Tag Archives: AMZN

Where Is Paypal Holdings Inc Stock Headed? Just Look at the Blockchain!

As I’m sure my readers have figured out from my cryptocurrency articles, I’m not the stock market’s “fanboy”. However, some companies truly pique my interest. Paypal Holdings Inc (NASDAQ:PYPL) is one of them. With its powerful hold on the sharply rising digital payments industry, Paypal stock is a no-brainer investment.

For starters, the Wall Street-friendly digital wallet is performing extraordinarily well out the gate.

Yes, it’s way too early to start prognosticating 2018 performance based on a few trading days. However, it’s also a fact that Paypal stock is up over 7% year-to-date. That bullishness simply can’t be ignored and, more importantly, it’s only the beginning.

PYPL is really one of the few elite companies that is virtually guaranteed an upward growth curve. We talk often about the Internet of Things. IoT is a catch-all term to describe the integration of smart devices into our daily lives. Think what you want about it, but IoT is happening — and will continue to happen. You can either adapt or you can die.

In a similar vein, digitalization of financial transactions is both the present and the future. I’m not just referring to the blockchain and cryptocurrency phenomenon. Rather, we can look at the topic mundanely. When was the last time you conducted a transaction in cash?

From what I can gather, the only time kids use cash today is at old school pizza joints and for their “pharmaceutical representative” at a poorly lit intersection.

Still, I understand the hesitation to buy Paypal stock right now. I loved PYPL early on, back in December 2015. Since my initial write-up on the company, it’s soared over 119%. Surely, the valuation is stretched at this point?

People Are Embracing Digital Payments

I can’t imagine anyone preferring to buy a publicly traded company when it’s already enjoyed a tremendous rally. But, on the other side of the coin, I’m sure many people questioned Amazon.com, Inc. (NASDAQ:AMZN) at $700. Today, those “questionable” shares have nearly reached $1,250.

Moving forward, investors can trust Paypal stock. Based on the company’s most recent third-quarter earnings report, the bullish thesis hasn’t changed a lick. PYPL has yet to outright disappoint investors in its quarterly reports and Q3 was no different.

As InvestorPlace‘s Karl Utermohlen noted: “One of the strongest segments of the quarter for PayPal was Venmo, the popular payment method where you can transfer money to friends and family at the click of a button. The business processed $9 billion in payments in the quarter, twice as much as in the year-ago period.”

The takeaway here is that an investment in Paypal stock isn’t just about payment services for small businesses. Yes, that’s an important component, but digital payments are being incorporated everywhere. This is no clearer evidence than in the current dynamics surrounding cryptocurrencies.

At the time of this writing, all cryptocurrencies are worth over $750 billion. However, bitcoin’s market share has deflated from 100% at the beginning of the journey to 34.3% today. Many reasons exist why this is the case, but a significant factor is practicality. Long story short, bitcoin can’t scale up to its current demand.

Right now, bitcoin is traded as a store of wealth, which is perfectly fine. But does that explain the reasoning for the other 1,385 cryptocurrencies? No. For instance, the offshoot bitcoin currencies market themselves as the faster, more efficient version of blockchain, not the better store of wealth.

In other words, people are participating in the blockchain for its functionality, not just its profitability.

Don’t Overthink Paypal Stock

Investors shouldn’t overanalyze Paypal stock. Businesses spend years attempting to spark demand; rarely does demand come to them. But in PYPL’s case, the public is hungry for the payment revolution.

The beautiful aspect working in the company’s favor is consumer sophistication. As we see with the enormous crypto diversity, you can no longer have people by solely highlighting blockchain. People must have a compelling reason to use or invest in the product.

For Paypal, its competitive advantage is its years of experience in the digital payment sphere. Through its time under eBay Inc (NASDAQ:EBAY), and on its own, Paypal has amassed a perhaps insurmountable moat.

Finally, the cryptocurrency craze is unlikely to negatively impact Paypal stock. Although the blockchain is a groundbreaking innovation, many people prefer the security of major institutional backing. Naturally, consumers trust the Paypal brand name, and the company provides many of the services offered in blockchain platforms.

As of this writing, Josh Enomoto is long bitcoin and bitcoin cash.

