Hannibal Lecter, of The Silence of the Lambs fame, had a portfolio of rather intriguing, if not outright frightening, personal traits. They include a calm, yet calculating voice, a strange mask when locked behind bars and internal anger that was harnessed to unleash horrific, premeditated crimes. Leaving aside the "horrific, premeditated crimes" bit, let's use that inner anger as inspiration in our investing.
Allow me to explain: I have found that a wicked combination of anger and passion are great tools to be used to achieve success. The key here is flipping the switch so that both of these flow through the spout at the same moment. There are valid reasons to be angry right now, as openings bells for the past two weeks have been akin to an open door to slow torture. For instance, we saw a jobless claims surpass a number based on the same forecast models that these folks were all taught at the tender post-college age range of 21 to 25 -- except this was seemingly not to be believed.
Then there's Fastenal (FAST), in which faint hope was spotted as the stock sprinted into the field of green grass on the philosophy of, "Hey, man, it could have been worse." Hmm. Well, that is true, but when you chainsaw into the company's ridiculously detailed earnings report, you find that the modest monthly September revenue acceleration -- cheered by the market -- was rooted in a favorable year-earlier comparison. Comparisons in the fourth quarter revert back to difficult, and Fastenal saw it fit to drop these clues that a Word search won't uncover:
- The run rate of sales is not maintaining its normal seasonal pattern.
- Selling prices are weakening -- and I do not believe this is solely due to currency fluctuations.
Don't even get me started on the domestic and global macroeconomic messages behind Dollar Tree (DLTR) sounding the alarm bell on sales and earnings, or AMD (AMD) joining the list of "massive" earnings warnings that I have indicated in recent weeks. Meanwhile, Burberry's stock moved higher on a meager 1% improvement in same-store sales -- to 1% growth -- from Sept. 11, while warning that middle-income consumers were shopping less frequently. (I never was a fan of Burberry Brit.)
Far be it from me to rain on the mental parade that probably began for you on Thursday, when we saw some decent market gains after a number of dreadful sessions on robust volume. But did you see that Thursday selloff? Listen, instead of staying in a mental rut, I suggest you become as angry as Hannibal Lecter in order to bring clarity to the stocks you are holding. Doing so will help you cut through the musings of the fee collectors and view present holdings -- and those spied as opportunities -- in the type of light that is necessary in a market that, frankly, is depressing to track day to day.
Hannibal Lecter Macro Checklist
● China is worsening. The true growth rate may be 2% less than the 7.5% "base case" nonsense that flies around the market.
● The European Central Bank could keep its European Stability Mechanism and verbal promises -- on the ground that reads continue to indicate no improvement in end-market demand.
● Against a tepid U.S.-growth backdrop, pricing power could mean fewer promotions relative to a competitor, as opposed to price increases being announced and then passed through.
The cheerful folk trumpet the McDonald's dividend, its global reach and "low-earnings-expectations hurdle bar" as tasty ingredients to buy the stock. A Hannibal Lecter-oriented investor will seek to profit from the real story on McDonald's over the next three to six months, to be realistic on time horizon: valuation risk based on fundamental trends.
These include the following:
1. Unlike Yum! Brands (YUM), which is notching success in the U.S. with fewer promotions, McDonald's customers are seeking deeper value, and that weighs on margins.
2. The market went yippy for McDonalds' last sales report, but I think it was inflated by the Olympics, and that the core trend in Europe and elsewhere overseas is much softer.
3. McDonald's is investing aggressively to remodel and open new stores, and that is against headwinds from items higher up the income statement.
How could this stock be approachable, given the following?
1. The company has only now opted to curtail production, likely in order to sop up excess inventory caused by converging slowing economies.
2. The company is probably sitting on a downward revision to its guidance that it boldly raised back in the second quarter -- following a weird cut to its 2015 outlook.
The angry investor is fully aware that the company's exposure to the government, and quantification as a capital-goods play, has dented appetite for the stock. But, in contrast to McDonalds and Caterpillar, Boeing has catalysts.
1. The largest part of the business, commercial aircrafts, is winning new orders.
2. The 787 is moving quicker off the assembly line.
3. Alcoa (AA) reserved its positive comments for aerospace.
4. There is a massive share repo plan in the fold.
Boeing, I can warm to.
Special Note: 'Tout' TheStreet
TheStreet did its inaugural Tout on Thursday, and we will be fine-tuning it in the weeks ahead. What's cool is that you can Tout at us. The app, which you can download on your smartphone or tablet, is free, fun, and a wonderful platform on which you can be heard. I want to help, so "Tout" at me on Twitter and via TheStreet's feed. Feel free to voice any investing problems or moments of investing rage -- or anything else related to making money and not losing it all. Try and include a clever hash tag.