Say AHHHHH

MARKETS

  • Shutdown relief: In a reversal of traditional policy, administration officials said the IRS will issue refunds to taxpayers during the government shutdown.
  • U.S. economy: Service-oriented companies (retail, banking, etc.) saw growth slow in December to a five-month low. But, those industries are still growing at a healthy clip.

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RETAIL

When a Dollar Store Shouldn’t Be a Dollar Store

Picture

Activist investor Starboard Value has taken a 1.7% stake in Dollar Tree (+5.46%) worth about $370 million...or about 370 million bags of plastic forks that barely put up a fight against Jell-O.

So what's it got in mind? Per Starboard, Dollar Tree should...

  • Explore "strategic alternatives" for its Family Dollar business, including a sale
  • Switch to a "multi-price point strategy" at Dollar Tree-branded stores
  • Shake up its board

What Starboard thinks went wrong

Let's go back to your middle school writing fundamentals for this one.

Topic sentence: "Dollar Tree has gone from industry leader to industry laggard," Starboard wrote in a letter.

Evidence #1: Dollar Tree bought Family Dollar for $9 billion in 2015. But same-store sales growth at Family Dollar has been flat, employee morale is reportedly low, and Starboard claims it's now only worth between $1 billion and $3 billion.

Evidence #2: Dollar Tree's stock price has significantly underperformed its rivals' and the rest of the broader market. Since the Family Dollar acquisition closed, its shares have trailed Dollar General's by more than 20%, and it's been nearly doubled up by the S&P 500.

Evidence #3: Unlike other dollar stores that have adopted multiple price points, Dollar Tree has stayed true to its name, keeping every item capped at just $1. But because of inflation and lower quality products, Starboard thinks sticking to the "arbitrary" dollar price ceiling is, well, foolish.

Conclusion: "We believe that Dollar Tree is a great company, and one that is significantly undervalued in the market today."

Zoom out

Much has been written recently about the rapid growth of dollar stores and their outsized influence on retail in rural areas.

Here's one final stat from Forbes to chew over: The two biggest dollar store chains (Dollar General and Dollar Tree) together operate more stores than the top six U.S. retailers (Walmart, Kroger, Costco, Home Depot, CVS, and Walgreens) combined.

MARKETS

There's a New Sheriff In Town

And by sheriff we mean low-cost stock exchange. A group of nine financial heavy-hitters including Morgan Stanley, Fidelity, E*Trade, and UBS is launching Members Exchange (aka MEMX), its idea of a challenger to the NYSE and Nasdaq.

How we got here: MEMX's creation follows years of frustration from brokers and traders forced to pay high fees to U.S. exchanges for data on trades—and after all, Equinox Wall Street only has so many spots in its 7 am boxing classes. The old-guard of exchanges say their prices are fair, but brokers often disagree.

In this industry, more isn't merrier, though. The stock exchange business is highly concentrated—all but one of today's 13 active U.S. stock exchanges is owned by either NYSE parent ICE (-3.03%), Nasdaq (-2.61%), or Cboe Global Markets. Those three handle more than 60% of U.S. equities trading volume, per the WSJ.

Still, MEMX's investor group said it plans to apply for exchange status with the SEC early this year. But keep in mind, SEC approval for new exchanges can take more than a year.

TECH

CES 2019: The Year of Health Tech

This year's CES is expected to be a banner conference for home health technology—with everything from at-home digestion reports to at-home sperm tests taking center stage in Vegas, reported the WSJ.

  • The numbers don't lie: There are 511 companies exhibiting in the digital health category at CES this year, up from 472 last year.
  • And it's anyone's game. Sure, the flashy up-and-comers remain the highlight of CES...but don't count out the old aristocrats. Procter & Gamble's Olay is boasting a new skin gadget, and its Pantene is putting AI to use in hair health.

