Big-box retailers were among the big winners during the pandemic in 2020. Shoppers flocked to the likes of Walmart and Target, as stores deemed non-essential were forced to close.
Lex predicted at the start of this year that big-box stores would continue to win even after rival stores reopen. Target, in particular, stood out. Compared to Walmart, the Minnesota-based retailer has the advantage of having strong private label offerings and a more affluent customer base.
The use of its network of 1,900 physical stores as mini-fulfilment centres to enable kerbside pick-up and same-day delivery is powering sales and keeping a lid on delivery costs. All this made Target shares a good buy even after a monster 2020.
Investors who took Lex’s advice would have made a gain of nearly 30 per cent on their Target shares this year. Walmart, by contrast, is down 3 per cent.
Lex is not always right, of course. We were impressively wrong on meme stock favourites AMC and GameStop. Both operate in industries — cinema and brick-and-mortar video games retail — that were already in terminal decline before the pandemic. The lockdown left them teetering on the edge. In January, when AMC secured more than $900m in new financing, we opined “no happy ending is in sight”. In February, we crunched the numbers and argued that lossmaking GameStop was worth no more than $1.7bn on an enterprise value basis.
GameStop looks to end the year up almost 700 per cent and currently boasts an EV of over $10bn. AMC looks set to finish the year with an even more impressive 1200 per cent gain. Its market capitalisation of $14bn is bigger than that of American Airlines.
Neither stock is being traded on its fundamentals, of course. Their astronomical gains are driven by the collective might of retail investors gathering on sites such as Reddit and Discord. Lex failed to appreciate that meme stock trading is not just a fad. On this, Lex will eat a slice of humble pie with Christmas turkey.
