2 Stocks Growing Despite Economic Downturn
by David Fessler, Advisory Panelist, The Oxford Club
Tuesday, February 10, 2009: Issue #932
It’s taken a dismal economy to do it, but Americans are finally saving more and spending less.
A lot less.
According the Commerce Department’s most recent report, consumers slashed spending for an unprecedented sixth straight month in December.
They’re driving less. They’re eating out less. They’re spending less on big-ticket items…
And based on sales, they’re spending more at the pair of price-friendly “stores” below -companies still growing, despite – indeed, because of – nationwide economic woes.
That’s great news for shareholders.
Like consumers, investors have become “spending conscious,” too. They have an estimated $5.6 trillion in cash right now. And once they start deploying all that money, much of it will undoubtedly hit these two stocks.
E-Commerce is Booming For Amazon.com
E-commerce is booming right now. At least it is for Amazon.com (Nasdaq: AMZN).
With literally millions of items in 18 product categories, there’s little doubt Amazon is the largest online retailer in the world. And it keeps getting bigger.
Regular acquisitions of niche online retailers allow the company to offer more and more products to its loyal customers. The strategy is highly effective.
In fact, from its humble beginnings in 1995, Amazon has managed to expand just about everything associated with its business:
- The company recorded 615 million visits to its website last year, double the traffic of Walmart.com, one of its chief competitors.
- It boasts more than 84 million active customers, up 17% year-over-year.
- And it operates 41 fulfillment centers located around the world, with over 12 million feet of warehouse space.
Innovation has been a key factor to the company’s success. In 2000, Amazon launched an e-commerce platform for motivated individual sellers. It took off. More than 1.3 million online stores use this technology. And it’s caught on with big sites, too.
Amazon.com – A Bumper-to-Bumper Online Retail Solution
Huge retail mainstays like Target, Sears Canada and Lacoste now use Amazon as a bumper-to-bumper solution for online sales.
The company’s cutting-edge web development has also made shopping more convenient, with features like “One-Click®” ordering at checkout. And it’s personalized the experience, too. They’ll make product suggestions based on your purchase history.
And Amazon understands that introducing new products is required for long-term growth. Products like its new Kindle® electronic reader. You can read more than 190,000 titles on this device.
Management’s vision for the Kindle line is nothing short of extraordinary: “Every book – ever printed – in every language – all available for download in less than 60 seconds.”
Convenience and product selection aside, there’s another reason more customers are clicking the “buy” button now: good prices.
Management knows money’s getting tight for many of their customers.
According to a slide in a company presentation: “Our objective is not to discount a small number of products for a limited period of time, but to offer low prices every day and apply them broadly across our entire product range.”
It’s working. Despite the wretched consumer spending figures, fourth-quarter sales were up 18% to $6.7 billion compared the same quarter a year ago. Net income was up 9% to $225 million.
And Amazon is in the “sweet spot” of its evolution. E-commerce will continue to grow by leaps and bounds – a trend that bodes well for another online innovator…
Netflix – A “Reel” Penny-Pincher
Going to the movies isn’t cheap anymore. The average ticket costs between $7 and $10. Then it’s $3 for drinks, $5 for popcorn… throw in the rest of the requisite junk food, and you’re looking at $20 per person. That’s $80 for a family of four. Then there’s gas, another $10 or so…
But there is an alternative to spending nearly $100 on movie night. And penny-pinching consumers are wholeheartedly embracing it. They’re watching movies at home.
And Netflix (Nasdaq: NFLX) is making it easy.
For one flat rate (as little as $8.99 a month) you can watch as many movies as you want, keep them as long as you want, and then simply drop them in a postage-paid mailer when you’re done. There are more than 100,000 titles to choose from. And you don’t wait weeks to get your selections, either.
Netflix has 100-plus shipping points. Over 95% of its customers experience one-day delivery of their movies.
What’s more, if you don’t want to wait at all, you can instantly download more than 12,000 titles directly to your TV or PC. And taking a page from Amazon, the company gets high marks for its customer service.
If your DVD arrives damaged, or doesn’t arrive at all, no problem. With just a couple of mouse clicks on the customer service page, all is well. And with so many consumers spending more time at home, business is good.
Netflix Grows to 9.4 Million Subscribers
The Netflix recently reported that its subscriber base grew 26% year-over-year, to roughly 9.4 million at the end of 2008. It’s grown 8% from the end of the previous quarter. Revenue’s up 19% to $359 million for the quarter. And it’s up 13% for the year.
Reed Hastings, Netflix’s CEO, commented on the results:
“Consumers embraced the Netflix experience in near record numbers last quarter with growth in our core DVD offerings and growing momentum with Internet streaming.”
The company expects to have 10.6 to 11.3 million subscribers in 2009. Yet given last year’s performance, that’s a conservative estimate.
A cost-conscious America is great for Netflix. This company is thriving in the face of the “economic gloom-and-doom.” And if you need a new TV to watch your movie, you can get that (and just about everything else) at Amazon.com.
Good investing,
David Fessler
P.S. These two companies dominate their space and have no clear competition – two of the characteristics of any company in the White Cap Index. To find out more, and get the newest five companies to be added to this hot index, sign up here.
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February 18th, 2009 at 7:56 am
Diligently going through my e-mails this a.m., I again saw this “Program Glitch” tickler. I looks to me like a laddered set of equities spinning off dollars (as dividends or otherwise) at pre-determined intervals. Since I am already a member (Lifetime Fellow), could you indicate it what issue(s)of the “Communique” or elsewhere that this was set forth in more detail? Thx. /s/ Parker Denaco
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