Category Archives: Aging of the Population

Brookdale Senior Living: are its thematic tailwinds enough to earn a buy rating?

Brookdale Senior Living: are its thematic tailwinds enough to earn a buy rating?

The following article is an excerpt from Tematica Investing, our cornerstone research publication. Tematica Investing includes original investment ideas and strategies based upon our proprietary thematic investing framework developed by our Chief Investment Officer Chris Versace. Click here to read more about our Premium Tematica Research Membership offering.

One of the great things about thematic investing is there is no shortage of confirming data points to be had in and our daily lives. For example, with our Connected Society investing theme, we see more people getting more boxes delivered by United Parcel Service (UPS) from Amazon (AMZN) and a several trips to the mall, should you be so inclined, will reveal which retailers are struggling and which are thriving. If you do that you’re also likely to see more people eating at the mall than actually shopping; perhaps a good number of them are simply show rooming in advance of buying from Amazon or a branded apparel company like Nike (NKE) or another that is actively embracing the direct to consumer (D2C) business model.

While it may not be polite to say, the reality is if you look around you will also notice that the domestic population is greying. More specifically, we as a people are living longer lives, and when coupled with the Baby Boomers reaching retirement age, it has a number of implications and ramifications that are a part of our Aging of the Population investing theme.

There are certainly the obvious issues related to this demographic shift, such as whether or not folks have enough saved and invested well enough to support themselves through increasingly longer life spans. And then, of course, there is the need of having access to the right healthcare to deal with any and all issues that one might face. That is something that shouldn’t be taken for granted, given the national shortage of nurses and health care professionals we are currently experiencing, and the reason why one AMN Healthcare Services (AMN) has been on the Tematica Investing Select List in the past.

But our Aging of the Population theme doesn’t stop there. Again, much like looking around at what people are doing at the mall, all one has to do is sit back and assess the day-to-day life of a typical octogenarian and see that we are seeing:

  • A shift in demand for different types of housing as seniors give up on the homestead and move into easier to maintain condos and townhouses.
  • An even greater focus on online retailers that will deliver purchases directly to the home, rather than having to go out and carry purchases from the store to the car and then into the home. Also driving this shift will be younger children making purchases for their aging parents and having them shipped directly to their home.
  • Fountain of Youth goods and services will be in even higher demand as Baby Boomers will not let go of their youth easily.
  • And finally, technology and services that will help maintain independence— we’re talking about robots, digital assistants, monitoring equipment and even things such as the autonomous car.

According to data published by the OECD in 2013, the U.S. expectancy was 78.7 years old with women living longer than men (81 years vs. 76 years). Cross-checking that with data from the Census Bureau that says the number of Americans ages 65 and older is projected to more than double from 46 million today to 75.5 million by 2030, according to the U.S. Census Bureau. Other data reveals the number of older American afflicted with and the 65-and-older age group’s share of the total population will rise to nearly 25% from 15%. According to United States Census data, individuals age 75 and older is projected to be the fastest growing age cohort over the next twenty years.

As people age, especially past the age of 75, it becomes challenging for individuals to care for themselves, and this is something I am encountering with my dad who turns 86 on Friday. Now let’s consider that roughly 6 million Americans will have Alzheimer’s by 2020, up from 4.7 million in 2010, and heading to 8.4 million by 2030 according to the National Institute of Health. Not an easy subject, but as investors, we are to remain somewhat cold-blooded if we are going to sniff out opportunities.

What all of this means is we are likely to see a groundswell in demand over the coming years for assisted living facilities to house and care for the aging domestic population.

 

Is Brookdale Senior Living Positioned to Ride this Thematic Tailwind?

One company that is positioned to benefit from this tailwind is Brookdale Senior Living (BKD), which is one of the largest players in the “Independent Living, Assisted Living and Memory Care” market with over 1,000 communities in 46 states.

