The Day Ahead: Summer Fun Profits

 | May 30, 2013 | 8:00 AM EDT
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I've been feeling adventurous of late. Maybe it's because of the realization that I have no life. So on Wednesday I packed a bag and ventured into the city with the goal of seeking creative inspiration.

From 9 a.m. to noon, I hopped from Starbucks location to Starbucks location, scrubbing the free Wifi, and observing how people interacted at remodeled locations (memo: remodeled Starbucks now feature communal tables designed to keep people in the store spending, and networking).

After grabbing a bite to eat at an organic hummus hotspot, I hammered out 200 shirtless pushups at Central Park. I then rested to see what fellow athletes were wearing this summer as that is a great way to find stock picks (Nike clearly is the brand of choice for workout enthusiasts, sorry Lululemon). I actually had a quick chat with TheStreet's Stephanie Link while in the park chilling, which was a nice reminder to check the Bloomberg news app to stay current (she is always on top of all market news!).

The fruits of my organic research efforts are still be internally compiled. I don't want to rush perfection for the purposes of filling a page. I do have a couple topics, however, that could serve as jump off points for your daily investing homework.

Michael Kors (KORS) is a stock that I have been bullish on throughout 2013. Boo on Coach (COH), yay on Kors, as the latter's product is simply resonating season upon season with a more discerning customer base. The financials of the company back the claims. Although Kors has entered a period where growth has to moderate due to the law of large prior year numbers, and guidance has proved conservative, there was just something that irked me regarding the meager gross margin expansion in the quarter.

So I visited Lord  & Taylor, on the prowl for that up and coming brand that geeky I-bank analysts don't know is capturing sales otherwise reserved for Kors. The brand I found: Vince Camuto, which has a product assortment that boasts a bit more international visual flare than Kors and has priced its comparable looking products well below Kors. Quality is quite similar. From what I could tell, Vince Camuto has gained premium placement in watch display cases and is appearing in areas such as tops and accessories, right alongside Kors. That is potentially bad news for Kors. Oddly, this story resembles how Kors snuck up on Coach years ago, eventually thieving its sales and shareholder base.

Cashless checkout for consumers at retail stores is going to be a huge productivity driver and earnings tailwind once a company is beyond the initial investment related phase. Shoe department associates, for example, are carrying handheld devices that allow for the checking of backroom inventory as soon as the customer demands a size and color.

While they wait for an associate in the back to satisfy the request, the sales associate remains in constant contact with the customer, important in securing the sale. A logical way to play this is via Nordstrom (JWN); it will be completely cash register-less in its stores in under two years. Logically, there is a techie stock to also play, but I need to research further for the best opportunity.

Sloppy, Sloppy, Stock Market

The market action stunk on Wednesday, plain and simple. No bulls wielding their well-worn investment thesis will derail me from that opinion. I actually think there are all sorts of red flags in the market that began to take hold earlier this month. Some items to watch at this juncture include:

  • Fear of an indirect interest rate increase (via a pullback in QE) is knocking the stuffing out of SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home Construction (ITB), yet a JP Morgan (JPM) and a few other financials are holding strong. The message: homebuilder stocks are the stocks to watch as a tell on an imminent policy shift (hey, the market usually knows before we do) as their new orders could be nailed later in 2013. Banks on the other hand stand to benefit from charging more for a loan, though eventually higher rates will lead to slowing mortgage originations.
  • Derivative housing names appear to be where to hide in the sector on pullbacks. The stocks of interest include (they have been the relative outperformers to peers amidst the mini retrenchment): PPG Industries (PPG), Sherwin-Williams Company (SHW), Valspar Corp.(VAL), Whirlpool (WHR), Lumber Liquidators (LL), Owens Corning (OC), and  Mohawk Industries (MHK)  MHK has been a favorite of mine since late 2012.

Seeing defensive stocks with yields being convincingly sold during a 100-point Dow drubbing is worrying.



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