Non-Target Returns | The Daily Peel | 6/8/22

Market Snapshot

Stocks opened lower yesterday morning, brought down by retail and some pessimistic guidance by retail giant Target. Oil traded above $120 and finished up 1.26% yesterday.

At the bell, the Dow was up 0.80%, the S&P 0.95%, and the Nasdaq 0.94%.

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Let’s get into it.

Banana Bits

Banana Brain Teaser

Macro Monkey Says

LBO Modeling

What's Ripe

APA Corp ($APA) — No, not the Apache Framework for software development. APA Corp, the hydrocarbon exploration company, had a stellar day yesterday, ripping higher by 5.85%.

Indeed, $APA is raking in those short-term gains. In the last five trading days, $APA is up more than 8%. And why wouldn’t a hydrocarbon company soar higher? Gas is cresting $5 a gallon across the country, and WTI is around $120 a barrel.

J.M. Smucker ($SJM) — Apparently, the PB&J is coming back in style, and last time I checked, making one without the Smucker’s is unAmerican.

These cats had a great quarter, and the street gobbled that $hit up - licking the knife when they were done.

My hypothesis is that these cats are going to continue to be successful. American consumers are going to trade in their homemade chicken paninis for homemade jelly sammies. But wtf do I know.

On earnings news, $SJM was up 5.71%.

What's Rotten

Target ($TGT) — Today, Target is feeling the squeeze just like the rest of us.

After announcing a slash to their current quarter’s guidance, the retailer wants to cut inventory through discounting and promotions. At the same time, Target wants to make sure the most in-demand products, including private-label goods, are on the shelves when consumers want them.

After trading down around 10% early yesterday morning, $TGT closed down 2.41%.

Etsy ($ETSY) — Etsy is a decent company. According to a clickbait survey that you don’t care about, it ranks higher than 93% of internet retailers on some non-dimensional metric.

The only problem with this report is that no one gives a shit about what Investors Observer says about Etsy, e-commerce, or internet retail.

Another challenge is that even if Etsy is a great pick amongst e-commerce names, that relative comparison is like saying that your dog’s turd is the best smelling.

Etsy is another name that is attempting to beef up margins through increased fees. We have seen how this goes. If you’re not creating additional value, it’s hard to justify these fees.

Yesterday shares of $ETSY were down 2.80%.

Thought Banana

What’s the Opportunity Cost? — I have a good buddy who is a high-level executive at a major adult beverage producer in the United States.

From time to time, we like to talk about the trade-offs that the average consumer makes with the money in their wallets. It’s an interesting debate because by no means is the scarcity that we typically discuss artificial.

Our most recent conversation was about the impact of high gas prices on alcohol and cigarettes. The cash in the blue-collar, middle-class American’s pockets is being pulled away from leisure and consumption that was once viewed as a luxury and more so towards everyday necessities that we all need to survive.

Hypothetically speaking, if you were spending 250 bucks a month on gas around Memorial Day Weekend in 2020, you’re spending closer to 550 or 600 bucks to fuel the same driving habit.

That 300-dollar dip into your disposable income might not be a big deal, but for a middle-class family of four, particularly in the midwest, it’s a huge deal. If you make the average household income at around 87k, this almost 4k/year of after-tax money that’s no longer yours to spend is life-changing.

Sometimes the decision is between filling your tank and buying a six-pack for the weekend. For other families, the decision is between driving less and switching private-label groceries so that they can take a vacation. There are always trade-offs.

Interestingly, some demand is what we call sticky, meaning consumers still demand a certain good or service as they are squeezed by higher prices on everything.

Things like Disney Plus and N-flix do not have this kind of sticky demand. On the other side of the same coin, OnlyFans does. OF leadership has noted that they are not going through a subscriber pullback like the other content streaming services.

If you don’t know what OnlyFans is, you should google it for your own education (I don’t believe you anyway). While Netflix and Hulu, and HBO are competing in a saturated market where consumers are experiencing subscription fatigue, apparently, OnlyFans has a different business model.

I won’t get into what that model is because this is a reputable newsletter, and I’m obviously a very serious writer.

As we enter a new business cycle and this tightening cycle continues, it might be a good idea to find investments with OnlyFans-esque demand and an apparently robust and girthy customer base.

Wise Investor Says