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Consumer staples testing trend line on reclosing & stimulus newsConsumer staples tested and got rejected from a critical trend line this afternoon. The sector has been strengthening due to demand for groceries as economies reclose. Today it also got a bump thanks to news that people with incomes less than $40,000/year may get a second round of stimulus checks. This ought to help juice consumer demand a little. I've also been impressed with the staples sector's performance on earnings reports so far, and I'm expecting the sector to continue to beat analyst expectations. The staples sector has been beneath a downward sloping trend line since February, but it has tested the trend line three times in fairly rapid succession and may be gearing up for a breakout. I've set an alert on the trend line and will be watching for a cross with good volume as my buy signal.
AMEX:XLPLong
by ChristopherCarrollSmith
Early earnings blowouts point higher for semiconductorsWe've now had a blowout earnings report from $MU, in which EPS beat by 11%, sales by 3%, and guidance by 24%(!). We also got guidance from XLNX yesterday that suggested its revenue will be about 5% higher than previously expected, above the high end of its previous range. This suggests that analysts are underestimating the sector's performance as we head into Q2 earnings season in mid-July. It also suggests that semiconductors will have far more forward visibility than most sectors, with 100% of companies so far providing guidance. Semiconductors usually are one of the strongest sectors on earnings, beating estimates at a much higher-than-average rate. Amidst the pandemic, there's been strong demand for mobile, home computing, and datacenter usage due to people working from home, so the sector has performed well. Granted, these stocks mostly aren't cheap; but investors are paying premiums for a reason. I expect the sector will outperform through the end of July. Those who've been following my posts know that my positioning is mostly defensive: I'm heavy on utilities and consumer staples. Semiconductors have the virtue of being a bit defensive, in that they're relatively insulated against pandemic impact, while also having extraordinarily high growth potential. Historically, SOXX has considerably outperformed the S&P 500.
NASDAQ:SOXXLong
by ChristopherCarrollSmith
4
Value Investment - DLTR - Defensive StockAll comments and likes are very appreciated. _________________________________________________________________________________________________________________ Dollar Tree (DLTR) shares offer an attractive entry point for long-term focused investors at current levels. Since peaking at nearly $120 in October 2019, three consecutive EPS guidance reductions (7% total reduction to the midpoint of the initial 2019 EPS range) have pushed shares to below $90. We believe that many of the issues pressuring margins in the near-term are transitory including the consolidation of store support centers, higher freight costs, a helium shortage and trade and tariffs headwinds. While the Family Dollar continues to underperform, investors are not paying anything for this business at the current valuation. The company is taking action to address the Family Dollar issues including remodeling stores and changing management. In addition, the company is testing price points at Dollar Tree beyond the $1 level and this should drive higher earnings power over time. DLTR shares are currently trading at an attractive 16.4x NTM P/E multiple, a large discount to DG at 20.7x NTM P/E and the valuation is very compelling on a sum of the parts basis relative to DG. With the core Dollar Tree Stores business is likely to grow in all economic environments, we see limited downside risk for DLTR shareholders and significant upside potential if the Family Dollar business performance improves. DLTR is well positioned to deliver at least low single digit comparable store sales growth and double digit EPS growth over the long-term. The business operates through two segments, Dollar Tree Stores and Family Dollar with a total of more than 15,000 stores (Dollar Tree Stores account for just over half of total revenue). In July 2015, DLTR acquired more than 8,200 Family Dollar stores for $9 bil. and the acquisition has not met expectations with competitive pressures and higher than expected investment needs. Below is a brief overview of the business segments. Prior VIC write-ups also do an excellent job describing the business and strategy. Dollar Tree Stores 7,447 discount variety stores operating under the Dollar Tree and Dollar Tree Canada brands with items primarily sold at the fixed price point of $1.00 Mix of exclusive, seasonal, basic, home and closeout merchandise with both domestic (60%) and imported (40%) products 8,000 - 10,000 selling square foot stores Large variety with ~ 7,250 items carried in stores and ~39% of items automatically replenished 2018 same store sales of +3% and operating margin of ~14% Primarily suburban locations Family Dollar 7,815 general merchandise discount retail stores with merchandise sold at price points from $1.00 to $10.00 6,000 - 8,000 selling square foot stores 7,000 basic items alongside items that change on a seasonal basis throughout the year 2018 same store sales of ~flat and operating margin of ~4% We believe that the dollar store industry is well positioned over the long-term. The core Dollar Tree Stores business has a long-term track record of growth through economic cycles including strong performance in recessions as consumers trade down. DLTR’s 2008 to 2018 EPS CAGR is 21% and Dollar Tree Stores delivered positive same store sales in each year. The business is relatively insulated from e-commerce competition and should continue to perform in line with long term revenue growth trends in the low single digit range. The small basket size, fill-in trip nature of purchases, large percentage of cash transactions (~50%) and low value merchandise that aren’t good candidates for shipping all help to mitigate e-commerce competition. In addition, the treasure hunt atmosphere at very low price points and strong sourcing capabilities create a shopping experience that is differentiated relative to other U.S. retailers. The key headwind for the company has been the poor performance of the 2015 Family Dollar acquisition with intense competition and higher than expected investments required. There have been several initiatives launched at Family Dollar with store renovations a key focus. Management expects an additional 1,000 renovations in 2020 and 40% of Family Dollar stores will be less than 5 years old at the end of 2020. These remodels are driving tangible improvement with a 10% year one comp and a 5% year two comp. Other areas of focus include improved store layout and customer experience, more private label products at higher margins, improved in stock merchandise levels, new marketing strategies (Smart Coupon program) and more high value products. Recent management changes should also support more aggressive adjustments and improved long-term performance at Family Dollar. We believe there is no value for Family Dollar included in the current DLTR valuation and any Family Dollar improvement is a source of upside for investors. Breaking the "Buck" at the Dollar Tree Stores should also drive a meaningful EPS boost over the long-term. The company is currently testing pricing in increments of $2, $3, $4 and $5 in 115 Dollar Tree stores. DLTR is over six months into the test at the initial stores and is still collecting and analyzing the data. In 2020, management will introduce more discretionary products and unique products with the focus on delivering exceptional value to customers at different price points. With distinctive merchandise and a strong value proposition, we believe the Dollar Tree shopper will embrace multiple price points while the company continues to focus on the core $1 price point and treasure hunt aspect of the shopping experience. This strategy should help to grow the basket and offset pressure from higher costs (including current and potential tariffs). We believe that a multiple price point strategy will drive a boost to comparable store sales at high incremental margins over time. We view DLTR shares as an attractive risk/return opportunity with the business delivering ~double digit EPS growth in all economic environments. Modest annual store growth in the LSD to MSD range should continue with management estimating a long-term opportunity for 25,000 locations. If limited improvement is made in the Family Dollar business, we expect the combined business to grow EPS in the low DD range over the next few years driven by consistent performance in the Dollar Tree Stores business. Management will likely continue to use FCF primarily to pay down debt with net debt reduced by over $3 bil. since the closing of the Family Dollar acquisition. The current valuation suggests that the market is assigning zero or even negative value to the Family Dollar business. Given similar comp growth, operating margins and returns, we believe that the Dollar Tree Stores segment should trade a similar multiple to DG’s ~16.5x forward EBITDA. However, recent poor results and Family Dollar concerns have pushed DLTR’s EV/NTM EBITDA to just 12.6x. Assuming a conservative ~13x multiple on Dollar Tree Stores 2020 EBITDA, a sum of the parts valuation suggests that the market is assigning zero or negative value to the Family Dollar business. We believe that a 13x multiple is too significant of a discount for the core Dollar Tree Stores business and that while Family Dollar has its issues, it has potential to significantly improve from current business trends over the long-term. We believe a reasonable multiple for Family Dollar is around 8x EBITDA and this is a valuation for which the business could potentially be sold (acquired for 12x EBITDA in 2015). 