Consumer Discretionary: DHI, DLTR, DRI, EBAY, EXPE, F, FL

DHI – DR Horton homes buys property and builds homes on them. They are exposed to macroeconomic  risk, as higher rates for example makes it more expensive for people to buy homes and also tends to be correlated with inflationary pressure on the raw components that DH Horton homes makes homes with. It’s good to a get a sense of where new construction coming from which is mostly in the sunbelt south and west. The homes are somewhat prepackaged — there’s different branding of different styles of homes.

DLTR – Dollar Tree is like Dollar General. Dollar Tree talks about events like installing refrigerators into their stores. It’s a very simple business to understand as it’s just about value but you can see how the imagination may be limited here in terms of expanding the business beyond opening more stores. There’s been something like 20+ years of same stores sales growth which suggests this business is not going anywhere, but likewise it may not go anywhere. They talk a little about how many stores are possible in the USA and they are still well below the capacity.

DRI – Darden Restaurants one of best places to work according to popular reviews. They own Olive Garden and some steakhouses and I’ve never been to the other restaurants they own. The trend is of course more people eating out, but that is a tricky trend as people who want to manage their diets will always cook partially at home. For example with me I use the China Diet (anti-aging), Atkins (energy diet), and Pritikin (nutrient diet). I can’t get that by eating out all the time at restaurants, and if I can’t socialize with people, there’s no need to go out as I’m quite self sufficient. When you buy restaurant stock instead of say a restaurant franchise, you should realize you are getting into the same type of business — there’s diversification in terms of owning a small fraction of hundreds of restaurants instead of one restaurant, but if it seems like you will have much more control if you buy a franchise, then that tells you also you will have that much less control if you own a conglomerate restaurant business like Darden.

Ebay  – this is a tech company that’s really struggling compared to the other tech giants, and they talk about two-sided markets and how they have to find buyers and sellers. I think the real problem is a craiglist type business model just isn’t that good period as stuff doesn’t want to be resold just like you don’t want to regift things. At a low enough price maybe Ebay could a decent value stock as it has earnings, but I talked about starting a lost and found in college when I drank too much alcohol with my Mayan Prince friend, and boy did he set the sharks on me after that, revoking my homework collaboration privileges. People don’t care enough about old stuff to make this market for a tech giant.

Expedia – travel company that is largest online travel company but only accounts for 6% of global travel spending so still a lot of room to grow there. A lot of partnerships with hotels, and has a basket of different brands. This again shows that consumers tend to prefer certain websites like it is real estate, even though they could go somewhere else, but of course websites are not like real estate in that there is potentially an unlimited supply. Expedia also has premium travel and business travel services.

Ford – Car production is what it is, but there is 20-30% overcapacity in production capability even not accounting for international origins like Japan and Korea which could potentially start producing a lot more autos. As such unless someone innovates a new type of smart car, car prices are always going to be under pressure once they go too high because supply and demand dictates price. Remember supply and demand also dictates stock price, it’s just some people use valuation for stocks while people don’t tend to use fair value for commodities, but some do. In my case, I am a global macro theorist in stocks so I look to trends and deltas to certain movements, so you won’t see me use valuation heavily because I believe in an efficient market. People who say the market takes time to price in fundamental moves just don’t get it — the market uses that time to confuse the sellers and buyers, so that as Warren Buffett says, the market better moves money from the hands of the gamblers to the hands of the patient. If you aren’t patient (if you tend to burn yourself in the mouth when you cook by eating it off the stove as I used to), you can still trade the stock market. As long as you are tough guy huh.

Foot Locker – challenging last year for retail they say, as same store sales fell around 3-5%. They sell Nike products as a big percentage of their sales. I just wonder about their strategy when they say the market to people who are self-confident style conscious people who use athletic wear as a fashion statement. Isn’t that an oxymoron? As athletic wear is often worn not as a fashion statement except by people who aren’t that good at sports. For example some tend to wear Lacoste and some can’t even play tennis anymore.


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