Amazon (Nasdaq: AMZN) has been a great stock market performer and great performance often leads to skepticism. Investors become concerned that the growth cannot continue. That can be a healthy attitude for investors to maintain. Not all companies can continue to grow rapidly even after delivering growth.

These concerns could be overblown in the case of Amazon. The company’s operating profits are shown below and the trend appears to be moving in the right direction.

Source: Mauldin Economics

Of course, this chart shows past growth. To continue growing in the future, Amazon could benefit from new ideas. Recent reports indicate that Amazon could be following in Walmart’s historic footsteps.

Analysts note that Walmart “grew from one retail store in Arkansas in 1962, founded by Sam Walton, to the largest food retailer in the U.S. for 2010 with an estimated $188.3 billion in total food/consumable sales.

In 1987 Wal-Mart opened larger Hypermart USA stores which combined a grocery store, a merchandise market and other services such as restaurants and video rental stores.

Sales volume averaged $1 million per week at the Hypermart stores compared with $200,000 for the regular stores.

The store spread across the country like wildfire. But its first full-stocked grocery didn’t open until 1988. The first Wal-Mart Supercenters opened in 1988 which combined the discount outlets and grocery stores. Hundreds of supercenters were opened during the 1990s.”

The Next Move For Amazon

Now, according to The Wall Street Journal, “Amazon.com Inc. is planning to open dozens of grocery stores in several major U.S. cities, according to people familiar with the matter, as the retail giant looks to broaden its reach in the food business.

The company plans to open its first grocery store in Los Angeles as early as the end of the year, one person said. Amazon has already signed leases for at least two other grocery locations with openings planned for early next year, this person said.

The new stores would be distinct from the company’s upscale Whole Foods Market brand, though it is unclear whether the new grocery chain would carry the Amazon name.

Amazon is also exploring an acquisition strategy to widen the new supermarket brand by purchasing regional grocery chains with about a dozen stores under operation, one person said.

Amazon is now in talks to open grocery stores in shopping centers in San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia, the people familiar with the matter said.

While Amazon has already signed leases, that doesn’t guarantee it will open the grocery stores. Retailers sign contracts and then pull out or delay store openings if certain conditions aren’t met.

The new stores aren’t intended to compete directly with Whole Foods and will offer products at a lower price point, these people said. The new chain would offer a different variety of products than what is on the shelves at the more upscale Whole Foods stores.

Whole Foods doesn’t sell products with artificial flavors, colors, preservatives and sweeteners, among other quality standards. Suppliers with big brands have hoped that Amazon’s 2017 purchase of Whole Foods would give them new inroads into the high-end chain.

Whole Foods has gradually expanded the big brands it carries—such as Honey-Nut Cheerios and Michelob beer—but the grocer’s quality standards haven’t changed. A conventional grocer can carry a much larger assortment of items.

Amazon is also increasingly focused on physical retail. It has had mixed results with its food-delivery business, and the company wants to better understand how it can cater to grocery shoppers, according to people briefed on the company’s strategy.

Supermarket operators Walmart Inc., Kroger Co. and others are also trying to find ways to offer delivery and pick-up to customers in a more cost-efficient manner.

Amazon has been targeting new developments and occupied stores with leases ending soon. It could also look at a portion of a vacated Kmart, for instance, a person familiar with the matter said. Stores in the new grocery brand could be in strip centers as well as open-air shopping centers, the people said.

They will be about 35,000 square feet, smaller than the 60,000 square feet for a typical supermarket, they said.”

The Competition Reacts

After The Wall Street Journal reported news of Amazon’s plans, the stocks of other supermarket operators fell, according to Barron’s. Kroger dropping 3.6% on the day, Walmart down 1% and Sprouts Farmers Markets Inc. losing 1.1%. Amazon rose 1.4%.

Amazon’s new grocery brand also comes as the retailer rolls out its cashierless Amazon Go stores in urban areas across the U.S. The company has 10 Amazon Go stores in Seattle, Chicago and San Francisco, according to the Amazon website.

A look at Walmart could be instructive for investors. The company now has over 11,000 stores in 28 countries. The stock has been a great performer. Since shares began trading in 1972, the stock has gained more than 268,000%.

The stock has delivered a gain more than 2,000% since it opened its 1,000^th store in the 1980s. By that time, the company’s success seemed to be assured and the stock carried much less risk than it did in 1972.

This could be the point that Amazon is at. The stock has gained more than 150,000% since it began trading in 1997.

Yet it offers the potential to become a ten bagger from its current level.

A tenbagger, according to Investopedia, is an investment that appreciates to 10 times its initial purchase price. The term “tenbagger” was coined by legendary fund manager Peter Lynch in his book “One Up On Wall Street.”

While tenbagger can describe any investment that appreciates or has the potential to increase ten-fold, it is usually used to describe stocks with explosive growth prospects.

Lynch coined the term because he is an avid baseball fan, and “bag” is a colloquial term for base; thus “tenbagger” represents two home runs and a double, or the stock equivalent of a hugely successful baseball play.

Amazon’s expansion into new businesses carries the potential to increase earnings and that could lead to even more stock gains, even after the big gains of the past.

