Sunday Funday: Dollar General

Dollar General has succeded in becoming a power source of its own. It was initially thought that no one could compete with the giant that is Walmart, but as we have seen over the past few years, the size of Walmart can actually be used against it. Dollar General has succeeded by combining the power of cheap with perfection in square footage. While Walmart has many employees running around being completely useless, Dollar General has just a few employees racking in huge profits.

These saving stores have had a great run over the depths of the recession. I am here today to argue that even as fuel prices go down and the economy looks better, these stores will continue to excel. In particular, Dollar General, because it has succeeded in stealing revenues and customers from the bigger discount stores like Walmart. Instead of going to Walmart or Target to pick up a few random needs, Americans are entering their dollar stores like Dollar General. This movement may be due to ease of use or avoidance of the mania in the big price savers, but either way it bodes well for Dollar General. Not only that, but with an expanding landscape of stores and a more competitive line of merchandise their is just no stopping the DG.

The last and final fact that pushes Dollar General to the top of my radar, deals with the change in Americans habits. Americans will stop at nothing to save a dollar. Walk through your daily routine and you will see a mass amount of individuals pinching pennies everywhere. This behavior has stemmed from the tough times that were prevalent for the past few years and still encompass our world. These cost saving behaviors will stay with the consumer for quite some time and penny saving stores like Dollar General will continue to excel in that type of environment. So no matter how you feel about the future of our economy or the global economy, stores that sell bargains will be packed with everyone from the low class to the upper.

What is Sunday Funday?

(though DG may not be very fun oriented, I am somehow convinced by the woman in my life to do a ridiculous amount of shopping on the weekends)

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Inspirational Weekend Post

Continuous effort – not strength or intelligence – is the key to unlocking our potential.” -Winston Churchill

We all have goals and ambitions, some bigger than others. It is always good to take a moment and focus on the direction we are headed. With the excitement that is to come in the following weeks it is best to take a Saturday and remember why we do what we do. Maybe you get up at 5 A.M. for your family, for yourself, for your love of trading. Remember why you do what you do, what your long term goals are, and this will ensure that the next challenge that arises you will take in stride. Ensure that you are putting out “continuous effort” and this will guarantee that you are on the path to accomplish your goals. Success is not an overnight event, it is an effect that has many causes from a wide range of times and avenues (as the best traders know, the best trade is not a one day 10 % win but rather that 6 month 100% return) . Take today to clear your head, put that to do list aside, and prepare to conquer your long term goals.

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My Research Note

Analysts just like a vast majority of traders are reactive rather than proactive. This does not bode well for your portfolio or mine. Over the trading day today, Zynga has been beaten, mutilated, with no regard to its true potential. I had thought over the past week that the suffering had come to a halt, that possibly the end was near. Instead, more have capitulated, more have ran, the price has continued to decline on huge volume. Today the masses have left in exodus due to a negative research note. This note merely supported my earlier thesis stated this year, that Zynga was set up to own the mobile space, and profit handsomely from it.

As I have mentioned in my previous research notes (Assuming Social Media and Mobile Are Dead and Looking Past The Facebook IPO At The Future Of Zynga), which may be more vetted then the piece published today, Zynga has set themselves up to capture the whole of mobile. Zynga has taken the door Facebook has opened for them, profited from it, and has now opened the door of mobile. Why in the world would Zynga buy OMGPOP? Well the masses believe it was to throw away a few hundred million. Those with a little common sense can see it was to become a more dominant force in the mobile community. You think that if the Facebook gaming community was declining Zynga wouldn’t know about this, wouldn’t have made plans to profit elsewhere? Really? Contrary to popular belief Zynga desires to be profitable and make money for themselves, as well as shareholders. They have been setting themselves up for quite sometime to capture the mobile platform, along with the Facebook, Google play, internet, and soon to be iTV platform. As the rest of the year plays out, as we see many potential sellers turn into investors due to the dramatic price decline, things will get better, if not great for Zynga.

Of course when many around you, including those in the know, suggest a stock is headed towards $0.00 it is easy to capitulate. It is easy to suggest that death is near and that the company has no future. Well more often than not the right trade is never easy, just ask those who bought Yelp at $15.00 last week. Just ask those who bought Zillow at $20 last year when it was headed towards the abyss. Social media will be profitable, especially with the push from investors to monetize mobile. Facebook will monetize, succeed handsomely, and social media will be a darling once again. If you fear that social media isn’t the future, just buy Apple, oh wait isn’t that tied to mobile? That’s right the tech darling of the industry is betting on mobile as well, so I will continue to bet on mobile, elsewhere, where the returns are greater. Mobile is the future, Zynga has been and will continue to be positioned for this. The social media premium has long left us, but it will return. The growth is obvious in the mobile area and as I said in the past, Zynga is set up to profit from many platforms, many cell manufactures, be that of Google, Apple, or the next big thing.

