The Day Ahead: Invest Like the Mighty Seagull

 | Apr 18, 2013 | 8:30 AM EDT  | Comments
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Stock quotes in this article:

pnc

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axp

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txt

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ebay

I am writing this on a picnic table at a small public beach. To my left is a floating barge that may hold all the useless Martha Stewart (MSO) China-sourced junk that J.C. Penney (JCP) will soon need to mark down. To the right is a majestic seagull -- and the wisdom he offers is that intense, dedicated, daily focus on the market is essential. A seagull will passionately zero in on ripping the flesh from a captured crab leg, much as you should have a laser-like focus with your own investing practices. The market is not a casino; it is a living, breathing organism that has to be closely tracked so it doesn't run amok and destroy your portfolio.

Today's friendly reminder is borne of insights I've gleaned from personal experience. As a general rule, new clients tend to arrive at my doorstep completely bewildered by the tiny nuances of the market. Many don't even understand how I find the market-related stuff that I do, and for those who do get it, they fail to stitch together the clues to take the badly needed remedies in their own portfolios.

I view this as a unique opportunity to retrain individuals that have been burned and kicked in the face. But, in all, the exchanges I am having are disturbing to me. Something is off when two out of the past three trading sessions saw the market plunging, yet my clients tell me that friends of friends are being advised to buy any dip in stock prices due to the Federal Reserve -- with no further explanation. Puke. I have been very clear on my feelings regarding the market's path for April. The factors I watch are real, unlike the garbage spewed by people mailing it in -- and until these change, I say your cash weighting should be higher than normal, and that your beta should be dialed back.

Consider the fresh clues that support this attack plan.

Fuel to the Fire

PNC's (PNC) weak commercial and consumer lending, coupled with American Express' (AXP) "moderate" rise in loans outstanding, really paint the picture of an impending retrenchment in consumer spending for the second quarter. In other words, we should ignore those analysts who say consumers will return to the malls in droves once the weather improves. Instead, listen to the market as your guide. Lame lending growth was not news to astute investors, as the price action in the financials told you this negative development was ahead. It is coming as a surprise to modelers, though, and it will be the story of second-quarter earnings season. You heard it here first.

Puzzle-Building

Almost every single report that rolls in is short on revenue compared to consensus. My first epic thought here is that, with second-quarter global growth clearly starting on the wrong foot, will this trend become worse? Will April sales come in poorer than an already-soft March? Mr. Market thinks like this guys and gals!

I also grow anxious when Textron (TXT) and similar companies mention "softer-than-expected" conditions in certain business segments. Sure, the market's reaction to this new information is critical, but the language does not ease the angst being tossed atop external investing conditions.

eBay

I'm still totally fine staying long eBay (EBAY) for clients. The stock is usually not one to play into earnings as a result of elevated expectations -- and it's particularly notable this time, given management's bullish March comments. So I am not suggesting you load up into the announcement

But, overall, eBay's PayPal business is on an impressive growth trajectory; Marketplace is sneakily winning in mobile amid increased investment spending by the team; and the company has barely scratched the surface in Brazil, Russia, India and China (the BRIC bloc). If we see below-consensus guidance for the second quarter, that would reset expectations and set the stage for better upside, barring a global economic calamity.

Ultimately, your primary risk here is slowing rates of double-digit growth among eBay's business segments following tough year-earlier comparisons.

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