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- 👉 Week in Review: No Recession?
👉 Week in Review: No Recession?
& record high home prices...
Happy Sunday, everyone.
Great news!
US Households’ stock allocation of financial assets hit a new record high of 41.6% during Q1 of 2024 — this is awesome!
It means as a percent of total allocation toward financial investments, American households are benefitting from the recent all-time-highs of the stock market.
This is up from 30.5% in 2020 and 38.4% during the Dot-Com bubble peak of 2000.
It makes sense that this figure has risen over time as the US Stock Market continues to outperform every other financial asset (besides cryptocurrency) over the last 25 years — with the S&P 500 up +702% and the Nasdaq up +1,738%, respectively.
American capitalism is working, and those who have been invested over the last few decades are reaping the rewards.
Portfolio Updates:
As you all can see above, since January 1st I’ve been able to increase my “net worth” by +$114K — but don’t be fooled. This figure includes both the gains I’ve received from my investments as well as new money invested.
Put more plainly, I’ve invested $26K toward stocks and $41K toward cryptocurrency since January 1st. The other +$47K increase in my “net worth” came from the capital appreciation of those investments as well as existing investments (shown below).
I haven’t added any new names to my portfolio over the last two weeks, I’ve simply continued to dollar cost average into my existing positions as shared in my Portfolio Tracker.
I’ve deployed $4K toward my stock portfolio and $7.5K toward my cryptocurrency portfolio throughout the month of June — however my “net worth” has increased by +$24K over the same period of time, telling me I’m up +$12.5K on my existing investments.
Nothing makes me happier than my existing investments continuing to grow in size month-after-month, year-after-year.
I’ll likely only be investing between $4-6K during the month of July, and a portion of that will be toward adding Oracle (ORCL) to the portfolio, as well as Dell Technologies (DELL).
Stay tuned on a dedicated analysis about both of those companies next week!
Week in Review — Too Long, Didn’t Read:
Kroger needs to deliver upon their expectations, Accenture is seeing reacceleration, CarMax’s underlying fundamentals are ticking higher, Nvidia takes the crown, Netflix has a new House, Russia + North Korea = worries, retail sales struggle, the LEI stopped signaling a recession, and home prices keep going up.
Key Earnings Announcements:
Kroger needs to deliver upon their expectations, Accenture is seeing reacceleration, and CarMax’s underlying fundamentals are ticking higher.
Kroger (KR)
Key Metrics
Revenue: $45.3 billion, an increase of +1% YoY
Operating Income: $1.3 billion, compared to $1.5 billion last year
Profits: $947.0 million, compared to $962.0 million last year
Earnings Release Callout
“Kroger is off to a solid start in 2024 led by better-than-expected performance of our grocery business. Kroger is delivering exceptional value at a time when many customers need it more than ever, by providing affordable prices with personalized promotions.
Together, this is growing households and increasing customer visits. The long-term investments we have made to strengthen and diversify our model enables us to manage economic cycles and gives us the confidence to deliver on our full year outlook. By delivering value for customers and investing in our associates, Kroger remains well-positioned to generate attractive and sustainable returns for our shareholders.”
My Takeaway
2024 is off to a solid start for Kroger as Q1 sales and profits deliver ahead of Wall Street expectations. However, their pharmacy business has become a headwind for the company as profits dragged -4% below Wall Street’s expectations (promotions).
Management reiterated their positive guidance for the calendar year is contingent on 1) positive volume growth in the second-half of the year, 2) improvement in their health and wellness business, and 3) a continued rational pricing environment. Assuming those three factors work in Kroger’s favor, we should have a strong year for the company.
I own a few thousand dollars worth of Kroger as 1) I’m a weekly customer and wholeheartedly believe in their online business and 2) their dividend is strong and dependable.
Wall Street has a price target of $59 / share based on 12X 2024 profit expectations. I’ll continue to dollar cost average into my position.
Accenture (ACN)
Key Metrics
Revenue: $16.5 billion, compared to $16.6 billion last year
Operating Income: $2.6 billion, an increase of +12% YoY
Profits: $2.0 billion, flat YoY
Earnings Release Callout
“Our actions to stay laser-focused on the needs of our clients are clear in our third quarter results. We achieved strong new bookings of over $21 billion, up 22% over last year, and continued to accelerate our strategy to be the reinvention partner of choice, with another 23 clients with quarterly bookings of over $100 million, bringing the total of such bookings to 92 year-to-date.
