🌟 Wait, is Walmart a Tech Stock?
Plus, potentially one of the most absurd Kim Kardashian stories to date.
Happy Sunday to everyone on The Street.
It's a tough fundraising environment right now ... unless you're Kim Kardashian. The reality TV star-turned-PE-co-founder just raised $270 million for Skims in its most recent funding round. The shape-wear brand is now valued at $4 billion.
According to Forbes, Kim is Skims' largest individual shareholder, owning roughly 35% of the company. The mom of four's new net worth of $1.7 billion is impressive, sure. But what about the fact that this recent raise now means Skims is worth twice as much as Victoria’s Secret? The company is projected to post $750 million in sales this year and men's clothing will be added to the line-up this fall.
Not only that, but the company might have to think about jumping into the tactical gear sector. No joke, some woman took to TikTok to praise Skims for helping her survive a shooting:
What an incredible world we live in. Would you be surprised if Skims lands a government contract with the US military for protective, yet flexible undergarments? I say that half-jokingly, but at this point, I probably wouldn't be shocked if I saw that headline come through.
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US stocks finished mostly higher Friday as the Dow continued its longest winning streak since 2017.
On the earnings front, American Express reported a profit of $2.17 billion, or $2.89 per share, beating Wall Street expectations. However, the company's stock fell on news it set aside more money for possible defaults on payments.
The company's total provisions for credit losses were $1.2 billion, up from $410 million in the year prior. That said, American Express maintained its full-year forecast for earnings of $11 to $11.40 per share and revenue growth of 15% to 17%.
In company-specific news, Amazon announced it will invest $120 million in a satellite processing facility at NASA’s Kennedy Space Center in Florida. The move is part of Project Kuiper, a plan to build a network of 3,236 satellites in low-Earth orbit to provide high-speed internet access anywhere in the world. The facility is expected to be completed by the end of 2024, with the first production satellites processed in early 2025.
In other news, the Federal Reserve launched its FedNow instant-payments service, which is expected to improve the flow of money through the US economy. The system will allow for faster access to paychecks, last-minute bill payments, and government payments. 35 early adopters, including JPMorgan Chase and Wells Fargo, have already signed up.
Meanwhile, the Fed is also looking into the implementation of a central bank digital currency.
For the week as a whole, the S&P 500 rose 0.69%, while the Dow gained 2.08%. It was the second positive week in a row for the two indexes. The Nasdaq fell 0.57%.
Tomorrow, the S&P Global (SPGI) manufacturing PMI for the month of May will be released. In June, this metric hit a six-month low, signaling a decline in the manufacturing sector's health, influenced by inflationary pressure and higher interest rates.
Tuesday, the home price index for May will be released. In April, this measure of home prices across 20 cities dropped 1.6% on an annual basis — the biggest decline since April 2012.
On Wednesday, the Federal Reserve will decide whether or not to raise interest rates in July. Last month, the vast majority of FOMC participants agreed to pause rate hikes. However, Wall Street is currently pricing in a likely chance of another 25-basis-point raise this month. Investors will also get an update for the 30-year fixed-rate mortgage, which currently sits at 6.87%.
On Thursday, the Q2 quarterly growth rate will be released. In the first quarter, the US economy grew at an annualized 2% rate, well above forecasts.
On Friday, the consumer metrics for personal spending and income in June will be released. In May, these metrics rose 0.1% and 0.4%, respectively.
Tomorrow, Domino’s Pizza (DPZ) will kick off a busy week of earnings. Executives will offer insight into the pizza chain’s abrupt about-face regarding third-party delivery apps. After years of shunning apps like DoorDash (DASH), Domino’s recently announced a surprising partnership with Uber Eats (UBER) and Postmates.
Tuesday, Alphabet (GOOGL) will provide counterprogramming to Microsoft’s report. The dueling tech giants will surely spend time discussing their respective plans for generative AI. Notably, Google shareholders will be eager to learn more about the rumors that co-founder Sergey Brin is back to help launch Gemini, another highly-anticipated AI system from Google. Additionally, 3M (MMM) and Raytheon (RTX) will also report earnings.
Wednesday will be another busy day with reports expected from Meta Platforms, Coca-Cola (KO), Boeing (BA), and Hilton (HLT). Investors will be eager to hear more about the initial performance of Meta’s new Twitter-adjacent platform Threads. The social media app amassed 100 million users in its first week, the fastest an online platform has ever done so. However, the Wall Street Journal reported that engagement is down 70% so the investment community will want to know more about plans for the app.
Thursday, investors can expect earnings reports from Honeywell (HON), CBRE Group (CBRE), and Ford (F). Ford’s management is likely to discuss the recent investigation from House Republicans regarding its partnership with a Chinese battery maker CATL, including its potential link to forced labor.
Friday marks another high-profile earnings battle, as oil goliaths Chevron (CVX) and Exxon Mobil (XOM) both report. The latter is likely to discuss its recent $4.9 billion acquisition of the carbon storage company Denbury (DEN). Global consumer goods behemoth Procter & Gamble (PG) will also hand in a report card.
Walmart’s Tech Bets Are Starting to Pay Off
Not Your Grandfather’s Walmart
Drones, robots, and automation aren’t words that the everyday investor might associate with a brand like Walmart (WMT). But they should be.
The nation’s largest retailer is pulling out all the stops when it comes to technology, deploying delivery drones, robot order-sorters, automation, and artificial intelligence to grow its business.
Walmart has no choice with Amazon (AMZN) closing in on its leadership position. JP Morgan warns Amazon could replace it as the country’s leading retailer next year.
