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Author Archives: Chris Versace, Chief Investment Officer

About Chris Versace, Chief Investment Officer

I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."
An all-in-one Apple media subscription plan could upset the content cart

An all-in-one Apple media subscription plan could upset the content cart

Apple CEO Tim Cook has been vocal about growing the company’s Services business as way to not only diversify its revenue stream, but in my view also make its iOS and other devices even stickier with consumers. As we have seen before Content is King is a key driver in our Digital Lifestyle investing them and index as consumers will move or remain for original content that resonates with them.

Apple’s move into original content is arguably one of the worst kept secrets, but as we have seen time and time again Apple will make the formal move with a product or service when it’s ready to do so. As Apple prepares for this, it looks to be addressing one of the growing issues faced by consumers – the rising cost of content faced by consumers. These are the same consumers that have cut their pay TV subscription and landline telephone services in a bid to skinny down that monthly bill. Yet, if consumers could see it rival their once costly cable bill.

We therefore find it interesting and potentially compelling that Apple would bundle its content offerings (music, video, news/magazine) into one monthly bill, especially if the price point is $9.99 vs. the current Apple Music monthly subscription that costs $9.99 per month, or $14.99 per month for a family subscription.  While it may take time for Apple to challenge Netflix with original video content, such a move could put a thorn in the side of Hulu, Apple friendly Disney and Spotify but be a boon for those impacted by our Middle Class Squeeze investing theme.

 

Via The Information, Apple is apparently considering combining its upcoming magazine service and original content television, with its existing music subscription, into a single ‘Amazon Prime’-esque subscription. Pricing for this bundle is not clear, right now Apple offers Apple Music for $9.99 per month.The report says Apple will allow customers to subscribe to each service separately, perhaps there is a cost saving in subscribing to the all-encompassing package compared to paying for each individually however.Try Amazon Prime 30-Day Free TrialEchoing a timeline previously reported by Bloomberg, The Information says the company wants to a launch an Apple branded news subscription service in 2019. The company acquired Texture in March of this year, a $9.99/mo subscription service that unlocked access to more than 200 premium magazines.The timeline for Apple’s original content TV efforts is still murky, but there are some hints that the first shows will be ready to air later next year. TV show production is often prone to delays and setbacks, but Apple has enough shows in the wings at the moment that it should still have a healthy offering even if only half of the orders are ready in 2019.

Source: Report: Apple mulling all-in-one media subscription plan, combining Apple Music, TV shows and magazines | 9to5Mac

WEEKLY ISSUE: Trade Concerns and Tariffs Continue to Hold Center Stage

WEEKLY ISSUE: Trade Concerns and Tariffs Continue to Hold Center Stage

Key Points From This Week’s Issue

  • News from Harley Davidson (HOG) and Universal Stainless & Alloy Products Inc. (USAP) confirm tariffs and rising costs will be a hotbed of conversation in the upcoming earnings season.
  • That conversation is likely to lead to a major re-think on earnings growth expectations for the back half of 2018.
  • We are closing out our position in Corning (GLW) shares;
  • We are closing out our position in LSI Industries (LYTS) shares;
  • We are closing out our position in shares of Universal Display (OLED).

 

Trade concerns and tariffs taking center stage

As we saw in Monday’s stock market, where the four major U.S. market indices fell from 1.3% to 2.1%, trade wars and escalating tariffs increasingly are on the minds of investors. Something that at first was thought would be short-lived has grown into something far more pronounced and widespread, with tariffs potentially being exchanged among the U.S., China, the European Union, Mexico and Canada.

In last week’s issue of Tematica Investing, shared how the Tematica Investing Select List has a number of domestically focused business, such as Costco Wholesale (COST), Habit Restaurants (HABT) and recently added Farmland Partners (FPI) to name a few. While the majority of stocks on the Select List traded down with the market, those domestic-focused ones are, generally speaking, higher week over week. Hardly a surprise as that escalating tariff talk is leading investors to safer stocks like a horse to water.

I cautioned this would likely be a longer than expected road to trade renegotiations, with more than a helping of uncertainty along the way that would likely see the stock market gyrate like a roller coaster. That’s exactly what we’ve been seeing these last few weeks, and like any good roller coaster, there tends to be an unexpected drop that scares its riders. For us as investors that could be the upcoming June quarter earnings season.

As we prepare to exit the current quarter, there tend to be a handful or more of companies that report their quarterly results. These tend to offer some insight into what we’re likely going to hear over the ensuing months. In my view, the growing question in investors’ minds is likely to center on the potential impact in the second half of 2018 from these tariffs if they are enacted for something longer than a short period.

Remember that earlier this year, investors were expecting earnings to rise as the benefits of tax reform were thought to jumpstart the economy. While GDP expectations for the current quarter have climbed, the growing concern of late is the cost side of the equation for both companies and consumers. We saw this rear its head during first-quarter earnings season and the widening of inflationary pressures is likely to make this a key topic in the back half of 2018, especially as interest costs for businesses and consumers creep higher.

 

Harley Davidson spills the tariff beans

Well, we didn’t need to wait too long to hear companies talk on those tariff and inflation cost concerns. Earlier this week Harley-Davidson Inc. (HOG) shared that its motorcycle business will be whacked by President Trump’s decision to impose a new 25% tariff on steel imports from the EU and a 10% tariff on imported aluminum.

For Harley-Davidson, its duty paid on imported steel and aluminum from the EU will be 31%, up from 6%. The impact is not small potatoes, considering that the EU has been Harley’s second-largest market, accounting for roughly 16% of total sales last year. On an annualized basis, the company estimates the new tariffs will translate into $90 million to $100 million in incremental costs. That would be a big hit to the company’s overall operating profit, as its annualized March quarter operating income was $254.3 million. With news like that it’s a wonder that HOG shares are down only 6.5% or so this week.

Meanwhile, Universal Stainless & Alloy Products Inc. (USAP), a company that makes semi-finished and finished specialty steel products that include stainless steel, tool steel and aircraft-quality low-alloy steels, announced this week it would increase prices on all specialty and premium products by 3% to 7%. Universal Steel also said all current material and energy surcharges will remain in effect.

 

What does it mean for earnings in the 2Q 2018 quarterly reporting season?

What these two companies have done is set the stage for what we’re likely to hear in the coming weeks about challenges from prolonged tariffs and the need to boost prices to contend with rising input costs, which we’ve been tracking in the monthly economic data. In our view here at team Tematica, this combination is likely to make for a challenging June quarter earnings season, which kicks off in just a few weeks, as costs and trade take over the spotlight from tax cuts and buybacks.

