🗞️ Life Line or Life Support?

WHILE YOU POUR THE JOE… ☕️ 
Five Minutes of Fame, Lifetime in Jail

A Bolivian general got that ^ after a failed attempt to overthrow the government. If the same failure had happened to Chavez in 1998 Venezuela, that country could have seen a future similar to what Milei plans for Argentina.

Haven’t caught up with Argentina’s massive turnaround? We wrote about it earlier this week; the analysis is here📈.

You know who else will have their 5 minutes of fame? Joe Biden and Donald Trump. After a heated debate on Thursday night, during which Trump insulted Biden on his lack of golf skills, it looked like former President Trump had the right idea of just how tough the situation is in today’s economy🎆.

He got out on top but doesn’t care about the record; he cares about the future. Tariffs and all, there will be a hell of a lot of trading strategies coming from yours truly🔎.

Speaking of quitting while you’re on top, let’s get on with today’s email📧…

TOP STRATEGY THIS WEEK
Walgreens’ Collapse: Best Income Ever?

Shares of Walgreens Boost Alliance (NASDAQ: WBA) are now down over 25% in a single day… Ouch😢.

Let’s give a minute of silence to those who relied on this stock for dividend income as a proxy for a pension and for those who will now have the headache of switching pharmacies.

Walgreens is now looking to close a good chunk of its 8,500 ‘unprofitable’ locations across the US. That sort of headline justifies the stock’s price action, but here’s how the future could turn out after this move:

1. Closing these locations could free up more capital for the company, as there will be fewer lease liabilities and overhead expenses moving forward. You should seriously weigh this against the loss of revenue and market share.

2. The stock is done, the company is done, shoo, away, zip🤷‍♂️.

We’re willing not to dig into option #1 because there are much better alternatives, such as CVS Health (NYSE: CVS).

Why? Cracks fingers and starts typing💻️

This is a cash flow statement for our non-finance people in the audience. It measures, well, cash flow! How much cash went into the business vs how much went out, and you always want more cash.

Two things to keep in mind here. Operating cash flow, additions to property plant and equipment (known CapEx).

Walgreens had a net outflow of $314 million in 2024. After $1.1 billion in CapEx, the company’s free cash flow was nowhere to be found. Even in 2023, with $1.2 billion in operating cash flow, $1.6 billion in CapEx threw the company into negative free cash flow territory📉.

The company cannot run without cash, much less pay a dividend. That’s why Walgreens’ 8.5% dividend today should scare you more than a letter from the IRS; it’s a trap, a Tinder 3 at most😷.

On the other hand, here’s how CVS is doing:

CVS reported operating cash flows of $7.4 billion in 2023 and $4.9 billion in 2024. Accounting for the $984 million (2023) and $705 million (2024) in CapEx, CVS walked away with net positive free cash flow for both years.

The result? Outperformance in stock price over the past year:

CVS outperformed Walgreens, but both stocks are down after all.
Here’s where you can expect to make (monthly) income from this situation.

Realty Income (NYSE: O)
This stock pays a monthly dividend, as it is a real estate investment trust (REIT). The problem is, 3.4% of its rental income comes from Walgreens.

That stock is down over 1% after the Walgreens closure announcement.

Despite the drama, Realty Income counts on dozens of other high-quality tenants, who are sure to take advantage of vacancies left behind by Walgreens and sign leases with this landlord.

Due to this diversified tenant base and a strong stream of free cash flow from its portfolio, this dividend is as secure as ever and as attractive as ever😍.

It also has the highest dividends in company history (excluding the COVID sell-offs). Investors can now get up to 6% in annual yield; let’s just repeat, it is paid monthly💵.

Here’s what analysts had to say about Realty Income:

• 3.8% earnings per share growth, beating inflation and GDP growth.

• BNP Paribas has a $63 price target on it, or 21% upside 🔥from today’s price.

• The Vanguard Group boosted its stake in the company by 18.3% to a net position of $7.3 billion💰️as of May 2024.

STOCK OF THE WEEK(END)
It’s Not the Stock We Wanted, But It’s the One We Got

Hear me out. We all know that the buy now / pay later (BNPL) business model is causing some concern. Some on Twitter (X?) are having their own Michael Burry moment in “The Big Short,” calling BNPL a bubble💥.

While it does have some bubbly behavior, it is far from what most people think of a bubble. By definition, if the bubble pops, then a significant chunk of the economy will pop with it.

BNPL isn’t big enough to bring the economy down, so stop hating on it 😝.

Goldman Sachs analysts recently took their views public, placing a buy rating on Affirm (NASDAQ: AFRM) with a price target of $42 a share.

To prove these finance hardos right, the stock must rally roughly 37.7% 🔥from where it trades today.

The question is, will it get there? And more specifically, how can it get there?

Keep this chart in mind; it’ll be helpful in just a second. Credit card delinquencies are rising to levels not seen since the first quarter of 2011, which means businesses like Affirm (which deals in credit) should be a dump.

And that would be a right assessment. But, Goldman is right about one thing, Affirm isn’t part of this statistic.

Notice that flattish curve? It looks a lot different from the Fed’s data, right? Well, it seems customers going to Affirm are of higher quality than those at traditional banks.

This could be explained by a bit of sympathy. If people run out of options, credit cards and personal loans are now out of the picture, and then Affirm approves you to un-choke you from inflation; mere gratitude would be to blame for the low delinquency rates here.

Notice something? Growth is all over the place. Affirm’s active customer count grew by nearly 2 million and transactions by almost 1 million. More than that, merchants are adopting Affirm ✅as a financing platform.

Go to any Omega / Rolex store or even Hodinkee.com, and you will notice that Affirm is almost thrown at you as an option, as if people who need Affirm would be looking at luxury watches, right? That is the situation, though⌚️.

Anyway, the situation won’t get any better. Inflation is here to stay, and while some items may see less of an increase, most of the important items on shopping lists will remain on a steady rise😰.

This is why management provided better 2024 guidance, helping Goldman analysts decide.

NOW GO AND MAKE IT HAPPEN
Monkey See, Monkey Do

Late Charlie Munger (RIP), Warren Buffett’s right hand, recommended this book before we had a chance to hit puberty at InvestiBrew. Either way, we think it befits today’s message.

This book recommendation📖shows you the act of reciprocity; by being helped in times of need, Affirm customers fell under the spell of wanting to do good by Affirm as well.

To your success,

G. 🥃