Cement & Avocados

WHILE YOU POUR THE JOE… ☕️ 
J.P. Says Ditch the Loafers, Grab Your Sunscreen

A little bank called J.P. Morgan Chase & Co. (NYSE: JPM) just announced that it is doubling the number of offices it plans to open in Miami, which is now called ‘Wall Street South.’🌇 

Like it or not, Miami is looking to become the following New York, just like Dallas is looking to become the next California. A growing finance audience in Miami and newfound wealth are only two of the many reasons old Chase is looking to double.

So, if you’re in the finance space and looking to network, or even if you’ve been considering some career mobility, Miami might be the place for you.

The only problem you’d probably face is a new tan, and well, one of the highest rents in Florida.

But, that might change soon… Let’s get on with today’s email 💻️ 

HELPING YOU STRATEGIZE
Florida: Building Four Times More Homes

You know what Florida is getting less of? Avocados 🥑 . A sudden halt in avocado exports from Mexico caused many to worry about whether guacamole at Chipotle would get more expensive, but that should be the least of Floridian’s worries.

Rents and home prices will get higher, like Snoop Dogg higher, real soon. But as they say, it always gets worse before it gets better.

This mess all started with us looking into building permits, one of your routine indicator check-ups. We spent the past several hours looking into conflicting data, and without coming up empty, here’s what we found:

Permits are now down 3.5% over the month and 7.1% over the year. This means that the US isn’t confident about consumers affording mortgages or new homes, which makes sense as mortgage rates are near 7.5%.

However, not all permits are made equal, as one specific region saw a significant increase in permits.

While the overall nation saw declining permits, the South stood out in getting permits approved to build more property.

That takes care of the supply side of the equation, and for all our economics and finance majors out there, here’s how you can solve the demand side:

It seems Florida’s doing just fine without avocados, but having over 18k permits in a month will cause a bottleneck for building materials like cement.

The question is, where in Florida should this new cement be sent?

You can send it to Mr. Mouse directly. Orlando’s year-on-year housing shortage rate jumped by 40.2% 🏘️ , the most among other concentrated metro areas.

So, the big chunk in permits is justified by worrying about shortage rates. Here’s a stock you can consider in the coming months as the housing boom accelerates in FL:

Cemex (NYSE: CX)
This stock trades at 68% of its 52-week high 📉 because it is based in Mexico, and markets are being sort of non-inclusive right now.

But you’re smarter than that, as Cemex is Florida’s leading supplier of cement products needed to pour the foundations in all these new permits.

By the way, Goldman Sachs boosted the stock’s price target to $10 a share, or nearly 60% upside 🔥 from today’s prices.

But while these homes are built, what are Orlanders to do?

Avalon Bay Communities Inc. (NYSE: AVB)
Before rents normalize, those waiting on their next housing move could lock in a lower monthly lease before they inevitably keep going higher on the current shortage rates.

Why Avalon? It trades at the highest price-to-sales (P/S) ratio, roughly 9.8x compared to other residential REITs. Notice that the red ones have the most exposure to the Florida market, meaning a good chunk of their properties are in the region.

Markets are willing to overpay for Avalon’s rental income because they know it’ll take a few months to turn these permits into available housing units. In the meantime, Avalon is there to take these renters up.

But, even if that’s not doable for most, Airbnb Inc. (NASDAQ: ABNB) offers long-term stays without the hassle of furnishing a whole place or even taking care of utilities.

That could be why the company reported a 25% jump in long-term stays in its latest quarterly financials, too.

Now switch 'stays' with 'play,' and you'll get our top choice for starting the week right.

WEEKSTARTER STOCK PICK
These New Housing Units Better Be Scented

Those who have girlfriends (or wives) out there will feel a little burn in their pockets, especially as they realize that they will have to renew their leases or wait another few quarters to finally be able to buy that home they’ve been eyeing in the market.

The outlet to make up for this long wait will probably be a trip - maybe a few - to Bath & Body Works Inc. (NYSE: BBWI), but here’s how you could get some of the money you’ll spend back there.

It may not be much, but it’s honest work; your potential investment could start to grow at an average rate of over 20%; here’s why:

Return on invested capital (ROIC) is the amount of profit a company generates after accounting for equity and debt. Unlike return on equity (ROE), a company will be punished with a lower ROIC if it is too leveraged with debt.

Even though the trend has been below the average lately, Bath & Body Works’ ROIC is still high enough to allow investors to take advantage of compounding 📈 .

Sure, revenues have slowed down, and margins are contracting across the table for the business. However, that happens when you have a rising interest rate environment in your hands; it just makes doing business that much harder.

However, with over 40% gross margins, the company shows investors enough signs of pricing power and brand penetration to get through the cycle and come out okay.

Because it trades at only 10.7x of its 3-year average free cash flow (operating cash flow minus capital expenditures), it is considered a cheap enough valuation today, keeping in mind the business cycle's decline.

** Quick tip: Any P/FCF multiple close to or below 10.0x is considered a relatively good deal 🔎 

Here’s how analysts feel about the stock today:

J.P. Morgan - Boost to $53 a share, 26.5% upside.
Deutsche Bank - Boost to $57 a share, 36% upside.
Goldman Sachs - Boost to $56 a share, 33.6% upside. 

I don’t know about you, but the last few locations I’ve visited don’t seem like a slowing business at all 🛍️ .

NOW GO AND MAKE IT HAPPEN
Dumbed Down Financial Analysis

If this corporate lingo is new to you, or if you would like to go back to the roots of pure investing and be as simple as possible, then today’s book recommendation 📖 will feel like a back scratch after a good nap.

Who better to walk you through financial statements and what to look for inside them than Uncle Buffett? After nearly a decade in finance, I re-read this 2 years ago and still got a kick out of it; I hope you do, too.

To your success,

G. 🥃