Special Alert: Recapping bullish signals for our Connected Society theme as holiday shopping goes increasingly digital this year
KEY POINTS FROM THIS SPECIAL ALERT:
- Tematica Options+ Subscribers: We are selling half the Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000) that broke $76.62 this morning, generating a gain of more than 135% over the last 7 trading days. We are also boosting our stop loss to $55 from $32.50.*
- With today being Cyber Monday, we will be revisiting our Amazon (AMZN) price target as the day’s sales tallies are published.
- We continue to see Amazon (AMZN), Alphabet (GOOGL), and United Parcel Services (UPS) as beneficiaries of the accelerating shift toward digital commerce.
* Note: Following the Thanksgiving holiday, we are in a thankful mood and as such we are sharing this latest Tematica Options+ call option trade with all Tematica Investing subscribers. If you would like to upgrade your subscription to include Tematica Options+, please contact us at (571) 293-1977 or email us at customerservice@TematicaResearch.com
Holiday shopping data is confirming Our Connected Society Investment Theme on several fronts
We hope you had an enjoyable Thanksgiving holiday, and where appropriate you took advantage of retail sales, both in-store and on digital platforms. Over the coming paragraphs, we’re going to review the weekend spending data that was bullish for our Connected Society investing theme as well as several Tematica Investing Select List positions and preview what’s expected today, Cyber Monday, but the quick takeaway is it confirmed the accelerating shift toward digital commerce that is fueling our positions in Amazon (AMZN) and United Parcel Service (UPS), and to a lesser degree Alphabet (GOOGL) given its search and shopping businesses.
According to Adobe Systems (ADBE), U.S. shoppers splurged more than $1.52 billion online by 5 PM ET on Thanksgiving and went on to part with more than $2.85 billion for the day in full. By comparison, that compares to $1.93 billion in online Thanksgiving sales in 2016. What we found even more incredible was the percentage derived from smartphones – a record 46% according to Adobe.
Turning to Black Friday, per e-commerce platform company Shopify, customers spent as much as $1 million per minute on the internet. Adobe reports that shoppers spent a record-high of $5 billion for the day, up from $3.34 billion in 2016. Another interesting data point, marketing firm Criteo reports that roughly 40 percent of Black Friday online sales were made on mobile devices Pairing Thanksgiving and Black Friday sales at the 100 largest U.S. Web retailers, Adobe found $7.9 billion was spent, marking an 18% increase compared to 2016.
Reports for Black Friday were less favorable for brick & mortar retailers, with many shoppers flocking to stores; however many of them were there only to “showroom” the merchandise. For those unfamiliar with that term, “showrooming” means eying items in person while waiting to complete the actual transaction online, while continuing to bargain hunt online or via mobile. Estimates from ShopperTrak said foot traffic “decreased less than one percent when compared to Black Friday 2016.” Looking at both Thanksgiving Day and Black Friday, however, ShopperTrak found in-store foot traffic was actually down nearly 2% compared to the same two days last year. Not good for brick & mortar at all, but with some context, we see it is simply more of the same given disappointing same-store sales reported by retailers of late.
What we found most interesting in retailer comments was the growing verbiage toward digital commerce . . .
While some may call it pandering, we see it as more confirmation of the shift we’ve been describing. Case in point, Kohl’s (KSS) CEO Kevin Mansell shared that while the retailer delivered a “record-breaking” Thanksgiving, more than 16 million visits were made to kohls.com, Kohl’s said, outpacing any prior traffic or sales precedents. Mansell went on to say the company fulfilled roughly 40% more orders that were bought online and picked up in stores when compared with Black Friday of last year. Another example was had at J.C. Penney (JCP), which shared that traffic at jcp.com increased at a double-digit pace throughout the week, with most shoppers visiting the site from their mobile devices. And on Thanksgiving Day, Penney’s website received the most visits of any day so far this year.
Rounding out the holiday shopping weekend, today is Cyber Monday and it is expected to become the largest online shopping day in history, generating $6.6 billion in sales, up 16.5% compared to last year’s $5.6 billion according to Adobe. Here’s the thing — if this Cyber Monday sets a new online record, it will be the sixth year in a row the day has done so.
Stepping back, we see all the weekend’s data confirming the shift to digital commerce that has been at the heart of our position in Amazon. The same shift towards online is also driving the search and shopping business at Alphabet and fueling the season surge at United Parcel Service.
As this shopping shift is occurring, we are also seeing Amazon build its own private-label offerings across a growing number of categories, including sportswear, electronics, and accessories to kitchenware. This is placing additional pressure on bricks-and-mortar names such as J.C. Penney and Sears (SHLD). Of course, there is more than enough reason to think there will be even more pain on the way, as traditional retail businesses are pumping up the use of discounts to win business, which should further pressure margins.
In a survey conducted by the Berkley Research Group of more than 100 high-level retail executives in October, 64% of the respondents said they expected promotions to play a more significant role in overall sales during the 2017 holidays. This tells us is there is more trouble ahead for brick & mortar retailers as these companies sacrifice profits to win revenue. That isn’t exactly a sustainable business model and one that tends to lead to declining earnings per share. In our view, those that lack a competitive weapon in its back pocket — weapons like Amazon’s Amazon Web Services or Costco Wholesale’s (COST) higher margin membership fee business — are stocks to be avoided as retailer pain continues.
- Our price target on Amazon is $1,250 but based on the online shopping strength thus far and what’s expected today we are reviewing that target.
- As we review our AMZN price target, we are doing the same for Alphabet (GOOGL) shares. Currently, that price target sits at $1,150.
- Our price target on United Parcel Service (UPS) shares remains $130.
- Our price target on Costco Wholesale (COST) shares remains $185.
Tematica Options+ Subscribers: Trimming back our Amazon call position
* Note: Following the Thanksgiving holiday, we are in a thankful mood and as such we are sharing this latest Tematica Options+ call option trade with all Tematica Investing subscribers. If you would like to upgrade your subscription to include Tematica Options+, please contact us at (571) 293-1977 or email us at customerservice@TematicaResearch.com
As the confirming holiday shopping data is coming in, we’re seeing Amazon shares respond accordingly and that is propelling the Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000) higher this morning. As we share today’s thoughts with you the AMZN calls are trading past $76.62, which equates to a gain of more than 135% since we added the position just 7 days ago to the Tematica Options+ Select List. As much as we like quick gains, we also like to be prudent and in this case, that means trimming the position back, while leaving a portion intact to capture additional gains to be had this holiday shopping season.
- We are selling half of the Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000) that broke $76.62 this morning, generating a gain of more than 135% over the last 7 trading days.
- As we make this trade, we are also boosting our stop loss on those calls to $55 from $32.50, which should ensure a profit of at least 69% on the remaining call position.