(B)(N) Deliverance – Alibaba, JD.com, Amazon & Walmart

1 million Alibaba delivery vans

Drama. The delivery wars are heating-up and they’ve already left a lot of the American walk-in retail businesses among the fallen and they’ve created a real rumble in how we buy things from the thousands (even millions) of the shoppes of old. Alibaba and JD.com are also fighting it out in China’s estimated $750 billion e-commerce market (of which they currently have much less than 10% despite the noise) with trucks and couriers of their own and maybe drones for same day delivery for whatever it is wherever we are (TheStreet, May 23, 2017, Alibaba, JD Intensify Battle Over China’s $750 Billion E-Commerce Market).

The fundamentals of these four companies are quite different in terms of how much inventory they need to carry and what fixed assets they need to keep on the ground, but the market doesn’t care about that for very long and their stocks are trading at near stratospheric multiples of [P/E] 50× earnings and the aggregate stock prices are also up +30% so far this year with an aggregate market value of $1 trillion which exceeds their combined annual sales of $690 billion last year of which $485 billion is due to Walmart.

In other words, there’s more money in the market than there is in the store and the aggregate stock prices have doubled since 2012; the investors are also willing to pay $143 for $1 of the Coase Dividend in these companies which is about five times the going rate in the Dow and the S&P 500 companies and nearly three times the current price for earnings (the [P/E]-multiple) and ten times the earnings return on the shareholders equity (ROE 15.0%).

The investors are, therefore, bidding to own these companies which is (of course) absurd for most of them, and certainly for us, but they’ll never believe it and only Walmart is currently paying a dividend ($6.2 billion last year) and 46% of its earnings for a current dividend yield of 2.5% that is already overtaken and paid for by a stock price increase of 14% and $30 billion more from the investors which pales again beside JD.com (+60%) and Alibaba (+40%) and more than $120 billion of new market money between them.

Walmart Supercenter

But we’re wholesale investors in the retail stock market and we’ve quadrupled our money on these stocks since 2012 for an average annual gain of 32% a year and 36% including the short portfolio and we have an interest in all four of them today and we’re waiting for still more deliveries at no less than our stop/loss prices.

However, our usual metric, the aggregate dividend yield (0.57%) plus twice the normalized annual volatility (2×7.34%), suggests that we should not expect more than +15% this year and we’re already up +20% to the end of May which bodes for some turbulence that we can’t predict; please see the charts below for further details (and click on them and again to make them larger as required).

The Money Wagon

For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel,  Green Energy, UFOs and the High Flying Techs, and The Coal War which is heating-up again now; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that as well as The Great Rotation & Twenty Hot Canadians 2017.

And for more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.