Are Shopping Malls Headed for Trouble?

Justin Bieber vs. Miley Cyrus

Best Disruptive Stocks

Are Shopping Malls Headed for Trouble?

I have no interest in either Justin Bieber or Miley Cyrus. I’ve never watched either of them do anything, on TV or YouTube. And because I skip TV commercials, I truly remain ignorant about their contributions to American pop culture.

But I do read—a lot—so I know that these high-profile performers are talented, rich and young. He’s 19 and she’s 21.

If they don’t do anything truly stupid, both of these kids have great lives ahead of them. But we all know that many young celebrities don’t make the transition to adulthood well, so there’s no way of knowing whether Justin (for example) is the next Paul McCartney or the next Kurt Cobain.

Which brings me to today’s chart, courtesy of Google Trends.

It shows the level of interest in Justin Bieber and Miley Cyrus over time, based on Internet searches.

(If you’re wondering where I’m going, and how this relates to investing, bear with me. I’ll get there.)

Miley’s star shone brightest first, thanks to movies aimed at young kids while she was a young kid. But Justin surpassed her when his music attracted the attention of a wider audience. However, he’s been cooling off since, while Miley late last year catapulted to the top thanks to what once upon a time would have been called risqué behavior.

Her time in the limelight was brief, however, and now Miley’s popularity is back down where Justin’s is—which is why someone at Google thought it clever to put the two together, in effect asking which will “win.”

Well, to me, the answer is fairly easy. I’d put my money on Justin.

Why?

It’s not because I like his music better. As I said, I’ve never heard him. In fact, it’s not because of any fundamental factors at all.

It’s simply because Justin’s chart is trending roughly horizontally, with a slight downward bias, while Miley’s is still falling like a rock.

Now, you could argue with me and say, “It looks like Miley’s chart is leveling out here.”

But that would be like looking at a chart of Lululemon (LULU) and claiming the same thing.

It’s very clear to me that LULU, which was a great stock for years, has lost its upward momentum. Today, investors are abandoning ship, and that’s a trend that is quite likely to take the stock substantially lower, and eventually take it out of the public’s eye, until someday, LULU becomes a value stock.

But can we really equate the charts of growth stocks with the popularity charts of pop stars?

Absolutely!

They both measure popularity, which is a kind of mass sentiment.

Growth stocks like LULU thrive as long as their popularity is growing, but when that popularity fades, it can fade quickly. Pop stars thrive on popularity, too. (The word is right there in their label.) But when popularity wanes, (remember Pee-wee Herman?) fans can stampede for the door—and it can be hard to turn that trend around.

For a stock like LULU to turn around, management needs to do something different—and that’s difficult.

For performers like Justin and Miley, it’s all about management, too. In fact, I can well imagine Miley’s manager, just about a year ago, saying, “Miley, for more than a year you’ve been slipping, losing popularity. You’ve got to try something different.” And she did.

It will be interesting to see where these charts go next. I’ll be watching, and I’ll update you sometime in the future.

Update:

A month ago, I wrote briefly about Voice of America, “an autonomous U.S. government agency, with bipartisan membership … established as a buffer to protect Voice of America and other U.S.-sponsored, non-military, international broadcasters from political interference.”

The program has an annual budget of $206 million and I asked, “Is it worth it, when the electronic world is swarming with news and opinion, and people are just as likely to tune in to the opinions they prefer as the “objective” truth?”

I told you I’d be keeping an eye on the website, as a way of judging whether it’s wisely spending its money, and my judgment today—based mainly on the fact that the Voice of America website remains static for days at a time—is that it’s probably outlived its usefulness.

But it’s devilishly difficult to kill government programs, particularly such relatively small, invisible ones, so I have little doubt that VOA will be with us for years to come. Interestingly, there was no response by readers to my initial question about the program, and that says a lot.

Moving on, it’s time for the fourth installment of “Best Disruptive Stocks.”

But this time, the idea is a short, based on a disruptive technology that represents a threat to an established industry.

Disruptive Stock Number Four

Simon Property Group (SPG) SHORT!

This investment idea is based on the thesis that as more and more commerce migrates to the Internet, traditional shopping malls will lose business.

Thus the Internet is the disrupter, and the victims of this disruption will be the big shopping mall operators, like Simon Property Group, which I chose because it runs the two malls closest to my house AND because multiple aspects of its charts show a stock that’s subtly shifting from a major uptrend to a major downtrend.

In other words, investors are slowly moving to greener pastures.

Fundamentally, all seems well with Simon, which is the largest Real Estate Investment Trust (REIT) in the U.S. The company had $1.3 billion in revenue in the third quarter year, and a plump after-tax profit margin of 24.0%. Analysts expect earnings to grow 10% in 2013 and 8% in 2014.

Debt is 391% of equity, which looks high but is common for a real estate business. And the quarterly dividend amounts to 3.1% annually.

But the stock is rolling over!

Exhibit number one is the Relative Performance (RP) Line, which peaked in July 2012. Since then, the stock has been underperforming the broad market. In fact, the RP Line hit a new in November.

Exhibit number two is the stock’s price, which peaked at 182 in May 2103, and fell as low as 142 in September.

Exhibit three is the rebound since then (in an extremely supportive environment), which has taken the stock precisely up to its downtrending 200-day moving average. Technically, that can be a great inflection point.

If all the news is good, why are investors selling?

Some investors may be worried (at least one Cabot analyst is) that as more and more of us elect to have UPS and FedEx deliver our packages—not to mention Amazon.com and its forthcoming drones—business at the company’s malls will suffer.

(My wife, for one, is leading the way. While she did a lot of holiday shopping, the bulk of it was online—and not once did she set foot in a mall.)

Some investors may be selling to move into more growth-oriented stocks.

And some investors may be selling because they’re afraid rising borrowing costs will hurt the business. Conventional-thinking investors spend a lot of time thinking about interest rates, so this is often a factor in the movement of REITS.

In any event, the stock is sending a message, and the reasons for that message are likely to become clearer as the months pass—and maybe sooner, because SPG will announce fourth-quarter earnings before the market opens on January 31.

So how do you play this investment?

You could sell short right here. If you own the stock, and you’re enjoying the dividends, you could buy puts. Or you could do nothing. Earnings releases frequently precipitate sharp moves by stocks, and we generally avoid entering positions just before earnings announcements.

Note: if you are looking to get regular income like SPG’s 3.1% dividend, and you’d like the opportunity for capital appreciation as well, I recommend our newest advisory, which was designed just for that purpose. Cabot Dividend Investor is for the investor preparing for—or in—retirement, who wants a healthy and growing flow of dividend income.

Take a look here!

Yours in pursuit of wisdom and wealth,

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

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Disruptive Stock #1: Spirit Airlines (SAVE)

Disruptive Stock #2: Align Technology (ALGN)

Disruptive Stock #3: Twitter (TWTR)

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