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Jim Woods’ “Diamond in the Rough” e-commerce play

Checking out the first of the "Guardian Angel" stocks teased by Intelligence Report

By Travis Johnson, Stock Gumshoe, January 13, 2021

This email hit the inbox and caught my eye today, from publisher Roger Michalski for one of the Eagle Financial publications:

“Seeing that consumers — the driving force behind our economy — are consuming in record numbers online…

“e-Commerce certainly is the place to be.

“The profit numbers shown here prove it.

“But where is the best e-Commerce place to be?

Jim Woods, editor of Intelligence Report (and the #1 Financial Blogger in the World, according to TipRanks.com) has uncovered what he calls an e-Commerce diamond-in-the-rough.

“Jim’s predicating it could soon shine brighter than Amazon.”

That email came in yesterday, January 12, though the ad that it links to is undated — so what’s the story? Well, they’re trying to sell Jim Woods’ Intelligence Report newsletter ($77/yr) with a pitch for “Guardian Angel” stocks — five stocks that he thinks will “survive pandemics and recessions.” Including, presumably, that “diamond in the rough” e-commerce stock he hints at in the email.

So… I’m always interested in finding a resilient stock, or an e-commerce stock, and if you can name some stocks that you’re sure will survive a recession, well, sure I’ll take a gander — shall we try to ID those stocks for you?

I thought you’d never ask. Here are the clues and enticements for that first idea…

“5 Companies, 5 Sectors, 5 Unbeatable Opportunities to Grow Your Portfolio During and After COVID-19

“Jim’s first pick, an eCommerce powerhouse, is set for a 4,327% gain! ….

“Jim’s taking a hard pass on Amazon at around $3,000 a share, and buying its competitor.

“It’s his #1 recommendation in e-Commerce today….

“… with COVID-19 spiking higher in most states…

“Online sales are set to see more stratospheric gains.

“Over the past year, its shares have gained 92%, rising almost 4x higher than Amazon’s shares.

“Better still, while Amazon’s shares rose an impressive 474% over five years, this company’s shares rose over 4,000%.

“Yet, it trades at a mere fraction of Amazon’s share price.

“Therefore, you won’t need a second mortgage to buy 100 shares of this company like you would with Amazon….

“… independent analysts are predicting its stock could soon be priced at well over $1,000 a share.

“Quoting one analyst:

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“‘This is arguably the market’s most exciting and powerful growth stock, with tons of upside potential still left.'”

He calls this a “David and Goliath” story, and says they had a huge holiday season — so apparently this ad is at least somewhat current:

“This past Black Friday/Cyber Monday, the company realized $2.9 billion in total sales.

“Processing 16,000 checkouts per minute.

“In 2019, nearly 300 million consumers around the world purchased goods from merchants selling on this company’s platform….

“Big name retailers like Heineken, Staples, General Mills, D-Link, Pepsi, Gymshark, Nestle, Staples, Kraft Heinz and Kylie Jenner’s multimillion-dollar cosmetic business are now using this company’s platform.”

OK, so this is a little disappointing — but despite the fairly recent-sounding Black Friday hints, and the urgency implied by the “these are the hot ideas for a COVID resurgence”, it turns out that most of those hints are from about six months ago… and yes, in case you’re wondering, this is another tease of Shopify (SHOP).

Which is still a David to Amazon’s goliath, I suppose, and it has risen a solid 15% or so in the past six months while Amazon was flat, but we’re still talking about a $1,000 share price for Shopify, and a historically ludicrous valuation of 60X sales. I own Shopify, I love the management and the product and the focus on growth, and I expect it to do well over the next decade, but it’s a $150 billion company now, no longer an upstart minnow.

There’s not much I can tell you about Shopify that you don’t already know, I expect — they offer up a software-as-a-service platform to help people almost instantly build an online e-commerce operation, and they profit both from selling that base software and from providing a marketplace of other software plug-ins and Shopify services, including fulfillment services (warehouses and shipping) as well as payment processing. It’s a great company, and when every single retailer felt the instant need to go online during the pandemic, it was one of the immediate and obvious beneficiaries, which caused their revenue to jump roughly 100% from 2019 levels, and turned them into a profitable company (kind of like Square, which I wrote about yesterday — sometimes if the revenue washes over the decks in a typhoon, you almost can’t help but report a profit even if you’re trying to reinvest all of your cash flow into expanding the business).

And in case you needed another reason to realize that this “new” ad is actually old news, yes, Shopify has been over $1,000 for much of the past several months — that quote about it reaching $1,000 a share is actually from a different newsletter pundit, Luke Lango over at Investorplace, and it was posted on May 8, when the stock was around $700 a share.