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Amazon.com, Inc. Stock Deserves to Be in Your Portfolio

For traditional investors, whether growth or value, Amazon.com Inc. (NASDAQ:AMZN) has always presented a hair-raising problem: Amazon stock does not conform to traditional valuation metrics.

Although I might take a stab by valuing it on an operational cash flow basis and compare it to businesses that John Malone has run — for which that was the only way to properly value them — I’m not convinced that would yield any useful results.

Amazon Is Unique

I never want to say, “It’s different this time,” but with Amazon stock I think it is. AMZN hasn’t been able to be valued traditionally for more than twenty years, so, at this point, I don’t think there’s much point in trying.

What we know is that if Jeff Bezos wanted Amazon stock to offer consistency in delivering net profits, he could make it happen. All he’d have to do is slow down growth in places like international sales, which is a money loser, and even cut back on operating expenses for global sales, and deliver a profit.

For the first nine months of 2017, Amazon had North American net sales of $68.8 billion and $67.6 billion in expenses, generating a $1.14 billion profit. Internationally, $36.26 billion in sales was offset by $38.4 billion in expenses for a net loss of $2.14 billion. AWS saw $12.3 billion in sales, offset by $9.37 billion in expenses, for a profit of $2.98 billion. The bottom line for net income came in at $1.18 billion.

But Bezos continually reinvests everything into the company. So, with Amazon stock, it comes down to effectively investing on a leap of faith — faith that the market will always find some form of value in Amazon. However, because it cannot be valued in any relative sense, it means one must either trade Amazon or buy and hold it for the very long term.

So, does that make sense? Yes and no, and it depends on the type of investor you are.

How and Why You Should Invest in Amazon Stock

Here’s the affirmative side of the answer. What we know is that Amazon is muscling its way into all kinds of territories. Yet, it is of particular significance that Amazon stock is ascending not merely because of momentum, but because investors sense that the future of retail rests with Amazon. Not all retail, but much of it.

I know that I purchase 80-90% of my non-food items at Amazon. I will price compare now and again, but Amazon wins that battle 95% of the time — or wins in a tie because I’m a Prime member. Convenience and reliability mean a lot to the retail shopper, not to mention the time savings.

I can imagine a time where small businesses are going to have to be niche-oriented, or deliver something special in order to even have a chance against Amazon. Only bulk retail providers like Costco Inc. (NASDAQ:COST) will stand a chance, because shopping at Costco is an experience and prices are comparable. Or home improvement companies like Home Depot, Inc. (NYSE:HD), which don’t appear to have suffered.

Bottom Line on AMZN Stock

So I think, as an investor, you have to own Amazon stock at some point.

I am not convinced that now is the time, because the market is some 30% overvalued and the second-most expensive in history.

I think the play is to buy Amazon stock in increments, beginning at a 10% correction point, and adding every time it ticks down by 5% or more.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

 

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Forget Amazon; This Company Could Actually Buy Target in 2018

Amazon.com Inc. (Nasdaq: AMZN) has experienced a spectacular past few months.

Cyber Monday 2017 topped Prime Day to become Amazon’s biggest shopping day worldwide in company history as “hundreds of millions” of products were sold, according to TechCrunch.

And its stock has risen a whopping 58% since this time last year.

Now analysts are speculating that Team Bezos may add another prize to its collection: Target Corp. (NYSE: TGT).

But these analysts aren’t seeing the bigger picture. The $40 billion price tag alone would be prohibitive. And when it comes to what Target would offer – an upscale consumer base and large retail spaces littered across the country – Amazon already got that for a third of the price with Whole Foods.

That’s why our Chief Investment Strategist Keith Fitz-Gerald sees an entirely different company taking on that deal.

One that he’s long been recommending to his readers…

The Only Company Capable of Beating Amazon

We’re talking about Alibaba Group Holding Ltd. (Nasdaq: BABA), the Chinese e-commerce conglomerate that may give Amazon a run for its money. In fact, people call Alibaba “the Chinese Amazon” – but we think it could be even better.

VideoKeith talks Alibaba Takeover on “Varney & Co.” 

Alibaba was founded less than 20 years ago in China, yet it’s grown to be the world’s sixth-largest Internet company by revenue – and climbing.

The company has already battled with Amazon in places like India, and it’s all but forced Bezos out of its home country of China.

