Tag Archives: AMZN

Apple's HomePod Makes a Small Dent in Smart Speaker Market During Debut Quarter

Apple (NASDAQ:AAPL) officially jumped into the smart speaker market in the first quarter with the HomePod, and analysts believe that sales thus far are “underwhelming.” Siri remains less capable than its competing counterparts, HomePod only supports Apple Music for full functionality, and the $350 price tag positions it at a significant premium. With HomePod being included in the company’s catch-all “Other Products” segment, investors aren’t likely to get much official data from Apple anytime soon.

That’s where third-party estimates come in.

HomePod on a shelf

Image source: Apple.

Apple shipped 600,000 HomePods in the first quarter

Market researcher Strategy Analyticsis out with its estimates on the smart speaker market for the first quarter, estimating that Apple shipped approximately 600,000 units after HomePod launched in February. Amazon.com (NASDAQ:AMZN) is maintaining its strong grip on the market, although its share did drop quite a bit. But the overall market is simply growing so quickly that the e-commerce giant still doubled unit shipments of Echo devices. Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google continues to make headway as well.

Vendor

Q1 2017 Units

Q1 2017 Market Share

Q1 2018 Units

Q1 2018 Market Share

Amazon

2 million

81.8%

4 million

43.6%

Google

0.3 million

12.4%

2.4 million

26.5%

Alibaba

0

0%

0.7 million

7.6%

Apple

0

0%

0.6 million

6%

Xiaomi

0

0%

0.2 million

2.4%

Others

0.1 million

5.8%

1.3 million

13.9%

Total

2.4 million

100%

9.2 million

100%

Data source: Strategy Analytics. Figures rounded.

The Chinese market for smart speakers continues to grow, with local vendors like Alibaba and Xiaomi (which is preparingto go public soon) stepping up to meet the demand, according to Strategy Analytics. Amazon, Google, and Apple do not currently ship smart speakers into the Middle Kingdom. On the earnings callearlier this month, CEO Tim Cook noted that HomePod is only available in the U.S., U.K., and Australia right now, with availability in more markets coming soon.

While Apple generally does not place much value in unit share, it’s clear that Amazon and Google are enjoying unit growth thanks to broader portfolios of devices offered at lower price points. That’s why the “HomePod Mini” that Apple is rumored to have in the pipeline has a lot of potential, as it would make the idea of buying multiple devices a more tenable proposition for consumers.

Of course, HomePod was only available for about half of the quarter, so its performance isn’t all that representative quite yet.Let’s see how the Mac maker fares in the quarters ahead.

Tencent Takes Gaming By Storm

In this episode of the Market Foolery podcast, host Mac Greer talks with Motley Fool analysts Ron Gross and Matt Argersinger about the market’s hottest stories. For a company with $500 billion in market cap, Tencent(NASDAQOTH:TCEHY) just put up some astonishing growth this quarter — and yet, the stock fell a little bit today.

Traditional retail actually saw a bright spot today with Macy’s(NYSE:M) fantastic quarterly report, but investors shouldn’t abandon all doubts about the sector just yet. Starbucks (NASDAQ:SBUX)is ramping up its growth in China to an astounding degree, and long-term investors might want to take a closer look at the coffee powerhouse for the next few years. Tune in to find out more.

A full transcript follows the video.

This video was recorded on May 16, 2018.

Mac Greer: It’s Wednesday, May 16th. Welcome to Market Foolery! I’m Mac Greer, and joining me in studio, we have Motley Fool analysts Ron Gross and Matt Argersinger. Guys, welcome!

Ron Gross: How are you?

Matt Argersinger:Hey, Mac!

Greer: How you feeling?

Gross: I’m great!

Greer: Good. Matt, you?

Argersinger:I’m good!

Greer:I’m trying to grow a beard,but I’m at that scratchy stage.

Gross:Yeah,it looks good!

Greer: Are you just saying that? [laughs]That’s so hurtful. Well,guys, later in the show we’re going to talk Starbucks. They’rereally ramping up in China,which I hear is a pretty big market,so we’re going to talk about that. And we’re also going to talk about some big earnings from China’slargest social network and gaming company.

But, Ron,I want to begin with something that we don’t say every day –good news from a traditional retailer. Shares of Macy’s up more than 5% right now onbetter than expected earnings. Is the turnaround really happening?

Gross: Well,well, well, look who’s not dead yet!

Argersinger:Yet. [laughs]

Gross: Reallyinteresting! It’s been an interesting six months for retail. If you listened to the show a year ago, we left retail for dead.

Greer:Yes we did.

Gross: Shows what we know. Andthere have certainly been some rebounds, helped by tax cuts and bonuses and tax refunds and a strong economyand almost full unemployment. So, it has been interesting.

Specific to Macy’s,they have done what they needed to do, which is close a lot of stores,maybe around 100 stores. They cutthousands of jobs, which is painful,but when business calls for it, sometimes that’s what needs to be done. And it looks like they’rereaping the benefits of that as well asthe good stuff that’s going on in the economy right now. The same-store sales up 4.7% is a huge, huge number. Now,their friends and family promotionshowed up in this quarter, versus last year, it was in a different quarter,so the comparisons are a little wonky, for lack of a better word.

Greer:What is that? What is the friends and family promotion?

Gross: Itused to be that you literally hadto know someone that worked atone of these stores, and they could pass you along adiscount. Nowadays it’s, if you breathe,you get the friends and family discount. No kidding around!

Greer: [laughs]Opposable thumbs.

Argersinger:Everyone is a friend?

Gross: Everyone is a friend of someone. It’s just abig promotion, like the old Macy’s One Day sales. That helped, the fact that it was in this quarterversus a different quarter last time around. If you strip that out, you’re probably somewhere under 2% on a same-store sales growth basis. Butstill, for a company that has really struggled, that’s still pretty darn good. Adjusted profits up 240%. Now,again, from a very low base, because the company was struggling. Still,it’s really nice to see.

They have a lot of things in the works. They’rekind of throwing some things at the wall and seeing what will stick. They have their Macy’s Backstage concept, which is their discount concept. Everyretailer has to have one nowadays, like a Nordstrom (NYSE:JWN)Rack, for example. Theyactually bought a concept store in New York City calledStory,which is a store that revamps its inventory every four to eight weeks to try to keep it fresh. That would be some Inventory management job. Their buyers have their work cut out for them. But, interesting. They’re trying a lot of different things.

They need a new CFO; theirCFO is leaving. Let’s get that in placeso they don’t miss a beatwith respect to that. But, kudos to Macy’s. I don’t know if this carries through,but this is a really strong quarter.

Greer: OK,Matt, a lot there. What do you think?

Argersinger:I mean,part of me thinks this is probably just — I’m sure Ron will agree a little bit — things got a little too pessimistic.

Gross: Yeah.

Argersinger:So, if Macy’s can have a little good news, or any of these traditional retailers can have a little good news,it’s going to spike the stock. I have to look at Macy’s though, and I say, if I’m an investor and I see a P/E of 7X — I don’t know if that’s a normalized number — and a dividend yield above 5% …

Gross: Right? [laughs]

Argersinger:Ron,what do you think? Should I look at this as,this is a deep value type of opportunity here? Maybethis is an opportunity for investors?

Gross:So, they raised guidance. On their going-forward guidance, they’re trading at 8.5X. Measurethat up against a Nordstrom, that’s around 15X, or aJCPenneyor aKohl’sthat are 17X and 12X, respectively, it certainly looks awfully cheap. And itcontinues to be a turnaround play. It’s not the kind of stock you probably want to buyand hold forever. It’s the kind of stock thatpotentially could be mispriced,and when it becomes fairly priced,you would probably want to take your profitsand go home.

Greer: OK, Ron,you mentioned some other names there, including Nordstrom and Kohl’s. Wetalk a lot about Amazon (NASDAQ:AMZN)- proofretailers orcompanies in general. When both of you guys look at traditional retail,is there a company that you think is more Amazon-proof?

Gross: Wealways talk about TJ Maxxas a company that really hasrelationships with thousands of buyers and provides areally strong value on and strong assortment to the customer. So far, that has been Amazon-proof. Itdoesn’t mean it always will be, though.

Argersinger:It’sgoing to be very hard. When I think of a lot of these companies,I think of apparel. And Amazon is making such a big investmentin that area. For a long time, I figured,are people really going to buy clothes online? Shoes? Andsure enough, over the last ten years, that model has been proven. Now,I think something like a Macy’s or Nordstromfeels like a better, more polished brand than yourJCPenney’s of the world, or yourSears, certainly, of the world. Atthe same time,I like what Ron said. There might be some value here, but youlook to get out as soon as you thinkyou have somewhat of a fair valueon these businesses. Youcannot see the outsized growth anymore for any of these brands.

Greer:OK. Ron,as we wrap up here, I know from my boots on the ground researchthat in a previous life,as a younger man —

Gross:Where’s this going?

Greer:– youworked at Macy’s. True or false?

Gross: [laughs]Yes,I will admit.

Greer: OK. What were the highlights and lowlights of Ron Gross’Macy’s career?

Gross: Thebackground is, I was in high school. I worked in the bath shop. The bath shop, for those uninformed, isthe department where they sell bath towels, primarily, and bathroom rugsand things like that. I was terrible at this job. Itmostly revolved around folding things.

Greer: Andwhy were you terrible?

Gross: I’mnot a good folder of things!

Greer: Andyou weren’t passionate about the bath shop?

Gross: Andby the way, this was before the day of bar codes and those guns and scanners. Youhad to key in every little last thing manually at the register. Ifyou made a mistake, you had to go back to the beginning. It wasjust a disaster. Myone recommendation to those kids out therewith a similar type of retail job is,do not call out sick every other week,because they just don’t appreciate when you do that.

Greer: Ah,OK, so you kind of shirked your duties.

Gross: I wasn’t a strong employee.

Greer: OK,duly noted. We like the honesty. Guys, let’s turn our attention toTencent. Tencentreporting better than expected earnings thanks tostrong growth in its mobile games,mobile payments and other digital content. Now, Matt,for those who may not be following this company, Tencent isChina’s largest social networking and gaming company. When we’re talking Tencent, we’re talking WeChat,which has more than a billion users. And,oh yeah, Tencent now has a piece of the action intwo of the biggest games in the smartphone world –PUBG and Fortnite.

Argersinger:That’s right. Youmentioned, biggest social network and video game company in China. Well,this is one of the biggest social network and video game companies in the world. You mentioned the one billion, thefirst time WeChat, which is theirbig social network, hit a billion active users, this most recent quarter.

This is a $500 billionmarket cap company. Huge. It’s one of the biggestcompanies in the world.Revenue up48% to $11.7 billionin the quarter. Operating profits up 59% to $4.9 billion. That’s an operating margin of42%. They’re in Facebookterritorywhen it comes to the profitabilityof their company, of their platform.

Andit makes sense. Like you said, it’s a social network,massive social network. They own some of the biggest video game propertiesin the world. We’re talking League of Legends,Honor of Kings, and oh, by the way, they own 40% of anAmerican company called Epic Games, which happens to publish this game called Fortnite —

Gross: And was started in Potomac, Maryland, by the way.

Argersinger:That’s right!Potomac Computer Systems, or something like that. So,they have their hands in some of the most popular intellectual property in the world. Butif you look at the other parts of the business, we talka lot about their social network and their video games, butvideo and music streaming, up 47%, that business. Advertising, which they really haven’t tapped into –in fact, management has been really hesitant to show ads in the “news feeds” of WeChat users. And yet, that business is up 55%,when they haven’t even really tapped it.

But, it really is the power of that network. You have a billion users, soanything Tencent can do, any game they launch,any video streaming service they launch or new content they create,they can immediatelydistribute that seamlessly across mobile to over a billion users. So,that is an incredibly powerful competitive advantage that Tencent has builtover the last 20 years, and it’s just really starting to shine now as a public company.

Greer:Matt, I just quoted the stock, and I hear these heady numbersand all these untapped opportunities that they’rejust beginning to explore, especially with regards to China. Andthe stock is down slightly today. What gives there?

Argersinger:Well,I’ve seen this play out a little bit with a lot of these large Chinese companies lately.I think, for whatever reason — and, Tencent in particular, because it’s listed on the pink sheets in the U.S. — but, these are all platforms that we knowand hear about and we can invest in, butwe don’t really have any experience with them. And we’renot comfortable, necessarily, with the management of Tencent orJD.comorBaiduorAlibaba, just to go through the list.

There’s a big catalyst, though, coming forward, which is, the Chinese government may soon — as early as this summer — allow domestic Chinese investors to actually buy shares in these companies. Right now, they’renot allowed to invest in these foreign-listed companies,even though these are some of the biggest companies in China. It’s as if we used Amazon in the States, butit was listed in China, and we weren’t allowed to invest in it. Well,imagine that. Imagine what the valuation of Amazon would beif that was the case. That’s what Chinese investors facewith something like Tencent. I think that’s a catalyst. And it could be happening this summer, wherea lot of Chinese investors could suddenly be able to buy shares. That’sgoing to create a huge amount of demand, I think. So,that’s one of the things, I think, that’s waiting to happen before the valuation really goes up for a lot of these companies.

Gross: That’sinteresting, because as a value guy,it has barely crossed my radar. But I do own shares of Facebook,I own shares of Google. So,I am willing to place my bets there. But, Tencent, being a Chinese company, I remain wary of that kind of stuff –to my detriment, [laughs] it would appear,because they are taking it by storm, andand this Fortnite thing is a phenomenonthat I have never seen, at least in my house.

Greer: It’sincredible. I played my first game this weekend,and I couldn’t really figure out how to jump.

Gross: You can dance, too.

Greer: Yeah,I was so far from being able to dance. What I realized is,you really have to be able to jump.

Gross: In real life, you mean?

Greer: Well,in real life, it’s helpful. But in Fortnite, I kept running into the same wallover and over, and then I just got mowed down by someone.

Argersinger:Anddriving your son, I’m sure, crazy.