The company’s revenue stream is broken down into fives segments:

  • Retirement Centers (14% of 2017 revenue; 22% of 2017 operating profit) – are primarily designed for middle to upper-income seniors generally age 75 and older who desire an upscale residential environment providing the highest quality of service.
  • Assisted Living (47%; 60%) – offer housing and 24-hour assistance with activities of daily living to mid-acuity frail and elderly residents.
  • Continuing care retirement centers (10%; 8%) – are large communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health.
  • Brookdale Ancillary Services (9%; 4%) – provides home health, hospice and outpatient therapy services, as well as education and wellness programs
  • Management Services (20%; 6%) – various communities that are either owned by third parties.
  • In looking at the above breakdown, we see the core business to focus on is Assisted Living as it generated the bulk of the company’s operating profit stream. This, of course, cements the company’s position within the framework of Tematica’s Aging of the Population theme. However, as with all investment strategies, success with a thematic approach ultimately comes down to the underlying principle of investing: determining if a stock is mispriced or undervalued relative to the business opportunities ahead as a result of the sea change presenting itself through a theme.

And so with Brookdale, we must determine whether it is a Tematica Contender — a company that we need to wait for the risk to reward tradeoff to reach more appetizing levels -—  or is one for the Tematica Investing Select List to issue a Buy rating on now?

 

Changes afoot at Brookdale

During 2016 and 2017, both revenue and operating profit at Brookdale came under pressure given a variety of factors that included a more competitive industry landscape during which time Brookdale had an elevated number of new facility openings, which is expected to weigh on the company’s results throughout 2018. Also impacting profitability has been the growing number of state and local regulations for the assisted living sector as well as increasing employment costs.

With those stones on its back, throughout 2017, Brookdale surprised to the downside when reporting quarterly results, which led it to report an annual EPS loss of $3.41 per share for the year. As one might imagine this weighed heavily on the share price, which fell to a low near $6.85 in late February from a high near $19.50 roughly 23 months ago.

During this move lower in the share price, Brookdale the company was evaluating its strategic alternatives, which we all know means it was putting itself up on the block to be sold. On Feb. 22 of this year, the company rejected an all-cash $9 offer as the Board believed there was a greater value to be had for shareholders by running the company. Alongside that decision, there was a clearing of the management deck with the existing President & CEO as well as EVP and Chief Administrative Officer leaving, and CFO Cindy Baier being elevated to President and CEO from the CFO slot.

Usually, when we see a changing of the deck chairs like this, it likely means there will be more pain ahead before the underlying ship begins to change directions. To some extent, this is already reflected in 2018 expectations calling for falling revenue and continued bottomline losses.

Here’s the thing – those expectations were last updated about a month ago, which means the new management team hasn’t offered its own updated outlook. If the changing of the deck history holds, it likely means offering a guidance reset that includes just about everything short of the kitchen sink.

On top of it all, Brookdale has roughly $1.1 billion in long-term debt, capital and leasing obligations coming due this year. At the end of 2017, the company had no borrowings outstanding on its $400 million credit facility and $514 million in cash on its balance sheet. It would be shocking for the company to address its debt and lease obligations by wiping out its cash, which probably means the company will have to either refinance its debt, raise equity to repay the debt or a combination of the two. This could prove to be one of those overhangs that keeps a company’s shares under pressure until addressed. I’d point out that usually, transaction terms in situations like this are less than friendly.

 

The Bottomline on Brookdale Senior Living (BKD)

While I like the drivers of the underlying business, my recommendation is we sit on the sidelines with Brookdale until it addresses this balance sheet concern and begins to emerge from its new facility opening drag and digestion. Odds are we’ll be able to pick the shares up at lower levels.

This has me putting BKD shares on the Tematica Investing Contender List and we’ll revisit them for subscribers in the coming months.

The preceding article is an excerpt from Tematica Investing, our cornerstone research publication. Tematica Investing includes original investment ideas and strategies based upon our proprietary thematic investing framework developed by our Chief Investment Officer Chris Versace. Click here to read more about our Premium Tematica Research Membership offering.

