My stock ideas

Do it for the insta (1/12/19)

A common talking point recently has been the strength of the consumer – record low unemployment, increasing wages, and tax reform putting more money back in the consumers’ pockets. And then this week retailers told us that these same consumers with spare change to spend somehow didn’t spend it in their stores during peak holiday shopping season. Which makes total sense, because all us millennials are exchanging things for experiences. Favorite experience? Traveling the world. Must do it for the insta. How do you play this sought after experience in the stock market? Hotels, airlines, online travel agencies, cruise lines. My choice here is Expedia, Inc. (EXPE). 

First thing to realize with this stock is that it’s actually a glorious buffet of literally all things travel related – flights, car rentals, hotels, vacation rentals, activities, and cruises for bargain, luxury, and corporate consumers – all on a global platform. They own Expedia, obviously, but also other brands you might recognize like Hotels.com, Orbitz, Travelocity, trivago, HomeAway and also a slew of others like Wotif, lastminute.com.au, ebookers, CheapTickets, Hotwire, Classic Vacations, CarRentals.com, Expedia Local Expert, Expedia CruiseShipCenters, VRBO, VacationRentals.com, and Egencia. If you can’t hear this conglomerate of platforms scream “experiences!!! travel!!!” go get your ears checked out stat, that scream is v loud. 

To top it off, there’s some solid growth potential for the business and it’s trading at an attractive valuation right now. There are so many different ways for the growth in this business to continue – they’re going to keep building out their global reach through great marketing initiatives and the enhancement of the product portfolio. Additionally, the technological, consumer-focused product design should continue to boost the user base. This stock is currently down 18.3% from its high of $139.77 in July last year, which provides a good entry point into the name, and trades at a cheap forward multiple compared to industry peers. This low trading multiple also means that it will likely outperform in a tougher market for growth stocks. 

Trying to find cover (1/5/19)

Since late September, the stock market has acted as if it is preparing for a downturn in the economy. In times like this, investors flock out of higher risk stocks (think technology stocks) and into stocks that provide more defensiveness. Defensive stocks are those that keep paying dividends and have stable earnings despite market conditions. 

Assuming the market continues to move toward defensive stocks, I spent some time trying to find defensive stocks that 1) haven’t participated in the defensive trade since September (read: the stock price hasn’t increased a ton since September, which would happen if a lot of people were trying to buy that stock) and 2) have business catalysts that could generate outperformance next year. After doing some digging, I came to a really glamorous conclusion: Waste Management, Inc. (WM)

Thinking about the stock in the context of what I was looking for: 

  1. The stock didn’t participate in the defensive rally in the last few months of the year, the stock price actually ended the year pretty much where it started. But investors did see positive total returns (change in price + dividends) thanks to quarterly dividends!
  2. The business itself is quite solid, it has a strong history of paying (and growing) dividends, and it has several growth catalysts.
    • Demand for the solid waste business will continue to be robust on the residential and, especially, the industrial front. Industrial waste increases when you build more industrial/commercial space and construction is not slowing down anywhere. 
    • WM has a decent number of catalysts that could lead to outperformance next year: the company is going to buy back stock, continue to refine the fee structure of their recycling business, leverage new technology to optimize routes to generate operational efficiencies, and continue to grow externally by buying smaller operators because they have a strong balance sheet.

Hopefully this idea isn’t total garbage (pun intended, I couldn’t help myself), but I guess we’ll have to wait and see how it plays out.