These days, the smartest companies can see the writing on the wall. And they’re not trying to fight it. Instead, they are riding the Amazon train.
by Briton Ryle
The battle lines are drawn. In fact, they have been for a few years. Only most people didn’t realize it. For many companies (and the people who work for them), the moves they make now are critical. The winners and losers are being decided right now.
As an individual, sure, you can probably just get a new job. But if you’re in management? The powers that be may not be so forgiving. Think about it: You’re supposed to be helping guide your company to a bright future and ensure that it can provide for owners and employees alike for decades to come…
But instead, you back the strategic moves that end up sinking the company? There’s no easy way to leave that off your resume.
However, it’s investors like you that I worry about. Because these strategic decisions aren’t made in a public forum. Corporate bigwigs make the decisions that could put thousands of people out of work behind closed doors. Sure, there will probably be a press release so the players can tell everybody what a good idea they had, what a good deal this will be.
But the truth is, nobody’s really gonna know if it was a good idea or deal for some time.
Then, a couple quarters down the road, earnings come in as expected. But earnings have beaten expectations for the last five quarters, so this is seen as a disappointment. The stock sells off 5% — no big deal, it’ll be back.
The next quarter, earnings actually miss by a penny or two. Management is confident that the miss is just a bump in the road. A blip. Still, it’s a miss, and that means the stock sells off another 10%.
A couple weeks before the next earnings report, management has to issue a press release and tell their investors that quarterly numbers won’t be up to snuff. That’s another 10% drop, and nothing compared to the beating the stock takes when the company misses its already lowered projections just a few weeks later…
This is the downward spiral of a failing company. You could have lost 40% of your money before you really get a handle on what the actual problems are. By then it’s often too late. Sure, sometimes a company makes a comeback. But the truth is, in most cases, the money you lose on a bad investment doesn’t come back.
The Wrong Way
Back in December, I wrote about a company that is considered a bellwether for the global economy. That’s because the vast majority of this company’s business is business-to-business. (Ya know, I could have gotten “business” in there four times, but I decided to go with “company’s” that first time ’cause I don’t wanna seem like I’m showing off.)
So when business is good for this company, it’s generally good for everybody.
But around Christmastime, this company missed earnings badly. The CEO blamed tariffs. And the fear this put into investors helped drive the stock market to its December lows. And if you remember, the last few days of that correction were nasty: The Dow(NYSEARCA:DIA) fell 3,000 points in seven days.
The company I’m talking about is FedEx (NYSE: FDX). That big earnings miss took investors by surprise. Still, some investors confidently advised buying that dip. And the stock did seem to bottom about a week later…
Today, FedEx is back to those lows, around $160 a share. I’m sure some investors will say it’s time to buy it again. (Though where they said to take profits from that last round of dip buying so you don’t let a gain slip away is unclear.)
I’m not going to tell you to buy this dip. Because I can’t say for sure if this latest dip has anything to do with the FedEx decision to not renew its contract with Amazon. But I can tell you this could be a BIG mistake.
Now, I get it — Amazon represents a little over 1% of FedEx’s total revenue. And analysts are saying the move “may” actually be good for FedEx. But I have questions.
Like, why would you choose to not have 1% of your annual revenue? You might consider donating a percent of your salary. But take a pay cut? Yeah, no.
Also, and perhaps more important: Why would you cut ties with one of the most influential and aggressively disruptive companies the world has ever seen?
Oh, and one that has already started building a business that can compete directly with yours?
I do not know the answers to these questions. I’m actually surprised I am even asking them. Seems to me it’s pretty obvious that you don’t wanna be in Amazon’s crosshairs.
A Moody’s analyst says: “FedEx’s decision to no longer provide FedEx Express U.S. domestic services for Amazon.com makes perfect sense given expectations of strong e-commerce growth across the retail sector…”
So basically, FedEx is betting on every other retailer vs. Amazon. Is that a good bet?
The Right Way
Now, just about a week ago, the biggest real estate (NYSEARCA:IYR) deal in history between two private companies was consummated.
Blackstone bought 790 million square feet of logistics warehouse space in the U.S. from a Singapore-based company called GLP. GLP was planning an IPO. But I guess it figured the easiest way to cash out was to actually cash out.
Some analysts are wondering if this sale marks a top for the U.S. logistics market, which has been in a 10-year bull market.
It is to these analysts that I will direct my next comment: BWAHAHAHAHAHA!! Do you even know who Blackstone is? They don’t lose — ever.
Blackstone’s co-head of real estate says that logistics is the company’s highest conviction global investment. Any guesses as to why this is true? Yeah, starts with an A and ends with -mazon.
Amazon (NASDAQ:AMZN) currently commands 50% of all e-commerce. And e-commerce commands just 10% of all retail. Both Blackstone and FedEx are right — there is a ton of growth ahead for e-commerce. But one of these companies didn’t just say it didn’t want to do business with the e-commerce leader…
These days, the smartest companies can see the writing on the wall. And they’re not trying to fight it. Instead, they are riding the Amazon train. I’ve got an easy way you can get Amazon-like profits without having to buy that $1,800 stock. Check it out.