AMN shares Trumped — Washington activity puts shares of AMN Healthcare under pressure

AMN shares Trumped — Washington activity puts shares of AMN Healthcare under pressure

After Thursday’s market close, healthcare workforce solutions company AMN Healthcare (AMN) reported better than expected March quarter results and guided 2Q 2017 a tad shy of existing expectations. EPS came in at $0.63, $0.03 per share better than consensus expectations and compares to the $0.60 earned the year-ago quarter. Revenue rose to $495.1 million for the reported quarter, edging out expectations of $493 million, and was up roughly 6 percent year over year. Despite those results and the continued pain point that is fueling its business, better known as our Aging of the Population investing theme, AMN shares have come under pressure in the last 24 hours.

We attribute this to the TrumpCare passing the House and heading to the Senate for a vote. We’ll be digging into this to determine what if any potential negatives are for AMN’s business over the coming days. We’ll also examine the March JOLTs report that is released next week, as we repeatedly double check our underlying thesis on the shares.

  • For now, our price target on AMN shares remains $47, which offers sufficient upside to keep our Buy rating in play.

 

Getting back to the company’s 1Q 2017 results, from a mix perspective AMN’s Nurse and Allied Solutions business (63% of revenue) rose 5 percent year over year due primarily to a near 7% increase in the average number of healthcare professionals on assignment compared to the year-ago quarter. That performance was bittersweet given its the company’s largest business, and even though gross margins rose to just under 28 percent vs. just under 27 percent in the year go quarter, those margins remained the lowest of among its three businesses.

The Locum Tenens solutions business (21% of revenue) delivered flat revenue as the revenue per day filled (up 5.4%) was offset by a lower number of days filled (down 5% year over year). Both the increase in revenue per day as well as lower number of days fill speak to the widening disconnect we keep seeing in the monthly JOLTS report when it comes to healthcare workers. Lastly, the Other Workforce Solutions business (16% of revenue) delivered a 22% increase in revenue, with a large part of that reflected last June’s acquisition of Peak Health Solutions as well as growth in the VMS and interim leadership businesses.

To sum it up, the quarter was another solid one for AMN and given the demographics, we continue to see the company benefiting from both the aging of the population that will spur demand for healthcare workers as well as be benefitting from the continued nursing shortage.

 

 

Thematic Tailwinds and Headwinds Drive February Retail Sales 

Thematic Tailwinds and Headwinds Drive February Retail Sales 

This morning the US Department of Commerce published its February Retail Sales report, which was in line with expectations growing 0.1 percent compared to January. This report is always an interesting read due in part to the fact that we can look at the data a number of ways — month over month, year over year, and three-month comparisons on a trailing and year over year basis. As you can imagine, this can lead to quite a bit of confusion when trying to puzzle together exactly what the investing signal is coming out of that retail report noise.

Here’s our take on it featuring the thematic lens that we hang our hat at here at Tematica . . .

February 2017 vs. January 2017

Month over month retail sales climbed by 0.1 percent, in line with expectations. The four categories that saw faster spending growth than the average were furniture (+0.7 percent), building materials (+1.8 percent), health & personal care stores (+0.7 percent) and nonstore retailers (+1.2 percent). The sequential increase in building material demand, as well as furniture, fits with the mild winter weather that led to a pickup in construction employment and a stronger than seasonal pickup in housing starts.

The continued tick higher in health & personal care stores ties with our Aging of the Population investing theme. We continue to see this category rising faster than overall retail spending as the first baby boomers turn 70 this year with another 1.5 million each year for the next 15 years. The scary part is of these baby boomers, roughly only 50 percent have saved enough for retirement, which touches on our Cash Strapped Consumer investing theme.

Finally, we once again see Nonstore retailers taking consumer wallet share in February, which comes as no surprise as Amazon and other retailers continue to expand their service offerings and geographic footprints, while other traditional brick & mortar retailers focus on growing their direct to consumer business. In short, our Connected Society investing theme continues to transform retail.