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

The FAANG stocks are the market leaders, a group of tech stocks consisting of Facebook (Nasdaq: FB), Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOGL), the parent company of Google.

The chart of an index consisting of those stocks is shown below.

Their leadership is visible in the chart. The index gained more than 230% from the lows in early 2016 to their peak last year. But there could be a change coming to that group as some other leading tech stocks come to market.

Pinterest Could Be the First

The Wall Street Journal is reporting that “Pinterest Inc. has confidentially filed paperwork with the Securities and Exchange Commission for an initial public offering that is expected to value the company, which operates a platform for online image searches, at $12 billion or more as it joins a parade of hot tech startups planning share debuts in 2019.

The filing is the latest example of a rush to the public markets by highly valued technology companies including ride-hailing service providers Lyft Inc. and Uber Technologies Inc., which have both also filed confidentially for listings.

Such companies had for years shied away from public markets—a luxury afforded them by a surfeit of private capital—but in recent months the tide has turned.

The shift appears to derive from the outsize gains new tech stocks have enjoyed of late. As of this week, shares of U.S.-listed technology and internet companies that went public in 2018 are up about 33% on average, according to Dealogic.

That is far ahead of the major indexes and the performance of all 2018 U.S. IPOs, which are up 11%.

Bankers and others predict that 2019 could be the busiest year ever for IPOs by the amount of money raised. The current high-water mark is 1999, near the height of the dot-com bubble, when companies raised $107.9 billion going public in the U.S., according to Dealogic.

Last year’s total was barely half that, at $60.8 billion, up from $49.4 billion in 2017.”

Even before Pinterest, traders could have a chance to own Lyft, which filed confidentially for its IPO late last year. The company may make the submission public next week and begin trading on Nasdaq by the end of March according to reporting in The Wall Street Journal.

Uber also filed confidentially at the same time late last year, while workplace-messaging provider Slack Technologies Inc. has since submitted paperwork for a so-called direct listing.

The Journal noted “Many of the largest companies are wedded to going public in 2019, regardless of market conditions. In some cases, like with Uber, they have told investors they wouldn’t raise any additional private capital.

It is a big turnabout from last fall, when many companies that were expected to debut in 2018 delayed their plans as markets swooned amid fears of slowing economic growth in the U.S. and other concerns.”

While some big-name companies still successfully launched, they had a more difficult time pricing their offerings. Two of the biggest fall IPOs were those of biotech Moderna Inc. (Nasdaq: MRNA) and music-streaming company Tencent Music Entertainment Corp. MRNA is shown below.

Moderna, which had been one of the most highly valued health-care startups, hasn’t fared as well as Tencent. The biotechnology company raised more than $600 million, pricing its shares at $23 apiece in early December.

It suffered one of the worst opening days for a company going public last year. Since then, the stock has recovered somewhat but still trades near the offering price.

Shares of Tencent Music, which fetched a valuation of more than $20 billion at pricing, have risen by about 30% since then.

Pinterest and its underwriters, led by Goldman Sachs Group Inc. and JPMorgan Chase & Co., are eyeing a late-June listing, according to people close to the deal. They warned that, as always with IPOs and unpredictable markets, the timing or valuation could shift.

The social-media company’s chief executive, Ben Silbermann, has said the company would look to debut in 2019 and The Wall Street Journal reported in December that it was preparing for an IPO that could take place as soon as April.

In September, Pinterest, which launched in 2010, surpassed 250 million monthly active users, who visit the site to browse through and share billions of images on topics ranging from living-room furniture to dinner recipes and tattoos.

The company generates revenue from ads scattered across its site and notched more than $700 million in 2018, up 50% from the prior year, according to a person familiar with the matter.

Lyft Also Offers Potential

Lyft, according to The Wall Street Journal, has been in a race with rival Uber Technologies Inc., which has also filed privately for an IPO, but it is now clear Lyft will provide the first major test of how public investors value the ride-hailing industry.

Lyft is planning to launch its roadshow pitch to investors in mid-March, the people said, which could mean the shares start trading by the end of the month. There is no guarantee that timing will hold, as it will depend in part on cooperation from the markets.

Lyft is expected to pitch itself to potential investors as a comprehensive ride-hailing service offering access to cars, bikes and scooters, mostly in the U.S., and one that won’t be saddled with losses from competing globally.

Like many fast-growing technology companies, Lyft is planning to debut with supervoting shares that will give the company’s founders near-majority control, despite together owning a stake of less than 10%, The Wall Street Journal has reported.

The question for investors is whether or not they should chase these shares if they open up on their first day of trading. In the long run, the companies could struggle financially and there could be a pullback that allows for a better entry later.

These will almost certainly be highly publicized events but they might not be the best deals for individuals until a few months after the offering so that insiders can complete selling their shares.

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Robots have been an almost constant theme in the public imagination for decades. Television shows in the 1960s often featured robots in households, making it appear as if the future would be filled with affordable and useful robots.

In the television shows and cartoons, the robots were lifelike and almost human. In the real world, the current robots available are often useful but not always like humans.