Here’s the thing – even as trade and tariff talk has taken center stage, we have yet to see any meaningful change to the 2018 consensus earnings forecast for the S&P 500 this year, which currently sits around $160.85 per share, up roughly 12% year over year. With up to $50 billion in additional tariffs being placed on Chinese goods after July 6, continued tariff retaliation by China and others could lead to a major reset of earnings expectations in the back half of 2018.

If we get more comments like those from Harley Davidson and Universal Stainless, and odds are that we will, we could very well see those results and comments lead to expectation changes that run the risk of weighing on the market.  We could see management teams offer “everything and the kitchen sink” explanations should they rejigger their outlooks to factor in potential tariff implications, and their words are likely to be met with a “shoot first, ask questions later” mentality by investors. That’s especially likely with the CNN Money Fear & Greed Index back in the Fear zone from Greed just a week ago.

I’m not the only one paying attention to this, as it was reported that Federal Reserve Chairman Jay Powell remarked that some business had put plans to hire or invest on hold because of trade worries and that “those concerns seem to be rising.”

Now there is a silver lining of sorts. Given the upsizing of corporate buyback programs over the last few months due in part to tax reform, any potential pullback in the stock market could be muted as companies scoop up shares and pave the way for further EPS growth as they shrink their share count.

I’ll continue to be vigilant with the Select List in the coming days so we’ll be at the ready to make moves as needed.

 

Doing some further Select List pruning

As we get ready for the 2Q 2018 earnings season that will commence with some fervor after the July 4th holiday, I’m going to take out the pruning shears and put them to work on the Tematica Investing Select List. As I mentioned above, odds are we will see some unexpected cautionary tales to be had in the coming weeks, and my thinking is that we should get ahead of it, remove some of the weaker positions and return some capital to subscribers that we can put to work during 3Q 2018. With that in mind, I am removing Corning (GLW), LSI Industries (LYTS), and Universal Display (OLED) from the Select List. in closing out these positions, I recognize they’ve been a drag on the Select List’s performance of late but we’ll also likely eliminate any further weight on the rest of the Select List.

  • We are closing out our position in Corning (GLW) shares;
  • We are closing out our position in LSI Industries (LYTS) shares;
  • We are closing out our position in shares of Universal Display (OLED).

 

AT&T and Time Warner launch WatchTV, with new unlimited data plans

AT&T and Time Warner launch WatchTV, with new unlimited data plans

The dust has barely settled on the legal ruling that is paving the way for AT&T (T) to combine with Time Warner (TWX), and we are alread hearing of new products and services to stem from this combination. No surprise as we are seeing a blurring between mobile networks and devices, social media and content companies as Apple (AAPL), Facebook (FB), Google (GOOGL) and now AT&T join the hunt for original content alongside Netflix (NFLX), Amazon (AMZN), and Hulu, which soon may be controlled by Disney if it successfully fends of Comcast to win 21st Century Fox.

While we as consumers have become used to having the content I want, when I want it with Tivo and then the content I want, when I want it on the device I want it on with streaming services, it looks now like it will be “the content I want, when I want it, on the device I want on the platform I choose.” All part of the overlapping to be had with our Connected Society and Content is King investing themes that we are reformulating into Digital Lifestyle – more on that soon.

In short, a content arms race is in the offing, and it will likely ripple through broadcast TV as well as advertising. Think of it as a sequel to what we saw with newspaper, magazine and book publishing as new business models for streaming content come to market… the looming question in my mind is how much will today’s consumer have to spend on all of these offerings before it becomes too pricey?

And what about Sprint (S) and T-Mobile USA (TMUS)…

 

Taking advantage of the recent approval of its merger with Time Warner, AT&T on Thursday announced WatchTV, a new live TV service premiering next week — and initially tied to two new unlimited wireless data plans.

WatchTV incorporates over 30 channels, among them several under the wing of Time Warner such as CNN, Cartoon Network, TBS, and Turner Classic Movies. Sometime after launch AT&T will grow the lineup to include Comedy Central, Nicktoons, and several other channels.

People will be able to watch on “virtually every current smartphone, tablet, or Web browser,” as well as “certain streaming devices.” The company didn’t immediately specify compatible Apple platforms, but these will presumably include at least the iPhone and iPad, given their popularity and AT&T’s long-standing relationship with Apple.

The first data plan is “AT&T Unlimited &More”, which will also include $15 in monthly credit towards DirecTV Now. People who pay extra for “&More Premium” will get higher-quality video, 15 gigabytes of tethered data, and the option to add one of several “premium” services at no charge — initial examples include TV channels like HBO or Showtime, and music platforms like Pandora Premium or Amazon Music Unlimited.

&More Premium customers can also choose to apply their $15 credit towards DirecTV or U-verse TV, instead of just DirecTV Now.

WatchTV will at some point be available as a $15-per-month standalone service, but no timeline is available.

Source: AT&T uses Time Warner merger to launch WatchTV, paired with new unlimited data plans

Recasting Our Rise and Fall of the Middle Class and Cash-Strapped Consumer Themes

Recasting Our Rise and Fall of the Middle Class and Cash-Strapped Consumer Themes

 

KEY POINTS FROM THIS POST

  • As we recast our Rise & Fall of the Middle Class into two themes – the New Middle Class and the Middle-Class Squeeze, which also folds in our Cash-Strapped Consumer theme, we are calling out Costco Wholesale (COST) shares as a top Middle-Class Squeeze pick, reiterating our Buy rating on the shares, and bumping our price target from $210 to $220.

At the end of yesterday’s Tematica Investing issue, I mentioned how at Tematica we are in the process of reviewing the investing themes that we have in place to make sure they are still relevant and relatable. As part of that exercise and when appropriate, we’ll also rename a theme.  Our goal through this process is to streamline and simplify the full list of 17 themes.

Of course, first up is our Rise & Fall of the Middle-Class theme that we are splitting into two different themes — which I know doesn’t sound like an overall simplification, but trust me, it will make sense. As the current name suggests, there are two aspects of this theme — the “Rise” and the “Fall” part. It can be confusing to some, so we’re splitting it into two themes. The “Rise” portion will be “The New Global Middle Class” and will reflect the rapidly expanding middle-class markets particularly in Asia and South America. On the other hand, the “Fall” portion will be recast as “The Middle Class Squeeze” to reflect the shrinking middle class in the United States and the realities that it poses to our consumer-driven economy.

As we make that split, it’s not lost on us here at Tematica that there is bound to be some overlap between The Middle-Class Squeeze and our Cash-Strapped Consumer investing theme given that one of the more powerful drivers of both is disposable income pressure and a loss of purchasing power. As such, as we cleave apart The Middle-Class Squeeze we’re also incorporating Cash-Strapped Consumer into it. It’s repositionings like this that we’ll be making over coming weeks, and while I hate to spoil a surprise as we say good bye to one or two themes, we’ll be saying hello to new one or two as well.