We also achieved two significant milestones this quarter — with $2 billion in Generative AI sales year-to-date and $500 million in revenue year-to-date — which demonstrate our early lead in this critical technology. All of this while investing at scale in our business with another 35 acquisitions or $5.2 billion of capital deployed year-to-date.”
My Takeaway
For those of you who have been subscribed for a while now know I somehow perfectly timed the exit of this company — late-2021. Since then, their stock price has declined by -25% over the last 2+ years — not great.
With that being said, is now a good time to buy the stock? Perhaps.
Despite strong bookings and management’s positive commentary, Wall Street continues to believe that organic growth will remain challenged over the next few quarters. This company fell off a cliff once interest rates began to rise and companies no longer were throwing tens of billions at “consultants” every year to solve their problems.
However, during the earnings call management acknowledged their expectation for their Consulting business segment to organically begin growing next quarter — certainly a good thing. While their bookings were strong, the real strength came from their Managed Services business segment — and unfortunately those revenues takes months to be realized on the income statement.
If anything, the trade with this stock was to short it back in 2021 when their bubble popped. Their stock price seems to be trying to find “fair value” ever since. However, if you believe this company is ripe for multiple expansion and growth in 2025 and beyond — now is a very great time to buy.
There’s too much uncertainty for me at the moment, but they’ll remain on my watchlist.
CarMax (KMX)
Key Metrics
Revenue: $7.1 billion, compared to $7.6 billion last year
Operating Income: $206.6 million, compared to $307.2 million last year
Profits: $152.4 million, compared to $228.3 million last year
Earnings Release Callout
“I am encouraged by the trends we saw in the first quarter including continued year-over-year price declines, improvements in vehicle value stability, and ongoing growth in upper funnel demand.
We delivered strong retail, wholesale, and EPP gross profit per unit, sourced a record 35,000 vehicles from dealers, continued to actively manage SG&A, and repurchased over $100 million in shares of common stock.”
My Takeaway
CarMax used to be a Wall Street darling, with their stock price rising from $8 to $150 per share between 2008 and 2021. And it made sense — record low interest rates encouraged Americans to borrow up to their eyeballs to finance their dream vehicles.
This low-interest rate environment catalyzed $32 billion in annual auto sales for the company at their peak — now down about -25% since the Fed began hiking rates.
Despite the recent decline, Wall Street is beginning to take notice of this name again as used car unit sales have accelerated through the first quarter of the year and are tracking positive for Q2, top of funnel demand is picking up by double-digits, and used car gross profit margins continue to remain steady.
I’m honestly not surprised. This company experienced a massive spike in revenue during the pandemic as monetary policy was loose — but since the Fed raised rates their stock price plummeted -64% as has sort of been in a holding pattern ever since.
Underlying business fundamentals do seem to be trending in the right direction, but I’m not sure how confident Wall Street is in their estimations of the company’s profits in 2025 and 2026. If the below estimates are true, their stock price could see +25-40% upside over the next 12-18 months.
Another catalyst would be the Fed cutting rates in 2025 and beyond. I’m adding this company to my watchlist.
Investor Events / Global Affairs:
Nvidia takes the crown, Netflix has a new House, and Russia + North Korea = worries.
Nvidia (NVDA) Gets More “Dot Com Bubble” Comparisons
It’s only fitting that Nvidia CEO Jensen Huang was speaking at the Las Vegas Sphere during the same week that he officially became the king.
Nvidia has become the world's most valuable listed company, reaching a valuation of over $3.4 TRILLION due to the high demand for its AI chips, surpassing Microsoft (MSFT) and Apple (AAPL).
This mirrors Cisco's (CSCO) rise to the top during the dot-com boom in 2000 — though Nvidia's AI-driven growth differs in scale and being much more heavily-vetted. Nvidia's chips are essential for AI applications, contributing to their revenue of $26B+ in the latest quarter — more than triple from the previous year.
The company’s stock has tripled in value over the past 12 months, and Nvidia had a 10-for-1 stock split to make shares more attractive.
Our take? Nvidia would probably only be due for a colossal ~bubble blow-up~ if it was discovered that their accounting is fraudulent. Otherwise it’s of course an overextended stock — but it’s one that’s changing the entire landscape of Big Tech too.
