Big week for China economic data; in the US, analyst conference season begins.» Read More
What's with this sudden surge of interest in marketing health and fitness to millennials?
I know, it's been around for a while, but it seems to be picking up steam. Last week, we had Amplify and Planet Fitness, but there's a lot more likely IPOs likely on the way for the fall that want to get in on this trend.
This trend has not peaked yet.
When you are marketing these products to millennials, there are a few principles that these companies have in common, whether you are selling popcorn...or gym memberships...or high-end food for your dog...or diapers:
1) Establish an emotional connection with the brand; what the customers want is a relationship to the product. There's a lot that goes into the name of the product, and how you are supposed to feel about it.
2) Emphasize the products are "Better For You" (BFY) or at least "less bad"
3) Digital first: it's cooler, cheaper, easier
4) The company is on your side, doing the right thing, socially engaged and responsible.
Let's look at this by category. In fitness technology, Fitbit has taken off since its June IPO, but rival Jawbone is a strong IPO candidate for the fall. Millennials love tracking their health data.
Even the crowded gym business is seeing action. Planet Fitness, after a slow start on its IPO Thursday, has been strong for the past two days. It better not rest on its laurels: uber-cycling firm SoulCycle is likely to go public in early September. This is another company with a cult following around the instructors--a "rave on bikes" as one participant described it—and prices to match: $40 or so per session, roughly $1 per minute. Cycle that!
The whole "better-for-you" (BFY) category is also exploding. I wrote last week about the appeal of popcorn maker Amplify, which created a company with a roughly $1 billion market cap, largely around a catchy name (SkinnyPop) and the perception that their product was "less bad" for you.
Blue Buffalo, which sells natural pet care food, has also mined this same space successfully. They went public July 20 at $20, well above the price talk of $16 to $18, and is currently in the $27 range, with a $5.4 billion market capitalization.
Coming next: a possible IPO of Chobani, the Greek yogurt company.
Greek yogurt? Do we really need another yogurt company? Isn't there enough yogurt in the world, with Danone and General Mill's Yoplait dominating the market?
But that's the whole point of these businesses...they find a small niche and then move in. In this case, it's "Greek" yogurt, which is more difficult to make than the usual yogurt, and is being cleverly marketed as "better-for-you." That is enough to give Chobani an estimated $1 billion in sales last year.
Millennials also are looking for new approaches to health care.. Teladoc, which also went public in July at $19, well above the price talk of $15-$17, and is trading around $30, provides phone and online medical consultation services in an effort to reduce doctor visits.
There you go again. Millennials have no problem doing business over the Internet.
Speaking of the internet, another likely IPO candidate is uber-hip eyeglass maker Warby Parker.
But wait, isn't the eyeglass business dominated by giants like Luxottica, which owns Rayban, LensCrafter, and Pearle Vision?
Yes, but once again they found the right niche, in this case with a series of vintage-style frames, mostly sold online to millennials, for $95, with free shipping and free returns. And they donate one pair of glasses for every one they sell!
There have already been several rounds of funding, with investments from American Express and Mickey Drexler, among others. The market cap is already roughly $1.2 billion.
This touchy-feely stuff, essentially an exercise in consumer branding, might be merely amusing if it hasn't been so successful recently.
In the case of Amplify, it's about selling the "natural" food trend. SkinnyPop is about a cute name and the claim they are taking out stuff that is not good for you like GMO ingredients and allergens.
Likely coming soon is Honest Company, Jessica Alba's non-toxic baby and cleaning products company, which like Warby Parker has already gone through multiple rounds of funding and likely has a market cap north of $1 billion, despite recent controversy about the effectiveness of the company's sunscreen product.
In restaurant, there's a whole new sub-category: "fresh" fast casual. Shake Shack was the groundbreaker, claiming to make a "better for you" (there's that word again) burger that is antibiotic-free.
On the horizon are several other competitors, like Smashburger, and Pret A Manger, a British company that claims to make a "better" sandwich, with all-natural ingredients, made on the same day. Any food leftover is collected by charities (naturally).
These companies have already proven that it is possible to break into previously closed ecosystems. What is harder is fending off the competition.