 

 

Why America’s Middle Class are Feeling the Squeeze

As both I and Tematica’s Chief Macro Strategist, Lenore Hawkins, have been sharing in our writings as well as our collective media hits, we’re seeing increasing signs of inflation in the systems from both hard and soft data points and that recently prompted the Fed to boost its interest rate forecast to four hikes this year, up from three with additional rate hikes in 2019. That’s what’s in the front windshield of the investing car, while inside we are getting more data that points to an increasingly stretched consumer that is seeing his or her disposable income under pressure.

According to LendingTree’s May 2018 Consumer Debt Outlook, Americans owe more than 26% percent of their disposable personal income on consumer debt, up from 22% in 2010. And just so we are clear, LendingTree is defining consumer debt to include non-mortgage debts such as credit cards, personal loans, auto loans, and student loans. These outstanding balances of consumer credit, per LendingTree, have been growing at a steady rate of 5% to 6% annually over the last two years, and this has it to forecast total consumer debt to exceed $4 trillion by the end of 2018.

Part of the reason consumers have been turning to debt is the lack of wage growth. Even as tax reform related expectations have been running high for putting more money in consumer pockets data from the Bureau of Labor Statistics revealed compensation for civilian workers rose 2.4% year over year in the March quarter. By comparison, gas prices have risen more than 24% over the last 12 months, and the average home price in the US was up more than 11% in April 2018 vs. April 2017. So, while wages have moved up that move has paled in comparison to other costs faced by consumers.

Then there’s the data from Charles Schwab’s (SCHW) 2018 Modern Wealth Index that finds three in five Americans are living paycheck to paycheck. According to other data, consumers more than three months behind on their bills or considered otherwise in distress were behind on nearly $12 billion in credit card debt as of the beginning of the year — an 11.5 percent increase during Q4 alone.

And it’s not just the credit card debt — mortgage problem debt is up as well, 5.2% to $56.7 billion.

As that debt grows, it’s going to become even more expensive to service. On its recent quarterly earnings conference call, Lending Club’s (LC) CFO Tom Casey shared that “Borrowers are starting to see the increased cost of credit as most credit card debt is indexed to prime, which has moved up 75 basis points from a year ago…We have observed a number of lenders increase rates to borrowers…We know that consumers are feeling the increase in rates.”

And that’s before the Fed rate hikes that are to come.

The bottom line is it likely means more debt and higher interest payments that lead to less disposable income for consumers to spend.

 

More US consumers getting squeezed

All of this points to an already stretched consumer base that has increasingly turned to debt given that real wage growth has been tepid at best over the past decade. And this doesn’t even touch on the degree to which the American consumer is under-saved or has little in the way of an emergency fund to cover those unforeseen expenses. Per Northwestern Mutual’s 2018 Planning & Progress Study, which surveyed 2,003 adults:

  • 78% of Americans say they’re ‘extremely’ or ‘somewhat’ concerned about not having enough money for retirement. Another 66 percent believe that they’ll outlive their retirement savings.
  • 21% of Americans have nothing at all saved for the future, and another 10 percent have less than $5,000 saved or invested for their golden years.

Adding credence to this figures, Bankrate’s latest financial security index survey, showed that 34% of American households experienced a major unexpected expense over the past year. But, only 39% of survey respondents said they would be able to cover a $1,000 setback using their savings. Other findings from Bankrate, based on data from the Federal Reserve, showed that those Americans between the ages of 55 and 64 that have retirement savings only have a median of $120,000 socked away. A similar 2016 GOBankingRates survey found that 69 percent of Americans had less than $1,000 in total savings and 34 percent had no savings at all.

Nearly 51 million households don’t earn enough to afford a monthly budget that includes housing, food, childcare, healthcare, transportation and a cell phone, according to a study by the United Way ALICE Project. That’s 43% of households in the United States.

As the New Middle Class in the emerging economies like China, India and parts of South America continue to expand, it will drive competitive world-wide pressures for food, water, energy and other scarce resources that will drive prices higher given prospects for global supply-demand imbalances.

 

Middle-Class Squeeze pain brings opportunity with Costco and others

What this tells us is that there is a meaningful population of Americans that are in debt and are not prepared for their financial future. In our experience, pain points make for good investment opportunities. In the case of the Middle-Class Squeeze investment theme, it means consumers trading down when and where possible or looking to stretch the disposable dollars they do have.

It’s no coincidence that we’re seeing a growing move toward private label brands, not only at the grocery store for packaged foods and beverages but by the likes of Amazon (AMZN) as well. We’re also seeing casual dining and fine dining restaurant categories give way to fast casual, and as one might expect the data continues to show more Americans eating at home than eating out.

From my perspective, the best-positioned company for the Middle-Class Squeeze investing theme is Costco Wholesale (COST). By its very nature, the company’s warehouse business model aims to give consumers more for their dollar as Costco continues to improve and expand its offering both in-store and online. To me, one of the smartest moves the company made was focusing not only on perishable food but on organic and natural products as well. That combination keeps customers coming back on a more frequent basis.

Let’s remember too, the secret sauce baked into Costco’s business model – membership fees, which are high-margin in nature, and are responsible for a significant portion of the company’s income. As I’ve shared before, that is a key differentiator compared to other brick & mortar retailers. And Costco looks to further expand that footprint as it opens some 17 more warehouse locations in the coming months.

I’ll continue to monitor Costco’s monthly sales reports, which have clearly shown it taking consumer wallet share, and juxtaposing them against the monthly Retail Sales report to confirm those wallet share gains.

  • As we recast our Rise & Fall of the Middle Class into two themes – the New Middle Class and the Middle-Class Squeeze, we are calling out Costco Wholesale (COST) shares as a top Middle-Class Squeeze pick, reiterating our Buy rating on the shares, and bumping our price target from $210 to $220.

 

Examples of companies riding the Middle-Class Squeeze Tailwind

  • Walmart (WMT)
  • Amazon (AMZN)
  • McDonald’s (MCD)
  • Dollar Tree (DLTR)
  • TJX Companies (TJX)
  • Ross Stores (ROST)
  • Kohl’s (KSS)

Examples of companies facing the Middle-Class Squeeze Headwind

  • Dillard’s (DDS)
  • JC Penney (JCP)
  • Macy’s (M)
  • Target (TGT)
  • Gap (GPS)
  • Red Robin (RRGB)

Again, those are short lists of EXAMPLES, not a full list of the companies benefitting or getting hit.

