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Target: Buy this instead

Jun 07, 2022

Good morning!

‍Telling it like it is won’t get me invited to cocktail parties on Wall Street, but if doing so helps you avoid a few headaches and safeguard your wealth, I’m good.

Funny enough, I get thanked for my honesty more often than not. (Watch)

You’ll see what I mean in today’s “5.”

Target is the tip of the iceberg

I told you a few weeks ago when retail stocks initially got hammered that the sector was an “avoid” not a bargain as many insisted.

Apparently, I’m not as crazy as I seem.

Target just announced that it will take a short-term hit to profits as it cancels orders, marks down unwanted merchandise and sheds inventory. Shares are down hard in the premarket along with other retailers for obvious reasons.

What’s going on: Big retailers typically finance their inventory and their operating expenses in a fine-tuned ballet that runs directly from the moment they stock something to the moment a customer buys it.

When customers stop buying, that goes all the way backward into the system by killing profits, jamming borrowing, and negatively impacting the P&L.

Why you should care: Things are so bad that Target has to use a euphemism … saying it’s going to “right size” inventory.

There’s only one retail stock I recommend: It’s up 22.90% over the past year versus Target which is down -30% over, a 52.90% “beat”.

What’s more, it wouldn’t be a stretch to imagine new highs even if there’s a recession.

Customers love shopping there!

**OBAers … see the August ‘21 issue for more. It’s in your archives!

Apple just killed AFRM and Square

Affirm and Square (now Block) shares both lost after Apple announced that it’s entering the buy now pay later (BNPL) space with its new feature, Apple Pay Later. (Read)

The only way out: I think PayPal or Stripe buys Affirm and Amex may have an interest in Square. Either way, not worth the risk.

4-day workweek: what could possibly go wrong??!!

More than 70 companies and 3,000 employees are participating in what is the world’s largest 4-day work week experiment. (Read)

Why: The theory is that workers will maintain 100% productivity but be happier and have a higher quality of life.

Bookishly, which is giving employees Wednesdays off, noted that "People understand that not every company can provide immediate delivery and some things are more important than that."

Uh …

Betcha Amazon has a different take.

Unintended consequences: I think companies are going to find that a) that’s not true, b) there will be additional cost-cutting – aka layoffs - as a result, c) robots will replace human workers to take up the slack for manual jobs.

Investment Implications: Robot vision, chips, line processing.

Not all REITs are created equal

I’ve been avoiding commercial REITs for this exact reason.

According to MSCI, commercial real estate sales in April are down 16% compared to a year ago after 13 months of consecutive increases. Bids are also being withdrawn at a record pace across the country.

Rents are decreasing or being offered for “free” just to fill space.

I like this better: I happen to like another REIT that’s not tied to commercial property. Demand is booming and will accelerate in the years ahead. The yield is 6%+. It's in the June issue of One Bar Ahead™ which released last Friday. Get your copy now.

Biden just made an enemy of China once and for all

President Biden’s team is making a big deal out of the IPEF – Indo-Pacific Economic Framework, a newly hatched deal that includes 40% of the world’s GDP.

Not for long.

China’s pushing the RCEP, which is the world’s largest trade pact. It grants member states access to the world’s largest markets, which the IPEF lacks.

Not surprisingly, the RCEP includes a free trade port in Hainan (one of the world’s largest), independent customs systems and the use of Chinese Yuan to settle international trading transactions.

China wants two things: 1) to replace the US$ as the global reserve and 2) to dominate global trade markets any way it can. Creating a private club is the surest path to doing that. I’ve been telling you for years that this was coming.

Mark my words: Countries in the IPEF will defect to the RCEP leaving Washington increasingly out of the loop.