MarketBites Daily Investment Commentary: The Cost Of Innovation: Walmart Disappoints I Lumber Prices Skyrocket

Stock Market Commentary for 2/18/2021:
  • The Big Picture:
    – U.S. stocks declined Thursday, as a worse-than-expected jobless claims reading disappointed investors. High-flying technology stocks continued to decline, as rising bond yields and inflation concerns weighed on investors’ risk appetite.
    – Treasury Secretary Janey Yellen, signaled her support for a “big stimulus package.” Her comments came against the backdrop of a brightening economic picture.
    – The Congressional hearings on the GameStop saga are underway, with leaders of Melvin Capital and Robinhood joining Reddit trader Keith Gill. (Learn more here)
  • Stock Talk:
    The Winner of the Day: Twilio
    Twilio was our “What’s Moving Pre-Market” star for yesterday’s edition of MarketBites. The firm rode yesterday’s earnings beat into an impressive Thursday.What’s Moving Pre-Market: Applied Materials
    $AMAT beat analyst expectations on both earnings and revenue during its report after-hours on Thursday. Read more on the firm’s earnings report here.

    The Loser of the Day: Fastly
    Despite a 40% revenue increase, and widening operating margins, Fastly fell short of Wall Street’s expectations during the firm’s earnings call. Adjusted guidance proves that Fastly’s growth was a lot more expensive than investors were willing to stomach.

  • The Data Room:
    – Per Johns Hopkins, the U.S. reported 71,936 new Covid-19 cases yesterday. So far, 41.0 million Americans have received their first round of vaccinations.

– By Raymond Kanyo


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Top Investment Story #1: Walmart Earnings

What is Happening?

Walmart dropped 6.48%, after the company reported Q4 earnings that didn’t meet Wall Street’s expectations.

Why does this Matter?

Walmart was one of the major beneficiaries of the pandemic. In Q4, Walmart’s e-commerce sales in the U.S. grew by 69%, while same-store sales grew by 8.6% (almost triple pre-Covid growth). Some of the remarkable growth, results from massive investments Walmart has been making to revamp its business for the “new digital age.”

The business transformation is all part of CEO Doug McMillion’s, plan to turn Walmart into a technology and innovation company [that also operates retail stores]. During the earnings call, McMillon said that Walmart is retooling its business to better serve customers, tap new revenue streams [Walmart+], and create a diverse ecosystem of services. New services include delivering groceries to people’s fridges, offering annual health checkups, as well as new financial services.

The growth initiatives, however, came with ballooning expenses. Walmart is already one of the largest IT spenders in the world, only surpassed by the likes of  Amazon and Google. But the retailer isn’t slowing down! Walmart expects to spend $14 billion in capital expenditures next year (over $3 billion more than last year). Walmart also made a commitment to raise the wages of 425,000 employees to at least $13 per hour.

The Takeaway:

Walmart delivered remarkable revenue figures in Q4, but the lack of profitability and muted growth estimates for next year disappointed investors. This didn’t phase Walmart to power ahead with an even bigger innovation budget for next year.

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– By Raymond Kanyo

– Published in MarketBites Daily Newsletter

Top Investment Story #2: Money Grows On Trees
What is Happening?

Lumber prices have hit an all-time-high, as home improvement and homeownership trends energetically continued throughout the pandemic.

Why does this Matter?

Lumber prices have risen to $966 per thousand board feet, topping the previous high of $955 during September of 2020. There has been no hotter commodity throughout the pandemic than wood.

Lumber futures have climbed a whopping 49% in the last three weeks alone. Pandemic-driven trends have been the main catalysts to the rise, as urban fleeing, record-low interest rates, and suspended travel continue into 2021. The furthest contracts available have settled just above $700 (May 2022), insinuating that commodities traders feel these prices are here to stay. Pre-pandemic record pricing for lumber clocked in just prior to the housing market collapse, at $639 per thousand board feet.

Home prices are on the fastest incline we have seen since the recession. Housing affordability has traditionally been the biggest threat to lumber prices. Those concerns still remain, as PulteGroup Inc. reported a 7% increase in average price sold for over 7,000 homes during Q4. However, housing supply and production gluts are also garnering attention during the lumber run.

With lumber prices so high, some homebuilders are waiting to strike ground on housing starts until supplies recover. In contrast, mills are currently backed up on orders well into the Spring. Domestic homeowners borrowing against home-equity lines, and repurposing their discretionary funds to home improvement, has created a new reality across the industry.

The Takeaway:

Rising home prices, rising demand, prolonged Covid protocols, low interest rates, and short supplies, have caused lumber prices to soar. Moving forward, it will be important to monitor lengthy futures to see how long traders expect this rally to last.

– Written By Jack Dunne

– Published in MarketBites Daily Newsletter

Meet the Authors

Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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