Greer: Oh,my son was trying to teach me, and it started out with, “This this will be exciting,” and within a minute, he was exasperated. It was the equivalent ofthe 12 o’clockflashing on the VCR. I was that guy.I was running into a wall over and over,I couldn’t jump. I mean, it’s a much more complex game —

Gross: Oh, for sure.

Greer: — than Pong.

Gross: [laughs] Pong!

Greer: Pong,you had to adjust your paddle size. And then, that progressed to Breakout. And the only thing with Breakout isyou had to keep your cool as you broke out.

Argersinger:So,you dominated those games, but when it comes to something like Fortnite —

Greer: There are all thesevariables! You have to jump, you have to move —

Gross: Build, building is the key to Fortnite.

Argersinger:Yeah, building.

Gross: If you’re a strong builder, you can win.

Greer: No.I was just running into a wall over and over.

Gross: These games,this whole genre is called battle royale games, where100 people play at a time in a game of Fortnite.

Greer: Yeah,it’s brilliant.

Gross:It’s brilliant, and don’t forget, Fortnite doesn’t cost any money unless you want to upgrade your outfit —

Greer: Skins, Ron! Not outfits, Skins! Gosh!

Gross: Sorry, skins. Right.

Greer: So insulting!

Gross: You spend money on these microtransactions, $5 and $10 at a time,that actually turns into a real business. Hundreds of millions of dollars’ worth of business. It’s fascinating.

Greer: It’s brilliant. And you can play solo, you can play it in a pair, you can play on a team. Now, they have the Marvel tie-in with Thanos. Oh my gosh, I mean, they’re just printing money.

Argersinger:AndI’m glad Ron just mentioned the model,because it really is a model thatyou saw in nascent stages ten years ago withvideo games, but 90% of the revenue for video games was still selling you the disc,it’s $50 and that’s usually the only transaction that would happen. Now, you layer inall those microtransactions. So,it ends up, gamers spend hundreds of dollars on a single titleover the course of playing the game. And I think, that’s why you look at Tencent, it hasoperating margins above 40%.

Gross: Andjust as an aside, what’s amazing is,you can’t spend money Fortnite,for example, to upgrade your weapon and give yourself an unfair advantageand buy yourself a win. It’sliterally just aesthetics. It just looks cooler. Andkids out there are still willing — not just kids, everyone is still willing to spend those $5 and $10.

Greer: So, you’re telling me kids like to look cool?

Gross: Yeah, I guess so.

Greer: Well,the one tweak I’m going to make based on my experience is, I want a seniors’ division, where 50 and over compete in their own division. Likegolf, right? Then you have a bunch of people running into walls together.

Gross: Nice.

Argersinger:I like that. I like that a lot.

Greer: Money maker. Guys,let’s close with Starbucks, which is really ramping upin China. Matt, these numbers are staggering. OnWednesday, Starbucks announcing plans to build nearly 3,000 new stores in mainland Chinaover the next few years. For those of youscoring at home,that will mean that Starbucks will have around 6,000 storesby the end of 2022. What do you think?

Argersinger:That’s right. Credit toCNBC’s Kate Rogers,who was covering this conference that Starbucks did inChina, its two-day investor conference. Theheadline is really that Starbucks reiterated once again that their business in China isalmost certainly going to eclipse their business in the U.S.in the future. There’s just no doubt about it. And that’s partly, from what you said, they’regoing to have 6,000 stores by 2022.

Right now,they have 3,300 locationsacross 141 cities inChina. They’re opening a new location –this is according to Kate –every 15 hours now in China. So,with the new numbers they’ve put out,I looked back at my own model that I’ve done of Starbucks, looking at store counts, and this is way ahead of where I thought they would be by 2022.

So,if you’re a Starbucks shareholder, I think you probably felt a little frustratedover the last several years. The stock has kind of stagnated. Overall global compshave been low single digits. And the stock has really been stuck in place. Butnow, I look at this and I say, well,Starbucks is trading for roughly 22Xforward earnings, 2% dividend yield,buying back a lot of stock, abusiness that should still be able to grow in the high single digits, sales,especially as China becomes a greater proportion of the business.I think Starbucks looks pretty compellingright now. It’s not going to be a barnstormer,but I think you can do pretty well buying Starbucks today. And if you get the shares under $50,even better.

Greer: Yeah,it was really surprising. Shares of Starbucks down over the past year, butover the past five years, uparound 80%.

Argersinger:Right. It’s still a long-term story. So,I think, if you buy Starbucks today and you look forward to what this business could look like in five years,in China and elsewhere,pretty exciting.

Greer:I confess, when I heard you say you did your model of Starbucks,I first envisioned you building a model of a Starbucks.

Gross: [laughs]A Lego model?

Argersinger:Of aStarbucks store?

Greer: Yeah! And I’m like, “That’s kind of odd.” And then I’m like, “Oh, wait, play it cool, he’s talking financial model. OK, I got it.”I was a little worried there. I’m like, “You know what? Putthe model down, just crunch the numbers.”OKguys, my favorite closing desert island question. You’reon a desert island for the next five years,and you can only hold one of these stocks that we’ve talked about: Macy’s, Tencent, or Starbucks?

Gross:Well,it’s definitely not Macy’s.

Argersinger:[laughs] I think that’s easy.

Gross: Tencent might put upbetter numbers, but I’m just not as comfortable with it. AndStarbucks is just a solid, solid company that I can put in my portfolio andgo to that desert island and not worry about it,so I’ll go Starbucks.

Greer: Notas comfortable with Tencent, is that because of the management, or the business model, or both?

Gross:I’m just not as familiar with it, it’s a little bitmore high-growth, high-flying than I’mtypically comfortable with, and you add in the Chinese piece,and that pushes it over to Starbucks.

Greer: OK. Matty?

Argersinger: I’m going to agree with Ron. The numbers that Tencent isputting up are just staggering,but I feel a little bit less comfortable about where I see the business in five years.I think the business is going to be huge, and it’s growing in all these different areas,but I want to see more of a focus on,eventually, what they can do with this huge WeChat platform.And, whether or not the Chinese government is ever going to step in and say, “Yeah, youguys are a little too influential,” especially as WeChat gets into financial transactions, which,they already have one of the biggest payment platforms. Being able to spread that across a billion users, it makes Tencentthat much more influential in China. So, if I’m going to sleep well at night and, I think, earn 10% a year I’m going Starbucks.

Greer: OK. There you have it. Matt, Ron,thanks for joining me!

Argersinger:Thanks, Mac!

Gross: Thanks, Mac!

Greer:As always, people on the show may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. That’s it for this edition of Market Foolery. The show is mixed by Dan Boyd. I’m Mac Greer. Thanks for listening! We’ll see you tomorrow!

Strong Quarter Affirms the Bull Thesis for Tencent Holdings Stock

Chinese internet giant Tencent Holdings/ADR (OTCMKTS:TCEHY) just reported first quarter numbers, and they were much better than expected. Revenue growth remained robust, while earnings came in well above expectations, easing concerns surrounding persistent margin-compression headwinds. As a result, Tencent stock traded more than 6% higher to just over $53.

But Tecent earnings are more than just a near-term catalyst for a jump in TCEHY stock. Tencent earnings affirm the bull thesis that Tencent stock is worth a lot more than just $50 and change.

Indeed, given the company’s exposure to multiple nascent hyper-growth markets, I think Tencent stock is worth at least $60. As such, I think this post-earnings rally in Tencent has a lot of firepower left.

Here’s a deeper look:

Tencent Is a Big Growth Company

Tencent is often labeled as China’s Facebook Inc (NASDAQ:FB) because of its massive WeChat and Weixin user base, which crossed the billion user mark for the first time ever this past quarter (up 11% year-over-year).

That is a reasonable and flattering comp, as Facebook is a big growth company with a powerful advertising business. Tencent, too, has a really strong advertising business that is growing at a comparable rate (both Facebook and Tencent reported roughly 50% ad revenue growth this past quarter).

On that basis alone — that Tencent is China’s Facebook with a huge and growing advertising business — Tencent is a big growth company.

But Tencent is also much more than just China’s Facebook. In many senses, it is also China’s YouTube, China’s Spotify Technology SA (NYSE:SPOT) and China’s Paypal Holdings Inc (NASDAQ:PYPL). Plus, Tencent operates a red-hot online gaming business and an equally hot cloud business.

Those businesses are also growing at robust rates. Value-added-services revenue, which is mostly from online gaming and music and video subscriptions, rose 34% last quarter. Meanwhile, other revenues, which is mostly cloud and payment revenues, more than doubled last quarter.

Clearly, this is a very big growth company with multiple growth drivers and broad-based exposure to the Chinese consumer.

Because of this broad-based exposure, Tencent stock really is just a pure play on the continued boom in China consumerism. Considering per capita spending in China is 15% as big as per capita spending in the U.S., the most likely path forward for China consumerism is upward and outward.

Tencent Stock Is Materially Undervalued

Tencent stock bears want to pound on the table about margin compression headwinds. While it is true that margins are in retreat, this is simply a near-term and naturally occurring phenomena of a hyper-growth company.

In order to dominate a market (or multiple markets), you need to invest big, run on lower margins, and win over customers quickly. Then, once you’ve dominated the market, you curtail spending and ramp up margins. Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX) executed this exact strategy, and it is working out really well for both of them.

In other words, margins will be depressed here and now, but not forever. And when they ramp back up, they will ramp back up on a much larger revenue base, implying huge profit growth.

Consequently, I think earnings growth will be quite robust in a 5-year forward window. With revenues growing at a 50% and only marginally slowing rate, I think it is fairly likely that TCEHY grows revenues by at least 30% per year over the next 5 years. Meanwhile, net profit margins, which currently hover around 26%, may compress further, but should stabilize around 25% in the long-term, as big investments moderate.

That combination of 30% revenue growth and 25% net profit margins leads me to believe that TCEHY can net about $3.75 in earnings per share in 5 years. A Facebook-like forward multiple of 25 on those $3.75 earnings implies a four-year forward price target of nearly $94. Discounted back by 10% per year, that equates to a present value in the low to mid $60’s.

Bottom Line on TCEHY Stock

Near-term, this is a big revenue growth company with margin issues. Long-term, those margin issues will be resolved, and this will turn into a big revenue growth company with big earnings growth.

Tencent stock still isn’t priced appropriately considering its significant growth prospects. Consequently, this stock should continue to outperform over the next several quarters.

As of this writing, Luke Lango was long TCEHY, FB, AMZN, and PYPL. 

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Diamonds In The Rough Of The Consumer Cyclicals Sector

The Consumer Cyclicals sector currently earns an Unattractive rating based on the market-weighted aggregation of the 443 stocks we cover in the sector. The Amazon (NASDAQ:AMZN) impact and slow growing economy has led to declining profits and even bankruptcy for many companies in the sector. However, a few companies have overcome these struggles and managed to thrive.

By leveraging our Robo-Analyst technology[1] to parse and analyze company filings, including the footnotes and MD&A, we have identified companies with multiple years of after-tax profit (NOPAT) growth and above average returns on invested capital (ROIC)[2]. These companies are also undervalued compared to peers, and our DCF model reveals low expectations for future profit growth baked into the current stock prices.

Below we highlight three standout companies in the Consumer Cyclicals sector: Thor Industries (THO), The TJX Companies (TJX), and AMC Networks (AMCX).

Improving ROIC is Correlated with Creating Shareholder Value

Numerous case studies show that getting ROIC right is an important part of making smart investments. We also know that there is a strong correlation between improving ROIC and increasing shareholder value. Per Figure 1, ROIC explains 75% of the difference in valuation for the 443 Consumer Cyclicals stocks under our coverage. THO, TJX, and AMCX all trade at significant discounts to sector peers as show by their position below the trend line in Figure 1.

Figure 1: Three Undervalued Stocks in the Consumer Cyclicals Sector


Sources: New Constructs, LLC and company filings

Strong Fundamentals and Low Valuation

Besides trading below peers, THO, TJX, and AMCX have grown NOPAT each of the past five years and currently earn an ROIC at or above the Consumer Cyclicals sector average of 13%. Per Figure 2, each of these three stocks also has a lower price-to-economic book value (PEBV) ratio than the sector. A lower PEBV ratio indicates the market expects less profit growth from these three stocks than it does the sector as a whole, despite THO, TJX, and AMCX being more profitable, as measured by ROIC.

Figure 2: 3 Stocks Undervalued Compared to Sector Despite Higher Profitability


Sources: New Constructs, LLC and company filings

Thor Industries (THO)

Thor Industries, a motorized and towable recreational vehicle (RV) manufacturer, was first featured as a Long Idea in June 2016 and subsequently closed in October 2016. Over this time, THO was up 30% while the S&P 500 was up just 2%. Since closing the Long Idea, THOs fundamentals have only strengthened, and a recent drop in valuation makes for an excellent buy the dip moment.

Over the past decade, THOs revenue has grown 10% compounded annually while NOPAT has grown 12% compounded annually, per Figure 3. THOs NOPAT margins, which have improved from 4% in 2007 to 6% over the last twelve months (TTM), have been the key driver of its improving profitability.

Figure 3: THOs Revenue and NOPAT Since 2007


Sources: New Constructs, LLC and company filings

In addition to profit growth, THO has efficiently managed its balance sheet despite acquiring many smaller RV manufacturers over the years. Average invested capital turns, a measure of balance sheet efficiency, have increased from 3.54 in 2012 to 4.48 TTM. Rising margins and efficient capital use have improved THOs ROIC from 14% in 2012 to a top-quintile 25% TTM. The firm has also generated a cumulative $407 million (7% of market cap) in free cash flow since 2012.

Strong Growth Supported by Industry Trends

The recreational vehicle industry has been growing significantly in recent years, with a 12% compounded annual growth rate in unit shipments since 2012. Thor has capitalized on this industry growth and reported record revenue and net income in fiscal 2Q18. Going forward, the Recreation Vehicle Industry Association expects RV shipments will grow to new records in 2018. Thor management also notes that the industry is attracting new buyers at an impressive pace. 34% of RVs sold in 2016 were to new buyers, with 80% of the new buyers under age 65.