Over the next several weeks, I’ll be revisiting our investment themes, both the ones being tweaked as well as the ones, like Safety & Security, that are fine as is.

WEEKLY ISSUE: Trade and Tariffs, the Words of the Week

WEEKLY ISSUE: Trade and Tariffs, the Words of the Week

 

KEY POINTS FROM THIS WEEK’S ISSUE:

  • We are issuing a Sell on the shares of MGM Resorts (MGM) and removing them from the Tematica Investing Select List.
  • While the markets are reacting mainly in a “shoot first and ask questions later” nature, given the widening nature of the recent tariffs there are several safe havens that patient investors must consider.
  • We are recasting several of our Investment Themes to better reflect the changing winds.

 

Investor Reaction to All the Tariff Talk

Over the last two days, the domestic stock market has sold off some 16.7 points for the S&P 500, roughly 0.6%. That’s far less than the talking heads would suggest as they focus on the Dow Jones Industrial Average that has fallen more than 390 points since Friday’s close, roughly 1.6%. Those moves pushed the Dow into negative territory for 2018 and dragged the returns for the other major market indices lower. Those retreats in the major market indices are due to escalating tariff announcements, which are raising uncertainty in the markets and prompting investors to shoot first and ask questions later. We’ve seen this before, but we grant you the causing agent behind it this time is rather different.

What makes the current environment more challenging is not only the escalating and widening nature of the tariffs on more countries than just China, but also the impact they will have on supply chain part of the equation. So, the “pain” will be felt not just on the end product, but rather where a company sources its parts and components. That means the implications are wider spread than “just” steel and aluminum. One example is NXP Semiconductor (NXPI), whose chips are used in a variety of smartphone and other applications – the shares are down some 3.7% over the last two days.

With trade and tariffs being the words of the day, if not the week, we have seen investors bid up small-cap stocks, especially ones that are domestically focused. While the other major domestic stock market indices have fallen over the last few days, as we noted above, the small-cap, domestic-heavy Russell 2000 is actually up since last Friday’s close, rising roughly 8.5 points or 0.5% as of last night’s market close. Tracing that index back, as trade and tariff talk has grown over the last several weeks, it’s quietly become the best performing market index.

 

A Run-Down of the Select List Amid These Changing Trade Winds

On the Tematica Investing Select List, we have more than a few companies whose business models are heavily focused on the domestic market and should see some benefit from the added tailwinds the international trade and tariff talk is providing. These include:

  • Costco Wholesale (COST)
  • Dycom Industries (DY)
  • Habit Restaurants (HABT)
  • Farmland Partners (FPI)
  • LSI Industries (LYTS)
  • Paccar (PCAR)
  • United Parcel Services (UPS)

We’ve also seen our shares of McCormick & Co. (MKC) rise as the tariff back-and-forth has picked up. We attribute this to the inelastic nature of the McCormick’s products — people need to eat no matter what — and the company’s rising dividend policy, which helps make it a safe-haven port in a storm.

Based on the latest global economic data, it once again appears that the US is becoming the best market in the market. Based on the findings of the May NFIB Small Business Optimism Index, that looks to continue. Per the NFIB, that index increased in May to the second highest level in the NFIB survey’s 45-year history. Inside the report, the percentage of business owners reporting capital outlays rose to 62%, with 47% spending on new equipment, 24% acquiring vehicles, and 16% improving expanded facilities. Moreover, 30% plan capital outlays in the next few months, which also bodes well for our Rockwell Automation (ROK) shares.

Last night’s May reading for the American Trucking Association’s Truck Tonnage Index also supports this view. That May reading increased slightly from the previous month, but on a year over year basis, it was up 7.8%. A more robust figure for North American freight volumes was had with the May data for the Cass Freight Index, which reported an 11.9% year over year increase in shipments for the month. Given the report’s comment that “demand is exceeding capacity in most modes of transportation,” I’ll continue to keep shares of heavy and medium duty truck manufacturer Paccar (PCAR) on the select list.

The ones to watch

With all of that said, we do have several positions that we are closely monitoring amid the escalating trade and tariff landscape, including

  • Apple (AAPL),
  • Applied Materials (AMAT)
  • AXT Inc. (AXTI)
  • MGM Resorts (MGM)
  • Nokia (NOK)
  • Universal Display (OLED)

With Apple we have the growing services business and the eventual 5G upgrade cycle as well as the company’s capital return program that will help buoy the shares in the near-term. Reports that it will be spared from the tariffs are also helping. With Applied, China is looking to grow its in-country semi-cap capacity, which means semi- cap companies could see their businesses as a bargaining chip in the short-term. Longer- term, if China wants to grow that capacity it means an eventual pick up in business is likely in the cards. Other drivers such as 5G, Internet of Things, AR, VR, and more will spur incremental demand for chips as well. It’s pretty much a timing issue in our minds, and Applied’s increased dividend and buyback program will help shield the shares from the worst of it.

Both AXT and Nokia serve US-based companies, but also foreign ones, including ones in China given the global nature of smartphone component building blocks as well as mobile infrastructure equipment. Over the last few weeks, the case for 5G continues to strengthen, but if these tariffs go into effect and last, they could lead to a short-term disruption in their business models. Last week, Nokia announced a multi-year business services deal with Wipro (WIT) and alongside Nokia, Verizon (VZ) announced several 5G milestones with Verizon remaining committed to launching residential 5G in four markets during the back half of 2018. That follows the prior week’s news of a successful 5G test for Nokia with T-Mobile USA (TMUS) that paves the way for the commercial deployment of that network.

In those cases, I’ll continue to monitor the trade and tariff developments, and take action when are where necessary.

 

Pulling the plug on MGM shares

With MGM, however, I’m concerned about the potential impact to be had not only in Macau but also on China tourism to the US, which could hamper activity on the Las Vegas strip. While we’re down modestly in this Guilty Pleasure company, as the saying goes, better safe than sorry and that has us cutting MGM shares from the Select List.

  • We are issuing a Sell on the shares of MGM Resorts (MGM) and removing them from the Tematica Investing Select List

 

Sticking with the thematic program

On a somewhat positive note, as the market pulls back we will likely see well-positioned companies at better prices. Yes, we’ll have to navigate the tariffs and understand if and how a company may be impacted, but to us, it’s all part of identifying the right companies, with the right drivers at the right prices for the medium to long-term. That’s served us well thus far, and we’ll continue to follow the guiding light, our North Star, that is our thematic lens. It’s that lens that has led to returns like the following in the active Tematica Investing Select List.