Shopify is one of the higher-profile “COVID winners” who have had a wild year, on top of a wild run before that, and where the stock goes next probably depends a lot more on whether investors are willing to pay 50X revenues for hot stocks than it does on whether or not SHOP hits its next-quarter earnings targets. Here’s what I wrote about SHOP back in October, not long after I sold half of my position to book some profits:

“My poster child for this kind of valuation is Shopify (SHOP), which was growing revenue at about 60% in 2018, was unprofitable, and traded at an average valuation of about 18X sales that year… which was widely lambasted as absurd, and the price bounced around between $100 and $150 or so that year as investors tried to digest that valuation and make guesses about the future (with some short attacks thrown in for good measure). After that, Shopify’s revenue re-accelerated in late 2019, and the share price predicted that and started rising about six months before the growth picked back up, then leapt further still with the pandemic’s boost to e-commerce driving another acceleration in revenues, but it absolutely could have gone the other way. SHOP revenues could have continued to moderate, with growth gradually slowing, and the shares could have languished in the $100s for a couple years and provided maybe a near-market return instead of the 500%+ return SHOP shareholders enjoyed. They didn’t, which is lovely, but that was not preordained — the wild short-term performance of SHOP has come from a combination of luck, very good management, and good timing with the pandemic tailwind that e-commerce has enjoyed. Accelerating growth is a rare thing for large companies, it brings investors pouring in, but it’s not generally sustainable for long, and that seems to be a big part of what drives these momentum stocks at the moment.”

What’s gonna happen next? I have no idea. I’d buy more Amazon today before I bought more Shopify, but both are well-positioned for the future and both are trading at valuations we haven’t seen in a long time — I expect that folks who buy either one today will probably be happy five or ten years from now, that would probably give time for the real operating growth to catch up with the stock price and recover from whatever big drops they might have along the way (and I’d count on both of them having nasty 20-40% drops at one point or another, as has happened several times in the past for both stocks — maybe even more, if we get a real crash), but anything shorter-term than that is just a guess about future investor sentiment about growth stocks. We’ve almost never seen these kinds of valuations for very large companies… but that was true six months ago and a year ago, too, in a lot of cases, and plenty of formerly expensive stocks have risen 100-200% (or more) in that time and gotten more expensive. I wouldn’t talk you out of buying Shopify, it remains one of my favorite companies — maybe the shift to e-commerce will be durable enough, and growth sustainable enough, to support this valuation and keep the stock soaring. I just have to confess that I haven’t had the stomach to buy shares since it was in the $300s about 18 months ago, and my most recent trade in SHOP was to take profits.

And I’ve run out of time, dear friends, so I’ll have to leave you with that somewhat stale but still interesting idea — if you’ve got thoughts on Shopify, or Amazon, or on e-commerce in general, feel free to shout them out with a comment below… and I’ll look into the other four ideas hinted at by Woods in a future installment (probably tomorrow). Have a great evening!

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coolsoupy
January 13, 2021 4:09 pm

Is shopify political like Amazon?

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oscarmeyersm
Member
oscarmeyersm
January 18, 2021 10:55 am

Hi, Travis. Can you please help me with this wonderful sounding cheap stock that David Forest and Casey Research are touting? They say it’s an 81cent stock, “The 5G Keystone”, “1.5 billion cutting-edge devices need this little-known component”. Thank you so much for your input!!

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oscarmeyersm
Member
oscarmeyersm
January 18, 2021 6:45 pm

I truly appreciate it!

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Sean
Member
Sean
January 27, 2021 3:40 pm

Were you correct?

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Sandra
January 18, 2021 7:37 pm
Reply to  oscarmeyersm

Same question

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Mike
Guest
January 13, 2021 6:24 pm
Reply to  coolsoupy

Yes, as are all of the internet these days.

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Dennis T
Irregular
January 13, 2021 6:30 pm
Reply to  coolsoupy

One thing to consider related to politics is that this is a Canadian company, so I do not think Politics would be an issue here. I turned down buying at.$110 and that was a major mistake

jflynch
Member
jflynch
January 13, 2021 7:07 pm
Reply to  coolsoupy

Yes

kibowalker
kibowalker
January 13, 2021 4:10 pm

ETSY is a better bet…many still aren’t aware of it.

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cabaoke
Member
cabaoke
January 13, 2021 5:08 pm
Reply to  kibowalker

With respect. I’d agree that ETSY is less known but isn’t that likely a result of their rather limited range of products offered? It seems a little too boutique like too me. So let me ask you this, does ETSY plan to expand its offerings and become more diversified in what can be bought or sold (like SHOP or AMAZ)?

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beachwind
beachwind
January 13, 2021 6:33 pm
Reply to  cabaoke

My biggest concern with etsy is that they will relax what is consisted artisinal in the name of profit. Either that, or people will start gaming the system (more than they already do) to where you are just buying that same junk you can buy on Amazon with your name painted on it for an extra $30. Then it is a race to the bottom until that botique side business doesn’t really make sense anymore. Or those artisians find a new service, like shopify, Big Cartel, Zibbet, Handmade at Amazon, Bonana, and the list goes on and on.
How much of a moat does etsy really have?

