👱‍♀️💄 Other Ways to Bet on Barbie

Happy Sunday to everyone on The Street.

Location, location, location. The three golden rules of real estate. It's a massive industry, and at times very complex. But at the end of the day, if you can buy where people want to be, you'll probably do okay.

Right now, a majority of people do not want to be at the office, most of which is downtown in major American cities. Which is why you see studies like this. People do want to be closer to their homes. Which is why those quiet, quaint strip malls in your local neighborhood are suddenly sexy again.

That's right, in the first quarter, the leased occupancy rate at strip center real-estate investment trusts stood at 95.3%, a level not seen in almost a decade. In fact, landlords are signing leases so quickly that retailers hardly have time to move in.

Chalk it up to the rise of the "exurb" — suburbs of suburbs. From 2021 - 2022, roughly two million people left America's largest cities. Roughly 1.3 million migrated to these outlying areas.

Interestingly, even though online shopping got a boost during the pandemic, it didn't lead to a complete collapse of brick-and-mortar retail space. In fact, many of these locations are being used to fill last-mile deliveries and returns. According to eMarketer, "click-and-collect" sales are expected to make up 8.5% of online retail sales this year.

So, while REITs tend to struggle during rising interest rate environments (the broad-based VNQ is down over 13% since last year) an index of shopping center REITs is up over 15% during the same time period. With that said, their valuations are now in question.

At the end of the day, it's another reason to watch the employers vs. employees battle take shape. If employees win and hybrid becomes the new norm, then strip malls might be sitting in the perfect location.

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US stocks finished higher Friday after another round of earnings and key inflation data.

Core PCE, the Fed’s favored index, showed month-over-month inflation increased 0.2%, in line with estimates and lower than the previous month’s 0.3% rise. As for year-over-year levels, PCE inflation rose by 4.1%, the lowest level since September 2021.

Overall, the latest numbers could provide the Federal Reserve with more breathing room in its efforts to moderate prices. Still, core inflation remains notably above the Fed's 2% target.

On the earnings front, Procter & Gamble beat analyst expectations on revenue and earnings thanks to price hikes for products like Crest toothpaste and Pampers diapers. But, the company released a muted outlook for its fiscal 2024 sales. For the fifth consecutive quarter, P&G's volume fell, with the largest drop reported in the healthcare segment at 3%.

Meanwhile, Intel reported second-quarter earnings, with a return to profitability after two straight quarters of losses. Intel posted net income of $1.5 billion compared to a net loss of $454 million in the same quarter last year. However, revenue fell 15% from a year ago, marking the sixth consecutive quarter of declining sales.

In company-specific news, Google developed a new artificial intelligence model called Robotics Transformer 2. RT-2 is a vision-language-action model trained on information and images on the internet that can be translated into actions for the robot, such as learning how to categorize and then dispose of trash.

While Google doesn’t have imminent plans to release or sell robots with the new technology widely, they could eventually be used in warehouses or as home assistants.

In total for the week, the Dow posted a gain of 0.7%. The S&P 500 rose 1% and the Nasdaq Composite advanced more than 2%.

Preview

Tuesday, the JOLTS job openings report will be released for the month of June. The number of job vacancies fell by 496,000 to 9.8 million in May, slightly below expectations. Investors will also receive the June manufacturing PMI, a signal of business owners’ confidence. In May, this reading pointed to a faster rate of contraction in the manufacturing sector.

On Wednesday, investors will receive a flurry of mortgage-related reports including applications, average rate, and the mortgage refinance index. The average 30-year fixed-rate mortgage currently sits at 6.87%, while mortgage applications declined 1.8% for the week ended July 21.

On Thursday, the ISM Services PMI for July will be released. This metric jumped to 53.9 in June, implying the strongest growth in the services sector in four months. Investors can also expect reports for jobless claims, nonfarm productivity, and factory orders.

On Friday, the unemployment rate for July will be released. The rate hit 3.6% in June, signaling a still-tight labor market. As recessionary concerns abate, this may give the Federal Reserve confidence to continue increasing interest rates. Average hourly earnings will also be reported for July, with nonfarm payrolls increasing 4.4% in June.

Earnings Spotlight

Tomorrow, major commercial real estate owner Cushman & Wakefield (CWK) will kick off the week. Investors will be eager to hear about the state of the CRE market. Certain sectors, like downtown office, have been struggling thanks to the rise of remote work.

Investors will have a busy day Tuesday, with reports expected from Pfizer (PFE), Caterpillar (CAT), Starbucks (SBUX), and Uber (UBER). In particular, investors will want to hear the details behind Pfizer’s sale of its rare disease gene therapy portfolio to AstraZeneca (AZN) for $1 billion.

On Wednesday, CVS (CVS), PayPal (PYPL), and DoorDash (DASH) will all offer updates on their respective businesses. The former is locked in an ongoing battle with NYC on if it should pay its drivers a consistent minimum wage. A decision could set a new precedent across all sharing economy companies.

Thursday will be another jam-packed day, with reports coming in from Amazon (AMZN), Apple (AAPL), Airbnb (ABNB), and Booking Holdings (BKNG). Apple shareholders will be interested to hear about its plans to crack down on apps that collect data on users via device fingerprinting — as well as any new information on the recently announced Vision Pro.

On Friday, Dominion Energy (D) will round out the week. The energy giant will likely give investors more insight into its sale of a Maryland gas plant to Berkshire Hathaway (BRK.A) for $3.3 billion.