Recent Selloff Presents Buying Opportunity

THO is down 34% year-to-date, while the market is up 1%. This underperformance is largely attributable to concerns of President Trumps recent tariff announcement. However, these concerns appear to be overblown. Thor noted in its fiscal 2Q18 call that the tariffs will have less impact on its business than others, as it purchases its steel and aluminum from domestic suppliers. Additionally, the firm noted that it is already working with suppliers to minimize any impact and believes it can pass price increases on to consumers if necessary to maintain strong profit margins.

At its current price of $101/share, THO has a PEBV ratio of 0.9. This ratio means the market expects THOs NOPAT to permanently decline by 10%. This expectation seems rather pessimistic for a firm that has grown NOPAT by 17% compounded annually since 1998 and 25% compounded annually over the past five years.

If THO can maintain current NOPAT margins (6%) and can grow NOPAT by 7% compounded annually over the next decade, the stock is worth $143/share today a 42% upside.

The TJX Companies (TJX)

The TJX Companies, a discount apparel and home fashions retailer, has been able to successfully fend off the growing threat of Amazon and e-commerce. Much like previous Long Idea Ross Stores (NASDAQ:ROST), TJX is able to compete with online offerings by providing deals on apparel and home goods that often cannot be replicated online.

Over the past decade, TJXs revenue has grown 7% compounded annually while its NOPAT has grown 11% compounded annually, per Figure 4. NOPAT growth has been driven by rising margins, which have improved from 5% in 2007 to 8% TTM.

Figure 4: TJXs Revenue and NOPAT Since 2007


Sources: New Constructs, LLC and company filings

In addition to profit growth, TJX has efficiently managed its balance sheet and the capital invested into its business. Average invested capital turns, a measure of balance sheet efficiency, are currently 2.3, which is also the average over the last decade. Rising margins and efficient capital use have improved TJXs ROIC from 12% in 2007 to a top-quintile 17% TTM. The firm has also generated a cumulative $9.6 billion (19% of market cap) in FCF since 2012.

Comparable Store Sales Showcase Strength of Business

In a difficult retail environment, TJX has consistently broken trend. Fiscal 2018 represented the 22nd consecutive year in which comparable store sales increased year-over-year. Comparable store sales growth is a direct result of TJXs value proposition to consumers and the ability of its business model to adapt to consumer demands.

Stock Price Provides Upside Potential

Despite consistent comparable store sales and NOPAT growth, TJX is up just 13% over the past two years while the S&P 500 is up 32%. At its current price of $85/share, TJX has a PEBV ratio of 1.3. This ratio means the market expects TJXs NOPAT to only grow 30% from current levels over the remaining life of the firm. This expectation may seem optimistic for some firms, but not TJX, considering it has grown NOPAT 12% compounded annually for nearly 20 years, or since 1998. While TJXs PEBV is higher than most companies we recommend, the consistent and long-term track record makes these expectations look easily beatable.

If TJX can maintain current margins (8%) and grow NOPAT by 6% compounded annually over the next decade, the stock is worth $97/share today a 14% upside. Add in the 1.6% dividend yield and 22 consecutive years of dividend increases and TJX could be an excellent portfolio addition.

AMC Networks (AMCX)

AMC Networks, a cable television operator and content creator, showcases strong fundamentals in a market where quality content is king. Since 2012, AMCXs revenue has grown 16% compounded annually while its NOPAT has grown 17% compounded annually, per Figure 5. Increased profit growth can be attributed to rising NOPAT margins, which have improved from 17% in 2012 to 18% in 2017.

Figure 5: AMCXs Revenue and NOPAT Since 2012


Sources: New Constructs, LLC and company filings

AMCX currently earns an ROIC of 13%, which is equal to the Consumer Cyclicals sector average. The firm has also generated a cumulative $863 million (28% of market cap) in FCF over the past three years.

Content Creator Can Leverage Existing Content and Could Be a Buyout Target

AMC is best known for creating critically acclaimed series such as Mad Men, Breaking Bad, and The Walking Dead. Many believe the companys success is tied to its most recent hit, The Walking Dead, and that its profits will plummet when that show ends.

However, concerns about The Walking Dead are nothing new. In fact, ratings for The Walking Dead have been in steady decline for the past three seasons, yet AMCX has continued to improve NOPAT. Moving forward, AMC is looking to diversify popular franchises into different revenue streams, such as The Walking Dead video games and merchandising. AMC has also created spin off shows such as Better Call Saul and Fear the Walking Dead to capitalize on the success of its hits.

The company also has deals in place to provide its content through Comcast (and soon YouTube) via AMC Premiere. Additionally, in the battle for content, AMC remains a takeover target. Disney (NYSE:DIS) could immediately boost its own upcoming streaming service, or supplement Hulus offerings, in which it owns a stake. Similarly, Apple (NASDAQ:AAPL) could look to AMCX should its attempt to develop original content not succeed as planned. Beyond streaming assets, a competing cable provider, such as Discovery Communications (NASDAQ:DISCA) could view AMCX as a way to increase its leverage and pricing power with advertisers.

Shares Priced for Significant Cut in Profits

Now, at its current price of $56/share, AMCX has a PEBV ratio of 0.4. This ratio means the market expects AMCXs NOPAT to permanently decline by 60%. Meanwhile, AMCX has grown NOPAT by 17% compounded annually since 2012. Such pessimistic expectations are also at odds with consensus 2018 EPS estimates, which have risen from $6.97/share in December 2017 to $8.13/share in April 2018, which implies 13% EPS growth.

AMCXs current economic book value, which measures the no-growth value of the stock, is $123/share or 119% above the current price. If AMCX can maintain 2017 NOPAT margins (18%) and grow NOPAT by just 3% compounded annually for the next decade, the stock is worth $139/share today a 148% upside.

This article originally published on April 4, 2018.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.

[1] Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] Ernst & Youngs recent white paper, Getting ROIC Right, proves the superiority of our research and analytics.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Walmart Inc Stock Down Despite Earnings Beat, Online Sales Growth

Walmart Inc (NYSE:WMT) saw its stock drop on Thursday despite releasing a strong earnings report for the first quarter of fiscal 2019.

Walmart Inc Stock Down Despite Earnings Beat, Online Sales GrowthSource: Mike Mozart via Flickr

Earnings per share reported by Walmart Inc for the first quarter of the year came in at $1.14. This is up from its earnings per share of $1.00 from the same time last year. It also just beat out Wall Street’s earnings per share estimate of $1.13 for the period.

Net income reported by Walmart Inc for the first quarter of fiscal 2019 was $2.13 billion. This is down from the retail company’s net income of $3.04 billion reported in the first quarter of the previous year.

During the first quarter of the year, Walmart Inc reported operating income of $5.15 billion. The company’s operating income reported in the same period of the year prior was sitting at $5.24 billion.

Walmart Inc also reported revenue of $122.69 billion for the first quarter of fiscal 2019. This is an increase over its revenue of $117.54 million that was reported in the first quarter of fiscal 2018. It also came in above analysts’ revenue estimate of $120.51 billion for the quarter.

Walmart Inc notes that it also saw its ecommerce sales for the first quarter of the year increase by 33%. The company has been making pushes to improve its ecommerce offerings in a bid to better compete against rival online retailer Amazon.com, Inc. (NASDAQ:AMZN).

What may be dragging WMT stock down today is its guidance update for the most recent quarter. Walmart Inc says that it is expecting its investment in Flipkart to negatively impact its fiscal 2019 earnings report. This includes hurting its earnings per share for the period by 25 cents to 30 cents. The company will provide a more detailed update in its earnings report for the second quarter of fiscal 2019.

WMT stock was down 2% as of Thursday afternoon.

As of this writing, William White did not hold a position in any of the aforementioned securities.

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Tencent Takes Gaming By Storm

In this episode of the Market Foolery podcast, host Mac Greer talks with Motley Fool analysts Ron Gross and Matt Argersinger about the market’s hottest stories. For a company with $500 billion in market cap, Tencent(NASDAQOTH:TCEHY) just put up some astonishing growth this quarter — and yet, the stock fell a little bit today.

Traditional retail actually saw a bright spot today with Macy’s(NYSE:M) fantastic quarterly report, but investors shouldn’t abandon all doubts about the sector just yet. Starbucks (NASDAQ:SBUX)is ramping up its growth in China to an astounding degree, and long-term investors might want to take a closer look at the coffee powerhouse for the next few years. Tune in to find out more.

A full transcript follows the video.

This video was recorded on May 16, 2018.

Mac Greer: It’s Wednesday, May 16th. Welcome to Market Foolery! I’m Mac Greer, and joining me in studio, we have Motley Fool analysts Ron Gross and Matt Argersinger. Guys, welcome!

Ron Gross: How are you?

Matt Argersinger:Hey, Mac!

Greer: How you feeling?

Gross: I’m great!

Greer: Good. Matt, you?

Argersinger:I’m good!

Greer:I’m trying to grow a beard,but I’m at that scratchy stage.

Gross:Yeah,it looks good!

Greer: Are you just saying that? [laughs]That’s so hurtful. Well,guys, later in the show we’re going to talk Starbucks. They’rereally ramping up in China,which I hear is a pretty big market,so we’re going to talk about that. And we’re also going to talk about some big earnings from China’slargest social network and gaming company.

But, Ron,I want to begin with something that we don’t say every day –good news from a traditional retailer. Shares of Macy’s up more than 5% right now onbetter than expected earnings. Is the turnaround really happening?

Gross: Well,well, well, look who’s not dead yet!

Argersinger:Yet. [laughs]

Gross: Reallyinteresting! It’s been an interesting six months for retail. If you listened to the show a year ago, we left retail for dead.

Greer:Yes we did.

Gross: Shows what we know. Andthere have certainly been some rebounds, helped by tax cuts and bonuses and tax refunds and a strong economyand almost full unemployment. So, it has been interesting.

Specific to Macy’s,they have done what they needed to do, which is close a lot of stores,maybe around 100 stores. They cutthousands of jobs, which is painful,but when business calls for it, sometimes that’s what needs to be done. And it looks like they’rereaping the benefits of that as well asthe good stuff that’s going on in the economy right now. The same-store sales up 4.7% is a huge, huge number. Now,their friends and family promotionshowed up in this quarter, versus last year, it was in a different quarter,so the comparisons are a little wonky, for lack of a better word.

Greer:What is that? What is the friends and family promotion?

Gross: Itused to be that you literally hadto know someone that worked atone of these stores, and they could pass you along adiscount. Nowadays it’s, if you breathe,you get the friends and family discount. No kidding around!

Greer: [laughs]Opposable thumbs.

Argersinger:Everyone is a friend?

Gross: Everyone is a friend of someone. It’s just abig promotion, like the old Macy’s One Day sales. That helped, the fact that it was in this quarterversus a different quarter last time around. If you strip that out, you’re probably somewhere under 2% on a same-store sales growth basis. Butstill, for a company that has really struggled, that’s still pretty darn good. Adjusted profits up 240%. Now,again, from a very low base, because the company was struggling. Still,it’s really nice to see.

They have a lot of things in the works. They’rekind of throwing some things at the wall and seeing what will stick. They have their Macy’s Backstage concept, which is their discount concept. Everyretailer has to have one nowadays, like a Nordstrom (NYSE:JWN)Rack, for example. Theyactually bought a concept store in New York City calledStory,which is a store that revamps its inventory every four to eight weeks to try to keep it fresh. That would be some Inventory management job. Their buyers have their work cut out for them. But, interesting. They’re trying a lot of different things.

They need a new CFO; theirCFO is leaving. Let’s get that in placeso they don’t miss a beatwith respect to that. But, kudos to Macy’s. I don’t know if this carries through,but this is a really strong quarter.

Greer: OK,Matt, a lot there. What do you think?

Argersinger:I mean,part of me thinks this is probably just — I’m sure Ron will agree a little bit — things got a little too pessimistic.

Gross: Yeah.

Argersinger:So, if Macy’s can have a little good news, or any of these traditional retailers can have a little good news,it’s going to spike the stock. I have to look at Macy’s though, and I say, if I’m an investor and I see a P/E of 7X — I don’t know if that’s a normalized number — and a dividend yield above 5% …

Gross: Right? [laughs]

Argersinger:Ron,what do you think? Should I look at this as,this is a deep value type of opportunity here? Maybethis is an opportunity for investors?

Gross:So, they raised guidance. On their going-forward guidance, they’re trading at 8.5X. Measurethat up against a Nordstrom, that’s around 15X, or aJCPenneyor aKohl’sthat are 17X and 12X, respectively, it certainly looks awfully cheap. And itcontinues to be a turnaround play. It’s not the kind of stock you probably want to buyand hold forever. It’s the kind of stock thatpotentially could be mispriced,and when it becomes fairly priced,you would probably want to take your profitsand go home.

Greer: OK, Ron,you mentioned some other names there, including Nordstrom and Kohl’s. Wetalk a lot about Amazon (NASDAQ:AMZN)- proofretailers orcompanies in general. When both of you guys look at traditional retail,is there a company that you think is more Amazon-proof?

Gross: Wealways talk about TJ Maxxas a company that really hasrelationships with thousands of buyers and provides areally strong value on and strong assortment to the customer. So far, that has been Amazon-proof. Itdoesn’t mean it always will be, though.

Argersinger:It’sgoing to be very hard. When I think of a lot of these companies,I think of apparel. And Amazon is making such a big investmentin that area. For a long time, I figured,are people really going to buy clothes online? Shoes? Andsure enough, over the last ten years, that model has been proven. Now,I think something like a Macy’s or Nordstromfeels like a better, more polished brand than yourJCPenney’s of the world, or yourSears, certainly, of the world. Atthe same time,I like what Ron said. There might be some value here, but youlook to get out as soon as you thinkyou have somewhat of a fair valueon these businesses. Youcannot see the outsized growth anymore for any of these brands.

Greer:OK. Ron,as we wrap up here, I know from my boots on the ground researchthat in a previous life,as a younger man —

Gross:Where’s this going?

Greer:– youworked at Macy’s. True or false?

