The Day Ahead: It's Time to Speak the Truth

 | Jan 16, 2013 | 8:00 AM EST  | Comments
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Stock quotes in this article:

FB

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aapl

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rimm

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ua

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cmg

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ups

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fdx

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len

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ppg

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XRT

"I believe fundamental honesty is the keystone of business." -- Harvey Firestone

The tire guy sure hit the nail on the head with this profound bit of business advice. Being honest and thoughtful in all business dealings is my personal bedrock philosophy. So here is a truthful gospel I would like to share: Get off the Facebook (FB) and Apple (AAPL) drug needle because both companies are borderline irrelevant to most of the stocks held in your portfolio. Sure, given Apple's hearty Nasdaq weighting a dreary day(s) could impact a tech stock that is owned. And yes, making a connection between iPhone sales and potential Facebook mobile ad monetization is always a fun task for a rainy evening. But, in reality, these are two "distractor companies" for the following reasons:

Alleged horrible, horrible, horrible Apple iPhone 5 sales during the holidays, and seemingly the company stepping closer to Research in Motion (RIMM) status, may just indicate people being content with an older iteration of plastic meets metal meets gorilla glass. The fact they're not dutifully upgrading upon getting roped into Apple's subliminal marketing doesn't directly equate to them lacking the appetite, or money, to buy a $40 Under Armour (UA) moisture-wicking t-shirt and a Chipotle (CMG) wrap. Apple, in my view, is a story unto itself, and the healthy obsession I know you have with the company's stock is eating up precious minutes that could be applied to finding names that are out of the spotlight, and therefore likelier stronger risk-taking ventures.

How will Facebook's social search thing impact railcar loadings in 3Q13? Does this life-altering piece of coding help to provide guidance on whether shares of FedEx (FDX) and UPS (UPS), and countless other transports, will continue to power higher (FedEx was a 2013 pick of mine, dug the restructuring theme, would trim gains into earnings season). I think you understand the point I am trying to make.

Now that these truths have been told from the guy next door, I need you to refocus after Tuesday's digital carpet-bombing. Find your bearing, I suppose. Here are a couple of castles of thought I have built as we head into the eye of the earnings storm.

Snag a Clue

Be cognizant that companies such as Lennar (LEN) and PPG (PPG) have provided strong fourth quarters, but the stocks managed to stay stuck in the mud. That should be of mild concern to the refocused investor.

PPG: I sense the market did not buy into management's North American optimism, which seemed to be the main plank to guidance (pretty worrying, huh.)

Lennar: It comes down to the book value homebuilder stocks now trade at (rich; a fair degree of recovery is priced in), which makes them susceptible to sell the news events. Remember, late in 2012, there was a stream of I-bank downgrades on the sector citing a more balanced risk reward ratio. So why was Lennar penalized for an 11 cents a share earnings beat, a 20 bps reduction in incentives sequentially (led to improved home builder gross margin), and a 300 bps improvement in sequential average selling prices (ASPs for the cool cats)? The one stat to know:

Lennar Stat: Fourth Quarter +32% Year Over Year New Orders, Third Quarter +44% Year Over Year New Orders 

Actually Read Free Government Reports!

Empire State was bad from two perspectives. First, the report was laced with little negative signs, again. Second, it conveyed an aura of any economy flapping in the wind and at risk of being smacked from the sky by a fiscal fairy. This report, as I hinted would happen on Monday, leaves me concerned on the rest of the manufacturing reads this month. As for enthusiasm on December retail sales, relax, my dudes; to achieve in-line to slightly better than expected core sales retailers had to promote more than they intended, and that hurt earnings guidance for the majority. I remain leery of adding consumer discretionary stocks to any portfolio, and would not be suckered into the SPDR S&P Retail Index (XRT) amid its defense of the 10-day moving average.

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