The week ahead 11/21/2022
Happy Early Thanksgiving.
As you hit the stores for your holiday feast, shall we check out how much your Turkey Day has been impacted by inflation?
That’s right — according to the American Farm Bureau Federation’s annual survey, the average cost of Thanksgiving dinner has seen an increase of well over +20%. This includes…
14-ounce bag of cubed stuffing mix, $3.88 (up +69%)
Two frozen pie crusts, $3.68 (up +26%)
Half pint of whipping cream, $2.24 (up +26%)
A pound of frozen peas, $1.90 (up +23%)
A dozen dinner rolls, $3.73 (up +22%)
30-ounce can of pumpkin pie mix, $4.28 (up +18%)
If you are going for a full Thanksgiving Meal (classic inclusions + ham, potatoes, and green beans) — the average price has increased from $68.72 to $81.30. Candidly, we did our Thanksgiving food shopping over the weekend and this year-over-year difference felt much higher.
Random Trivia! — What’s the one item that has seen a price decrease year-over-year? Check the bottom of this post to find out!
Key Earnings Announcements:
The abbreviated week in the markets in highlighted by Analog Devices, Best Buy, Dick’s Sporting Goods, HP, J.M. Smucker, John Deere, and a few others.
Monday (11/21): Agilent Technologies, Dell Technologies, Futu Holdings, J.M. Smucker, Urban Outfitters
Tuesday (11/22): Abercrombie & Fitch, Analog Devices, BBVA, Burlington, Autodesk, Baidu, Best Buy, Dick’s Sporting Goods, Dollar Tree, Guess, HP, Jack in the Box, Medtronic, Nordstrom
Wednesday (11/23): John Deere, Macro
Thursday (11/24): Happy Thanksgiving! 🦃
Friday (11/24): Stock Market Half-Day (9:30am-1pm ET)
What We’re Watching:
Dick’s Sporting Goods (DKS):
For those of you that tune into Stock Market Live on Wednesdays — you may have heard our breakdown of Dick’s Sporting Goods vs. Academy Sports & Outdoors (ASO). The two companies are going toe-to-toe in the sports retail space, but we currently prefer ASO because of their hyper-localized inventory selection. However, we’ll be keeping an eye on the report of DKS to confirm this conviction.
Deere & Company (DE):
John Deere is another example of a company that has had a fantastic year, especially when compared to the broader market. Despite an essentially-guaranteed recession, Deere is expected to boost its EBITDA in FY2023 to $12.2B from $10.4B in FY2022.
The company currently trades at a ~15x 2023 EBITDA multiple. It usually trades around a ~18x EBITDA multiple during “good years.” With its lofty valuation (market cap of $125B), we could see this stock getting a healthy pullback during a market tumble. However, this one is certainly on our radar for a potential Q1 pick-up. We’ll keep y’all posted!
Investor Events / Global Affairs:
Disney makes a holiday shakeup, Black Friday
Walt Disney (DIS) CEO
On Sunday night, Disney’s board of directors fired CEO Bob Chapek and reinstated Robert Iger — the company’s former Chairman & CEO who left the company at the end of 2021.
This month, the company reported weaker-than-expected earnings results and faces widening losses in its Disney+ streaming business. The most recent report revealed a -$1.47 billion loss from Disney’s streaming biz — more than double the loss from the year before.
Trian Fund Management LP bought more than $800 million worth of Disney stock earlier in November. This ‘activist fund’ is seeking a board seat at Disney and is pushing the company to make operational improvements. Trian’s interest came after another ‘activist’ investor — Dan Loeb — urged now-ex CEO Chapek to spin off ESPN, refresh the company’s board, and cut spending.
While the impact of major investors’ sentiment on Chapek’s firing can’t be measured — it clearly could have been a factor. If hot-shot investors want you out, it’s hard to keep hold of the ship. According to the WSJ — several top Disney executives first learned the news that Mr. Iger was returning after they read his Sunday email, while some of them were together attending an Elton John concert at Dodger Stadium in Los Angeles.
Black Friday Returns
The annual day of ‘swiping your card as fast as you can’ is almost here. Let’s check in on some projections from a variety of sources:
Goldman Sachs — “Overall, results point to a choppier holiday spending backdrop this year, with 46% of consumers planning on spending less this holiday season and 23% planning to spend the same amount as last year.”
Citi — “Citi found there are a lot of consumers right now, especially amongst those higher income consumers… starting to pull back on their purchases. They are quite concerned about just their overall financial standing and how they might spend this holiday shopping season.”
Mastercard SpendingPulse — “U.S. retail sales excluding automotive is expected to grow +15% on Black Friday compared to last year.”