Gross: [laughs]Yes,I will admit.

Greer: OK. What were the highlights and lowlights of Ron Gross’Macy’s career?

Gross: Thebackground is, I was in high school. I worked in the bath shop. The bath shop, for those uninformed, isthe department where they sell bath towels, primarily, and bathroom rugsand things like that. I was terrible at this job. Itmostly revolved around folding things.

Greer: Andwhy were you terrible?

Gross: I’mnot a good folder of things!

Greer: Andyou weren’t passionate about the bath shop?

Gross: Andby the way, this was before the day of bar codes and those guns and scanners. Youhad to key in every little last thing manually at the register. Ifyou made a mistake, you had to go back to the beginning. It wasjust a disaster. Myone recommendation to those kids out therewith a similar type of retail job is,do not call out sick every other week,because they just don’t appreciate when you do that.

Greer: Ah,OK, so you kind of shirked your duties.

Gross: I wasn’t a strong employee.

Greer: OK,duly noted. We like the honesty. Guys, let’s turn our attention toTencent. Tencentreporting better than expected earnings thanks tostrong growth in its mobile games,mobile payments and other digital content. Now, Matt,for those who may not be following this company, Tencent isChina’s largest social networking and gaming company. When we’re talking Tencent, we’re talking WeChat,which has more than a billion users. And,oh yeah, Tencent now has a piece of the action intwo of the biggest games in the smartphone world –PUBG and Fortnite.

Argersinger:That’s right. Youmentioned, biggest social network and video game company in China. Well,this is one of the biggest social network and video game companies in the world. You mentioned the one billion, thefirst time WeChat, which is theirbig social network, hit a billion active users, this most recent quarter.

This is a $500 billionmarket cap company. Huge. It’s one of the biggestcompanies in the world.Revenue up48% to $11.7 billionin the quarter. Operating profits up 59% to $4.9 billion. That’s an operating margin of42%. They’re in Facebookterritorywhen it comes to the profitabilityof their company, of their platform.

Andit makes sense. Like you said, it’s a social network,massive social network. They own some of the biggest video game propertiesin the world. We’re talking League of Legends,Honor of Kings, and oh, by the way, they own 40% of anAmerican company called Epic Games, which happens to publish this game called Fortnite —

Gross: And was started in Potomac, Maryland, by the way.

Argersinger:That’s right!Potomac Computer Systems, or something like that. So,they have their hands in some of the most popular intellectual property in the world. Butif you look at the other parts of the business, we talka lot about their social network and their video games, butvideo and music streaming, up 47%, that business. Advertising, which they really haven’t tapped into –in fact, management has been really hesitant to show ads in the “news feeds” of WeChat users. And yet, that business is up 55%,when they haven’t even really tapped it.

But, it really is the power of that network. You have a billion users, soanything Tencent can do, any game they launch,any video streaming service they launch or new content they create,they can immediatelydistribute that seamlessly across mobile to over a billion users. So,that is an incredibly powerful competitive advantage that Tencent has builtover the last 20 years, and it’s just really starting to shine now as a public company.

Greer:Matt, I just quoted the stock, and I hear these heady numbersand all these untapped opportunities that they’rejust beginning to explore, especially with regards to China. Andthe stock is down slightly today. What gives there?

Argersinger:Well,I’ve seen this play out a little bit with a lot of these large Chinese companies lately.I think, for whatever reason — and, Tencent in particular, because it’s listed on the pink sheets in the U.S. — but, these are all platforms that we knowand hear about and we can invest in, butwe don’t really have any experience with them. And we’renot comfortable, necessarily, with the management of Tencent orJD.comorBaiduorAlibaba, just to go through the list.

There’s a big catalyst, though, coming forward, which is, the Chinese government may soon — as early as this summer — allow domestic Chinese investors to actually buy shares in these companies. Right now, they’renot allowed to invest in these foreign-listed companies,even though these are some of the biggest companies in China. It’s as if we used Amazon in the States, butit was listed in China, and we weren’t allowed to invest in it. Well,imagine that. Imagine what the valuation of Amazon would beif that was the case. That’s what Chinese investors facewith something like Tencent. I think that’s a catalyst. And it could be happening this summer, wherea lot of Chinese investors could suddenly be able to buy shares. That’sgoing to create a huge amount of demand, I think. So,that’s one of the things, I think, that’s waiting to happen before the valuation really goes up for a lot of these companies.

Gross: That’sinteresting, because as a value guy,it has barely crossed my radar. But I do own shares of Facebook,I own shares of Google. So,I am willing to place my bets there. But, Tencent, being a Chinese company, I remain wary of that kind of stuff –to my detriment, [laughs] it would appear,because they are taking it by storm, andand this Fortnite thing is a phenomenonthat I have never seen, at least in my house.

Greer: It’sincredible. I played my first game this weekend,and I couldn’t really figure out how to jump.

Gross: You can dance, too.

Greer: Yeah,I was so far from being able to dance. What I realized is,you really have to be able to jump.

Gross: In real life, you mean?

Greer: Well,in real life, it’s helpful. But in Fortnite, I kept running into the same wallover and over, and then I just got mowed down by someone.

Argersinger:Anddriving your son, I’m sure, crazy.

Greer: Oh,my son was trying to teach me, and it started out with, “This this will be exciting,” and within a minute, he was exasperated. It was the equivalent ofthe 12 o’clockflashing on the VCR. I was that guy.I was running into a wall over and over,I couldn’t jump. I mean, it’s a much more complex game —

Gross: Oh, for sure.

Greer: — than Pong.

Gross: [laughs] Pong!

Greer: Pong,you had to adjust your paddle size. And then, that progressed to Breakout. And the only thing with Breakout isyou had to keep your cool as you broke out.

Argersinger:So,you dominated those games, but when it comes to something like Fortnite —

Greer: There are all thesevariables! You have to jump, you have to move —

Gross: Build, building is the key to Fortnite.

Argersinger:Yeah, building.

Gross: If you’re a strong builder, you can win.

Greer: No.I was just running into a wall over and over.

Gross: These games,this whole genre is called battle royale games, where100 people play at a time in a game of Fortnite.

Greer: Yeah,it’s brilliant.

Gross:It’s brilliant, and don’t forget, Fortnite doesn’t cost any money unless you want to upgrade your outfit —

Greer: Skins, Ron! Not outfits, Skins! Gosh!

Gross: Sorry, skins. Right.

Greer: So insulting!

Gross: You spend money on these microtransactions, $5 and $10 at a time,that actually turns into a real business. Hundreds of millions of dollars’ worth of business. It’s fascinating.

Greer: It’s brilliant. And you can play solo, you can play it in a pair, you can play on a team. Now, they have the Marvel tie-in with Thanos. Oh my gosh, I mean, they’re just printing money.

Argersinger:AndI’m glad Ron just mentioned the model,because it really is a model thatyou saw in nascent stages ten years ago withvideo games, but 90% of the revenue for video games was still selling you the disc,it’s $50 and that’s usually the only transaction that would happen. Now, you layer inall those microtransactions. So,it ends up, gamers spend hundreds of dollars on a single titleover the course of playing the game. And I think, that’s why you look at Tencent, it hasoperating margins above 40%.

Gross: Andjust as an aside, what’s amazing is,you can’t spend money Fortnite,for example, to upgrade your weapon and give yourself an unfair advantageand buy yourself a win. It’sliterally just aesthetics. It just looks cooler. Andkids out there are still willing — not just kids, everyone is still willing to spend those $5 and $10.

Greer: So, you’re telling me kids like to look cool?

Gross: Yeah, I guess so.

Greer: Well,the one tweak I’m going to make based on my experience is, I want a seniors’ division, where 50 and over compete in their own division. Likegolf, right? Then you have a bunch of people running into walls together.

Gross: Nice.

Argersinger:I like that. I like that a lot.

Greer: Money maker. Guys,let’s close with Starbucks, which is really ramping upin China. Matt, these numbers are staggering. OnWednesday, Starbucks announcing plans to build nearly 3,000 new stores in mainland Chinaover the next few years. For those of youscoring at home,that will mean that Starbucks will have around 6,000 storesby the end of 2022. What do you think?

Argersinger:That’s right. Credit toCNBC’s Kate Rogers,who was covering this conference that Starbucks did inChina, its two-day investor conference. Theheadline is really that Starbucks reiterated once again that their business in China isalmost certainly going to eclipse their business in the U.S.in the future. There’s just no doubt about it. And that’s partly, from what you said, they’regoing to have 6,000 stores by 2022.

Right now,they have 3,300 locationsacross 141 cities inChina. They’re opening a new location –this is according to Kate –every 15 hours now in China. So,with the new numbers they’ve put out,I looked back at my own model that I’ve done of Starbucks, looking at store counts, and this is way ahead of where I thought they would be by 2022.

So,if you’re a Starbucks shareholder, I think you probably felt a little frustratedover the last several years. The stock has kind of stagnated. Overall global compshave been low single digits. And the stock has really been stuck in place. Butnow, I look at this and I say, well,Starbucks is trading for roughly 22Xforward earnings, 2% dividend yield,buying back a lot of stock, abusiness that should still be able to grow in the high single digits, sales,especially as China becomes a greater proportion of the business.I think Starbucks looks pretty compellingright now. It’s not going to be a barnstormer,but I think you can do pretty well buying Starbucks today. And if you get the shares under $50,even better.

Greer: Yeah,it was really surprising. Shares of Starbucks down over the past year, butover the past five years, uparound 80%.

Argersinger:Right. It’s still a long-term story. So,I think, if you buy Starbucks today and you look forward to what this business could look like in five years,in China and elsewhere,pretty exciting.

Greer:I confess, when I heard you say you did your model of Starbucks,I first envisioned you building a model of a Starbucks.

Gross: [laughs]A Lego model?

Argersinger:Of aStarbucks store?

Greer: Yeah! And I’m like, “That’s kind of odd.” And then I’m like, “Oh, wait, play it cool, he’s talking financial model. OK, I got it.”I was a little worried there. I’m like, “You know what? Putthe model down, just crunch the numbers.”OKguys, my favorite closing desert island question. You’reon a desert island for the next five years,and you can only hold one of these stocks that we’ve talked about: Macy’s, Tencent, or Starbucks?

Gross:Well,it’s definitely not Macy’s.

Argersinger:[laughs] I think that’s easy.

Gross: Tencent might put upbetter numbers, but I’m just not as comfortable with it. AndStarbucks is just a solid, solid company that I can put in my portfolio andgo to that desert island and not worry about it,so I’ll go Starbucks.

Greer: Notas comfortable with Tencent, is that because of the management, or the business model, or both?

Gross:I’m just not as familiar with it, it’s a little bitmore high-growth, high-flying than I’mtypically comfortable with, and you add in the Chinese piece,and that pushes it over to Starbucks.

Greer: OK. Matty?

Argersinger: I’m going to agree with Ron. The numbers that Tencent isputting up are just staggering,but I feel a little bit less comfortable about where I see the business in five years.I think the business is going to be huge, and it’s growing in all these different areas,but I want to see more of a focus on,eventually, what they can do with this huge WeChat platform.And, whether or not the Chinese government is ever going to step in and say, “Yeah, youguys are a little too influential,” especially as WeChat gets into financial transactions, which,they already have one of the biggest payment platforms. Being able to spread that across a billion users, it makes Tencentthat much more influential in China. So, if I’m going to sleep well at night and, I think, earn 10% a year I’m going Starbucks.

Greer: OK. There you have it. Matt, Ron,thanks for joining me!

Argersinger:Thanks, Mac!

Gross: Thanks, Mac!

Greer:As always, people on the show may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. That’s it for this edition of Market Foolery. The show is mixed by Dan Boyd. I’m Mac Greer. Thanks for listening! We’ll see you tomorrow!

25 Unstoppable Stocks to Buy No Matter What

There is a lot of noise in the stock market. Every day, discrete events send stocks up and down. These discrete events can be company-specific, like earnings reports, murmurs about mergers and acquisitions, analyst upgrades and downgrades, or investor presentations. Those discrete events can also be macro-related, including economic data or geopolitical news.

Nonetheless, every day, multiple events happen, causing the stock market volatility that we’ve been seeing from day to day.

Day traders would be wise to continue paying attention to each and every crackle of noise in this market. Long-term investors, however, will find it in their best interest to ignore that noise.

With that in mind, here is a list of 25 stocks that should, regardless of near-term noise, head significantly higher over the next several years due to secular growth tailwinds. 

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Unstoppable Stocks to Buy No Matter What: Apple Inc. (AAPL) apple stockSource: Yuanbin Du Via Flickr

It is only fitting that this list starts with the biggest publicly traded company in the world, Apple Inc (NASDAQ:AAPL).

Apple got to this point ($930 billion market cap) by selling the world a ton of iPhones, iPads and Mac computers. But that business is drying up. Everyone who wants an iPhone, iPad or Mac already has one, so there aren’t really any new buyers in the market. Instead, Apple just gets the upgrade buyers every year.

Bears think this is a problem. But it’s not. Apple is shifting from consumer technology company to software technology company. Through various software services like iCloud, Apple Music, Apple Pay and the App Store, Apple is starting to monetize its massive iOS ecosystem. These software revenues are higher margin than the hardware revenues, and they are also more predictable (most of the money comes from subscriptions), so Apple is actually turning into a company with higher margins and more predictable revenue streams.

As this transformation plays out over the next several years, AAPL stock will head higher. The stock is pretty cheap on its face, trading at just 16-times forward earnings, and there is a bunch of cash on the balance sheet that will be weaponized over the next several years in the form of dividends, buybacks and acquisitions.

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Unstoppable Stocks to Buy No Matter What: Axon Enterprise Inc (AAXN) Source: Axon

Although it is lesser known than Apple, Axon Enterprise Inc (NASDAQ:AAXN) is undergoing a similar transition from largely a hardware company to a software and hardware company.

Axon was formerly known as Taser International, and the business used to be selling tasers and other smart weapons to law enforcement agencies around the world. While selling all those tasers, the company also developed body cameras and accompanying cloud solutions to help store and analyze law enforcement data.