What's driven the spike in health tech? When sensors are this accurate, getting a device greenlit from regulators is significantly easier. And did we mention that global health care spend is slated to reach $8.7 trillion by 2020?

But bear in mind: With tiny devices collecting data on everything from your urine to your baby's heartbeat...it's hard not to worry about privacy measures. Some firms face an uphill battle navigating regulations from HIPAA to GDPR.

INVESTING

You Know Who Had a Good 2018? Ray Dalio.

When he's not posting on LinkedIn or trying out for Pixar, billionaire hedge fund manager Ray Dalio is steering his ship to impressive returns. His Bridgewater's flagship Pure Alpha fund increased 14.6% in 2018 for its best performance in five years.

Certainly not bad when you consider that the average hedge fund lost 2% in 2018 through the end of November. And some other famous fund managers would have jumped at the chance for a 2% loss...

  • David Einhorn's Greenlight Capital dropped 34% in 2018, making last year the fund's worst ever.
  • Dan Loeb's Third Point fell 11%. You'd have to go back to 2008 for a year that bad.

So who thrived in 2018? Some managers who took short positions in Europe and Asia, Bloomberg wrote.

Zoom out: Bridgewater Associates is the world's biggest hedge fund, managing $160 billion in assets. Pure Alpha's average annualized net return is 12% since it cut the ribbon in 1991.

BRANDING

Guess the Logo

Picture

If you didn't say "Mastercard" immediately, well...the company just made a huge mistake. It announced yesterday it's removing its name from this colorful Venn diagram in certain marketing materials.

Wondering why? It's a play to better infiltrate today's image-first, app-focused world.

  • According to Mastercard, "As the consumer and commerce landscape continues to evolve, the Mastercard Symbol represents Mastercard better than one word ever could, and the flexible modern design will allow it to work seamlessly across the digital landscape."
  • Plus, it says over 80% of people recognized the brand without the name.

Other companies making that bet: Nike, Target, and Apple. And back in 2011, Starbucks decided to remove its name and the word "coffee" from its logo to much criticism.

  • "I think it's nuts," said an executive of a brand consulting firm at the time.

Fast forward five years: A WSJ above-the-fold headline...Morning Brew Drops Text From Image of Coffee Mug, Marketing Experts Hail 'Stroke of Genius.'

WHAT ELSE IS BREWING

  • SoftBank has significantly dialed back its plans to invest in WeWork, per the FT. It's now reportedly planning a $2 billion investment, down from the $16 billion floated last year.
  • Eli Lilly (+0.54%) will buy Loxo Oncology (+66.33%) for $8 billion in the second huge cancer treatment deal of the young year.
  • Amazon (+3.44%) will soon start delivering packages directly to your garage to cut back on theft. (Plus, it's now the world's most valuable public company.)
  • Tesla (+5.44%) has officially broken ground on its Shanghai factory to build cars for the Chinese market. It aims to produce Model 3s there before the year is over.
  • Jim Yong Kim, president of the World Bank, made the surprise decision to step down to join an investment firm, effective Feb. 1.

BREAKROOM

Math Puzzle

What 5-digit number has the following features: If you place an extra numeral 1 at the beginning, you get a number three times smaller than if you put that numeral 1 at the end of the number.

(Answer located at bottom of newsletter)

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Breakroom Answers

Math Puzzle

42857 (Explanation)

 

Vero vel aliquam dignissimos. Pariatur corporis nulla est ab. Voluptas incidunt quod quibusdam dolor rerum vitae. Accusamus error sit facilis id accusantium.

Voluptas at dolorem qui harum. Occaecati qui reprehenderit ad vero et. Cum quia soluta provident nobis.

Debitis delectus necessitatibus aliquid sint cumque praesentium. Odio est sunt deleniti id dolores aut. Odio perferendis rerum omnis culpa sequi. Modi rem provident et quia nihil consequatur doloremque. Enim laborum maxime error ipsa. Sint esse quia reiciendis qui perspiciatis similique.

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