- It’s a tech! It’s a biotech! No, it’s…
- …an apparel company? Big gains from branded outdoor wear
- After Friday’s record highs, is a crash in view? Two eye-opening charts
- A widening gap in the crude market, and how to play it
- Greece calls Germany’s bluff… London’s mayor threatens to renounce U.S. citizenship (again)… another reader piles on the “Next RadioShack?” nonsense… and more!
“It must be a high-growth technology or biotech company,” people say when they look at this chart…
“As it turns out, it is neither,” wrote California-based money manager Chuck Gibson over the weekend. The firm is VF Corp. (VFC). “It has everything going for it (except a memorable name) as it is very well run, pays a dividend and has tens of millions of customers around the world.”
What do they do? Here’s a description straight from VF’s website: “The company offers outdoor apparel, footwear and equipment, sports and adventure footwear and apparel, handbags, luggage, backpacks, accessories, merino wool socks, women’s activewear, packs and travel accessories…”
Boring, no?
Key to VF’s success is one of its dozen or so brands…
“Fifteen years ago, a tiny company called The North Face staked a place in the market for outdoor equipment such as tents, sleeping bags and jackets,” explains our microcap specialist Thompson Clark. “It did about $240 million in sales.”
The venture wasn’t going well. In fact, it was in danger of shutting down. Then VF acquired it in April 2000.
“Today? The North Face is a mega-giant, churning out $2 billion in sales,” says Thompson. “That’s almost a staggering 750% increase.”
VF shares, meanwhile, are up even more — about 800%. “That means a $10,000 investment would now be worth an amazing $80,000!” Thompson helpfully reminds us. “And that doesn’t even include dividends.”
So how did VF pull it off? It wasn’t by having The North Face sell more tents, says Thompson…
“Apparel is where the real money is made,” he explains. “It is bought, used and bought again by each loyal customer.
“And with a label plastered somewhere on the backpack or jacket, the customer becomes a walking billboard for the company. In marketing-speak, the customer becomes a ‘brand ambassador.’”
And it’s extraordinarily profitable: VF earns gross margins of 52%. Columbia Sportswear isn’t too shabby either, at 44%.
“This means that for every $100 jacket you buy from Columbia,” says Thompson, “the company pockets around $50, before other expenses.
“That’s a wonderful business to be in.”
But we don’t write today to sing the praises of Columbia or VF. VF sits near all-time highs now. Thompson thinks he’s found the next North Face, the equivalent of buying VF back in 2000: “I’m convinced you could be looking at gains of more than 200% over the next two years alone if you hitch your wagon to this rising star today.”
Out of respect for his paying subscribers, we’re withholding the name of this firm. But we can tell you it’s already a respected name in outdoor gear, and it’s now moving into the apparel space — “just like The North Face did nearly 15 years ago,” says Thompson, “with jackets, vests and pants for both men and women.”
The firm has no debt. And it’s protected from taxes through net operating losses. We told you about the beauty of NOLs on Friday: Losses in previous years become a safeguard against corporate income tax in future years. “This company is shielded from taxes for at least the next five years,” says Thompson. That’s a great place to be as it moves into the lucrative apparel space with those fat 50% margins.
[Time-sensitive notice: Access to Thompson’s service, Agora Financial’s Microcap Millionaires, shuts down in less than 12 hours. Because many of Thompson’s recommendations are thinly traded, we keep a strict limit on the number of his subscribers. In all likelihood, we won’t reopen access until May, or even later. To get in before the midnight deadline, act here.]
Major U.S. stock indexes are starting the week mixed. The S&P 500 is at 2,094 — off three points from its record high Friday. But the small-cap Russell 2000 is pushing higher into record territory, at 1,224.
The morning brought two economic numbers that give us an early read on the month of February…
- Empire State Manufacturing Survey: This Federal Reserve measure of factory activity in New York State is down from January, but still well above zero, at 7.8
- Housing Market Index: This sentiment survey from the National Association of Home Builders also climbed down from January’s figure… but at 55, the number has notched eight straight readings above 50, indicating growth.
“I certainly get the feeling that investors are getting complacent at the same time that U.S. markets are hitting all-time highs,” writes Jonas Elmerraji of our trading desk.
He was responding to a jittery email from one of his readers anticipating a “massive correction.”
“But,” says Jonas, “I think what the reader is really worried about isn’t a correction, but a crash” — a la 2008. “The good news is that our technical toolbox gave us some major warnings that the stock market was rolling over:
Follow the cues and you were out early in 2008 — long before the real damage.
But now? There’s no evidence…
“The uptrend is intact here,” says Jonas — “we’re still in a ‘buy the dips’ market.
“Corrections aren’t a bad thing,” he adds. “A correction is just a pullback to support. In fact, corrections are a healthy thing for a market that’s in rally mode — you want to see periodic gains taking.”
Another day, another wild swing in crude — down more than 3% as we write, at $51.07.
That’s for the U.S. benchmark, West Texas Intermediate. Brent, the global benchmark, is down barely more than 1%, at $60.70.