Zynga is about to pull an OJ.. be prepared.

Photo by Marc van der Chijs

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Do Lower Fuel Prices Bode Well For Walmart and Dollar General?

At the beginning of the year I was adamant that higher fuel prices were negative for the overall economy and in turn beneficial for both Walmart and in particular Dollar General. Today, with the decreased price at the pump one could lean towards the opposite end of the spectrum, arguing that with more money in the consumers pocket they will upgrade their spending habits. This assumption is wrong. Over the last few years in the time of this dire recession, Americans habits have changed. Americans have become more money conscious without even realizing it, they have learned to pinch penny’s without even attempting to. With continued lower prices at the pump we will see overall better sales in the lower end, in names such as Walmart and Dollar General.

Walmart prides itself on having some of the best prices around and some days Dollar General goes as far as to beat them at this game (due to smaller square footage, aka less overhead). Either way these entities are set up to make a killing in the recent environment that has surfaced. The key to the coming success is their access to consumers. Walmart and Dollar General have a strong consumer base that they have established through the rough part of the recession. Now these consumers will have a few extra dollars in there pockets. So in turn Walmart and D.G. will have a few extra in theirs as well. We will see the consumer base step up and not only purchase more items, but possibly step up to name brand items, that are higher margin. This suggests that even with a somewhat bettering economy both Walmart and Dollar General are places to be (possibly Target, but that’s an article for another day).

Photo by Patrick Hoesly

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Perception Is Everything

In the world in which we live and flourish, perception means everything. We buy certian cars, houses and clothes to give others a certain perception of us. We attend specific universities and pay in $100 bills to imprint our identity on those around us. Perception rules our lives. The perception of Facebook since their lift off has been nothing but horrific. Does this perception mean they deserve to lose over $40 billion of market cap? No. Though, perception rules our world and as of late Facebook has a negative perception in the eyes of many (or those that matter in the investing world). In due time the perception will reverse and the social media bulls will be rewarded.

The plight of Facebook has not been helped by the talking heads or the investors that don’t even understand the  workings of Facebook. I constantly hear comparisons between Myspace and Facebook. At this point I find it ridiculous. It just goes to show how many investors fail to understand the ins and outs of a company before they invest. It shows how ignorance encompases the field of investing. Would you have bought into Apple for the iPhone if you had no idea what a smart phone was? A smart investor would have gone to the store, seen the hype, and explored the product prior to putting money behind his or her thesis. So for all you fools that claim that Myspace and Facebook are one in the same, I have nothing to say to you. You have failed yourself as an investor, because these products are galaxies apart. My mother and her generation did not even know what Myspace was but today she checks her Facebook daily on her iPhone. Event planning for a mass majority of individuals is done via Facebook. That is just a mere example of what separates Facebook from Myspace, oh yeah and the difference of about 870 million users at there peak (though Facebook is still growing strong).

the hatred for the Instagram deal astounds me. Everyone fails to grasp how great of a move it is. Facebook just made an aggressive move against Twitter. Instagram has a majority of their postings on twitter or is linked to twitter. Zuckerberg showed some cojones and marked his territory and now the world is mad at him. The best tech companies are the ones that protect their best interest and hinder that of their competition.  A picture says a thousand words, or rather, a picture says everything a profile description says. Facebook wasn’t going to miss out on the next thing, it’s going to integrate it to be part of its platform. The move was pricey, but a must, and it shows that Facebook is here to stay one way or another.

For those you that are not so familiar with the social media environment, Facebook’s competition twitter is set to make a billion in about two years. This should come as a giant surprise to many being that Facebook and all other social media stocks are headed directly to zero. For those of you who believe in the story of Facebook, that has been far from a fairy tale, this should be some conformation in your beliefs. These companies are making money and growing at rapid rates. Though Facebook has failed to monetize mobile yet, it will, and it will do so at the same time as protecting the user experience. Zuckerberg understands that there is a need to balance profits and user experience, because without users Facebook has nothing.

Don’t believe the talking heads or the poorly written articles by individuals that have never traded or held stocks. I rode LinkedIn down from $80 to $60 last year then back up, pulling out my hair, fearing for a portion of my portfolio the whole way. Do you know what the know it all skeptics said? They said it was worth $0.00. It was worth nothing, absolutely nothing. Now, today, it is the social media stock to own. So don’t get your panties all in a wad, perception can change overnight. In due time Facebook will prevail because it didn’t become a giant by luck. It may be a long road, but Facebook will be a stand out in the end.

A must watch below.

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