Because the company saw the writing on the wall that this body camera and cloud business was the future, they rebranded as Axon last year, and decided to give away a body camera for free to every police officer in the U.S. in an attempt to win over body camera and cloud contracts.

That plan has worked out beautifully. Now, essentially everyone who took part in the free trial, is a paying customer of Axon.

This growth story is still in its early stages. Law enforcement agencies globally are outdated. They desperately need a technology makeover. They also desperately need to reduce police shootings and misbehavior, two hot topics which have eroded the public’s trust in police. Axon provides the best-in-class solutions to fix both of those problems.

As such, AAXN stock, which is already up 110% this year, should continue to head higher over the next several years.

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Unstoppable Stocks to Buy No Matter What: Adobe Systems Incorporated (ADBE) ADBE Stock Has the Right Stuff to Keep the Momentum GoingSource: Shutterstock

One of my favorite cloud companies is Adobe Systems Incorporated (NASDAQ:ADBE).

ADBE dominates a niche part of the cloud that is dedicated to creative solutions. A few years back, the company shifted its business model from selling hardware to selling software, and shifted its core Adobe solutions to the cloud. In doing so, Adobe made its solutions subscription-based, so now consumers would have to pay repeatedly for a product that they used to only pay once for.

Naturally, Adobe users were upset. But that didn’t stop them from paying. They paid the subscription fee because there is essentially no other player in this market that is even close to offering solutions on-par with Adobe.

Consequently, Adobe has marched its way to unrivaled dominance in the creative solutions cloud market. This market is only growing, and Adobe is only growing with it. As such, ADBE stock, which is up more than 70% over the past year, will continue to be an out-performer over the next several years.

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Unstoppable Stocks to Buy No Matter What: Amazon.com, Inc. (AMZN) Source: Shutterstock

This list would, of course, be incomplete without including perhaps the biggest secular growth giant of them all, Amazon.com, Inc. (NASDAQ:AMZN).

The bears pound on the table about valuation regarding AMZN stock. But those bears must have sore hands, because they’ve been pounding on the table about valuation ever since AMZN was a $300 stock five years ago. Now, Amazon is near $1,600, and its current valuation (200-times trailing earnings) is actually cheaper than its valuation 5 years ago (~1000-times trailing earnings).

That is the beauty of the Amazon growth story. Amazon spends a bunch of money to grow market share in very important secular growth markets, like e-commerce and cloud services. The near-term result is super-charged revenue growth on anemic profitability, and that makes the valuation look absurd.

But then Amazon dominates a secular growth market, peels back those investments, and profitability ramps on what has become a massive revenue base. The long-term result, then, is super-charged revenue growth with super-charged profit growth. That makes the valuation look more reasonable.

Thus, as Amazon continues to grow as a company, AMZN stock will continue to grow into its valuation. Until something major knocks this secular growth company off its winning course, this is a stock to own for the next several years.

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25 Unstoppable Stocks to Buy No Matter What: Alibaba Group Holding Ltd (BABA) The Safer Way to Play Alibaba StockSource: Shutterstock

Any discussion about Amazon would incomplete without talking about its China counterpart, Alibaba Group Holding Ltd (NYSE:BABA).

For all intents and purposes, Alibaba is the China Amazon. The company dominates the digital commerce scene in China and most of Southeast Asia. They also operate a rapidly growing cloud business. Alibaba is also making huge pushes into offline retail, grocery, smart home, and artificial intelligence. Essentially, anything that Amazon is doing in the U.S., Alibaba is doing on the other side of the Pacific Ocean.

That makes Alibaba an equally big growth company as Amazon. In fact, Alibaba is actually growing more quickly than Amazon because China’s consumer class is booming right now. This boom should persist, and carry over to other parts of Southeast Asia over the next several years. Therefore, BABA should continue to be a big growth story over the next several years.

Also, Alibaba actually has really high margins considering its big-growth nature (adjusted EBITDA margins in core commerce were 43% last quarter). That means that this big revenue growth story already has big profit growth. That is the type of set-up that leads to a winning stock in a multi-year window.

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25 Unstoppable Stocks to Buy No Matter What: Baidu Inc (BIDU) Baidu Inc stock bidu stockSource: Shutterstock

Another hyper-growth China internet company that should out-perform over the next several years is Baidu Inc (ADR) (NASDAQ:BIDU).

Just like Alibaba is the China Amazon, Baidu is the China Google. And as the China Google, Baidu has become part of the underlying fabric of the internet in China and Southeast Asia. Thus, as internet usage continues to expand in those still developing and urbanizing markets, Baidu will benefit from higher usage and deeper engagement.

Moreover, digital advertising, which is Baidu’s core business, is booming in China. Roughly 5 years ago, less than 20% of total ad dollars in China went to digital channels. Now, nearly 60% of all ad dollars go to digital sites. Plus, the overall ad market is growing at a high single-digit pace, implying huge growth for the digital advertising segment.

Baidu is a key player in that red-hot digital advertising market in China, and as such, should be set-up for long-term success. The company also has tangential growth drivers through cloud and smart home, neither of which are priced into BIDU stock at current levels (the stock trades at just 25-times forward earnings).

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25 Unstoppable Stocks to Buy No Matter What: Walt Disney Co (DIS) Walt Disney Co Stock Is Due for a Magical Run HigherSource: Shutterstock

Most of the stocks on this list have a history of success over the past several years, but not Walt Disney Co (NYSE:DIS). Owning largely to cord-cutting headwinds and persistent pain at the company’s ESPN segment, DIS stock is actually down 5% over the past three years.

The good news is that these headwinds are starting to move into the rear-view mirror. Disney is making an all-out push into the streaming world. Part 1 happened just a few weeks ago with the launch of ESPN+, which is essentially an on-demand, streaming version of ESPN with exclusive content. Part 2 will happen next year, when Disney launches its own Netflix-like service with Disney content.

Because Disney owns the best content in the world (think Stars Wars, Marvel, Pixar, Disney originals, and potentially even assets from Fox), Disney’s streaming service will be met with very high demand. At that point in time, Disney’s cord-cutting pain will take a backseat to what will be red-hot subscriber growth through Disney’s streaming service. DIS stock, which trades at just 14-times forward earnings, could explode higher on a positive sentiment shift.

Moreover, sports gambling is legal now. ESPN will certainly become a big player in what will be a large and growing sports betting market in the U.S. As that market grows, ESPN will find a way to grow with it.

All in all, despite its under-performance over the past several years, DIS stock will be a big winner over the next several years as certain tailwinds gain traction and offset current headwinds.

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25 Unstoppable Stocks to Buy No Matter What: Facebook Inc (FB) fb stock facebookSource: Shutterstock

If you want the long and detailed explanation about why to buy Facebook Inc (NASDAQ:FB), read here. Otherwise, here’s the short of it.

Facebook shook off what was its worst PR incident in company history with the Cambridge Analytica scandal and proceeded to report arguably its best quarter ever. That is a testament to not only how good management handled the situation, but also how powerful the Facebook machine has become.

This power comes in many forms. Everyone has a Facebook account (essentially 2 out of every 3 people in the world who can have a Facebook account, do have a Facebook account). That number could move closer towards 3 out of 3 considering that Facebook’s user growth remains very strong in geographies with low internet penetration.

Moreover, because of this massive size, Facebook can replicate essentially any internet-based business and successfully operate it at scale (think Instagram Stories and WhatsApp Status, or even think Messenger, which is just a messaging component the company added to Facebook). Also because of its massive size, Facebook’s advertiser demand is sky-high, and that demand will only grow once Messenger and WhatsApp get started on monetization.

Then there is everything else happening at Facebook outside of the core social networking apps. There is Facebook Watch, which could be huge in the streaming space, and Facebook Workplace, which could be huge in the enterprise social networking market. There is also Facebook Marketplace and the build-out of native payments capability, both of which could quickly turn Facebook into an e-commerce marketplace.

All together, there are many, many reasons why FB stock is a must-own for the next several years. Considering the still cheap valuation (less than 25-times forward earnings), FB stock could be a big winner in a multi-year window.

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25 Unstoppable Stocks to Buy No Matter What: Fortinet Inc (FTNT) Source: Dennis van Zuijlekom via Flickr

One of the best markets to gain exposure to over the next several years is cybersecurity. As everything goes online, including both important and valuable data, that data will need to be secured and protected. Thus, demand for cybersecurity solutions will only soar over the next several years.

One of the best investments in this space is Fortinet Inc (NASDAQ:FTNT). Fortinet is a really big, really strong cybersecurity company. Revenue growth over the past five years at Fortinet has run in the 20%-plus range, a sign that demand for the company’s solutions is both strong and stable. Most recently, the company reported 17% revenue growth, yet another sign that demand isn’t slowing by all that much despite increasing scale.

FTNT stock is a bit pricey at nearly 40-times forward earnings. But considering the secular growth prospects of the company and its strong track record of robust revenue growth, a 40-times forward multiple seems reasonable.

Thus, while FTNT stock might run up against some valuation friction in the near-term, this stock is a long-term winner due to its leadership positioning in a secular growth market with increasing necessity.

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25 Unstoppable Stocks to Buy No Matter What: Alphabet Inc (GOOG) google stockSource: Shutterstock

Of all the FANG names, Alphabet Inc (NASDAQ:GOOG) is currently the weakest. Digital advertising revenue growth remains robust, but the shift to mobile is hurting margins because Google search wasn’t designed for mobile, so click-through rates are lower. Moreover, margins are being dragged down even further by Google’s big investments into cloud, smart home, and AI.

The near-term result is that while revenue growth remains robust, profit growth is weak. That has left GOOG stock range-bound in the $1,000 to $1,200 range for the past several months.

Longer-term, though, this stock will head considerably higher.

Revenue growth will never be a problem for this company. Google search is part of the underlying fabric of the internet, so as long as internet usage continues to increase, Google’s ad business will grow at a robust rate. Meanwhile, Google Cloud and smart home are still ramping. Plus, Waymo is getting ready to launch a self-driving car service, and this could be the beginning of Waymo generating billions of dollars in revenues.

Margin growth will also come back into the picture soon. Google’s core ad margins will remain pressured by the mobile shift. But eventually, those big investments into cloud, AI, and self-driving will peel back, and be replaced by super-charged revenue growth. That will lead to margin expansion and super-charged profit growth.

Thus, while GOOG stock is seemingly stuck in neutral right now, this won’t last forever. Eventually, margin compression will end, and GOOG stock will break higher.

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25 Unstoppable Stocks to Buy No Matter What: GrubHub Inc (GRUB) 3 Reasons to Be Cautious About GRUB StockSource: Shutterstock

The at-home economy has arrived.

Whereas we used to go shopping at the mall, we are now more frequently shopping at home through Amazon. Whereas we used to go to the movie theater, we are now more frequently watching movies at home through Netflix.

Along these same lines, whereas we used to go out and eat, we are now more frequently ordering food online and having it delivered to our doorstep through apps like GrubHub Inc (NYSE:GRUB).

Because of this parallel, GRUB is somewhat on the same growth trajectory as NFLX and AMZN. Indeed, revenue growth at GRUB is currently bigger than revenue growth at NFLX and AMZN, and GRUB stock has outperformed both NFLX and AMZN stock over the past year.

GRUB won’t ever get a hundred billion-plus valuation like NFLX and AMZN because it is attacking a much smaller market, and that market has a lot more competition. But the company is in the right space of online food ordering and delivery, and is powered by the right growth drivers as at-home economy adoption only accelerates over the next several years.

As such, GRUB stock should be a big winner over the next 3-5 years.

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25 Unstoppable Stocks to Buy No Matter What: Home Depot Inc (HD) How Home Depot Is Winning With MillennialsSource: Mike Mozart via Flickr (Modified)

Home improvement retailer Home Depot Inc (NYSE:HD) is one of the more stable and secure investments in the market.

The company is often seen as the heartbeat of the U.S. economy. So long as the U.S. economy is healthy, HD will report good numbers and the stock will head higher. Considering that the U.S. economic growth outlook is only improving and that HD continues to report robust numbers, it looks like HD stock will continue to be a winner for at least the next 2-3 years.

Beyond that, of course, HD stock is susceptible to a big pullback if the U.S. economy goes sour. But even back in 2008, the stock’s peak-to-trough decline wasn’t worse than the market’s peak-to-trough decline (both fell about 50%).

Thus, in a worst-case scenario, I see HD stock as market-performer over the next several years. In a best-case (and more likely) scenario, HD stock should be able to continue to deliver out-sized returns to shareholders.

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25 Unstoppable Stocks to Buy No Matter What: iRobot Corporation (IRBT) Why the Rebound in IRBT Stock Will ContinueSource: Shutterstock

The robots are coming, and there isn’t a better way to play this robot revolution on the consumer front than iRobot Corporation (NASDAQ:IRBT).

iRobot is the company behind the ultra-popular Roomba robotic vacuum. Adoption of the Roomba has soared over the past several years as adoption rates of robotic vacuums in the U.S. have gone from zero up to roughly 10%. That is why IRBT’s revenue growth has remained resiliently above 20% despite increasing scale.

But adoption rates are still only at 10%. Because robotic vacuums are simply automation (they take a simple human task and delegate it to a robot), adoption rates of these machines will continue to march higher over the next several years. As such, IRBT should be able to keep growing revenues at a 20%-plus clip.

The only risk here is competition. Competition, though, has been a risk for IRBT for several quarters now, and it has yet to show up in the numbers. Instead, as competition has supposedly increased, IRBT’s revenue growth trajectory has actually improved while gross margins have headed considerably higher.

All in all, IRBT stock will head higher over the next several years as consumer robotics adoption goes mainstream.

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25 Unstoppable Stocks to Buy No Matter What: JD.Com Inc (JD) JD Stock Is Sitting at Make-or-Break SupportSource: Daniel Cukier via Flickr

China e-retail giant JD.Com Inc(ADR) (NASDAQ:JD) has fallen on tough times recently, with the stock dropping nearly 30% off its early 2018 highs.

