The Daily Dose: What to Discuss Now

 | Jul 07, 2014 | 10:00 AM EDT  | Comments
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How do you know if a company has a "robust innovation pipeline?" Executives love to drop that line to explain away a bad quarter and provide hope for the future. Or, an executive may share such a view to assure existing investors to stay hot on the company's story.

From either perspective, because of competitive concerns, one never truly knows what a company is working on with its research-and-development (R&D) team. If Apple (AAPL) said this time last year an iWatch would be released on July 7, then Google (GOOGL), Samsung and tech others would have had similar products on the market -- accompanied by intense marketing campaigns -- by July 6.

Here are two examples of this knowledge conundrum that I recently encountered.

I spoke with General Mills' (GIS) supply chain president last week, and learned that the company basically has two forms of innovation: packaging and product. A new box composition may not drive sales, but it certainly reduces the cost of each unit produced, which can pad profit margins.

On the other hand, General Mills just unveiled its Cheerios "Protein" product to address consumers' current infatuation with the word protein. According to General Mills, it took roughly a year to bring this product to market. If I asked the majority of the General Mills investor base, I bet very few of them knew this sales needle-moving product was in development.

Then there is premium vacuum maker Dyson. I interviewed the company's CEO last week, who shared that its product pipeline stretches 25 years into the future. Some products never see the light of day. Wow, 25 years? That raises another issue: How can an investor ensure that this type of pipeline will produce a number of hit products that create massive shareholder value? You can't tell, which is why investing is known as a risky undertaking (or it used to be risky).

Unfortunately, I have no template to apply to companies to gauge whether they are currently innovating or are poised to be innovative. I think the prior performance of individual executives can help us understand the potential for innovation, as does an assessment of the pace of industry innovation. The financial performance and stock price are useful indicators, too.

As for the stock market, this is what I have on my mind after the July Fourth weekend.

First, the only thing you should be doing with Alcoa (AA) ahead of earnings is return to the first-quarter 14 earnings release and re-familiarize yourself with its optimistic tone. given the economic data we have received since Alcoa's last financial report that tone has to be upgraded a bit, as it is now leading to calls for 4% GDP in the second quarter.

Alcoa shares are up 15% since the company's first-quarter 2014 earnings release on April 14.

Second, in the Fed minutes, I want to try and find the source behind Chief Janet Yellen's recent hawkish comments, which suggest that the Fed may not be overly dovish.

Finally, while the S&P 500 chills at a nine-year high P/E multiple of 15.6x, consumer discretionary and financials stocks are lagging. Utilities are outperforming, which is pretty frightening, isn't it?

Source: Yahoo! Finance

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