Musings of an Obsessed Ca$htagger

 | Sep 08, 2013 | 2:00 PM EDT  | Comments
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Ca$tagger, defined: a person who is so intimately involved in the markets and social media that these thoughts boils over into the real world.

For me, the world nowadays exists only in cashtag form. Everywhere I look, stories are formulating in my head to be shared, via cashtag, on social media. It could be Pink Panther insulation made by Owens Corning ($OC) at Home Depot ($HD), a dusty Whirlpool ($WHR) dryer at the local Sears ($SHLD) that nobody visits or a bottle of Pinnacle vodka, made by Beam ($BEAM), tempting my eyes from behind the bar

For clients of my firm, Belus Capital Advisors, there are obviously opportunities to make money from these cashtags as they dance around in plain view.

For this column, however, I want to share an overview of my current near-term thinking on the market, as well as go around the horn on a few of the more popular cashtags. Sometimes, in order to spark an at-home analysis, all a person needs is a punchy couple sentences on a buzzy name.

What It's Important for a Ca$htagger to Have

It's important for a ca$htagger to have near-term, medium-term, and longer-term opinions on the broader market. Your near-term outlook, moreover, should be such that it unfolds nicely into your longer-term expectations. Here is a recent example of how I've employed that sort of thinking.

Allow me to start this discussion with industrials, since this group has recently been on my mind. Two things are underpinning the bids on industrial multinationals with a large percentage of their business in the eurozone: signs of acceleration in the meager recovery, and indications that the recovery is broadening out by country and by sector. A couple of months back, we saw acceleration only in the zone's macroeconomic data, ranging from personal managers index readings in manufacturing to reads on services demand. That sparked initial buying in the industrial multinationals, which had been perceived as mispriced.

So more examples of positive contagion serve to confirm what the market sniffed out. That likely will spur another round of buying in those names already trading at a premium to the S&P 500. It also will provide for more confidence when folks put money to work in those names currently trading on discounts. The view on these discounted names was that a meager recovery would still pressure their operating margins, and that cheap valuation were not cheap enough.

I offer one reminder. When you are screening for a company to gain exposure to a still-weak European recovery -- meaning prices for goods and services will be competitive -- be sure to select those companies that notched positive "organic pricing" in the first quarter. You could obtain these numbers in the companies' 10-Q filings with the Securities and Exchange Commission, which theoretically should only strengthen into year-end as those names see demand from a greater number of sources.

Aside from this, my eyes are fully on the jobs numbers. I became a bit more constructive on stocks earlier this week after the market showed that it's able to handle positive U.S. data surprises instead of selling off on September concerns regarding Fed stimulus tapering. I noted in late August that we were likely to witness market stabilization, followed by incremental buying, into the Fed meeting. We are beyond the stabilization point and possibly heading into some incremental pre-Fed meeting buying. (One wild card: Syria and geopolitical tail risks of a strike.)

Ca$htag Droppin'

Best Buy ($BBY): Want an indirect way to invest alongside the re-accelerating tech cycle from the likes of Apple (AAPL) Samsung, Sony (SNE) and Google (GOOG)? (I'm tired of hearing the word "play" regarding the market -- this ain't no game.) Well, I reckon you can do this through Best Buy, a stock that I continue rate as a Buy for clients of my firm (with a $41 price target). Worthy catalysts here include structural changes to the stores, which are not done driving positive fundamental change; strong execution of an operational turnaround; growing Street credibility for the new management team; and high-probability exit of select low-margin international assets in 2014.

Apple, Google, Microsoft ($MSFT): When I seek new client opportunities, one preference of mine is to look at the supply chains of manufacturers winning in the marketplace. In this vein, I am keen on touchscreen provider Synaptics ($SYNA). Although I'm not a fan of the stock's price action, especially given the Nasdaq's strength of late, I like what I see from a longer-term perspective. First, the revenue mix of the company fulfills my basic qualification for a tech investment -- it's focused more on mobile than it is on the declining personal-computer market. The margins are on an ascent, as the company's products are in demand because they offer competitive advantages. Finally, Synaptics is reinvesting a fair amount of hard-fought gross profits in order to maintain very nice leadership positions in terms of market share. Valuation at these levels looks as if it still reflects prior-quarter mistakes and overexposure to PCs, rather than where the business is starting to head.

Ford ($F), Toyota ($TM), General Motors ($GM), Tesla ($TSLA): August has been a bang-up month for car sales. Are you surprised? I wasn't. Each week I study railcar loadings, and they continue to boast strong shipments of auto parts in the face of interest-rate creep in U.S. Treasuries. Keeping with the theme of digging below the eye-catching companies in a particular sector to unearth potential winners, American Axle ($AXL) is a recent recommendation that still seems logical, even after the August-sales-triggered spike in the sector. I find it intriguing that, at the company's Michigan plant, base pay for new hires is $10.50 an hour -- approximately half the starting-pay rate from 10 years ago (this reflects new union agreement). So the firm has a lower-cost base, as well as sustained high demand, in addition to new its imminent new product introductions to a better-diversified customer base. All of this should allow American Axle to begin alleviating the debt burden that has hung above the stock.

Family Dollar ($FDO), Dollar General ($DG), Dollar Tree ($DLTR): Dollar-store stocks have been en fuego. That's a mildly disturbing tell on the U.S. economy, in my humble opinion. Anywho, Dollar Tree is the stock I continue to favor for clients. I have three things to point out. First, traffic here rose 3.1% in the recent quarter, against peers that are experiencing traffic declines. Second, Dollar Tree's focus is on a higher-income consumer -- those who make $40,000 per year and above, instead of customers with below-$40,000 income at its peers. That is leading to increased sales momentum in high-margin checkout merchandise, while its peers continue to note sales declines in "discretionary categories. Third, the company is now offering better seasonal items. These re-merchandising efforts are driving upside sales in this area, plus sales momentum in other parts of the store, such as in new frozen-food sections.

J.C. Penney ($JCP): I have a Sell rating on this, with a $12 price target. Next. All I will add here is that, based on what I have seen at the locations themselves of late (email me for pictures), the company is in merchandise-liquidation mode as a means to quickly raise cash and keep vendors calm -- and it doesn't matter what the chunky long-side whales say. When I see this type of in-store activity, it's a front-and-center sign the business is lagging internal plans. In the case of J.C. Penney, when I see this, it just reaffirms the real concern regarding survival and a likely new share issuance in 2014.

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