The Daily Dose: A Fine Showing in Retail

 | May 09, 2014 | 10:30 AM EDT  | Comments
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Stock quotes in this article:

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ibm

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jcp

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cost

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mcd

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Happy Friday! The Nasdaq three-day plunge is a story that won't disappear until one of the following happens. First, a three-day plunge could turn into two straight sessions of gains. Second, a Tesla (TSLA)-type momentum stock could report seemingly good news and the market could embrace that good news. Or, third, old tech -- say, Cisco (CSCO) and IBM (IBM) -- could step in on valuation weakness and make offers for younger companies and their stock-options-toting 30-something execs.

That basically summarizes the situation. So, while the media might be focusing only on the Nasdaq end of the world themes, try to be an immortal by internalizing what I share with you today. One topic of interest: the robust sales beats by retailers for April and associated earnings guidance raises.

This was a likelihood that I outlined weeks ago, as frequent readers will know -- and the high probability thereof was a main reason for my April 10 upgrade on J.C. Penney (JCP) shares (which apparently caught the attention of UBS). Here are the three things I saw in the April sales numbers that you should keep in mind:

1. Inflation is supporting same-store sales metrics without a huge detriment to traffic or basket size. I am mostly referring to Costco (COST), which acknowledged last month's mid-single-digit percentage inflation, notably in proteins (such as beef and chicken).

2. Despite the broader view of wage deflation, households have the funds to spend when the season calls for it. If April was a harbinger of what is to come, back-to-school 2014 could be surprisingly positive.

3. The pent-up-demand phenomenon in this case is real, and bodes well for May (not really for June) for retailers not named Best Buy (BBY).

Around the Horn

• After Barclay's downgrade on FedEx (FDX) this week, be on the lookout for any similar rating cuts. My general investment thesis is that the economy is accelerating, so I don't want to see downgrades on transports, as it would suggest that companies' quarter-to-date sales are not accelerating.

McDonald's (MCD) North America April sales were very disappointing given the company's free-coffee promotion. I am just not a fan of McDonald's shares right now -- or of Wal-Mart (WMT) shares, for that matter.

• I chatted with a high-profile motorcycle company executive yesterday at an event, and he told me, "You have to show passion in running a business." That's a good thing to keep in mind. Does the CEO of a company you own exude that passion on earnings calls? Listen carefully!

Special Note

I published some instant analysis on the Apple (AAPL) for Beats by Dre news on The Street last night. I would love to hear what you think of this potential acquisition at @BrianSozzi on Twitter!

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