“Over the past few weeks, the Brent/WTI spread has quietly widened to almost $10,” writes Matt Insley of our energy desk. “In other words, Brent crude oil trades $10 higher than U.S.-based WTI. If you take a look under the hood, this is a big deal.
“See, with spot oil prices heading dangerously low and futures prices starting to creep higher there’s incentive for oil companies, investment banks and speculators to store oil and sell it at a later date for a higher price.
“If you’re talking about storing oil, you’ve got only so many places to do so. And as it turns out, more oil is getting stored here in the U.S., as there’s not much room at the inn across the pond. Naturally, with more oil piling up in the U.S. and less piling up in the U.K., the Brent/WTI spread is starting to grow.”
That’s good news for refiners like Tesoro (TSO), says Matt: “Refiners can take that price spread and turn it into cold, hard cash when selling refined products into the global market.”
Gold is sinking toward $1,200 again — down more than $20 as we write, at $1,207.
“Is China hiding its central bank gold in its commercial banks?” wonders Lawrence Williams, a veteran observer of the precious metals markets.
Mr. Williams has been poring over the latest withdrawal figures from the Shanghai Gold Exchange. So far this year, withdrawals total 315 metric tons — a substantial figure that conventional wisdom attributes to consumer demand in advance of Chinese New Year this week.
But a report from the World Gold Council indicates that demand might be coming instead from commercial banks. Mr. Williams reminds us China’s commercial banks are state-owned. “Could China,” he speculates in a column at Mineweb, “ultimately be planning to add its commercial bank gold holdings into its own reserve figures at some time in the future, or even just transfer them from commercial bank to central bank at some convenient time?”
As a reminder, China’s official gold holdings stand at 1,054 metric tons — a figure that hasn’t changed since April 2009. Based on the gold take from the Shanghai Gold Exchange since then, “the true figure of gold to which the Chinese central bank has access could easily already be four or five times this level.”
Even with gold prices down now, you’ll want to own some whenever the People’s Bank of China declares a new figure for its gold stash…
Gold’s weakness today comes despite dollar weakness. The dollar index is down a hair at last check — 94.2.
The index’s chief component, the euro, is up a bit at $1.14 despite the latest Greek rescue talks in Europe breaking down.
“You rarely hear public officials be so blunt,” writes our Chris Mayer of Greece’s new finance minister, Yanis Varoufakis — to whom we introduced you two weeks ago.
“As part of the European Union, the Greek government can’t just print euros as the U.S. government can print dollars to repay its debts,” Chris reminds us. “So it is in a real bind.”
As for Varoufakis, “the man is a fighter,” says Chris, after running across an interview Varoufakis did with SNL Financial.
Said the Greek finance minister: “When Germany decided in May of 2010 to grant the largest loan in history to the most insolvent little discredited state, Greece, on condition that Greece would shrink its income by 30%, what on Earth where they thinking? Did they think this was going to end well, that it was going to make the problem go away? The chickens are coming home to roost, and now they’re going to have to bite the bullet.”
Varoufakis & co. are daring the Germans to kick Greece out of the euro currency. “They are calling Germany’s bluff,” sums up Chris. “I, too, don’t think the Germans want Greece out. To do so opens the door for Italy and France and the eventual dissolution of the monetary union, which so benefits Germany.”
It could become a recurring feature in The 5 — the Boris Johnson Citizenship Watch.
London’s colorful mayor tells The Sunday Times he will renounce his U.S. citizenship. Of course, he said the same thing to an American interviewer three months ago — as we noted in our virtual pages. Isn’t it time to get off the dime?
To refresh your memory, Johnson was born in Manhattan, but hasn’t lived in the U.S. since age 5. Still, U.S. citizens are subject to income taxes no matter where in the world they earn that income. And the IRS wanted a cut of the capital gain from the sale of his U.K. home. Last month, Johnson settled up.
Contrary to popular legend, U.S. President Zachary Taylor was NOT called “muskrat head.” But Boris Johnson? Hmmm…
So what about that citizenship thing now? He tells the Times he’ll soon approach the U.S. ambassador in London to get the ball rolling. “The reason I’m thinking I probably will want to make a change is that my commitment is, and always has been, to Britain.”
It has nothing at all to do with the fact he’s running for Parliament now, does it?
Nah…
“Forbes, if not jumping the gun on Cabela’s, certainly skipped ‘competitor research,’” a reader writes.
Last week, we mentioned in passing how Forbes had put Cabela’s on a list called the “Next RadioShack?” — based entirely on same-store sales figures. It inspired a week’s worth of discussion, continuing today…
“Big 5 Sporting Goods (BGFV),” our reader goes on, “was reporting a falloff in revenue from guns and ammo four or five quarters ago. The phenomenon is not new and it’s not a secret. And Big 5, while having a bad year then, is recovering nicely now. (I’m long BGFV.)”
The 5: Hmmm…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Final reminder: If you want in on the latest phase of Project Gamma-nMC — with the potential to double your money in two years on every play — now’s the time to move. Access will be shut down at midnight tonight. Here’s where to go.