13x EBITDA for Dollar Tree Stores and 8x EBITDA for Family Dollar leads to a $105 current value for the business or over 20% upside from the current price although a higher valuation for Dollar Tree Stores is likely warranted. DCF Results 2020E Dollar Tree Stores EBITDA---------1908.9 Dollar General NTM EV/EBITDA -------------13,0 Dollar Tree Stores EV --------------------24,815.6 Family Dollar 2020E EBITDA-------------------501.8 Family Dollar NTM EV/EBITDA-------------------8.0 Family Dollar EV------------------------------4,014.7 Total EV---------------------------------------28,830.3 Less Net Debt----------------------------------3836.5 Market Cap-----------------------------------24,993.8 Shares Outstanding------------------------------237.5 Price Target--------------------------------------105 Overall, we believe that DLTR offers an attractive risk reward scenario for investors. While the company has encountered a number of margin headwinds in 2019, we believe these are largely transitory in nature and can be mitigated over time. With a solid core Dollar Tree Stores business and no value implied in the current valuation for Family Dollar, the current set up is favorable for investors. Risks Consumables retail is an inherently competitive industry. Cost inflation (merchandise/tariffs, freight and labor) could be a greater than expected headwind. Strong economic growth could cause dollar stores to underperform other more cyclical retailers. Challenges at Family Dollar take longer than expected to drive improvement. Catalyst One time headwinds dissipating. New pricing strategy. Family Dollar improvement. I and/or others I advise do not hold a material investment in the issuer's securities. _________________________________________________________________________________________________________________ All comments and likes are very appreciated. Best Regards, I0_USD_of_Warren_Buffet
NASDAQ:DLTRLong
by I0_USD_of_Warren_Buffett
5
Water is 2020's winner so farThe 3 leaders YTD have been (in order): Utilities, Healthcare, Staples; which happen to be the 3 most defensive sectors, who tend to outperform during a recession... Inside the utilities sector, the Water industry is the leader. CWCO has a beautiful looking chart, setting a strong support after making a double-bottom, which immediately after, made a bullish engulfing candle. It is interesting to note, that the volume on this 2-day event; was almost identical. Meaning the amount of buyers was larger than the seller side.
NASDAQ:CWCOLong
by dorfmanmaster
1
Value Investment - ACB - Defensive Stock All comments and likes are very appreciated. _________________________________________________________________________________________________________________ Fair Value and Profit Drivers | Our fair value estimate for Aurora is $6 per share, assuming a 1.33 CAD to U.S. dollar exchange rate as of Feb. 13 and based on a DCF with a 10-year explicit forecast. We forecast Canadian medical volume to decline about 3% per year on average from fiscal year 2020 to 2029 as consumers shift to the recently legalized recreational market. We forecast recreational volume to rise about 15% per year on average as distribution expands, consumers convert from the black market, and non-consumers become consumers. We forecast prices will grow about 2% per year on average as capacity will rise adequately to meet demand. We forecast about 18% average annual volume growth for Aurora’s international medical business amid wider legalization and distribution. Our volume forecast is muted by the emergence of cheaper suppliers in lower cost labor countries; however, Aurora’s production expansion into some of these countries helps protect its share. We forecast prices will rise roughly 3.5% per year on average, as it will take time before lower cost producers can effectively compete. We expect the company’s operating margin excluding mark-to-market plant items will become positive by fiscal 2022. By 2029, we expect that margin to reach about 35%, due to the full-ramp up of production and fixed cost leverage against overhead expenses. We forecast Aurora to reach positive free cash flow generation in 2023, as capital expenditures remain high in the near-term to fund capacity expansion. On average, we forecast capital expenditures 23% of sales through our 10-year forecast period and falling to about 8% by 2029, as we think Aurora has frontloaded capacity expansion through investments and acquisition. This will allow capital expenditures to fall rapidly while still allowing Aurora to meet demand growth. We assume a cost of equity of 7.5%, reflecting the low cyclicality of revenue, our forecast 35% operating margin, and low operating and financial leverage. Risk and Uncertainty | As a cannabis producer, Aurora faces numerous risks, largely around regulation. However, it faces additional investing risk relative to its Canadian peers. The most important risk is the pace and status of legalization, which determines when and where cannabis can be legally sold. Aurora’s home market of Canada has already legalized recreational cannabis, so U.S. legalization remains uncertain. Aurora does not operate in the U.S. and is focusing on the Canadian and international markets instead. As such, the impact is minimal. However, peers with better U.S. exposure have more potential upside as a result. Current laws make it virtually impossible to operate a cannabis company in both the U.S. and Canada, excluding hemp-derived CBD. Although there is growing public support for legalization, it is politically divisive, with most Republican support