Friday 4 November 2016

Big Bucks


"Starbucks reported results for their fourth quarter and full year last evening after the bell. The stock has had a pretty awful year-to-date performance, down 13 percent. Over the last decade however, the stock is up 183 percent. Coffee drinking is more than just that. For some people it is an art."




To market to market to buy a fat pig 8 days in a row down, that is what the S&P has registered. Election jitters, we are told. The moves to the downside have hardly been excessive, they have been to the downside, and that is all that matters. Eddy Elfenbein says that the S&P hasn't been down 9 days in a row since the 1980's, polka dots, stonewashed tight jeans, big hair (big volumes), punk fashion, leotards, bright colours. Remember Bette Davis Eyes, Every Breath You Take, Careless Whisper, When Doves Cry, That's What Friends Are For, Like a Prayer and Miss You Much. Artists like Michael Jackson, Stevie Wonder, Madonna, Lionel Ritchie, Whitney Houston and George Michael. I just brought back pictures of horrible hairstyles and disco.


Yes, that is when last the S&P 500 recorded a losing day of 9 days. Interestingly, the last time the market recorded 8 days in a row down was in the midst of the financial crisis. That week. It started with a Lehman bankruptcy and saw Merrill married to Bank of America, AIG being bailed out. TARP was announced at the end of that week. Those were crazy days, two months of daily drama. What we have seen here is a whole lot of flat, earnings flat to lower and seemingly getting to a trough. i.e. earnings have bottomed. Session end the Dow closed 0.16 percent lower, the broader market S&P 500 lost 0.44 percent and Facebook (down 5.6 percent) led the nerds of NASDAQ lower, that index was off 0.92 percent.


Both GoPro and FitBit got crushed. Their products are pretty awesome, how many do you need though? The Apple Watch and the rise of wearables has impacted on FitBit without a doubt. Last year the Apple Watch was the second best selling watch globally. Overall. Last year electronic watches had 23 percent of the market, expect that to rise. Hong Kong by value (just over 20 percent) is the largest market. Yes Apple has chowed probably Swatch's lunch. And in the wearables department, they are better than FitBit. since listing last year, FitBit is down nearly three-quarters. The current market cap is 1.86 billion Dollars. GoPro. Not enough. Current market cap 1.63 billion Dollars, down two-thirds since listing. From the October 2014 high? Down 86 percent. Shudder. The cameras and durability of smartphones have improved so much in the video area, I guess that is why this company has felt the heat. I suspect that they will both make a comeback.


Locally, a broad based sell off saw the All Share Index close down between one-third and one-quarter of a percent. Truworths was bashed, all other retailers took some heat. It was an 18 week trading statement from the AGM -> "slow economic growth, high inflation in product prices due to the weakened currency, and the significantly negative impact of the new affordability assessment regulations" is likely to see results impacted. Looks tough out there. And has been for some time now, Truworths stock is down nearly 28 percent in three years, nearly 17 percent in the last five. Over ten years it is better, the stock is up 146 percent. It just goes to show you that the cycles can be long, the time of owning the stock through the cycles is very important too.




Company corner


Starbucks reported results for their fourth quarter and full year last evening after the bell. The stock has had a pretty awful year-to-date performance, down 13 percent. Over the last decade however, the stock is up 183 percent. Coffee drinking is more than just that. For some people it is an art. Michael used to have a flatmate that took it to the nth degree, cold brewing overnight. Some people grow tomatoes, some people brew their own beer, some people roast their own coffee beans.


My only description for coffee and the attraction is that it is the only legal daytime drug that people yearn for, the smell, the taste and the buzz. Drip/Filter, plunger/French press, percolated or boiled (Turkish and Greek), you can take your coffee in multiple ways. According to the Caffeine Informer (there is such a website), the Coffee Crave Fearless Black comes with the most power. For the record, caffeine has a half life of 4-6 hours.


Coffee, according to the Wikipedia entry, was first drunk in Yemen around 400 odd years ago. Such was the popularity, that it quickly spread and the first European coffee houses were in Venice, the merchants importing vast quantities of the drink. I have actually been to a wonderful spot in Rome, near the Spanish steps called the Antico Caffè Greco, the second oldest cafe in all of Italy, after Caffè Florian in Venice. There were coffee houses in Damascus and Cairo long before the bean spread across the Mediterranean. Coffee actually has very little nutritional value. Two calories a pop. It is all the other stuff that you add that makes it a little more delicious and unfortunately full of calories. Drop the cream and the flavouring, OK?


Starbucks numbers for the quarter were a marginal beat, by a cent, the guidance for the next year was a little lower than the market was looking for. It is a massive operation. Let us look at the FY numbers, those are more important. For me anyhow, it takes away the volatility element of 14 weeks. Revenues increased 11 percent from the prior year to 21.3 billion Dollars. Operating income increased 16 percent to 4.2 billion Dollars, operating margins expanded 80 basis points to 19.6 percent. EPS increased by 4 percent to 1.90 Dollars.


Guidance, here it is quickly. Non-Gaap EPS is expected to be between 2.12 to 2.14, comparable store sales are expected to be higher in the mid single digits, overall revenue growth is expected to be in the low teens. And the group hopes to open around 2100 stores. That is roughly 40 stores a week, which in itself is an amazing feat when you look at all that goes into a store of this nature. They plan on opening three more of the big ones, the Starbucks Reserve Roastery and Tasting Room will open in New York, Shanghai and now Tokyo. To open in 2018. They look spectacular.


Astonishingly, they opened 2042 stores in the last financial year, including here for the first time. Other territories that got to taste the deliciousness of Starbucks for the first time were Cambodia, Kazakhstan, Luxembourg, Andorra, Slovakia, and Trinidad and Tobago. All around the world and in different places. I think that the growth trajectory of the company is clear, they want to operate in multiple territories and make sure that they become the number one quick service restaurant in your neighbourhood. They now operate in 75 countries around the world.


At 52.5 Dollars, with expectations of 2.14 Dollars, the stock trades on 24 times forward. And for the following year, earnings are expected to be around 2.5 Dollars, so the stock trades further out at 21 times. The big thing yesterday was that the dividend was hiked to 25 cents a quarter. From 20 cents, so it was not insignificant. The dividend yield is now, pre-tax 1.9 percent. We continue to accumulate one of the best brands and consumer stocks globally. This is a spectacular brand with huge growth potential.




Linkfest, lap it up


I can't imagine having to deal with this problem. Imagine having worked your whole life, only to have your pension wiped out due to hyper inflation - Venezuelans Give Up on Counting Piles of Cash and Start Weighing Them.


It looks like Trumps wall will do more to keep illegal immigrants in the US than out - As Mexico's economy improves, the lure of life in the US is fading fast.


    "Even Mexicans who made it to the other side are now returning home-in bigger numbers than those headed to the US."


Given how choppy the market has been of late, all time highs seem rather far from investors minds - Don't Be Afraid of All-Time Highs in the Stock Market. We will get back to all time high territory eventually.


Traditions, increased property prices, lack of work & student debt are some of the reasons why young people still live with their parents - 81% Of Young Italians Live With Their Parents


Infographic: 81% Of Young Italians Live With Their Parents | Statista
You will find more statistics at Statista




Home again, home again, jiggety-jog. It is non-farm payrolls today, the estimated number is quite close to the average for the last little while. Stocks across Asia are mixed to lower. Enjoy the very last day of daylight savings and a 15:30 US market open here. You will have to wait 1 hour longer in the afternoon for those markets to open. I guess you get an extra hour in the evening.




Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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