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⚒️ The Pick and Shovel of the RV Boom
Plus, most of you said THIS about inflation.
Happy Sunday to everyone on The Street. In case you missed it, Marc Andreessen gave WeWork's Adam Neumann $350 Million for his new real-estate start-up, Flow. The problem? Housing shortage. The solution? According to a16z it's "... connecting people through transforming their physical spaces and building communities where people spend the most time: their homes."
In other words, buying up a bunch of rental properties in states with massive supply-demand imbalances, commoditizing the property management tech stack, and standardizing the interior aesthetics. There’s something very Compass-y about this new real estate venture. (Speaking of which, the brokerage just reported losses of $289 million for the first half of the year.)
Remember, before its failed public offering, WeWork reorganized and rebranded as The We Company. To rebrand itself around the word "We," the company paid Neumann nearly $6 million because he owned the trademark rights to the word ... "we." He also used a cereal box to smuggle drugs into Israel, dreamed about becoming the leader of the world, living forever, and amassing more than $1 trillion in wealth, according to the Wall Street Journal. So, here’s our question for you this week:
Would you invest in Flow? |
Plus, results from the polls last week:
Do you think inflation has peaked? 49% said NO, 28% said yes, and 23% said "I don't care, just give me $2 gas again."
Which post-split GE division are you most BULLISH on? 54% said HEALTHCARE, 33% said Aviation, 13% said Energy
Are you bullish or bearish on PayPal? 57% said BEARISH, 43% said Bullish
Are you bullish or bearish on Lyft? 60% said BEARISH, 40% said Bullish
This poll and the commentary above are brought to you by the Entrust Group, the Self-Directed IRA (SDIRA) masters. SDIRA’s are Individual Retirement Accounts that give you increased control and greater diversification over your investments and retirement savings.
So let’s say you’ve been investing in rental units long before Adam Neumann came along and cloaked the core business in words like “community” and “technology”. Well, then a SDIRA might be perfect for you. Click here to connect with the experts before the holidays are here, life gets busy, and you didn’t get your affairs in order before the 2022 tax season rolls around.
Review
US stocks fell Friday as investors appeared to be reassessing what the Federal Reserve is planning in terms of future rate hikes. The market entered last week on a high note following the July CPI report, which showed prices holding steady month-over-month. Some may have felt inflation was at or near its peak, boosting sentiment on The Street.
That said, Fed minutes released last week, along with comments from central bank officials, have caused some concern. For example, St. Louis Fed President James Bullard indicated he’s leaning toward a 75-basis-point hike in September.
Then, at the end of the week, Richmond Fed President Tom Barkin spoke at a conference and called inflation painful and unfair, adding that it creates uncertainty. He went on to say that the central bank is committed to getting it under control and will succeed in doing so. Those comments and the expectation for future hikes helped move government bond yields and the US dollar higher.
Zooming out, it was a choppy week on Wall Street as many are unsure what direction the Fed will take. Bitcoin plummeted Friday, underscoring investors' diminished appetite for risk at the moment. In company specific news, Bed Bath & Beyond saw its share price plunge after activist investor Ryan Cohen unwound his holdings in the retailer.
Earlier this year, Cohen bought over 7 million shares of the company, hand-picked board members, and ousted its CEO. The stock has been swept up in the meme craze lately as its share price was up 200% at one point this month. A 20-year-old mathematics and economics student made a profit of more than $100 million trading Bed Bath & Beyond stock, the Financial Times reported.
Meanwhile, cruise stocks including Royal Caribbean, Norwegian Cruise Line, and Carnival fell. It was a down session for several airlines as well, including American Airlines and Delta.
For the week, the S&P fell 1.21% while the Dow slipped 0.16%. The tech-heavy Nasdaq was the biggest underperformer, closing out the week down 2.62%.
Preview
Tomorrow the Chicago Fed will release the National Activity Index for July. The report is designed to help investors gauge overall economic activity and how that’s being affected by inflation. June’s reading held steady at -0.19 marking the second straight month of negative activity. Back to back negative readings had not happened since early 2020, when the pandemic was unfolding.
