The Trend Is Your Friend
One of the very first things I learned about trading was the trend. The trend is your friend, they said, always trade with your friend. That saying is as true at the industry or sector level as it with individual stocks. When the trends in data show an uptick in activity, steady growth of traffic, or sustainability of conditions it pays to take notice.
Housing Markets Are Heating Up
Expert economists have been expecting an uptick in housing activity for many years. There is pent up demand within the millennials that are not being met by the current existing-home market. The problem for many years is that prices have been too high but that is changing. Not to say that home prices have been falling, because they haven’t, but consumers have been able to catch up with home-pricing and they're ready to buy.
The housing data says it all. The Building Permits figure, a leading indicator of housing activity, has been on the rise since the spring and better yet, the single-family permits figure is trending at a decade-high. Over the last 8 months, the number of single-family permits has increased 17% and points to solid activity in the coming year. The National Association of Homebuilders Housing Market Index echoes the permits data. The HMI just hit a multi-year high on strength in traffic, sales, and outlook.
To put all this housing market strength into perspective, consider this. Fannie Mae just upgraded its outlook for the 4th quarter and 2019 GDP because of the housing data. Fannie Mae now sees the 4th quarter and 2019 GDP coming in a full 0.2% better than previously expected. According to them, the number of single-family starts are going to increase by 10% next year, a figure that is sure to drive revenue and profits for the homebuilders.
The Homebuilders ETF (XHB) has been trending sideways over the last two months. The ETF is in an uptrend and looks like it could make a run to retest the all-time high. The long-term chart of monthly prices shows a strong secular trend in place. A break to new highs could result in a rally that takes this ETF up 20% to 30% in 2020.
Internet Retail, The New Frontier Matures
Internet retail is not a new thing. Amazon has been dominating this space for over a decade and shows no sign of giving up its top spot. That said, the competition for internet dollars is heating up. Nike, for one, has ended its relationship with Amazon choosing instead to partner with Footlocker. Footlocker is no giant of Internet sales but expected to see exponential growth due to and because of the deal with Nike.
Global eCommerce sales are expected to rise 18% this year. 18%. That’s down from the 20% posted in the previous year but still a phenomenal number and not the end of the story. eCommerce is expected to continue to grow at a double-digit pace for many more years as penetration and competition help the market mature. In terms of the greater retail environment, eCommerce has grown to 16.4% of total sales and accounts for more than 75% of all growth.
The top five eCommerce retailers in the U.S. in terms of sales volume are Amazon (AMZN), Apple, (AAPL) Walmart (WMT), Dell (DELL), and Macy’s (M). Others, like Target, Dick’s Sporting Goods, and Home Depot are seeing a positive impact from eCommerce on their bottom lines.
The Amplify Online Retail ETF (IBUY) is a pure-play on eCommerce. It’s top ten holdings include Carvana and Grubhub alongside Netflix, Paypal, and Land’s End. It’s been moving higher in recent weeks and ready to retest a key resistance level. A move above resistance at $52 would set a new one-year high and open the door to even higher prices.
Petcare, It’s Worth Billions
Worth anywhere from $75 billion to $225 billion depending on the source, petcare is an industry to take notice of. Petcare spending has been on the rise continuously since the data was first tracked in the early 1990s and that is not expected to end. The forecast is for solid mid-single-digit growth within the industry over the next 5 to 10 years.
The driver of the growth in pet care is demographic, not only is the U.S. population getting bigger we’re keeping more pets. At the same time, we’re taking better and better care of our pets leading to higher cost premium products. The strength in petcare can be seen in many places, the most recent in earnings from General Mills. General Mills (GIS) beat on the top and bottom lines because of their pet food line and specifically because of Blue Buffalo, a premium brand.
Chewy, Inc (CHWY) is another petcare play to take notice of. It is an offshoot of Petsmart and a pure-play on eCommerce. The company just reported 40% YOY revenue growth and is looking at low double-digit growth next year. The company has been so successful with its Auto-Ship feature that 70% of its revenue is classified as “recurring”. With more than 60% of total pet-revenue coming from food and medicine Chewy’s recurring revenue stream will likely withstand an economic downturn.
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