5/16/17
The big news in the markets today is the purchase of Whole Foods (WFM) by Amazon (AMZN). This
potential deal has roiled the entire retail industry, and hence I watched this
development with more than the usual attention because I am a holder of Target (TGT). I have
been a holder of TGT for the last six months or so; with the little money I
invest in anything but index funds, I like to buy stocks that have been beaten
up, pay large dividends, and have been, in the case of TGT, increasing those
dividends annually for the last 47 years.
While this strategy has not heretofore worked out with TGT, especially today,
I intend to stay with what has worked for a long, long time for me rather than
abandoning it in the wake of a one day, or several months, disappointment. But I digress.
Yours truly is no expert in retail; as I said in the last
paragraph, I bought TGT because it looked attractive based on some financial
parameters I apply to stocks in any industry.
So as a non-expert, I have very little to say on the merits, or lack
thereof, of the AMZN-WFM deal. It does
seem like AMZN paid a high price for distribution centers in an environment
characterized by square miles of empty retail space across suburban and urban
America. Further, AMZN’s heretofore
foray into food retailing has not been a raging success. But Jeff Bezos is a heck of a lot smarter
than yours truly and it’s easy to assume he knows what he’s doing. Further, by buying Whole Foods, the kind of
store that is regularly patronized by the Wall Street and Wall Street wannabe
crowd, he has certainly garnered the enthusiasm of the crowd that can make his
stock move up rapidly in the short run.
So far, this deal has been a success, but that is not the point of this
musing.
What really got yours truly’s attention was the commentary
on the deal by the learned experts on CNBC and in other quarters of the financial
media. On this morning’s episode of
CNBC’s 11:00 (central time) trading show, we were told by the brilliant
commentators that
·
Nobody shops offline any more.
·
The only reason that people go to grocery stores
today is because they are either driving by a grocery store or need fresh
produce, and
·
Investors don’t care about profitability; look
at the relative performance of AMZN, which has only begun to be profitable in
the last year or so, and TGT, which struggles to maintain single digit earnings
growth.
Hmm…
I am far older than most of the experts on the panel on
CNBC and, judging at least from appearances, am not nearly as successful
financially as any of them. But the
notion that people don’t like to go to stores in a nation whose national
pastime is neither football nor baseball but, rather, shopping, strikes me as
preposterous. Yes, “brick and mortar”
retailing is in decline, but people don’t like physical stores anymore? C’mon!
Equally silly is the notion that people don’t go to grocery stores
unless they happen to be in the neighborhood or need fresh produce. Even sillier is the notion that
profitability doesn’t matter, but, again, it was a trading, rather than an
investing, show on which these sages are appearing.
The larger point
is that such notions are yet another manifestation of Wall Street’s tendency to
see the world through its eyes and its eyes alone. Swashbuckling, 7 figure Wall Street types
who only began shaving in the ‘90s may buy everything on their electronic balls
and chains, pay twice retail for fresh produce, even though it will spoil twice
as quickly, because it is labelled “organic” or whatever the latest trendy characterization
is, and “don’t have the time” to go to grocery stores, presumably because there
is a tweet or a Snap or some other manifestation of technology inspired brain
rot that demands an ever growing chunk of their time. But ordinary people still like to shop in
person and still go to grocery stores to buy items other than fresh
produce. And profitability or, more
specifically, the ability to generate cash flow, is the only thing that
ultimately matters to investors.
Most Wall Street types suffer from profound and seemingly
untreatable cases of myopia; they assume the whole world lives in a high rise
in Manhattan, a trendy brownstone in Brooklyn, or a massive McMansion in
Greenwich. They assume everyone has the disposable income
to buy what s/he wants rather than what s/he can afford. And they tend to approach disposing of their
massive incomes with the mindset of a yet to mature sheep. When there are flaws in their analysis and
the resultant trading calls they make, they usually arise from this very
limited world view.
Does the AMZN/WFM deal make sense? I don’t know and I don’t presume to
know. But the justification for some of
the enthusiasm behind this deal makes me leery because it emanates from people
who are completely out of touch with the typical American consumer.
AMZN $995.17
WFM $43.27
TGT $51.65
No comments:
Post a Comment