The Daily Dose: What's Your Universe?

 | Sep 20, 2013 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

swk

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hlf

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aapl

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p

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jcp

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tsla

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nflx

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FB

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chrw

I hope you are sitting down for I am going to share BIG, BREAKING news. Ready? There are more than seven stocks in the entire global financial system! Super hard to believe that life exists beyond such large, gaseous planets called Herbalife (HLF), Apple (AAPL), Pandora (P), J.C. Penney (JCP), Tesla (TSLA), Netflix (NFLX), and Facebook (FB). However, I assure you that there is not only life on those seven obvious planets, but also out yonder in currently unexplored terrain. 

In fact, while have your attention, send me an email with your DCF spreadsheet analysis on Herbalife and Facebook, just curious on the inputs. If I am correct, you have no spreadsheet on any of those aforementioned companies that outside of JC Penney are incredibly difficult to evaluate. Heck, there are entire teams on the Street covering Apple that still can't strap one on and go bold when the time is appropriate to do so.

You must, and this is non-negotiable, have a coverage universe of stocks that consists of the less headline-making companies.  It's the mid-cap industrials that will very often help to predict an earnings season, or the small-cap semis that shed light on GDP two quarters forward.  Ignore these companies at your own peril. 

Now, admittedly, I have a freakishly huge coverage universe that has been carefully cultivated over many years in financial services. I refuse to shrink the number of companies I talk with and follow for fear of missing something (and losing a competitive edge) and losing precious contacts; this pursuit of greatness for the benefit of clients is like blow, addicting!

So unbeknownst to my Twitter followers I have been listening to company presentations at investor days this week, seeking clues on the global economy and how third quarters have evolved since mid-July. These conferences, chockfull of free food and lame jokes, are typically executive hype jobs so be mindful of executing a buy order based on ambitious growth targets shared on a slidedeck. The presentations are designed to mask fundamental issues and highlight "potential" and "opportunity", both of which may never come to fruition.

I want to share a couple notes and assorted thoughts from presentations by CH Robinson (CHRW) and Stanley Black & Decker (SWK). They collectively serve as good examples of what to be looking for and the associated thought processes at this point in time.

Stanley Black & Decker

  • Has built its high margin security business via 60 to 70 acquisitions in the past eight years. To have the business continue to be high margin is a credit to the company's integration processes and internal analysis on possible targets. From my dealings with the company, it has a seriously analytical approach to operating and a strong executive team.
  • "Continue to see U.S. housing market recovering and improving as we go by each month here in 2013", noted the CFO. Too exuberant? Reads on the housing market have been more mixed in recent months.  Stage set for underperformance relative to expectations?
  • Guided to 4% to 6% organic revenue growth in 2014. Didn't the Fed bump down its growth estimates this week? Is Stanley being too optimistic? How is it getting the above GDP revenue growth, by becoming more competitive on price at the expense of driving better than expected operating margins?
  • Europe is "sluggish" said the CFO, owing to Stanley's overexposure to auto production (weak overall, especially in Germany) in the region. Stock market ahead of itself on the pace of the EU's recovery?

CH Robinson

  • "Challenges have been sustained longer than normal" stated the company, and a byproduct of those soft macro conditions are pricing pressures. In a +2% GDP United States, all companies are not pulled along for the ride (which is why you pay a premium to own best in class).
  • "Don't see anything that looks different than what we've seen recently", noted the company. I guess executives at the local accounts CH Robinson services don't run their businesses by cashing in higher stock prices. Hmm.

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