  • Alphabet (GOOGL): 60%
  • Amazon (AMZN): 133%
  • Costco Wholesale (COST) : 30%
  • ETFMG Prime Cyber Security ETF (HACK): 34%
  • USA Technologies (USAT): 62%

Over the last several weeks, we’ve added several new positions – Farmland Partners (FPI), Dycom Industries (DY), Habit Restaurant (HABT) and AXT Inc. (AXTI) to the active select list as well as Universal Display (OLED) shares. As of last night’s, market close the first three are up nicely, but our OLED shares are once again under pressure amid rumor and speculation over the mix of upcoming iPhone models that will use organic light emitting diode displays. When I added the shares back to the Select List, it hinged not on the 2018 models but the ones for 2019. Let’s be patient and prepare to use incremental weakness to our long-term advantage.

 

Recasting Several of our investment themes

Inside Tematica, not only are we constantly examining data points as they relate to our investment themes we are also reviewing the investing themes that we have in place to make sure they are still relevant and relatable. As part of that exercise and when appropriate, we’ll also rename a theme.

Over the next several weeks, I’ll be sharing these repositions and renamings with you, and then providing a cheat sheet that will sum up all the changes. As I run through these I’ll also be calling out the best-positioned company as well as supplying some examples of the ones benefitting from the theme’s tailwinds and ones marching headlong into the headwinds.

First up, will be a recasting of our Rise & Fall of the Middle-Class theme.  As the current name suggests, there are two aspects of this theme — the “Rise” and the “Fall” part. It can be confusing to some, so we’re splitting it into two themes.  The “Rise” portion will be “The New Global Middle Class” and will reflect the rapidly expanding middle class markets particularly in Asia and South America. On the other hand, the “Fall” portion will be recast as “The Middle Class Squeeze” to reflect the shrinking middle class in the United States and the realities that poses to our consumer-driven economy.

We’ll have a detailed report to you in the coming days on the recasting of these two themes, how it impacts the current Select List as well as other companies we see as well-positioned given the tailwinds of each theme.

 

 

WEEKLY ISSUE: Farming for a New Thematic Selection

WEEKLY ISSUE: Farming for a New Thematic Selection

 

KEY POINTS FROM THIS ALERT:

  • We are adding Farmland Partners (FPI) to the Tematica Investing Select List with a $12 price target.
  • On the heels of a smart equity investment in PTC Inc. (PTC), we reiterate our $235 price target for shares of Rockwell Automation (ROK).

 

Stocks appear to have shrugged off the lack of developments spinning out of the international trade and talks that were had over the last several days.  Perhaps this reflects the meh attitude had by investors that understand it will take time to turn these conversations into solutions. As the focus on those events fades, we have the Fed’s next FOMC meeting on deck that will come into the spotlight even though it is widely expected to boost interest rates exiting this meeting.

This begs the question as to why this meeting will be so closely watched and the answer lies in that it is one of the handful of meetings at which the Fed will hold a post-meeting press conference as well as issues its updated economic forecast. My strong suspicion is the Fed will respond to the widening number of inflationary data points that we’ve been seeing in both hard economic data and other signals in its comments and forecast. More than likely this means the Fed will signal a fourth rate hike this year, again something that has been gaining in thought. Inside the Fed’s forecast, I’ll be looking to see if it telegraphs a change in the number of rate hikes for 2019 as well.

The reason I’ll be focusing on the overall number of rate hikes over the next several quarters is what it means for interest cost on an incremental basis as well as the impact to be had on consumer spending and the economy.

As we wait for that event and its implications to unfold later this afternoon, I’m adding a new company, Farmland Partners (FPI) to the Tematica Investing Select List. Up front, I will tell you Farmland is far from a household name, but it is a Real Estate Investment Trust (REIT) that as its name suggests invests in US farmland. As I explain below, there are several thematic factors coming together across our Rise of the New Middle Class and Scarce Resources investing themes with Farmland. Now with no further adieu…

 

Adding Farmland Partners to the Select List

As I just mentioned, we are adding shares of Farmland Partners to the Tematica Investing Select List to gain not only high dividend yielding exposure to the real-estate industry, but also benefit from the increasing scarcity that is arable farmland that is becoming more valuable as the middle class outside the US continues to expand. In thematic speak, we see the company as a direct beneficiary of our Scare Resource investing theme and an indirect one for our Rise of the Middle Class one.

My price target for FPI shares is $12, which equates to a price to book value of roughly 1.1x its current book value of $10.85 exiting the March quarter.

Who is Farmland Partners?

FPI is the largest U.S.-listed farmland REIT. Its portfolio spans some 166,000 acres across 17 states, with rental income driving roughly 90% of the company’s revenue stream. Farmers use about 70% of FPI’s land for primary crops like corn, with the remaining 30% committed to specialty crops such as almonds or citrus. In addition, Farmland “double dips” to some extent by producing solar and wind power on 11 of its farms.

If you’re thinking this is a very different REIT and a very different kind of company, I’d agree — but investors can often find meaningful opportunities in such overlooked companies. And FPI is definitely overlooked, with just two analysts covering the stock vs. the more than 18 who follow REITs like Public Storage (PSA) and HCP (HCP).

But what’s perhaps most interesting is that FPI’s share price is essentially unchanged so far in 2018 despite the upward moves in prices for corn, wheat and soybeans that these charts show:

 

 

 

We can attribute some of these crop-price hikes to potential tariffs that would limit global supply, but the increases also have to do with rising global demand. The U.S. Department of Agriculture recently boosted its 2018 projection for overall American grain and feed exports to $31.2 billion — $1.5 billion higher than the agency’s February projection. That’s also up from the $30.35 billion of grain and feed that American producers shipped overseas in 2017.

And with rising global demand for proteins due in part to emerging markets’ rising middle classes, we’re likely to see price increases continue for these commodities over the longer term. In fact, America recorded it third-best year for agricultural exports in 2017, shipping $140.5 billion of goods. That’s up $10.9 billion year over year. By comparison, China only exported $22 billion of such crops, followed by Canada at $20.4 billion and Europe at $11.6 billion.

The higher U.S. exports have come even though America’s arable land fell by nearly 15% between 1997 and 2015 vs. a slight gain in worldwide arable land. Add in rising demand from emerging Asian economies for food imports and U.S. farmland seems poised to become more valuable over time.

We’re already seeing this in the USDA’s annual Land Values report. The latest edition valued U.S. farmland at $3,080 per acre on average in 2017, up from just $1,483 per acre in 2000. While there can be some ups and downs year to year, U.S. farmland prices have generally been growing at just under a 4.7% compound annual growth rate.

In short, I see arable land as a scarce resource, with Farmland Partners poised to benefit over the longer term as land prices creep higher. Income investors should also remember that as Farmland’s business grows, it must pay out at least 90% of its income to keep its REIT status. That bodes well for future dividend increases.