But the near-term concerns seem unnecessarily short-sighted. Margins are in retreat in the near-term because the company is investing big in order to grow its business. Namely, JD wants to expand its e-retail operations globally, make a big push into offline retail, automate its warehouses, and become a big player in the AI space.

Those are good investments that should yield positive long-term results. Thus, bears freaking out over near-term margin compression as a result of good investments seem to be missing the big picture.

In the big picture, JD is following in the footsteps of Amazon, which is big revenue growth on anemic profits, followed by big revenue growth accompanied by big profit growth. Eventually, JD’s big investment era will end, and margins will ramp higher on a considerably larger revenue base. At that point in time, earnings will roar higher and power a long-term upward trajectory in JD stock.

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25 Unstoppable Stocks to Buy No Matter What: McDonald’s Corporation (MCD) Mcdonald's stockSource: Shutterstock

When it comes to the fast casual food sector, nobody does it better than McDonald’s Corporation (NYSE:MCD).

It seems every other QSR chain, from Chipotle Mexican Grill, Inc. (NYSE:CMG) to Subway to Taco Bell to all those poke and super-food shops, lives and dies by the trend. When the QSR trend is in their favor, they do well. And when it’s not, they don’t do well.

MCD is exempt from this because its biggest value props (price and convenience) don’t trend. Consumers always want price and convenience. McDonald’s dominates on price and convenience. Therefore, consumers continue to go to McDonald’s in great frequency.

It also helps when MCD is on trend. And recently, the company has gotten on-trend by revamping its menu to include healthier, fresher options that are more in-line with today’s health-conscious consumer.

Overall, due to its unparalleled value prop in price and convenience, MCD will continue to dominate the QSR space, and MCD stock will keep heading higher.

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25 Unstoppable Stocks to Buy No Matter What: Momo Inc (MOMO) The Rally in Momo Stock Has More Runway AheadSource: Shutterstock

What is the internet without online dating?

Momo Inc (ADR) (NASDAQ:MOMO), China’s big online dating platform, would argue that it isn’t much. And they’d be right. Although only 1 in every 10 U.S. adults had used online dating as of 2016, that number was nearly 25% for teenagers in 2015 (and is presumably way higher today). Clearly, the youth are using online dating, and that means that online dating is indeed a big part of the future internet.

That is good news for Momo. The company is behind the dominant online dating platform in China. Therefore, as China internet usage surges and the Chinese internet landscape starts to look and act like the U.S. internet landscape, online dating in China will turn into a big growth industry.

Indeed, this is already happening. Momo reported revenue growth of nearly 60% last quarter.

These big growth prospects, however, are being materially undervalued by the market. MOMO stock trades at just 16-times forward earnings, a multiple which doesn’t match up with its 60% revenue growth.

As such, MOMO stock is a case of big growth converging on a discounted valuation, a pairing which should propel significant share price out-performance over the next several years.

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Long-Term Buy 17: Netflix, Inc. (NFLX) netflix stockSource: Shutterstock

By now, it should be clear that Netflix, Inc. (NASDAQ:NFLX) is marching towards world domination of the entertainment industry.

Back in 2011, Netflix split apart its DVD and streaming businesses. Everyone cried wolf, and subscribers quit platform en masse. But a year later, cable television viewership in the U.S. peaked. And seven years later, Netflix has 56 million streaming subscribers in the U.S. and 125 million globally.

Clearly, Netflix is doing something right.

That something right is delivering a whole bunch of quality content to consumers in an on-demand, multiple-screen fashion, and doing so at a very a low price point. In this sense, Netflix’s streaming services enhance the two most important things to consumers, price and convenience.

Because of its enhanced price and convenience value prop, Netflix will continue to grow its subscriber base at a robust rate until a majority of TV households around the world have a Netflix subscription. Moreover, because Netflix so so cheap, the company has a lot of wiggle room to raise prices, thereby boosting revenues and margins.

All in all, Netflix has two huge growth drivers over the next several years through global adoption and price hikes. The combination of those two growth drivers will propel NFLX stock higher in a multi-year window.

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25 Unstoppable Stocks to Buy No Matter What: Nike Inc (NKE) Despite the Markets Seeing Red, NKE Stock Could Rally 20%Source: Shutterstock

Nike Inc (NYSE:NKE) has long reigned as the king of the athletic retail industry.

The company’s dominance has been threatened time and time again over the past several decades, most recently by adidas, but each threat proves to be fleeting. The end result is that Nike continues to remain king of athletic retail.

This will continue over the next several years. Not only does Nike have a robust athlete portfolio in the critical big-growth basketball and soccer markets, but the company is also pivoting towards becoming more of a lifestyle brand with universal appeal, not just a performance brand with athlete appeal. This transition will only expand Nike’s market leadership position, and make the brand more appealing to more consumers.

Granted, NKE stock has had a run-up recently, and is pushing up against some valuation barriers (30-times forward earnings is a pretty big multiple for this stock). But near-term valuation friction aside, NKE stock should out-perform in a multi-year window due to its unparalleled leadership position in a big-growth and big-demand athletic retail market.

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25 Unstoppable Stocks to Buy No Matter What: Nvidia Corporation (NVDA) NVIDIA Stock (NVDA) Won't Stay Down Long After Shocking AnalystsSource: Shutterstock

The company with perhaps the broadest exposure to multiple nascent secular growth markets over the next several years is Nvidia Corporation (NASDAQ:NVDA).

NVIDIA makes the chips which power tomorrow’s world. These chips are used in everything from artificial intelligence to cloud data-centers to automation to high-end gaming to high-performance computing. Because of this, NVDA has exposure to multiple markets that have big growth potential over the next 5-10 years. That gives NVDA stock a big and diverse multi-year growth trajectory.

NVDA stock does, however, trade as if that is the case. The stock features a greater than 30-times forward earnings multiple, which is pretty big. But in the context of the company’s exposure to multiple high-growth markets, that 30-times forward multiple doesn’t seem so big.

All in all, over the next several years, NVDA stock will continue to be a winner as investment into AI, data-centers, and automation accelerates.

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25 Unstoppable Stocks to Buy No Matter What: Palo Alto Networks (PANW)

One of my favorite sayings in the market these days is, “Another day, another hack, another reason to buy a cybersecurity stock” .

But that saying could just as easily read, “Another day, another hack, another reason to buy Palo Alto Networks Inc (NYSE:PANW)”.

In other words, Palo Alto Networks is so big and so good at what they do that the company may as well be a substitute for the entire cybersecurity space. The company not only dominates the cybersecurity space, but that dominance comes with a consistent track record of 20%-plus revenue growth and healthy operating margin expansion.

This growth will continue. PANW’s customer base continues to grow at an absurd rate, while revenue growth continues to run at a 20%-plus rate. Sustained sizable growth in both user base and revenues illustrates that PANW is fully reaping the secular tailwinds pushing forth cybersecurity solution adoption globally.

Over the next several years, this strong growth will lead to PANW stock heading materially higher.

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25 Unstoppable Stocks to Buy No Matter What: Proofpoint Inc (PFPT)

Cybersecurity company Proofpoint Inc (NASDAQ:PFPT) isn’t as big as the other cybersecurity giants on this list. But what Proofpoint lacks in size, it makes up for in growth.

Proofpoint isn’t like the Palo Alto Networks of today. It isn’t big, nor does it operate at 20% operating margins, nor is it the poster-child for the entire cybersecurity space.But Proofpoint is like the Palo Alto Networks of yesterday. The smaller version that was growing at 50% per year and expanding margins from 7% to 20%.

Last quarter, Proofpoint reported revenue growth of 40%. That is a big number. It is also bigger than the revenue growth the company reported the quarter before that (36%).This year, Proofpoint expects revenues to grow by 37%. That is the same growth rate as last year. It is also the same growth rate the company has maintained for the past five years.

In other words, this massive 30-40% revenue growth story isn’t slowing down at all. Meanwhile, operating margins are also ramping higher, and are expected to reach 14% by 2020.

In totality, PFPT has PANW written all over it. PANW stock has gone from $40 to $200 over the past 5 years. A similar rally could be in store for PFPT stock over the next 5 years.

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25 Unstoppable Stocks to Buy No Matter What: Shopify Inc (SHOP) 3 Reasons Shopify Stock Can Rally Almost 20% to $170Source: Shopify via Flickr

I’ve said it before and I’ll say it again. Few stocks in the market are supported by as powerful of a growth narrative as e-commerce solutions provider Shopify Inc (NYSE:SHOP).

The whole world is moving towards decentralization. Technology companies are taking power from the few, giving it to the many, and creating systems that optimally pair supply with demand. And its working.

Uber did this in the transportation industry. Airbnb did this in the accommodations space. YouTube has done in this in the entertainment world, while Netflix has done this in the content production realm. Facebook, Instagram, Twitter, Snapchat… all of those have done that in the information world.

Now, Shopify is decentralizing the digital commerce space. The company provides digital commerce tools which allow anyone to sell anything online. In the same way that Uber said anyone can drive and make money and that Airbnb said that anyone can rent out living space and make money, Shopify is saying that anyone can run a e-commerce shop and make money.

This is the future of e-commerce. And Shopify is spearheading it. As such, SHOP stock should be a big winner over the next several years.

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Long-Term Buy 23: Tencent Holding (TCEHY) Insider Selling Concerns Just Created a Buying Opportunity in TCEHY StockSource: Shutterstock

The China internet growth narrative it still in its infancy relative to the U.S. internet growth narrative. Quite simply, U.S. internet adoption rates are right around 90%, while China internet adoption rates are still below 40%.

That means there is still a ton of growth left until China’s internet landscape is fully saturated like the U.S. internet landscape.

With that in mind, why wouldn’t you want to invest in China’s Facebook? TENCENT HOLDING/ADR (OTCMKTS:TCEHY), often labeled as China’s Facebook due to its billion user WeChat/Weixin app, is a hyper-growth company with broad exposure to China’s booming internet landscape.

That wast most evident in the company’s recent quarterly results, wherein revenues increased by 48% year-over-year, operating profits increased by 59% year-over-year, and net profits increased by 65% year-over-year.

Because of the still low internet penetration rates in China, this big growth supporting TCEHY is here to stay. Consequently, TCEHY stock will remain a big winner over the next several years.

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Long-Term Buy 24: Take-Two Interactive Software, Inc (TTWO) 'Fortnite' Isn't a Threat to TTWO StockSource: Shutterstock

The video game is red-hot right now for two reasons.

First, video game publishers are figuring out how to optimally squeeze more money out of each video game buyer. Before, video game publishers used to make money on the physical video game sale. Now, video game publishers are making money on the physical video game sale, as well as through embedded micro-transactions. Thus, average revenue per each video game player is actually increasing by a lot right now.

Second, the video game industry is being injected with some cool next-gen technology. The most obvious example of this is the Nintendo Switch, which caused an unprecedented rise in video game demand last year.

Both of these tailwinds will persist. Micro-transactions will only grow in popularity over the next several years, while next-gen technology like VR/AR have yet to fully hit the video game world. Plus, the whole eSports category provides a strong tailwind. Because of this, video game stocks remain top investments over the next several years.

In this world, my top pick is Take-Two Interactive Software, Inc (NASDAQ:TTWO). The company has an exceptionally robust product portfolio that includes games like Grand Theft Auto which have enduring demand. TTWO is also the king of micro-transactions, and makes a bunch of its money through in-game purchases.

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Long-Term Buy 25: Weibo Corp (WB) Digital Ad Growth Should Push WB Stock to $200Source: Shutterstock

A lot of people call Weibo Corp (ADR) (NASDAQ:WB) the Chinese Twitter Inc (NYSE:TWTR), but Weibo would probably be offended by the comparison. After all, Weibo has nearly 25% more users than Twitter.

But Twitter has a bigger market cap.

That doesn’t make much sense. Twitter’s larger market cap is simply a result of bigger revenues. But those bigger revenues are the result of higher ARPU, which is the result of the U.S. digital ad market being bigger and more complete than the China digital ad market.

Eventually, China’s digital ad market will be significantly bigger and just as complete as the U.S. digital ad market. At that point in time, Weibo’s ARPU should be on-par with, if not greater than, Twitter’s ARPU. Considering Weibo’s user base is 25% larger, that should translate to at least 25% higher revenues and a 25% bigger valuation.

Because of this, WB stock should remain a big winner over the next several years.

As of this writing, Luke Lango was long AAPL, ADBE, AMZN, BABA, BIDU, DIS, FB, GOOG, HD, IRBT, JD, MCD, MOMO, PANW, S

How Netflix, Inc. Uses Big Data to Grow Sales and Shareholder Value

Netflix, Inc. (NASDAQ:NFLX) stock has doubled in the last 12 months, climbing steadily from $160 per share to $328.19 per share as of Wednesday’s close. In recent years, the company has been spending more and more money on content development — a reality that’s left NFLX with over $15 million in liabilities in 2017 compared to a third of that total in 2014.

That trend is expected to continue. Chief Content Officer Ted Sarandos recently said that 85 percent of the company’s spending is going to new shows and movies. But, with Netflix, the new movie process is a bit different than you might imagine. Let’s take a closer look at how Netflix uses Big Data.

How Netflix Uses Big Data to Make Movies

The most obvious Big Data application by Netflix, which has over 100 million subscribers, is its recommendation engine. Just as Amazon.com, Inc. (NASDAQ:AMZN) uses consumer data to suggest new purchases, Netflix uses data to decide what programs might be of interest to you based on what you’ve viewed previously. According to InsideBigData, the company estimates that its algorithms save $1 billion a year in the form of customer retention.

But Big Data is also used before the company makes a big-time bet on its next show. As the aforementioned liabilities suggest, making original content is anything but cheap. But it’s become a core part of the Netflix strategy, so the company needs to do it in a smart way. Netflix needs to understand the risk or probable success rate of each piece of content it invests in.