“[Nvidia] will be the most important company to our civilization over the next decade as the world becomes more AI-driven.”
— Angelo Zino, Research Analyst at CFRA
“The implications in terms of the size of the market opportunity is that of the internet and cloud computing combined… The speed of change is different, the size of the market is different, the stage when the most valuable company was reached is different.”
— John Chambers, CEO of Cisco during the Dot-Com Boom
Netflix (NFLX) Made a Big Announcement
Netflix is launching Netflix House, an experiential entertainment venue bringing popular shows and movies to life. The first locations will be in King of Prussia, Pennsylvania, and Dallas, Texas — set to open in 2025.
These venues will be located in major shopping centers, occupying over 100,000 square feet each, previously used as department stores. Netflix House aims to offer year-round immersive experiences, building on previous Netflix live events for shows like Bridgerton, Stranger Things, and Squid Game.
“At Netflix House, you can enjoy regularly updated immersive experiences, indulge in retail therapy, and get a taste — literally — of your favorite Netflix series and films through unique food and drink offerings… We’ve launched more than 50 experiences in 25 cities, and Netflix House represents the next generation of our distinctive offerings. The venues will bring our beloved stories to life in new, ever-changing, and unexpected ways.”
Russia & North Korea Form Strongest Partnership Since Cold War
Russian President Vladimir Putin and North Korean leader Kim Jong Un signed a partnership agreement that includes mutual aid in case of aggression against either country — marking their strongest connection since the Cold War.
This agreement covers security, trade, investment, and cultural ties, and comes amid heightened tensions with the West. The summit, held during Putin's first visit to North Korea in 24 years, has raised concerns about potential arms deals, with North Korea possibly supplying munitions to Russia for its war in Ukraine in exchange for economic assistance and technology transfers. The details of the mutual aid were not disclosed, but the agreement symbolizes a significant upgrade in their relationship.
Not good.
Major Economic Events:
Retail sales aren’t painting the best picture for future GDP readings, the LEI stopped signaling a recession, and home prices keep going up.
Retail Sales
US retail sales rose by only +0.1% in May — missing the estimated +0.3% — and prior months' sales were revised lower, highlighting consumer financial strain.
Excluding gasoline, sales increased by +0.3%, with five out of 13 tracked categories showing declines due to cheaper gasoline and Memorial Day discounts.
The report indicated a slowdown in consumer spending, with control-group sales, used to calculate GDP, rising +0.4% after a -0.5% drop the previous month.
Economists anticipate a moderate spending pace due to persistent inflation, a cooling job market, and financial stress — with consumer confidence dropping and credit card delinquencies rising. Despite a slight increase in industrial production, the retail data suggests consumers are cutting back, potentially leading to slower GDP growth in Q2.
U.S. Leading Economic Index (LEI) Stops Signaling Recession
The Conference Board Leading Economic Index (LEI) decreased by -0.5% in May — following a -0.6% decline in April.
On the positive side — over the six-month period between November 2023 and May 2024, the LEI fell by -2.0% — a smaller decrease than its -3.4% contraction over the previous six months.
Perhaps most noteworthy, the LEI did not signal a recession in May as its six-month growth rate trended less negative.
“The U.S. LEI fell again in May, driven primarily by a decline in new orders, weak consumer sentiment about future business conditions, and lower building permits… While the Index’s six-month growth rate remained firmly negative, the LEI doesn’t currently signal a recession. We project real GDP growth will slow further to under 1 percent (annualized) over Q2 and Q3 2024, as elevated inflation and high interest rates continue to weigh on consumer spending.”
— Justyna Zabinska-La Monica, Business Cycle Indicators at The Conference Board
Home Prices Hit Another Record High
Existing-home sales slipped -0.7% in May to a seasonally adjusted annual rate of 4.1 million. Sales descended -2.8% from one year ago.
The median existing-home sales price jumped +5.8% from May 2023 to $419,300 — the highest price ever recorded and the eleventh consecutive month of YoY price gains.
The inventory of unsold existing homes grew +6.7% from the previous month to 1.3 million at the end of May — or the equivalent of 3.7 months' supply at the current monthly sales pace.
"Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers… The mortgage payment for a typical home today is more than double that of homes purchased before 2020. Still, first-time buyers in the market understand the long-term benefits of owning."
— Lawrence Yun, Chief Economist of the National Association of Realtors (NAR)
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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