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Piano Jeff
Member
Piano Jeff
January 13, 2021 6:15 pm

I bought SHOP at $90/share on 10/10/17 when it was just a relative ecommerce “minnow” because Motley Fool was giving it a big push and because Travis ran a couple articles about it back then. Obviously, it’s been a big winner for me but I agree with Travis that it’s not really a good buy these days unless you’re looking at a long term hold of at least 5-10 years. These days, actually, I like Walmart (WMT) better than both Amazon and Shopify because I see Walmart having a much greater potential for 2x stock price growth over the next 12 months. Walmart has been reaching heavily into the ecommerce market and perhaps the biggest catalyst for them is going to be their push to expand their platform that allows any third party seller to host a “virtual shop” on the walmart.com website…just like Amazon and Shopify. Previously, Walmart has primarily only partnered with third party sellers who were mid-to-large sized companies. But now they’re making it easy for any third party who wants to sell anything online using the walmart.com platform. Bottom line, I think that’s one of the main reasons that amazon.com skyrocketed way back when from a mere online bookseller into an ecommerce giant. So Walmart…a retail giant in their own right.. has been expanding full force into ecommerce and putting billions of their financial resources into play. They made big inroads with their entrance into the grocery home delivery/pickup niche (originally launched in October, 2019 and then ramped up in April, 2020 with an “express” home delivery option). I personally believe that their push to expand third-party sellers on their walmart.com website will be a big boom for the stock price over the next year. And besides, the downside risk of buying a behemoth company like Walmart is practically non-existent…unless the entire stock market crashes (in which case you’re not safe with any holding…lol…). So for my money, I much prefer buying shares of WMT at $147 than AMZN at an exorbitant $3,165/share or SHOP at $1,200/share.

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fwsecvir22
Irregular
fwsecvir22
January 13, 2021 7:18 pm
Reply to  Piano Jeff

Interesting analysis. I will start watching Walmart’s business moves. Thank you. I have been investing heavily since the fall in tech stocks because I guessed (rightly, as it turned out) about the Dems taking complete control Jan. 2021. And I think the world’s central bankers will now really go into overdrive pumping out lots more fiat money and easy credit to help their globalist buddies. And this always seems to help tech stocks. Until all the govt. spending and central banker pumping explodes the debt bubble and the stock markets crash, along with the economy, I will count on tech stocks. So that’s why I will start watching the markets every day this spring, and especially the summer. But all that govt. spending and central banker pumping could help Walmart too.

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BJI
Member
BJI
January 14, 2021 4:30 am
Reply to  fwsecvir22

In light of “all the govt. spending and central banker pumping explodes the debt bubble and the stock markets crash,” is there a “Rule of Thumb” for setting stop loss orders for stocks?

BJI
Member
BJI
January 14, 2021 4:26 am
Reply to  Piano Jeff

YYYUUUPPP!!! on buying Walmart instead of those 2! My entire portfolio is only worth about $35,000 so where do I find enough dough to buy Amazon or Shopify?

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vintee786
January 19, 2021 12:47 pm

Hello
What do you think about CCI?

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vintee786
January 24, 2021 6:21 pm

Thank you!

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Peter Johnson
Member
Peter Johnson
January 13, 2021 10:52 pm

Travis, could you please investigate the small cyber security company that Bryan Beach is touting in Stansberry’s venture value newsletter?
Thank you

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Walter
Member
Walter
January 14, 2021 4:57 am

I think Amazon may face some regulatory scrutiny while the same is unlikely for Shopify. So, on that ground only, I would buy more Shopify before I buy more Amazon. Having said that, I think both are way over-valued and there are better opportunities. I am not selling, but I am not adding either. For a contrarian play I am looking at price action on Alibaba (BABA) and trying to get clues on whether the government will leave it alone.

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jenny
Member
jenny
January 14, 2021 8:02 pm

Thanks Travis for your insight and research! I really enjoy reading these newsletters. What do you know about Big commerce (BIGC)? they apparently were/are part of Instagram shopping- seems like Instagram will be a big shop place – do you believe Facebook will rise with this new deal or do you think the e-commerce platforms allowing sales will?

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vintee786
January 19, 2021 12:53 pm

Why you don’t do new stock fields such as EV Car, Crypto, Solar, etc.
Thank You!

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julian_satran
Member
January 15, 2021 4:07 am

Travis thanks for your analysis. I sold all my SHOP at the peek or close to. Their valuation is now well over what I am willing to risk. But that might change once they show that their logistic service work. I was somewhat surprised to see them adopted by retailers in my tiny country. Also, their entry into retail-banking offering (as a proxy) might change their attractiveness.

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Jay
Guest
Jay
January 18, 2021 8:56 am

SHOP has joined the Tech Mafia. Avoid. We need a better basket of companies that are not undermining America!

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dsouza.allwyn
January 18, 2021 3:36 pm
Reply to  Jay

Any reason for your comments ? pls help us understand

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jbmaverick
February 1, 2021 5:38 pm

Yeah, somebody recommends Shopify to me, I’m thinking that goes in the category of “Stuff it would have been great to buy a few years ago” – Not something I’m thinking you can realistically expect to make a killing in now.

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