A Tale of Two Cities

Wilmington, Delaware

Cary, North Carolina

Twitter (TWTR)

Continuing the story of my recent road trip from Salem, Massachusetts to Savannah, Georgia and back, today I focus on two cities, Wilmington, Delaware and Cary, North Carolina.

Wilmington, Delaware

Wilmington, of course, is where the headquarters of E. I. du Pont de Nemours and Company is located. Here’s a photo from my visit to the Hagley Museum, which is located on the grounds of the company’s original gunpowder mill, built in 1802.

DuPont is a component of the Dow Industrials and almost certainly a fine long-term investment for risk-averse investors.

But all is not well in Wilmington!

Yes, business is booming at DuPont, and yes, the museums showcasing the glories of the DuPont legacy were enlightening and inspirational.

And driving through the suburbs of Wilmington was exceedingly pleasant, with numerous beautifully landscaped properties containing lovely mansions of all shapes and sizes.

Furthermore, downtown Wilmington has a lot of tall buildings where the bankers work. As students of business know, Delaware is a great place to incorporate a business, regardless of where you actually are. You can charge higher interest rates and you can avoid paying some taxes in your own state.

As a result, Wilmington is the national financial center for the credit card industry, and that’s in no small part due to regulations enacted by former Governor Pierre S. du Pont, IV. (He’s the great-great-great grandson of the founder of DuPont.)

Bank of America (formerly MBNA Corporation), Chase Card Services (part of JPMorgan Chase & Co., formerly Bank One/First USA), and Barclays Bank of Delaware (formerly Juniper Bank) all have their headquarters in Wilmington.

And Wilmington has the recently renovated Joseph R. Biden Jr. Railroad Station, named for the former senator-now Vice President-who took more than 7,000 round trips to Washington D.C. in his Senate career.

But I had a very hard time finding any real middle-class people in Wilmington. To be blunt, it seems like they’ve all moved to the suburbs, leaving the downtown to people too poor to have any choice. As a result, Wilmington feels sort of hollowed out. We stayed at the Hotel DuPont, a grand old hotel that’s showing its age-and has more to offer than the local market now wants-on a Friday and Saturday night, were shocked to see how dead the streets were.

A few stats tell the story:

  • Wilmington’s population peaked at 112,00 in 1940. Now it’s about 71,000.

  • Median household income is $32,000, with 28% of the population living below the poverty line.

  • March 2014, Movoto Real Estate rated Wilmington the most dangerous small city in the country.

I don’t have a solution to Wilmington’s problem, but I do know this.

Just as companies are far better investments when revenues are growing, cities are much more viable when people are moving in, not out.

So the first step to fixing Wilmington’s problems is to the stem the exodus. Get people moving back into the city.

This shouldn’t be as big a problem as in Detroit, for example. Detroit’s leading industry grew mature and uncompetitive, while Wilmington’s leading industry is booming, and the suburbs are awash in money.

One small part of the solution is for artists, who often flock to low-rent places, to “discover” downtown Wilmington and start attracting some of that money. But obviously more is needed, including capable leaders who can make it happen.

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Cary, North Carolina

Then there’s Cary, North Carolina, where my wife and I stayed a night to visit with one of Cabot’s analysts.

Cary is technically a town, but it’s got the population of a city.

In 2000, the population was 95,000. Now it’s topped 150,000.

Cary was the fifth fastest-growing municipality in the U.S. in 2006-2007.

It’s ranked the third safest among U.S. municipalities with populations of 100,000 to 499,999.

The median household income for Cary as of 2011 was an astounding $110,609.

More than 60% of adults possess a bachelor’s degree or higher.

The schools are very good.

And all that is mainly because of the influx of skilled, educated workers attracted by private industry.

The top for-profit employers in Cary are SAS Institute, Verizon, American Airlines, Kellogg, Charles River Laboratories and Deere & Company.

The biggest problems in Cary are controlling growth and preserving the environment-good problems to have.

But there are two things missing in Cary that make it a place I could never live for long. One is a substantial historical downtown. Cary is mainly one big affluent sprawl-and some people love that. But as a product of one of the more history-laden cities in the country, I like old buildings, and most of Cary is just too new for my taste.

The other thing missing from Cary is family-mainly my family. I have 35 relatives living here in Salem, and I can’t imagine living anywhere else.

But Cary was a nice place to visit, a great illustration of what real growth can bring to a community, and a reminder to me that rapid growth is what characterizes my favorite investments in the stock market.

Speaking of the market, volatility went through the roof last week, and it was quite unpleasant for many people.

Hopefully, you’ve been listening to my cautions in recent months, describing the dangers of the market’s faltering breadth, and your portfolio wasn’t hurt too badly.

So what comes next?

If all goes well, the massive selling pressures will end soon, we’ll get a classic sharp October bottom, and the buyers will resume control to give us a nice year-end rally.

But if that doesn’t happen, the market could easily trend lower for many more months.

So, don’t be in a hurry to jump back in and risk “catching a falling knife.” Wait for clearer signs of an uptrend.

Short-term, those signs would include much improved market breadth, bigger volume on the upside, and healthy breakouts to new highs by numerous new leaders.

But if we don’t get a bottom soon, the bottom that will be built farther out will be characterized by significantly lower market valuations, significantly more bad economic news (the more unexpected the better) and significantly poorer investor sentiment.

Speaking of sentiment, Cabot readers had grown notably less concerned about risk in recent months, which was just one of the reasons I’ve been advocating caution.

But the big picture about investors’ attitudes/interest in investing tells us most people are still not thinking about investing!

Note this Google chart showing the frequency of search terms related to investing (click the image below to enlarge it).

To me, that’s just one of the reasons to be long-term bullish, and just one of the reasons to continue to ferret out great growth companies with huge upside potential-like Twitter (TWTR).

Now, I don’t tweet much, mainly because of my age. I know I’m supposed too, because it’s supposed to help the Cabot business, but there are 101 things I’d rather do, not least because I like writing in full sentences and paragraphs.

Nevertheless, I’m very excited about the growth prospects of Twitter, which I see as a new ad-supported media platform. In fact, I recently recommended TWTR to my Cabot Stock of the Month readers, writing:

“Revenues at Twitter are not only growing at triple digit rates, they’re accelerating, and that’s a powerful trend that’s not to be underestimated. It means that as companies with advertising budgets are figuring out how to use this new medium (which Twitter has called an Information Network as opposed to a Social Network), they’re throwing money at it faster and faster.

How far this trend goes, no one knows, but I do know that people tend to underestimate the future, so I’m very optimistic that this new medium can grow to become something far more useful and thus far more valuable than it is today.”

Now, I’m not going to tell you to buy TWTR here. But I can tell you that even with the market’s latest shenanigans, my readers are sitting on a profit and looking for more in the future.

If you’d like to join them, you can find more details here.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory

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