So it’s more than likely that it will make a play for the United States soon.

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“Alibaba is the only company that can take on Team Bezos and may actually – dare I say it – win,” Keith told his Total Wealth subscribers in December. “Along the way, I think it’s going to have to make one or more key mergers that catch investors by surprise…”

One of those key mergers is likely to be with Target Corp.

Here’s why…

Alibaba’s Global Expansion Could Begin with Target

“[Buying Target] is a means of acquiring U.S. distribution and an upscale consumer base at the same time,” said Keith. Indeed, the average Target consumer is much more affluent than that of Wal-Mart – a point Keith has been making for several years.

What’s more, the two companies have already begun to make moves that signal a convergence in the near future.

Target already sells products on Alibaba’s “Tmall,” which is the main platform for international businesses to sell brand-name goods to consumers in China.

And in a recent move, Alibaba hired Target’s HR chief to head up its global expansion.

Even though its consumer base is robust, Target may have no choice but to sell out to a larger company within the next few years. That’s because Target is, by nature, a middleman. According to Keith, that means that it (along with thousands of other retailers) is at significant risk of getting “Amazon-ed.”

Alibaba may be the only way forward for the company.

Keith expects this deal to occur within the next 12 to 24 months. That means big profits for Alibaba – and for you, if you’re ahead of the game.

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7 Dividend Growth Stocks Worth Owning

Do you invest in dividend growth stocks? If you don’t, you ought to consider doing so. These dividend stocks to buy could be your ticket to a better retirement.

Many dividend investors get caught up focusing on yield when the growth is what’s truly important. By utilizing the power of compound interest, investors can achieve higher returns by merely owning the stocks of companies who regularly hike their dividends.

A Canadian finance site, Hardbacon, provides an excellent example why investing in dividend growth stocks is a sound idea:

“If you invest in a stock which pays $1 in dividends a year and costs $25, it means it yields 4% at the time you buy it (dividend yield on cost),” wrote Sam Kovacs. “If the company increases its dividend 10 cents every year, in 10 years those same stocks which you bought for $25 will be paying out $2 in dividends, an outstanding 8% yield on cost.”

That’s the power of income-growth stocks. Here are seven dividend stocks to buy that are worth owning. If that’s not enough to get your mouth salivating, each has hiked its dividends in 2017 by 20% or more!

Dividend Stocks to Buy: Best Buy (BBY) Why Best Buy Co Inc BBY Stock Is a Great Buy Thanks to Apple Incinvestorplace.com/wp-content/uploads/2016/04/bbymsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/04/bbymsn-73×40.jpg 73w, investorplace.com/wp-content/uploads/2016/04/bbymsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/04/bbymsn-250×137.jpg 250w, investorplace.com/wp-content/uploads/2016/04/bbymsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/04/bbymsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/04/bbymsn-160×88.jpg 160w, investorplace.com/wp-content/uploads/2016/04/bbymsn-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/04/bbymsn-100×55.jpg 100w,https://investorplace.com/wp-content/uploads/2016/04/bbymsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/04/bbymsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/04/bbymsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Austin Kirk via Flickr

If I told you that I could sell you a dividend growth stock that’s increased its annual payout for 14 consecutive years, is yielding more than 2%, and raised its 2017 dividend by 21.4%, you’d want to know more.

But slap this description on Minneapolis-based Best Buy Co Inc (NYSE:BBY) and you’re likely to turn very skeptical. After all, Best Buy is supposed to be getting slaughtered in the electronics arena by Amazon.com, Inc. (NASDAQ:AMZN).

Not so fast.

Take a quick look at Best Buy’s stock chart and you’ll see that it’s currently trading within 3% of its all-time high of $69.39. In 2017, it gained 64% on the year and that’s after a 45% gain in 2016.

During the critical holiday shopping season, Best Buy held its own against Amazon according to industry analysis.

I’ve been a fan of CEO Hubert Joly all the way back to 2013 when the former hospitality executive implemented his turnaround plan for the electronics retailer.

Don’t be fooled by the company’s so-called weak Q3 2017 results. Same-store sales grew 4.4% and it earned 78 cents a share despite lowering prices to match Amazon, etc.

Best Buy could easily hit $100 in 2018.