In the meantime, Farmland will pay its next quarterly dividend of $0.1275 per common share on July 16 to shareholders of record as of July 2. On an annualized basis, that equates to a dividend yield of 5.7%, well above the 1.8% yield to be had with the S&P 500.

Getting to the $12 price target

As for the stock’s price, FPI is trading at just $8.70 as I write this — about a 20% discount from the $10.85-per-share book value that the company had as of March 31. For those unfamiliar with book value, it’s a proxy for the total value of a company’s assets that shareholders would theoretically receive if the business had to liquidate.

FPI’s discount to book value strongly suggests that its shares are undervalued, likely due to recent trade-war and interest-rate fears. While this might restrain FPI shares in the near term, I instead choose to focus on the stock’s long-term favorable fundamentals discussed above. That said, FPI shares have had a favorable move higher since early May and that has the shares approaching over bought status. Given the upside to be had, we’re adding the shares to the Select List, but we would look to scale deeper into the position below $8, which would also serve to improve our cost basis.

Like most REITs, odds are Farmland will use its balance sheet to grow its operating business by acquiring additional farmland. If and when such transactions occur, we’ll assess the impact to the share’s book value and our price target. For now, my $12 price target equates to roughly 1.0x the company’s most recent book value of $10.85 per share, which is in line with its price to book value average over the last three years.

 

Rockwell Automation makes a strategic move and bumps up its buyback program

Yesterday, Rockwell Automation (ROK), a company that is riding our Tooling & Re-Tooling investment theme, made two announcements. The first one surrounds its upsizing its stock buyback program by $300 million to $1.5 billion. I see this as a positive in terms of supporting the share price, but it will be something to watch in terms of profit growth when Rockwell reports its quarterly earnings over the coming quarters.

The second announcement to me is far more interesting because it focused on the evolution of Rockwell’s business model. Specifically, Rockwell shared it will spend $1 billion to acquire 10.58 million shares of PTC Inc. (PTC), a company that software company focused on internet of things (IoT), augmented reality and industrial automation communications, and the Rockwell CEO, Blake Moret will join PTC’s board of directors. That bite at PTC shares will equate to an 8.4% ownership stake by Rockwell in PTC. While details were in short supply, I see the partnership bringing PTC’s offerings, which are in-line with several aspects of our Disruptive Technologies investing theme, to Rockwell’s factory automation solutions. A smart move as 5G and IoT looms ahead.

The focus on ROK shares will continue to be business investment spending as companies look to take advantage of tax reform and new depreciation schedules to update and overhaul their plants and other facilities. Our price target on ROK shares remains $235.

  • On the heels of a smart equity investment in PTC Inc. (PTC), we reiterate our $235 price target for shares of Rockwell Automation (ROK).
Costco continued to gain share in May

Costco continued to gain share in May

 

KEY POINT FROM THIS ALERT:

  • Our price target on shares of Costco Wholesale (COST) remains $220.

Late last night, Costco Wholesale (COST) once again delivered simply outstanding overall sales and comparable sales this time for the month of May. This continues the multi-month streak of not only mid to upper single digit year over year comparisons but ones that clearly standout relative to overall brick & mortar retail. We continue to see Costco winning consumer wallet share as consumers look to stretch their disposable dollars. With gas prices and other costs poised to creep higher as companies contend with rising input and freight costs, we see Costco extremely well positioned for what lies ahead.

Now for the nitty-gritty on the May sales data…

Net sales of $11.02 billion for the retail month of May rose 14.1% compared to  $9.66 billion last year. Helping achieve that robust results were the 950 warehouse locations exiting May 2018 vs. 732 at the end of May 2017 – a 2.7% increase year over year that also bodes very well for a continued rise in the high margin membership fee revenue. In terms of the geographic, year over year comparison for the four week period, Costco’s

  • US sales rose 11.7% (8.7% excluding gas and foreign exchange)
  • Canada, up 13.0% (5.4% excluding gas and foreign exchange)
  • Other International, 9.4% (7.4% excluding gas and foreign exchange)
  • Total Costco, up 11.7% (8.0% excluding gas and foreign exchange)

And while it remains a small piece of Costco’s overall revenue mix, its E-commerce business grew 34.4% during May 2018 vs. the year-ago month (33.3% excluding foreign currency).

Reviewing all of the above in full, Costco is reaping the benefits of having properly positioned itself with consumers, especially Cash-strapped Consumers, and is in the process of reaping those benefits as it expands its footprint.

We’ll continue to enjoy the ride.

  • Our price target on shares of Costco Wholesale (COST) remains $220.

 

 

 

WEEKLY ISSUE: Investment themes changing the diamond industry, Apple’s WWDC 2018 and more

WEEKLY ISSUE: Investment themes changing the diamond industry, Apple’s WWDC 2018 and more

  • Following Apple’s WWDC 2018 keynote presentation, we are boosting or price target on Apple (AAPL) shares to $210 from $200.
  • As MGM Resorts (MGM) avoids Las Vegas strike disruptions, our price target remains $39
  • Paccar (PCAR) shares catch an upgrade; our price target remains $85
  • We are adding shares of Charles & Covard (CTHR) to the Tematica Investing Contender List as part of our Affordable Luxury investing theme.

As the market gets ready for the upcoming trade summit, we are seeing trade tensions heat up ahead of that date. We’ve also got a new government in Italy, and while the recent economic data has been positive, I’m seeing increasing signs of inflation in the system. To me, that looks likely to lead the Fed to the increasingly expected four interest rate hikes this year.

I suspect all of the issues discussed above — trade, interest rates and other geopolitical tensions — will be recurring ones that will likely lead to an ebb and flow of uncertainty in the market, ultimately keeping it rangebound in the near-term. In that type of environment, I’ll continue to look for new opportunities utilizing our thematic approach to investing. As compelling situations are uncovered, we’ll look to be opportunistic.

With a number of things to get to, including how the diamond industry is beginning to pivot in response to some of our thematic tailwinds, I’ll cut it there for this week…

 

Apple’s WWDC 2018 was far from boring

Earlier this week, following Apple’s (AAPL) World Wide Developer Conference (WWDC) 2018 that focused on the company’s various software platforms the shares hit a multi-year high at $193.42 before settling modestly lower. I’ve been waiting in the wings to bump our price target on this Connected Society company higher and following this week’s keynote that introduced the software updates that consumers will have access to later this year, I am boosting that target to $210 from $200.

The expectation coming into the event was Apple would focus on software refinements and performance. While that was the case, there were a number of new features that in our view did more than that.