Month over month weakness was had at electronics & appliance stores, clothing, and department stores. Compared to January gasoline station sales ticked down modestly as well, which we attribute to the essentially flat gasoline prices month over month per data from AAA.

 

February 2017 vs. February 2016

Year over year February Retail Sales excluding autos and food rose 5.9 percent led by a 19.6 percent increase in gasoline station sales, a 13.0 percent increase in Nonstore retail, a 7.3 percent rise in building materials, a 7.0 percent increase at health & personal care stores. Without question, the rise in gasoline station sales reflects the year over year 18 percent increase in gas prices per AAA data, while the milder winter we discussed earlier is likely pulling demand forward in construction and housing — we’ll look for February and March housing data to confirm this. The rise in gas prices reflects OPEC oil production cuts, which serves as a reminder that oil and other energy products are part of our Scarce Resource investing theme — there is only so much to be had, and production levels dictate supply.

As far as the year over year increase in health & personal care goes, it’s the same story — the Aging of the Population as Father Time is a tough customer to beat no matter how people embrace our Fountain of Youth investing theme. Finally, and certainly no surprise is the continued increase in Nonstore retail sales. Candidly, we see no slowdown in this Connected Society shift — all we need to do is look at the evolving shopping habits of the “younger” generation.

The two big declines were had were…. no surprise….. electronic & appliance stores, which fell 6 percent year over year, and department stores, which dropped 5.6 percent compared to February 2016.  With hhgregg (HGG) closing a good portion of its stores and JC Penney (JCP) recently announcing even more store closures, the results of these two categories, which are likely feeling the heat from Amazon (AMZN) in particular and others benefiting from the Connected Society tailwind, the results from these two categories is anything but surprising.

If we look at the three month rolling average on both a sequential and year over year basis, the leaders remained the same — building materials, gasoline stations, Nonstore retail and health & personal care. Behind each of these there is a clear thematic tailwind, even construction and housing, which is has historically been a beneficiary of the rising aspect of our Rise & Fall of the Middle Class investing theme. We’ll have a better sense of that with tomorrow’s February Housing Starts and Building Permits report.

And just in case anyone was holding out hope for electronics & appliance stores and department stores, the three-month rolling averages showed continued declines on both on a sequential and year over year basis. Nothing like a thematic headwind to throw cold water on your business.

The question to us is whether we will see more M&A chatter like we saw several weeks back with Macy’s (M) and more recently with Hudson Bay (TSE:HBC) being interested in Neiman Marcus. We can understand one company picking off well-positioned assets that might improve its overall customer mix, but we suspect there will be a number of companies left standing with no dance partners when this game of retail musical chairs is over. That means more companies going the way of Wet Seal than not, which means pain for mall REIT companies like Simon Property Group (SPG).

Before we go, we have to mention the piece by Tematica’s Chief Macro Strategist, better known on the Cocktail Investing Podcast as the High Priestess of Global Macro, Lenore Hawkins, which  called out the lack of weekly, year over year wage growth in February. Paired with higher prices, such as gas prices and others, that are leading to a pickup in reported inflation, it tells us our Cash-strapped Consumer investing theme has more room to go.

Hat tip to Lenore Hawkins, who added her special sauce and insights to this viewpoint. 

Note: Tematica’s subscription trading service, Tematica Pro, has a short position in SPG shares. 

 

AMN Delivers in the December Quarter with More to Come in 2017

AMN Delivers in the December Quarter with More to Come in 2017

Late this week, Aging of the Population position AMN Healthcare (AMN) reported better than expected December quarter results on both the top and bottom line, which propelled the shares higher 8 percent this week. For the quarter AMN delivered EPS of $0.62 per share vs. the expected EPS of $0.54 on revenue of $487.0 million, up more than 20% year over year, and well ahead of the consensus estimate of $476.6 million. Offsetting that upside surprise, AMN issued current quarter guidance with a revenue range that had the top of that range ($489-$495 million)  in line with the consensus revenue expectation of $494.7 million.