Tuesday, S&P Global will publish its preliminary manufacturing PMI and services PMI for August. The PMI or purchasing manager index is a survey that shows whether these sectors are expanding or contracting. July’s manufacturing PMI checked in at its lowest level in two years, while the services PMI declined for the first time in two years. Also watch for July’s new home sales.
Wednesday, the National Association of Realtors® will publish its pending home sales index for July, tracking the number of signed contracts for the sale of homes. June’s index fell 8.6% from the previous month, which analysts blamed on surging mortgage rates. July’s durable goods orders and core capital equipment orders are also slated for mid-week release.
Thursday, new and existing jobless claims are due. Initial claims fell by 2,000 last week to 250,000. Also keep an eye out for the latest estimate of second-quarter GDP. The preliminary report showed GDP declined in Q2. Since GDP growth in Q1 was negative, the reading kicked off a debate as to whether or not the US economy is in a recession, which is commonly defined as two consecutive quarterly declines.
Friday, the July PCE will be printed. Also known as the Personal Consumption Expenditures Price Index this tracks the price of goods over time in a manner similar to the CPI. This metric includes how much is spent on services, as well as durable and non-durable goods. The PCE is also the Fed’s preferred inflation metric. June’s reading set a new 40-year high. Personal income and personal spending for July are also due to round out the week.
On the earnings front, Palo Alto Networks (PANW) is set to report earnings on Monday, and specialty retailer Macy’s (M) will publish its second-quarter results on Tuesday. Chipmaker NVIDIA (NVDA) is scheduled for Wednesday, and Dollar General (DG) and Dollar Tree (DLTR) are both up Thursday. Finally, Chinese food delivery giant Meituan (MPNGY) will publish its second-quarter earnings on Friday. Dollar General and Dollar Tree will be interesting to watch given inflation and consumers turning to dollar stores for more items. Investors will be watching both companies’ results to see how that trend is impacting sales and profit.
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The Pick and Shovel of the RV Boom
RV Storage Roll-Up
Ever since the pandemic took hold, recreational vehicles have been all the rage. Rather than sit in airplanes with masks on, breathing pressurized air, people opted for alternative ways to travel. For many, this included hitting the open road in their brand new RV.
The thing is, not everyone has room to store these campers, which is where real estate entrepreneur Gary Wojtaszek comes into the picture. With backing from Centerbridge Partners, Wojtaszek is launching RecNation RV & Boat Storage, a start-up dedicated to helping RV owners find a place to store their idle vehicles.
RecNation RV currently operates 31 storage facilities in Texas, Florida, and Arizona that house RVs, boats, quads, and other recreational equipment. The company is in the process of acquiring an additional 10 locations. The goal is to eventually expand to 400 facilities by scooping up smaller competitors as well. Right now, the market is currently fragmented with a lot of small mom and pops vying for business.
Thinking Outside the Box
RecNation is one of a handful of real estate companies looking for new ways to make money with an old asset class while the traditional commercial real estate market is in a state of flux.
The rise of remote work has put downward pressure on office valuations. Meanwhile, industrial and apartment buildings aren’t bad options, they’re just getting pricey, which means yields and cap rates are compressing. Storage facilities, data centers, and college housing have all done well, particularly for larger investors who have the capital to invest in marketing and offering other amenities.
Storing an RV with RecNation can cost anywhere from $150 to $700 per month depending on how big the RV is and where the storage facility is located. In addition to storage, RecNation offers maintenance help, a sewage dump station, and other services for RV owners.
Recession Wildcard
Over the past two years, RV sales have been off the charts. Companies like Thor Industries (THO), Winnebago Industries (WGO), and Forest River RV shipped more than 600,000 units last year, setting a record. 2022 is on pace to be the second biggest sales year. Inflation and high gas prices could hurt sales, particularly if manufacturers raise prices to offset increased production costs.
RecNation isn’t worried. The existing RVs still need to be stored. Not to mention a growing number of homeowner associations are banning RVs and boats from being stored in driveways. Hitting the road in a moving home is in vogue but storing them in front of your house isn’t. RecNation wants to capitalize on that trend, hoping the wheels won’t come off if there’s a recession.