As the Kissmetrics blog points out, traditional TV networks don’t have the same depth of data. They have rough estimates of the numbers of viewers, but far less detail on their behaviors. Netflix, on the other hand, knows when people watch content, when they pause or rewind it, what ratings they give that content, what they search for, and so on. It’s a little bit of Google (NASDAQ:GOOG, NASDAQ:GOOGL), a little bit of Amazon, and a little bit of Disney (NYSE:DIS). Not a bad combo, right?

So, when Netflix spent $100 million on House of Cards (yes, you read that right), it wasn’t some spontaneous gamble. As Steve Swasey, the company’s vice president of corporate communications, told Gigaom, Netflix had a high degree of confidence in the show because it had Big Data on its side.

“We can look at consumer data and see what the appeal is for the director, for the stars and for similar dramas,” he said.

Then, as we already mentioned, it can use that data to also market the show it spent so much cash on.

The Effect of Big Data on Netflix Stock

That’s the good news. The bad news, perhaps, is that investors seem pretty tuned into the fact that Netflix knows what it’s doing, even if they can’t explain Big Data for the life of them. The 63% sales growth on tap for the next five years might do enough of the talking.

In turn, the stock is currently sporting a trailing 12-month price-to-earnings ration of 260.

It’s up to you to decide if the data is big enough for that big of a pricetag.

As of this writing, Rob Martin did not hold a position in any of the aforementioned securities.

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There Still Isn’t Any Reason to Buy Blue Apron Holdings Inc Stock

A good number of high-profile IPOs have a brief honeymoon on Wall Street where the stock trades notably higher. Then, the numbers roll in, and either that honeymoon lasts, and the stock jumps, or it doesn’t, and the stock drops.

Meal kit maker Blue Apron Holdings Inc (NYSE:APRN), though, didn’t even get a brief honeymoon. APRN went public at $10 per share, and it hasn’t been higher since.

Today, APRN stock trades at $2.60.

Why the big drop? Blue Apron is in a hyper-competitive space, and it hasn’t been able to distinguish itself from the pack in that crowded space. In fact, Blue Apron has actually let the competition pass it by, and the company’s operations, revenues and customer base are now all shrinking.

It is worth noting, however, that Blue Apron stock has jumped more than 40% over the past several weeks from $1.80 to $2.60. That rally is largely the result of a positive shout-out from Kevin O’Leary, who thinks the company will be acquired, and better-than-expected first quarter numbers that showed improving profitability.

But O’Leary himself admits the acquisition thesis is pure speculation, while APRN still runs a sizable loss on a shrinking revenue base.

Consequently, I say fade this rally in APRN stock. This is a company that could very well go to zero.

Here’s a deeper look.

Blue Apron Has Too Much Competition

Since day one, the biggest concern regarding Blue Apron is that the company simply has too much competition and not enough scale to compete with that competition.

This problem has only gotten worse.

Namely, the whole on-demand food market is moving toward delivery. Companies like GrubHub Inc (NYSE:GRUB), UberEats and DoorDash are now partnering with restaurants of all sorts.

That means that they have delivery partnerships with not just fast-casual chains like McDonald’s Corporation (NYSE:MCD), but also with more healthy, sit-down, home-cooked-feel restaurants, too.

Thus, meal kits are designed for the segment of the market that still wants to cook food but doesn’t have time to shop for groceries. This segment seems awfully small. If you value cooking, you will likely make time to go to the grocery store and pick out your own ingredients. If you value time, you will likely just order from a healthy restaurant through UberEats or GrubHub.

Thus, this overlap of somewhat valuing time and somewhat valuing cooking and health seems to be greatly limited in scope.

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Within that limited market, competition is also very fierce. Amazon.com, Inc. (NASDAQ:AMZN) has meal kits. Weight Watchers International, Inc. (NYSE:WTW) just jumped into the meal kit category, too. Of course, there is still market leader HelloFresh, who just announced 50% revenue growth and 40% customer growth last year.

By comparison, last quarter, Blue Apron reported a 24% decline in revenues and a 20% decline in customers.

The Clock Is Ticking on Blue Apron Stock

Overall, not only is Blue Apron stuck in a lousy and shrinking market, but it is also rapidly losing share in that shrinking market.

Granted, the revenue and customer declines are the result of less marketing spend, so overall profitability is rising. But the company still runs sizable losses, and the prospects of near-term profitability are bleak considering expenses have already been axed, and revenue growth trends remain weak.

The biggest problem is that APRN only has $203 million in cash on the balance sheet, while net cash flows have been consistently negative. Unless there is some dramatic turn in the business, that cash balance will continue to dwindle, and Blue Apron stock will head lower.

The only chance of survival is acquisition. But I’m not sure who would want to buy APRN stock.

The company clearly doesn’t have many loyal customers, as a decrease in marketing spend has directly correlated to a decrease in customer base. Revenues are dropping. The company isn’t profitable, nor is it the biggest in its space. The market’s long-term growth prospects are also questionable given a rise in on-demand food ordering and delivery apps.

Bottom Line on APRN Stock

Unless this company gets acquired, APRN stock will keep falling.

I don’t see an acquisition happening given APRN’s shrinking importance in a not-that-important category of the food market. As such, I think any rallies in APRN stock should be faded.

As of this writing, Luke Lango was long AMZN,

3 Reasons Walmart's Flipkart Acquisition Is Its Most Important Yet

Walmart (NYSE:WMT) has agreed to purchase a 77% stake in India’s leading e-commerce company, Flipkart, for $16 billion. Walmart is buying out shares from existing investors, but several key companies are keeping their stakes, including Tencent (NASDAQOTH:TCEHY) and Microsoft.

Amazon (NASDAQ:AMZN) — the No. 2 e-commerce company in India — was also reportedly interested in buying a majority stake in Flipkart, but the Indian company feared regulators wouldn’t approve such a deal. Walmart, by comparison, has an extremely small presence in India — 21 stores.

Walmart’s acquisition of Flipkart is the latest and biggest in a spree of e-commerce acquisitions the company has made since it acquired Jet.com in 2016. And while Jet.com and its former CEO Marc Lore have fueled great growth in Walmart’s online sales, Flipkart could end up being more important long term. Here are three reasons why.

Walmart CEO Doug McMillon and Flipkart co-founder Binny Bansal shaking hands.

Image source: Walmart

There’s a lot at stake

The $16 billion Walmart is putting up for its majority stake in Flipkart makes it the company’s largest acquisition ever. It’s nearly five times as much as Walmart paid for all of Jet.com — $3.3 billion — and it’s much more than the company has spent over the previous two years on all of its e-commerce acquisitions combined.

In other words, Walmart has a lot riding on the continued growth of Flipkart and its ability to eventually turn a profit.

In the near term, Walmart expects to take a $0.25 to $0.30 hit on itsearnings per share (EPS) for fiscal 2018, assuming the deal closes by the end of the quarter. Next year, it expects to double that loss per share to about $0.60. So, not only is Walmart investing money upfront to acquire Flipkart, it will continue investing billions in the company as it turns a loss for the foreseeable future.

If Walmart is unable to help Flipkart grow its market share and fend off Amazon, it could have overpaid for its largest acquisition in company history.

A massive opportunity

Flipkart is the leading player in one of the largest and fastest-growing markets in the world. E-commerce in India is estimated to reach $200 billion in 2026, according to analysts at Morgan Stanley. That’s up from an estimated $38.5 billion in 2017.

It’s no wonder Amazon is investing aggressively to take share from Flipkart and fend off smaller competitors. Amazon is opening dozens of fulfillment and delivery stations throughout India. It’s selling its Prime memberships at a ridiculously low price (making it the fastest-growing market for Prime ever). And it’s gaining ground on Flipkart.

Flipkart grew its gross merchandise volume 43% year over year in the six-month period ending in September 2017. That’s faster than the overall industry, but still slower than Amazon’s growth, which came in at 67% for the same period.

Even as Amazon outpaces Flipkart, the market holds a massive opportunity for growth, and Flipkart has shown continued strength outpacing the overall market despite being the market leader.

“A key center of learning”

Walmart CEO Doug McMillon said, “India will now become a key center of learning” during the conference call with analysts following the acquisition announcement.

Walmart COO Judith McKenna pointed to Flipkart’s research in artificial intelligence, use of data across its platforms, logistics network, and burgeoning mobile payments service, PhonePe, as its key strengths. Walmart could glean operational insight from those efforts and leverage them for growth in international markets, including the U.S.

The Flipkart deal will also partner Walmart with Tencent and Microsoft, which could lend their technological expertise to e-commerce. Tencent already has a strong position in mobile payments in China with WeChat Pay, which has over 600 million users. Walmart and Flipkart are also in talks “with additional potential investors who may join the round,” according to Walmart’s press release.

Walmart seemingly wants to make Flipkart and India the place where it experiments with technology and e-commerce, and then apply what it learns to its global operations. That could very well be the most important part of this acquisition for Walmart.

Should You Buy Home Depot Stock After Earnings? 3 Pros, 3 Cons.

Home Depot Inc (NYSE:HD) disappointed investors with a rare soft earnings report on Tuesday. The company did beat on EPS by two cents. It came up very short on the revenues line, however, with $24.9 billion in sales falling $270 million short of expectations. That left Home Depot with just a 4.4% year-over-year growth rate. That wasn’t enough to please investors. HD stock is trading down modestly following its earnings report.

That may not be a fair reaction, however. As we’ll see in the pros and cons below, the earnings miss was largely driven by the weather. Bulls and bears disagree on the broader ramifications of that. Zooming out, Home Depot is the best player in its field, but its stock also fetches a premium valuation. That said, is Home Depot stock worth buying today?

HD Stock Cons

Will 2018 Miss Guidance?: HD stock bulls will say that this sales miss was weather-driven and not important. They have a valid point. But they could be wrong.

Reuters quoted an analyst who doubted that Home Depot will make up all the lost sales in future quarters: “The lower-than-expected sales could pressure Home Depot’s ability to meet its full-year targets,” Loop Capital analyst Laura Champine said. “How much of the sales they’ve missed will they get back? That’s the key.”

Indeed, given Home Depot’s steep discounting on items such as patio furniture, the company may see a more than one quarter impact on its profitability.

Largely Played Out Market: Within the United States, there’s likely not much opportunity for additional stores. For example, in the latest quarterly report, we see that Home Depot added just four net stores over the past year.

That means that growth opportunities going forward will be diminished. The company has done well internationally. It is one of Canada’s largest home improvement chains. Additionally, it has more than 100 stores (and growing) in Mexico, which should be a booming market in coming years. All that said, without much growth opportunity in the United States, expect long-term margins to decline as competitors cut prices to try to maintain market share. As a mature market, investors shouldn’t expect the same eye-popping growth that Home Depot stock previously delivered.

More Expensive Than Lowe’s: HD stock is significantly more expensive than stock in its chief rival, the Lowe’s Companies, Inc. (NYSE:LOW). Lowe’s stock is selling at 21x trailing PE and 14x forward PE. That matches up favorably against Home Depot stock at 25x trailing and 19x forward PE. The comparison looks even worse for Home Depot once you realize that it has a far more leveraged balance sheet than Lowe’s which should, in theory, make Home Depot more profitable.

On a revenues basis, HD stock also looks pricey. The market values HD stock at $221 billion for $100 billion in annual revenues. Whereas Lowe’s has a market cap of $72 billion against $69 billion in revenues. That means that the market is willing to pay a dollar for a dollar of Lowe’s revenue, but more than 2x that for a dollar of Home Depot revenues. Home Depot has the better brand, but is it worth that much of a premium?

HD Stock Pros

Earnings Softness Was Weather-Driven: Home Depot’s management said that unusually cold weather this spring caused the earnings miss. Due to abnormally chilly conditions across much of the U.S., folks delayed the start of their gardening and yardwork this year. That led to, predictably, serious volume declines for products such as fertilizers. Specifically, that led to the CEO stating that: “The miss in terms of garden was significant against what we planned”.

Management suggested this was merely shifted demand, not an overall loss. So far, the company sees May sales growing at a double-digit rate, making up for much of the first quarter’s shortfall. Overall, that allowed Home Depot to maintain guidance for the full year. On the whole, the bulls say that the earnings miss won’t have lingering effects for Home Depot stock.

Web-Resistant Retailer: Retail used to be a classic sector for investors. Lately though, given Amazon.com, Inc.’s (NASDAQ:AMZN) monopolization of wide swaths of the retail landscape, investors have given up on shopping investments.

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Home Depot stock, however, has fared well despite the so-called retail apocalypse. There are several good reasons for that. For one, Home Depot has expanded internationally in Mexico with its huge construction market. Within the U.S., do-it-yourselfers seem to still benefit from having in-store help to guide purchases. Also, for certain projects, getting a part or tool is an immediate need, where the consumer won’t wait two days for delivery. Finally, many of Home Depot’s products are heavy or bulky, making online shipping uncompetitive with the company’s streamlined supply chain.

Huge Dividend/Buyback: HD stock treats its shareholders well. Management has been jacking up the dividend for more than a decade now. Over the past 10 years, it has averaged a 16% compounded dividend growth rate. During the past five years, as the housing market recovered, management has gotten even more generous, with a 24% dividend growth rate.

That means that while Home Depot stock yields 2% now, a buyer five years ago is now getting 5.7% on their initial investment. Don’t overlook the power of a modest starting yield that grows explosively. On top of that, Home Depot is buying back tons of stock. Since 2010, the amount of Home Depot stock outstanding has plunged from 1.8 billion shares then to just 1.15 billion today. That creates a ton of value for the remaining stockholders and supercharges returns and dividend growth.

HD Stock Verdict

Home Depot is the best-in-class retailer in its niche. It’s largely Amazon resistant, and has built a nice web presence itself. Furthermore, its international efforts, particularly in Mexico, give it further growth opportunities even with the US market tapped out.

That said, HD stock is expensive in its own terms and compared against Lowe’s. The U.S. market is unlikely to perform nearly as well as in the past, leading to falling profit margins. Home Depot is a great company, but the stock price reflects that already. As for what the stock will do for the remainder of 2018, much will come down to whether this earnings whiff was a one-off or the start of a problematic trend.

