Weekly Reads - October 9, 2023
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Despite declining buyer sentiment and 7% interest rates, median U.S. housing prices remain elevated setting the residential real estate market up for a potential crash if things remain the same.
The latest published survey from Fannie Mae indicates that most Americans think it’s the wrong time to buy a home. 86% of survey respondents said that it’s a bad time to purchase a home (a survey high) versus 16% who said it was a good time to buy a home (a survey low). The main driver behind these results has been the 7% interest rate buyers face when buying a new home which surpassed high home prices as the top reason for not buying a home for the first time since this survey was published. Most respondents don’t believe the interest environment will improve with only 17% of respondents believing that rates will go down in the next 12 months. 46% of respondents believe interest rates are likely to increase, adding more uncertainty to the housing market. On the supply side, there are signs that housing inventory might be deteriorating with 37% of respondents saying it was a bad time to sell their home up from 34% in August. If this interest rate environment persists it is likely that homeowners will be less likely to put their homes up for sale as they avoid selling their low-interest locked mortgage for a new home at significantly higher rates. With median home prices at $430,000 tightening inventory will keep home prices propped up, keeping the housing market highly unaffordable for most buyers. There is no way that this housing environment can continue long-term with buyers struggling with both high rates and housing prices. One of these two factors needs to give, or we could see more Americans blocked off from home ownership as economic conditions worsen setting up another housing crash.
Best Buy’s decision to sell glucose monitoring devices at stores is an obvious next step for the company to expand its healthcare business, but this rollout will likely to be more difficult than expected with intense competition from other larger retailers and additional complexities of selling prescription products.
Best Buy has announced its intention to sell glucose monitors for monitoring diabetes over the next few weeks as the company continues to grow its healthcare business. Customers who want to buy a glucose monitor will be routed to the virtual care platform Wheel where a medical professional will determine a customer’s eligibility and write a prescription. The customer will then go to Best Buy’s website for delivery to their home. This is the company’s first foray into selling medical devices that need physician approval after years of selling non-prescription at-home medical devices. More than 11% of America's (37 million) people suffer from diabetes and 10 million of these people are treated with insulin and would benefit from a glucose monitor. Best Buy will only offer the Dexcom G7 initially charging customers $179.99 for a 30-day supply of sensors which retails on average for $450 for a 30-day supply according to GoodRx. By charging a lower cost and offering a simplified prescription via the Wheel platform the company is trying to lower the barrier to entry for Americans with diabetes to get a glucose monitor. While the value proposition that Best Buy is offering seems attractive the retailer is not accepting insurance to help pay for the glucose monitor. With insurance, a consumer can buy the Dexcom G7 for $35 on Amazon and without insurance, the Dexcom G7 can be found for $180 or less on GoodRx with a GoodRx coupon. Best Buy’s pricing is not truly the lowest price on the market especially when you consider a larger portion of consumers are likely to use insurance for such an expensive product and refills. It’s difficult to say that this rollout will be an outright success for the company when there is already strong competition from companies who have been doing this far longer than BestBuy.
The pressure on Disney to right the ship continues to intensify with one of the company’s largest investors looking to gain influence over the company at an opportune time with company shares and investor sentiment at record lows.
Activist investor Nelson Peltz is turning up the heat challenging for multiple board seats 10 months after Disney laid out plans that addressed his original criticism. Disney shares are down -30% since then and patience has run out with Peltz demanding multiple board seats including one for himself. Peltz’s Trian management owns $2.5 billion of Disney stock making it one of the company’s largest investors. Peltz originally backed off from challenging for a board seat 10 months ago after Disney laid plans to turn around the company with CEO Bob Iger promising to improve the quality of the company’s films, turning a profit for its streaming business by 2024, and restructuring the company to make the business more cost-effective. Recent negative headlines have soured investors with Disney looking to spend $60 billion in theme parks over the next decade and the company’s recent dispute with Charter. While Peltz’s earlier challenge for board seats failed this could be an opportune time for the activist to seize some control over the company. Disney’s shares remain at multi-year lows and investor patience for a turnaround might be running out so there is a probability that shareholders could vote for Trian nominees for the company’s board in hopes of changing the company’s strategy. Any more pieces of bad news or setbacks could open the floodgates for activist control setting up Disney for some drastic changes.