Cboe Volatility Index
If you think you know how volatile the market will be there is an index that you can gamble on called the VIX. The CBOE volatility index first became tradable in 2004. If volatility gets crazy with ups and downs the VIX, will increase in price. If the volatility subdues the index will fall. It is that simple and a great way for gamblers to gamble. I would not recommend as an investment! So far this year $1 trillion within derivatives have been traded, a 400% increase from just 10 years ago.
Dividend Stocks
The pandemic has no doubt been difficult for stocks and those stocks paying dividends. As companies try to keep as much cash as they can to weather the storm, companies have been cutting their dividends or suspending them. It is not as bad as it sounds with only 60 companies out of the S&P 500 cutting or suspending their dividends. Of the entire index of firms paying dividends only 14% suspended their dividend.
Online Sales for March and April
Online sales surged at the end of March and April as stores closed due to the pandemic. Now unfortunately reality has set in and there are many disgruntled customers that returned a product with no refund and customer service lines putting people on hold for 1 to 2 hours. Emails and written letters are not being returned at all. Even high-end brands like Lululemon have many complaints with refunds taking weeks if not months after products are returned. That could definitely hurt earnings and reputation of online sales going forward resulting in people heading back to the stores where you can have face to face contact and easily return items.
Homebuilder Sentiment
Great news on homebuilders today showing that the economy is showing some good signs of improving. Builder sentiment climbed 21 pts to 58, this is the largest monthly increase on record. A reading above 50 is a positive sign of improvement. Compare these numbers to April when the index fell a record 42 points to 30. Breaking the number down we see current sales conditions rose 21 points to 63. Sells expectations looking forward six months increased 22 points to 68. Buyer traffic increased from 22 in May to a surprising 43 in June, nearly a 100% increase. People are returning to buying new homes. Retail sales were also absolutely amazing this morning! They jumped a record 17.7% in the month of May as the country began to reopen. Clothing and accessory stores were hit extremely hard during the forced shutdown but saw growth of 188% last month. Looking at retail sales compared to the same time last year they were down just 6.1% and if you exclude food services retail sales were down just 1.4% compared to last year. This points to an increased likelihood that we see that V-Shape recovery as the consumer looks far stronger than anticipated.
Increased Mortgage Applications
More great economic news as mortgage applications to buy a home increased 4% over last week. This was the ninth week in a row that we have seen an increase, which has led to a 21% gain compared to last year and the highest volume in more than 11 years. As supply from existing homes has remain constrained, I continue to like some of these homebuilders at these prices!
Don’t Invest in Hertz – It Could Hurt
These retail traders have gone crazy and many are not even trying to understand investing. Last week we talked about the rise in Nikola, a company that has no sales, and this week we’ll talk about Hertz (HTZ). The company announced it was going bankrupt in May, which sent its stock falling to a low of just $0.40 on May 26th. Since then the price action has been all over the place and the stock price saw a post-bankruptcy high of $6.25 on June 7th. This makes absolutely no sense as the company has nearly $19 billion worth of debt and equity of just $1.4 billion. It’s important to remember that when a company files bankruptcy the shareholders most the time lose everything and then the company can reorganize and come out of bankruptcy. The shareholders are still unfortunately left with nothing. This is pure speculation and based on no fundamentals. It is truly a game of musical chairs, and when the music stops the last ones holding the stock will be stuck with worthless paper. I believe this company was worth $0/share at the end of May and is still worth $0/share.
Are New Yorkers Fleeing the State of Florida?
With Covid-19 hitting New York City extremely hard and having the city placed on lockdown for a couple of months, are people fleeing the state for Florida? Manhattan apartment sales contracts in the month of May were 80% lower compared to last year and contracts for condos fell 83%. Seven figure plus stand-alone homes in Florida on the other hand did very well in the month of May. In Miami-Dade County there was a 45% increase compared to last May and Palm Beach County saw growth of 26%. It was assumed last year that many New York residents were fleeing to Florida in search of no state income tax, it appears Covid-19 may have exacerbated that trend.
Private Jet Companies
One beneficiary from the reduction in commercial flights is private jet companies. A recent report shows companies like NetJets and PrivateFly are flying at 70% of their normal schedules. Will these trends last or will rising prices force consumers to fly commercial again? Compared to one year ago private flights are 30 to 50% cheaper, but with the heightened demand I could see prices increasing quickly. As an example, one can fly ten people from NY to Florida one way for $10,000.
Food Delivery Services
With more people ordering food to dine in DoorDash has seen its valuation in the private market climb from $13 billion in November to $16 billion. With restaurants closed during the pandemic delivery orders surged 67% in the month of March and DoorDash has been able to distance itself as the largest 3rd party delivery service with 45% market share. UberEats was next on the list with 28%. While this sounds appealing as an investment thesis, I still do not like this industry. I do believe people will go back to restaurants as many people enjoy the experience which will hurt the delivery companies. Many restaurant owners also are not fans of these services as they can take up to 30% in commission fees for every delivery order which hurts restaurants already thin margins. Finally, the amount of competition here is concerning. You have companies like DoorDash, Postmates, UberEats, and GrubHub all battling for market share. GrubHub also recently announced its all stock merger with the Netherlands company, Just Eat Takeaway.com. I believe this will give GrubHub even more ambition and resources to take market share here in the U.S. leading to more price wars and larger losses. This newsletter is for informational purposes only and should not be used as investment advice. If you would like to discuss more in detail your investment needs or have other investment questions, feel free to call me at 858-546-4306 or visit our website at Smartinvesting2000.com.