Failures Lead to Success
So far, Walmart’s bets are paying off. Sales in its e-commerce unit have increased 122% since 2020, reaching $53.4 billion in the last fiscal year. EPS is forecasted to hit $6.91 in fiscal 2025, marking a record for the company, and up from $6.24 expected in fiscal 2024 which ends in January.
It was a rocky road for Walmart to get to this point, but its early failures paved the way for its current success. Walmart has two key strengths: its size and retail store footprint. Ninety percent of US consumers live within ten miles of a Walmart and shop at a store at least once annually. Its size enables it to negotiate rates with suppliers, keeping prices low for customers.
Walmart Does More With Less
Technology, specifically, is helping Walmart keep prices low. Take its robot order pickers, for instance. They are busy with fulfillment, zooming through the warehouse floors. This technology is replacing workers, reducing errors, and improving inventory control, enabling Walmart to further cut costs.
By 2026 Walmart plans to complete 55% of its orders at automated fulfillment centers. That will cut the average amount it spends to process an order by as much as 20%.
That isn’t lost on Wall Street bulls who argue there’s room for upside, even if the stock is up by roughly 10% this year. Although it’s not currently classified as a tech stock, its operations and execution suggest otherwise to certain industry insiders.
Are you bullish or bearish on Walmart over the next 10 years?
Not a Bad Time to Be a Homebuilder
Rising Rates Benefit Builders
Rising mortgage rates have weighed heavily on many segments of the American economy. Real Estate is one of them. But not all sub-sectors are the same. In fact, rising rates have been a boon to homebuilders, which have seen their stocks rise, even as the number of home sales slows.
The reason: a dearth of available existing houses for sale which is driving demand for new construction being churned out by the likes of PulteGroup (PHM), D.R. Horton (DHI), and Lennar (LEN).
As of May, new listings are down 25% year-over-year, according to Redfin. It's the biggest decline since May of 2020. Sky-high mortgage rates are a big reason. Existing homeowners who locked in low rates don’t want to sell and then be forced to take out a mortgage that might cost them twice as much.
Therefore many homeowners are opting to stay put. Homebuyers, as a result, have no choice but to look at new construction.
New Home Sales Surging
As of May, new home sales were up 12% from April and 20% year-over-year, according to data from the Census Bureau. In the same period, existing home sales were up just 0.2% month-over-month and down 20% from last May, according to the National Association of Realtors.
The biggest builders are benefiting from this trend. PulteGroup, D.R. Horton, and Lennar’s share of new home sales has grown to 31% from 22% during the past five years. Demand is red-hot in the South, a hotbed of activity during the pandemic as people moved to cheaper states. Retirees are also driving a lot of demand for new construction.
A Year of Change
What a difference a year makes. It was only 12 months ago that homebuilder stocks were in the doldrums, falling 20% over supply chain concerns and uncertainty over the impact of rising rates.
Things are looking up now, however, underscoring just how quickly sentiment can change. All eyes are now on — you guessed it — the Fed to see how high rates will go and how long they’ll stay there. If they remain elevated, homebuilders’ stocks might follow suit.
Are you bullish or bearish on homebuilder stocks over the next 24 months?
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Heads Up America: Chinese Auto Giant Incoming
Chinese Billionaire Sets His Sights on the US
Summer is here and no one is feeling the heat more than America’s legacy automakers. Not only are they sweating Tesla’s every move, but now they also have to keep their head on a swivel for a Chinese billionaire that has his sights set on the US.
Enter Eric Li, best known for his ownership of automakers Geely (GELYF) and Volvo (VLVLY). Li’s portfolio also includes stakes in Mercedes-Benz (MBGYY), Aston Martin Lagonda (ARGGY), Chinese EV startups Polestar (PSNYW) and Zeekr, and British sports-car maker Lotus.
Many of those companies are looking for public capital and a piece of the US market. In recent months, Polestar and Lotus Tech went public via US-based SPAC deals. And Zeekr, a high-flying EV company in China, raised $13 billion, with plans to eventually list stateside.
The recent spate of capital raises is designed to give Li more cash to pursue his EV vision. This vision has worried investors since it's been way more aggressive than the traditional automakers. Shares of both Volvo and Polestar are trading well off their peaks as a result.
Li is also ahead of its rivals when it comes to figuring out what to do with legacy assets as car companies transition to EVs. When Volvo went public, it sold a majority stake in its transmission unit to Geely. Geely in turn combined those assets with those of Renault, the French carmaker. Sharing assets, where it can, helps Geely navigate the tough task of increasing EV output and reducing traditional vehicle production.
Conflicts of Interest Looming?
That’s not to say Li’s strategy isn’t without problems, namely conflicts of interest. Finding a balance between letting its assets operate independently and finding efficiency among multiple brands is getting complicated. New launches from Volvo, Polestar, Zeekr, and Lotus will be vying for the same customers.
American investors are going to get a look under more of Geely’s hoods in the coming years. Whether they decide to put the pedal to the metal and go all in remains to be seen.
Last Week's Poll Results
Which travel sector, specifically, do you think will outperform over the next 12 months?
🟩🟩🟩🟩🟩🟩 ✈️ Airlines
🟨🟨⬜️⬜️⬜️⬜️ 🚢 Cruises
🟨⬜️⬜️⬜️⬜️⬜️ 🏨 Hotels
Are you bullish or bearish on Quanta Services over the next 24 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨⬜️⬜️⬜️⬜️ 🐻 Bearish
Are you bullish or bearish on Cava over the next 12 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨⬜️⬜️⬜️⬜️ 🐻 Bearish