Now let’s discuss some of the announcements…

Apple got to it early on with iOS, taking the wraps of iOS 12 that will power both past and present iPhone and iPad models. While the initial conversation was on performance improvements, Apple soon ticked off a number of features including more robust Augment Reality capabilities, including multiplayer gaming; deeper integration of its digital assistant Siri in the OS and with third party apps; overhauled News, Stocks, Voice Memo and iBooks apps; new features for iMessage, including Memoji; and at long last group Facetime. There was some thought Apple would also introduce more robust controls to limit usage, and it does so with updates to its Do Not Disturb and Notifications capabilities, but also introduced Screen Time that should help people as well as parents restrict usage time on iOS devices.

Next up was watchOS, which continued its focus on connectivity and activity as it debuted Walkie Talkie mode that allows people to quickly communicate with each other. The iOS improvements with Siri are also finding their way to Apple Watch as is a new Podcast app. Apple also shared later this year it will debut Student ID support with both iOS and watchOS. Student ID will allow students to gain access from dorms and dining halls to gyms and libraries, along with campus events or attending class, making purchases from campus retail shops and bookstores, and paying for laundry and items from vending machines. Apple expects to roll this out with a handful of universities and expand it over time.

Turning to the OS that powers Apple TV, better known as tvOS, it gains support for Dolby Atmos surround sound, as well as a streamlined sign-in protocol for cable providers.

As for macOS, the upcoming version dubbed Mojave, will have  all new features like a dedicated Dark Mode, an all-new App Store, tweaks to the desktop, and the migration of several iOS apps. That migration for News, Stocks, Voice Memo and Home is part of a longer-term initiative to port iOS apps to mac OS, and Apple expects developers will be able to transition their apps to Mac sometime in 2019. Finally, in the wake of the Cambridge Analytica data scandal, Apple emphasized privacy, with a new Safari feature that preemptively blocks tracking sites like Facebook’s Like and Comment feature and asks you to allow it to appear when you’re browsing a website.

While developers will have access to these new OS iterations shortly, consumers will not until sometime this Fall. Historically, Apple has formally released these platforms shortly after it debuts its new hardware.

Are these updates ho-hum?

Not at all in my opinion. While they could be seen a quieter updates, they bring features and functionality that will spur usage as Apple once again does what it has done in years past – used its software and design expertise to remove friction for consumers. Odds are these features will help spur users of older Apple devices to upgrade later this year, but I continue to see a far larger iPhone upgrade cycle coming once 5G networks go mainstream.

Factor in Apple’s dividend and share repurchase plans, and what some may call boring still looks pretty exciting to me.

  • Following Apple’s WWDC 2018 keynote presentation, we are boosting or price target on Apple (AAPL) shares to $210 from $200.

 

MGM avoids the Las Vegas strike

Last week, I discussed the pending union strike for casino hotel workers on the Las Vegas Strip and how we would be assessing its potential impact for MGM Resorts (MGM). Over the weekend, the company has reportedly reached a new tentative 5-year contract that covers approximately 24,000 workers at 10 casino resorts on the Las Vegas Strip. We’ll continue to monitor the situation and assess any potential impact but, in my view, this tentative agreement is a step in the right direction and could lead to a modest boost to MGM’s properties as its competitors contend with the strike.

  • Our price target on MGM Resorts (MGM) shares remains $39

 

Paccar shares catch an upgrade

Yesterday shares of heavy-duty and medium duty truck company Paccar (PCAR) caught an upgrade to an Outperform rating from Neutral at investment firm Macquarie complete with a $75 target. That upgrade came on the news that May preliminary net orders of heavy trucks (Class 8) in North America were 35,600 units, up 110% year-on-year and up 2.5% vs April.

Despite the swelling order book for heavy and medium duty trucks that reflects the current shortage that is driving freight costs higher, Macquarie is one of the few to turn bullish on Paccar shares. Candidly, given the year over year strength in new truck orders we’re surprised that more haven’t turned positive on the shares.

I’ll look for further confirmation in the soon to be published May Cass Freight Index data. That data for April showed a 10% year over year increase in freight shipments, which in our view served to signal the domestic economy was firming. As more data is had that points to the improving outlook for new truck demand, I expect others will jump on board, boosting their ratings and price targets along the way.

You know what they say when it comes to situations like this – better to be early than late.

  • Our price target on Paccar (PCAR) shares remains $85;

 

Examining a lab grown diamond company as De Beers adjusts its business model

Last week I posted a Thematic Signal that discussed legendary diamond firm De Beers having to pivot its business as it contends with the reality that is our Cash-strapped Consumer investing theme. As I’ve said for some time, these thematic tailwinds and headwinds lead to a change in behavior at consumers and businesses that companies must respond to it they want to survive and thrive. If not, they run the risk of being dead on the vine. If consumers aren’t buying diamonds because they can’t afford them, then the exiting business model at De Beers has to change. Simple. As. That.

In this case De Beers has launched a new line of synthetic diamonds that are a fraction of the price for natural diamonds. Prices for the synthetic diamonds will start at $200 for a quarter carat and increase to $800 for a full carat stone. The company’s natural stones start at roughly 10 times that amount, depending on their clarity and other attributes. We see this move at this price point as part of De Beers’ attempt to capture incremental business associated with our Affordable Luxury investing theme.

With De Beers embracing synthetic diamonds, odds are the flood gates will soon open up with others doing the same. To me, this sounds like a new market opportunity for Charles & Covard (CTHR), the original creator and leading source of Forever One™, Forever Brilliant® and Forever Classic™ moissanite gemstones for fine jewelry. Charles & Covard’s gemstones are based on a patented a thermal growing process for creating pure silicon carbide (SiC) crystals in a controlled laboratory environment that enables lab created grown moissanite gemstones. As the company has positioned its wears, they are free from environmental and ethical issues, and capable of disrupting traditional definitions of fine jewelry.

As background, the global jewelry market is estimated by McKinsey & Company to be $257 billion in size. Like many other industries the move to digital sales is also resulting in a shift in where consumers are buying jewelry. Per McKinsey, by 2020 the global online fashion jewelry market is expected to drive $45 billion in sales, roughly 15% of the global jewelry market, with the global online fine jewelry hitting $30 billion of the global jewelry market. By comparison, estimates put the lab-created gemstone market near $8 billion by 2020 with the largest geographic market being Asia-Pacific followed by North America.

Charles & Covard, which derives more than 90% of its revenue from the domestic market, sells loose moissanite jewels and finished jewelry through two operating segments:

  • Online Channels (38% of sales) which is comprised of the company’s charlesandcolvard.com website, e-commerce outlets, including marketplaces such as Amazon (AMZN) and eBay (EBAY), and drop-ship customers, such as Overstock.com (OSTK), and other pure-play, exclusively e-commerce customers, such as Gemvara;
  • Traditional segment (62% of revenue), which consists of wholesale, retail, and television customers such as Helzberg Diamonds, Rio Grande, Stuller, and Boscov’s.

