Beware of 'Lumpy'

 | Jan 28, 2014 | 7:19 AM EST
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It's a Clarence Rutherford market. For those who don't know Clarence, he was the lovable doofus "Lumpy" on Leave It to Beaver, and this moment is all about "lumpy." The companies that are struggling to make their quarter are all using that term. But, for the real winners, there's nothing lumpy at all -- just continued linear growth.

Or, to put in in layman's terms, if your sales are described as "lumpy" on the conference call, your stock is going down.

Take Apple (AAPL). Tablets and Macs were smooth, linear, still showing lots of growth. Sales for the latter were pretty amazing, in fact, given that we are at the product's 30th anniversary in a very challenged category. But cell phones? Let's be benign. They were lumpy. Not as many sold as what we had thought. Could it be supply constrains? Not clear. It seemed like there was inventory coming into the quarter. Could it be problems with the telco suppliers and their contracts with individuals? Absolutely. Regardless, it was lumpy, and "lumpy" means "sell."

Seagate (STX)? Wow, this disk-drive company has done everything you could have asked for. It has bought back one-third of the shares in three years' time, and it has a fantastic dividend policy that has seen boost after boost, again in a short time. This is pretty much exactly what Carl Icahn wants Apple to do. But I found the company's high-end-drive business to be inconsistent, and even though personal-computer sales might be bottoming -- although they have bottomed for five straight years, goes the joker -- I think the inconsistency made for lumpiness. Sell.

Last night on Mad Money, I had on Farooq Kathwari, the CEO of Ethan Allen (ETH), and boy are sales lumpy at that company. In this case it's almost week-to-week. You see good traffic one month and light traffic in another. Hard to plan. The company's taking action to bring in more customers, and switching to direct-mail and more in-stock furniture, all in an attempt to make things less lumpy.

We've got sudden lumpiness in China sales, as well, where there hadn't been lumpiness before. That's reflective in the Baltic Dry Index decline. I am sure the shutdown from the Chinese Lunar New Year will only increase the lumpiness. Alcoa (AA) had lumpiness in aircraft. There was a lot of lumpiness in the General Electric (GE) quarter for a host of divisions, which is why that stock has been hit, although I think it will get smoother as the year continues.

IBM (IBM) might as well rename itself "Clarence Rutherford, Inc." as it was nothing but lumpy, and just like Lumpy flunked sophomore year, it looks like the CEO might have done the same. No bonus for those grades.

But you want to know which stocks are going higher? They're the ones that had no lumpiness at all, just terrific linearity, meaning things just got better and better. United Technologies (UTX) and Honeywell (HON) stand out as companies with no lumpiness at all. Just the opposite. Momentum is building at both.

Procter & Gamble (PG) and Kimberly Clark (KMB) saw no lumpiness, and the former had a definitively strong month-to-month-to-month trajectory. In fact, P&G might be the company that came into the year with the most momentum, and its share-take and organic growth are nothing short of superb. That stock could be going much higher.

As we go through the rest of this earnings period, think of Clarence Rutherford. You hear his nickname on the call, the stock goes down. You don't? Chances are, the stock's going higher, or when we have an emerging-market squall the stock is just a plain old buy.

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