Would you invest in the start-up, RecNation RV & Boat Storage? |
Franchise Group is Down, But Not Out
Consumers Still Spending On Health, Pets, Education
Franchise Group (FRG), owner of Vitamin Shoppe, Sylvan Learning, Pet Supplies Plus, and three discount home furnishing chains has had a tricky start to 2022. The stock is down about 30% so far this year as consumers reign in spending amid soaring inflation and elevated gas prices. Franchise Group did get a brief lift when it tried to buy Kohl’s (KSS) earlier this summer, but since then the stock has been in the doldrums.
That could present a buying opportunity for investors looking for some retail exposure. Sure, its furnishing stores are taking a beating but its other chains have been doing better as consumers continue to spend on health, their pets, and education.
Recession Resistant?
During the last quarter Vitamin Shoppe, Pet Supplies Plus, and Sylvan saw same-store sales increase with strong demand for pet supplies and services. Even a recession can potentially boost Franchise Group’s prospects. People may look to save more money and shop for discount furniture if money is tight. During the recession of 2008-2009 same-store sales at Franchise Group brands increased by about 6%.
There’s also the potential for Franchise to expand via bolt-on buys. The company said recently there are plenty of available targets even if rising interest rates make it more expensive to borrow money for purchases.
Franchising the Big Opportunity
The bigger opportunity for Franchise lies in its ability to convert its existing stores into franchises. That would be a boon to the company and its stock given it receives a recurring stream of revenue via royalties and a percentage of store profits.
Currently, excluding Sylvan, about 40% of its stores are franchised. The company says it can convert as many as 90% of its stores into franchises. The retail outlets may not be the leaders in their categories but they do have name recognition which could draw potential franchisees.
Franchise is taking a beating along with the rest of the retail sector. That may be overdone, providing an opportunity for bargain-seeking investors looking to take on some retail risk.
Are you bullish or bearish on Franchise Group (FRG) |
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What is a Self-Directed IRA? What can I invest in? What plans are available? What Does Entrust do? How do I start?
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High-End Tech Gadgets Losing Their Luster
Consumers Reign in Spending on Tech
From high-end speakers to fancy headphones, pricey consumer gadgets are losing their luster with certain consumers. Blame it on inflation, or less demand as people venture out more, but either way you look at it, makers of luxury tech products are seeing sales stumble and their stocks decline.
Take Sonos (SONO), the expensive speaker maker, for example. Last week the company reported a 2% decline in revenue for the June quarter, worse than Wall Street expectations. Sonos’ guidance for its fiscal fourth quarter is much lower than analysts expected, which sent the stock down about 25%. Then there’s Turtle Beach (HEAR), which manufactures premium headphones for gamers. It posted disappointing quarterly results and announced a strategic review. The stock fell 32% as a result.
Even Apple Isn’t Immune
iRobot (IRBT), which will be acquired by Amazon (AMZN), is another example. On the same day it announced its sale, the company reported a 30% decline in second-quarter revenue. Meanwhile, Corsair Gaming (CRSR), which makes expensive gaming PCs and gear, posted a 40% year-over-year decline in revenue in the second quarter and slashed its full-year sales target by 18%.
Even Apple (AAPL) is feeling the pain. In the June quarter revenue for its Apple Watches, AirPods, and HomePod speakers fell 8% year-over-year. It’s the first time sales have declined in that category in close to six years.
Well Heeled Consumers Immune
It's not the well-heeled customers who are holding back spending, however. Sonos blamed its revenue decline largely on its Roam Speaker and Ray TV soundbar which are among its cheapest products. Demand for its $699 amplifier Amp is still high. Meanwhile, Apple’s wearable sales are declining but iPhone revenue was up 3%. iPhones cost much more than AirPods or Apple Watches.
Absent a big credit crunch brought on by massive layoffs, well-heeled consumers are expected to keep doing what they do: spend money. To boost sales and their stock prices, high-end tech companies may have to get even more fancy with new product launches. Despite inflation, it seems the more expensive the better, at least for this group.
One Tweet for the Road
Adam Neumann after convincing VC firms that renting real estate is actually a kind of technology company if you think about it hard enough.
— Dare Obasanjo (@Carnage4Life)
Aug 20, 2022
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