Dividend Stocks to Buy: Vail Resorts (MTN) investorplace.com/wp-content/uploads/2017/03/mtnmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2017/03/mtnmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

The U.S. economy is unbelievably healthy right now and nobody benefits more from this than Vail Resorts, Inc. (NYSE:MTN), North America’s largest operator of ski resorts.

Its stock hasn’t had a down year since 2011 and although it’s down in early 2018 trading, all the signs point to another stellar year on the slopes.

“We have continued to drive significant growth in our destination markets which represent approximately 60% of our increase in pass units,” CEO Rob Katz said recently. “We continue to see strength across all geographies, with particularly strong performance in Northern California, the Pacific Northwest and the Northeast and continued solid growth in Colorado and British Columbia.“

The sale of season passes as of the beginning of December were up 14% in units and 20% in dollars over last year; they’re not headed downhill anytime soon.

Acquisitions drive Vail Resort’s growth — Whistler Blackcomb being its most significant to date — and it’s not about to stop looking for resorts to buy that cater to both the affluent destination visitor as well as the local season-pass skier.

We might be aging but not quickly enough to slow Vail Resorts over the next decade. MTN might be the best dividend growth stock of the bunch.

Dividend Stocks to Buy: Oneok (ONE) investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2016/06/naturalgasmsn-1-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Andy Arthur via Flickr

Higher energy prices to a limited extent drive stocks like Oneok, Inc. (NYSE:OKE), one of the biggest midstream service providers in the U.S.

As most of the Northeast fight a brutal winter storm early in 2018, natural gas prices have spiked to unprecedented levels; a problem made worse by the fact there’s a shortage of pipelines shipping natural gas to cities like New York and Boston.

Oneok can’t help with the Northeast as its pipelines and processing facilities are primarily west of the Mississippi River. However, it can help with the processing and shipping of natural gas and natural gas liquids (NGLs) in the regions it serves.

On January 4 it announced that it’s building $1.4 billion pipeline to transport NGLs from the Rocky Mountains to its Mid-Continent NGL facilities providing the middle part of the country with a more significant energy supply.

In 2017, OKE stock was relatively flat, down 2% on the year, significantly lower than the S&P 500, which was up 22%.

That’s the bad news.

The good news is that Oneok upped its annual dividend this past year by 21.1% to $2.98, providing a juicy 5.3% yield — double the 10-year U.S. Treasury.

As energy stocks go, Oneok’s a keeper.

Dividend Stocks to Buy: Federal Agricultural Mortgage (AGM) investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-91×50.jpg 91w,https://investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2018/01/indoorfarmingmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

This mostly unheralded stock is currently trading within 5% of its all-time high of $80.47. In 2017, it was up 39%, which followed an 85% gain in 2016. Over the past decade, it’s achieved an annualized total return of 12%, 300 basis points better than the S&P 500.

Currently yielding 1.9% after all of these gains, Federal Agricultural Mortgage Corp. (NYSE:AGM), better known as Farmer Mac, continues to be the agricultural industry’s best friend providing credit to agricultural lenders and businesses across the U.S.

With the need for food production likely to remain high indefinitely combined with a rigorous underwriting process, an investment in Farmer Mac is as reliable as they come.

In 2017, Farmer Mac upped the annual dividend by 38.5% to $1.44 a share. That’s money in the bank. Five years ago, AGM stock paid an annual dividend of just $0.48. In 2016, the company initiated a 30% payout target of core earnings which should keep the dividend growing at double digits on an annual basis.

If you like a little capital appreciation with your dividend growth stocks, AGM is for you.

Dividend Stocks to Buy: UnitedHealth (UNH) UnitedHealth UNH stockinvestorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-300×150.jpg 300w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-768×384.jpg 768w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-60×30.jpg 60w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-200×100.jpg 200w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-400×200.jpg 400w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-116×58.jpg 116w,https://investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-100×50.jpg 100w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-78×39.jpg 78w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-800×400.jpg 800w, investorplace.com/wp-content/uploads/2017/07/unitedhealth-group-inc-unh-stock-ipsize-170×85.jpg 170w” sizes=”(max-width: 950px) 100vw, 950px” />Source: Shutterstock

Can you guess the last time UnitedHealth Group Inc (NYSE:UNH) stock lost money on an annual basis? Try the Reagan era. I’m just kidding. It was 2008. Since then it’s rattled off nine consecutive years of gains.

