The Daily Dose: Thoughts From the Field

 | Dec 03, 2013 | 11:00 AM EST  | Comments
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Stock quotes in this article:

jcp

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m

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coh

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kors

For myself, there is no better place to be than in the field, and I have always been a hands-on type of analyst. But this year's goal was to get my hands even more dirty -- and I think I can say: mission accomplished. Looking ahead to 2014, I'll be engaging in borderline real-time investigations of companies, with a greater emphasis on following trends on social media.

In the meantime, I think it's vital to begin a discussion on what I am seeing and hearing from pounding the pavement. That includes everything from chatting with store executives and portfolio managers to listening to really smart, connected guests in TV greenrooms.

The Coming Correction

It seems that, throughout the year, we've heard about the dreaded 10%-plus correction on a daily basis, usually from newsletter hawkers. Obviously this alleged correction has not been spotted, much like the elusive baby unicorn roaming the green fields of North Dakota. There will be a pullback in 2014, but it's anybody's guess as to when it will arrive on the doorsteps of long-only, unhedged portfolios.

One key thing to remember is this: The current retail sales run rate is 3.9%, as compared with a 6.3% average dating back to 1980. This indicates that the underlying economy is severely bifurcated. Dollar stores are seeing slower same-store-sales growth and gross-margin compression, borne of the broader economic circumstances.

This is a decent tell that, as the real economy takes center stage next year after the Fed tapers quantitative easing, investors could be in for a rude awakening. Personally, I would begin to consider reining in the bull horns into January amid a bubbling in the economy that I believe could appear in the upcoming earnings season. If we don't extend emergency unemployment benefits, as well, that would only add gas to this fire.

Autos!

Keep an eye on the trajectory of auto sales, too. These numbers have indeed supplied a little oomph to the economy in 2013 via improvements in actual sales of cars and parts, as well as the peripheral benefits among shippers, for example. After the release of pent-up demand, a reasonable human being should expect globally slower rates of growth in autos in 2014. Is your portfolio hedged for this?

More broadly, are stocks valued properly for slowing rates of revenue growth and operating margins? For many companies, these metrics will enter the contraction zone due to price matching, elevated competitive forces, introduction of cheaper alternatives and the cycling of streamlining in post-recession business models. (You haven't heard of too many restructuring programs lately, have you? There's not much left to cut.)

Undercover Analyst Exclusive

I enjoy snapping pics from the field, as they help to illustrate a company's likely future. On Friday, I shared that J.C. Penney (JCP) was an early loser for Black Friday, and that Macy's (M) was a winner. These two observations had more analysis behind them than the lame bag-counting done by the masses from a high-end mall.

Next story to tell: Coach (COH) will go down as a tremendous loser for the 2013 holiday season. Discounts at its wholesale accounts rose each day of its Black Friday weekend. Michael Kors (KORS) was the total opposite story. Plus, it was open for business on Thanksgiving, whereas the Coach locations I visited were closed.

Yes, that is fresh from the Coach section at Macy's on Saturday afternoon. As an aside, I continue to believe Coach needs to phase out its "C" collection. The consumer is voting "no" on that level of cheesiness.

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