Only one analyst formally covers CTHR shares with a $2.50 price target, but there are no consensus expectations for EPS let alone revenue. Revenue for Charles & Covard has remained in the $25-$29 million bandwith over the last five years, and annualizing the company’s March quarter results suggests revenue near $27 million this year with EPS of roughly -$0.12.

There is some issue with that, which centers on the inherent seasonality within the company’s business that reflects the year-end holidays and gift giving. Odds are that means the company’s top and bottom line could be ahead of those figures.

Now here is where it gets a little cloudy. While forecasts suggest there are robust growth prospects ahead for laboratory created diamonds and other jewels, which could equate to a significant tipping point for Charles & Covard should reality match those forecasts, the company is facing a potential supplier issue.

Its sole supplier of SiC crystals is Cree (CREE) and Charles & Covard has a certain exclusive supply rights for SiC crystals to be used for gemstone applications. In December 2014, Charles & Covard entered into a new exclusive supply agreement with Cree that will expire on June 24, 2018, unless extended by the parties for an additional two-year period.

While the two companies boast being on good terms, the reality is Cree is a captive supplier that Charles & Covard rely on to for their products. This means watching the next few weeks for the deal terms for either a new supply agreement or ones attached to the extension as they could alter profitability expectations. Other complications include the company’s microcap status and its average daily trading volume of just 70,750 shares.

For those reasons, even though the lab grown diamond market looks to have favorable growth prospects, we’re going to keep an eye on Charles & Covard shares by putting them on the Tematica Investing Contender List.

  • We are adding shares of Charles & Covard (CTHR) to the Tematica Investing Contender List as part of our Affordable Luxury investing theme.
Lord & Taylor’s owner Hudson Bay increasingy focused on digital

Lord & Taylor’s owner Hudson Bay increasingy focused on digital

What can we say other than it’s the latest sign of the woes faced by traditional brick & mortar retailers – the closing of once iconic flagship locations as they are caught between the push-pull of our investment themes. In this case it’s the accelerating shift toward digital shopping that is part of our Connected Society or Digital Lifestyle investing theme as well as our Cash-strapped Consumer one.

While Hudson Bay once expected to keep a scaled down version of the iconic Lord & Taylor location on Fifth Avenue, it has since decided to throw in the towel all together. Future generations may never know the beauty of Lord & Taylor’s Holiday Windows… unless Hudson Bay gives them a digital makeover as well.

 

Hudson’s Bay (HBAYF), the Canadian-based owner of Lord & Taylor and Saks Fifth Avenue, agreed last October to sell the Fifth Avenue store to WeWork for $850 million. The iconic store is located between 38th and 39th Streets and not far from Times Square.

The original plan was for the store to become WeWork’s New York headquarters after the 2018 holiday season. After that, approximately 150,000 square feet of the building would continue to be run as a scaled-down Lord & Taylor.

But that is no longer the case. Hudson’s Bay said late Monday that it “has decided not to maintain a presence at [the Fifth Avenue] location following turnover of the building to WeWork.”

The company said that “exiting this iconic space” — which first opened in 1914 — is a reflection of “Lord & Taylor’s increasing focus on its digital opportunity and [Hudson’s Bay] commitment to improving profitability.”

Hudson’s Bay is turning to Amazon rival Walmart (WMT) for assistance in the digital shopping arena. Walmart announced last November that Lord & Taylor will have a flagship store on Walmart.com.

The companies added last month that the online store is set to launch in the coming weeks with more than 125 brands and will feature free two-day shipping for orders over $35.

Source: Lord & Taylor is closing its 5th Ave store

All those streaming services can add up to serious $$

All those streaming services can add up to serious $$

We continue to hear more and more about chord cutting as consumers increasingly to over the top and streaming vidoe services and they shift how, where and when they consume that content. Given the Content is King perspective that we have, it comes as little surprise to see that consumers are utilizing multiple platforms because they want the content they want – plain and simple.

While it’s one thing to have one or two streaming services, as companies like Apple and Disney/ESPN follow Netflix, Amazon, Hulu and others  the content game,  it means consumers could very well see their montly content bill soon rival the monthly cable bill they were looking to avoid. If we game it out, it means either consumers will swallow and pay those bills or as we have seen with in other industries market share will consolidate around less than a handful of providors. In many ways this will be the same evolution the internet went through over the last decade plus, the only difference is it will be unfolding not on the PC but across all of our other connected devices.

No matter what type of media consumer you are, there’s a difference between paying $13.99 per month for Netflix and the thousands of dollars you will be paying per year when you add up all the streaming services you will probably want to subscribe to. And that doesn’t even include the $40 to $300+ per month you will have to spend on broadband access. Let’s have a look at the various ways you might spend your streaming media dollars.

Movies, TV, and Video Streaming Services … Oh, My!

The rise of video streaming services has given us a world of alternatives to traditional cable and satellite video providers. Whether you’re a cord-cutter (ditching cable in favor of streaming services), a cord never (someone who’s never paid a cable provider for monthly services), or a cord plus (someone who pays for cable plus services like Netflix or Hulu), you’re likely paying for at least some of these services:

  • Netflix – $13.99/month ($10.99/month without 4K)
  • Hulu – $11.99/month ($9.99/month with ads)
  • Amazon Prime Video – $13/month (includes free shipping on Amazon purchases)
  • CBS All-Access – $9.99/month ($5.99/month with ads)
  • HBO Now – $14.99/month
  • Showtime Anytime – $10.99/month
  • Starz Play – $8.99/month
  • YouTube Premium – $11.99/month

What started out as an inexpensive way to replace trips to Blockbuster (or to keep you from buying DVDs) has turned into a battleground for your eyes and your wallet. And if you’ve got TV FOMO? Forget about it. Almost every service offers at least some awesome original content. We are lucky to be living in the Platinum Age of video storytelling.

I paid $99 for the first year of CBS All-Access, just to watch Star Trek: Discovery. Is that a smart financial decision? No! Is it worth it? For me it is, because I am a die-hard Star Trek fan and Discovery is awesome!

What further complicates the issue is the ever-changing landscape of rights ownership. Want to binge Parks and Recreation? Better sign up for Netflix. Oh, it’s on Hulu now? Better pay for that, too. Sure, you could buy the complete series on DVD for less than $50, but are you really going to get up from the couch and walk over to the DVD player 21 times to swap out the discs?

Source: Streaming Sticker Shock – Shelly Palmer