The Daily Dose: Overwrought Doom-and-Gloom

 | Jul 28, 2014 | 10:00 AM EDT  | Comments
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Stock quotes in this article:

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dpz

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ua

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denn

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din

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bwld

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pnra

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cme

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Another weekend has gone by quickly, and market prognosticators have continued searching for the top in stock prices. Forget baseball as the national pastime -- I think predicting doom and gloom for the stock market has taken that title.

While I am by no means a cheerleader for the market, there seems to be further room to run on the upside, even though Goldman Sachs analysts have called for a short-term pullback. Underlying that view is what I am hearing in my post- and pre-earnings interviews with executives at companies that are not laggards in their respective sectors -- in this case, Starbucks (SBUX), Domino's (DPZ) and even Symantec (SYMC). All have experienced their fair share of execution stumbles.

At the same time, companies are finding ways to innovate and charge higher prices for a superior product. Let's use Under Armour (UA) as an example. By upgrading one component of its popular-selling "high cleat boot" this year, this company has been able to raise prices 18% year over year on the newest iteration. That is no small feat, considering that Under Armour is already gaining big bucks from outfitting men and boys from head to toe.

So watch out, Nike (NKE). Under Armour seems to be winning among kids who are 15 and under.

However, if the tedious task of digging into free earnings calls isn't your cup of tea, here are two simple measures that suggest investors should stay long, rather than cash in any year-to-date winnings.

The initial measure is the continued uptrend in deal activity. It's likely we'll witness a flurry of transactions into year-end as executives seek to take advantage of inversions and interest rates that stand to rise as the Federal Reserve embarks on a major fundamental shift in policy.

Source: Dealogic

The second indicator is insider selling. There really isn't too much to discuss on this front, and that's a positive sign that execs continue to believe their respective companies' earnings-growth potential is still not fully baked into share valuations.

Source: Thomson Reuters

Things to Watch This Week

Earnings reports are due from Denny's (DENN), DineEquity (DIN), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA), and this entire group could serve up some serious disappointment. I point to the following:

• On July 9, Wal-Mart (WMT) commented that labor-market improvement has not benefited its core customer. A Wal-Mart customer is a Denny's and DineEquity (Applebee's, IHOP) customer.

• There were also those recent inflation comments from Chipotle (CME).

• Moreover, the strong comps from Starbucks and Chipotle point to real market-share losers for those restaurant concepts offering dine-in services.

Earnings from Church & Dwight (CHD) could be sluggish, too. Price-discounting on household brands remains very intense at Wal-Mart, Target (TGT) and, of course, Amazon (AMZN).

Finally, I am just not sure if there will be glimmers of light with Whole Foods' (WFM) profit margin. Its earnings call from the prior quarter was worrying, as was the analyst community's attack on the storied company. Equally concerning has been the stock's 4.7% drop in the last month.

Columnist Conversations

Conclusion LNKD has a strong upward trend in revenue, has maintained very high gross margin % even as revenues...
Kass:
On the weaker than expected #s. From $143 to $106.
Kass:
Mark Cuban is probably buying Amazon too! Kidding.
Take the money and run! I greatly appreciate Howard's input and find it both accurate and useful for everyone....

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