Source: BMW Werk Leipzig 

Machines like this are increasingly common in the industry.

Source: Barron’s

At General Motors, according to a recent article in Barron’s, 13,000 of the 30,000 robots in its plants worldwide are now connected. Each day, those robots feed operating data into the cloud. GM uses the data to do predictive maintenance on its machines to improve plant uptime.

“One [percentage point] improvement in uptime is significant,” says Dan Grieshaber, GM’s director of global manufacturing engineering integration. “We got seven [percentage points] improvement in our first month with data analytics. That’s huge dollars.”

Technology is also enabling robots to do more. The sorting of red and green pills in the Fanuc facility wasn’t directed by any human. The machines recognize color and can react to object orientation and a changing environment like never before.

A fast-growing niche is collaborative robots, or cobots. These smaller robots work alongside humans and are cheaper, easier to program, and appeal to smaller enterprises that wouldn’t have considered robotic automation in the past.

Source: Barron’s

The new technologies are part of what manufacturing executives are calling the next industrial revolution, one that makes robotic automation accessible to a wider assortment of customers.

Already, growth has been explosive. Robot deliveries have grown 19% a year on average for the past five years, up from the 5% annual growth averaged in the previous 20 years.

For investors, there are opportunities to be found in the major robot makers but they are largely on overseas markets.

Fanuc, a Japanese company, is the largest. Other large makers include Japan’s Yaskawa Electric and Germany’s Kuka. ABB Group (NYSE: ABB) and Teradyne (Nasdaq: TER) are U. S. based companies that could be potential investments.

TER supplies automation equipment for test and industrial applications. The company designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, communications, and aerospace and defense industries.

Barron’s noted that, “Teradyne is particularly attractive. Robots are 12% of total sales but the business is growing rapidly, and investors don’t give the company credit for that growth.

Its stock trades for 17.2 estimated 2019 earnings—a small premium to other semiconductor equipment companies that don’t have high-growth franchises.

Teradyne’s automation business generated $261 million in 2018, and Weston Twigg, an analyst with KeyBanc, says that cobots can be a $1 billion business by 2021. That’s a huge opportunity for a company with $2.1 billion in revenue.

Based on the multiples paid for other high-growth industrials and for Teradyne’s semiconductor peers, the company’s shares could double over the next couple of years.”

Source: Barron’s

Barron’s has also been bullish on ABB because the company is selling its slower- growth power-grid infrastructure business. What’s left will be dedicated to electrification and advanced automation technologies—including robotics.

The site noted, “It’s impossible to write about growing robot use without considering the impact on factory workers. One side of the debate worries that robotic automation steals jobs from the people who have the most trouble training for a new career. The other side maintains that higher productivity will create more jobs.

Everyone in the robotics industry is painfully aware of this debate. Robot users are quick to point out that they apply robotic technology to dirty and dangerous jobs they have trouble filling.

ABB CEO Ulrich Speisshofer frames the debate another way: Better manufacturers get the work. Economies with the highest penetration of robotics—South Korea, Germany, Japan—have healthy manufacturing sectors that create jobs.

The penetration data also point to the potential demand. To increase robot density to the levels of those three countries, the industry would need to ship four million to five million industrial robots—more than 11 years of production at current rates.

(There are only about two million robots around the world today.)

Consider what happened in aerospace when China emerged as an economic power. Boeing ’s backlog went from three years of production to seven. Along the way, its valuation went from 15 times estimated earnings to around 18 times. The robotic backlog is expanding in a similar way.

Fortunately, you don’t have to rely solely on a Boeing-like multiple expansion with industrial robots. Higher growth and a stable industry structure should do the trick for investors in Teradyne and ABB.”

Investors could also consider an exchange traded fund (ETF) that tracks the industry.

Robo Global Robotics & Automation ETF (NYSE: ROBO) is a fund with more than $1.3 billion in assets. The fund’s sponsor notes that “ROBO was the first robotics and automation ETF to market, providing investors with a liquid, cost-effective and diversified way to gain access to rapidly evolving robotics technology and AI.”

Bill Studebaker, CIO of ROBO Global, reminds investors that this could be a volatile investment. He recently said, “The market is not good at pricing exponential growth, and this is what we’re seeing in robotics and AI.”

An example of the type of company the ROBO ETF holds is Zebra Technologies Corp., which specializes in automated sensor and scanning technology.

“When you look at Zebra, if you order anything from Amazon.com over the holidays, chances are that Zebra Technologies was involved in your order,” Studebaker said. But older companies are also involved in the sector.

Deere & Company (NYSE: DE), according to Studebaker, is in the portfolio because “over 60 percent of their tractors have autonomous mobility capabilities.”

The biggest problems in the world today represent opportunities for AI and robotics companies in the long-term, Studebaker said.

“AI technologies and applications are becoming central to every industry, and I think now is the time to focus on investing,” he said.

Studebaker compared the impact that automation and AI will have on the business world to the impact the internet has had in the last two decades.

“As we look out the next three, five, ten years, investors I think are going to look back at this opportunity and say, ‘Why did I miss it?’”

However, this is a risky sector and risk should be considered before making any investment in the industry.

 

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.