The Day Ahead: World Premiere of 'Investing Rescue'

 | Feb 13, 2013 | 8:00 AM EST  | Comments
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I don't watch television all that often, but I find one show particularly captivating: Bar Rescue on the Spike channel, in which an expert helps save failing bars from closing -- in the process revealing a great deal about business and the human psyche. In that spirit, I present a shortened pilot episode of Investing Rescue.

A Lesson on Time Horizons

Over the course of two weeks, I have observed more frequent equity "split calls" from top-paid strategists. My humble opinion is that these friends of the black-glasses industry are covering their hides, trying to protect client relationships -- and keep the fees rolling in -- by sounding cautious on near-term market direction while maintaining a bullish long-term stance . Realistically, none of us are likely employing the Warren Buffett approach of "buy and hold until dead, then pass the winnings onto heirs." We want to know the action plan today, for three months, for six months and so on.

So I offer this simple breakdown:

● Greater-than-one-year investment time horizon: By 2023, this dreaded 5% "correction" everyone is seeking will be a blip on the radar screen, especially if the market concludes 2013 up 15% plus. From a style perspective, for this time horizon I would favor value over growth due to the globally subdued macroeconomic picture (even considering sequential improvement), as this could severely test your ability to pick and hold a growth stock.

● A six-month investment time horizon: In today's terms, you have to continue favoring growth, as the market is giving you the trade. A case in point is Michael Kors (KORS). Another example is the homebuilding sector -- I favor Toll Brothers (TOL) -- with its hearty earnings-per-share outlooks and less-heady multiples, specifically in price-to-book, following a mini-pullback from the January highs.

● A three-month-or-less investment time horizon: Toss some respect to the Goldman Sachs team that downgraded its view on equities. I think their rationale to basically reduce long exposure and sit tight is proper, given the bearish factors I outlined Monday and Tuesday.  

Remember, the market has essentially front-run second-quarter economic data and the accompanying earnings season -- a dangerous maneuver, given the impending sequestration and a too-complacent attitude on Europe.

Research Made Simple: Five Reasons Michael Kors Is Still Sexy

Thinking through an earnings report is not just about the company snagging the headlines, but how its "story" fits into broader sector trends. With that in mind, here are five points to make about the Michael Kors report -- and, in turn, the fortunes of Coach (COH).

1. The holiday quarter leaves no doubt: For middle-income consumers with money saved to buy handbags and accessories, this retailer is the top choice.

2. The overall strength of the Michael Kors quarter, in terms of margins and same-store sales, make for a compelling debate on whether Coach management was too optimistic on its turnaround for the next couple quarters.

3. Now investors in Coach are fully aware why the company is undergoing a brand repositioning.

4. Michael Kors grew strongly in terms of sales at the department store level. In my view, new shop-in-shops simply look more inviting and offer better product than Coach.

5. In-line earnings guidance for the current quarter are likely to be quite conservative, provided that recent spottiness in consumer spending doesn't turn into something larger.

A Brief State of the Union Analysis

● The speech had a little more partisan rhetoric than a ginned-up stock market would have preferred.

● Such rhetoric will hover over the markets like a dark cloud as sequestration draws closer. President Obama did not do much to alleviate headline/real economy risk-creep.

● He also may have injected new uncertainty company boardrooms with his mention of a minimum-wage plan and "energy trust" scheme; the latter sounds comparable to a tax on profitable free enterprises.

● Overall, it was not bullish speech by any stretch of the imagination (Obama didn't even say the state of the union was "strong" -- only "stronger"). It came in neutral, and lent some weight to the expanding thesis that a pullback is warranted.

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