Deloitte — “Bargain hunting is on the rise, and consumers plan to spend 50% of their budget during Black Friday Cyber Monday (BFCM) events to take advantage of deals, vs. 43% last year. Total spend is expected to reach $500, up 12% year-over-year.”
Amazon — The stock slumped in late October, in-part due to expectations of a “lackluster holiday season.”
Target — “I think we’re going to be operating in a very uncertain environment… A consumer that’s clearly facing the challenges of managing a budget, and they’re going to be looking for promotions. So we’ll be preparing for that.” — Target CEO Brian Cornell
Walmart — “In the face of a pretty challenging macro environment… we’re seeing that consumers are looking for value. And Walmart’s value proposition is really resonating with consumers right now. And you see that in our third quarter results, as we grew ourselves almost 10%, grew operating income 4.6%.” — Walmart CFO John David Rainey
Everyone is guessing.
On one hand — people are expected to spend less this holiday season. On the other hand — Black Friday / Cyber Monday present the best opportunity to save on items you know you’re going to buy anyway. On top of it all — it’s going to be hard to determine the extent of increased spending when accounting for varying inflation across product categories.
No Beer Goes in Your [World] Cup
The 2022 World Cup has commenced! For years, Budweiser had been set to exclusively sell alcoholic beer within the ticketed perimeter of World Cup games in Qatar. Budweiser has been a World Cup sponsor since the 1986 tournament in Mexico and the timeframe of the event almost always boosts beer consumption globally.
Over the summer, Budweiser was informed that Qatar’s World Cup stadium stands would be alcohol-free — but they could still sell beers outside the arenas before and after matches.
Then just two days before the tournament kicked off — Qatar + FIFA officially announced that only non-alcoholic beer would be permitted to be sold at the events.
So… what about all that beer?!
Budweiser is expected to have ~$77 million worth of Bud Heavy stacked in storage. Now that it can’t be used, might as well throw it in as a treat for the champions. GO TEAM USA!New Day, New Tweet. Winning Country gets the Buds. Who will get them?
Major Economic Events:
“Markets are thinking, what’s the central bank going to do?” — Jerome Powell
Monday (11/21): Chicago Fed National Activity Index, Speech by SF President Daly
Tuesday (11/22): Speeches by Cleveland President Mester, Kansas City President George, & St Louis President Bullard
Wednesday (11/23): Core Capital Equipment Orders, Durable Goods Orders, FOMC Minutes, New Home Sales (SAAR), S&P Manufacturing & Services PMI (Flash), UMich Consumer Sentiment (Final)
Thursday (11/24): Happy Thanksgiving! 🦃
Friday (11/25): Stock Market Half-Day (9:30am-1pm ET)
What We’re Watching:
FOMC Minutes (From November 1-2 Meeting):
The question remains how high the Fed will take rates.
In general, most believe that the Fed wouldn’t take their target rate any higher than 5%. What most also don’t realize is that there’s no cap on how high they could take rates over time. Above shows a projection from Bloomberg Economics’ September data (in blue, with dots).
The green and pink lines show how the situation could change with less-than-stellar economic data over the coming weeks.
Durable Goods Orders (October):
‘Durable Goods Orders’ is a broad-based monthly survey conducted by the U.S. Census Bureau that measures current industrial activity. Examples of durable goods include: air conditioners, automobiles, computer equipment, industrial machinery, and tools.
Another way to think of durable goods is to remember the old “planes, trains, and automobiles” saying. If it is a component of any of those — it’s likely a durable good.
During September, new orders of U.S.-manufactured durable goods increased +0.4% MoM — beating expectations of a +0.2% gain. For the month of October, another +0.4% gain is expected.
Which stocks moved the most last week.
Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.
A stock we’ve talked about for nearly two years, Sea Limited (SE), soared after one of the most impulsive earnings reactions of the season. Investors were overjoyed that Sea Limited shifted its mindset to self-sufficiency and profitability, without relying on outside funding. We admittedly thought this was an overreaction — with the company falling deeper in the red as its adj. EBITDA loss widened to nearly -$360 million. That’s compared to -$166 million the year before. However, this post-earnings surge corrected downward and the stock still sits at -75% on the year. Sea Limited remains a very small portion of my ‘Mid-Caps’ portfolio category and it’s TBD if I’ll hold onto it going into 2023.
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Trivia Answer — A 12-ounce bag of fresh cranberries is the only item tracked by the Farm Bureau Federation that has seen a year-over-year decline in prices. It came in at a cost of $2.57, down -14% from last year.
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