UNH operates two business segments: Health Benefits, which provides healthcare insurance to millions of Americans and Optum, its provider of healthcare services. Together, they play a big part in the wellness of America.

In December, UNH announced that it was buying the Davita Medical Group for $4.9 billion from Davita Inc (NYSE:DVA). Davita wants to focus on its dialysis business, so Optum was a natural home for the company’s nearly 300 clinics and six outpatient surgical centers.

When you’ve got a market cap of nearly $220 billion like UnitedHealth, a $4.9 billion acquisition is coffee money — but it provides additional growth for Optum, so it’s a win/win.

Bottom line: UNH stock isn’t a big yielder at 1.3%, but it’s track record of growing its stock price should be enough for most investors.

Dividend Stocks to Buy: Illinois Tool Works (ITW) investorplace.com/wp-content/uploads/2018/01/itwmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2018/01/itwmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2018/01/itwmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2018/01/itwmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2018/01/itwmsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2018/01/itwmsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2018/01/itwmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2018/01/itwmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2018/01/itwmsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2018/01/itwmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

Of all 31 stocks on my list, Illinois Tool Works Inc. (NYSE:ITW) has the fifth-longest streak for the consecutive number of years raising its annual dividend at 43. In 2017, it raised its dividend by 20.0% to $3.12 per share. Since 2012, it’s grown its annual dividend by 15% on a compounded basis with the last two years seeing increases above that average.

Yes, it only yields 1.9%, but the dividend yield isn’t nearly as important as the dividend growth because a growing dividend typically is the result of growing earnings.

Usually, I’m not a fan of share repurchases, but ITW does a good job keeping track of how it’s doing on its buybacks. Over the past five years it’s repurchased $11.4 billion of its shares reducing the share count by 28%, but more importantly, earning a 24% internal rate of return on those purchases.

Even better, over half the $11.4 billion was used to buy shares in 2013 and 2014 at prices of $85 or less — it currently trades at $166.

Over the past five years, the industrial conglomerate’s been on a transformation to building a business that’s growing its margins and organic revenues while responsibly allocating capital.

Frankly, Illinois Tool Works is what General Electric Company (NYSE:GE) ought to aspire to.

Dividend Stocks to Buy: Cheesecake Factory (CAKE) investorplace.com/wp-content/uploads/2018/01/cakemsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2018/01/cakemsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2018/01/cakemsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2018/01/cakemsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2018/01/cakemsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2018/01/cakemsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2018/01/cakemsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2018/01/cakemsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2018/01/cakemsn-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2018/01/cakemsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

Who doesn’t love the Cheesecake Factory Inc (NASDAQ:CAKE)?

Seriously, anyone who doesn’t enjoy a meal at the restaurant chain best known for its variety of cheesecake desserts every now and again, really has a hard time letting loose.

Sure, it’s not gourmet, but when you’ve managed to increase your dividend by 20.8% in a single year and your stock is currently yielding 2.3%, the cheesecake isn’t the only thing worth trying at the California company.

The Cheesecake Factory might be old news in the U.S., but here in Canada where I live, the first location just opened this past November in Toronto at Yorkdale Mall, Canada’s most productive mall regarding sales per square foot.

Lineups were snaking through the mall of people trying to get their fill. Canada could easily use another 19 or 20. It will do very well here despite the fact Canadians have a hard time getting excited about cookie-cutter restaurant chains.

Cheesecake Factory’s financials might not be as strong as past years but its growth drivers — Canada, getting its cheesecake and other desserts into the grocery stores and investments in North Italia and Flower Child restaurants — suggest it’s got plenty to push the stock higher in the coming years.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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Now's The Time To Buy The Amazon Of China

The Russell 2000 had a good year — all things considered. The index has gained 13.7% in 2017 compared to a 19.6% return for the broader S&P 500 index. Both indices are charted in the graph below.

But something doesn’t pass the smell test. While both indices have solid gains for the year, it’s interesting to note that most of the Russell 2000’s gains occurred since August 21, 2017, when the index closed at 1356.90. That means that more than 77% of the year’s gains have occurred in just the past 120 days. This is likely a result of an influx of retail investors.