coming only in the form of state’s rights. This poses a risk for federal legalization and adoption of recreational cannabis. Regulation around supply is also a risk. Businesses must be licensed by governments to operate cultivation and dispensaries, with licenses specifying production levels. However, governments have at times expanded too slowly or too quickly. Another risk is the black market. Years of government efforts have done little to stem illegal cannabis, but a change to the ease of accessing black market supply could impact pricing power and thus profitability. In addition to operational risks, Aurora also faces significant financial risk. The company has yet to generate positive free cash flow. Unlike its peers that have funding backstops through their deep-pocketed strategic investors, Aurora has higher dependence on capital markets. There is material risk that Aurora would need to issue incredibly dilutive equity to fund itself amid ongoing cash burn. For example, Aurora had to offer dilutive terms to satisfy convertible notes holders and issue stock at low prices through its at-the-market equity issuance program. I and/or others I advise hold a material investment in the issuer's securities. _________________________________________________________________________________________________________________ All comments and likes are very appreciated. Best Regards, I0_USD_of_Warren_Buffet
TSX:ACBLong
by I0_USD_of_Warren_Buffett
5
Value Investment - BATS - Defensive StockAll comments and likes are very appreciated. _________________________________________________________________________________________________________________ Fair Value and Profit Drivers Our fair value estimate for BAT’s ADRs is £46, which implies 2020 multiples of 15 times earnings, 12 times EV/EBITDA, a free cash flow yield of over 6%, and a dividend yield of 4%. These are roughly in line with historical valuations and are sandwiched between those of Philip Morris International, BAT’s closest comparable with slightly higher implied multiples, and Imperial Brands. This is appropriate, in our view, because it reflects the companies' relative positioning in the heated tobacco category. The key underpinnings of our valuation are the pricing power of the combustible business and the sustainability of operating margins. We assume a midcycle organic sales growth rate of 2%, below our 4% benchmark assumptions for consumer staples but roughly in line with that of Philip Morris. The growth rate is driven entirely by pricing power, boosted by BAT's wide economic moat. We forecast an annual volume decline of over 2% on average over the next five years, with price/mix of 5%, a touch below the levels of recent years. On an adjusted basis, and excluding equity income, we forecast a normalized EBIT margin of 43%. This is 5 percentage points above the margin achieved in 2018, boosted by the integration of and synergies from the higher-margin Reynolds business (it achieved a 45% EBIT margin in its final year of independence) and in line with our assumption for Philip Morris International. BAT has guided to synergies of $400 million per year within three years by management, and from BAT’s own cost-efficiency efforts. We assume a stage II EBI growth rate of 3.5% and a discount rate of 7.4%. ________________________________________________________________________________________________________________ There were few surprises in British American Tobacco's preliminary 2019 results, with volume and revenue roughly in line with our forecasts, although operating profit was a little light. We are reiterating our GBX 4,500 fair value estimate and wide moat rating. The stock is materially undervalued in our opinion, and we think the market is pricing in too pessimistic a scenario, but the realization of the upside to our fair value estimate may depend on an improvement in total nicotine volume trends, a factor that these results show remains uncertain. BAT's revenue grew 5.7% on a reported basis and by a similar amount on a constant currency, adjusted basis, slightly above our forecast. The modest beat was entirely due to strong price/mix, with volume in line with our expectations. Our expectations were not particularly ambitious, however, and we would like to see stabilization in the 4.4% decline in full year tobacco volume. Developed markets are the drag, with volume in both the U.S. and the Europe and North Africa segments down 6% in 2019. By category, combustibles declined at a rate slightly faster than 6% in both regions, mitigated by double-digit volume growth in vapour and triple-digit growth in modern oral and heated tobacco. These categories remain too small to move the needle in the top line, however, and the group volume decline of 4.4% is below BAT's recent historical average, and implies a contraction in the nicotine market as a whole. A continuation of that trend is what we think is being priced into the stock. The critical issue for investors is whether volumes can normalize. At present, very strong price/mix (of 10% in 2019) is supporting revenue and earnings growth, but we worry that sustained pricing at this level will eventually lead to increased