Amplify's biggest competitor, for example, is Frito-Lay (gads), which already has a competing popcorn product (SmartFood) that they are aggressively marketing and which already has a larger market share than SkinnyPop.
And Danone is not sitting still waiting for Chobani to eat their, er, yogurt. They also now have a "Greek" yogurt line.
Which begs the question: will any of these hip companies, those that have IPO'd and those still waiting, survive, or will they just be gobbled up?
It will probably be a little bit of both. There will be managerial missteps, some companies will break their trust with their customers and fade away, some will simply be displaced themselves by even more nimble competitors.
It's difficult to pick the winners. One thing is clear: first movers often have the advantage. Which is why you are seeing this big move.
The mainland Chinese stock market rallied Monday, clocking its best gains in five months, despite dismal economic news.
It's pretty simple. The Hong Kong market reacts to economic news. The mainland China market reacts to news and rumors of additional stimulus.
The economic news was uniformly disappointing. The producer price Index, an indicator of inflation—and demand for goods at the wholesale level—hit a better than five-year low.
On trade, exports were down 8.3 percent in July compared to the same period a year ago, while imports were down 8.1 percent, now down nine months in a row.
But the Shanghai and Shenzhen markets rallied, largely on speculation even more stimulus would be coming.
They're probably right. A number of reports have suggested the government would be getting even more involved in owning stocks. Apparently the government will be creating at least two additional sovereign wealth funds that will buy state-owned enterprises (SOEs) and use their ownership to improve their financials.
Amplify and the better-for-you business: it's not about the popcorn.
As a middle-aged guy I was a bit mystified by Amplify, which went public today with a market cap of almost $1.1 billion.
This is a popcorn company. They have a hugely popular brand called SkinnyPop, which apparently every millennial woman in America is familiar with.
But $1.1 billion? For a popcorn company? Not bad, considering the company bought SkinnyPop only a year ago for $320 million.
But then I looked a little more carefully at the product, and spent a few minutes with Amplify's CEO, Tom Ennis, on the NYSE floor today while waiting for the stock to begin trading. He was on our air as well.
And I started to get it.
It's not really about the popcorn. Of course, the popcorn matters, but it's really more about the branding and the relationship of the customer to the product.
It's a lot about the name of the product, and how you feel about it.
Sound touchy-feely? It sure is, but it works.
Simply put, it's about consumer branding. It's not about what you have, it's about how you deliver it.
It's about upselling the "natural" trend, or, as it is now known, the "better for you" market.
In the case of SkinnyPop, it's about a cute name and the claim they are taking out the stuff that is not good for you (GMO ingredients, allergens).
Ennis was VP of Marketing at Maggiano's, a Brinker restaurant chain, from 2005 to 2007, but got noticed when he became VP of Marketing and then CEO of Oberto Brands in 2007. There, he made his mark transitioning a beef jerky product to a BFY brand.
Beef jerky that's good for you, or at least, less bad? That's what I mean. Perception. Marketing. Less bad.
Like many modern companies, Amplify doesn't own any manufacturing facilities: they outsource 100% of the manufacturing to third parties.
Ennis isn't the only one working the BFY space. Blue Buffalo, for example, is already working the BFY pet food space. Hain Celestial has been in the organic and natural space for years and has been a strong performer.
And it's been working, so far. The U.S. salty snack segment is expected to grow 2 to 4 percent annually through 2019, according to Renaissance Capital, the IPO specialists who run the Renaissance Capital IPO ETF. But the BFY-segment grew 10% just in 2014.
That kind of growth gets noticed.
And that's the big problem: this is a highly competitive space that can easily be penetrated by larger competitors. SkinnyPop, for example, has 18 percent of the market share in the ready-to-eat (read: it comes in a bag) popcorn segment, but that is second to SmartFood, which has 20 percent share and is owned by...Frito-Lay. Gads.
Ennis isn't stopping with popcorn. He recently acquired Paqui, a tortilla chip brand, for $12 million in April. They expect to re-launch it nationally as a BFY in the beginning of next year.
Expect more of the same from other products, like pretzels.
Get it? Use the SkinnyPop infrastructure and marketing savvy to launch other products.
