Timing It Right in this Market (Part 2)

 | Mar 23, 2014 | 6:00 AM EDT
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As I wrote earlier, stocks like Starbucks (SBUX) have big potential, but there will be some short-term misstep that will be greeted with horrendous exaggeration by the owners of a stock that has now run up a great deal.    

That's the problem with the other stocks, too.

Let's take Nordstrom's (JWN). This is an amazing bricks-and-mortar retailer, maybe the best department store in the realm. But department stores don't grow. By adding three stores in the next year, Nordstrom's is actually growing a lot faster than many of its peers. Its service is superb. Its digital business is on plan to grow at a 30% rate for three straight years. Its Rack business is the envy of the industry and, if it were floated publicly the way Limited (LB) did to so many of its divisions, I think that Rack could be worth the price of the whole company someday. Yes, it is that good.

But right now the dot.com and the Rack are buried within the Nordstrom's structure and that means that no matter what the company does, including spend $1 billion just to keep up with Amazon (AMZN) and others, it will be trapped by the comparable-store sales of the department store and be bound by the four walls of that restrained canvas. In fact, the only way that I can think of Nordstrom's going higher short term is if it fired a huge number of people, not unlike what Macy's (M) just did. But this is a family-run business and I just don't think that's in the cards.

So, what do you do? Again, the safe thing is to wait until the next sales numbers that don't do well or the next quarter where numbers are still too high and buy. But what's unnerving here is that, like the digital initiative, the good must be brought out by Nordstrom's itself and I don't see that happening any time soon. It would take the kind of guts that Dayton Hudson showed when it realized that the Dayton Hudson department store was hindering the growth and stock price appreciation that would accrue to the company if it were to simply change its name to Target (TGT) and eventually sell the department stores. I still can't believe that management was so bold at Target to do this. I just don't think that Nordstrom's wants to sacrifice Nordy's for the Rack.

Zillow's (Z) got a short-term battle on its hands with Trulia (TRLA), having to try to outspend its competitor in advertising without breaking the bank and creating a true price war over its core listings business. Because it is better capitalized, it can outspend Trulia. But if Zillow has a single hitch, even a 1% shortfall in gross margins vs. what the Street is looking for and I think the stock gets eviscerated.

But here's the thing. In the grand scheme of things, Zillow is like a morning newspaper locked in a battle with an evening newspaper in a city. Once one has a considerable circulation lead, as Zillow is certainly developing, the real estate agents will only need to put their ads with Zillow. Why bother with No. 2? That's what I believe will happen. I just don't know when it will happen. In the meantime, just picking the stock up at $100 seems almost reckless given the run it has had.

Yes, Zillow's going to be the big winner in the space. But I fear that the stock could take a real hammering on any glitch. Only then can you buy.

Finally, there is Seattle Genetics (SGEN). If you read the research on this company, you would be surprised how many analysts simply do not like it and think it is a one-trick pony. In fact, this is the biotech that has the most chance to join the ranks of Amgen (AMGN), Biogen Idec (BIIB), Celgene (CELG), Gilead (GILD) and Regeneron (REGN) in the top echelon of the genre. But there's nothing near term, meaning within the next three months that will change the one-trick impression because the approvals for some very important drugs just aren't as close to fruition as most potential investors would like. Plus, one look at the destruction in this sector shows you there is no patience, even for success, let alone short-term waiting or actual failure.

Now this is what's truly remarkable about SBUX, SGEN, JWN and Z. After spending considerable time both studying them and speaking to their managements, I think they are all worth owning. I would not have put them together in a package if I didn't think they were great long-term investments.

Yet, at the same time, I think the possibility of a 10% decline in any one of these, with the possible exception of Nordstrom's, which has very little beta, keeps me from saying, "just go buy them and put them away." I say that because, alas, as someone who has been struggling with companies like Celgene (CELG) and Nike (NKE), ones that are being annihilated before my very eyes, how do I tell people to buy these without the endless caveat of good for the long term?

So, here's my bottom line. In this environment, for these kinds of growth stocks, you have no choice but to wait. I don't think for any of these you have missed the big run. I still believe the best parts of their stock-price appreciation is in front of them, not behind them.

But ultimately, I know that the short-term execution risk can make just going out and buying these stocks too fraught for the vast majority of those of you reading this entry. My advice: in this market just wait. Somehow, I think you will get your chance.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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