At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Tw

2018’s Biggest Stock Market Winners so Far

After a nearly perfect 2017 that saw big gains happen alongside mitigated volatility, the stock market hasn’t been able to replicate that success in early 2018.

Year-to-date, the S&P 500 is essentially flat. More than that, at one point in late January, the S&P 500 was up nearly 8% on the year. By the beginning of February, it was down 1% on the year.

In other words, the stock market of 2018 has looked very little like the stock market of 2017. Big gains have been replaced with sideways trading. And volatility has once again reared its ugly head.

But the broad market’s struggles don’t apply to every stock.

Thus far in 2018, the stock market has had some pretty big winners. And by big, I mean big. The market’s best-performing stocks have staged huge rallies of 50% and up thus far in 2018.

With that in mind, here are a few of the stock market’s biggest winners so far in 2018.

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Best-Performing Stocks #1: Netflix (NFLX) Netflix NFLX stock Source: via Netflix

Nothing seems to knock secular growth giant Netflix, Inc. (NASDAQ:NFLX) off its horse.

The other FANG names have struggled some in 2018. Facebook, Inc. (NASDAQ:FB) has been hit with data leak and personal privacy concerns. Alphabet Inc (NASDAQ:GOOG) is struggling to keep its margins up during a big investment period. Even Amazon.com, Inc. (NASDAQ:AMZN) has felt pressure recently due to regulatory threats.

But Netflix has faced zero meaningful threats so far in 2018. Meanwhile, the company continues to report strong beat-and-raise quarters that blow out expectations on every key metric from revenue to margins to earnings to subscribers.

That is why NFLX stock is up 70% year-to-date.

At this point, it seems that Netflix has reached escape velocity and is marching towards becoming the world’s biggest entertainment company. The Netflix streaming service just has such a powerful value prop (only $10-$15 per month for a seemingly unlimited library of exclusive content) relative to alternative entertainment options that global adoption at this point seem likes a question of when, not if.

That said, buyers should beware of valuation on Netflix stock at current levels.

I know that sounds silly for a stock that has done nothing but soar over the past several years, but even under bullish modeling assumptions of global domination and huge margin ramp, I still think the stock is only worth about $290.

Thus, at $320, it feels like the stock price has sprinted ahead of fundamentals in the near-term. In other words, if you want to buy this top-performing stock, it won’t hurt to wait for a meaningful pullback. 

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Best-Performing Stocks #2: Fossil Group Inc (FOSL) Fossil Group, Inc. (NASDAQ:FOSL) Source: Joe King via Flickr (Modified)

Not many people would guess this, but struggling traditional watch giant Fossil Group Inc (NASDAQ:FOSL) has actually outperformed streaming TV giant Netflix so far in 2018.

And its not because Netflix has struggled. Netflix stock is up 70% year-to-date. Fossil stock? It’s up 90%.

What is happening under the hood? Fossil is morphing into one of Wall Street’s most powerful turnaround stories.

For several quarters, Fossil fell victim to the smartwatch trend which destroyed the traditional watch market. Fossil’s core watch business tumbled. Sales got sliced. Margins were crushed. Net profits turned into net losses. And Fossil stock dropped from $130 to $5.

Yes, that is right. Fossil stock went from $130 to $5.

Seem overdone? It was.

Fossil wasn’t just laying idle as the smartwatch market killed its traditional watch business. They invested big into developing hybrid smartwatches, which are essentially the result of traditional watch fashion converging with smartwatch technology. Last quarter, FOSL gave the market signs that these hybrid smartwatches are starting to gain serious traction.

This momentum should persist.

Apple Watch won’t entirely dominate the smartwatch market. Instead, there will be multiple players in the smartwatch market, and one of the bigger players will be the company that most successfully integrates traditional watch fashion with smartwatch technology. Right now, Fossil is doing that best. Considering Fossil is the traditional watch giant, it is also pretty likely that Fossil continues to be the best at this for several years to come.

Meanwhile, Fossil stock is still at just $19. Again, this used to be a $130 stock. Therefore, it is pretty easy to conclude that if the smartwatch business continues to scale, Fossil stock still has a lot of room to run higher.

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Best-Performing Stocks #3: Chipotle Mexican Grill, Inc. (CMG) cmg stock Source: Shutterstock

The comeback in Chipotle Mexican Grill, Inc. (NYSE:CMG) has finally arrived. After the company hired a new CEO (who they stole from Taco Bell) and reported pretty good first quarter numbers, CMG stock has taken off and not looked back.

Year-to-date, CMG stock is up nearly 50%. And that includes a big drop in mid-February on bad Q4 numbers. Since then, CMG stock is up nearly 70%.

I was a vocal bear turned vocal bull on CMG stock. I hated the stock on the way down because it felt like health food trends had moved on from CMG and towards poke and superfood bowls. But then the tide started turning. Chipotle stores started filling up again, and the new CEO gave me faith that a Taco Bell-like turnaround was coming to Chipotle (that means targeted advertising, store redesigns, and menu innovations).

That said, after this blistering 70% rally off its 2018 low, CMG stock looks maxed out. The company faces a lot of competition in the quick casual restaurant space. Poke and superfood bowls are still very popular. Meanwhile, McDonald’s Corporation (NYSE:MCD) is actually reinventing themselves to be somewhat healthy with fresh beef patties and “Better Chicken” offerings (maybe not entirely healthy, but at least healthier than before).

Plus, margins will remain under pressure into the foreseeable future thanks to wage hikes.

Overall, then, if you put the current turnaround euphoria in context with the broader picture of a rebounding food chain in an only increasingly competitive QSR space, it is easy to see that CMG stock may have sprinted ahead of fundamentals in the near-term. Indeed, by my numbers, any price tag over $400 seems a little overdone here and now.

As such, while Chipotle has been one of the best-performing stocks so far in 2018, I expect gains from here through the rest of the year to be largely muted.

As of this writing, Luke Lango was long FB, GOOG, AMZ

Amazon Go Stores Are Coming to Chicago and San Francisco

It’s been just under four months since Amazon.com, Inc. (NASDAQ:AMZN) opened the doors to Amazon Go, its futuristic brick-and-mortar store with no checkout lines and no cashiers.

That Seattle technology showcase has proven popular, and the company was expected to open six more locations in 2018. But analysts wondered about AMZN’s strategy. Would the company focus on its home town of Seattle, or attempt to make the concept more popular by going national? We appear to have the answer as two Amazon Go expansion locations have now been revealed: Chicago and San Francisco.

With Amazon Go moving out of the experimental stage into national expansion, there are implications for the retail industry — and for AMZN stock.

Amazon Go Expansion Pegged for Chicago and San Francisco

Engadget is reporting that two new locations for Amazon Go have been revealed. Although AMZN hasn’t confirmed the plans, there is a solid trail of clues pointing to Chicago and San Francisco.

The first giveaway? Amazon posted job listings for store managers in both cities. And in the second, local media outlets have discovered that Amazon has building permits for small retail locations in both cities. With ReCode’s report from February suggesting AMZN had plans to open an additional six Amazon Go locations in 2018, it looks as though the expansion has begun.

And rather than focus on making Amazon Go a showcase for technology in its home town of Seattle, it appears that AMZN is instead pushing for national exposure. That strategy is bound to cause some consternation in the convenience store industry. And the fact that the company’s futuristic store will be expanding beyond a single location has implications for competitors like Walmart Inc (NYSE:WMT), which takes on Amazon in retail as well as battling its Whole Foods division for grocery sales.

What More Amazon Go Locations Could Mean to AMZN Stock

Amazon has a long history of investing in infrastructure that eventually reaps significant rewards. A classic case in point is Amazon Web Services — or AWS. AWS was a sinkhole for investment for years, but has turned into a profit generating engine helping to drive AMZN stock.

Packed with the latest technology, including hundreds of cameras, an Amazon Go location is undoubtedly expensive to open. And AMZN will have invested significantly in developing the technology.

But there is a lot of money potentially on the table.

In the U.S., convenience stores did $233 billion worth of in-store sales in 2016. That’s money spent largely on food, and drinks — the kind of product mix Amazon Go focuses on. And it’s more than AMZN’s total revenue for 2017, which hit $177.9 billion. A successful Amazon Go expansion may require a significant investment up front, but the potential payoff for AMZN stock is there.

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Implications for the Retail Industry

Amazon.com completely disrupted the traditional retail industry, changing how consumers shop. Its rise is blamed for the demise of iconic retail chains like Borders and Circuit City. Amazon has forced retail giants like Walmart to scramble for an online shopping presence. Meanwhile, the AMZN purchase of Whole Foods has the grocery industry worried.

Amazon Go as a concept has implications for the retail industry as consumers look at the potential for time-saving and convenient shopping. An Amazon Go expansion has the potential to disrupt retail the way online shopping did. If AMZN gets its stores into major cities, it can begin to take business from traditional convenience stores. And as shoppers experience the technology involved, it could expand beyond convenience stores to larger locations like Whole Foods. That would put pressure on competing retailers — like Walmart — to adopt similar systems, adding costs and putting the jobs of 3.5 million cashiers at risk.

We’ll have to wait to see if AMZN expands Amazon Go further in 2018. Recode has been pegging Los Angeles as another likely location.

It’s possible that after the initial expansion, the company might stop and use the existing network of stores as a showcase of what it’s capable of. But there’s also a possibility that AMZN will aim higher, setting its sights on that lucrative convenience store market, in which case Amazon Go may develop into a division with a material impact on revenue and AMZN stock.

The one thing that seems certain at this point is that AMZN is not content to leave Amazon Go as a one-off proof of concept in Seattle.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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Sears Holdings Corp Stock Surges on Potential Sale of Kenmore & Other Assets

Sears Holdings Corp (NASDAQ:SHLD) stock was on the rise Monday following news that it may sell some its assets.

Sears Holdings Corp Stock Surges on Potential Sale of Kenmore & Other AssetsSource: Mike Mozart via Flickr

Sears Holding Corp says that it has an interest selling the following assets.

The Kenmore brand and its related assets. The Sears Home Improvement Products business of the Sears Home Services division. Its Parts Direct business of the Sears Home Services division.

According to Sears Holding Corp, it may already have a potential buyer for these assets. The company notes that ESL Investments, Inc. sent a letter to its Board of Directors showing an interest in buying all or some of the assets.

Sears Holding Corp says that its Board of Directors has created a Special Committee that will handle the possible sale of the assets. The Special Committee is working with Centerview Partners LLC as its investment banker. Weil, Gotshal & Manges LLP is providing legal counsel to the group.

SHLD notes that the possible sale of its assets is part of its efforts to continue to increase its value to shareholders. The stock has struggled due to store closures and talk of bankruptcy. However, there’s has been some light for Sears Holding Corps stock recently via a deal with Amazon.com, Inc. (NASDAQ:AMZN) for tire installation.

Sears Holdings Corp also points out that there is no guarantee a sale of its assets will take place. The company says it won’t be commenting further on the matter until it deems it necessary.

SHLD stock was up 10% as of Monday afternoon.

As of this writing, William White did not hold a position in any of the aforementioned securities.

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6 Most Important Things in Business Today

Many investors believe the price of oil will go higher. According to Reuters:

Oil futures prices have soared past three-year highs, OPECs deal has cut millions of barrels of inventory worldwide and investors are betting in record numbers that prices could rocket past $80 and even hit $90 a barrel this year.

But physical markets for oil shipments tell a different story. Spot crude prices are at their steepest discounts to futures prices in years due to weak demand from refiners in China and a backlog of cargoes in Europe. Sellers are struggling to find buyers for West African, Russian and Kazakh cargoes, while pipeline bottlenecks trap supply in west Texas and Canada.

CBS Corp. (NYSE: CBS) sued its largest shareholder as the pressure on it to merge with Viacom Inc. (NYSE: VIAB) increases. According to The Wall Street Journal:

CBS Corp. moved to break free from the Redstone familys grip and thwart what it fears would be a forced merger with Viacom Inc. escalating a yearslong power struggle over the fate of the two media giants.

CBS filed a lawsuit Monday against the Redstones and their family holding company and invoked a little-known provision in the CBS corporate charter that it claims would allow it to issue voting shares to all stockholders, significantly diluting the voting power that the Redstones have held over CBS for nearly two decades.

After several accidents, Tesla Inc. (NASDAQ: TSLA) looked at changing its autopilot technology. According to The Wall Street Journal:

One idea was sensors to track drivers eyes to ensure they watch the road. Tesla executives questioned the costs of such a system, which typically includes a camera and infrared sensor, and whether it would be ready for deployment, these people said. Another concern was whether the sensors could reliably detect drivers of varying heights.

Another measure the Autopilot team considered was incorporating sensors into the steering wheel to monitor whether drivers hands were touching it at all times, these people said.

Founder Elon Musk may change Tesla’s management structure. According to Bloomberg:

The Tesla Inc. management ranks that Elon Musk told employees hes flattening had already been raising eyebrows by how quickly it was thinning out.

Musk announced a thorough reorganization in a memo to employees Monday, saying Tesla was changing its structure to improve communication, combine functions and get rid of activities that arent vital to the success of the companys mission. Last week, a spokesman confirmed one of only four executive officers named in the companys recent proxy statement was taking time away from the company to recharge.

New taxes set by Seattle could affect a number of local companies, which include Amazon.com Inc. (NASDAQ: AMZN). According to CNBC:

Seattle’s city council on Monday approved a new tax for the city’s biggest companies, including
Amazon, to combat a housing crisis attributed in part to a local economic boom that has driven up real estate costs at the expense of the working class.

Amazon, the city’s largest employer, said after the vote that it would go ahead with planning for a major downtown office building that it earlier had put on hold over its objections to a much stiffer tax plan originally proposed.

Sears Holdings Corp. (NASDAQ: SHLD) took more steps to sell Kenmore. According to CNNMoney:

Sears is getting serious about selling Kenmore.

The struggling retailer announced Monday that it had formed a “special committee” to explore the sale of its in-house appliance brand.

The move comes less than a month after Sears CEO Eddie Lampert wrote a letter to the board urging it to sell the brand. He offered to buy it himself if necessary, along with other assets.