Here are Doug Kass' top thoughts on some of the biggest stories of the week.

Dillard's Keeps Delighting

Dillard's ( DDS - Get Report) is up more than $3 as this writing to almost $76.75.
This is likely one of the biggest short squeezes in many months.
Originally purchased last month and placed on my Best Ideas List at under $51 a share, I sold out the position earlier this week.
However, I would be a buyer on any meaningful pullback.
In the space I have added to Nordstrom ( JWN - Get Report) .
As I mentioned in my rotation column this week, if I wasn't so bearish I would be into some more long trades in retail.
Position: Long JWN large .
Originally published July 27 at 11:09 a.m. EST.

It's Time to Sell Amazon

I saw little that looked encouraging in the second-quarter report that Amazon (AMZN - Get Report) released after the bell Thursday. While I'm mindful of the stock's "cult status," all of the fundamentals and valuation figures that I'm seeing point to selling the stock.

For instance:

  • While North American e-commerce sales accelerated 26.5%, Amazon Web Services saw its gains slow to 42%. After all, the cloud sector is beginning to get crowded thanks to Alphabet (GOOG - Get Report) , (GOOGL - Get Report) , Microsoft (MSFT - Get Report) and others.
  • Amazon Web Services saw its EBITD margin decline quarter over quarter, something that probably won't please tech investors (who normally disdain margin compression).
  • AMZN's total sales rose $7.5 billion in the quarter, but EBITD only added $118 million. This is a 1.6% conversion of incremental revenue to EBITD, which would be a monumental disaster for any business except this one.
  • AMZN sells at about 212x EPS. That's a big number for a $500 billion-or-so company.
  • The EBITD multiple is 37x.
  • Amazon builds things, but doesn't generate an economic profit. AMZN's free cash flow isn't growing, either.
  • Interest grew 8% sequentially, while pretax declined 44%.
  • Amazon paid a heavy tax rate, but earnings per share were down 78%.
  • The company has 492 million shares outstanding and a market value of about $500 billion. However, AMZN has $14 billion of net cash. That leads to a roughly $486 billion enterprise value.

Beyond my concerns with Thursday's earnings report, I see secular challenges for Amazon as well. For example:

  • Amazon is facing an existential antitrust threat. The company is (finally) attracting some media and political attention for its business practices.
  • AMZN is currently disrupting the auto-parts and appliances businesses, and it has big plans for food retailing. The company might very well have too many opportunities -- or perhaps it's creating a massive smokescreen, using profit generation to mask underlying business problems.
  • Third-party sellers are avoiding taxes on the Amazon platform.
  • AMZN is attracting a sizable stable of enemies.
  • Old-line retailers like Walmart (WMT - Get Report) and Best Buy (BBY - Get Report) have proven that they can compete against the company.
  • The market rotation away from the FANG stocks might have already begun.

The Bottom Line

As I expressed in my recent column Buying Into Retail Seems Like Best Bet Amid Latest Sector Rotation, I'm on the side of the underdogs when it comes to Amazon. To me, it looks like Amazon's best days as an investment might be behind it.

Originally published July 27 at 8:28 p.m. EST 
Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings. This week he blogged on:
  • How biotech is having sharp reversals
  • How crude is surging

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