasts heading into the final quarter of 2022. Goldman Sachs, for example, slashed its year-end S&P 500 target, and projected at least a 4% slide from here.

The S&P 500′s consumer discretionary sector sold off along with energy related names. Major technology companies, which are largely considered growth stocks fell as well. This includes household names like Apple, Amazon, Microsoft, and Meta Platforms.

On the economic front, the Flash US PMI Composite Output Index fell to 49.3, which is in contraction territory, however, this is better than the reading of 44.6 in August. In the foreign exchange markets, the British pound hit a three-decade low against the US dollar after a tax cut plan in the UK sent waves through the markets.

All major averages posted their fifth negative week in the last six, with the Dow giving up 4%. The S&P and Nasdaq shed 4.65% and 5.07%, respectively. The Dow notched a new low for 2022 and closed below 30,000 for the first time since June 17.

Preview

Today the Chicago Fed National Activity Index for August is due. This is a monthly report that’s designed to gauge overall economic activity as well as the related impact of inflation. While recessionary fears are gripping the market at present, the Chicago Fed’s index pointed to a pickup in economic growth in July, coming in at +0.27, up from -0.25 in June.

Tomorrow, the Conference Board will publish its Consumer Confidence Index for September. In August consumer confidence rose more than expected, following three straight months of declines. Also watch for July’s home price index from both S&P Case Shiller and the FHFA, as well as August’s new home sales. The rising-rate environment has put pressure on real estate demand so investors will want to see how pricing is being impacted.

Wednesday, more housing market data is on the way, with the pending home sales index for August due. This leading indicator is organized by the National Association of REALTORS® and looks at signed contracts for the purchase of homes. In July pending transactions plummeted 19.9% on an annual basis, further demonstrating how high prices and rising mortgage rates have impacted demand.

Thursday, jobless claims are due. Initial claims jumped slightly last week but economists argue the labor market remains strong, noting the number of people collecting unemployment benefits remains close to the pre-pandemic average. Also Thursday the Bureau of Economic Analysis will issue the revised second-quarter GDP.

Friday the Personal Consumption Expenditures Price Index or PCE will be released for August. This is the Fed’s preferred inflation gauge. In July the PCE fell, driven largely by a drop in gas prices. Friday’s economic calendar also includes real consumer spending for August, as well as September’s Chicago PMI.

CorpHousing Group (CHG) is scheduled to report tomorrow, Ferguson (FERG) is up on Tuesday and Cintas is live Wednesday. Nike (NKE) and GigaCloud Technology (GCT) round out the week on Thursday and Friday, respectively. Nike is a bellwether so pay attention to what they're seeing in terms of consumer spending. Also, Thursday watch for chipmaker Micron Technology (MU) to report earnings, as well as used car retailer Carmax (KMX). Throughout the pandemic, as the supply chain came under pressure both semiconductors and used cars became hard to come by. Investors will be studying these companies to get a snapshot view of each sector.

Yo-Yo Diets and Restrictive Eating Don't Work. This Does.

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Noom knows that healthy living is not just about the food people eat, it’s about how, when, and why they eat it. This revolutionary program uses psychology to help change unhealthy habits one step at a time, with no restrictive diets, no impossible workout plans, and results backed by science, all in just 10 minutes a day.

With daily psych-based lessons, guided coaching, and group accountability it will help build healthy eating habits to see results in the long run. Their top priority is to help you create a routine that’s actually doable. Try Noom today and join half a million people learning to push past plateaus and tame temptations without starving or stressing out.

Find out how their program will give you the behavior change tools to forgive, practice, and (finally) stick to the plan.

This Company Typically Tells Wall Street to Kick Rocks

U-Haul, We All Haul

When we need facial tissue to blow our noses, we ask for Kleenex. The brand has become so synonymous with the product that many people think “Kleenex” is simply what the soft white piece of paper is actually called. In a similar vein, when it comes time to relocate, we look for a U-Haul. The white trucks (or “lorries” as the Bri’ish call them, innit) are synonymous with DIY moving. 

What’s interesting is that U-Haul’s parent company, Amerco (UHAL), flies extremely under the radar. This includes with Wall Street. Despite a market cap of roughly $10 billion, there is virtually no analyst coverage of the stock and no profit estimate for the current fiscal year.

That’s partly Chairman Joe Shoen’s doing. Under his charge, the company has refused to court Wall Street – that pesky bunch! Amerco provides limited financial information, pays a paltry dividend, and doesn’t buy back stock. 

Additionally, Shoen isn’t willing to change the parent company’s name to U-Haul, which some claim would boost visibility and unlock value in the stock. Despite its introverted, business-only demeanor, there are reasons to like Amerco, even if it's difficult to value the company. 

Untapped Value

Take U-Haul’s position in the DIY moving space for starters. U-Haul is in an enviable spot as the leader in the market. It has close to ten times the rental locations of one of its top competitors, Penske. As it stands, you can rent trucks and trailers from over 23,000 U-Haul stores across the country. Amerco also has a self-storage business that’s growing and isn’t baked into the stock yet. 

The sheer size of the market alone should be enough to entice investors. Of the one in five Americans that move annually, U-Haul says about 75% are DIYers. Over the past decade, revenue has grown at an annual rate of 9%. 