While we acknowledge the company is poised to face tough year over year comparisons in the first half of 2017, however, the healthcare worker shortage, especially for nurses is a longer-term problem that bodes well for AMN’s healthcare staffing business. We’ve also seen that AMN tends to issue conservative guidance, particularly when it comes to margins, one of the key determinant of EPS generation. We’re also encouraged by the momentum behind the company’s vendor management system (VMS) and managed services bookings. Fourth quarter revenue from the VMS business was up over 20% year-over-year as AMN continued to add new clients and expand existing client relationships. Much the way

We’re also encouraged by the momentum behind the company’s vendor management system (VMS) and managed services bookings. Fourth quarter revenue from the VMS business was up over 20% year-over-year as AMN continued to add new clients and expand existing client relationships. Much the way Connected Society company Amazon (AMZN) keeps adding capabilities to its Amazon Web Services, so too does AMN with VMS, which in our view should help win new customers and keep the service offering rather sticky with existing ones.

The bottom line is we continue to see AMN’s business extremely well positioned to benefit from the healthcare worker shortage that we continue to see in the monthly JOLTS report.

  • Our price target for AMN remains $47, which offers 15 percent upside and keeps our rating a Buy at current levels.
Now, let’s review the quarter…

AMN consolidated revenue for the quarter was $488 million, an increase of 21% year-over-year, including 10% organic growth. During 2016, AMN finished integrating its B.E. Smith, HealthSource Global and Peak Health Solutions acquisitions. More impressive was the 30% year over year increase in adjusted EBITDA that hit $61 million. During the quarter, AMN repurchased 443,353 shares of our stock at an average price of $29.88 per share for an aggregate purchase price of $13 million.

Nurse and Allied Solutions segment revenue (63% of total company revenue) rose 17% year over year and 7% sequentially with segment gross margins ticking modestly higher year over year. Organic revenue for the segment clocked in around 12%, with the quarter including greater than forecasted projected labor disruption revenue. Both the Travel Nurse and Allied division saw double-digit revenue increases year over year. Year over year, the number of average health care professional on assignment rose to 8,764 from 8,032 in the year-ago quarter. In our view, the quarter’s results at the core Nurse and Allied Solutions business are in sync with the monthly JOLTS data that we’ve been tracking and are in tune with the pain point of the current nursing shortage.

Turning to the Locum Tenens Solutions segment (21% of revenue), revenue rose just over 4% year on year, while Other Workforce Solutions rose 89% year over year driven by acquisitions during the year and growth in its vendor management solutions (VMS), interim nurse leadership, and workforce optimization businesses. In the Locum Tenens business, the number of days filled rose to 57,008, up from 55,929 in the year ago quarter, and revenue per day filed climbed to $1,821, up more than 2.5% year over year.

 

January Retail Sales – Department Store Pain vs. E-tailing Gains

January Retail Sales – Department Store Pain vs. E-tailing Gains

Earlier today the Census Bureau published its report on January Retail Sales, which topped expectations with a print of +0.4 percent vs. the expected 0.1 percent. Stripping out January Auto sales and food services, Retail sales +0.2 percent month over month. To us, the more telling figure was the 5.1 percent year over year increase in Retail only sales that was fueled by the 14.5 percent increase in Nonstore retailers, the +13.9 percent increase in gasoline station sales as well as strong showings from the Health & Personal Care stores categories and Building Material & Garden stores. Lackluster categories remained General Merchandise and Department Stores as well as Furniture and Electronics & Appliance stores.

