If you haven’t yet read Part I of our Best Ideas piece, you can find it here.
The holiday week was very quiet, as expected. However, a few news items did hit the wires that we’d like you to be aware of.
First, we received word from ChannelAdvisor, a leading cloud-based e-commerce solutions provider, that same-store sales momentum across the e-commerce spectrum may have slowed in the third week of December. This runs counter to the strong data we’ve been receiving from the space through most of the holiday season. However, we believe the recent news release is something we’d categorize as “noise” (immaterial), especially given the significant date-shifting performed in the representation of the data. ChannelAdvisor had the following to say about eBay (EBAY), but we don’t want members to be too concerned. The firm is speaking about a 3-day period, from December 17-19, hardly worth noting for long-term investors:
eBay was particularly slow in third week period relative to the second week period. Not many sellers offer 2-day shipping at reasonable rates, so we typically see see eBay sales taper off in the December 17-19 period. This year Amazon and other retailers (captured in CSE, GS and Search) did not seem to have those concerns as many of them made clear and affordable expedited shipping past those dates.
Switching gears, we are viewing the increased prices at DirecTV (DTV) and Dish Network (DISH) as a distinct positive. According to StreetInsider, DirecTV may look to increase prices on its base packages by 4.4% next year, up from a 3.2% increase in 2013. Dish Network may look to raise prices by more than 5%, a pace that compares to a 16.3% jump last year. We view pricing power as a key source of competitive strength, and we’ll be looking for both DirecTV and Dish Network to drive operating profit gains as a result. Rising content costs and the trend toward cord cutting remain key risks, but there are few other fundamental drivers that we like better than the ability to raise prices, almost at will.
Rounding out the quiet week was news from China. The country estimates that growth has slowed to 7.6% in 2013, the third consecutive annual drop in the pace of expansion. The growth rate, however, does come in slightly better than the government’s target of 7.5%. We continue to monitor China as its impact on companies in our coverage universe from Baidu (BIDU) to Yum! Brands (YUM) is far-reaching. Though many economists predict another year of slowing in 2014, we’re not too concerned with the 7%+ rate of expansion that many are forecasting. Still, the worst run in shares of Chinese stocks in 19 years ended only on Monday of this week (nine straight days of declines), and we think the situation bears monitoring. Baidu is our only direct idea on the country, though we think its success rests more on increased Internet penetration than the ongoing breakneck pace of economic expansion in the country.
Valuentum’s Take
Members should expect news this time of year to be slow. Though the news in this piece does little to change our thesis on Best Ideas portfolio holdings, we wanted to make you aware of it. Our best ideas reside in the Best Ideas portfolio and Dividend Growth portfolio. We expect New Year’s week in the US to be equally slow.