Wall Street Continues Rally

Catch Up Quick

• SoftBank understated income to Japan’s tax authorities by around $380M last year

• Twitter is being investigated by the FTC for illegal use of phone numbers

• Trump says he may extend a nationwide moratorium on evictions

• U.S. manufacturing activity hits highest levels since March 2018

• Outlays for construction projects fell in June for the 4th straight month

• Trump reiterated that the U.S. Treasury would need to get a cut of any TikTok deal

• Teladoc ($TDOC) agreed to buy Livongo ($LVGO) for $18.5B in cash and stock

My Wednesday Opinion

• After 20.5M Americans lost their jobs in April (the worst jobs report in history) May and June saw an unexpected bounce in hiring— July’s employment report, coming this Friday, will be very interesting to say the least; between high frequency (real-time) data suggesting the jobs rally has ended and payroll stimulus running out, it is very possible things could get ugly

Thought of the Day

• Best Buy ($BBY) has continued to outperform its retail neighbors (+14% YTD)

• Last week, it announced its 2020 Q2 revenue rose 2.5% from the same period in 2019, while rising 15% since stores reopened in June

• This is particularly impressive given the fact that most of its foot traffic is from appointment-only visits at the moment

• Best Buy also has promised permanent wage increases for its employees

• So how exactly is Best Buy thriving in the retail apocalypse?

• In short, I believe it can be summed up as follows: as both employees and students get set up to complete obligations remotely, Best Buy has capitalized on this demand by having a strategic combination of brick & mortar / eCommerce sales channels

• For instance, customers can shop online and elect to pick up in-store (there are so many locations, this works almost everywhere)

• This avoids expensive hardware shipping costs, while minimizing exposure to the virus risks of shopping utterly in-store

• There are other reasons too, given its pricing power (high payables outstanding, low receivables outstanding, etc) allows it to be dominant industry force, offering wide selections of products & consistently attractive deals

The Bottom Lines

• Taking a step back, from an investors perspective, there are two main frameworks of thinking 1) a top down approach [economy → industry → individual stock] 2) a bottom up approach [individual stock → industry → economy]

• Tying it all together, Best Buy is a prime example of how a bottom up approach can be far superior to the former, given certain high alpha names can be artificially excluded from a top down process if the industry as a whole is tanking

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