price elasticity and slow revenue growth. Our valuation assumes a growth algorithm that is more balanced between volume and pricing. Business Strategy and Outlook The advent of e-cigarettes has created the most significant change in the industry since the 1960s. Early forms of e-cigarettes have existed for a generation, but with the consumer arguably less brand-loyal and more aware of health issues than ever before, the industry is on the cusp of a seismic shift to next-generation products. It seems likely that conventional tobacco will remain the driving force of the industry profit pool for at least the next decade, but Big Tobacco manufacturers are nevertheless placing their bets on the new categories most likely to win share of smokers. To date, British American Tobacco probably has the most hedged position across the emerging categories. Its Vype brand has gained some traction in the U.K., while the acquisition of Reynolds gives it access to Vuse. The company's total 2018 research and development spending of GBP 105 million is well below the $383 million (GBP 295 million) spent by PMI last year, and the $2 billion (GBP 1.6 billion) of capital expenditures its rival invested in its heated tobacco facility in Bologna, Italy. In heated tobacco, BAT's Glo has taken tobacco market share of around 5% in Japan in 2018, although it lags PMI's iQOS. We believe heated tobacco is the category most likely to successfully attract smokers, but we do not regard the first-mover advantage as being sustainable in the long term, and it is possible that BAT will regain share through next generation products over time. BAT has doubled down on the combustible business with its acquisition of Reynolds American. We see Reynolds as an incredibly strong asset in a market with plenty of remaining potential for raising prices, and we view the deal positively from a strategic standpoint. The Newport brand is experiencing volume declines at a much slower rate than the rest of the U.S. industry and retains very strong pricing power in the midsingle digits. Nevertheless, it is this aquisition and the increased exposure to the menthol category that is a key reason for the recent weakness in BAT's stock, and the overhang of potential menthol regulation is not likely to ease in the short term. I and/or others I advise hold a material investment in the issuer's securities. _________________________________________________________________________________________________________________ All comments and likes are very appreciated. Best Regards, I0_USD_of_Warren_Buffet
LSE:BATSLong
by I0_USD_of_Warren_Buffett
PG - Ascending triangle breakoutSummary We have tested $126 over twelve times since December 16th. Yesterday's move closed above this resistance; and we are confirming today going to all-time-highs. Technicals RSI(14) @62.5 showing relative strength but not overbought OBV is trending higher confirming the move To set a short-term target. You can measure from the bottom of the triangle and add that on-top of the triangle breakout. In this case; the measured move is at $136 approximately. RRR is 3:1
NYSE:PGLong
by dorfmanmaster
2
L/S Swedish Equities Pairs TradeConsumer Defensive / Consumer Cyclical 30/12/2019 Close Long: ESSITY_B Current Price SEK: 301.80 Short: WESC_AB Current Price SEK: 0.0046 ESSITY / WESC spread Entry Range: 65608.70 ESSITY / WESC spread Hard Stop: 59076.70 (10%) ESSITY / WESC spread Soft Target: 85374.00 (30%) BETA hedge For every SEK 1.00 Long of ESSITY_B SEK 9.00 Short of WESC_AB *Build you position in two stages enter with 50% of desired exposure. *+add too the position on a breakout or at the soft target. *Hedge your currency exposure, unless you have a view on SEK. *HIGH RISK trade. Essity: Consumer Defensive (Manufacture Tissues, Toilet paper & other hygiene products) Strong fundamentals, very defensive and predictable earnings with consistent global demand, outperformed all of its competitors in 2019. *Market Cap = 212B *EPS = 14.10 ESSITY_B Consensus Jan 2020 =F1 Jan 2021 =F2 F1 P/E: 20.10x F2 P/E: 17.60x F1 Earnings Growth: 22.38% F2 Earnings Growth: 6.70% F1 Sales Growth: 2.70% F2 Sales Growth: 3.00% F1 PEG: 0.89 F2 PEG: 2.62 Risk: Reflation of the global economy, and solid resolution of political tensions. And therefore a full risk on scenario and defensive stock underperformance. Wesc: Consumer Cyclical (Trades Apparel & related products, under it brand name WESC) Weak fundamentals, very cyclical and “polluting” as it’s fast low quality fashion. Loss making. In desperate need of a turn around, I feel the business will not attract new talent (As the brand is notoriously NOT cool for millennials and gen z) and isn’t worth turning around as a brand, also no analyst and very hard to find relevant financial information in for the company. *Market cap = 22M *EPS = -0.0150 Risk: Merger, acquisition or turnaround. Otherwis I’d be happy to keep this position on for the foreseeable future. *KEEP YOUR POSITION SIZE SMALL* This is a risky pairs trade as WESC could get bought out, or turned around and go to infinity, but I’m betting against that. LONG High quality Swedish Consumer Staple. SHORT Low quality Swedish Consumer Cyclical.