 

Donning our thematic hats and looking at the January report, we find continued support for the accelerating shift toward digital commerce that sits at the core of our Connected Society investing theme and benefits companies like Amazon (AMZN) and Alphabet (GOOGL), both of which are on the Tematica Select List, and eBay as well as delivery companies such as United Parcel Service (UPS). To us there is no more telling statistic for that than the year over year comparison between Nov. 2015 – Jan. 2016 and Nov. 2016 – Jan. 2017. when Nonstore retail sales rose 12.7 percent vs. 4.6 percent for overall retail sales. Talk about a share gain!

We see the strong showing by Health & Personal Care stores as rather confirming for our Aging of the Population investment theme, while the continued pain felt at department stores comes as little surprise given the post-holiday shopping comments we’ve heard from Macy’s (M), Kohl’s (KSS), JC Penney (JCP) and others, which includes a number of location closures. That loss of anchor tenants alongside announced store closings ranging from The Limited to Wet Seal and others only supports our Death of the Mall view that poses a significant headwind to mall real-estate investor trust companies like Simon Property Group (SPG), Westfield Corp. (WFGPY) and Taubman Centers (TCO).

  • We continue to rate AMZN shares a Buy with a price target of $975
  • We continue to rate GOOGL shares a Buy with a $900 price target
January Retail Sales – Department Store Pain vs. E-tailing Gains

January Retail Sales – Department Store Pain vs. E-tailing Gains

Earlier today the Census Bureau published its report on January Retail Sales, which topped expectations with a print of +0.4 percent vs. the expected 0.1 percent. Stripping out January Auto sales and food services, Retail sales +0.2 percent month over month. To us, the more telling figure was the 5.1 percent year over year increase in Retail only sales that was fueled by the 14.5 percent increase in Nonstore retailers, the +13.9 percent increase in gasoline station sales as well as strong showings from the Health & Personal Care stores categories and Building Material & Garden stores. Lackluster categories remained General Merchandise and Department Stores as well as Furniture and Electronics & Appliance stores.

Donning our thematic hats and looking at the January report, we find continued support for the accelerating shift toward digital commerce that sits at the core of our Connected Society investing theme and benefits companies like Amazon (AMZN), a Tematica Select List holding, and eBay as well as delivery companies such as United Parcel Service (UPS). To us there is no more telling statistic for that than the year over year comparison between Nov. 2015 – Jan. 2016 and Nov. 2016 – Jan. 2017. when Nonstore retail sales rose 12.7 percent vs. 4.6 percent for overall retail sales. Talk about a share gain!

We see the strong showing by Health & Personal Care stores as rather confirming for our Aging of the Population investment theme, while the continued pain felt at department stores comes as little surprise given the post-holiday shopping comments we’ve heard from Macy’s (M), Kohl’s (KSS), JC Penney (JCP) and others, which includes a number of location closures. That loss of anchor tenants alongside announced store closings ranging from The Limited to Wet Seal and others only supports our Death of the Mall view that poses a significant headwind to mall real-estate investor trust companies like Simon Property Group (SPG), Westfield Corp. (WFGPY) and Taubman Centers (TCO).

When it comes to Fitbit (FIT), is now the right time to jump in?

When it comes to Fitbit (FIT), is now the right time to jump in?

If you saw a great product on sale at the store, you would be excited, maybe even ecstatic, if it was one you had been looking at for some time. The same is true with stocks!

We all tend to get caught up in the emotional response of the market moving lower, which usually is viewed as a bad thing, rather than an OPPORTUNITY to buy shares at an even better price. When viewed through that lens, who doesn’t love it when stocks go on sale… so long as the fundamentals and business drivers remain intact.

Here’s a great example — at the Consumer Electronics Show held earlier this month, Fitbit ([stock_quote symbol=”FIT”]) announced its first smart watch, dubbed the Blaze  . . .