While that in and of itself isn’t too troubling, there’s something ominous about the valuation of the small-cap market index of the bottom 2,000 stocks in the Russell 3000 Index. You see, at its current value of roughly 1545, the stocks of the Russell 2000 have a combined value of approximately $4.5 trillion.

What’s so ominous about that? Well, the net income from these 2000 stocks is just $42 billion, meaning the Russell 2000 is priced at more than 107 times earnings. It doesn’t matter how you look at the markets today, but any index priced at such ridiculous levels is in dangerous territory.

This is why investors looking for portfolio growth should consider the Chinese equivalent of the American company Amazon.com (Nasdaq: AMZN). Of course, that company is JD.com (Nasdaq: JD).

Now, the stock has been on a relative tear of late, rising more than 62% in 2017 alone. But don’t let that scare you away. Consensus estimates for EPS growth portend strong tailwinds starting the first quarter of 2018, which should boost the stock to new highs.

Here’s why…

Much like Amazon, JD.com has invested heavily in its infrastructure. And this high capex spending has hurt its earnings over the years. But the result is that the company actually owns the inventory for sale on its websites — unlike Chinese giant Alibaba Group (NYSE: BABA).

The company has also mimicked Amazon by creating a warehouse and logistics network that no other competitor can come close to touching. The following chart of the company’s logistics network comes from its investor presentation for third-quarter 2017.

The good news is that its spending is really starting to produce results. Another chart from the company’s investor presentation shows the company has grown its customer accounts by 808% since 2012 to more than 266.3 million (about 82% of the U.S. population). At the same time, the average number of purchases has grown by nearly 595%.

But an even more important reason for my bullishness on JD.com is the continuing growth in the Chinese middle class. You see, according to a study by consulting firm McKinsey & Company, 76 percent of China’s urban population will be considered middle class by 2022. That means 630 million Chinese (twice the population of the United States) will be in the middle class, or 45% of the entire Chinese population. And that doesn’t include an additional 9% of the nation that will be considered affluent by Chinese standards.

This has propelled JD.com to forge symbiotic relationships with other companies, such as Tencent (OTC: TCEHY). The Tencent deal opened up access to popular apps like WeChat and Mobile QQ messaging. The relationship is so strong the company reports that 25% of its first-time users come from these apps. And JD.com proactively committed Tencent to a non-compete agreement through 2022.

But Tencent isn’t the company’s only major relationship. JD.com recently acquired the online Chinese grocery business of Wal-Mart (NYSE: WMT). The deal to acquire Yihaodian gave Wal-Mart a 5% stake in JD.com, which has since grown to 10.1%. There is an 8-year non-compete agreement in place against Wal-Mart that doesn’t expire until 2024 — giving JD.com plenty of time to secure its dominant position in China.

The Wal-Mart collaboration is unique to both companies. Under its current terms, whenever an order comes into JD.com, couriers receive instructions to fill the order at the closest JD warehouse or Wal-Mart store. That’s like leveraging another 424 warehouses for JD.com.

This makes JD.com the largest fulfillment center in China. Better yet, the 424 Wal-Mart stores, in combination with JD.com’s existing 256 warehouses in 54 cities, now make 99% of China accessible to the company.

Best of all, these relationships are producing results. JD.com delivered year-over-year revenue growth of 43% — almost twice the growth of Amazon.com. Better yet, it’s not all top-line growth, either. The graph below illustrates the trailing twelve months growth in cash from operations.

The Bottom Line
JD.com is the dominant player in the world’s second largest economy. Its business plan promises to provide a tailwind for years to come, and given the outrageous multiple at which the Russell 2000 currently trades, JD.com is infinitely safer for your portfolio.

Risks To Consider: There are dangers associated with investing in China. A great many companies are state-owned enterprises, meaning it’s possible for foreign investors to find themselves relegated to a subordinated priority behind the government. In addition, corporate governance is still a commonplace problem in China — company accounts are often incomplete or incorrect.

Action To Take: Buy shares of JD.com up to $45 a share. Mitigate risk by using no more than 3% of your portfolio to the stock. Use a 20% trailing stop to protect your capital. Expect to hold your position for at least three years.

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