A Once-Bankrupt Company Makes A Big Bet on Fiber

Fiber to Boost the Bottom Line

Frontier Communications (FYBR) is overhauling its business since emerging from bankruptcy, aiming to connect 10 million fiber optic locations to its network.

It's a capital-intensive and costly endeavor, one that spooks growth and value investors alike. However, it could pay off. After all, each fiber customer is more profitable. Frontier is about halfway to its fiber build-out goal.

In total, the company has a fiber network that reaches 5.5 million homeowners and business owners and another 10 million via copper. It's those copper customers Frontier wants to bring over to fiber.

Cash Burn Rate is a Concern

Convincing investors to bet on Frontier has been a problem since it came out of bankruptcy in early 2021. The stock is down more than 30% this year as investors worry about its cash burn rate.

Building out its fiber network is expected to cost more than the company forecast. The last two million fiber locations cost on average $830 to hook up. For the remainder of 2023, Frontier expects hookups to cost between $1,000 to $1,100. Additionally, Frontier spends about $600 to send a technician to a customer’s home to turn on the service.

Big Opportunity

Despite the high costs, Frontier says it's all worth it. About 85% of the markets it operates in only have one or no competitors offering broadband, which will help it gain more customers.

It's aiming to have 45% market penetration a few years after offering fiber in a new area and average revenue per user of $67.50. Frontier said the latter can grow 3% to 4% annually.

On the cost-cutting front Frontier is selling off assets and non-core units, adding virtual service options to replace in-person visits and is cutting fat out of operations. The goal is to reach $500 million in annual cost savings by the end of 2023. Frontier is making big bets on high-speed internet. Now it just has to convince investors they need a fiber hook-up in their portfolios.

Are Meat Alternatives Having a Moment Again?

Startups Getting the Love

Alternatives to meat are having a moment again. The growing global population and a newfound focus on health and sustainability have the industry looking for different ways to serve the hungry masses.

Cultured meat, specifically, is now in focus. Two startups in the space, Good Meat and Upside Foods, recently got approval from the Department of Agriculture to sell cell-cultured chicken through a handful of restaurant partnerships.

For now, most investors can only get exposure to this new trend via public companies making plant-based meat alternatives. Down the road, however, bulls expect more opportunities to emerge.

It’s Not Just Startups Dabbling

Bulls think cultivated meat will be a bigger opportunity than plant-based meat. For example, Barclays pegs the market opportunity at $450 billion by 2040, reaching about 20% of the global meat market.

If Barclays is right you don’t have to wait for a crop of startups to go public to get in on the action. Tyson (TSN) is an investor in Upside Foods and Archer-Daniels-Midland (ADM) is collaborating with Believer Meats to develop cultured meat products. It has a deal with Good Meat as well.

There’s also a small, pure-play that’s already public: Stakeholder Foods (STKH). Sure, it's tiny with a market cap of just $14 million, but it makes the tech needed to create cultivated meat and fish via 3D printing.

Beyond Meat on the Mend?

Then there are the incumbents like Beyond Meat (BYND) that are active in the space. Once a Wall Street favorite, the stock took a beating in both 2021 and 2022 as sales slumped.

Parts of the plant-based meat market, namely fully-cooked chicken nuggets, are still growing as is Beyond Meat’s stock. Shares are up 28% year-to-date. This is quite the turnaround for a company that left a sour taste in many investors’ mouths last year.

Ultimately, as the saying goes, “follow the money.” Despite a somewhat depressed venture capital environment and a largely frozen IPO market during the first half of the year, funds are flowing again to meat’s alternative cousins.

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Other Ways to Bet on Barbie

Show-Me Time for the Toy Maker

It’s a Barbie world, the question is will it be a Mattel (MAT) world too? The jury is still out even though the movie so far has been a blockbuster success.

A lot is on the line for the toy maker. It has to prove it can be like Disney (DIS) which is particularly skilled at turning its intellectual property into merchandising and branding sales, and what better way than with an American icon?

Mattel is betting big on Barbie, inking over 100 brand partnerships. Everything from Barbie apparel to blankets is being hawked to the masses.

Beyond Barbie

Not only will the success of Barbie potentially boost sales for Mattel, but it also justifies its plan to bring more toys to the big screen and how analysts value those efforts. Currently, Mattel has 13 projects beyond Barbie in the works. Wall Street may see that as a bigger opportunity now that Barbie has been a success.

The excitement around Barbie has been driving shares of Mattel higher in recent weeks. The stock broke into the $20 range in June, the first time since February. Shares are even outperforming rival Hasbro (HAS), although its market valuation remains behind Hasbro, as it has since 2016.

Spillover Effect

Beyond Mattel analysts point to other stocks that should benefit from the Barbie craze. Take Warner Bros. Discovery (WBD) as one example. It's the studio behind the movie and while shares are up 38% this year, Wall Street thinks there’s room for more upside.

Five Below (FIVE) is another. The budget retailer is selling a lot of Barbie-inspired products in its stores. The retailer is leaning more heavily into movie-themed merchandise which could boost sales. Movie theaters should also get a lift as Barbie drives more crowds.

Pink is the new green, at least for now as Barbie takes the film industry by storm. Investors may want to act soon if they want to capitalize on all this girl power.

Last Week's Poll Results

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