It’s time to push all those coronavirus-era “fundamentals” out of our heads. The stock market has already embraced those – gone overboard, in fact. So, to outperform from here, we need to ponder two new trends in the making:
The first trend is a shift away from the driving belief that internet-anything is a surefire winner. That rationale is worn out, making August’s big winners suddenly look top heavy on September 1. As a result, they are stumbling, trying to find their footing. However, in such situations, Wall Street moves on, and so should we.
So, what comes next?
The second trend is a shift to “blended” companies. These are the organizations that make good business use of the internet, and also have other avenues for generating sales. Why is this an upcoming trend? Because it offers three appealing characteristics:
- It includes the internet usage without the bubble attitude
- It includes successful firms, thereby removing the risk of newbie flops
- It includes sound fundamentals – not hopes and dreams
At its heart, this new trend will be the recognition of and demand for companies that cover all the bases, have a proven record and possess wise management and ample resources.
Two examples popped up today (underlining is mine):
First, Target’s TGT holiday plans
Economic Times (September 25) – “Target plans to double staffing for contactless delivery this holiday season“
“‘We’re building even more flexibility into our seasonal staffing as we enter into, what is sure to be, an unprecedented holiday shopping season,’ Chief Executive Officer Brian Cornell told reporters on a briefing call, adding that it would offer additional hours of work, starting with current staff.
“During the first half of the year, more than 10 million new customers shopped on Target’s website and demand for same-day fulfillment options quadrupled, the retailer said, leading it to train more staff in areas that are in demand such as ‘drive up and order pickup.’
“Distribution centers will send more inventory to stores than usual to make sure in-demand items are well stocked, and to ensure smooth operation the company said it would hire more full-time and seasonal warehouse team members across the country than last year.
“Target said it would pay its seasonal staff a starting wage of $15 per hour along with coronavirus health and wellness benefits. Staff at the front of its stores will focus on safety and cleaning, and greeting shoppers.”
For comparison, think about Amazon.
Second, CarMax’s KMX sped up internet plans
From the “Heard on the Street” page in The Wall Street Journal (September 25): “CarMax Only Looks Like a Lemon – The used-car retailer is clearly hyper-aware of budding online competitors such as Carvana; so are its investors”
“… the market’s reaction [to CarMax’s earnings report] went into overdrive: CarMax’s shares dropped more than 13% following the earnings call Thursday morning despite better-than-expected results. Carvana shares had jumped by as much as 34.4% on Tuesday after it announced that it expects to break even on earnings before interest, taxes, depreciation and amortization in the comparable quarter, which analysts have extrapolated to mean year-over-year revenue growth of 40%.
“Both reactions seem overdone. As impressive as Carvana’s projected growth looks, it started out from a much smaller revenue base. Its third-quarter revenue, according to recent estimates, still would be less than 30% of CarMax’s.
“The comparison with the e-commerce company isn’t lost on CarMax, which has rolled out curbside-pickup options to all of its stores last quarter and home delivery to a majority of its customers, six months to a year ahead of its original schedule. While most customers take some part of the buying process online, most still like to finalize the deal in the store and about 30% do everything in store, according to CarMax.“
A final point – Fundamental comparisons look good
Besides the attractiveness of a multi-channel customer approach, looking at the fundamental comparisons makes companies like Target and CarMax look like “GARP” stocks (growth at the right price).
So, buy now?
Good question. Those number comparisons make the answer, “yes,” seem correct. However, that is leapfrogging the weakness in the stock market currently. As much as ETF-focused investment advisers would like to believe it, an established, popular trend doesn’t simply shift into another. There usually is a shakeout of the favored stocks that produces bearishness, which affects all stocks. From that turmoil emerges the next trend.