A Potential Exit Partner 

Despite U-Haul’s attractive fundamentals, Wall Street seems reluctant to follow the company because of its approach to shareholder outreach. Amerco tends to be noncommittal on earnings calls when it comes to dividends and would rather reinvest in the business than buy back shares. With that said, Chairman Shoen is open to change. In a recent interview with Barron’s, he said the company is working to communicate better with investors. 

Given the moat U-Haul has created, there are rumblings that if the company wanted to sell, Berkshire Hathaway (BRK.B) would be a potential suitor. In the meantime, it’s certainly a stock to watch especially since few people seem to know about it.

A Convenient Inflation Hedge

A Country Full of Snackers

Forget financial stocks. When it comes to thinking about stubbornly high inflation, investors might be better served by turning to convenience stores. For starters, most sell fuel, something consumers need in both inflationary and deflationary times. And what about candy, snacks, and cigarettes? Well, despite price increases and long-term health implications, we’re turning into a nation of snackers. 

"Net sales of Doritos, Cheetos, Ruffles, PopCorners, Smartfood, and SunChips grew by double digits in the second quarter," Danielle Wiener-Bronner reports for CNN Business. "Retail sales of Pirate’s Booty jumped about 32% and SkinnyPop sales increased about 17%."

Currently, Casey’s General Stores (CASY), Arko (ARKO), and Alimentation Couche-Tard (ANCTF) are outperforming other retailers. But there may still be more upside in the stocks as inflation shows little signs of easing. 

Recession Proof?

With inflation still elevated and worries of a recession percolating, consumers are starting to think twice about spending. When it comes to smaller purchases, however, maybe a candy bar or a can of coke, they aren’t as reluctant to splurge. Simply put, a 4% price hike on a candy bar is easier to absorb than a 4% increase in a jacket. That has enabled convenience stores to maintain sales during downturns. 

Investors who held on to shares of Casey’s General Stores or Alimentation Couche-Tard for three years after 2007, the last time there was a recession, would have gained 48% and 53% respectively. That’s better than Dollar General's (DG) and Walmart’s (WMT) returns during that period. 

Stocks Are Cheap on Historical Levels 

Convenience store stocks are outperforming other areas of retail but that doesn’t mean they are pricey. They are still trading at a discount to historical averages which may present a window for investors. 

Arko is currently trading 21% below its five-year average of forward revenue; Casey’s is 12% below on the same basis and Alimentation Couche-Tard’s is 4% lower than its five-year average. That’s despite the fact the companies’ same-store sales have grown every quarter since 2020. 

Inflation looks like it’s here to stay, at least for the short term. Investors looking for a way to capitalize on current trends should give convenience store stocks a second look. Consumers may forgo a new blouse or trip because they’re pricier, but they’ll still spend on happiness. Sometimes, there’s nothing better than a Snickers bar and a can of Coke.

Yo-Yo Diets and Restrictive Eating Don't Work. This Does.

Yo-yo-diets, restrictive eating, and unrealistic routines aren’t going to help you on your health journey. With Noom, you can learn how to eat mindfully so you can build a sustainable health routine, and they’ll help you make changes that work for any lifestyle.

Noom knows that healthy living is not just about the food people eat, it’s about how, when, and why they eat it. This revolutionary program uses psychology to help change unhealthy habits one step at a time, with no restrictive diets, no impossible workout plans, and results backed by science, all in just 10 minutes a day.

With daily psych-based lessons, guided coaching, and group accountability it will help build healthy eating habits to see results in the long run. Their top priority is to help you create a routine that’s actually doable. Try Noom today and join half a million people learning to push past plateaus and tame temptations without starving or stressing out.

Find out how their program will give you the behavior change tools to forgive, practice, and (finally) stick to the plan.

Housing Market Spillover Effect

Rising Rates Hit Home-Good Retailers

Once pandemic darlings RH (RH), Wayfair (W), and Williams-Sonoma (WSM) have fallen out of favor with consumers and investors. Mortgage rates are rising, inflation is soaring, and, as a result, home sales are falling. This means consumers aren’t buying home furnishings, decor, electronics, and appliances at the same pace as they did during the height of COVID.

Back then, city dwellers were snapping up houses in the suburbs. They needed to furnish, decorate, and equip their new homes with refrigerators and toasters. In 2021 RH sales rose 32%. This year, revenue is forecast to decline by 3.5% to 5.5%. RH’s CEO Gary Friedman said the housing market is already in a recession and that the downturn could last 12 to 18 months. 

Inventory is Growing 

The situation isn’t much better for electronics and appliance retailers. In August sales at these outlets fell 5.7% year-over-year. Many retailers are sitting on excess inventory that’s proved difficult to move. Sellers have been forced to reduce prices and offer incentives including appliance packages for new kitchens. That’s something we haven’t seen since 2019. 

The environment isn’t likely to improve for a while. Although consumer spending rose in August, there’s a general “wait-and-see” mentality on Main Street. The word “recession” has been tossed around so much, many Americans are taking a second look at their purchases and waiting for holiday deals and discounts. This could put further pressure on home goods retailers’ margins in the final quarter of the year.

Downstream Impact

According to the Commerce Department, residential investment accounts for roughly 4% of US GDP. This includes home construction and home improvement, along with commissions for property brokers, and equipment like HVACS.

During the good times, it's important to pay attention to the "picks and shovels" of certain industries. Similarly, during bad times, it's necessary to keep an eye out for downstream impacts of macro-level movements. The Fed's rising rate crusade is putting downward pressure on the housing market. As a result, the industries, companies, and stocks tangentially related to the real estate sector require close examination.

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