The Daily Dose: Strange Confidence

 | Mar 26, 2014 | 10:30 AM EDT  | Comments
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The consumer confidence numbers hit the wires on Tuesday, and I must say I wasn't too surprised by the upside. Over the past two weeks or so, I have been hearing from contacts (and seeing) that the malls are coming alive on Saturdays and Sundays. Now, the weather hasn't been seriously warm during those four days, but consumers are apparently showing an appetite to consume merchandise that is no longer deemed discretionary. Rather, after being cooped up in the house for months, it's a perceived a need. 

Not too sure where the confidence is being derived from, given weak wages and meager employment gains in the past three months. However, it is occurring in some capacity, and I am monitoring it, considering that I have a coverage universe of retailers. Here is one chart I am using.

 

 

I believe the Consumer Discretionary ETF (XLY) has been hammered because of some pretty sour specialty apparel earnings reports this month. In other words, its performance reflects past results of companies, not any surprises in the first quarter in terms of sales and operating margins. One name I feel reasonably confident in is Dick's Sporting Goods (DKS), a stock in which my firm Belus Capital Advisors issued an upgrade a couple weeks ago.

The Amazon Debate

This is the bull-bear debate you should have on Amazon (AMZN) while running through an analysis. After all, the stock is down 12% year to date, and perhaps an opportunity has been created...

Bull

  1. Amazon's continued focus on reducing prices globally is putting brick-and-mortar retailers out of business, including Staples (SPLS) and RadioShack (RSH). For the likes of Wal-Mart (WMT), Target (TGT) and others, Amazon's low prices are crippling them because of high fixed costs.
  2. Amazon's set-top box, along with its content, is not priced into the stock.
  3. The tablet market continues to grow in excess of 20% a year, and Kindle remains a viable competitor. Amazon is introducing more high-margin content options to its hardware.
  4. Amazon's focus on same-day delivery is light years ahead of its key rivals in a critical next trend in goods consumption.

Bear

  1. Sales are slowing in general merchandise categories, globally.
  2. Alibaba is gobbling up companies, and the funds from its IPO will make it a stronger competitor into the future.
  3. For all of this Amazon hype, Amazon's operating income has basically been cut in half since 2010. Where is the financial meat? Why aren't lower prices driving even higher revenue?
  4. Disclosure is a problem that needs more attention. Investors are asked to pay a premium to own Amazon's stock, but the information they receive from Jeff Bezos and company is minimal in all financial releases and earnings calls. It's embarrassing and a straight bird-flip to the Securities and Exchange Commission.
  5. Kindle unit growth slowed during holiday 2014, compared with holiday 2013.
  6. Don't underestimate the likes of Wal-Mart and Target. Each has raised its online and mobile games and pricing in order to compete with Amazon. They are also doing ship-from-store and order-online-pick-up-in-store. 

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