Quick Value 12.9.19
Market Performance
Last week ==> This week
S&P 500 | 3141 ==> 3146
Dow Jones | 28051 ==> 28015
Russell 2000 | 1625 ==> 1634
Russell Microcap | 589 ==> 593
10-Year | 1.78% ==> 1.80%
Gold | 1473 ==> 1465
Oil | 55 ==> 59
VIX | 13 ==> 14
Market Stats
A friend recently asked about why the market continues to perform so well. Two things come to mind as to why we keep grinding higher:
The Fed has been pumping money into the economy at a heavy clip since early 2019. You can see the downtrend when “Quantitative Tightening” began in 2016/2017 and the sharp reversal this year. This has been a big(gest) driver of this year’s performance.
Also to note, money velocity (i.e. propensity to spend) has been a big drag on inflation for nearly 20 years now. This has (maybe) started to bottom out. If the trend were to reverse and move higher, economic growth could really kick into high gear. Keep in mind that consumer spending is some 2/3+ of GDP.
Quick Value
Simon Property Group ($SPG)
Malls. Yuck.
It’s no mystery why this mall stock is flat over the past 7 years. Headlines are saying that a quarter of malls will be gone in 5 years and nothing they change is working!
Simon owns Class A malls (think the nicer ones that you actually want to visit on Black Friday). They should earn $12 per share in 2019 which makes it reasonably inexpensive as a $150 stock. Management has devoted most of their cash to shareholders via buybacks (~$2bn since 2015) and dividends (current yield at 5.6%). The dividend has grown every year for 10 straight. Occupancy has been steady in the mid-90% range. And the balance sheet looks healthy at less than 6x operating cash flow (good for a real estate investment trust).
So you have a business that is/has:
Growing (albeit at a slower rate)
Healthy balance sheet
Returning most/all cash to shareholders
Trophy properties
Benefits with increase in consumer spending
This one hasn’t run away with the rest of the market and should fare better than others in this “retail apocalypse” world. A 5.6% dividend (and growing) with a flat multiple might be enough to outdo the overall market over the next 3-7 years! (Don’t hold me to that.)