OMXSTO:ESSITY_B
by Impreza
RCII forming pennant, likely to run againRCII has a 9.3/10 Equity StarMine Summary Score, has beaten analyst estimates on its last 5 earnings reports, and has grown earnings by 113% this year. Its P/E of 12.3 is quite attractive for a growing company. Here's S&P Capital IQ's analysis of the fundamentals, scored out of 100: Valuation: 99/100 (extremely undervalued) Quality: 98/100 (extremely high quality) Growth stability: 97/100 (extremely stable) Financial health: 95/100 (extremely healthy) Man. You don't see numbers like those every day. About the only thing RCII *doesn't* have going for it is that rentals aren't a very sexy sector. This isn't going to run like a Tesla or a Beyond Meat. Still, this is a very solid stock that should climb out of its pennant soon, in my opinion. Set a stop loss beneath the pennant bottom. Edit to add: 1) several directors added shares on September 6, which I assume was part of their compensation plan, 2) RCII's price stayed stable after its dividend, which is always a good sign, 3) RCII got upgraded by Recognia today after the algorithm detected a breakout. I think this was a false positive, but it could move the stock price up anyway.
RLong
by ChristopherCarrollSmith
Good defensive play for those who wish to be fully investedApproximately one month following the FDA’s menthol announcement, selloff has caused British America Tabacco BATS to drop more than 50% in value from its all time high. Although it's understandable this is concerning for investors, I don't believe it will ultimately have a huge effect even if the ban is passed into law. Although I remain cautious, it has pushed their valuation to an extremely attractive level and presents long-term investors with an excellent opportunity. Tobacco stocks have traditionally held up well during bear markets, and I think British American Tobacco is a good defensive play for those who wish to be fully invested.
LSE:BATSLong
by warrenhochfeld
ASX:CWY - A defensive stock to look at @CleanawayAUJust playing around with this one on a search for a defensive stock to add to the portfolio. It's giving mixed signals at the moment. There's a small head and shoulders pattern, but over such a short period of time, I'm more inclined to look at the break-out of the descending wedge. If this is the dominant pattern, then I'd expect it to reverse and start an upward trend. I haven't look into the fundamentals of the business at this point, so if anyone has some info on it that would give me a head start, it would be appreciated.
ASX:CWYLong
by UnknownUnicorn2137805
SICK sector rotations to defensive stocks for US stock market!I posted so much less stock ideas this quarter as generally I like to long stock that I'm willing to invest, and look for bullish set-ups. While even I'm still bullish in so many names, but there aren't so many bullish set-ups in this market. Wait a minute, defensive stocks are big exceptions and perfect choice for bottom-up strategy recently, and it's more than reasonable! KO PG MCD YUM COST and other classic defensive names like VZ, JNJ, MRK, PEP all showed great relative strength than the market! (T is the lagger though) That is, P/E ratio for tech stocks encounters huge corrections and the money come out of them just ran into these defensive stocks. U.S stock market is still the top choice as there aren't many better alternatives. While, investors tend to turn money into defensive stocks to fight for fluctuations. In conclusion, it's still far from a financial crisis and it's still not too late to look for long opportunities in this sector! Let's see how it goes!
NYSE:MCDEducation
by Trader_Joe_Lee
2