But that's another problem: it's not at all clear that their brand expansion strategy will succeed with other products. For the moment, they are almost completely reliant on SkinnyPop. Year-over-year growth decelerated to about 33 percent (preliminary) in the second quarter from 72 percent in the first quarter, according to Renaissance.
Still, you've got to admire how far they have come, given the giants they have to compete against. Anyone who thinks there is no room for innovation in the slow-growing food business should pay attention to the approach of a company like this one.
Apple is in rare territory, now almost 10 percent below its 50-day moving average, a 3.5 standard deviation (SD) move.
That is very rare territory. It has only been in this range seven times, or 0.1 percent of all trading days since 1990, according to our partners at Kensho.
In each of the seven times the next move has been higher, reverting to its mean. The average time before moving higher over those seven times was 1.9 days.
Read MoreApple stock implosion shreds $113.4B
Here are the times it was trading in a range of 3.25 to 3.50 SD's below the 50-day moving average:
Bank of America's downgrade of Apple today (on deceleration of iPhone) may put even more pressure on the stock, but the point is, it is due for a bounce.
For those looking for a statistics primer: One standard deviation means there is a 68.2 percent chance it will stay within a given range from the mean, in this case the 50-day moving average.
Two standard deviations means there is a 95 percent chance it will be within a given range; three standard deviations means it is 99.7 percent within a given range, and when you get toward four standard deviations...well, it doesn't happen very often, and that's what gets quants and other statistical types to sit up and take notice.
You knew this was going to happen. The world's most well-known tech name—Apple, is in a short-term downtrend. No one knows if it will be the start of a long-term downtrend.
But someone writes a story, "How a deeper dive by Apple could crush this market," implying that as goes Apple, so goes the stock market, and it gets a lot of attention.
Apple is an important stock because, well, because it gets a lot of attention.
But it is not a bell weather of the overall market.
Nasdaq has reported two outages of its Trade Reporting Facility (TRF) Tuesday.
The first occurred from the open at 9:30 am to roughly 9:43 am ET. The second was from 12:57 pm to 1:35 pm ET.
The TRF is the facility which is used to report trades on dark pools in either Nasdaq, NYSE or BATs listed stocks. On any given day, a little less than 40 percent of total trading volume gets reported to the TRF.
Trading was not affected, only reporting the trade. Dark pools are required to report trades within 30 seconds of execution to a reporting facility.
Nasdaq has not specified the cause of the outage.
With the Nasdaq TRF, the choice for those who traded on dark pools was to: 1) not trade, or 2) route the reporting to the NYSE TRF, which operates a parallel facility.
Many of the dark pools elected not to trade at the open, because many are not hooked up to both TRFs.
It's likely that this will accelerate the need to hook up to both TRFs as a need for a backup. This highlights the need to avoid a single point of failure for trading systems.
The luxury markets worldwide are under pressure again. From the U.S. to China, even high-end consumers are increasingly value-sensitive.
You'd think with a stock price down more than 40 percent this year Michael Kors could catch a break ahead of its earnings report on Thursday, but no such luck.
Most are at multi-year lows, but the bearishness just keeps coming.
Luxury brands Monday:
Michael Kors 3-year low
Fossil 3-year low
Ralph Lauren 4-year low
Coach 6-year low
What's up? They are all reporting in the next few weeks, and nobody has anything good to say about them, despite these ridiculous declines:
Luxury brands YTD:
Michael Kors down 48%
Fossil down 41%
Kate Spade down 36%
Ralph Lauren down 35%
Coach down 20%
For example, today JP Morgan downgraded Coach, noting that margins are increasingly under pressure, and didn't have much positive to say about Michael Kors either, worrying about its large exposure to Europe and its reliance on wholesale (full-price) versus off-price merchandising, which is becoming a larger part of the retail experience.
In other words, the customers are getting very price sensitive. Even the higher-end customers.
Smaller firms also ganged up on Kors. Canaccord lowered its price target to $45 noting that "sluggishly negative traffic retail trends from last quarter persisted."
Oppenheimer said there were "negative estimate revisions expected ahead."
Piper Jaffray agreed; they lowered estimates and reduced the price target to $38 (from $44), suggesting inventory is building.
It's not like the stock is expensive; full year earnings are now only nine times earnings. But nobody wants it, even cheap.