Set a Protective Stop on a Winning Position to Lock in a Gain of More than 20%

Set a Protective Stop on a Winning Position to Lock in a Gain of More than 20%

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Ratings changes included in this dated post

  • Changing our rating on USA Technologies (USAT) to “Sell”, booking a near 30% return since our “Buy” rating was issued.
  • Updating Kraft Heinz (KHC) to a “Sell” rating, marking a hefty double-digit percentage return.
  • Closing out Disney (DIS), Under Armour (UA), Netflix (NFLX), LifeLock (LOCK), American Airlines (AAL) and Fitbit (FIT) — updated all with a “Sell” rating.
  • That leaves Physicians Reality Trust (DOC), Philip Morris (PM), American Capital Agency (AGNC), AT&T (T) and Regal Cinemas (RGC) in the Tematica Select List — all of which have dividend yields between 4.6% (Philip Morris) and 14% (American Capital Agency). Given the nature of their businesses as well as those dividend yields, those shares are apt to drum up investor interest as people look for safe havens.Let’s continue to hold these shares and “clip our dividend coupons” along the way.
  • Also, we recommend investors add some protection in the form of the ProShares Short S&P 500 ETF (SH), which trades in the opposite direction of the S&P 500.

What began as a bad start to 2016 only has gotten worse over the last few days. There are a number of reasons behind this move lower as II see the stock market, at best, moving sideways through earnings season, but more likely to come under additional pressure as expectations are scaled back. When I say expectations, I mean those for global growth, oil prices, corporate earnings and so on. You’ve seen me write more than a few times about the aggressive earnings expectations for the S&P 500 this year and the revisions lower that I’ve been expecting have only just begun.

In an environment like this, it tends to be shoot first and ask questions later, particularly as growth expectations get reset. While it is tempting to weather the storm, my preference is to lock in existing gains, limit losses and, above all, preserve capital at times such as this one. I know times like now, when the market seemingly goes down day after day, can be frustrating, if not confusing. I would not be surprised if you were having flashbacks to March 2008, wondering if we are heading for a repeat of what happened from May 2008 to March 2009, a period of intense pain for the stock market.

The famous phrase, “better safe than sorry,” comes to mind. For us, that means exiting the following positons:

  • Changing our rating on USA Technologies (USAT) to “Sell”, booking a near 30% return since our “Buy” rating was issued.
  • Updating Kraft Heinz (KHC) to a “Sell” rating, marking a hefty double-digit percentage return.
  • Closing out Disney (DIS), Under Armour (UA), Netflix (NFLX), LifeLock (LOCK), American Airlines (AAL) and Fitbit (FIT) — updated all with a “Sell” rating. 
  • That leaves Physicians Reality Trust (DOC), Philip Morris (PM), American Capital Agency (AGNC), AT&T (T) and Regal Cinemas (RGC) in the Tematica Select List — all of which have dividend yields between 4.6% (Philip Morris) and 14% (American Capital Agency). Given the nature of their businesses as well as those dividend yields, those shares are apt to drum up investor interest as people look for safe havens.Let’s continue to hold these shares and “clip our dividend coupons” along the way.
  • Also, we recommend investors add some protection in the form of the ProShares Short S&P 500 ETF (SH), which trades in the opposite direction of the S&P 500.

Over the next few weeks, we could get a bounce in the market here and there, but I would feel much better putting capital to work with a strong conviction that the storm has passed. As such, I will keep one eye on the market (the indicator of price) and the other on our investing themes as I look for data points that show companies whose businesses will continue to perform regardless of what’s happened in the stock market over the last month or will happen in the next month or next few months. If you were with me while I write this update, you would hear me muttering questions like some of these:

