Fact of the Week:
The number of U.S. hotels with an average daily rate of $1,000-plus in the first half of this year was 80, compared with 22 in 2019.
Happy Labor Day weekend!
August’s Opportunity Report:
“This month’s Opportunity Report features a small-cap company that has dramatically reinvented its business model from legacy print and services operations (where it would receive a one-time fee for products sold/services rendered) into a SaaS-like recurring revenue subscription model today. Coinciding with that transition, its revenue predictability and profit margins have materially improved and there is still room for further progress on those fronts. Buying equity securities at attractive valuations is a common habit shared among many highly successful investors. While we believe the following name fits the bill (trading at a compelling valuation compared to its abundant cash flow), we are not the only ones: the company itself has not shied away from opportunistically buying its own shares, occasionally in large quantities, and has made meaningful repurchases in recent quarters. Moreover, the Company’s board recently authorized a significant new repurchase authorization…”
The Month That Was:
August began on a shaky note, with the S&P 500 experiencing a steep decline of more than 6% in just the first three trading days. The so-called "Magnificent Seven" stocks fared even worse, plummeting nearly 10% in the first week. This sharp drop was driven by concerns that the economy might be slowing more than expected, raising doubts about the Federal Reserve's ability to engineer a "soft landing." Wall Street's fear gauge, the VIX, saw its largest intraday spike on record. The unwinding of the yen carry trade further fueled the sell-off.
However, the market found its footing as the month progressed. New economic data bolstered hopes that a soft landing was still achievable, and optimism grew after Fed Chair Jerome Powell pretty much signaled there will be a rate cut in September. This shift in sentiment helped the S&P 500 recover, ultimately gaining 2.28% for the month—marking its fourth consecutive monthly gain. The equal-weighted S&P 500 reached a record high.
Small-cap stocks underperformed, with the Russell 2000 index declining by 1.63%. In terms of sector performance, Consumer Staples led the way, advancing 5.78%, followed closely by Real Estate, which gained 5.64%. On the other end of the spectrum, Energy shares lagged, declining by 2.32%, and Consumer Discretionary stocks lost 1.08%.
Notable Reads:
Dollar General Shares Crater 25% as Retailer Cuts Outlook, Blaming ‘Financially Constrained’ Customers
https://www.cnbc.com/2024/08/29/dollar-general-shares-crater-20percent-as-retailer-cuts-outlook-blaming-financially-constrained-customers.html
Dollar General shares tumbled Thursday after the discount retailer slashed its sales and profit guidance for the full year, suggesting its lower-income customers are struggling in this economy.
Shares of the retailer, which caters to more rural areas, tumbled 25% after the earnings report.
The company now expects fiscal 2024 same-store sales to be up 1.0% to 1.6%, lower than its prior outlook for a 2% to 2.7% increase. Earnings per share for the year are expected to be in the range of just $5.50 to $6.20, versus the prior forecast of $6.80 to $7.55 per share.
“While we believe the softer sales trends are partially attributable to a core customer who feels financially constrained, we know the importance of controlling what we can control,” said CEO Todd Vasos in a statement.
Our Take: This situation underscores how inflation is squeezing consumers' purchasing power, particularly in rural areas, where Dollar General operates. Some interesting/scary/depressing excerpts from their earnings call:
The majority of our customers state that they feel worse off financially than they were six months ago.
Higher prices, softer employment levels and increased borrowing costs have negatively impacted low-income consumer sentiment. As a result, our core customers, who contribute approximately 60% of our overall sales comes predominantly from households earning less than $35,000 annually. Inflation has continued to negatively impact these households with more than 60% claiming they have had to sacrifice on purchasing basic necessities due to the higher cost of those items.
Approximately 30% of our customers have at least one credit card that has reached its limit.
25% of our customers surveyed noted they anticipated missing a bill payment in the next six months. While middle and higher income households are seeking value as well, they don't claim to feel the same level of pressure as low income households.
Notably the three softest comp sales weeks of the quarter were the last week of each of the calendar months. This pattern suggests that our customers are less able to stretch their budgets through the end of the month.