You can see the slowdown playing out in China as well. Take Hong Kong and Macau, where a weak economy and an anti-corruption drive have had a notable impact on sales.
June Retail Sales in Hong Kong were down 0.5 percent year-over-year, likely because there are fewer visitors arriving from the mainland.
The luxury space in Hong Kong is particularly under pressure:
June Retail Sales (year-over-year)
Jewelry/watches down 10.4%
Apparel down 3.8%
Department stores down 3.3%
Gaming is also getting hit. The decline in tourist activity from mainland China led to a 37 percent decline in gaming revenues in the first half of 2015, according to Moody's. Gaming is half the revenues of Macau, so it was not surprising that last Thursday the Monetary Authority of Macau said it expects the economy to contract in the mid-teens this year. Mainland China residents are two-thirds of the visitors to Macau.
Still, not all luxury retailers are under attack. The biggest of them all, LVMH, surprised everyone last week with a strong earnings report. They too noted the weakness in Macau and Hong Kong, but Chinese tourist sales in Europe were strong.
Still, it was noteworthy that wine and spirits sales in China appear to be slowing. Wine drinkers have bitterly complained for years that Chinese buyers have dramatically driven up the price of French Bordeaux and Burgundy wine as well as Cognac. The company noted that it has seen "destocking" trends in China, which is eurospeak for "there's a glut and nobody is ordering new product."
Cognac drinkers can only smile.
Can it get any worse for Brazil? Last week the government lowered the country's growth output from a modest gain to a contraction of 1.49 percent. Unemployment, no doubt under-reported, is at 6.9 percent in June and rising.
Dilma Rousseff, the country's president, who had previously been a big spender, is now pushing austerity to maintain the country's credit rating.
To little avail. She is on a collision course with Congress, which wants to raise wages and spend even more. Labor unions are threatening ongoing strikes.
Standard & Poor's downgraded Brazil's outlook to "negative" from "stable" on Tuesday, a clear warning sign they were preparing to drop its credit rating, which is now just one notch above junk.
The Brazilian real is weakening and the Brazilian stock market hit a 6-year low this week.
If that wasn't bad enough, there is talk of impeaching Rousseff, along with several corruption investigations, including an ongoing investigation into a Petrobras kickback scheme, which could lead to a protracted political crisis.
Lower growth. Fiscal imbalances. Labor unrest. Corruption investigations. Protracted political crisis.
This has serious implications for global growth. Brazil, with a GDP of roughly $2.4 trillion, is the biggest economy in Latin America.Their companies are involved in dozens of large infrastructure projects throughout the continent.
All of this is taking an enormous toll on the country's economy, which you can plainly see in the earnings report of several multinationals that reported earnings this week:
1) agribusiness giant Bunge noted that its edible oil business was lower due to much lower margins and volumes in Brazil, "as consumers reduced spending and traded down to lower value products in response to the recessionary economy."
We are talking about cooking oil, folks. People are trading down on cooking oil. That is serious stuff.
Same with milling products: volumes down as customers (food service) cut back. Same with fertilizers. Lower volumes.
2) Owens Illinois, one of the world's biggest makers of glass bottles, reported a drop in volume in Brazil because of a sharp drop in beer sales.
3) Goodyear Tire reported that tire sales in Latin America were down 20 percent compared to the same period last year, due to the stronger dollar against the Brazilian real and to lower tire sales.
4) Industrial gas manufacturer Praxair said organic sales were down year-over-year due to weaker industrial activity in Brazil and China.
5) Whirlpool gets 16 percent of their revenues from Brazil, their second-biggest market after the U.S. Overall Latin American sales were down 22 percent year-over-year, mostly due to weakness in Brazil. They expect demand to be down roughly 15 percent year-over-year in the second half of 2015.
6) Caterpillar gets about five percent of its revenues from Brazil. They reported sales in Latin America were down 26 percent, due mostly due to weak construction activity in Brazil.
From cooking oil to tires to beer to washing machines to construction equipment, it's all down. Double-digits.
And these are just the U.S. companies. Embraer, the big Brazilian aerospace companies, yesterday lowered its revenue guidance for the year, citing the weak Brazilian real vs. the dollar and slower development work on defense contracts.