  • Has the drop in the stock market changed the outlook for cyber attacks and related threats in 2016? Safety & Security
  • Despite the unseasonably warm temperatures in the eastern United States thanks to El Niño, has the California drought situation been eradicated? Scarce Resources
  • Has the shift toward streaming and other digital content consumption slowed because the stock market has lost close to $1 trillion in value, lessening the demand for content? Connected Society
  • By some strange hocus-pocus, have people been “de-aged” so that less than 15% of the population is over 65 years old? Aging of the Population
  • As if by magic, did all of those people with little to no retirement savings suddenly land on firm financial footing? Aging of the Population
  • Over the last few days, has the costly and deadly impact of obesity and the prevalent condition of so many people being overweight been reversed? Fattening of the Consumer
  • Have retailers, both brick & mortar as well as online, shifted to only taking cash and checks as payment for goods and services? Cashless Consumption
  • Are people all of a sudden smoking less in the last few days? If anything, I would argue those who do indulge in this guilty pleasure are probably smoking more and having an extra drink or two along with it. Guilty Pleasure/Affordable Luxury
  • Has the domestic middle class started to expand dramatically in January? Rise and Fall of the Middle Class

And so on… Foods with Integrity… Asset-Lite Business Models… Economic Acceleration/Deceleration… Tooling & Retooling

The bottom line is these investing themes of ours continue to benefit from the shifting and evolving landscape that is the intersection of the global economy, changing demographics, disruptive technologies, regulatory mandates and other tailwind drivers.

As I said earlier, the stock market is simply the indicator of price.

If you saw a great product on sale at the store, you would be excited, maybe even ecstatic, if it was one you had been looking at for some time. The same is true with stocks!

We tend to get caught up in the emotional response of the market moving lower, which usually is viewed as a bad thing, rather than an OPPORTUNITY to buy shares at an even better price. When viewed through that lens, who doesn’t love it when stocks go on sale… so long as the fundamentals and business drivers remain intact. To me, this says we’ll be able to buy back a number of the growth positions at the same or lower prices when the current market storm has cleared and things have settled down. Let’s be prudent and patient together.

Turn off the music, close up the bar and call it a night

Turn off the music, close up the bar and call it a night

While the “bad news is good news” move in the market over the last few days is decidedly more enjoyable than those gut-wrenching market falls of late, it’s like a party that goes on for too long; at some point someone has to turn off the music, close up the bar and call it a night.
We’ve already seen some warning signs that it might be time to head out before things get awkward in the form of negative earnings pre-announcements for several companies.

 

In this week’s issue of Tematica Insights:

  • With the September ISM Manufacturing Survey out, what does it mean for inflation and any potential Fed action on rates later this year.
  • Is this a good time to jump on buying opportunities with all the negative earnings pre-announcements coming out?
  • China’s adoption of Western diet demonstrates how thematics can play-out in society.
  • Tematica Select List company Skyworks ([stock_quote symbol=”SWKS”]) makes a move, which has adds an interesting wrinkle to our Connected Society thematic.

Download Monday Morning Kickoff

 

 

Companies Mentioned
  • Alcoa (AA)
  • Amazon.com (AMZN)
  • American Airlines (AAL)
  • Apple Inc. (AAPL)
  • Bank of America (BAC)
  • Caterpillar (CAT)
  • Chegg Inc. (CHGG)
  • ConAgra (CAG)
  • Corning Inc. (GLW)
  • Dunkin’ Brands (DNKN)
  • DuPont (DD)
  • FedEx (FDX)
  • Hewlett Packard (HPQ)
  • Illumina (ILMN)
  • Immersion Corp. (IMMR)
  • Kimco Realty (KIM)
  • Lifelock (LOCK)
  • Merk & Co. (MRK)
  • Netflix (NFLX)
  • Nu Skin (NUS)
  • Palo Alto Networks (PANW)
  • PayPal (PYPL)
  • PMC-Sierra (PMCS)
  • Skyworks Solutions (SWKS)
  • Starbucks Inc. (SBUX)
  • Swift Transportation (SWFT)
  • Synaptics Inc. (SYNA)
  • Taiwan Semiconductor (TSM)
  • The Container Store (TCS)
  • U.S. Global Jets ETF (JETS)
  • United Natural Foods (UNFI)
  • Verizon Communications (VZ)
  • Wal-Mart (WMT)
  • Walt Disney (DIS)
  • Whole Foods Market (WFM) Xylem, Inc (XYL)
  • Yum! Brands (YUM)