🎙️ Aging Gracefully

The three major stock averages finished their sixth consecutive positive week, the longest such stretch of the year. More companies are hitting record highs, while gold reached another fresh record of its own and crossed $2,700 for the first time.

Bullion is one of 2024’s strongest-performing commodities, with gains of more than 30% so far this year. Meanwhile, bitcoin, aka “digital gold,” is up ~10% this week and back near $69,000.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Ulta Beauty’s new chapter

• Netflix is rolling in cash

This, and more, in just 5 minutes to read.

Chart of the Day

A Word From Our Friends at Vinovest

Whiskey: A Hedge Against Market Volatility

Looking to protect your portfolio from the next recession?

Consider investing in rare spirits like whiskey.

Whiskey investing provides a proven hedge against stock market dips driven by inflation and other factors.

With Vinovest, you can invest in high-growth segments such as American Single Malt, emerging Scotch, Bourbon, and Irish whiskey. Thanks to established industry relationships, Vinovest overcomes industry barriers that have made historically whiskey investing expensive and opaque. As a result, you can enjoy high-quality inventory that boosts your portfolio value and enhances liquidity.

Schedule a call with a Vinovest advisor to learn more.

In The News

💄 Ulta Beauty’s New Chapter: Aging Gracefully

Earlier this year, Warren Buffett's Berkshire Hathaway acquired a ~$266 million stake in cosmetics store chain Ulta Beauty. Unsurprisingly, that spurred a Buffett-driven rally in the share price, but that appeared to be short-lived. 

Ulta stock is down about 24% this year and flat over the past 12 months, while the broader market has advanced ~36% in the last year. Its shares trade at about 15 times forward earnings, 24% below their 10-year average.

• That’s mainly because Ulta isn’t a fast-growing retailer anymore. As The Wall Street Journal reported this week, it's entering a new chapter: aging gracefully.
  

• Ulta said it wants to compound sales annually at 4% to 6% from 2026. It’s also expecting lower profitability, with margins around 12%, down from 14% in 2021. 

Buying back: Ulta’s board approved $3 billion of buybacks, roughly 17% of its current market cap. 

Ulta has about 1,400 stores, though it sees a potential for 1,800 stores in the U.S. However, competition is heating up, with Sephora and other luxury cosmetic brands using Amazon’s distribution. 

But Ulta boasts large physical stores (10,000 square feet), which, as WSJ notes, “should be an effective competitive moat in a category where touching and trying out the product is important. It also has a successful loyalty program with 44 million members. Those members drive about 95% of its sales and have a 70% retention rate.”

Why it matters:

Ulta plans to open 200 new U.S. stores by 2027 and hopes to open 100 stores in Mexico over the next few years as part of its first intentional move.

• Ulta Beauty expects to post about $1 billion of free cash flow annually over the next few years and return most of it via share repurchases. More dividend announcements would help, too.

As WSJ concludes: “Ultimately, though, Ulta Beauty will have to appeal to investors who don’t mind slower growth but appreciate generous shareholder returns.” That sounds a lot like why Berkshire was attracted to the business.

Read more

More Headlines

🌀 Hurricane Milton’s losses of up to $34 billion could make it one of the costliest storms in U.S. history

🏠 Low home turnover rate, charted

🏦 AmEx profit beats as expense discipline offsets spending slowdown

🤯 Why some families will pay $500,000 for Ivy League admissions consulting

🤖 AI helped the feds catch $1 billion of fraud in one year

⚾ MLB playoff viewership surges as big market stars vie for World Series

📺 Netflix Beats Wall Street’s Forecasts in Every Major Metric

Netflix beat forecasts in every major metric, adding more than 5 million customers in the third quarter, sending its stock to a record high. From sub-growth to revenue, income, and free cash flow, Netflix has been firing on all cylinders. 

Sales jumped 15% to $9.83 billion, and earnings grew to $5.40 per share. 

Netflix shares have risen about 63% this year, ~120% over the past 12 months, and ~177% in five years. Shares have quadrupled since their May 2022 low after slowing subscription growth and the broader inflation-led selloff that year.

Feeling good: Netflix has since added over 60 million customers, primarily thanks to password-sharing crackdowns and a new, lower-priced subscription with advertising. Netflix ended the third quarter with 282.7 million subscribers. 

• “We’re feeling really good about the business,” Co-Chief Executive Officer Ted Sarandos said this week. “We had a plan to re-accelerate growth, and we delivered on that plan.” Added his co-CEO Greg Peters: Netflix is focused on being “a little better every day at delivering more entertainment value” to subscribers.

Pricing power: It’s expected that the password-sharing crackdown sub-boost won’t last much longer, and Netflix will need to find new ways to keep growing. Subscriber growth “does seem like it’s slowing back down,” one analyst told Bloomberg. 

• Looking ahead, Netflix expects sales to rise around 12% next year to as high as $44 billion. Price increases should help because Netflix has demonstrated that it has pricing power.
  

• The company grew most of its business in Europe, the Middle East and Africa. It lost customers in Latin America.

Why it matters:

Netflix reassured shareholders that it has a commanding lead in the streaming wars, well ahead of Warner Bros. Discovery and Disney, among other competitors. 

Ad biz: Meanwhile, Netflix's co-CEO said that the company is bolstering its advertising business with its ad technology and several new deals that could allow ad sales to double next year. “We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” the company wrote in its letter to shareholders.

• Netflix is doubling down on live programming, including a live boxing match and two NFL games on Christmas. 

Also of note: Netflix has quadrupled its net income over the past five years. Free cash flow grew to $2.19 billion for the quarter from $1.89 billion a year earlier. Its operating margin rose to 29.6% from 22.4%, higher than Netflix's projection of 28.1%.

“We want to balance near-term margin growth with investing appropriately in our business,” the company said. “We still see plenty of room to increase our margins over the long term.”

Read more

Together With FNRP

Diversify Your Assets with CRE

Ready to take your real estate investing to the next level?

Join our exclusive investor network and gain access to institutional-quality commercial real estate deals and diversify your portfolio with confidence.

Enjoy lower volatility, tax advantages, and fully managed real estate investing.

Quick Poll

On Wednesday, we asked: What type of travel do you prefer in the fall?

— Readers were almost evenly split among local getaways, longer road trips, and international travel in the fall. “Before kids, international travel. With kids, local getaways,” one wrote.

— Said another investor: “I live in South Florida, so that's the only time of the year that the weather and hell-hole swamp is bearable.”

See you next time!

That's it for today on We Study Markets!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Use the promo code STOCKS15 at checkout for 15% off our popular course “How To Get Started With Stocks.”

Advertise with us.

Follow us on Twitter.

Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.

You can also leave your comments/suggestions/feedback anonymously here.