Where is all this going? For the moment, uncertainty is the only constant. The corruption investigations in particular could slow down much needed investment all over Latin America as executives get paralysis, worried that projects may get cancelled if management is implicated in any corruption.
The battle between those in favor of austerity vs. those in favor of spending more is also being played out in Brazil, with an uncertain outcome.
Could it get any worse? Sure, it just did. They're hosting the Summer Olympics next year, and here is the AP story from yesterday that got massive international coverage: "Athletes in next year's Summer Olympics here will be swimming and boating in waters so contaminated with human feces that they risk becoming violently ill and unable to compete in the games."
Gads. You can almost hear the thud of government officials fainting in Rio.
What to do? Many investors are simply avoiding Brazil altogether. However, the ProShares UltraShort MSCI Brazil, which benefits as Brazil shares decline, has seen a big spike in volume as the bad news has multiplied this month.
Looking for yield? The oil majors are rushing to assure investors their high yields are safe.
This morning, Royal Dutch Shell said it was committed to its dividend of $1.88 a share in 2015 and at least that level in 2016.
Conoco raised their dividend by a few cents just a short while ago.
How important is the dividend? Conoco's CEO, Ryan Lance, opened the conference call this morning with this statement: "The dividend is safe, let me repeat that the dividend is safe."
They went out of their way to note they had raised the dividend: "While every dollar matters, we believe this was an important message for shareholders."
Get the point? Think the dividend is safe?
You can't blame them. It's part of a desperate effort to remain relevant to investors. We all know the growth outlook...particularly the cash flow outlook...has been cut dramatically in energy stocks.
Given that fact, the best way to prevent a mass exodus from the space and boost confidence is to appeal to the legions of yield-hungry investors.
Big oil as a utility play? Believe it.
Look at the dividend yields of the majors:
These are juicy yields, particularly with the S&P 500 yielding 2.0%.
True, yields are high in part because of the price drops of the majors. Exxon, for example, is down 20% in the last 12 months.
The big kahuna in this space, ExxonMobil, will be reporting on Friday, and they will almost certainly commit to the current dividend, and may even increase it.
Look at the recent history of dividend per share payments for the company:
ExxonMobil (dividend per share, diluted)
2015 (est.) $2.87
Do the math: that is a 55% increase in the dividend in five years. Part of this is due to a reduction in the share count, which has been reduced by about 12 percent in the same time period, but that is less than 20% of the gain.
Can big oil keep the dividend protected--and perhaps growing--into 2016? Yes. For the moment, it's relatively easy to fund the dividend from the cash balance. The majors also have solid access to the capital markets that they can tap as well, and they will no doubt use that facility. Also, layoffs and increasing technological efficiencies are helping offset the severe decline in cash flows that many companies have seen.
But in the long run--I am talking a couple years from now--they will all need oil to be higher. Big Oil cannot forever sell itself as a Utility play. And that's the main objection that traditional energy investors have to the "Big Oil as a Utility" play: those who get the cycle wrong will lose money regardless of the dividend.
An upgrade to the U.S. jobs outlook is a clear signal the Fed has not abandoned the possibility of a September rate hike.
The Federal Reserve upgraded its assessment of the U.S. economy at several points, including this important upgrade of the jobs situation: "The labor market continued to improve, with solid job gains and declining unemployment."
"Solid" is an unusually aggressive word for the Fed to use.
The Fed also said that housing has shown "additional" improvement, and that labor slack 'has diminished' since early this year.
In the third paragraph, the Fed said it would raise rates when it has seen "some" further improvement in the labor market, a word it did not have in prior statements.
The Fed acknowledged that energy prices have remained low and that is causing inflation to run below the FOMC's long-run inflation objectives.
Sure, the Fed is "data dependent" so they are not going to come out and hold our hands with an obvious statement they will raise rates next month.
But the tone of the commentary on the economy clearly indicate that a rate hike is NOT off the table for September.
Ray Dalio's fund slumped in August and some investors blame the strategy of such funds for the volatility that slammed stocks and commodities.
For all the talk about the 250,000 jobs a month the economy is creating, workers' real wages are going backward.
Volatility could probably last anywhere from three to four months, Brian Jacobsen of Wells Fargo said.