Tag Archive: sales

Online shopping trends remain a key driver of equity returns

The growth of online shopping has been well-established for years now, but the pandemic has prompted an acceleration in that trend, which continues to be felt in relative stock returns.

The chart below shows the year-on-year growth rates of total US retail sales and online retail sales (non-store retailers) over the last five years (based on monthly retail sales reports from the US Census Bureau). We can see that online sales have been growing significantly faster than total sales the entire time, and most notably, are now near their highest growth rate (20%+) even as total retail sales dropped sharply earlier this year and are currently roughly unchanged from year-ago levels (indicating that non-online sales are down from a year ago).

The bottom section of the chart plots online sales as a percentage of the total. While there are seasonal swings in the monthly data, the 12-month average shows a clear upward trend over the last five years, with a distinct acceleration most recently. In the last five years, online sales have grown from less than 10% of all sales to almost 15% (on a 12-month basis), and briefly surged to 18% amid the lockdowns earlier in the year. Online and Total US Retail Sales Growth

The reasons for the shift to online shopping during the pandemic are mostly obvious, as the ability to shop in physical stores was sharply limited in many areas due to lockdowns and worries about the coronavirus. This is, however, another example of a trend that was in place well before COVID-19 arrived, and has simply accelerated. While store-based retailers may take back a bit of share near-term, the longer-term trend towards online shopping (at least for things that can be bought online) and entertainment services like video games looks likely to continue.

What about the impact on stock prices? The year-to-date returns to some industries in the broad S&P 1500 Supercomposite Index that are closely tied to these trends make the point (example constituents are shown for reference in parentheses — these are not recommendations to buy or sell). For comparison, the S&P 1500 index has returned 8.6% for the year-to-date.

  • Internet & Direct Marketing Retail (Amazon, EBay, Etsy): +71%
  • Air Freight & Logistics (FedEx, UPS): +54%
  • Interactive Home Entertainment (Activision Blizzard, Electronic Arts, Take-Two Interactive): +32%

One clear loser has been commercial real estate, especially the REITs (real estate investment trusts) that own retail space (malls, etc.) that rely on store-based retailers. Department stores make up many of those, and have been hurt badly, as have some of the companies that make the products sold in stores, particularly fashion clothing and accessories.

  • All REITs: -9%
  • Retail REITs (Simon Property Group, Regency Centers, National Retail Properties): -40%
  • Department stores (Macy’s, Nordstrom, Kohl’s): -62%
  • Apparel & Accessories (VF Corp., Ralph Lauren, UnderArmour, Movado): -28%

The impact of the shift to online buying is ongoing, as is the impact on company earnings forecasts and stock returns. While in-person shopping will always be there, it seems that there is scope for further shifts toward online shopping, and finding the winners and losers from it will likely remain important even after the impact of COVID-19 has eased.

The S&P 500 is top-heavy, but so are fundamentals

There has been much discussion about the increasing concentration of the market cap weighted indices in the US, with the S&P 500 now showing some of the highest levels of concentration among the largest constituents in history. The top 20 S&P 500 stocks (4% of the constituents) currently comprise 38.6% of the index weight, while the top five companies alone make up 23.8% of the weight.

But what about the underlying fundamentals? Are they as concentrated as the capitalization weightings? Broadly speaking, the answer is yes.

Following are a chart and two tables based on the top 20 stocks in the S&P 500. The chart below shows the proportion of total estimated operating income and sales made up by the top 20 S&P 500 stocks each month over the last 15 years. The figures are based on consensus analyst forecasts for net income and sales for the current fiscal year (currently FY2020), rather than trailing reported financials.

Top 20 SP500 Earn Sales

The first message from the chart is that the top 20 stocks do in fact make up an increasing proportion of income and sales, but the proportion is not historically outlandish. The largest stocks have tended to produce 30-40% of total index earnings and 31-35% of total sales, and are near the upper end of those ranges now.

And possibly more surprising to some, the proportion of earnings expected to be generated this year by the top 20 stocks is very similar to the proportion of market cap they hold (39.1% of earnings as of the end of July, vs 38.5% of market cap). The proportion of sales from the top 20 is similar but slightly lower at 35%. So the most heavily weighted stocks in the index are in fact producing a comparable proportion of earnings and sales in aggregate (not for every stock of course). The S&P 500 has long been “top-heavy” to varying degrees due to the presence of a few dominant mega-cap stocks, but right now that broadly captures the similarly concentrated nature of the underlying fundamentals.

What are the top 20 stocks by earnings and sales? The tables below show the latest monthly lists. While some names naturally appear on both lists, there are some notable differences in the lists of earnings versus sales, as profitability varies significantly in some cases. Amazon.com, for instance, has the second largest sales but is not among the top 20 for earnings. The same is true for a number of other well-known names whose earnings are either depressed right now or whose profitability is structurally lower.

List of Top 20 SP500 Net Inc List of Top 20 SP500 Sales

And finally, for some interesting historical perspective, the tables below show the top 20 S&P 500 stocks by earnings and sales 10 years ago (as of July 2010). Notably, the range of estimated profits among the top 20 was narrower 10 years ago, and a number of the names have changed over the last decade.

List of Top 20 SP500 Net Inc 10 yrs Ago List of Top 20 SP500 Sales 10 yrs Ago