Bosses Are Finding Ways to Pay Workers Less
https://www.wsj.com/lifestyle/careers/salary-workers-pay-cuts-2024-54101d66
Bosses are quietly trying to reset worker pay levels, saying the era of overpaying for talent is over.
Pay for many white-collar recruits shrank last year, and now wages for new hires in construction, manufacturing, food and other blue-collar sectors appear to be ebbing too, according to an analysis of millions of jobs posted on ZipRecruiter.com.
Job seekers report seeing roles that once offered salaries between $175,000 and $200,000 a year ago now being advertised for tens of thousands of dollars less, a change that has had them rethinking their pay expectations. Companies are also moving job openings to lower-cost cities or offering them as lower-paying contractor roles, recruiters and corporate advisers say.
Our Take: This is perfectly normal and to be expected. What we're seeing with companies lowering salaries is just part of the natural rhythm of the economy. It's not necessarily a sign that something is fundamentally broken; it's just how things go. During boom times, companies pay more because they need to attract talent. When things start to cool down, they can pay less. This part of a normal cycle, like the ups and downs of any market.
The IPO Market Gets Cold Feet
https://www.wsj.com/finance/stocks/the-ipo-market-gets-cold-feet-80222c4c
September is a popular time for companies to go public. This month’s stock-market volatility is putting some plans on ice.
Companies weighing whether to make their stock-market debuts face a critical decision in the coming weeks: pull the trigger soon so they can launch their deals before year-end or hold off until 2025.
The outlook isn’t rosy. The growing consensus among companies considering initial public offerings is to wait until next year, many bankers, lawyers and corporate executives say. It isn’t just the market’s recent choppiness, they say, but that turbulence could flare up again, given the uncertainty around November’s presidential election and how much the Federal Reserve will cut interest rates this year.
Last week, Chinese autonomous-driving technology company WeRide postponed its IPO, saying it needed more time to finalize documents. Ticket-resale company StubHub last month pushed off launching its roadshow for investors until September at the earliest, though some people familiar with the offering say it is likely to be delayed until 2025.
Our Take: Certainly not welcome news for investment banks whose profits (and yearend bonuses) are impacted by the number of IPOs!
US Mortgage Rates Decline for Second Week, Slipping to 6.35%
https://www.bloomberg.com/news/articles/2024-08-29/us-mortgage-rates-decline-for-second-week-slipping-to-6-35
Mortgage rates in the US fell for a second straight week.
The average for a 30-year, fixed loan was 6.35%, the lowest level since May 2023, Freddie Mac said in a statement Thursday. It dropped from 6.46% last week.
Borrowing costs have eased recently, driven in part by expectations that the Federal Reserve will cut its benchmark interest rate at its September meeting. Last week, Fed Chair Jerome Powell said the “time has come for policy to adjust.”
Our Take: Mortgage rates have dropped from their highs, offering a glimmer of hope for homebuyers and sellers. However, the housing market remains challenging, with home prices still near record highs and inventory levels low. While lower interest rates could help boost the market, many buyers are still sidelined due to affordability issues. The slight decline in mortgage rates might stimulate some activity, but significant improvement probably will require rates to go down even further.
Important Disclosures. The information herein is provided by Boyar’s Intrinsic Value Research LLC (“Boyar Research”) and: (a) is for general, informational purposes only; (b) is not tailored to the specific investment needs of any specific person or entity; and (c) should not be construed as investment advice. Boyar Research does not offer investment advisory services and is not an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) or any other regulatory body. Any opinions expressed herein represent current opinions of Boyar Research only, and no representation is made with respect to the accuracy, completeness or timeliness of the information herein. Boyar Research assumes no obligation to update or revise such information. In addition, certain information herein has been provided by and/or is based on third party sources, and, although Boyar Research believes this information to be reliable, Boyar Research has not independently verified such information and is not responsible for third-party errors. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Investing in securities involves risk, including the possible loss of principal.
Important Information: Performance Information. Past performance does not guarantee future results. The reports in this sample are for informational purposes only and the performance of the stocks selected is not indicative of the performance of all the stocks profiled in Boyar Research. The performance of the stocks selected and the performance of the stocks in Boyar Research may in fact diverge materially. Additional information regarding the performance of other companies featured in Boyar Research is available from Boyar Research upon request. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein.